The railroads of the world are to-day worth from twenty-five to thirty thousand million dollars. This probably represents one-tenth of the total wealth of civilized nations, and one-quarter, if not one-third, of their invested capital. It is doubtful whether the aggregate plant used in all manufacturing industries can equal it in value. The capital engaged in banking is but a trifle beside it. The world's whole stock of money of every kind—gold, silver, and paper—would purchase only a third of its railroads.

Yet these facts by no means measure the whole importance of the railroad in the modern industrial system. The business methods of to-day are in one sense the direct result of improved means of transportation. The railroad enables the large establishment to reach the markets of the world with its products; it enables the large city to receive its food-supplies, if necessary, from a distance of hundreds or thousands of miles. And while it thus favors the concentration of capital, it is in itself an extreme type of this concentration. Almost every distinctive feature of modern business, whether good or bad, finds in railroad history at once its chief cause and its fullest development.

As befits a nineteenth century institution, the railroad dates from 1801. In that year Benjamin Outram built in the suburbs of London a short line of horse railroad—or tramroad, as it was named in honor of the inventor. Other works of the same kind followed in almost every succeeding year. They were recognized as a decided convenience, but nothing more. It was hard to imagine that a revolution in the world's transportation methods could grow out of this beginning. Least of all could such a result be foreseen in England, whose admirable canal system seemed likely to defy competition for centuries to come. And yet, curiously enough, it was a man wholly identified with canal business who first foresaw the future importance of the railroad. The Duke of Bridgewater had built canals when they were regarded as a hazardous speculation; but they proved a success, and in the early years of the century he was reaping a rich reward for his foresight. One of his fellow-shareholders took occasion to congratulate the Duke on the fact that their property was now the surest monopoly in the land, and was startled by the reply, "I see mischief in these—tramroads." The prophecy is all the more striking as coming from an enemy. Like Balaam, the Duke of Bridgewater had a pecuniary interest in cursing, but was so good a prophet that he had to tell the truth in spite of himself, even though his curse was thereby turned into a blessing.

It is hardly necessary to tell in detail how this prediction was realized. Thanks to the skill and perseverance of George Stephenson, the difficulties in the use of steam as a mode of propulsion were rapidly overcome. What was a doubtful experiment as late as 1815 had become an accomplished fact in 1830. The successful working of the Liverpool & Manchester Railway gave an impulse to similar enterprises all over the world. In 1835 there were 1,600 miles of railroad in operation—more than half of it in the United States. In 1845 the length of the world's railroads had increased to more than 10,000 miles; in 1855 it was 41,000 miles; in 1865, 90,000; in 1875, 185,000; in 1885, over 300,000.

There were perhaps a few men who foresaw this growth; there were almost none who foresaw the changes in organization and business methods with which it was attended. People at first thought of the railroad as merely an improved highway, which should charge tolls like a turnpike or canal, and on which the public should run cars of its own, independent of the railroad company itself. In many cases, especially in England, long sheets of tolls were published, based on the model of canal charters, and naming rates under which the use of the road-bed should be free to all. This plan soon proved impracticable. If independent owners tried to run trains over the same line, it involved a danger of collision and a loss of economy. The former evil could perhaps be avoided; the latter could not. The advantages of unity of management were so great that a road running its own trains could do a much larger business at lower rates than if ownership and carriage were kept separate. The old plan was as impracticable as it would be for a manufacturing company to own the buildings and engines, while each workman owned the particular piece of machinery which he handled. Almost all the technical advantages of the new methods would be lost for lack of system. The railroad company, to serve the public well, could not remain in the position of a turnpike or canal company, but must itself do the work of carriage.

This was not all. The same economy which resulted from the union of road and rolling-stock under one management was still further subserved by the consolidation of connecting lines. This change did not come about so suddenly as the other. Half a century had elapsed before it was fully carried out. At first there was no need of it. The early railroads were chiefly built for local traffic, and especially for the carriage of local passengers. They were like the horse railroads of the present day in the simplicity of their organization and the shortness of their lines. England in 1847 had chartered 700 companies, with an average authorized length of hardly fifteen miles each. The line from Albany to Buffalo and Niagara Falls was in the hands of a dozen independent concerns. These were but types of what existed all over the world. As through traffic, and especially through freight traffic, grew in importance, this state of things became intolerable. Frequent transshipment was at once an expense to the railroad and a burden to the public. Even when this could be avoided, there was a multiplication of offices and a loss of responsibility. The system of ownership and management had to adapt itself to the technical necessities of the business. The change was not the result of legislation; nor was it, except in a limited sense, the work of men like Vanderbilt or Scott. It occurred in all parts of the world at about the same time. It was the result of business necessity, strong enough to shape legislation, and to find administrative leaders who could meet its demands.

From the very first there were some men who felt the importance of the railroads as national lines of communication. The idea was present in the minds of the projectors of the Baltimore & Ohio, of the Erie, and of the Boston & Albany. But it was not until 1850 that it became a controlling one; nor was it universally accepted even then. As late as 1858 we find that there was a violent popular agitation in the State of New York to prohibit the New York Central from carrying freight in competition with the Erie Canal. It was gravely urged that the railroad had no business to compete with the canal; that the latter had a natural right to the through traffic from the West, with which the railroads must not interfere. It is less than thirty years since a convention at Syracuse, representing no small part of the public sentiment of New York, formally recommended "the passage of a law by the next Legislature which shall confine the railroads of this State to the business for which they were originally created."

But matters had gone too far for effective action of this kind. Besides the New York Central, the Erie and the Pennsylvania were in condition to handle the through traffic which Western connections were furnishing. These connections themselves were rapidly growing in importance. Prior to 1850 there were very few railroads west of the Alleghanies. In 1857 there were thousands of miles. The policy of land-grants acted as an artificial stimulus to the building of such roads; and a land-grant road, when once built, was almost necessarily dependent on through traffic for its support. It could not be operated locally; it was forced into close traffic arrangements which paved the way for actual consolidation.

The war brought this development to a stand-still for the time being; but it was afterward resumed with renewed vigor. It is probable that the final effect of the war was to hasten rather than to retard the growth of large systems. In the first place, it familiarized men's minds with national ideas instead of those limited to their own State. It is hard for us to realize that our business ideas were ever thus confined by artificial boundaries; but if we wish proof, we have only to look at the original location of the Erie Railway from Piermont to Dunkirk. Both were unnatural and undesirable terminal points; but people were willing to submit to inconvenience and to actual loss in order that the railroad might run as far as the New York State limits would allow, and not one whit farther. Similar instances can be found in other States. Hard as it is to understand, there seems to have been a positive jealousy of interstate traffic. The war did much to remove this by making the different sections of the country feel their common interest and their mutual dependence. It also had more direct effects. It produced special legislation for the Pacific railroads as a measure of military necessity; and this was but the beginning of a renewal of the land-grant policy, no longer through the medium of the States, but in the Territories and by the direct action of Congress. All the results in the way of extension or consolidation which had been noted in the first land-grant period were more intensely felt in the second. Never was there a time when business foresight and administrative power were more needed or more richly rewarded than in railroad management during the third quarter of the century.

In 1847 J. Edgar Thomson, an engineer of experience, entered the service of the Pennsylvania Railroad, of which he afterward became president. Three years later, a young man without experience in railroad business applied to him for a position as clerk in the station at Duncansville, and was, with some hesitation, accepted. Not long after—so runs the story—an influential shipper entered the station, and demanded that some transfers should be made in a manner contrary to the rules of the company. This the clerk refused to do; and when the influential shipper tried to attend to the matter himself, he was forcibly ejected from the premises. Indignant at this, he complained to the authorities, demanding that the obnoxious employee be removed from his position. He was—and was promoted to a much higher one. This is said to have been the beginning of the railroad career of Thomas Alexander Scott. Edgar Thomson was a sufficiently able man to appreciate Scott's talent at its full worth, and took every opportunity to make it useful in the service of the company. Both before and after the war the system was extended in every direction; and the man who in 1850 had need of all his nerve to defy a single influential shipper was a quarter of a century later at the head of 7,000 miles of the most valuable railroad in the country.

As an enterprising and active railroad organizer, Scott was probably unrivalled—especially when aided by the soberer judgment of Thomson; nor has the operating department of any other railroad in the country reached the standard established on the Pennsylvania by Scott and Thomson and the men trained up under their eyes. But in business sagacity and those qualities which pertain to the financial management of property, Scott was surpassed by Vanderbilt. The work of the two men was so totally different in character that it is hard to compare them. Vanderbilt was not so distinctively a railroad man as Scott. He had already made his mark as a ship-owner before he went into railroads. But he was a man who was bound to take the lead in the business world; and he saw that the day for doing it with steamships was passing away, and that the day of railroads was come. He therefore presented his best steamship to the United States Government in a time when it was sorely needed, disposed of the others in whatever way he could, and turned his undivided attention to railroads.

In 1863 Vanderbilt began purchasing Harlem stock on a large scale. The road was unprofitable, but he at once improved its management and made it pay. Speculators on the other side of the market had not foreseen the possibility of this course of action, and were badly deceived in their calculations. Vanderbilt had begun buying at as low a figure as 3; within little more than a year he had forced some of its opponents to buy it of him at 285. He soon extended his operations to Hudson River, and somewhat later to New York Central. Defeated in an attempt to gain control of Erie, he turned his attention farther west; and was soon in virtual possession of a system which, in his hands at any rate, was fully a match for all competitors.

These systems did not long remain without rivals. The Baltimore & Ohio, whose development had been interrupted by the war, soon resumed, under the leadership of John W. Garrett, its old commanding position in the railroad world. Farther west, in the years succeeding, systems were developed and consolidated which surpassed their eastern connections in aggregate mileage. The combined Wabash and Missouri Pacific system in its best days included about 10,000 miles of line under what was virtually a single management. The Southern Pacific, the Atchison, the Northwestern, and the St. Paul systems control each of them in one way or another decidedly over 5,000 miles; and a half-dozen others might be named, scarcely inferior either in magnitude or in commercial power.

The result of all this was to place an enormous and almost irresponsible power in the hands of a few men. The directors of such a system stand for thousands of investors, tens of thousands of employees, and hundreds of thousands of shippers. They have the interests of all these parties in their hands for good or ill. If they are fit men for their places, they will work for the advantage of all. A man like Vanderbilt gave higher profits, larger employment, and lower rate as the result of his railroad work. But if the head of such a system is unfit for his trust intellectually or morally, the harm which he can do is almost boundless.

Of intellectual unfitness the chance is perhaps not great. The intense competition of the modern business world makes sure that any man, to maintain his position, must have at least some of the qualities of mind which it exacts. But of moral unfitness the danger is all the greater, because some of the present conditions of business competition directly tend to foster it. A German economist has said that the so-called survival of the fittest in modern industry is really a double survival, side by side, of the most talented on the one hand and the most unscrupulous on the other. The truth of this is already apparent in railroad business. A Vanderbilt on the Central meets a Fisk on the Erie. In spite of his superior power and resources he is virtually beaten in the contest—beaten, as was said at the time, because he could not afford to go so close to the door of State's prison as his rival.

The manager of a large railroad system has under his control a great deal of property besides his own—the property of railroad investors which has been placed in his charge. Two lines of action are open to him. He may make money for the investors, and thereby secure the respect of the community; or he may make money out of the investors, and thereby get rich enough to defy public opinion. The former course has the advantage of honesty, the latter of rapidity. It is a disgrace to the community that the latter way is made so easy, and so readily condoned. A man has only to give to charitable objects a little of the money obtained by violations of trust, and a large part of the world will extol him as a public benefactor. Nay, more; it seems as if some of our financial operators really mistook the vox populi for the vox Dei, and believed that a hundred thousand dollars given to a theological seminary meant absolution for the past and plenary indulgence for the future. It is charged that one financier, when he undertook any large transaction which was more than usually questionable, made a covenant that if the Lord prospered him in his undertaking he would divide the proceeds on favorable terms. But—as Wamba said of the outlaws and "the fashion of their trade with Heaven"—"when they have struck an even balance, Heaven help them with whom they next open the account!"

A word or two as to the methods by which such operations are carried on, and the system which makes them possible. From the very first, railroads have been built and operated by corporations. A number of investors, too large to attend personally to the management of the enterprise, took shares of stock and elected officers to represent them. These officers had almost absolute power; but while matters were in this simple stage, there was no great opportunity for its abuse. The losses of investors were due to bona fide errors of judgment rather than to misuse of power. But soon the corporations found it convenient to borrow money by mortgaging their property. We then had two classes of investors—stockholders and bondholders, the former taking the risks and having the full control of the property, the latter receiving a relatively sure though perhaps smaller return, but having no control over the management as long as their interest was regularly paid.

Of course there is always some danger when the men who furnish the money do not have much control of the enterprise; but as long as the relations of stock and bonds were in practice what they pretended to be in theory, the resulting evils were not very great. Matters soon reached another stage. The amount of money furnished by the bondholders increased out of all proportion to that furnished by the stockholders. Sometimes the nominal amount of stock was unduly small; more commonly only a very small part of the nominal value was ever paid in.[28] The stock was nearly all water, simply issued by the directors as a means of keeping control of the property. After the crisis of 1857, people had become shy of buying railroad stock; but they bought railroad bonds because they thought they were safe. This was the case only when there was an actual investment of stockholders behind them; without this assurance, bonds were more unsafe than stock had been, because the bondholders had still less immediate control over the directors and officials. If there was money to be made at the time, the directors made it; if there was loss in the end, it fell upon the bondholders.

Let us take a specific case. An inside ring issues stock certificates to the value of a million dollars, on which perhaps a hundred thousand is paid in. They then publish their prospectus and place on the market two million of bonds with which the road is to be built. They sell the bonds at 80, reimburse themselves for the $100,000 advanced by charging the moderate commission of 5 per cent. for services in placing the loan, and have at their disposal $1,500,000 cash. These same directors now appear as a construction company, and award themselves a contract to pay $1,500,000 for work which is worth $1,200,000 only. The road is finished, and probably does not pay interest on its bonds. It passes into the hands of a receiver. Possibly the old management may have an influence in his appointment. At the worst, they have got back all the money they put in, plus the profits of the construction company; in the case supposed, 300 per cent. The bondholders, on the other hand, have paid $1,600,000 for a $1,200,000 road.

But the troubles of the bondholders and the advantages of the old directors by no means end here. When the receiver takes possession he discovers that valuable terminals, necessary for the successful working of the road, are not the property of the company, but of the old directors. He finds that the road owns a very inadequate supply of rolling-stock, and that the deficiency has been made up by a car-trust—also under the control of the old directors. Each of these things, and perhaps others, must be made the subject of a fight or of a compromise. The latter is often the only practicable alternative, and almost always the cheaper one; by its terms the ring perhaps secures hundreds of thousands more, at the expense of the actual investors.

These are but a few of the many ways in which a few years' control of property may be made profitable to the officials at the expense of legitimate interests. In a case like this, all depends upon the possibility of selling bonds. It is usually impossible to place the whole loan before construction; and if the market-price falls below the cost of the work undertaken, as was the case with the West Shore, the loss falls upon the construction company. Such accidents were for a long time rare. It took the public nearly twenty years to learn the true character of imperfectly secured railroad bonds. Within the past five years it seems to have become a trifle wiser. The crisis of 1873 was insufficient to teach the lesson; but that of 1885 has been at least partially successful in this respect.

In cases like the one just described the bondholders are largely to blame for their own folly. But sometimes the loss falls on those who are in no way responsible for it. A railroad may be built as a blackmailing job. If a company is sound and prosperous, speculators may be tempted to build a parallel road, not with the idea of making it pay, but because they can so damage the business of the old road as to force it to buy them out. They build the road to sell.

It is but fair to say that operations as bad as those just described are the exception rather than the rule. But the fact that they can exist at all is by no means creditable to our financial methods. The whole system by which directors can use their positions of trust to make contracts in which they are personally interested puts a premium on dishonesty. Such contracts are forbidden in England. It may be true, as is urged by many railroad officials of undoubted honesty, that it would be inconvenient to apply the same law here; but on the whole, the gain would far outweigh the loss.

At the very best, a railroad president is subject to temptations to misuse his financial powers, all the more dangerous because it is impossible to draw the line between right and wrong. He knows the probable value of his railroad and of the property affected by its action a great deal better than any outsider possibly can. The published figures of earnings of the road are the result of estimates by himself and his subordinates. Out of the current earnings he pays current expenses, and probably charges permanent expenditures to capital account. But what expenditures are current and what are permanent? This division is itself the result of an estimate, and a very doubtful one at that. There are some well-established general principles, but none which will apply themselves automatically. With the best will in the world he cannot make his annual reports give a thoroughly clear idea of what has been done. Is he to be forbidden to buy stock when it seems too low, or sell it when it is high? Shall we refuse him the right to invest in other property which he sees will advance in value? Apparently not; and yet, if we allow this, we open the door for some of the worst abuses of power which have occurred in railroad history. The line between good faith and bad faith in these matters is a narrow one, and the average conscience cannot be trusted to locate it with accuracy.

But the relations to the investors cover but a small part either of the work or of the responsibility of the railroad authorities. They are managing not merely a piece of property, but a vast and complicated organization of men, and an instrument of public service. In all these capacities their cares are equally great. The operating and the traffic departments are not less important than the financial department. The relations of the railroad to its employees, and to the business community at large, are even more perplexing than its relations to the investors.

Of the questions arising between the railroad and its employees we are just beginning to realize the full importance. They are not matters to be settled by private agreement or private war. If they involve a serious interruption of the business of the community they concern public interests most vitally. The community cannot afford to have its business interrupted by railroad strikes. On the other hand, it cannot allow the men to make this public duty of the railroads a means of enforcing their own will on every occasion, to the detriment of all discipline and responsibility, or in disregard of investors' rights. How to compromise between these two conflicting requirements is one of the most serious problems of the immediate future.[29] Little progress in this direction has as yet been made, or even systematically attempted.

The questions arising from the relations of the railroads to those who use them are wider and older. From the very outset attempts were made to regulate railroad charges by law in various ways. The fear at that time was that they might be made unreasonably high. This fear proved groundless. From the outset the rates were rather lower than had been expected, and much lower than by many of the means of transportation which railroads superseded. These low rates caused a great development in business; and this, in turn, gave a chance for such economy in handling it that rates went still lower. Each new invention rendered it easier to do a large business at cheap rates. The substitution of steel rails for iron, which began shortly after the close of the war, had an enormous influence in this respect. This was not merely due to the direct saving in repairs, which, though appreciable, was moderate in amount. It was due still more to improvements in transportation which followed. It was found that steel rails would bear heavier rolling-stock. Instead of building ten-ton cars to carry ten tons of cargo, companies built twelve-ton cars to carry twenty tons of cargo, or fourteen-ton cars to carry thirty tons; and they made the locomotives heavy enough to handle correspondingly larger trains. A given amount of fuel was made to haul more weight; and of the weight thus hauled, the freight formed a constantly increasing proportion as compared with the rolling-stock itself. The system of rates was adopted to meet the new requirements. Charges were made incredibly low in order to fill cars that would otherwise go empty, or to use the road as nearly as possible to its full capacity. In the twenty years following the introduction of steel rails the traffic of the New York Central increased from less than 400,000,000 ton-miles to decidedly over 2,000,000,000; while the average rates fell from 3.09 cents per ton per mile in 1866 to 0.76 cent in 1886. This is but a single instance of a process which has gone on all over the country. The average freight charge on all railroads of the country to-day is a little over one cent per ton a mile: less than half what would have been deemed possible on any railroad a few years ago.

The progress of railroad consolidation contributed greatly to this economy. It saved multiplication of offices; it saved re-handling of freight; it enabled long-distance business to be done systematically. So great were its advantages that co-operation between connecting lines was carried far beyond the limits of actual consolidation. Through traffic was handled without transshipment, sometimes by regularly incorporated express companies or freight companies on the same plan, but more commonly by what are known as fast-freight lines.[30] These are little more than combinations for keeping account of through business; they are by no means ideal in their working, but they have the advantage of few expenses and no income, so that the temptation to steal, which is the bane of such organizations, is here reduced to a minimum.

But all these things, while they increased the efficiency of the service, also increased the power of the railroad authorities and rendered the shipper more helpless. The very cheapness of rates only made a recourse to other means of transportation more difficult. If A was charged 30 cents while his competitor B was paying only 20 cents for the same service, he was worse off than when they were both paying a dollar; and the fact that no other means of conveyance could be found to do the work for less than a dollar simply put A all the more completely at the mercy of the railroad freight-agent. In other words, the fact that rates were so low made any inequality in rates all the more dangerous. The lower the rate and the wider the monopoly, the less was the chance of relief.

Such inequalities existed on a large scale: and they were all the more difficult to deal with because there was a certain reason for some of them arising from the nature of railroad business. The expenses of a railroad are of two kinds. Some, like train and station service, locomotive fuel, or repairs of rolling-stock, are pretty directly chargeable to the different parts of the traffic. It costs a certain amount in wages and in materials to run a particular train; if that train is taken off, that part of the expense is saved. But there is another class of items, known as fixed charges, that do not vary with the amount of business done. Interest on bonds must be paid, whether the volume of traffic be large or small. The services of track-watchmen must be paid for, whether there be a hundred trains daily or only a dozen. In short, most of the expenses for interest and maintenance of way are chargeable to the business as a whole, but not to particular pieces of work done. The practical inference from this is obvious. In order that the railroad as a whole may be profitable, the fixed charges must be paid somehow. The railroad manager will try to get them as he can from different parts of his traffic. But if, for any reason, a particular piece of business cannot or will not pay its share of the fixed charges, it is better to secure it at any price above the bare expense of loading and hauling, without regard to the fixed charges. For if the business is lost, these charges will run on just the same, without any added means of meeting them.

The consequence is that there is no natural standard of rates; or, rather, that there are two standards, so far apart that the difference between the two is quite sufficient to build up one establishment or one locality and ruin another, in case of an arbitrary exercise of power on the part of the freight-agent. In the use of such a power it was inevitable that there should be a great many mistakes, and some things which were worse than mistakes. Colbert once cynically defined taxation as "the art of so plucking the goose as to secure the largest amount of feathers with the least amount of squealing." Some of our freight-agents have taken Colbert's tax theories as a standard, and have applied them only too literally. It is this short-sighted policy which has made the system of charging "what the traffic will bear" a synonyme for extortion. Interpreted rightly, this phrase represents a sound principle of railroad policy—putting the burden of the fixed charges on the shipments that can afford to pay them. But practically—in the popular mind at least—it has come to mean almost exactly the opposite.

The points which got the benefit of the lowest rates were the large trade centres, which had the benefit of competing lines of railroad, and often of water competition also. The threat to ship goods by a rival route was the surest way of making a freight-agent give low rates. The result was that the growth of such places was specially stimulated. In addition to their natural advantages they had an artificial one due to the policy of competing lines of railroad. It may well be the case, as is argued by railroad men, that sound railroad economy demands that goods in large masses should be carried much more cheaply than those which are furnished in smaller quantities. But it is certain the practice went far beyond the limits of any such justification. There was a time when cattle were carried from Chicago to New York at a dollar a car-load; and many other instances, scarcely less marked, could be cited from the history of trunk-line competition. The fact was, that in an active railroad war freight-agents would generally accede to a demand for reduced rates at a competing point, whether well founded or not, and would almost always turn a deaf ear to similar demands from local shippers, however strongly supported by considerations of far-sighted business policy.

But this was not the worst. Inequalities between different places might after some hardship correct themselves; differences of treatment between individuals could not be thus adjusted. And the system of making rates by special bargain almost always led to differences between individuals, where favors were too often given to those who needed or deserved them least. The fluctuation of rates was first taken advantage of by the unscrupulous speculator. Often, if he controlled large sources of shipment, he might receive the benefit of a secret agreement by which he could obtain lower rates than his rivals under all circumstances. A more effective means for destroying straightforwardness in business dealings than the old system of special rates was never devised. Sometimes, where one competitor was overwhelmingly strong, the pretence of secrecy was thrown aside, and the railroad companies so far forgot their public duties as almost openly to assist one concern in crushing its rivals. The state of things in this respect twelve or fifteen years ago was so bad that it is painful to dwell upon; but the reformation to-day is not so complete that we can wash our hands of past sins.

Less was said or felt of similar evils in passenger traffic, because the passenger business of the country generally is of much less importance than its freight business, either to the railroad investors or to the producers themselves. But there was the same fluctuation in passenger rates; and there was an outrageous form of discrimination in the development of the free-pass system; a practice which would have fully deserved the name of systematic bribery, had it not become so universal that most men hardly recognized any personal obligation connected with the acceptance of a pass. Officials and other citizens of influence had come to regard it as a right; it was not so much bribery on the part of the companies as blackmail levied against them.

The remedies proposed for all these evils have been various. From the very beginning until now there have been some who held that such abuses could be avoided only by State railroad ownership. Such experiments in the United States have not gone far enough to furnish conclusive evidence either way; but the experience of other countries indicates that State railroads, as such, do not avoid these evils. Where they have been worked in competition with other lines, they have been as deeply involved in these abuses as their private competitors—perhaps more so. Where the government has obtained control of all the railroads of the country, and made such arrangements with the water-routes as to render competition impossible, the abuses have vanished, because there was no longer any conceivable motive to continue them. But this was the result of the monopoly, not of the State ownership; and the advantage was purchased by a sacrifice of all the stimulus of competition toward the development of new facilities.

Many people assume that, because the government represents the nation as a whole, therefore government officials will not be under the same temptations to act unjustly which are felt by the representatives of a private corporation. This is a mistake. It is not as representatives of the investor that railroad agents do much injustice; this motive has practically nothing to do with it. Most of the abuses complained of are positively injurious to the investor in the long run. When officials really represent the interests of the property with wise foresight, they, as a rule, give the public no ground to complain. The question reduces itself to this: Will the State choose better representatives and agents than a private corporation? Will it secure a higher grade of officials, more competent, more honest, and more enterprising? The difference between state and private railroads is not so much on matters of policy as on methods of administration. The success of government administration varies with different countries. In Prussia, where it is seen at its best, the results are in some respects remarkably good; yet even here the roads are not managed on anything like the American standard of efficiency, either in amount of train service, in speed, or in rapidity of development. And what is barely successful in Prussia, with its trained civil service on the one hand and its less intense industrial demands on the other, can hardly be considered possible or desirable in America. No one who has watched the workings of a government contract can desire to have the whole trade of the country put to the expense of supporting such methods in its transportation business.

A more easy method of trying to regulate railroad charges has been by forced reductions in rates. This was tried on the largest scale in the Granger movement fifteen years ago. A fall in the price of wheat had rendered it difficult for the farmers to make money. The Patrons of Husbandry, in investigating the causes, saw that the larger trade centres, where there was competition, were getting lower rates than the local producer. They reasoned that if all the farmers could get such low rates, they could make money; and that, if the roads could afford to make these low rates for any points, they could afford to do it for all. The railroad agents, instead of foreseeing the storm and trying to prevent it, assumed a defiant attitude. The result was that legislatures of the States in the upper Mississippi Valley passed laws of more or less rigidity, scaling down all rates to the general level of competitive ones. After a period of some doubt, the right of the States to do this was admitted by the courts. But before the legal possibility had been decided, the practical impossibility of such a course had been shown. If all rates were reduced to the level of competitive ones, it left nothing to pay fixed charges. On such terms, foreign capital would not come into the State; nor could it be enticed by such a clumsy effort as that of one of the States, which provided "that no road hereafter constructed shall be subject to the provisions of this act." The goose which laid the golden eggs was not such a goose as to be deceived by this. The untimely death of several of her species meant more than any promises of immunity to those who should follow in her footsteps. In those States which had passed the most severe laws capital would not invest; railroads could not pay interest, their development stopped, and the growth of the community was seriously checked thereby. The most obnoxious laws were either repealed or allowed to remain in abeyance. Where the movement was strongest in 1873 it had practically spent its force in 1876. There have been many similar attempts in all parts of the country since that time; just now they are peculiarly active; but nothing which approaches in recklessness some of the legislation of 1873 and 1874. The lesson was at least partly learned.

We had hardly passed the crisis of the effort to level down, when some of the more intelligent railroad men made an effort to level up. Recognizing that discriminations and fluctuating rates were an evil, they sought to avoid it by common action with regard to the business at competing points. A mere agreement as to rates to be charged was not enough to secure this end. Such an agreement was sure to be violated. Even if the leading authorities meant to observe it, their agents could always evade its requirements to some extent. Such evasion was favored by loose arrangements between connecting roads, and by the somewhat irresponsible system of fast freight lines. Wherever it existed, it gave rise to mutual suspicion. A believed that his road did it because he could not help it, but that B and C were allowing their roads to do it maliciously; while B and C had the same consciousness of individual rectitude and the same unkind suspicions with regard to A. It was at best a rather hollow truce, which did not really accomplish its purpose, and which might change to open war on very slight provocation.

To avoid this difficulty a pool, or division of traffic, was arranged. It is a fact that, whatever wars of rates there may be, the percentage of traffic carried by the different lines varies but little. If an arbitrator can examine the books and decide what these percentages have been in the past, he can make an award for the future, under which the competitive traffic of the different roads may be fairly divided. The arrangements for doing this are various. Sometimes the roads carry such traffic as may happen to be offered, and settle the differences with one another by money balances; sometimes they actually divert traffic from one line to another. But the advantage of either of these arrangements over a mere agreement to maintain rates is that they cannot be violated without direct action on the part of the leading authorities of the roads concerned—either in open withdrawal, or in actual bad faith. The ordinary irregularities of agents do not, under a pooling system, give rise to much suspicion, because they do not benefit the road in whose behalf they are undertaken. Its percentage being fixed there is no motive for rate-cutting. So great is this advantage that pooling is accepted in almost all other countries as a natural means of maintaining equality of rates; the state railroads of Central Europe entering into such contracts with competing private lines and even with water-routes. In America itself, pools have had a longer and wider history than is generally supposed. In New England they arose and continued to exist on a moderate scale without attracting much attention. In the Mississippi Valley, the Chicago-Omaha pool was arranged as early as 1870, and formed the model for a whole system of such arrangements extending as far as the Pacific Coast. But, as involving wider questions of public policy, the activity of the Southern and the Trunk Line Associations has attracted chief attention.

The man whose name is most prominently identified with both these systems is Albert Fink. A German by birth and education, his long experience as a practical railroad engineer did not deprive him of a taste for studying traffic problems on their theoretical side. As Vice-President of the Louisville & Nashville, he had given special attention to the economic conditions affecting the Southern roads; and when, in the years 1873–75, a traffic association was formed by a number of these roads to secure harmony of action on matters of common interest, he became the recognized leader. His success in arrangements for through traffic was so conspicuous that when, in 1877, the trunk lines were exhausted with an unusually destructive war of rates, they looked to him as the only man who could deliver them from their trouble. In some lines, division of traffic had already been resorted to; but it was in the hands of outside parties, like the Standard Oil Company or the cattle eveners, and was made a means of oppression against shippers not in the combination itself.

The conditions were not favorable; the result of Fink's efforts to bring order out of chaos was slow and by no means uninterrupted. Yet on the whole, as was admitted even by opponents of the pooling system, it contributed to steadiness and equality of rates. The arrangement of these agreements was hampered by their want of legal status. While the law did not at that time actually prohibit them, it refused to enforce them. Existing thus on sufferance, they depended on the good will of the contracting parties. None but a man of Fink's unimpeached integrity and high intellectual power could have kept matters running at all; and even he could not prevent the adoption of a policy of making hay while the sun shines, more or less regardless of the future. The results of the trunk-line pool were unsatisfactory—most of all to those who believed in pools as a system; but it is fair to attribute a large part of this failure to the absence of legal recognition, which in a manner compelled the agreements to be arranged to meet the demands of the day rather than of the future.

Meantime an equally important contribution to the solution of the railroad question was being worked out in another quarter. In the year 1869 the Massachusetts Railroad Commission was established. Its powers were so slight that it was not regarded as likely to be an influential public agency. Fortunately it numbered among its members Charles Francis Adams, Jr.; a man whose efficiency more than made up for any want of nominal powers. In his hands the mere power to report became the most effective of all weapons. Representing at once enlightened public judgment and far-sighted railroad policy, he did much to bring the two into harmony and protect the legitimate interests on both sides from short-sighted misuse for the benefit of either party. The detail of his work is matter of past history; perhaps its most prominent result was to introduce to State legislation the idea of a railroad commission as an administrative body. Those States which had no stringent laws appointed commissions to take their place; those which had overstringent ones appointed commissions to use discretion in applying them. In either case, the existence of a body of men representing the State, but possessing the technical knowledge to see what the exigencies of railroad business demanded, was a protection to all parties concerned.

But matters were rapidly passing beyond the sphere of State legislation. Each new consolidation of systems, each additional development of through traffic, made it more impossible to control railroad policy by the action of individual States. It could only be done by a development of the law in the United States courts or by Congressional legislation. The former result was necessarily slow; each year showed an increased demand for special action on the part of Congress. But such action was hindered by divergence of opinion in that body itself. One set of men wished a moderate law, prohibiting the most serious abuses of railroad power, and enforced under the discretionary care of a commission. These men were for the most part not unwilling to see pools legalized if their members could thereby be held to a fuller measure of responsibility. On the other hand, the extremists wished to prescribe a system of equal mileage rates; they would hear of no such thing as a commission, and hated pools as an invention of the adversary. Between the two lay a large body of members who had no convictions on the matter, but were desirous to please everybody and offend nobody—a hard task in this particular case. It was nearly nine years from the time Mr. Reagan introduced his first bill when a compromise was finally effected—largely by the influence of Senator Cullom. As compromises go, it was a tolerably fair one. The extremists sacrificed their opposition to a commission, but secured the prohibition of pools; the disputed points with regard to rates were left in such a shape that no man knew what the law meant, and each was, for the time being, able to interpret it to suit the wishes of his Congressional district.

The immediate effects of the law were extremely good. There were certain sections of it, like those which secured publicity of rates and equal treatment for different persons in the same circumstances, whose wisdom was universally admitted. Indeed it was rather a disgrace, both to the railroad agents and to the courts, that we had to wait for an act of Congress to secure these ends; and most of the railroads made up for past remissness in this respect by quite a spasm of virtue. In some instances it was even thought that they "stood up so straight as to lean over backward." But this was not the only part of the law which proved efficient. The very vagueness of the clause concerning the relative rates for through and local traffic, which under other circumstances might have proved fatal, put a most salutary power into the hands of the Interstate Commerce Commission, and one which they were not slow to use.

The President was fortunate in his selection of commissioners; above all in the chairman, Judge T. M. Cooley, of Michigan, a man whose character, knowledge of public law, and technical familiarity with railroad business made him singularly well fitted for the place. The work of the Interstate Commission, like that of its Massachusetts prototype, shows how much more important is personal power than mere technical authority. It was supposed at first that the commission would be a purely administrative body, with discretion to suspend the law. Instead of this, they have enforced and interpreted it; and in the process of interpretation have virtually created a body of additional law, which is read and quoted as authority. With but little ground for expecting it from the letter of the act, they have become a judicial body of the highest importance. Their existence seems to furnish a possibility for an elastic development of transportation law, neither so weak as to be ineffective nor so strong as to break by its own rigidity.

But the final test of their success is yet to come. They have laid down a few principles as to the cases when competition justifies through rates lower than those at intermediate points. But the application of these principles is as yet far from settled; and it is rendered doubly hard by the clause against pools, which does much to hamper the roads in any attempt to secure common action on the matter of through rates. Each ill-judged piece of State legislation, and each reckless attempt to attack railroad profits, increases the difficulty. There was a time when the powers of railroad managers were developed without corresponding responsibility. In many parts of the country we are now going to the other extreme—increasing the responsibility of railroad authorities toward shipper and employees, State law and national commission, and at the same time striving to restrict their powers to the utmost. Such a policy cannot be continued indefinitely without a disastrous effect upon railroad service, and, indirectly, upon the business of the country as a whole.