Chapter LXX: Section 4: prescribes the examination of specimens of food and (4)

The St. Gothard Tunnel and Railway were built under an
agreement (1879) with the Swiss Government under which the
latter reserved the right of buying the St. Gothard within
thirty years, and the price arranged was twenty-five times the
amount of the net profits of the line during the last ten
years of working. The right was exercised in the spring of
1909, and thus the last of the principal Swiss lines passed
into the possession of the Government. The St. Gothard Company
at first demanded 215,800,000 francs, but eventually accepted
212,500,000 francs. The Confederation took over the debt of
the company--117,090,000 francs ($23,418,000) with 3½ per
cent. interest, and paid six million francs for expenses of
the issue of the company’s loans.

{547}

RAILWAYS: Turkey: A. D. 1899-1909.
The Bagdad Railway.

In January, 1902, the Turkish Sultan signed a convention which
provides a guarantee, to the extent of 12,000 francs per
kilometre for the undertaking of the Bagdad Railway, to build
which a concession had been obtained by a German syndicate in
1899.

See, in Volume VI. of this work,
TURKEY: A. D. 1899--NOVEMBER).

The new railway was to be an extension of the existing
Anatolian Railway, starting from the terminus of the latter at
Konieh and running, via Bagdad, to some point on the Persian
Gulf, the selection of which was left for future arrangement.
The line, with its branches, was to have a length of 2,500
kilometres or about 1550 miles.

A further convention respecting this project was signed in
March, 1903, concerning which the following statement was made
in the British Parliament on the 23d of that month by the
Premier, Mr. Balfour: "A copy of the convention, concluded
March 5, 1903, between the Turkish Government and the
Anatolian Railway Company is in our possession. It leaves the
whole scheme of railway development through Asia Minor to the
Persian Gulf entirely in the hands of a company under German
control. To such a convention we have never been asked to
assent, and we could not in any case be a party to it."

Mr. David Fraser, a young traveller of experience, was
commissioned by the _Times of India_ in 1907 to follow
the proposed route of the Bagdad Railway and report on its
prospects. He started from Constantinople, and traversed the
completed portion of the line to where it breaks off suddenly
some ten kilometres east of Eregli, "with its pair of rails,"
he wrote, "gauntly projecting from the permanent way and
pointing in dumb amazement where the Taurus shares the horizon
with the very skies." "They have now," said the _London
Times_ not long since, "been pointing thus for nearly five
years, to the bewilderment of those who, not knowing the
country, imagined, in 1904, that with Germany determined and
Turkey desirous to push ahead, the Bagdad line would go
forward with inevitable march towards its distant goal."

RAILWAYS: A. D. 1908.
Damascus to Mecca.
The Pilgrims’ Road.

"The Damascus to Mecca Railway has many remarkable features
which distinguish it from other lines. Its principal object is
to provide a means for faithful Moslems to perform their
pilgrimage to the holy places of Mecca and Medina with a
greater degree of comfort than formerly. Its inception is due
to the initiative of the present Sultan, and the enthusiasm
created by its first announcement brought in subscriptions
from the faithful in all parts of the Islamic world."

The length of the line from Damascus to Mecca is 1097 miles.

"The gauge of the line is the somewhat curious one of 1.05
meter (3 feet 5¼ inches), which was necessary, when the line
was first commenced, to correspond with the gauge of the
Beirut-Damascus line, over which the rolling stock had to be
brought."

_Colonel F. R. Maunsell,
National Geographic Magazine,
February, 1909._

The line was opened to Medina early in the autumn of 1908.

RAILWAYS: United States of America: A. D. 1870-1908.
Railway Rate Regulation.
Its slow Development.
"Granger" Legislation in the Middle West.
State Commissions.
Defiant Rebating.
Tardy Federal Legislation.
The Interstate Commerce Act, 1887, 1906.
President Roosevelt on the subject.

The creation of largely capitalized and therefore powerful
corporations was first developed in a rapid and extensive way
by the modern enterprise of railway building; and the railways
became soon so essentially related to every kind of interest,
personal or general, that they naturally gave rise to the
earliest of the specially modern problems of public policy
concerning corporations which required to be solved. For a
long period society had no call to defend itself against
monopolistic combinations among its railway corporations;
because it was long before seriously competitive lines of rail
could be built. Each served its own belt of country; but each
company owning and managing a line held therefore, in itself,
a monopoly of the transportation agency it had created, and
could, in an unchecked management of that agency, either wrong
its whole clientele by excessive rates of charge, or wrong one
part of it by some favoritism of unequal rates. Those were the
original abuses of opportunity and power which provoked
defensive measures of law. Naturally the earlier undertakings
of defence in the United States were by State legislation,
since nearly all charters of incorporation for business
purposes have been derived from the States. Wherever the
operations of business conducted under such charters extend
over more than a single State, the constitutional power of
Congress to "regulate commerce … among the several States"
gives it an undoubted right to take part in the regulation of
them; but it was slow to exercise that right. The following
abridgment of an excellent sketch of the slow development of
railway-rate regulation gives the essential facts. It is
quoted from extensively by kind permission of its authors and
of The _Boston Evening Transcript_ for which it was
prepared:

"Perhaps the most remarkable fact in the whole history of
interstate transportation is that, despite flagrant abuses,
Federal regulation was held off until 1887. Within the States
themselves railroad rates had been often subjected to severe
regulation: yet even the public excitement which accompanied
the ‘granger’ legislation between 1870 and 1880 did not result
in Federal legislation. In several States, notably in the
Middle West, during that epoch, detailed statutes were passed
fixing maximum rates which by no present standard could be
said to be anything but outrageous. In those times the Federal
courts held that they would not consider legislation as
confiscatory if it left to the railroad one cent of net profit
above operating expenses. But even with this rule, now almost
incredible, it was found in the next decade that much of the
rate-fixing under the State statutes was unconstitutional.
{548}
Nor was the situation much ameliorated by the later
establishment of State commissions, for many of them,
according to the present standards, flagrantly abused their
powers. … After the first outburst more conservative counsels
generally prevailed. The movement met much opposition in its
progress throughout the country, and although commissions were
generally created in the East, they were given no final powers
over rates. Then a reaction set in, due in part to the
prostration of the Western roads. … Much wise legislation
dates from this period, and many State commissions acted in a
moderate spirit. The history of railroad legislation in these
seventeen years illustrated, however, the slow process by
which a popular movement culminates in Federal legislation;
and good law or bad, proper action or improper action, the
legislation of the States supplied experience in view of which
Congress could act wisely when, in 1887, Federal legislation
became inevitable. That this legislation had become inevitable
was due very largely to the continued abuse of their
commercial power by the railroad managers. For several years
public opinion as to railroad discrimination had become so
well settled as to work a real change in the common law, yet
the railroad officials persistently defied it. Rebating,
which, as late as 1875, was at common law merely a doubtful
practice, by 1885 had become generally accepted as an illegal
business; but this change the railroads refused to recognize
in any other way than to make their practices more secret. It
was public indignation against long continued illegal
discrimination and undue preference which brought down upon
the railways the inter-State commerce legislation in 1887. The
wonder is, in view of the railway practices, that it did not
come sooner. But however well behaved the railways might have
been, Federal regulation would have come inevitably long
before the end of the nineteenth century, in accordance with
the general current of public opinion that public services
could no longer go without governmental regulation. Still the
act itself as finally passed was really very conservative,
when the nature of the crisis is considered. … By the
principal provisions of the Interstate Commerce act the
railways were forbidden: (1) To charge unreasonable rates; (2)
To discriminate between persons; (8) To give preference
between localities; (4) To charge less for a long haul than
for a shorter haul included within it ‘under substantially
similar circumstances.’ These provisions were undoubtedly
intended by the majority of those who framed the act as rather
radical legislation, which should materially affect the
practice of the railroads; but the conservative force of
judicial decision soon modified the intended force of the act.
From the outset the commission claimed that it not merely had
power under the act to forbid any unreasonable rate upon
complaint made, but that also, in giving relief, it might
indicate to the railroad what should be the reasonable rate
thenceforth. But within ten years the Supreme Court decided
that the commission had no power to fix rates at all. This was
a famous victory for the railroad bar, for without an
authoritative statement by the commission of what rate it
would regard as reasonable, even a railroad which yielded
obedience to the decree of the commission without appeal to
the courts, could make a slight reduction in the rate, and any
dissatisfied shipper would be obliged to enter again into an
expensive and dilatory litigation. In this way the railroads
tired out objecting shippers; but in the process they
stimulated a widespread demand for a power in the commission
to fix rates similar to that given to many State commissions
and to the corresponding body in Great Britain. The long and
short haul clause provided that exceptions to it must be by
special dispensation from the commission. … But tucked away in
the section was the vague phrase, ‘under substantially similar
circumstances,’ which proved its destruction. At first the
commission began to enforce the act according to its obvious
reading, and to grant dispensations from its operation on
petition of the railroad in proper cases. But the whole effort
of the railway counsel was concentrated upon the courts, and
it was finally held that wherever there was competition at the
distant points, the conditions were dissimilar with those at
the intervening points of any benefit from the clause. Water
competition was first held an excuse for a lower rate for the
longer haul. Then rail competition was recognized. Next
potential competition over existing routes was held enough.
But finally the courts refused to consider the mere
possibility of new routes. … Commercial cities and towns were
left at the mercy of the railways, as they had been before the
act, and the long and short-haul clause became a dead letter.
This was a cause of most bitter complaint; yet, singularly
enough, when the amendments of 1906 were adopted, no attempt
was made to amend this clause. … Further action by the Federal
Government was foreshowed as before by a very considerable
body of legislation throughout the United States, between 1900
and 1905. In many States there was an unfortunate
recrudescence of the ill-advised ‘granger’ legislation, by the
passing of statutes fixing maximum rates; but this time it was
passenger rates which were chiefly attacked, while before it
had been freight rates. The two-cent fare was a popular
programme in this period, and it all but swept the country.
Some legislatures, however, defied it, and some governors
stood out against the legislatures. … The legislation of this
period had, however, another branch which was well-advised. It
is the general characteristic of this legislation that it
confers on the railroad commission the power, while setting
aside unreasonable rates, of fixing a maximum rate. The giving
of such power to the interstate Commission was the principal
point in the programme for further Federal legislation. One
other general power that has been given to State commissions
in the legislation since 1900 is the authority to compel
railroads to furnish proper facilities, together with power of
supervision of management in other respects, which is adopted in
the Federal legislation of 1906 in an experimental way. Those
who would understand the Federal legislation in its latest
form should study the most recent railroad regulation in
Minnesota and Wisconsin, Indiana and New York. … As finally
adopted, the act of 1906 [known as the Hepburn Act] is in form
of a series of amendments to the original act of 1887. … The
main object in most of the legislation was to strengthen still
further the power of the commission over rates and rebates.
{549}
In regard to these, the amendments affected change chiefly
along these two lines. (1) Power is given to the commission to
fix maximum rates in cases where, upon complaint, the rates
fixed by the railroad were found to be excessive. This
includes the power to fix joint through rates. (2) Rebating is
forbidden under heavy penalties, civil and criminal, both to
the railroad and to the shipper; and the cases in which a
reduced rate can be given are enumerated."

_Joseph H. Beale and Bruce Wyman,
Two Years of the Railroad Rate Law
(Boston Evening Transcript, October 10, 1908)._

It was through no fault of the President that effective
legislation to suppress secret rebates and other practices of
favoritism to large shippers by the railways came so tardily
from Congress, as appears above. In his first Message, of
December, 1901, he began urging the needed amendments to the
Interstate Commerce Act of 1887, saying:

"That law was largely an experiment. Experience has shown the
wisdom of its purposes, but has also shown, possibly, that
some of its requirements are wrong, certainly that the means
devised for the enforcement of its provisions are defective. …
The act should be amended. The railway is a public servant.
Its rates should be just to and open to all shippers alike.
The Government should see to it that within its jurisdiction
this is so and should provide a speedy, inexpensive, and
effective remedy to that end. At the same time it must not be
forgotten that our railways are the arteries through which the
commercial life-blood of this Nation flows. Nothing could be
more foolish than the enactment of legislation which would
unnecessarily interfere with the development and operation of
these commercial agencies. The subject is one of great
importance and calls for the earnest attention of the
Congress."

For five years after this reasonable and most just
recommendation was addressed to Congress, the special
interests opposed to public interests in the matter were
represented so controllingly in that body that the impotences
of the law remained uncured. In the Presidential Message of
1904 a more imperative language on the subject was used. "It
is necessary," said the Chief Magistrate, "to put a complete
stop to all rebates. Whether the shipper or the railroad is to
blame makes no difference; the rebate must be stopped, the
abuses of the private car and private terminal-track and
side-track systems must be stopped, and the legislation of the
Fifty-eighth Congress which declares it to be unlawful for any
person or corporation to offer, grant, give, solicit, accept,
or receive any rebate, concession, or discrimination in
respect of the transportation of any property in interstate or
foreign commerce whereby such property shall by any device
whatever be transported at a less rate than that named in the
tariffs published by the earner must be enforced. … The
Government must in increasing degree supervise and regulate
the workings of the railways engaged in interstate commerce;
and such increased supervision is the only alternative to an
increase of the present evils on the one hand or a still more
radical policy on the other. In my judgment the most important
legislative act now needed as regards the regulation of
corporations is this act to confer on the Interstate Commerce
Commission the power to revise rates and regulations, the
revised rate to at once go into effect, and to stay in effect
unless and until the court of review reverses it."

Still Congress did nothing in response to this demand, which
was the demand of the American public, uttered by its chief
and truest representative. Another year passed, and when the
next annual communication of counsel from the national
executive to the national legislature came forth, all other
topics in it were overshadowed by this. The force of argument,
admonition, and pleading in the Message was fairly
overpowering, and it went to a newly chosen Congress in which
the people had represented themselves with somewhat better
effect. The result was the amending act of 1906.

In the energy of the President’s advocacy of this legislation
there was nothing of animosity to the railway corporations.
His most impressive arguments, for example, were such as
these: "I believe that on the whole our railroads have done
well and not ill; but the railroad men who wish to do well
should not be exposed to competition with those who have no
such desire, and the only way to secure this end is to give to
some government tribunal the power to see that justice is done
by the unwilling exactly as it is gladly done by the willing.
Moreover, if some Government body is given increased power the
effect will be to furnish authoritative answer on behalf of
the railroad whenever irrational clamor against it is raised,
or whenever charges made against it are disproved. I ask this
legislation not only in the interest of the public but in the
interest of the honest railroad man and the honest shipper
alike, for it is they who are chiefly jeoparded by the
practices of their dishonest competitors."

RAILWAYS: A. D. 1890-1902.
Application of the Sherman Anti-Trust Law of 1890 to
Railway Combinations and Poolings of Rates.
The Trans-Missouri Freight Association Case.
Decision of the Supreme Court.
Remarks of the Industrial Commission.

In the period between 1870 and 1880 the widening of
combination and organization in all fields of heavily
capitalized industry began, especially in America, to attain
proportions that could be dangerous to social interests in
many ways, by its concentration of the power that money
commands. Alarming possibilities of monopoly, of oppression to
labor, of political corruption, of commercial tyranny
exercised in many forms, were all involved. At the same time
the processes working in this matter were wholly those of a
natural evolution, and were shaping human industry, very
plainly and surely, to perfected economic conditions and
results. Serious problems in government were thus pressed on
public attention for the first time. How to realize the
economic benefits which industrial organization on the large
scale can produce, and which are unattainable without it, and
be at the same time securely defended in all social and common
interests against selfishly hostile uses of the power so
engendered, became then a subject of anxious debate, and the
satisfying answer to it has not yet been found.

{550}

Railway companies were now no longer alone, as corporations
that challenge the exercise of public authority to control
their performance of the public service for which they were
chartered. The growth of mammoth organisms of business in
other fields—such, for example, as the Standard Oil
Company—had reached startling proportions, and the power of
oppression in them was being displayed. Economists, jurists,
and thoughtful legislators were giving earnest study to the
problems they raised. The difficulty of the problem, in the
United States more than in other countries, because of the
divided jurisdictions in government under the federal system,
is made plain by Mr. E. Parmalee Prentice, in the seventh
chapter of his treatise on "The Federal Power over Carriers
and Corporations." Before Congress attempted legislation for a
general control of commercial combinations that were operative
in the country at large, there was much searching for an
adequate ground of constitutional power. In the first instance
it was sought for, not in the authority to regulate commerce,
but in the taxing power, or the right of government to protect
itself from injury to the operation of its revenue laws. When
this was given up there were efforts to frame an act "in
restraint of competition in the production, manufacture or
sale of goods ‘that in due course of trade shall be
transported from one State’ to another." But, says Mr.
Prentice, "a statute of this nature could be sustained only on
the ground of an anticipating and continuing jurisdiction over
every article which, at any period in its history—from
production commenced to consumption completed—had ever
crossed, or would cross, State lines, and over every buyer and
every seller of such article." This, too, was abandoned, as
"an attempt to do the impossible." "The clause relating to
diversity of citizenship was stricken out, and the bill once
more rested upon the narrow power to regulate commerce." As it
finally passed the two houses of Congress and was approved by
the President, July 2d, 1890, this much discussed and much
litigated piece of legislation, known as the Sherman Act,
embodied its purpose in the first two sections, which read as
follows:

"Section 1.
Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations, is hereby declared to
be illegal. Every person who shall make any such contract or
engage in any such combination or conspiracy, shall be deemed
guilty of a misdemeanor, and, on conviction thereof, shall be
punished by fine not exceeding five thousand dollars, or by
imprisonment not exceeding one year, or by both said
punishments, in the discretion of the court.

"Section 2.
Every person who shall monopolize, or attempt to monopolize,
or combine or conspire with any other person or persons, to
monopolize any part of the trade or commerce among the several
States, or with foreign nations, shall be deemed guilty of a
misdemeanor, and, on conviction thereof, shall be punished by
fine not exceeding five thousand dollars, or by imprisonment
not exceeding one year, or by both said punishments, in the
discretion of the court."

"In a number of early cases," says the writer already quoted,
"the act was applied to combinations of laborers to interrupt
the free passage from State to State, the defendants in most
instances being railroad employees. At this point in the
process of judicial construction the case of the Freight
Association [United States v. Trans-Missouri Freight
Association] presented to the Supreme Court the question
whether the act applied to interstate carriers. Of the
intention of Congress there is probably little doubt. Railroad
transportation had been covered in 1887 by the Interstate
Commerce Act. The Sherman Act of 1890 was intended to cover
not transportation, but trade."

The suit of the United States against the Trans-Missouri
Freight Association, the Atchison, Topeka and Santa Fe
Railroad Co., and others, was brought for the dissolution of
an association or combination alleged to be in restraint of
trade, and in violation therefore of the Act of July 2, 1890,
called the Sherman Anti-Trust Law. It was tried originally in
November, 1892, before United States District Judge Riner, of
the Kansas District, who ruled that the law did not apply, and
dismissed the case. On appeal it was tried again with the same
result the next year before Circuit Judge Sanborn and District
Judges Shiras and Thayer. Judges Sanborn and Thayer affirmed
the judgment of the District Court, while Judge Shiras
dissented. The question then went for final adjudication to
the Supreme Court, where it was argued on the 8th and 9th of
December, 1896, and decided on the 22d of March, 1897. The
opinion of the Court, delivered by Justice Peckham, reversed
the judgment of the courts below, affirming that the
Anti-Trust Act applies to railroads, and that it renders
illegal all agreements which are in restraint of trade. The
case was accordingly remanded to the Circuit Court "for
further proceedings in conformity with this opinion." Justices
White, Field, Gray, and Shiras dissented from the opinion of
the majority.

"In the Final Report (transmitted to Congress in February,
1902), of the Industrial Commission, created by Act of
Congress in 1898, this case of the Trans-Missouri Freight
Association, and the general status at that time of questions
involved in it, are discussed at length, and partly as
follows:

"It is of peculiar interest to note that this leading case was
decided, not upon interpretation of the interstate commerce
act itself, but under the provisions of the Sherman anti-trust
law of 1890. … Two questions were plainly before the court:
First whether the Sherman anti-trust law applied to and
covered common carriers by railroad; and secondly, whether the
Trans-Missouri Freight Association violated any provision of
that act by being an unreasonable restraint upon trade. The
court itself acknowledged that it was doubtful whether
Congress originally intended to include railroads under the
prohibitory provisions of the anti-trust law. Counsel for the
carriers showed, it would seem conclusively, that an amendment
proposed by Mr. Bland to include railroads in the prohibition
was rejected. The dissenting Supreme Court justices maintained
that in the absence of a specific application of the
anti-trust law to railroads, inasmuch as the anti-trust law
was a general act, while the act to regulate commerce,
antedating it by three years, was specific, the latter
exempted the railroads, in any case, from the drastic
provisions of the Sherman Act against combinations in
restraint of trade. The court refused to consider other than
mere questions of law, holding that if pooling were excepted
it was the province of Congress to take appropriate action. …

{551}

"It has very frequently been asserted that a primary cause of
the notable tendency toward railroad consolidation since 1898
was the definitive prohibition of all varieties of traffic
contracts or agreements by the Trans-Missouri Freight
Association decision of 1897. This decision, as has already
been indicated, was rendered upon the basis of the Sherman
anti-trust law, without contemplation of the prohibitive
provision of the Act to regulate commerce of 1887. According
to the opinion of many jurists, in fact, the latter act could
not reasonably have been construed to prohibit many of the
traffic agreements which have been customary between carriers.
It has been urged with great force that coöperation among the
railroads having been finally adjudged illegal, it became
necessary to have recourse to a more drastic remedy, namely,
consolidation in some of its various forms. … The first
difference to be noted between pooling and consolidation is
that the latter is much more comprehensive in its scope. …
Agreements for the division of traffic constitute but the mere
machinery by which a certain result is to be attained. …
Experience has abundantly shown that it is possible for
railroads to maintain a large part of their identity, even
reserving to themselves the power to make rates independently,
under a pool, in exceptional cases, without thereby entirely
nullifying the steadying influences of such traffic
agreements. Consolidation, however, necessarily involves the
unification of all interests as between railroads. … In brief,
pooling may still permit competition in respect to facilities.
It may merely eliminate the ruinous phases of competition in
rates, leaving still in force the healthful influences of
reasonable rivalry. Consolidation proceeds to the uttermost to
stifle competition of all kinds, whether in respect of rates
or of facilities. … A second point to be kept in mind as
between the effects of consolidation and pooling lies in the
fact that consolidation can never hope to accomplish the
steadying influence upon rates which is claimed for railroad
pools, until such time as every railroad within a given
competitive territory shall have been bought up and absorbed.
… A division of territory into a number of specific groups,
each absolutely monopolized by one interest, seems to be the
only logical outcome of the consolidations which have been
already accomplished. …

"Pools and pooling still exist: although outwardly called
gentlemen’s agreement or disguised in some other way, it is
incontestable that in every case where consolidation has not
proceeded to its uttermost limits, as in New England, traffic
agreements exist. Railroad men are almost unanimous in the
expression of their desire to have the inhibition removed.
Representatives of commercial interests have, in the main,
acceded to this opinion. As has been shown, the prohibition
was not contemplated originally. It was included in the act
only as a concession to certain opponents of pooling in the
House of Representatives. … On the other hand, it is
universally recognized that certain dangers to the shipper are
incident to such action. Railroad pools may, and certainly
have, in some instances, operated either to raise rates, or to
maintain them in face of a tendency to decline. As a
consequence, the majority of these appeals for remedial
legislation are accompanied by a demand that pooling, if once
more permitted by law, shall be subject to governmental
approval and supervision."

_Final Report of the Industrial Commission,
pages 338-348._

RAILWAYS: A. D. 1901-1905.
The Northern Securities Case.
Another test of the Sherman Act.
The question of the Legality of Combination
between Corporations through a "Holding Company."

At about the time when the Industrial Commission was producing
its final report, from which the above is taken, the courts of
the United States were called on to give attention to another
mode, distinctly different from either "pooling" agreements or
corporate consolidation, by which an effective combination of
railway lines could be secured. It came to the consideration
of the courts in the case of the Northern Securities Company,
which was famous in its day. Briefly related, the case arose
as follows:

Although the Great Northern Railway and the Northern Pacific
Railway traverse the same Northwestern section of the United
States, from the Mississippi River and the western extremity
of the Great Lakes to the Pacific Coast, at no great distance
apart, there was not rivalry, but a community of interest
between them, in 1901, when the corporations to which they
belong became joint purchasers of the Chicago, Burlington and
Quincy Railway system, in order to secure for each of them a
direct connection with Chicago, under their joint control.
This achievement of the powerful railway interests controlled
by James J. Hill was followed by what is known in Wall Street
as a "raid" on the stock of the Northern Pacific, by the Union
Pacific interests, headed by E. H. Harriman, with the object
of securing votes to elect the next board of directors in that
corporation, and thus control the whole Northern
transcontinental combination. The outcome of the fierce
struggle was a compromise, from which issued the famous
"holding company" known as the Northern Securities Company,
incorporated on the 12th of November, 1901, under the
accommodating laws of the State of New Jersey. The term
"holding company" describes precisely the function which this
corporation was created to perform. In the language of its
charter, "the objects for which the corporation is formed are:
To acquire by purchase, subscription or otherwise, and to hold
as investment, any bonds or other securities or evidences of
indebtedness. … To purchase, hold, sell, assign, transfer,
mortgage, pledge, or otherwise dispose of, any bonds or other
securities or evidences of indebtedness created or issued by
any other corporation. … To purchase, hold … etc., shares of
capital stock of any other corporation … and, while owner of
such stock, to exercise all the rights, powers and privileges
of ownership, including the right to vote thereon."

{552}

The specific plan of operation was set forth in a circular
issued by the Northern Securities Company, on the 22d of
November, 1901, to holders of the stock of the Great Northern
Railway Company, which said: "The Northern Securities Company,
incorporated under the laws of the State of New Jersey, with
an authorized capital stock of $400,000,000, and with power to
invest in and hold the securities of other companies, has
commenced business, and has acquired from several large
holders of stock of the Great Northern Railway Company a
considerable amount of that stock. A uniform price has been
paid of $180 per share, in the fully paid stock of this
company, at par. This company is ready to purchase additional
shares of the same stock at the same price, payable in the
same manner, and will accept offers made on that basis if made
within the next sixty days."

"It seems," says Professor Meyer, in his "History of the
Northern Securities Case," "that the capitalization of
$400,000,000 was fixed at that figure in order to cover
approximately the combined capital stock of the Northern
Pacific and Great Northern at an agreed price apparently based
upon earning capacity. The par value of the outstanding
capital stock of the Great Northern was $123,880,400, and that
of the Northern Pacific amounted to $155,000,000. The Northern
Securities Company purchased about seventy-six per cent. of
the former and ninety-six per cent. of the latter, on the
basis of $115 per share of $100 of Northern Pacific and $180
per share of $100 of the Great Northern."

From the side of the railway interests concerned, this holding
together of the stocks of the two corporations which owned
between them the connecting Burlington line to Chicago was a
necessary business transaction. Their view of it was stated
subsequently by Mr. Hill, in testimony given during
proceedings which tested the legality of the holding company,
when he said: "With the Northern Pacific as a half-owner in
the shares of the Burlington and responsibility for one-half
of the purchase price of these shares, the transfers of the
shares of the Northern Pacific or the control of the Northern
Pacific to an interest that was adverse or an interest that
had greater investments in other directions, the control being
in the hands of companies whose interests would be injured by
the growth and development of this country would, of course,
put the Great Northern in a position where it would be almost
helpless, because we would be, as it were, fenced out of the
territory south which produces the tonnage we want to take
west and which consumes the tonnage we want to bring east, and
the Great Northern would be in a position where it would have
to make a hard fight—either survive or perish, or else sell
out to the other interests. The latter would be the most
business-like proceeding."

On the other hand, from the standpoint of public interests,
the combination looked dangerous to the Northwestern States,
as being a suppression of competition and a creation of
monopoly in railway transportation, and it was quickly
announced that the Governor of Minnesota had determined to
invite the Governors of States affected by the transaction to
a conference, for the purpose of considering "the best methods
of fighting the Northern Securities Company’s propositions in
the courts and by new legislation, if necessary." The result
of the conference was a suit undertaken by the State of
Minnesota, at first in the Supreme Court of the United States,
where it was found to be impracticable, but finally begun in
the United States Circuit Court. This State action was soon
followed by proceedings taken by the Federal Government.
Attorney-General Knox was asked by the President for an
opinion as to the legality of the procedure involved in the
formation of the Northern Securities Company, and replied
that, in his judgment it violated the provisions of the
Sherman Act of 1890. The President then "directed that
suitable action should be taken to have the question
judicially determined." Suit was begun accordingly on the 10th
of March, 1902, by the United States, in the United States
Circuit Court at St. Paul, against the three companies,
—Northern Securities, Great Northern, and Northern Pacific.
Testimony was taken in St. Paul and New York, and the case was
argued in March, 1903, at St. Louis, before a special trial
court, composed of four circuit judges. The decision rendered
by this court, the four judges concurring, declared the
transaction illegal, and enjoined the Northern Securities
Company from performing the acts that it was intended to
perform. This decision was contradicted, however, by one given
at about the same time in the suit of the State of Minnesota,
which had its trial in the United States Circuit Court for the
District of Minnesota. There the legality of the formation of
the Northern Securities Company was affirmed.

Appeals from both decisions were taken to the Supreme Court,
and that of the special trial court, in the suit of the
Federal Government, which declared the procedure involved in
the formation of the Northern Securities Company to be in
violation of the Sherman Act of 1890, was fully sustained by a
majority of the Court, in March, 1904. In the opinion of the
majority of the justices, "if Congress has not, by the words
used in the Act, described this and like cases, it would, we
apprehend, be impossible to find words that would describe
them."

See (in this Volume)
COMBINATIONS, INDUSTRIAL: UNITED STATES: A. D. 1901-1906.

The Court below was authorized accordingly to execute its
decree against the Securities Company. A little later the
Supreme Court decided in the Minnesota State suit that it had
no jurisdiction, and sent the case back, to be remanded to the
State court from which it had been originally removed. With
this case nothing further was done.

In connection with the undoing of the Northern Securities
Company’s operations, to reconvey the property for which it
had issued its stock, fresh litigation arose, over questions
that touched the construction to be put on the court’s decree.
This, too, went up to the Supreme Court of the United States,
and was decided there in March, 1905; but it has no important
bearing on the questions involved in the original case.

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In the final chapter of his history of the case, Professor
Meyer has this to say of it: "The chief interest of the
Northern Securities case lies in the magnitude of the
interests involved and in the variety of the economic and
legal problems which were incidentally drawn into the
controversy. From the point of view of railway organization
the case presents little of consequence, except that railway
corporate organization, in the process of metamorphosis or
evolution, must, avoid the technicality of the particular type
of holding company which the Northern Securities Company
represented. From the point of view of railway regulation and
the relations between the general public interests and private
railway management, the case has no significance whatsoever,
in spite of the fact that action against the Securities
Company arose out of alleged injurious consequences to the
public. It was assumed that competition had been stifled,
without first asking the question whether competition had
actually existed; and whether, if competition could be
perpetuated, the public would profit by it."

_Balthazer Henry Meyer,
A History of the Northern Securities Case
(Bulletin of the University of Wisconsin, Number 142)._

RAILWAYS: A. D. 1901-1909.
The Harriman System.
Its Creation.
Its Magnitude.
The Rapid Rise of the late E. H. Harriman to Financial Power.

On the death of the late Edward H. Harriman, which occurred on
the 9th of September, 1909, it was said that he was the
absolute dictator of 75,000 miles of railroad in the United
States—about one-third of the country’s total mileage of
railways—besides being a leading director in four ocean
steamship lines, two trust companies, and three banks. Some
time previously the Interstate Commerce Commission, in the
report of its investigation of the Union Pacific Railroad
management, said of him: "Mr. Harriman may journey by
steamship from New York to New Orleans, thence by rail to San
Francisco, across the Pacific Ocean to China, and, returning
by another route to the United States, may go to Ogden by any
one of three rail lines, and thence to Kansas City or Omaha,
without leaving the deck or platform of a carrier which he
controls, and without duplicating any part of his journey."

In the same report, referring to one of the most questionable
of Harriman’s financial operations, the Commission remarked
that it was "rich in illustrations of various methods of
indefensible financing," but added that it was no part of the
Harriman policy to permit the properties under the Union
Pacific control to degenerate. "As railroads," it was said,
"they are better properties to-day, with lower grades,
straighter tracks, and more ample equipment than they were
when they came under that control. Large sums have been
generously expended in the carrying on of engineering works
and betterments which make for the improvement of the service
and the permanent value of the property."

On the occasion of Mr. Harriman’s death, the New York
_Evening Post_, reviewing his career, said of him that
"his worst enemies are forced to admit that as a railroad
executive he had no peer. What he found on taking charge of
the Union Pacific was two dirt ballasted streaks of rust. The
stations along the mountain grades were tumbled-down shacks,
and most of the equipment was fit only for the scrap pile.
Moreover, there was no organization. From top to bottom of the
staff the men had lost heart. In 1898 the Union Pacific was
suffering from bankruptcy, brought on by years of political
and financial intrigue. But when Harriman got his grip on the
property he said to his associates: ‘We will rebuild it and do
it right away.’

Harriman’s plans called for hundreds of millions of dollars
for new rails, lower grades, and modern cars, locomotives, and
terminals. After a struggle the Union Pacific directors came
around to his way of thinking."

"It is necessary to remember," said the _Post_, in
another article, "in summing up the Wall Street side of Mr.
Harriman’s history, that fifteen years ago he was hardly
known, even in railway circles; that ten years ago, his name
would have conveyed no meaning or association to the general
public; that even at the inception of the celebrated Northern
Pacific fight of 1901 [see above, under date of 1901-1905], in
which he was actually a chief protagonist, Wall Street
mentioned his name only incidentally in connection with it.
The fight, as the Stock Exchange and the newspapers then saw
it, was waged between the ‘Standard Oil interest,’ and the
‘Morgan interest,’ and the Union Pacific’s chairman cut little
individual figure in the public view."

RAILWAYS: A. D. 1903 (February).
Act of Congress to Further Regulate Commerce with Foreign
Nations and among the States, known commonly
as "the Elkins Law."

The following are the essential provisions of the Act,
approved February 19, 1903, which is commonly referred to as
the Elkins Anti-Rebate Law:

"The willful failure upon the part of any carrier subject to
said Acts to file and publish the tariffs or rates and charges
as required by said Acts or strictly to observe such tariffs
until changed according to law, shall be a misdemeanor, and
upon conviction thereof the corporation offending shall be
subject to a fine not less than one thousand dollars nor more
than twenty thousand dollars for each offense; and it shall be
unlawful for any person, persons, or corporation to offer,
grant, or give or to solicit, accept, or receive any rebate,
concession, or discrimination in respect of the transportation
of any property in interstate or foreign commerce by any
common carrier subject to said Act to regulate commerce and
the Acts amendatory thereto whereby any such property shall by
any device whatever be transported at a less rate than that
named in the tariffs published and filed by such carrier, as
is required by said Act to regulate commerce and the Acts
amendatory thereto, or whereby any other advantage is given or
discrimination is practiced. Every person or corporation who
shall offer, grant, or give or solicit, accept or receive any
such rebates, concession, or discrimination shall be deemed
guilty of a misdemeanor, and on conviction thereof shall be
punished by a fine of not less than one thousand dollars nor
more than twenty thousand dollars. In all convictions
occurring after the passage of this Act for offences under
said Acts to regulate commerce, whether committed before or
after the passage of this Act, or for offenses under this
section, no penalty shall be imposed on the convicted party
other than the fine prescribed by law, imprisonment wherever
now prescribed as part of the penalty being hereby abolished.
Every violation of this section shall be prosecuted in any
court of the United States having jurisdiction of crimes
within the district in which such violation was committed or
through which the transportation may have been conducted; and
whenever the offense is begun in one jurisdiction and
completed in another it may be dealt with, inquired of, tried,
determined, and punished in either jurisdiction in the same
manner as if the offense had been actually and wholly
committed therein.

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"In construing and enforcing the provisions of this section
the act, omission, or failure of any officer, agent, or other
person acting for or employed by any common carrier acting
within the scope of his employment shall in every case be also
deemed to be the act, omission, or failure of such carrier as
well as that of the person. Whenever any carrier files with
the Interstate Commerce Commission or publishes a particular
rate under the provisions of the Act to regulate commerce or
Acts amendatory thereto, or participates in any rates so filed
or published, that rate as against such carrier, its officers
or agents in any prosecution begun under this Act shall be
conclusively deemed to be the legal rate, and any departure
from such rate, or any offer to depart therefrom, shall be
deemed to be an offense under this section of this Act."

_Statutes at Large of the United States,
Fifty-seventh Congress, Session II, chapter 708._

In comment on the above Act, Professor Ripley wrote, sometime
after its passage:

"Two years ago, at the instance of the railways, which were
desirous of stopping large leakages of revenue due to rate
cutting, Congress enacted the so-called Elkins law. This was
distinctly a railway measure. Hence the ease and quiet of its
passage. It roused none of the corporate watch dogs of the
Senate, ostensibly guardians of the public welfare. Nor was it
a compromise. There was no need of compromise. Both railways
and shippers were agreed in the wish to eliminate rebates.