Popular Science Monthly/Volume 35/July 1889/Railway Maladjustments
By BENJAMIN REECE.
IT is a remarkable fact that in social and industrial concerns men never dream of restoring an equilibrium by withdrawing the forces which disturb it, but they invariably demand the exertion of new and opposite forces to neutralize the effect of those in operation which could more easily be removed. When the moving locomotive is to be brought to a stand, the engine-man shuts off the steam and applies the brakes; but the practical statesman, and indeed many economic students, never dream of this simple method in dealing with social problems; they almost always insist on bringing out another locomotive of equal weight and power to run counter to the one in motion and thereby neutralize its energy, and the forces generated in the two locomotives are thus lost in preserving an equilibrium which could have been more readily secured by closing the throttle-valve of the one which it was designed to stop. The railroad manager making such use of his motive power would be deemed insane, yet in our industrial concerns a similar application of social energy is declared to be the only practical method, and those who decry its folly are contemptuously termed impracticals.
The space devoted by the leading periodicals to the discussion and investigation of the causes which underlie the disordered and incongruous development of our railways, as well as the numerous remedies proposed, fully attest their state of utter instability, which, if not corrected, may ultimately lead to practical confiscation by means of legislation, or their purchase and control by Government. In whatever light we view the social and industrial relations of the railroads, we are confronted by that state of chaotic confusion which must ever result from a persistent transgression of natural law.
Yet, while railroad managers are pleading to be preserved by legislation from their reciprocal aggressions, while the railroads and the public are asking for laws to protect them from their mutual hostilities, while railroad companies and employés have vainly sought an equitable adjustment of their differences, and are each looking to legislation to define their rights and limit their obligations, it is worthy of all attention that in the physical and mechanical phases of its development the railroad is a marvel of orderly design, a monument of human energy, organization, and skill, to the perfection of which every branch of scientific research has contributed and revealed to man the proper adaptation of means to ends.
In a recent article it was pointed out that to increase the specific gravity of water would at once disturb its relations to every other form of matter, and that the equilibrium so destroyed could only be restored by a return to natural adjustments. Do not the disordered industrial relations of our railroads present a striking parallel?—for, with regard to their social and economic relations, viz., to the investors who own them, to the employés who operate them, and to the public who employ them, their adjustments are non-adapted, and have thus far proved nonadaptable; for innumerable laws, intended to be remedial, have only served to increase the disorder and perplexity. Is it not time that we ceased our vain attempts to neutralize by balancing unmeasured, unweighed, and complicated forces, and turn our attention to the discovery of the original sources of disturbance, so that by shutting off the steam and applying the brakes the equilibrium of adjustments will be reinstated?
In the examination of the many evils which it is sought to remedy, I will refer to articles in recent publications, contributed by gentlemen whose experience and intimate knowledge of details connected with railroad management enable them to speak with authority, and I can not but conclude that an analysis will show all the disturbances enumerated to have their origin in two groups of stimulating laws, and in their repeal will be found the only true and permanent remedy.
"The Political Control of Railways" is a general argument against legislation which prescribes and enforces regulations for the administration of railroad proprerties. The author calls for the repeal of the Interstate Commerce Bill, and of adverse laws enacted by the States; but such enactments had their origin in an effort to restore the equilibrium between the railroads and the public, and they stand as the reactions of, and not as the active causes of, the original disorder. It is true the repeal of these laws might restore harmony between the railroads, but only by a further unbalancing of the relations between the railroad companies and the public. The argument is substantially this: that having built roads without regard to commercial necessities or demands, investors should be permitted to unite in pools, etc., to secure the maintenance of profitable rates, and the author insists that legislation aiming to prevent such unions or agreements or regulating rates is in the nature of confiscation. This seems plausible, for it is only a half-statement of the case; as the Western granger, who has granted a free right of way and voted aid for the construction of competing lines of railways, views such alliances as treachery and dishonesty, to be prevented and punished by legal penalties.
The author of "Legislative Injustice to Railways" condemns attempts at State regulation, which from the very nature of things must more or less directly interfere with interstate commerce; but, upon the whole, he is disposed to look upon the Interstate Commerce Bill as a step in the right direction, and would only recommend certain modifications of the anti-pooling and the long and short haul clauses. But in the main this writer asks for legislation aimed directly at the inherent dishonesty of railroad management; viz., he wants laws compelling directors to publish truthful reports, and asks the appointment of public accountants to examine and attest all reports for publication. He asks a law making it incumbent upon railroads to elect at least one thoroughly trained and honest director, specially educated for the purpose. He also insists on legislation "to regulate the methods of construction companies," which, he says, "are probably doing more to demoralize the railroad system than any other factor," and he broadly intimates that these companies are nothing but organized schemes for the enrichment of thrifty directors at the expense of the stockholders.
"Bribery in Railway Elections" is an argument to show that the many evils complained of are the result of systematic bribery employed in the election of the directors who control the management of railway properties. The writer asserts that the practice is neither business-like nor moral, "and requires some weapon more potent than argument," hence he demands enactments prescribing heavy penalties. But surely bribery within the railway company can not be the cause of demoralization, for it is but a symptom of a diseased organism, and proves the evil to rest in the constitution of the railway corporation itself, which is the creature of statute law. What could better indicate the operation of foreign and abnormal forces than this acknowledgment that our railroads are controlled by forces neither "business-like nor moral"? Is it not evident that such an organism is of artificial origin, and is unfitted to survive unless its business and moral qualities are developed on a plane with the importance and far reaching influences of the properties controlled?
In "The Prevention of Railroad Strikes" as the title indicates, the author confines himself to the want of harmony existing between railroad companies and their employés, and suggests a plan for improving their relations by bringing the officials of the roads into closer personal contact with the men.
An examination of the evils, as above given from various sources, proves them to be symptoms of a chronic disease, at once suggesting a complication of disorders arising from two forms of original stimulation, which, although more or less reciprocal in their operations, are susceptible of a tolerably distinct line of division: viz., (1) legislative stimulation of railway construction; (2) legislation tending to push capital into unnatural combinations. These two groups of laws give rise to evils independent of each other, although when coexisting they interact, and not unfrequently the one furnishes the means while the other affords the occasion for dishonesty, as the construction companies heretofore alluded to make plain; e. g., while our loose laws, encouraging the construction of new railroads, have afforded the opportunity or occasion for directors to insidiously absorb the profits of stockholders by the extension of systems, the laws which have united "unbusiness-like and immoral forces" for the control of railway properties have placed in the hands of designing men the tools and means of doing so dishonestly.
In this present article let us confine the inquiry to the evils arising from laws intended to induce the speedy construction of railroads, and we will leave to a future number the examination of those evils which have developed within the railway corporation itself, of which railroad wrecking, false reports, bribery in railway election, and railroad strikes are familiar phases.
The splendid opportunities which the railroad afforded for the development of a country's resources were very quickly recognized by society at large, and, being impatient of the reasonable caution exercised by capital before embarking into vast and costly enterprises, the people through their Legislatures enacted laws especially calculated to promote and hasten the construction of railroads, never imagining that any evils could arise therefrom. The Western and central States particularly enacted laws providing for State subsidies and local aid, while the General Government joined the States in the surrender of the public lands to railroads. Nearly all the States passed general railroad laws substantially granting railway charters to any one who followed the legal forms in making application for them. These various laws have all contributed to destroy the equilibrium between the normal wants of a developing commerce and the natural development of railway systems within prudential limits to meet the growing demand, and much of the present demoralization is due to the rash, impetuous folly of those who hoped to enjoy the pleasures of stimulated activity and still escape the reacting evils.
When legislative inducements were made to investors for the construction of new railroads, capitalists were pleased to be relieved of ordinary prudence in making their investments, and upon the strength of such legislation continued to build railroads in excess of commercial wants, expecting to so adjust the traffic rates as to insure to them good profits; but this was never the purpose of the shippers or of the legislators who represented them, for, by the construction of numerous lines, they expected to arouse a spirit of competition among the railroads which would lead to cut rates and reduced cost of service. Thus the original laws which stimulated the organization and construction of railroads polarized the interests of the investors and the shippers, and made mutually repellent forces which should have mutually attracted. Each was deluded by false hopes, for neither considered the rights or interests of the other, and all subsequent legislation which has aimed to preserve the benefits of unwise and premature railroad construction to the public has shifted all the evils and consequent losses upon the railroad companies, while the efforts of railway companies to avoid all competition, by a division of revenues would throw the entire burden of supporting useless roads upon the public; and it is this unbalanced condition of affairs which has led to aggressions upon the part of railroads, adverse verdicts by juries, and hostile legislation by the States, all of which are in the nature of reactions due to the disturbance caused by the original laws.
For example, between the cities of Toledo and Detroit there are two lines of railway passing through the same towns, and for the greater part of the distance running side by side, their rights of way abutting. These two roads, being branches of the Lake Shore and Canada Southern respectively, were originally independent and competing lines, but, as one could have carried the business brought to the two, it is evident that the conflict was only a question of the survival of the fittest. In this as in most other cases the new road ultimately fell into the hands of those who owned the original line, and, though under different managers, are operated under one controlling policy; rates were equalized, train schedules harmonized, and the business which with the small additional cost of a second track could be more cheaply performed by one line must now earn the fixed charges and pay dividends on the stock certificates of two, all of which extra expense must be paid by the people. So long as the roads were in competition, they were a source of loss to the owners; when they harmonized their differences, they became a burden to the public; and the class of legislation which encouraged the construction of the second line, under the false pretext to the public that it would serve as a competing route, has really imposed upon the people the expense of supporting two railroads when their interests could be as well or better served by the support of one. The West Shore, Nickel Plate, and other lines were practically built for the purpose of sale to the old roads which they paralleled and threatened with ruinous competition, and, as in the first instance named, the people living along those lines are now compelled to pay for the maintenance of two railroads, while for all practical purposes they derive benefits from only one. Is it not evident that the construction of railroads in excess of commercial needs must entail a loss upon the investors or an additional cost to shippers; and so long as this unbalanced state exists the railroad companies can only be saved from losses by pooling with, purchasing, or gaining control of competing lines, and thereby throw the cost upon the people? Or if the latter, through legislation, the verdicts of their juries, and interpretations of their courts, can thwart such combinations, purchase, or control, then the full force of vicious legislation will be shifted to the railroads, and as investments those properties will be ruined.
The rights and obligations of railway companies and the public meet and harmonize at the point where, the facilities provided being ample for the business, the amount of traffic is sufficient to make a low cost of service remunerative to the investors; but this desideratum can not be attained by legislating to preserve railroad properties by restricting competition and legalizing pools, nor by anti-pooling clauses to foster competition; it will only come through the repeal of the disturbing laws which by stimulating the construction of railroads polarized interests which natural adjustments made identical; but normal adjustments are impossible so long as laws exist which offer advantages to the investor other than the natural and legitimate profits of the investment.
Let general railroad laws be repealed, and, before the legislative authority to exercise the right of eminent domain is extended to a railway company, let the public necessity for the construction of a railroad be fairly shown and affirmatively proved as required by the common law.
Is the present demoralization to be wondered at when, in most of the States, charters granted under general laws are deemed as prima facie evidence of the public necessity, although railroads so chartered may be projected side by side with those having facilities not half employed?
Not uncommonly it is claimed that the railroads have made the country what it is, but is it not equally true that the country has made its railroads what they are? The two statements complement each other, and afford further proof that a stable adjustment is only possible when the development of a country's commerce and its means of transport and communication advance together.
The State of Iowa early passed sundry laws very favorable to the construction of railroads, and, as a consequence, induced the premature development of several systems. For convenience of illustration, let us watch the early settlers of Iowa distribute themselves along three lines of railroad when they could have been better accommodated at less cost for highways, schools, churches, policing, and the administration of township and county affairs along the line of one; but in addition to these incidental burdens they found themselves compelled to pay high rates for railway service in order to pay the fixed charges and dividends on the stock of three railroads doing the business of one. If the legislators had been endowed with the common sense of the locomotive driver, they would have closed the throttle-valve and put on the brakes; but, instead of doing this, they allowed the disturbing laws to remain in force, and prescribed legal rates to be charged for railway services, hoping thereby to retain the benefits and still escape the evils of premature railroad extension, and from that day to this Iowa has vainly sought a satisfactory solution of the problem.
The evils to be corrected were those due to the premature or unnecessary construction of railroads: this could only be accomplished by deterring such construction; and in so far as the laws succeeded in so doing, the people were relieved of the evils but lost the advantages arising from the operations of the original law, and, in so far as the remedial laws failed to deter further construction, the evils as well as the supposed benefits of the original law remained in force.
As might be expected, the two classes of laws—the one stimulating direct, the other repressing railroad extensions by impairing their value as investments—did not operate to restore a stable equilibrium; for the adverse legislation was not aimed directly against premature and unnecessary construction, but it simply made the conditions of operating railroads more onerous.
Hence the influence of the two laws may be likened to a seesaw, and in their operations they have caused abrupt changes and violent oscillations. The first effect of adverse legislation tended to stop further building; but when populative increase caused the legal tariff rates to become remunerative to the railroads, the deferring laws became inoperative, the stimulating enactments once more hastened a development far in advance of the natural wants, and the pressure of adverse laws was again experienced; and so these spasmodic fluctuations have taken the place of the steady, rhythmic development which results from the operation of natural laws and is ever indicative of genuine progress and stability.
The pernicious influence of such conflicting legislation has led capital to alternate its moods between the extremes of inexcusable recklessness and unwarranted timidity; whereas the repeal of laws encouraging construction would withdraw the incentive of the reckless, while a similar repeal of laws discouraging construction would quiet the fears of the timid, and a healthy growth and a stable development would result.
Laws which have led to the construction of parallel lines of railway have diverted capital from the improvement of the country's highways; and even in Illinois and adjoining States, during certain seasons of the year, a ton of freight can be shipped a thousand miles to the seaboard at less cost than it can be hauled a distance of ten miles to market; yet, in spite of this grotesque condition, laws encouraging further railroad extensions still deface their statute-books.
The Interstate Commerce Bill aims to correct the evil, but it will fail, for it does not touch the cause. It attempts to cure evils which have come from unnecessary and premature construction by regulating the operation of railroads. Its direct and immediate effects appear to be good, for men do not concern themselves with the necessary reactions which are the true adjustments by which any laws or systems of laws must be judged.
Here is our railroad system in a state of utter demoralization and confusion, and yet the "Railway Age" of April 12th presents a table in detail showing that six hundred and sixty-six new lines are in contemplation, with an aggregated mileage of over fifty-three thousand miles, of which nearly fifteen thousand miles are under construction or contract, nearly ten thousand miles are surveyed, and twenty-nine thousand miles incorporated only. Does this not suggest the probable direction which the reaction to the Interstate Commerce Bill will take, unless stimulating laws are repealed, viz., a separation of the men who build the railroads on speculation under the one class of laws and the bona fide investors who will be compelled to purchase and operate them under the other class of laws? Can any one imagine the bewildering complications which the new adjustment threatens?
The Interstate Commerce Bill gives fair warning to investors that, if they avail themselves of laws which encourage the construction of railroads, they must suffer the consequences of their rashness, for they will be permitted neither to combine in pools nor discriminate in rates. This would be fair and logical if the parties constructing railroads were also the ones who operate them; but, unfortunately, our laws are so devised as to give aid and encouragement to persons who construct railroads without regard to public wants for speculation merely, and then so manipulate them as to compel old companies to purchase and operate the new lines in order to save losses on the old, which can not be done without additional cost to the people.
If we would restore harmonious relations between the railroads, we must repeal the laws which are more favorable to those who build than to those who operate them; and by such repeal the construction of railroads for purposes of blackmail and speculation will be made impossible, and the occupation of dishonest construction companies will be gone.
Is it not evident that to prevent ruinous competition and adverse legislation of which the railroads complain, and to avoid the discrimination, pools, and combines of which the public complain, we must close the throttle-valve and apply the brakes, and, by repealing, arrest the operation of those laws which have led to undue and premature railway construction; and, as population increases, existing railway systems will be more fully employed, and new systems will be extended only on their merits? Under such conditions disturbances will become less and less marked, pulsations less and less severe, and a stable equilibrium will be speedily restored.
An analysis of the testimony presented to the United States Senate Committee on Interstate Commerce, which entered upon its investigation after the above article was in type, fully confirms the position assumed. Mr. Fink stated to the committee that there were too many roads, and that, if the Grand Trunk and a half-dozen other lines did not exist, the public would be as well served as now. It was generally acknowledged that the law was not fully observed, and Mr. Depew did not hesitate to state that it never would be unless pools were legalized.
With few exceptions the railroad managers asked for the abrogation or modification of the anti-pooling and long and short haul clauses, which led Mr. Herrick, of the New York Produce Exchange, to remark, that "it seemed as if the railroads wanted to abrogate just what the public demanded should be enforced." Mr. Depew admitted that the law has prevented the building of useless roads, and that the condition of the railroads had improved, but not so much as would have been the case had they been permitted to pool. He said, "The law has proved beneficent to the public at the expense of the railroads"; but with legalized pools the converse might be stated, for they would improve the position of the railroads at the expense of the public.
Mr. John D. Kenna, ex-railroad commissioner and attorney for the Produce Exchange, insisted that the Interstate Commerce Act extended to the roads all the advantages which could be legitimately derived from a pool; and lie very justly observed that, when recklessness had reached its length, the railroad presidents and bankers ordered their employés to obey the law and stop building useless railroads.
Mr. John Newell, President of the Lake Shore, declared that "for fifteen years they had fruitlessly sought a solution of the difficulty"; the cause of failure is not obscure, for railway pools, like legislation, sought to annul the unfavorable conditions induced by over-construction; but moderating the evil effects simply resulted in the unchecked persistency of the cause; hence new roads were built, expecting to enjoy the artificial profits derived through combination, and, if denied a connection with the pool, the new roads entered the lists as freebooters and disturbers until their claims were allowed.
Since the Interstate Commerce Law is neither fully respected nor enforced, what its effect will be is undetermined; but as it aims to lessen the evils due to excessive railroad-building, it will tend to increase the energy of the original disturbing cause, and will probably result in specializing the speculative constructor as distinct from the operator of railroad properties; and as the impinging forces are intermittent in operation, it is at once suggestive of the attempt to balance an egg upon its end. Railroad managers would scale up rates by combination, the people would scale them down by competition; in either case the gain of the one is predicated upon the loss of the other.
In the normal adjustment of means to ends, of supply to natural demand, no such conflict appears, for the public could be better served at lower cost, while the railroads could secure fair profits from a larger traffic at lower rates.
The strength of this position does not rest upon the fact that "existing railroads have all they want," but on what Senator Blair failed to comprehend, that the public are already provided with more railroads than the traffic at reasonable rates can sustain; hence no possible legislation can be invoked which can prevent either a loss to the railroads or added burdens upon the people.
- "Law as a Disturber of Social Order," "Popular Science Monthly," March, 1889, p. 632.
- Appleton Morgan, "Popular Science Monthly," February, 1889.
- Henry Clews, "North American Review," March, 1889.
- Isaac L. Rice, "The Forum," March, 1889.
- Charles Francis Adams, "Scribner's Monthly," April, 1889.