Popular Science Monthly/Volume 84/January 1914/The Struggle for Equality in the United States II

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THE STRUGGLE FOR EQUALITY IN THE UNITED STATES
II
By Professor CHARLES F. EMERICK

SMITH COLLEGE

The Railways and Fair Play

SINCE the close of the civil war, the American people have devoted their energies largely to the development of their material resources. In 1865, the men who had served in the armies of the south as well as of the north returned to the pursuits of peace and, reinforced by the rising tide of immigration, the nation entered afresh upon the industrial conquest of its environment. Aided by the homestead act, the railway and improved farm machinery, and more recently by irrigation works and the scientific expert, the agricultural development of the country has gone forward by leaps and bounds. But material development has not been one-sided. The growth of manufactures, the increase of commerce and railway expansion, have been even more conspicuous than the development of agriculture. More noteworthy still, probably, are the changes which have taken place in the mode of businesss organization. The corporation has displaced the partnership, and the size of the business unit necessary to a maximum of efficiency has enormously increased in many fields of activity. A process of consolidation, combination and integration has gone on that has transformed the business world. The change marks nothing less than a revolution. As a consequence, the individual and small combinations of individuals find themselves in the presence of adamantine forces with which they are powerless to cope, and the conflict between equality and property has shifted to a new field. The energy and ambition of the age are so centered upon economic ends that equality of industrial opportunity is the crying need of the hour.

 
I

Among the new forms of property that have violated the sense of fair play, that embarked in the several fields of transportation and communication is easily chief. This is preeminently true of the railway. In a highly specialized industrial system, where nearly everything is produced for sale, the mass of commodities at some stage in its career enters the channels of transportation. Under these circumstances, equality of opportunity in the matter of reaching the market concerns the consumer as well as the producer and is fundamental to industrial liberty. There was a time when the paramount problem in most communities was how to get a railway. After the railway came, the problem of how to make it subservient to the welfare of the community was scarcely less pressing. For it soon appeared that the railway by the adjustment of rates could decree where commodities should be produced, build up or tear down a community, and make or mar the fortunes of individuals. Besides, railway managers exercised an undue influence over the press, the actions of legislatures, executive officers and even the courts. Among the various kinds of railway favoritism, none was so invidious as the railway pass, and certainly none exerted a more subtle and corrupting influence. It gradually dawned upon the public mind that here was an industry which competition, upon which people had been accustomed to rely, was ineffective to control. Competition made for instability as well as for unjust discriminations in rates, promoted the needless construction of roads, and was therefore often ruinous alike to the investor and the shipper, and sometimes it permitted monopoly by refusing to work at all. To permit railway managers to make every rate a matter of special bargain and sale according to the supposed necessities of competition was intolerable. To leave the problem at the pleasure of the railway interests to solve by pools, rate agreements and other forms of combination, including consolidation, was to sacrifice the public interest to the greed of the few. Apparently, nothing less than the coercive power of the state was equal to the situation.

 
II

Probably the farmers of certain western states were the first to feel the full power of railway oppression. Long distance from market made them in a peculiar way dependent upon the railway. Since they were for the most part pioneers, they were ill prepared to stand the pecuniary losses to which they were subjected, and were quick to resent what seemed to them a manifest injustice. Besides, the fact that few of the railway bond and stockholders resided in the west made them appear as aliens, and contributed to the zeal with which the "embattled farmers" attacked the railway problem. These conditions blossomed into the granger movement which gained control of the legislatures of a number of states, and either directly by legislative enactment or indirectly through railway commissions endeavored to curb the railway power. The problem presented was almost wholly new, and the members of the different legislative bodies were without experience in meeting it. Naturally, not a little crude and ill-advised legislation resulted, but the? issue between the rights of property, on the one hand, and fair play, on the other, was nevertheless fairly and squarely joined.

The railway interests did not submit to public control without a bitter contest. In defense, the attorneys of the railways banked much upon the doctrine of charter rights announced in the Dartmouth College case, and placed great store upon the constitutional guaranties of private property to which certain decisions by state courts seemed to lend color. In 1869, the Supreme Court of Iowa decided that a railway is essentially private property and in no sense public, and in the following year the Supreme Courts of Wisconsin and Michigan handed down similar decisions.[1] In 1871, Judge Brewer, then a member of the Supreme Court of Kansas, in a dissenting opinion said:

A railroad is founded upon an absolute property-interest. The corporation owns everything. The interests it possesses have all the attributes of absolute property.[2]

These opinions appear in cases where the right of railway companies to enforce the levying or payment of taxes voted to subsidize construction was questioned on the ground that a tax for a private purpose is invalid.

In the face of these opinions, the contention of the railway attorneys was overruled and the regulative power of the state was upheld in Munn v. Illinois, Ruggles v. Illinois and other cases. It was held that property embarked in a railway is clothed with a public purpose and therefore properly falls within the police power of the state. The fact that a railway corporation is the creature of the state, in the opinion of the Supreme Court, constituted an additional ground for state control of rates. In regard to the Dartmouth College case, the rule of strict interpretation of all charter rights was adopted. It was maintained that the right of the state to regulate railway rates can only be bargained away by language that admits of no uncertainty, that any and all doubts about the meaning of charters are to be construed in favor of the state, and that the power of the state to regulate does not lapse by non-user. In the early "granger decisions," the Supreme Court even went so far as to say that the final authority in the fixing of rates rested with the legislature and not with the courts, and that if the former reduced rates unduly the remedy of the railway interests was political rather than judicial. But in Chicago, Milwaukee and St. Paul Railway Co. v. Minnesota in 1890, it was held that a rate fixed by a state railway commission is subject to judicial review. Under this and subsequent decisions, the reasonableness of practically every rate fixed by a state legislature, either directly or through a commission, can be called in question in the federal courts, and the police power vested in the state legislatures is subjected to an important restriction.

 
III

The movement to regulate railways engaged in interstate commerce has run a similar course. The Interstate Commerce Act passed by Congress in 1887 was the logical sequence of the Supreme Court in the year immediately preceding, in Wabash, St. Louis and Pacific Railway Company v. Illinois, deciding that the states have no right to regulate interstate commerce. Subsequent court decisions, however, so interpreted the act of 1887 as to leave the Interstate Commerce Commission without the substance of power. But successive amendments have in large measure made good its deficiencies and enlarged the scope of its authority. In 1896, the power to compel witnesses to testify was definitely obtained. The Elkins law of 1903 subjected the railway corporations which violate the law as well as their agents to a fine, and made the recipient as well as the giver of a rebate guilty of a misdemeanor. Any departure from the published rate was prohibited. In 1906, the power to fix a maximum rate was expressly granted the commission in addition to the power to declare a rate unreasonable which it already possessed. To prevent "midnight tariffs" thirty days' notice of change in rates was required. In 1910, the commission was empowered to suspend all advances in rates, and an attempt was made to clothe it with greater power in administering the long and short haul clause. The authority to establish and enforce reasonable classifications of property for transportation was also bestowed. Express and sleeping car companies, pipe lines used in transporting oil, and telegraph, telephone and cable companies have been included within the sweep of the law. Once more, plenary power over the accounts of the railways has been granted. Manifestly, if publicity and uniformity of accounts are as important to the solution of the railway problem as many suppose, the most decisive step has been taken.

Moreover, since 1906. it is no longer practicable for the carriers to disobey the orders of the commission with impunity as was previously the case. For cumulative penalties begin to run the moment an order becomes effective unless the carrier secures the intervention of a court. As a consequence, the commission has a certain standing and dignity which it has not hitherto enjoyed. It is probable also that interference by the courts will be less common in the future than in the past. The present law restricts interference to cases where the act complained of is either ultra vires or unconstitutional, and the Supreme Court decisions overruling the pretensions of the Commerce Court indicate that an established place has been won for the commission. Such are some of the more important facts incidental to a movement which has been subjecting railway property to public control in the interest of fair play.[3]

 
IV
There is no doubt of the competency of the State to prescribe the weight of a loaf of bread, as it may declare what weight shall constitute a pound or a ton. But I deny the power of any Legislature under our government to fix the price which one shall receive for his property of any kind. If the power can be exercised as to one article, it may as to all articles, and the prices of everything, from a calico gown to a city mansion, may be the subject of legislative direction.[4]

So wrote Justice Field in a dissenting opinion in Munn v. Illinois. In the light of the general trend of court decisions as well as of legislation, it is apparent that this view is altogether too sweeping. If the highest court in the land has occasionally set at naught the railway legislation of congress and of the states, it has also brought the railways within the condemnation of the anti-trust act in the Trans-Missouri Freight, Joint Traffic and Northern Securities cases. Moreover, adverse court decisions have in large measure been overcome by additional legislation. Probably not a single member of the Supreme Bench to-day regards the view expressed by Justice Field as good law.

There has been a marked tendency during the last decade to clothe the railway commissions of the several states with more drastic powers. Some states have even gone so far as to fix rates by legislative enactment in addition to creating a commission with mandatory power.

No less than fifteen new or remodeled commissions were created in the two years 1905-1907, bringing the total number by 1908 to thirty-nine. Practically all of these were of the so-called "strong" type; that is to say, possessing the most extensive powers over all matters of rate operation and in many cases of finance as well. The most notable of these, of course, were the so-called Public Utility Commissions of Wisconsin (1905) and New York (1907). The subjugation of the formerly dominant railway interests in New Jersey and Pennsylvania was also highly significant. The movement has even invaded the New England States—so long a sanctuary of the ' ' weak ' ' or advisory commission. Vermont and New Hampshire set up powerful boards, . . .[5]

The consolidation of railways, the rise of freight rates in the years following 1900, "the inordinate concentration of financial power in the hands of a few privileged individuals," and the power of the newly created industrial combinations to secure concessions in rates contributed to this result.[6] The same conditions have made for more stringent federal control of the railways. Even Massachusetts has given up her advisory commission. For years this staid old commonwealth stood out for a "weak" commission. It was confidently claimed that such a commission had all the advantages of one of the strong type minus the disadvantages. On the one hand, if backed by public opinion,

its recommendations had practically the same effect as a statute, for there was ever the possibility of the legislature enacting them into a law. On the other hand, if its recommendations went beyond those for which the public was willing to stand, the mistake of carrying state regulation too far was avoided. The progress of railway monopoly, however, finally carried the day for a commission with mandatory power over rates and other matters.

The chief point of attack upon the railways has been discriminations. The general average of railway rates has been so low that there has been comparatively little complaint on that score. There is, however, a pronounced tendency to subject the general average of rates to state control as railway consolidation more and more approximates a condition of monopoly. But the burden of protest has been that some rates are out of proportion to others, and the facts narrated above are but milestones in the efforts of a people to realize conditions that square more nearly with the sense of justice. Some of the legislation that has been passed has been enacted with undue haste and in a spirit of resentment, and in attempting to get rid of discriminations and at the same time preserve competition some of it has been contradictory. But to hold that it is at bottom the work of self-seeking demagogues and hair-brained agitators is to overlook the very real grievances that have existed and to underestimate the general good sense and intelligence of the people. The main trend of railway legislation in the United States is so much in accord with that in other countries as to warrant the presumption that it is moving in the right direction. As compared with those countries in which the railways are owned and operated by the state, American railway policy is moderation itself. The demand for public regulation is not a popular caprice of the moment. Its persistence and increase in the face of hostile court decisions and in spite of blundering mistakes forbid this view. In the future as in the past, "fool legislation" may result in a temporary reaction. But few railway managers look for a relaxation of governmental control, and many of them will be surprised if they do not get more. The recent Supreme Court decision in the Minnesota rate case not only upheld the authority of the state in the main, but it suggested that federal control of interstate commerce has not yet been pushed to its constitutional limits. The end is not yet in sight.

When the farmers of certain western states in the early seventies arose against the railways, there was a general disposition to treat them with contempt. Were they not a lot of ignorant frontiersmen? What chance had they against the railways? What did they know about railway management? Was not the railway in common with other industries amenable to competition? Those in the higher walks of life, with rare exceptions, deprecated the attitude of the farmers. Their position was grossly exaggerated and misrepresented. The rantings of their more extreme spokesmen were cited as proof that they were wholly without any just ground for complaint. Many thought them bent on confiscation. The hard times following the panic of 1873 were laid at the door of the granger legislation. Nevertheless, the main contentions of the farmers were upheld by the Supreme Court. The granger movement did much toward changing the railway policy of a nation.[7]

Professor Ripley well says:

Great laws are not the figments of men's minds, conjured up in a day. They are a response to the needs of the time. Their true causes are thus immeasurably complex. Nor does a wholesale public demand for legislation arise overnight. From small beginnings the pressure steadily grows, oftentimes for years; until, perhaps through a conjuncture of particularly aggravating events, matters are at last brought suddenly to a head. Yet while this culmination of industrial or social pressure may finally result in legislation under some particularly strong political leadership, to assign such personal influences as even the remote cause of legislation, is to belie all the facts and experience of history. No clearer illustration of the close relationship between economic causes and statutory results could perhaps be found, than in the field of our federal legislation concerning common carriers. It forms one of the most important chapters in our industrial history.[8]
 

Fair Plat in Other Directions

I

The demand for equality of opportunity at the hands of the railways is part of a much larger movement. The widespread protest against the undue exactions of public utility enterprises in various cities, and the creation of commissions for their control is but another phase of the same thing. Likewise, the movement for the control of the large industrial combination is at bottom a demand for fair play. The revolt against the business methods exemplified by the Standard Oil and the American Tobacco Companies made these concerns so notorious that the Supreme Court ordered their dissolution. In the course of these decisions, price-cutting limited to a portion of the market or to a single line of goods produced by a trust, trade wars which aim at buying up competing plants and at closing them down, refusal to sell or to allow the customary discounts to purchasers who buy any of their supplies from a competing establishment—these and like methods which aim at excluding others from any industry by playing upon their fears were either expressly or by inference condemned. Trade agreements which bind large numbers of capable men for long periods not to compete in a specified field were also held anti-social. These methods were judged unfair not by any new code of ethics but in the light of the time-honored principles of the common law.

The extremity of the remedy sanctioned by the Circuit Court to which the American Tobacco Company was remanded for dissolution is noteworthy. Not only was the company disintegrated into four new companies, but each of the four was forbidden to control more than forty per cent, of its branch of the business, or within a period of five years to acquire any stock in one of the others. Twenty-nine individual defendants were enjoined for three years from increasing their holdings of stock in the new companies. For a term of five years, moreover, no two of the new companies shall have the same person serving as an officer or director, or employ the same agency for the purchase or sale of tobacco or other material.[9] It is more than doubtful whether these and similar remedies approved by the court will prove adequate to restore competition. But be this as it may, we have here limitations upon ownership in the interest of the public weal that would hardly have been thought possible a generation ago. There is the possibility therefore of still more drastic restrictions in the future if those already resorted to fall short of their purpose. It is noteworthy, also, that the Chief Justice in writing the Standard Oil and the Tobacco decisions did not question the power of Congress, under the commerce clause of the constitution, to limit the quantity of property which an individual may acquire and own, or the power to interfere with the right to acquire and own stock granted a corporation by a state, though he emphasized both of these points at length in his dissenting opinion in the Northern Securities case, Chief Justice Fuller, Justice Peekham and Justice Holmes concurring.[10] Neither did the case of the United States v. E. C. Knight Co. upon which the defendants banked much stand them in good stead.[11] The open-mindedness of the court augurs well for the future.

 
II

The spirit of fair play is expressing itself in sundry other directions. The movements against child labor and for compulsory education are cases in point. These movements aim at starting the members of the next generation on more equal terms in life. The tendency is to emphasize parental obligation rather than the claims parents have upon their children. As the opportunity to acquire a free hold on the public lands has diminished, the necessity of creating other opportunities by education has come to be more generally recognized. Hence the growing liberality with which the public school systems and the state universities are supported by taxation. Trade and continuation schools are helping to bring the individual into better adjustment with his environment. The splendid system of high schools in New York City is the work of the last fifteen years. The metropolis has also undertaken to provide adults with education upon all sorts of subjects by means of lectures. Not only have the obligations of parenthood increased, but man's masterful position in the home has declined. The common law has been modified until the property rights of the married woman in many states are essentially on a par with those of the married man, or at least the trend of affairs is clearly in this direction. The idea that woman is man's inferior is in growing disrepute, and one avenue of usefulness after another is being opened to her. The movement for "votes for women" is progressing rapidly throughout the civilized world. Likewise, the health of the common man has ceased to be a matter of indifference and has become a matter of public concern. The fact that no portion of society is safe so long as any portion is left to fester and rot is more fully understood and acted upon than ever before. The fall in the death rate indicates an improvement in the state of the masses of mankind. Such scourges as yellow fever and cholera have apparently been banished, and well-defined limits set to the ravages of smallpox, diphtheria, scarlet fever and many other diseases. Again, the enactment of more stringent corrupt practises acts aims at abridging the influence which the property-owning classes exert in public affairs.

 
III

The insistent demand for direct primaries, the initiative, the referendum and the recall indicate a disposition on the part of the rank and file to have more to say in our political and civic life. The object of these institutions is to make our representatives more truly responsible to those whom they are supposed to represent. They evidence the popular distrust in which our legislative bodies are held. They are the result and not the cause of the failures of representative government. They are the weapons with which the people are seeking to defend themselves against the aggressions of office-seekers and the property-holding class. The one-time boss of Cincinnati, George B. Cox, was recently quoted as saying:

I made good in polities because I never lied to any one and because I never went back on a friend. What is more, despite some criticism to the contrary, I always tried to serve the people.

What is here recognized as an afterthought, it is hoped direct primaries, the initiative, the referendum and the recall will compel every politician to keep uppermost in mind. It is clear that the efficiency of these institutions depends upon the intelligence and good sense of the people. Unless used with discretion, they will prove to be as useless as a rusty knife. Conspicuous instances of their utility, however, are not lacking. But for the referendum the Cincinnati Southern Railway would have been sold away from the city for a tithe of what it was worth, just as the streets of the city were handed over for fifty years as a gift to a street railway monopoly. Lecky tells us:

In England, a large class of politicians are now preaching a multiplication of small democratic local legislatures as the true efflorescence and perfection of democracy. In America, no fact is more clearly established than that such legislatures almost invariably fall into the hands of caucuses, wire-pullers, and professional politicians, and become centers of jobbing and corruption. One of the main tasks of the best American politicians has, of late years, been to withdraw gradually the greater part of legislation from the influence of these bodies, and to entrust it to conventions specially elected for a special purpose, and empowered to pass particular laws, subject to direct ratification by a popular vote.[12]

Among other things expressive of the spirit of the times is the reduction of tariff duties, the movement for currency reform, the reform of the general property tax, the income tax and socialism. The first aims at taking the determination of tariff schedules out of the hands of special interests, or, at least, at imposing some restraint upon them other than their own moderation. There is no more reason why the beneficiaries of the tariff should be given a free hand in fixing tariff rates than there is why one business man should permit another with whom he deals to fix the price without let or hindrance. The second aims at preventing the general distress which the collapse of our banking system now and then occasions. It also seeks to prevent the concentrated control of banking in the hands of the few and to place the facilities of credit at the disposal of every one entitled to them. The third and fourth seek to distribute the burden of state and federal taxes in a more equitable manner and to tap additional sources of revenue. The general property tax in many states involves gross inequality in the assessment of realty and the total escape of the bulk of personalty from taxation. Much is to be said in favor of the income tax in comparison with the tariff on sugar. The sugar industry does not promise to become self-supporting. As a young industry, therefore, it is hardly worthy of further protection. The whole of the income tax will go to the government, whereas part of the enhanced price of sugar has gone into the pockets of the sugar producers. Moreover, sugar is an article of general consumption and an import duty upon it is practically a capitation tax. On the other hand, an income tax is based roughly upon ability to pay. If collected at the source, it can not be evaded. The tax on sugar has excited little protest because it has been paid unconsciously. It has been concealed in the price. "Few people taste the tax on sugar in their tea." There is little likelihood of such a tax being shifted upon the well-to-do. It is practically certain, however, that the incidence of the income tax will fall in part upon this class. "Historically considered, income taxes have been more or less successful efforts to throw an increased share of public expenses upon the wealthy."[13] The fifth, socialism, sums up the drift of the age towards property better than any other word. It expresses the humanitarianism of the time. Tenement house owners and steamship companies are confronted with regulations that are growing more stringent. Private property in the wasting resources of nature is being abridged in the interest of posterity. The liability of employers to employees for accidents is increasing. Assumption of risk, contributory negligence, and the fellow servant doctrine are fast being abrogated by statute. A system of social insurance is being instituted that is distributing the unmerited hardships due to accidents, sickness, old age and unemployment in a more equitable manner. There is no more indubitable sign of progress toward the ideal of equality. Factory legislation is spreading and is becoming more exacting. The hours of labor are more and more being regulated in the interest of the public health and safety. The fixing of minimum rates of wages is seriously discussed. Social legislation is looked upon as promotive rather than as subversive of liberty and a new conception of liberty is gaining ground.

Fundamentally, socialism is not a disease but a symptom and a remedy for a disordered social condition. For this reason it demands serious attention and can not be laughed out of court. No political party is immune from its influence, but the rapid increase in the vote of the Socialist party, the growing volume of discontent, and the large vote polled by the newly organized Progressive party in 1912 indicate that neither of our two historic parties has been keeping step properly with the times. Many people vainly imagine that socialism can be disposed of by pointing out the absurdity of certain of the dogmas of Marx, such as the class struggle and surplus value, to which some doctrinaires subscribe. Nothing can well be farther from the mark. The only effective way to meet socialism is to correct the economic and social conditions which account for its origin and existence.

Men do not become discontented because they have theories, but have theories, because they are discontented.[14]

(To be continued.)

  1. Iowa Supreme Court Reports, 27, p. 28. Wisconsin Supreme Court Reports, 25, p. 167. Michigan Supreme Court Reports, 20, p. 452. These references are taken from an unpublished manuscript upon "Farmers' Organizations, the Supreme Court and the Railroads," by my father, Simon Emerick.
  2. Kansas Supreme Court Reports, 7, p. 542
  3. Frank Haigh Dixon, "The Interstate Commerce Act as Amended in 1906," Quarterly Journal of Economics, Vol. 21, 1906, pp. 22-51, and the "Mann Elkins Act, Amending the Act to Regulate Commerce," ibid., Vol. 24, 1910, pp. 593-633.
  4. United States Supreme Court Reports, Vol. 94, 1876, p. 93.
  5. William Z. Ripley, "Railroads, Rates and Regulation," p. 629.
  6. Ibid., pp. 487-492.
  7. Solus Justus Buck, "The Granger Movement," Chapters IV., V. and VI.
  8. William Z. Ripley, op. cit., pp. 441-442. Hadley's "Railroad Transportation" and Johnson's "American Railway Transportation" contain good accounts of the movement for state and federal control of railways in the United States. These two works also contain accounts of the relations of the state to the railways in the principal countries of Europe. Ripley's "Railroads: Rates and Regulation" gives a sympathetic and detailed account of the movement for the control of railway rates by the federal government, but treats only incidentally of the activities of the several states. "Railway Problems," by the same author, contains an excellent selection of reprints. Merritt's "Federal Regulation of Railway Rates" contains a digest of the more important eases that have been decided by the Inter-state Commerce Commission.
  9. The New York Sun, November 9, 1911, pp. 1-2.
  10. William Z. Ripley, "Trusts, Pools and Corporations," p. 379.
  11. United States Supreme Court Reports, Vol. 52, L. ed., October, 1910, p. 648.
  12. "Democracy and Liberty," Vol. 1, p. 282.
  13. Winthrop More Daniels, "The Elements of Public Finance," p. 187.
  14. Walter E. Weyl, op. cit., p. 189.