Chapter XIV: Remedies (2)

"First would be the stability and practical uniformity of
rates, now impossible, as they are subject to change by
hundreds of officials, and are often made for the purpose of
enriching such officials....

"It would place the rate-making power in one body, with no
inducement to act otherwise than fairly and impartially, and
this would simplify the whole business and relegate an army
of traffic managers, general freight agents, soliciting
agents, brokers, scalpers and hordes of traffic association
officials to more useful callings, while relieving the
honest user of the railway of intolerable burdens.

"Under corporate control, railways and their officials have
taken possession of the majority of mines which furnish the
fuel so necessary to domestic and industrial life, and there
are few coal fields where they do not fix the price at which
so essential an article shall be sold, and the whole nation
is thus forced to pay undue tribute.

"Controlling rates and the distribution of cars, railway
officials have driven nearly all the mine owners, who have
not railways or railway officials for partners, to the wall.

"With the Government operating the railways, discriminations
would cease, as would individual and local oppression; and
we may be sure that an instant and absolute divorce would be
decreed between railways and their officials on one side,
and commercial enterprises of every name and kind on the
other.

"The failure to furnish equipment to do the business of the
tributary country promptly is one of the greater evils of
corporate administration, enabling officials to practice
most injurious and oppressive forms of discrimination, and
is one that neither Federal nor State commission pays much
attention to. With national ownership a sufficiency of cars
would be provided. On many roads the funds that should have
been devoted to furnishing the needed equipment, and which
the corporations contracted to provide when they accepted
their charters, have been divided as construction profits,
or, as in the case of the Santa Fe, Union Pacific, and many
others, diverted to the payment of unearned dividends, while
the public suffers from this failure to comply with charter
obligations.

"There would be such an adjustment of rates that traffic
would take the natural short route, and not, as under
corporate management, be sent around by the way of Robin
Hood's barn, when it might reach its destination by a route
but two-thirds as long, and thus save the unnecessary tax to
which the industries of the country are subjected. That
traffic can be sent by these roundabout routes at the same
or less rates than is charged by the shorter ones is _prima
facie_ evidence that rates are too high.

"There would be a great reduction in the number of men
employed in towns entered by more than one line. For
instance, take a town where there are three or more
railways, and we find three or more full-fledged staffs,
three or more expensive up-town freight and ticket offices,
three or more separate sets of all kinds of officials and
employes, and three or more separate depots and yards to be
maintained. Under Government control these staffs--except in
very large cities--would be reduced to one, and all trains
would run into one centrally located depot; freight and
passengers be transferred without present cost, annoyance
and friction, and public convenience and comfort subserved,
and added to in manner and degree almost inconceivable.

"The great number of expensive attorneys now employed, with
all the attendant corruption with the fountains of justice,
could be dispensed with, and there would be no corporations
to take from the bench the best legal minds, by offering
three or four times the Federal salary....

"Every citizen riding would pay fare, adding immensely to
the revenues. Few have any conception of the proportion who
travel free, and half a century's experience renders it
doubtful if the evil--so much greater than ever was the
franking privilege--can be eliminated otherwise than by
national ownership. From the experience of the writer, as an
auditor of railway accounts, and as an executive officer
issuing passes, he is able to say that fully ten per cent.
travel free, the result being that the great mass of railway
users are yearly mulcted some thirty millions of dollars for
the benefit of the favored minority; hence it is evident
that if all were required to pay for railway services as
they are for mail services, the rates might be reduced ten
per cent, or more, and the corporate revenues be no less,
and the operating expenses no more. In no other
country--unless it be under the same system in Canada--are
nine-tenths of the people taxed to pay the traveling
expenses of the other tenth. By what right do the
corporations tax the public that members of Congress,
legislators, judges and other court officials and their
families may ride free? Why is it that when a legislature
is in session passes are as plentiful as leaves in the
forest in autumn?...

"The corporations have ineffectually wrestled with the
commission evil, and any number of agreements have been
entered into to do away with it; but it is so thoroughly
entrenched, and so many officials have an interest in its
perpetuation, that they are utterly powerless in the
presence of a system which imposes great and needless
burdens upon their patrons, but which will die the day the
Government takes possession of the railways, as then there
will be no corporations ready to pay for the diversion of
traffic.

"As a rule, American railways pay the highest salaries in
the world for those engaged in directing business
operations, but such salaries are not paid because
transcendent talents are necessary to conduct the ordinary
operations of railway administration, but for the purpose of
checkmating the chicanery of corporate competitors. In other
words, these exceptionally high salaries are paid for the
purpose, and because their recipients are believed to have
the ability to hold up their end in unscrupulous corporate
warfare where, as one railway president expressed it, 'the
greatest liar comes out ahead....'

"Government control will enable railway users to dispense
with the services of such high-priced umpires as Mr. Aldace
F. Walker, as well as of all the other officials of
sixty-eight traffic associations, fruitlessly laboring to
prevent each of five hundred corporations from getting the
start of its fellows, and trying to prevent each of the five
hundred from absorbing an undue share of the traffic. It
appears that each of these costly peace-making attachments
has an average of seven corporations to watch....

"With National ownership the expenditures involved in the
maintenance of traffic associations would be saved and
railway users relieved of a tax that, judging from the
reports of a limited number of corporations of their
contribution towards the support of such organizations, must
annually amount to between $4,000,000 and $5,000,000.

"Of the six hundred corporations operating railways,
probably five hundred maintain costly general offices,
where president, secretary and treasurer pass the time
surrounded by an expensive staff. The majority of such
offices are off the lines of the respective corporations, in
the larger cities, where high rents are paid and great
expenses entailed, that proper attention may be given to
bolstering or depressing the price of the corporation's
shares, as the management may be long or short of the
market. So far as the utility of the railways is concerned,
as instruments of anything but speculation such offices and
officers might as well be located in the moon, and their
cost saved to the public....

"Railways spend enormous sums in advertising, the most of
which National ownership would save, as it would be no more
necessary to advertise the advantages of any particular line
than it is to advertise the advantages of any given mail
route.... A still greater expense is involved in the
maintenance of freight and passenger offices off the
respective lines, for the purpose of securing a portion of
competitive traffic. In this way vast sums are expended in
the payment of rents and the salaries of hordes of agents,
solicitors, clerks, etc., etc....

"Under Government control discriminations against localities
would cease, whereas now localities are discriminated
against because managers are interested in real estate
elsewhere, or are interested in diverting traffic in certain
directions....

"Another, and an incalculable benefit, which would result
from National ownership, would be the relief of State and
National legislation from the pressure and corrupting
practices of railway corporations, which constitute one of
the greatest dangers to which republican institutions can be
subjected. This alone renders the nationalization of the
railways most desirable, and at the same time would have the
effect of emancipating a large part of the press from a
galling thraldom to the corporations....

"Estimated net annual saving to the public which would
result from Government control:

From consolidation of depots and staffs $20,000,000
From exclusive use of shortest routes 25,000,000
In attorneys' fees and legal expenses 12,000,000
From the abrogation of the pass evil 30,000,000
From the abrogation of the commission evil 20,000,000
By dispensing with high-priced managers
and staffs 4,000,000
By disbanding traffic associations 4,000,000
By dispensing with presidents, etc 25,000,000
By abolishing all but local offices,
solicitors, etc. 15,000,000
Of five-sevenths of the advertising account 5,000,000
-----------
Total savings by reason of better administration $160,000,000

"It would appear that, after yearly setting aside
$50,000,000 as a sinking fund, there are the best reasons
for believing that the cost of the railway service would be
some $310,000,000 less than under corporate management.

"That $6,000,000,000 is much more than it would cost to
duplicate existing railways will not be questioned by the
disinterested familiar with late reductions in the cost of
construction, and that such a valuation is excessive is
manifest from the fact that it is much more than the market
value of all the railway bonds and shares in existence."

The above quotations from Mr. Davis' article hardly do it justice, and it should be read in full to appreciate its full force. Many of the predictions and estimates are undoubtedly in the main correct, yet upon the whole it must be admitted that it is a rather rosy and too hopeful view to take of Government ownership of our railroads.

_4. State ownership with private management._

This is a compromise between a public and a private system of railway ownership and management. It is claimed by the advocates of this system that if the Government would acquire by purchase or through condemnation proceedings all of the railroads of the country, pay for them by issuing its bonds, and then lease the various lines to the highest responsible bidders, prescribing a schedule and rules of management, most of the benefits resulting from state ownership of railroads could be secured while nearly all its disadvantages would be avoided. It is proposed to purchase railroads at their actual value and to issue in payment bonds bearing the same rate of interest as other Government securities. This would deprive managers of every opportunity to manipulate the railroad business for purposes of stock speculation. It would also reduce the fixed charges of our railroads at least 50 per cent., the benefits of which reduction the public would chiefly share. The acquisition of the railroads by the Government would, moreover, afford the conservative capitalist a safe and permanent investment, which, with the gradual disappearance of our war debt, might become a national desideratum.

It is proposed by the advocates of this system that the Government fix rates of transportation for a certain period, to be reviewed at the end of that period upon an agreed basis. The operating companies would be required to keep their roads in repair and give sufficient bonds for the faithful performance of their contracts. If found guilty of persistent violations of the terms of their leases or of such laws as Congress might enact for their control, their bonds and leases might be declared forfeited. A new Government department or bureau would have to be established and charged with the duty of exercising the same control over railroads which the Government now exercises over national banks, and in addition to this complete publicity of the service would have to be relied upon to prevent the introduction of abuses.

There are at least two valid objections that can be urged against the adoption of such a system. Responsible companies could not be induced to lease a line for a valid consideration unless their rates were definitely fixed for a series of years. Such a course might, however, in time result in great hardship to the commerce of the country, as the great and unavoidable difference in the rates of the various railroad lines of the country would give to the commercial interests of some sections decided advantages over those of others. Besides this it would be very difficult to compel the different companies to keep the lines leased by them in repair. Controversies would constantly arise between the officers charged with the supervision of the roads and the operating companies, which could be ultimately determined only by the courts, causing to the Government loss, or at least delay in the adjustments.

_5. National control._

Mr. A. B. Stickney, in his work, "The Railway Problem," holds that in the interest of uniformity it is desirable to transfer the entire control of railroads to the National Government. He assigns two reasons for the proposed change; one being that Congress would consider the subject of railroad control with more intelligence and greater deliberation; the other, that "the problem of regulating railway tolls and of managing railways is essentially and practically indivisible by the State lines or otherwise," and that the authority of Congress to deal with interstate traffic carries with it the right to regulate the traffic which is now assumed to be controlled by the several States.

It must be admitted that it is a difficult matter to draw the line of demarcation between National and State control, and that Congressional regulation of railways would remedy many evils which now affect our transportation system; yet there is reason to believe that the proposed change would in the end be productive of more evil than good. It is an essentially American maxim that the home government only should be trusted with the administration of home affairs. The people of each State know best their local needs, and it is safe to say that for a generation or two no serious effort will be made to amend the Federal Constitution in this respect or to secure from the courts an interpretation of the interstate commerce clause greatly differing from that which now obtains.

It is thus seen that nearly all the methods of railroad management which we have discussed are, at the present time at least, more or less impracticable on account of the radical changes which they would necessitate. It is not likely that for many years to come the American people could be induced to try any extensive experiments in state ownership of railroads; nor is it any more likely that the present generation will undertake the difficult task of separating the ownership of railroads from their operation.

A nation is, like the individual, inclined to follow beaten tracks. It finds it, as a rule, easier to improve these tracks than to abandon them and mark out a new course. Any proposition made for the improvement of our system of railroad transportation is in the same proportion likely to receive the approval of the masses in which it makes use of existing conditions. It will, therefore, be my aim, in making suggestions as to a more efficient control of this modern highway, to retain whatever good features the present system possesses, and to only propose such changes as may seem essential to restore to the railroad the character of a highway.

As has been indicated above, any system of railway regulation, to be applicable to our circumstances, must recognize the dual sovereignty of Nation and State. The great majority of our railroad corporations were originally created by the State, and are only responsible to the State as long as they do not engage in interstate commerce. Even foreign corporations must submit to all police regulations of the State in which they may do business, and as long as the American Constitution remains intact the individual States will, and should, assert their right to regulate local traffic and to exercise police supervision over all railroads crossing their boundaries.

All power should be kept as closely to the people as is consistent with efficiency in the public service. It may even be questioned whether entire transfer to the Federal Government of the supervisory powers now exercised by the States in railroad affairs would tend to correct existing railroad evils more speedily or more effectually than they can be corrected through the agency of local rule. The conditions, and therefore the wants, of the different States differ so greatly that general legislation must always fail when it attempts to regulate matters of merely local concern.

The means employed by the State for the regulation of the roads under its jurisdiction should be such as are least likely to lead to a conflict with Federal authority, and experience has shown that the authority of the General Government and that of an individual State over a railroad company, which is incorporated under the laws of the latter, but is engaged in interstate commerce, may be so harmonized as to avoid conflicts between the two sovereignties without any great sacrifice of power on the part of either. Judge Cooley said recently in reference to regulation by National and State commissions:

"There is no good reason in the nature of things why the
conformity should not be complete and perfect. It is
remarkable that up to this time there has been so little--I
will not say of conflict, but even of diversity of action
between the National and State commissions. Indeed, I recall
no instance at this time when anything done by the one has
seemed to me to afford just ground for complaint by the
other. This may justly be attributed to the fact that there
has been no purpose on the part of either to do any act that
could afford ground for just complaint on the part of
managers of the business regulated and no desire to do
anything else than to apply rules of right and equality for
the protection of the general public. The aim of all
regulation ought to be justice, and when it is apparent that
this is the purpose of the several commissions, the railroad
managers of the country may more reasonably be expected to
coöperate with them much more generally than they do now. If
these managers were to come generally and heartily into more
full and complete recognition of the rules of right and
justice that the law undertakes to lay down for the
performance of their duties in their management of the great
interests they represent, there cannot be the least doubt
that the general result would be, not only that their
service to the public would be more useful than it is now,
but that the revenues derived from their business would be
materially increased through the cutting off of many of the
drains upon them, which now, while affecting injuriously the
returns they can make to their stockholders, at the same
time have the effect of prejudicing the mind of the general
public against railroad management to an extent quite beyond
what is generally understood by those who suffer from it.
The prejudice is inevitable, and not at all unreasonable
when it is seen, as it very often is, that these drains
result from an unjust discrimination against the public or
some portion thereof, that they are of a character that
ought to need no law and no criminal or other penalties to
put them under the ban of condemnation in every office of
railroad management.

"I take the liberty of adding one more thought: that the
more perfect is railroad legislation, the less we shall hear
of transportation by rail being made a Government function,
the General Government making purchase of all the roads and
entering upon a course which will lead we know not where or
into what disasters."

There has been during the past twenty years a tendency in a majority of the States to place the local control of railroads in the hands of executive boards, usually styled "railroad commissioners." Previous to this period the various States relied solely upon legislation for the regulation of the transportation business, but in time they became convinced that such laws were inoperative for the want of an enforcing power. It was found that the individual shipper was unable to cope with a powerful company and usually would rather suffer wrong than to enter into a contest which nearly always resulted in great pecuniary loss to him. On the other hand, it was apparent that if the claim of the individual were pressed by a railroad commission, even though such a body had but limited powers, it would, under ordinary circumstances, be honored, provided it was meritorious; and if the commission was compelled to enforce a demand through the courts, it would have the support of the State to poise the wealth and power of the corporation.

The term "railroad commissioner" in the United States is nearly as old as the railroad itself; but the first officials bearing that title were merely successors to the turnpike commissioners of yore; their duties consisted chiefly in supervising, passing or reporting upon the construction and condition of the highway.

The first railroad commission, in the present acceptation of the term, was created in the State of Massachusetts, in 1869. The commission consisted of three persons, whose principal duty was to "make an annual report to the General Court, including such statements, facts and explanations as will disclose the actual working of the system of railroad transportation in its bearing upon the business and prosperity of the commonwealth, and such suggestions as to its general railroad policy, or any part thereof, or the condition, affairs or conduct of any railroad corporation, as may seem to it appropriate." This board also had the general supervision of all railroads and power to examine the same. It was required to give notice in writing to any railroad corporation which, in its judgment, was guilty of any violation of the railroad laws of the State; and if such company continued the violation, after such notice, it became the duty of the commission to present the facts to the Attorney-General. It was further made the duty of the board to examine, from time to time, the books and accounts of all railroads, to see that they were kept in a uniform manner, and upon the system prescribed by the board. It was also required to investigate the cause of any accident on a railroad resulting in loss of life. These being the principal duties of the board, its powers were very limited; but its personnel supplied the power which the law had withheld. The success of this commission exceeded even the expectations of the advocates of the system, who, in view of the limited powers of the commission, had anticipated but meager results.

To quiet the Granger movement the railroads favored and finally secured the adoption of the commissioner system in the West, and South, in which sections it attained its highest development. It was soon found that a commission after the Massachusetts model, when composed of men less competent or less disposed to do their duty, was liable to dwindle into a statistical board or even become a pliant tool in the hands of the railroads. Furthermore, the conditions in Massachusetts, where railroad owners and railroad patrons lived side by side and were in many instances even identical, differed materially from those found in the West and South, where railroad patrons were made to pay excessive rates, to produce liberal dividends on fictitious stocks for non-resident stockholders. Here a conflict between the railroads and such commissions as were determined to do their duty became often unavoidable. Railroad companies were as a rule disposed to disregard the recommendation of a commission to reduce exorbitant rates. This led in those States which suffered most from unjust tariffs to a popular demand to endow the commission with the power to fix _prima facie_ rates. While the number of States which have taken this step is at present still limited, public opinion in its favor is growing throughout the nation, and a general adoption of this policy is probably only a question of time. There is every reason for believing that a commission vested with the right to fix local rates, to require full and complete reports from railroad companies, and to make proper regulations for their control, aided by penal legislation to compel compliance with their orders, will be a sufficient aid to the State in exercising such control over the companies operating lines within its borders as its dignity and the welfare of its people demand.

Viewing the question from a national point of view, we find that, owing to the great and constantly increasing importance of interstate traffic, improved Federal agencies for railroad control are a pressing need. While much has been accomplished by the Interstate Commerce Act, much yet remains to be done. Violations of the act are still far too frequent, and they have been encouraged by unfriendly decisions by some of the inferior Federal courts.

It must be admitted that nearly all the evils connected with interstate transportation could soon be remedied were it not for the difficulties which the Interstate Commerce Commission encounters in the enforcement of the law. On the one hand it is not possible with the machinery at present provided to detect and prove a considerable part of the violations of which railroad managers are daily guilty; and on the other hand, if these violations are brought to light, there would not, according to the testimony of a prominent railroad man, be courts enough in the country to try the violators. Besides this, such is the artfulness of railroad managers that in a majority of cases it would be impossible to reach the guilty party, and subordinates would have to answer for the transgressions of their superiors.

To provide adequate machinery for the supervision of the transportation business, a national bureau of commerce and transportation should be established. As its chief a director-general of railroads should be appointed by the President, on the recommendation of the Secretary of the Interior, by and with the advice and consent of the Senate. This officer should hold his office for a term of at least six years, unless sooner removed by the President, upon reasons to be communicated by him to the Senate. He should not be interested either directly or indirectly in railroad securities. The Interstate Commerce Commission should be continued as an advisory board. It should upon the whole retain its present functions and should be consulted by the director-general in all matters requiring expert investigation. A number of divisions or sub-bureaus should be established, and each should be entrusted, under the supervision of the director-general, with such duties as may be deemed necessary to secure the greatest efficiency.

There should be a division charged with the duty of carefully examining and compiling the detailed reports which the various companies should by law be required to make to the bureau. An inspection service should also be established, similar to that now maintained by the Treasury and Post-office Departments. Its officers should be empowered to enter all railroad offices and examine the companies' books, board trains and employ other legal means to detect violations of the railroad law and report them to the chief of the bureau.

Railroad companies might be permitted to make interstate rates, but all schedules should be submitted to the bureau for approval or revision. Legal provision should be made against every sort of speculation in railroad stocks on the part of railroad officers, who should, in addition, be prohibited from sharing in the profits of favorite rates, as at present. All executive officers and directors of railroad companies should, like officers of national banks, be required to qualify by taking an oath of office, and should be held to strict accountability for their official acts. Officers of railroad companies should not be allowed to receive and use proxies at stockholders' meetings.

The director-general should have the power, when he has proof that a railroad manager is persistently violating the law, to remove him and to appoint a receiver to take charge of the road until its owners can make provision and furnish sufficient guarantee for a more responsible management. Such a procedure would not be without analogy in the sphere of Federal authority. The Comptroller of the Currency is authorized by law to remove the derelict officials of a national bank and place its business in charge of a receiver. The beneficial effect of this provision is evinced in the extreme rareness of such a step. When railroad managers are held responsible for their own official acts, as well as for those of their subordinates, and when all railroad transgressions are visited upon their source in such a manner as to be remembered by the stings of disgrace and of a blighted career, unfaithful railroad managers will be extremely rare.

The plan here outlined is of course capable of being greatly improved. Experience only is a reliable guide as to the merits of the various details of such a system of control. What is needed above all things is a beginning, the establishment of the principle of complete control of railroad transportation by the State and the Nation. When this step is once taken, the friends of railroad reform may safely trust to time for the solution of the subordinate questions of this important problem.

By thorough State and Federal supervision of the railroad business many of the present abuses can be prevented. But the temptations of railroad managers to violate the law will continue to exist as long as the speculative element is permitted to remain in railroad securities. To remove the fountain-head of the evil eventually, the way should gradually be paved for a change in railroad organization and ownership which would also greatly increase the responsibility and efficiency of railroad management. In the beginning of the railroad era, nearly all, and not unfrequently all the capital needed for the construction of a new line was supposed to be furnished by the company's stockholders. But as it often happened that the cost of construction considerably exceeded the original estimate, the State authorized railroad companies to mortgage their property for the purpose of raising the money necessary to complete the road. In time this provision of the law was taken advantage of by speculative stockholders to such an extent that roads were often bonded for the full amount necessary to construct them, and even for more, while the stock was issued simply as a bonus to the promoters and the bondholders of the road. But as the bonds and shares scarcely ever remain in the same hands, such a condition was eventually brought about that roads were controlled by those who had little or nothing invested in the enterprise, and their real owners were deprived of all influence in their management, retaining only the right to foreclose their mortgages when things came to the worst. It is evident that men who have only a speculative interest in property cannot have the same concern for its permanent value and prosperity as those who hold it as a permanent investment. Many of the railroad abuses of the past had their origin in the law permitting the bonding of railroad property. Were it desirable to make a property for the sole use and convenience of speculators and gamblers, a better scheme could hardly be devised than the present system of our railroad organizations. Were railroad companies organized like national banks, were each shareholder required to pay the full amount of the face value of his shares, and were mortgaging railroad property entirely prohibited, it is not likely that the proportion of bankrupted railroads would be any larger than that of bankrupted banks. Few, if any, railroads would be built for purely speculative or blackmailing purposes.

Capital is naturally conservative, and speculation is only invited where the chances of gain are greatly out of proportion to the capital invested. Were the principle of ownership which applies to national banks and other well regulated corporations also applied to the railroads, and were bonds entirely abolished, only such persons would by the shareholders be placed in charge of their property as could give to them the best assurance of honest and conservative management. Such a change would greatly increase public confidence in, and the value of, railroad securities, and would eventually place them above bank stock as desirable investments. With the great fluctuations which under present circumstances obtain in railroad stocks, these securities are regarded as unsafe and unsatisfactory investments by conservative people. During a period of less than twelve months in 1891 and 1892 the stock of the Atchison, Topeka and Santa Fe fluctuated from 28-1/2 to 43-1/2, or 53 per cent.; that of the Chesapeake and Ohio from 15-1/4 to 25-7/8, or 70 per cent.; of the Chicago and Northwestern from 101 to 118, or 17 per cent.; of the Chicago, Saint Paul, Minneapolis and Omaha from 20-1/2 to 38-1/2, or 88 per cent.; of the Chicago, Milwaukee and St. Paul from 48-3/4 to 78-1/2, or 61 per cent.; of the Iowa Central from 6-1/2 to 13, or 100 per cent.

If we look over the stock quotations of the past ten or twelve years we find still greater fluctuations. The following table, taken from the _United States Investor_, shows the range of prices of a few of the principal stocks during this period:

Name. Lowest. Highest.

Central Pacific 26-1/2 (1888) 102-7/8 (1881)
Chesapeake and Ohio 1 (1888) 33-7/8 (1881)
Erie 9-1/4 (1885) 52-7/8 (1881)
Illinois Central 79-1/4 (1879) 150-1/2 (1882)
Lake Erie and Western 1-3/8 (1885) 65-3/4 (1881)
Michigan Central 46-1/2 (1885) 130-1/8 (1880)
New Jersey Central 31 (1885) 131 (1889)
New York Central 81-3/4 (1885) 155-3/8 (1880)
Northern Pacific 14 (1884) 54-3/8 (1882)
Rock Island 63-3/8 (1891) 204 (1880)
C., M. & St. P. 34-3/8 (1879) 129-1/4 (1881)
Texas and Pacific 5-1/2 (1884) 73-5/8 (1881)
Wabash 2 (1885) 60 (1881)
Atchison and Topeka 23-3/4 (1890) 152-1/2 (1880)
Chicago, Burlington and
Quincy 75-7/8 (1891) 182-1/2 (1881)
N. Y. & N. E. 9 (1884) 86 (1881)
Wisconsin Central 2 (1880) 39 (1881)
Union Pacific 28 (1884) 131 (1881)

And such fluctuations have always been rather the rule than the exception. It is a gross outrage upon the investing public to let this state of affairs continue. It should be corrected without delay.

How many high officials in charge of railroad property will under these circumstances resist the temptation to speculate in the stock of their companies, and, so long as it is permitted, how many will resist the temptation to adopt such policies in the government of their roads as will cause such fluctuations? It is a common report that it is not an unfrequent occurrence for Senators and members of Congress to receive information from railway officials that enables them to raise their campaign funds by speculation in Wall Street.

Mr. Henry C. Adams, statistician of the Interstate Commerce Commission, says in his third annual report:

"It certainly appears ... that the motive for ownership in
railroad stock is quite different from the ordinary motives
which lead men to invest in corporate enterprises, thus
presenting an additional proof that railways are a business
not subject to ordinary business rules."

There is no safer business in the world than railroad transportation; there is none that has less elements of uncertainty; none whose returns in the aggregate are less varying. Every other business in the country, whether prospering or struggling, pays tribute to it. It rests on a cash basis, and suffers probably less from hard times than any business of its magnitude. Both the merchant and the manufacturer run large risks in doing business largely on a credit basis. The farmer sows in the spring, harvests in the fall, and often cannot realize on his products until winter; but the railroad company always receives its pay as soon as its work is done, and not unfrequently even before it is done. Statistics show that railroad revenues are, in the aggregate, remarkably uniform, and there is no reason why railroad securities should be less stable than bank or insurance stocks. Mr. Jeans says:

"It is observable, in respect to the net profits from
railway working, that they have not fluctuated from year to
year in the same way as nearly all other profits have
done.... It comes, then, to this, that, next after land and
house property, the railway interest is the largest and most
important in the country. But it is superior to both of
these rival interests in its profit-earning capabilities,
yielding, as it does, more than 4 per cent. on the capital
expended, against a possible average of 2-1/2 to 3 per cent.
in respect to the others."

There may be some arguments in favor of bonding railroads, but this practice is, upon the whole, productive of infinitely more evil than good. The State should, therefore, compel railroad companies to liquidate all of their bonded indebtedness without unnecessary delay. In the proportion in which this is accomplished railroad shares will gain in stability and value.

Railroad men complain that the small savings of the poor invested in railroad securities do not yield adequate returns and are often lost in consequence of the foreclosing of the roads in which these investments have been made. Others complain that railroads are bankrupted in the interest of designing bondholders. Still others charge that rich and powerful roads contrive to obtain a controlling interest in the depreciated stock of weaker roads and then manage these roads in their own interest and greatly to the detriment of other stockholders. All these evils would disappear if the law required the identity of actual and virtual ownership. "Freezing-out" processes could no longer be resorted to by expert directors to obtain without compensation the property of their less sophisticated fellow stockholders. One railroad could no longer obtain control of another by acquiring an insignificant part of the sum total of its securities. There would be no longer any clashing between the interests of bondholders and stockholders, and railroads would no longer be managed in the interest of a small minority of their owners.

In addition to the cancellation of all railroad mortgages the State should require that all railroad stocks should, in the future, be paid in full. Furthermore, roads should be built only from the proceeds of the capital stock, and the expense of repairs should be defrayed from the revenues of the road. Dividends should only be paid from surplus earnings and should in no case exceed a fair rate of interest on the actual present value of the road. The statistician to the Interstate Commerce Commission suggests the creation of a special commission charged with the duty of converting the actual capitalization of railroad lines into a just value of their property. To do justice to both the railroads and their patrons in the fixing of rates, it is important that the just value of railroad property be ascertained, but the work could probably be done with less friction by a coöperation of National and State commissions. A number of reforms are needed within the province of railroad management. Passenger rates are, as a rule, too high, and out of all proportion to freight rates. Many passenger tariffs still recognize the old stage-coach principle of fixing the fare in an exact proportion to the distance traveled. Thus a passenger who takes the train for a five-mile trip pays only fifteen cents for his own transportation and that of one hundred pounds of baggage, while the passenger who buys a ticket for a journey of one hundred miles pays, on most American lines, exactly twenty times the amount paid by the five-mile passenger. Here the principle of collecting terminal charges is entirely ignored. Sufficient inducements are not held out to the passenger to prolong his journey, and as a consequence of this short-sighted policy of the railroad companies the average distance traveled in the United States by each passenger, instead of having gradually increased, has gradually decreased of late years until it is now only 24.18 miles. The average freight haul in the United States is 120 miles, or about five times as long as the average journey per passenger. How can such a difference be accounted for except by the dissimilarity in the principles which govern the computation of passenger and freight charges? The same rule should be adopted in fixing passenger rates that is recognized by railroad men in fixing freight rates: the rate per mile should decrease with the increase of the number of miles traveled.

The principle of arranging passenger tariffs on a sliding scale has found recognition in Europe. In Denmark first-class passenger fare is 3.13 cents for each of the first 47 miles, 2.67 cents for each of the next 47 miles, and only 2.22 cents for every additional mile. The practical application of this principle is, in fact, only limited by the extent of the kingdom. In nearly all European countries a uniform reduction, ranging from 20 to 30 per cent., is made from regular rates for return trip tickets, and coupon tickets are issued to tourists almost everywhere at largely reduced rates.

Hungary recently adopted a new method of making passenger and freight tariffs for its state lines. This is now generally called the zone system. There are two classes of tickets sold, one for short trips on suburban or branch lines, the other for longer journeys on the main lines. The distances that can be traveled on short or suburban lines are divided into two zones of stations, and those on main lines into fourteen zones. The division of the kingdom into zones is made with Buda-Pesth as the center. A ticket purchased for a particular zone carries the passenger to the end of that zone or any nearer station.

The following table will show the extent of each zone and the fares paid:

--------------+---------------+--------------------+--------------------
| | LOCAL TRAINS. | FAST TRAINS.
ZONE | DISTANCE |------+------+------+------+------+------
| |First |Second|Third |First |Second|Third
| |Class.|Class.|Class.|Class.|Class.|Class.
--------------+---------------+------+------+------+------+------+------
Short Lines.| | Fl. | Fl. | Fl. | Fl. | Fl. | Fl.
|First Station. | 0.30 | 0.15 | .10 | - | - | -
|Second Station.| .40 | .22 | .15 | - | - | -
Main Lines. | | | | | | |
1 | 1-25 km. | .50 | .40 | .25 | 0.60 | 0.50 | 0.30
2 | 26-40 " | 1.00 | .80 | .50 | 1.20 | 1.00 | .60
3 | 41-55 " | 1.50 | 1.20 | .75 | 1.80 | 1.50 | .90
4 | 56-70 " | 2.00 | 1.60 | 1.00 | 2.40 | 2.00 | 1.20
5 | 71-85 " | 2.50 | 2.00 | 1.25 | 3.00 | 2.50 | 1.50
6 | 86-100 " | 3.00 | 2.40 | 1.50 | 3.60 | 3.00 | 1.80
7 | 101-115 " | 3.50 | 2.80 | 1.75 | 4.20 | 3.50 | 2.10
8 | 116-130 " | 4.00 | 3.20 | 2.00 | 4.80 | 4.00 | 2.40
9 | 131-145 " | 4.50 | 3.60 | 2.25 | 5.40 | 4.50 | 2.70
10 | 146-160 " | 5.00 | 4.00 | 2.50 | 6.00 | 5.00 | 3.00
11 | 161-175 " | 5.50 | 4.40 | 2.75 | 6.60 | 5.50 | 3.30
12 | 176-200 " | 6.00 | 4.80 | 3.00 | 7.20 | 6.00 | 3.60
13 | 201-225 " | 7.00 | 5.30 | 3.50 | 8.40 | 6.50 | 4.20
14 | 225 km. | | | | | |
| and over | 8.00 | 5.80 | 4.00 | 9.60 | 7.00 | 4.80

(The florin is a little more than one-third of a dollar.)

A ride from a city to the first suburban station costs from 3 to 10 cents, according to class of car, and to the second station 5 to 13.6 cents. On through trains a person may travel 15 miles at a cost of from 8-1/2 to 20 cents, according to kind of train and class of car, a hundred miles for from 85 cents to $2.00; 140 miles for from $1.15 to $2.80 and any distance above 140 miles for from $1.35 to $3.25. A person may thus travel from Buda-Pesth to Predeal, a distance of 472 miles, with a third-class ticket for zone 14, purchased at a cost of $1.35, or 28-100 of a cent per mile.

Our railroad men with much complacency point to the fact that these rates do not cover the forwarding of passengers' baggage and that this service must be paid for separately. These charges, however, are very moderate, being on 120 pounds of baggage 8-1/3 cents a distance of 34 miles or less, about 17 cents for a distance of more than 34 and less than 62 miles, and about 34 cents for any distance over 62 miles. The additional charge for carrying 120 pounds of baggage from Buda-Pesth to Predeal is therefore about one-fourteenth of one cent per mile. It must be admitted that this system of charging separately for passenger and baggage is eminently just, for there is no good reason why the passenger without baggage should be taxed to pay for the carriage of that of his fellow-traveler.

The zone tariff was introduced on the state railways of Hungary by M. Barosz, the Hungarian Minister of Commerce, on the 1st of August, 1889. The adoption of the new tariff was ridiculed and condemned as visionary by road experts, who even went so far as to prove to the satisfaction of practical railroad men that the innovation was destined to be a failure. For a month or two it almost seemed as if their prediction might be fulfilled, the number of passengers carried remaining behind the number carried during the corresponding period of previous years. But soon the reaction set in. The month of November, 1889, already witnessed an increase in the number of passengers as well as in receipts over the same month of the year previous. The result of the first year's trial demonstrated the wisdom of the "innovation." The number of passengers carried, which had been only 5,186,227 in 1888-89, rose to 13,060,751 in 1889-90, and the total receipts for passengers and baggage rose from 9,138,715 florins to 11,186,321 florins, a gain of 2,047,606 florins, or 22 per cent., during the first year. There is a continued increase both in the number of passengers and in receipts, and the success of the system must be pronounced phenomenal. The railroad experts of Europe, who had predicted the signal failure of the zone system, now that the unexpected has happened, are trying to discover the particular favorable conditions which made the success of the system possible in Hungary. It will probably be a decade, or even two, before the railroad experts of both hemispheres will be entirely reconciled to this new application of the old principle that a reduction in the price of a commodity increases the demand for it.

It is strange, indeed, that intelligent men should be so slow in recognizing an economic principle for which both history and daily experience furnish an unlimited number of illustrations. The post-office receipts everywhere have increased with a reduction in postage. The Government telegraph in England did not become self-supporting until Parliament made a sweeping reduction in its rates. The revenue from the Brooklyn bridge never paid a fair interest on the capital expended in its construction until its tolls were cut down. Were it necessary, hundreds of other examples could be added to these.

Hungary has also applied the zone system to its freight traffic. Three zones are fixed for the carrying of goods, viz.: Zone I, for distances less than 200 kilometers (124 miles); Zone II, for distances over 200 and less than 400 kilometers, and Zone III, for distances over 400 kilometers. A uniform tariff is established for each zone, which is one-third less than the average freight rates for equal distances formerly in force. American railroads should profit by the wisdom and experience of the Hungarian Government, and adopt at an early day such features of its system as upon our soil and under our institutions may be made practicable. The Hungarian system, with some modifications, is now being tried by Austria and a few of the German states, and is increasing railroad revenues wherever adopted.

There is a growing demand for lower fares. This demand increases in the same proportion in which the desire and the necessity for travel increase. European states have not been slow to meet it. Reductions are made everywhere, and chiefly favor the lower classes. Thus, when France, within the last year, changed her passenger tariff, she reduced first-class fare 9 per cent., second-class fare 18 per cent., and third-class 27 per cent.

The European passenger reports show the numbers of first and second-class passengers are continually falling off, while those of the third-class passengers are fast increasing. In England and Wales the number of first-class passengers fell between 1875 and 1889 from 37,000,000 to 24,000,000 while the number of third-class passengers increased during that same period from 350,000,000 to 601,000,000, and this increase still continues. In the United Kingdom the number of third-class passengers for 1891 was over 750,000,000. Furthermore, passenger revenue comes chiefly from the third class. In the United Kingdom the receipts from first-class passengers were in 1889 £3,188,000; from second-class passengers, £2,705,000; and from third-class passengers, £19,785,000. It is thus seen that receipts from third-class passengers are nearly 3-1/2 times as large as those from the first and second-class passengers combined. A similar proportion is found in nearly every country on the continent. European roads discovered some years ago that first and second-class passengers were carried at a loss, and all the passenger earnings were derived from third-class passengers. The profits from this source show a considerable increase every year.

The average fare per mile is 2.15 cents in the United States, and only 1.17 cents in Germany, 1.67 cents in Austria, 1.18 cents in Belgium, 1.29 cents in Denmark, 1.45 cents in France, 1.64 cents in Italy, and 1.45 cents in Russia. It is often claimed by railroad men that we travel more luxuriously than the people of any other country in the world, but it should not be forgotten that traveling in the United States is also more expensive than anywhere else. It is contended that class distinctions are odious in America, and that second and third-class cars would not be patronized. The same argument might be applied to theaters, hotels, clothiers, grocers, etc. It is difficult to see why distinction here should be less odious than on the railroad train. The truth is, Americans are just like other people and will avail themselves of accommodations in keeping with their means if they have the opportunity. Many passengers who will not travel in an uncouth smoking-car would, if clean second-class cars were provided, gladly dispense with the luxury of an upholstered seat if by doing so they could save from $5 to $10 a day.

A common laborer in this country earns from a dollar to a dollar and a half a day, and in the performance of his labor as a rule suffers greater inconvenience than does the traveler who travels the country in a second-class car. Is it under these circumstances at all likely that the American would hesitate to travel for a day in a plain but clean car, if by doing so he could save a week's earnings? We may even go further and say that it is a very reasonable assumption that the man who earns his bread by the sweat of his brow would choose the cheaper car if the difference in one day's fare were equal to one day's wages. It is a common saying in Europe that the first-class passengers consist of lords and fools, and few of the hundreds of thousands of American tourists traveling abroad give the natives occasion to class them with either. The first-class car has almost fallen into disuse in Europe, and even the patronage of the second-class is less than ten per cent, of that of the third.

Reduced rates for return tickets should be provided under rules and regulations of commissioners.

The Massachusetts legislature recently passed a law requiring the railways of that State to sell interchangeable thousand-mile tickets for $20. The State commission is given power to except any company from its requirements if the public welfare or the financial condition require or demand it. This is a step in the right direction and should be followed by other States. Michigan also requires certain roads to carry first-class passengers at two cents per mile.