Curbing the Railroads

Though the society of the Patrons of Husbandry was avowedly non-political in character, there is ample justification for the use of the term "Granger" in connection with the radical railroad legislation enacted in the Northwestern States during the seventies. The fact that the Grange did not take direct political action is immaterial: certainly the order made political action on the part of the farmers possible by establishing among them a feeling of mutual confidence and trust whereby they could organize to work harmoniously for their common cause. Before the advent of the Patrons of Husbandry the farmers were so isolated from each other that coÖperation was impossible. It is hard for us to imagine, familiar as we are with the rural free delivery of mail, with the country telephone line, with the automobile, how completely the average farmer of 1865 was cut off from communication with the outside world. His dissociation from any but his nearest neighbors made him unsocial, narrow-minded, bigoted, and suspicious. He believed that every man's hand was against him, and he was therefore often led to turn his hand against every man. Not until he was convinced that he might at least trust the Grangers did he lay aside his suspicions and join with other farmers in the attempt to obtain what they considered just railroad legislation.

Certain it is, moreover, that the Grangers made use of the popular hostility to the railroads in securing membership for the order. "CoÖperation" and "Down with Monopoly" were two of the slogans most commonly used by the Grange between 1870 and 1875 and were in large part responsible for its great expansion. Widely circulated reprints of articles exposing graft and corruption made excellent fuel for the flames of agitation.

How much of the farmers' bitterness against the railroads was justified it is difficult to determine. Some of it was undoubtedly due to prejudice, to the hostility of the "producer" for the "nonproducer," and to the suspicion which the Western farmer felt for the Eastern magnate. But much of the suspicion was not without foundation. In some cases manipulation of railway stock had absolutely cheated farmers and agricultural towns and counties out of their investments. It is a well-known fact that the corporations were not averse to creating among legislators a disposition to favor their interests. Passes were commonly given by the railroads to all public officials, from the local supervisors to the judges of the Supreme Court, and opportunities were offered to legislators to buy stock far below the market price. In such subtle ways the railroads insinuated themselves into favor among the makers and interpreters of law. Then, too, the farmers felt that the railway companies made rates unnecessarily high and frequently practised unfair discrimination against certain sections and individuals. When the Iowa farmer was obliged to burn corn for fuel, because at fifteen cents a bushel it was cheaper than coal, though at the same time it was selling for a dollar in the East, he felt that there was something wrong, and quite naturally accused the railroads of extortion.

The fundamental issue involved in Illinois, Minnesota, Iowa, and Wisconsin, where the battle was begun and fought to a finish, was whether or not a State had power to regulate the tariffs of railway companies incorporated under its laws. Railway companies, many jurists argued, were private concerns transacting business according to the laws of the State and no more to be controlled in making rates than dry goods companies in fixing the price of spools of thread; rates, like the price of merchandise, were determined by the volume of trade and the amount of competition, and for a State to interfere with them was nothing less than tyranny. On the other hand, those who advocated regulation argued that railroads, though private corporations, were from the nature of their business public servants and, as such, should be subject to state regulation and control.

Some States, foreseeing difficulties which might arise later from the doctrine that a charter is a contract, as set forth by the United States Supreme Court in the famous Dartmouth College case, ¹ had quite early in their history attempted to safeguard their right to legislate concerning corporations. A clause had been inserted in the state constitution of Wisconsin which declared that all laws creating corporations might at any time be altered or repealed by the legislatures. The constitution of Minnesota asserted specifically that the railroads, as common carriers enjoying right of way, were bound to carry freight on equal and reasonable terms. When the Legislature of Iowa turned over to the railroad companies lands granted by the Federal Government, it did so with the reservation that the companies should be subject to the rules and regulations of the General Assembly. Thus these States were fortified not only by arguments from general governmental theory but also by written articles, more or less specifically phrased, on which they relied to establish their right to control the railroads.

The first gun in this fight for railroad regulation was fired in Illinois. As early as 1869, after several years of agitation, the legislature passed an act declaring that railroads should be limited to "just, reasonable, and uniform rates," but, as no provision was made for determining what such rates were, the act was a mere encumbrance on the statute books. In the new state constitution of 1870, however, the framers, influenced by a growing demand on the part of the farmers which manifested itself in a Producers' Convention, inserted a section directing the legislature to "pass laws to correct abuses and to prevent unjust discrimination and extortion in the rates of freight and passenger tariffs on the different railroads in this State." The legislature at its next session appears to have made an honest attempt to obey these instructions. One act established maximum passenger fares varying from two and one-half to five and one-half cents a mile for the different classes into which the roads were divided. Another provided, in effect, that freight charges should be based entirely upon distance traversed and prohibited any increases over rates in 1870. This amounted to an attempt to force all rates to the level of the lowest competitive rates of that year. Finally, a third act established a board of railroad and warehouse commissioners charged with the enforcement of these and other laws and with the collection of information.

The railroad companies, denying the right of the State to regulate their business, flatly refused to obey the laws; and the state supreme court declared the act regulating freight rates unconstitutional on the ground that it attempted to prevent not only unjust discrimination but any discrimination at all. The legislature then passed the Act of 1873, which avoided the constitutional pitfall by providing that discriminatory rates should be considered as prima facie but not absolute evidence of unjust discrimination. The railroads were thus permitted to adduce evidence to show that the discrimination was justified, but the act expressly stated that the existence of competition at some points and its nonexistence at others should not be deemed a sufficient justification of discrimination. In order to prevent the roads from raising all rates to the level of the highest instead of lowering them to the level of the lowest, the commissioners were directed to establish a schedule of maximum rates; and the charging of rates higher than these by any company after January 15, 1874, was to be considered prima facie evidence of extortion. Other provisions increased the penalties for violations and strengthened the enforcing powers of the commission in other ways. This act was roundly denounced at the time, especially in the East, as an attempt at confiscation, and the railroad companies refused to obey it for several years; but ultimately it stood the test of the courts and became the permanent basis of railroad regulation in Illinois and the model for the solution of this problem in many other States.

The first Granger law of Minnesota, enacted in 1871, established fixed schedules for both passengers and freight, while another act of the same year provided for a railroad commissioner. In this instance also the companies denied the validity of the law, and when the state supreme court upheld it in 1873, they appealed to the Supreme Court of the United States. In the meantime there was no way of enforcing the law, and the antagonism toward the roads fostered by the Grange and the Anti-Monopoly party became more and more intense. In 1874 the legislature replaced the Act of 1871 with one modeled on the Illinois law of 1873; but it soon discovered that no workable set of uniform rates could be made for the State because of the wide variation of conditions in the different sections. Rates and fares which would be just to the companies in the frontier regions of the State would be extortionate in the thickly populated areas. This difficulty could have been avoided by giving the commission power to establish varying schedules for different sections of the same road; but the anti-railroad sentiment was beginning to die down, and the Legislature of 1875, instead of trying to improve the law, abandoned the attempt at state regulation.

The Granger laws of Iowa and Wisconsin, both enacted in 1874, attempted to establish maximum rates by direct legislative action, although commissions were also created to collect information and assist in enforcing the laws. The Iowa law was very carefully drawn and appears to have been observed, in form at least, by most of the companies while it remained in force. In 1878, however, a systematic campaign on the part of the railroad forces resulted in the repeal of the act. In Wisconsin, a majority of the members of the Senate favored the railroads and, fearing to show their hands, attempted to defeat the proposed legislation by substituting the extremely radical Potter Bill for the moderate measure adopted by the Assembly. The senators found themselves hoist with their own petard, however, for the lower house, made up largely of Grangers, accepted this bill rather than let the matter of railroad legislation go by default. The rates fixed by the Potter Law for many commodities were certainly unreasonably low, although the assertion of a railroad official that the enforcement of the law would cut off twenty-five per cent of the gross earnings of the companies was a decided exaggeration. Relying upon the advice of such eminent Eastern lawyers as William M. Evarts, Charles O'Conor, E. Rockwood Hoar, and Benjamin R. Curtis that the law was invalid, the roads refused to obey it until it was upheld by the state supreme court late in 1874. They then began a campaign for its repeal. Though they obtained only some modification in 1875, they succeeded completely in 1876.

The contest between the railroads and the farmers was intense while it lasted. The farmers had votes; the railroads had money; and the legislators were sometimes between the devil and the deep sea in the fear of offending one side or the other. The farmers' methods of campaign were simple. Often questionnaires were distributed to all candidates for office, and only those who went on record as favoring railroad restriction were endorsed by the farmers' clubs and committees. An agricultural convention, sometimes even a meeting of the state Grange, would be held at the capital of the State while the legislature was in session, and it was a bold legislator who, in the presence of his farmer constituents, would vote against the measures they approved. When the railroads in Illinois refused to lower their passenger rates to conform to the law, adventurous farmers often attempted to "ride for legal fares," giving the trainmen the alternative of accepting the low fares or throwing the hardy passengers from the train.

The methods of the railroads in dealing with the legislators were most subtle. Whether or not the numerous charges of bribery were true, railroad favors were undoubtedly distributed among well disposed legislators. In Iowa passes were not given to the senators who voted against the railroads, and those sent to the men who voted in the railroads' interest were accompanied by notes announcing that free passes were no longer to be given generally but only to the friends of the railroads. At the session of the Iowa Legislature in 1872, four lawyers who posed as farmers and Grange members were well known as lobbyists for the railroads. The senate paid its respects to these men at the close of its session by adopting the following resolution:

Whereas, There have been constantly in attendance on the Senate and House of this General Assembly, from the commencement of the session to the present time, four gentlemen professing to represent the great agricultural interest of the State of Iowa, known as the Grange; and—

Whereas, These gentlemen appear entirely destitute of any visible means of support; therefore be it—

Resolved, By the Senate, the House concurring, that the janitors permit aforesaid gentlemen to gather up all the waste paper, old newspapers, &c., from under the desks of the members, and they be allowed one postage stamp each, The American Agriculturist, What Greeley Knows about Farming, and that they be permitted to take with them to their homes, if they have any, all the rejected railroad tariff bills, Beardsley's speech on female suffrage, Claussen's reply, Kasson's speech on barnacles, Blakeley's dog bill, Teale's liquor bill, and be given a pass over the Des Moines Valley Railroad, with the earnest hope that they will never return to Des Moines.

Once the Granger laws were enacted, the railroads either fought the laws in court or obeyed them in such a way as to make them appear most obnoxious to the people, or else they employed both tactics. The lawsuits, which began as soon as the laws had been passed, dragged on, in appeal after appeal, until finally they were settled in the Supreme Court of the United States. These suits were not so numerous as might be expected, because in most of the States they had to be brought on the initiative of the injured shipper, and many shippers feared to incur the animosity of the railroad. A farmer was afraid that, if he angered the railroad, misfortunes would befall him: his grain might be delivered to the wrong elevators or left to stand and spoil in damp freight cars; there might be no cars available for grain just when his shipment was ready; and machinery destined for him might be delayed at a time when lack of it would mean the loss of his crops. The railroads for their part whenever they found an opportunity to make the new laws appear obnoxious in the eyes of the people, were not slow to seize it. That section of the Illinois law of 1873 which prohibited unjust discrimination went into effect in July, but the maximum freight rates were not fixed until January of 1874. As a result of this situation, the railroads in July made all their freight rates uniform, according to the law, but accomplished this uniformity by raising the low rates instead of lowering the high. In Minnesota, similarly, the St. Paul and Pacific road, in its zeal to establish uniform passenger rates, raised the fare between St. Paul and Minneapolis from three to five cents a mile, in order to make it conform to the rates elsewhere in the State. The St. Paul and Sioux City road declared that the Granger law made its operation unprofitable, and it so reduced its train service that the people petitioned the commission to restore the former rate. In Wisconsin, when the state supreme court affirmed the constitutionality of the radical Potter law, the railroads retaliated in some cases by carrying out their threat to give the public "Potter cars, Potter rails, and Potter time." As a result the public soon demanded the repeal of the law.

In all the States but Illinois the Granger laws were repealed before they had been given a fair trial. The commissions remained in existence, however, although with merely advisory functions; and they sometimes did good service in the arbitration of disputes between shippers and railroads. Interest in the railroad problem died down for the time, but every one of the Granger States subsequently enacted for the regulation of railroad rates statutes which, although more scientific than the laws of the seventies, are the same in principle. The Granger laws thus paved the way not only for future and more enduring legislation in these States but also for similar legislation in most of the other States of the Union and even for the national regulation of railroads through the Interstate Commerce Commission.

The Supreme Court of the United States was the theater for the final stage of this conflict between the railroads and the farmers. In October, 1876, decisions were handed down together in eight cases which had been appealed from federal circuit and state courts in Illinois, Wisconsin, Iowa, and Minnesota, and which involved the validity of the Granger laws. The fundamental issue was the same in all these cases—the right of a State to regulate a business that is public in nature though privately owned and managed. The first of the "Granger cases," as they were termed by Justice Field in a dissenting opinion, was not a railroad case primarily but grew out of warehouse legislation which the farmers of Illinois secured in 1871. This act established maximum charges for grain storage and required all warehousemen to publish their rates for each year during the first week in January and to refrain from increasing these rates during the year and from discriminating between customers. In an endeavor to enforce this law the railroad and warehouse commission brought suit against Munn and Scott, a warehouse firm in Chicago, for failure to take out the license required by the act. The suit, known as Munn vs. Illinois, finally came to the United States Supreme Court and was decided in favor of the State, two of the justices dissenting. ¹ The opinion of the court in this case, delivered by Chief Justice Waite, laid down the principles which were followed in the railroad cases. The attorneys for the warehousemen had argued that the act in question, by assuming to limit charges, amounted to a deprivation of property without due process of law and was thus repugnant to the Fourteenth Amendment to the Constitution of the United States. But the court declared that it had long been customary both in England and America to regulate by law any business in which the public has an interest, such as ferries, common carriers, bakers, or millers, and that the warehouse business in question was undoubtedly clothed with such a public interest. Further, it was asserted that this right to regulate implied the right to fix maximum charges, and that what those charges should be was a legislative and not a judicial question.

In deciding the railroad cases the courts applied the same general principles, the public nature of the railroad business having already been established by a decision in 1872. ¹ Another point was involved, however, because of the contention of the attorneys for the companies that the railway charters were contracts and that the enforcement of the laws would amount to an impairment of contracts, which was forbidden by the Constitution. The court admitted that the charters were contracts but denied that state regulation could be considered an impairment of contracts unless the terms of the charter were specific. Moreover, it was pointed out that contracts must be interpreted in the light of rights reserved to the State in its constitution and in the light of its general laws of incorporation under which the charters were granted.

These court decisions established principles which even now are of vital concern to business and politics. From that time to this no one has denied the right of States to fix maximum charges for any business which is public in its nature or which has been clothed with a public interest; nor has the inclusion of the railroad and warehouse businesses in that class been questioned. The opinion, however, that this right of the States is unlimited, and therefore not subject to judicial review, has been practically reversed. In 1890 the Supreme Court declared a Minnesota law invalid because it denied a judicial hearing as to the reasonableness of rates; ¹ and the courts now assume it to be their right and duty to determine whether or not rates fixed by legislation are so low as to amount to a deprivation of property without due process of law. In spite of this later limitation upon the power of the States, the Granger decisions have furnished the legal basis for state regulation of railroads down to the present day. They are the most significant achievements of the anti-monopoly movement of the seventies.