Upon the foregoing evidence, taken from the experience of the State telegraphs of Belgium, Switzerland, and France, and from the experience of the telegraph companies of the United Kingdom, Mr. Scudamore reached the conclusion that in telegraphy, in the United Kingdom, private enterprise had broken down. He stated his conclusion in these words: “It is clearly shown, I think, … that the cardinal distinction between the telegraph system of the United Kingdom and the systems of Belgium and Switzerland is this: that the latter have been framed and maintained solely with a view to the accommodation of the public, whilst the former has been devised and maintained mainly with a view to the interests of shareholders, and only indirectly for the benefit of the public.” These words were intended to convey, and they did convey, the meaning that the policy of laissez-faire had broken down. That policy rests on the assumption that in the long run, and upon the whole, the public interest is conserved and promoted by the activities of the individual citizens who are seeking to promote their personal fortunes—by the activities of “the mere speculator and dividend seeker”—to employ the phrase that came into common use in 1866 to 1869, and ever since, has been made to do yeoman service.

Let us test by the evidence—of which a large part is to be found tucked away in the appendices to Mr. Scudamore’s reports—this conclusion that in telegraphy, in the United Kingdom, private enterprise had broken down, and the policy of laissez-faire had been discredited.

The first thing to note in this connection is, that in the case of telegraphy, as in the case of so many other British industries, public ownership has been a parasite. It has been unwilling to assume the risk and burden of establishing the industry, and has contented itself with purchasing “ready-made” the industry after it had been developed by private enterprise. When Mr. Ronalds attempted to interest the British Government in telegraphy, he was told “that the telegraph was of no use in times of peace, and that the semaphore in time of war answered all the required purposes.”17

In 1837, British individuals and companies began to stake their money upon the telegraph in Great Britain; and in 1854 they even carried the telegraph industry to continental Europe, notably to Belgium. In 1850 and 1851, the Governments of France, Belgium and Switzerland, profiting by the losses suffered, and the technical advances made, by British individuals and companies, appropriated, so far as their countries were concerned, the new industry.

The Electric and International Telegraph Company was formed in 1846, out of the reorganization of properties, that in 1837 had embarked in telegraphy in England, and in 1845 had carried the telegraph industry to Belgium.18 At this time the use of the telegraph was confined almost exclusively to railway purposes, such as train signalling. The possibility of use for commercial purposes was so little appreciated by the public, that the Electric and International Company, after purchasing, in 1846, Messrs. Cooke and Wheatstone’s inventions, was looked upon as a complete commercial failure. The shares of the company for several years were almost valueless; the chief source of revenue then being contracts obtained from railway companies for the construction and maintenance of railway telegraphs.

Between 1846 and 1851 great improvements were made in telegraphy, and the public gradually learned to use the telegraph. In 1849 the Electric and International declared its first dividend, mainly the result of the contracts with the railway companies. In November, 1851, a cable was laid between Dover and Calais; for the first time the prices of the stock exchange securities in Paris were known the same day within business hours on the London stock exchange; and the financial and trading interests became convinced of the value of the telegraph.19

The Electric and International Company began in 1846 with a capital, paid in, of $700,000, which had been increased, by the close of 1868, to $5,849,375. The company grew steadily, and in 1867 it had 10,000 miles of line, and 49,600 miles of wire. In March, 1856, when the company had a record of five years for dividends ranging from 6 to 6.5 per cent. on the capital paid in, the stock of the company was selling at 80, which showed that the investing public deemed the returns inadequate, considering the risks attaching to the business. In January, 1863, when the company had a record of three years as a 7 per cent. company, the stock still stood under par—at 99.5. In 1864 the company paid 8 per cent., in 1865 it paid 9 per cent., and in 1866 to 1868 it paid 10 per cent.20

The British and Irish Magnetic Telegraph Company was formed in 1857 by amalgamation of the Magnetic Telegraph Company, organized in 1851, and the British Telegraph Company, organized in 1852. In March, 1856, the Magnetic had a paid up capital of $1,500,000, which was worth 60 cents on the dollar; and the British Company had a paid up capital of $1,170,000, which was worth 47.5 cents on the dollar. In January, 1864, the amalgamated company was paying 4.5 per cent., and its shares were worth 62.5. In 1865 the British and Irish raised the dividend to 5 per cent.; in 1866 to 6 per cent., and in 1867 to 7.5 per cent. In 1866 the stock sold at 78 to 90; and in 1867 at 90 to 97. In 1867 the company had 4,696 miles of line, and 18,964 miles of wire.

The United Kingdom Telegraph Company was organized in 1860, and began operations in 1861. In November, 1867, its shares were worth from 25 cents to 35 cents on the dollar. At that time the company had 1,692 miles of line, and about 9,827 miles of wire.

The London District Telegraph Company, which subsequently became the London and Provincial, began business in 1860 with 52 offices in Metropolitan London. In 1862 it increased the number of its offices to 84; and at the time of its sale to the State, it had 95 offices. The company never earned operating expenses. It began by charging 8 cents for 10 words; later on it charged 12 cents for 15 words; and in 1866 it raised its charge to 24 cents.

Very little new capital was invested by the telegraph companies after 1865, because of “the very natural reluctance of the companies to extend the systems under their control so long as the proposal of the acquisition of those systems by the State was under consideration,” to use the words of Mr. Scudamore.

The foregoing facts show that private enterprise was ready throughout the period beginning with 1838 to incur considerable risks in establishing the new industry of telegraphy, and in giving to the public facilities for the use of that industry. Private enterprise did not at any time adopt the policy of exploiting the public by confining itself to operations involving little or no risk, while paying well. It is true that once a company had reached the position of paying 5, 6, 7, 8, or more, per cent., it tried to maintain that position, and refrained from making extensions at such a rate as to cause a decrease in the dividend. But that fact does not warrant the charge that the companies neglected their duty to the public. Until the threat of purchase by the State arrested extensions, and the dividends rose unusually rapidly, the earnings of the companies were moderate; and finally, though the companies tried to maintain whatever rate of dividend had once been attained, the investing public never believed that even the Electric and International would maintain indefinitely the 10 per cent. rate. That is shown by the fact that until the public began to speculate on the strength of the prospect of the State paying a big price for the property of the Electric and International, the stock of that company never sold for more than 14 years’ purchase.21 Had the public believed that the 10 per cent. dividend would be maintained indefinitely, the stock would have risen to 25 years’ purchase, the price of the best railway shares.

In order to show that the people of the United Kingdom suffered from a lack of telegraphic facilities, when compared with the people of Belgium and Switzerland, Mr. Scudamore stated in his reports of 1865 and 1866, that there were: in Belgium, 17.75 miles of telegraph line to every 100 square miles; in Switzerland, 13.7; and in the United Kingdom, 11.3. He stated, also, that there were in Belgium 6.33 telegraph offices to every 100,000 people; in Switzerland, 9.9; and in the United Kingdom, 5.6.

Mr. Scudamore obtained the figures with regard to the United Kingdom from the Board of Trade returns.22 For 1865 to 1867, those returns were very incomplete; but in 1868 they became very full. Mr. Scudamore’s reports of 1865 and 1868 were not ordered, by the House of Commons, to be printed, until April, 1868, when the completed Board of Trade returns were available. But neither in the reports as laid before Parliament, nor in the testimony given before the Select Committee of Parliament in 1868, did Mr. Scudamore draw attention to the fact that the statement that the United Kingdom had only 11.3 miles of telegraph line to every 100 square miles of area, and 5.6 telegraph offices to every 100,000 people, was based on incomplete returns.

The Board of Trade return for 1868 stated that the Lancashire and Yorkshire Railway Company had 432 miles of telegraph lines and that various other companies not enumerated in 1865, had, in 1868, 3,665 miles of line. If it be assumed that in the period from 1865 to 1868 the Lancashire and the other railway companies not enumerated in 1865, increased their net at the same rate as did the three railway companies that were enumerated in 1865, namely, 11 per cent., there must have been, in 1865, not less than 3,825 miles of telegraph line of which Mr. Scudamore took no account in fixing the total mileage at 16,066 miles. If it be further assumed that one-third of the 3,825 miles in question paralleled telegraph lines of the telegraph companies, there were left out of account in 1865 by Mr. Scudamore 2,550 miles of telegraph line, the equivalent of 2.1 miles per 100 square miles of area. On the foregoing assumptions the mileage that should have been assigned to the United Kingdom in 1865 was not 11.3, but 13.4.

Considerations similar to the foregoing ones, when applied to Mr. Scudamore’s statement that there were, in 1865, 2,040 telegraph stations, show that there probably were 2,680 telegraph stations in 1865, a full allowance being made for duplication. The last named figure would have been equivalent to 8.9 telegraph offices for every 100,000 people as against 5.6 reported by Mr. Scudamore.

The foregoing corrections probably err in the direction of understating the telegraph facilities existent in the United Kingdom in 1865. These corrected results show that in the matter of telegraph line per 100 square miles of area, the United Kingdom was abreast of Switzerland in 1865, though considerably behind Belgium; and that, in the matter of telegraph offices per 100,000 people, it was almost abreast of Switzerland, and considerably in advance of Belgium.

In this connection it is helpful to note that in 1875, after the British Government had spent about $12,500,000 in rearranging and extending the telegraph lines, as against Mr. Scudamore’s estimate of 1868 that $1,500,000 would suffice for all rearrangements and extensions, the number of miles of telegraph line per 100 square miles of area was, 20 in the United Kingdom, and 27.4 in Belgium.23

Mr. Scudamore submitted several other arguments in support of the statement that private enterprise had failed to provide the public with sufficient telegraphic facilities. He submitted a list of 486 English and Welsh towns, ranging in population from 2,000 to 200,000, and stated in each case whether or not the town was a telegraph station; and if it was one, whether the telegraph office was, or was not, within the town limits. Mr. Scudamore summarized the facts elucidated, with the statement that 30 per cent. of the 486 towns were well served; that 40 per cent. were indifferently served; that 12 per cent. were badly served; that 18 per cent. were not served at all; and that the towns not served at all had an aggregate population of more than 500,000.24

Mr. Scudamore did not define his standards of good service, indifferent service, bad service, and absence of service; but examination of his data shows that his standards were so rigorous that the state of affairs revealed in his summary was by no means so bad as might appear at first sight. Mr. Scudamore took as the standard of good service, the presence of a telegraph office within the town limits. He characterized as indifferent the service of 98 towns in which the telegraph office was within one-quarter of a mile of the Post Office, though outside of the town limits; as well as the service of 88 towns in which the telegraph office was within one-half a mile of the Post Office, though outside of the town limits. He called the service bad in the case of 38 towns in which the telegraph office was within three-quarters of a mile of the Post Office; as well as in the case of 22 towns in which the telegraph office was one mile from the Post Office. He said there was no service whenever the distance of the telegraph office from the Post Office exceeded one mile. In this connection it should be added that the telegraph lines followed the railway; and that in consequence of the prejudice against railway companies in the early days, very many cities and towns refused to allow the railway to enter the city or town limits.

Mr. Scudamore’s data showed that there had been in 1865 not less than 96 towns in which the distance between the Post Office and the nearest telegraph office exceeded one mile. In a foot-note, in the appendix, Mr. Scudamore stated that in 1868, not less than 25 of the 96 towns had been given a railway telegraph office; but no mention of that fact did he make in the main body of the report, the only part of the document likely to be read even by the comparatively small number of the Members of Parliament who took the trouble to read the document at all. As for the writers of the newspaper press, and the general public, they accepted without exception the statement that in 1868 not less than 18 per cent. of the towns in question, with an aggregate population of over 500,000, had no telegraphic service. As a matter of fact the statement applied only to 14.6 per cent. of the towns, with an aggregate population of 388,000;25 and many of the towns that still were without service in 1868 would not have been in that condition, had not the agitation for the nationalization of the telegraphs arrested the investment of capital in telegraphs in the years 1865 to 1868.

Mr. Scudamore also submitted a table giving the total number of places with money order issuing Post Offices in England and Wales, Scotland and Ireland; and stated what number of those places had respectively perfect telegraph accommodation, imperfect telegraphic accommodation, and no telegraphic accommodation.26 Mr. Scudamore contended that the public interest demanded that each one of those places should have at least one telegraph office, that office to be located as near the centre of population as was the Post Office. He submitted no argument in support of that proposition. But Parliament and the public accepted the proposition with avidity, since Mr. Scudamore promised that the extension required to give such a service would not cost more than $1,000,000, about 1/11 or 1/12 of the total sum invested by the several telegraph companies. Mr. Scudamore also promised that, after the service had been thus extended, the total operating expenses of the State telegraphs would be less than 45 per cent. of the gross receipts; that the State telegraphs would at least pay their way, and that they probably would yield a handsome profit. But when Mr. Scudamore came to extend the State telegraphs, he spent upon extensions, not $1,000,000, but about $8,500,000, and when the State came to operate the telegraphs, the operating expenses quickly ran up to 87 per cent. of the gross receipts in three years, 1874 to 1876. These errors of Mr. Scudamore justify the statement that he made no case whatever against the system of laissez-faire, or private ownership, on the ground of the extent of the facilities offered to the public, under the system of private ownership. For obviously it was one thing to condemn the telegraph companies for not building certain extensions, those extensions being estimated to cost only $1,000,000, and a different thing altogether to condemn the telegraph companies for refusing to build out of hand extensions that would cost $8,500,000 and would be relatively unremunerative, if not absolutely unprofitable.

It remains to consider whether the facts as to the charges made by the telegraph companies for the transmission of messages, and the facts as to the rate of increase in the number of messages transmitted, supported Mr. Scudamore’s contention that the system of private ownership of the telegraphs had failed to conserve and promote the public interest.

In 1851, the Electric and International Telegraph Company carried 99,216 messages, receiving on an average $2.41 per message. In 1856, the year in which the Scotch Chambers of Commerce began the agitation for nationalization, the company carried 812,323 messages, receiving on an average $0.99 per message. In 1865, the year in which the telegraph companies abolished the rate of 24 cents, irrespective of distance, that had been in force between the leading cities, and the Chambers of Commerce increased the agitation for purchase by the State, the Electric and International carried 2,971,084 messages, receiving on an average $0.49 a message. In the period from 1851 to 1867, the messages carried by the company increased on an average by 28.76 per cent. a year; the average receipts per message decreased on an average by 7.58 per cent. a year; and the gross receipts of the company increased on an average by 13.61 per cent. a year.

In the period 1855 to 1866, the messages carried annually by the British and Irish Magnetic Company grew from 264,727 to 1,520,640, an average annual growth of 17.58 per cent. At the same time the average receipts per message fell from $0.96 in 1855, to $0.48 in 1866.

In the period from 1855 to 1866, the number of messages carried annually by all of the telegraph companies of the United Kingdom increased from 1,017,529, to 5,781,989, an average annual increase of 16.36 per cent.

In the same period, from 1855 to 1866, the telegrams sent in Switzerland increased on an average by 13.14 per cent. each year; those sent in Belgium increased on an average by 31.45 per cent.; and those sent in France increased on an average by 25.40 per cent. When one takes into consideration that in Belgium, in 1867, only 38 per cent. of the messages transmitted related to stock exchange and commercial business, and that in France in the same year only 48 per cent. of the messages sent related to industrial, commercial, and stock exchange transactions, there is nothing in the comparison between the rate of growth in the United Kingdom on the one hand, and in the countries of Continental Europe on the other hand, to indicate that the use of the telegraphs for the purposes of trade and industry was held back in the United Kingdom by excessive charges or by lack of telegraphic facilities. So far as the United Kingdom lagged behind, it did so because the public had not learned to use the telegraphs freely for the transmission of personal and family news. And when, in 1875, under State owned telegraphs, the public of the United Kingdom had learned to use the telegraphs as freely as the public of Continental Europe used them, Mr. W. Stanley Jevons, the eminent British political economist, in the course of a review of the price paid for this free use of the telegraphs, said: “A large part of the increased traffic on the Government wires consists of complimentary messages, or other trifling matters, which we can have no sufficient motive for promoting. Men have been known to telegraph for a clean pocket handkerchief”—Mr. Jevons, in 1866 to 1869, had been an ardent advocate of nationalizing the telegraphs.27

Mr. Scudamore in 1866 to 1869 caused many people to believe that the United Kingdom was woefully behind the continental countries in the use of the telegraphs. He did so by publishing a table which showed that in 1866 there had been sent: in Belgium, 1 telegram to every 37 letters carried by the Post Office; in Switzerland, 1 telegram to every 69 letters; and in the United Kingdom, 1 telegram to every 121 letters. That table, however, really proved nothing; for in 1866, there were carried: in Belgium, 5 letters for every inhabitant; in Switzerland, 10 letters; and in the United Kingdom, 25 letters. Had the people of Belgium and Switzerland written as many letters proportionately as the people of the United Kingdom, the table prepared by Mr. Scudamore would have read: Belgium, 1 telegram for every 185 letters; Switzerland, 1 telegram for every 172 letters; and the United Kingdom, 1 telegram for every 121 letters.

Mr. Scudamore could, however, have prepared a table showing that the people of Switzerland and Belgium used the telegraph more freely than did the people of the United Kingdom, but not so much more freely as to call for so drastic a remedy in the United Kingdom as the nationalization of the telegraphs. The table in question would have shown that in 1866, there was transmitted: in Switzerland, 1 telegram to every 3.75 inhabitants; in Belgium, 1 telegram to every 4.25 inhabitants; and in the United Kingdom, 1 telegram to every 5.3 inhabitants. The table in question would also have indicated the necessity of care in the use of the several kinds of statistics just put before the reader. The table placed Switzerland in advance of Belgium, while the other sets of statistics had placed Belgium in advance of Switzerland.

Mr. Scudamore’s concluding argument was that little or no relief from the evils from which the public was suffering could be expected “so long as the working of the telegraphs was conducted by commercial companies striving chiefly to earn a dividend, and engaged in wasteful competition.” In support of the charge of wasteful competition he stated “that many large districts are provided with duplicate and triplicate lines, worked by different companies, but taking much the same course and serving precisely the same places; and that these duplicate or triplicate lines and duplicate or triplicate offices only divide the business without materially increasing the accommodation of the districts or towns which they serve.” But when Mr. Scudamore sought to substantiate this charge of waste arising out of competition, he could do no more than state that not less than 2,000 miles of line in a total of 16,066 miles were redundant, and that perhaps 300 to 350 offices in a total of 2,040 offices were redundant.

The evidence presented by Mr. Scudamore failed to reveal a situation that called for so drastic a remedy as the nationalization of the telegraphs. It revealed no evils or shortcomings that it was unreasonable to expect would be sufficiently mitigated, if not entirely removed, by the measures proposed by the telegraph companies.

Mr. Robert Grimston, Chairman of the Electric and International Telegraph Company, stated that the telegraph companies long since would have asked Parliament to permit them to consolidate, had there been the least likelihood of Parliament granting the request. Consolidation would have made the resulting amalgamated company so strong that the company would have been justified in adopting a bolder policy in the matter of extending the telegraph lines to places remote from the railways. No single company could afford to assume too large a burden of lines that would begin as “suckers” rather than “feeders.” A company with a large burden of that kind would be in a precarious position, because any of the other existing companies, or some new company, might take advantage of the situation and cut heavily into that part of the company’s business that was carried on between the large cities and was bearing the burden of the non-paying extensions. But if the existing companies were to consolidate, the resulting company would become so strong that it need not fear such competition from any company newly to be organized. That there was much strength in that argument appears from the fact that, in 1869, Mr. Scudamore as well as the Government adopted it in support of the request that the State be given the monopoly of the business of transmitting messages by electricity. Mr. Scudamore argued that since the State was going to assume the burden of building and operating a large number of unprofitable, or relatively unprofitable, extensions, it should not be exposed to the possibility of competition from companies organized for the purpose of tapping the profitable traffic between the large cities, “the very cream of the business.” Mr. Scudamore added that he had been told that a company was on the verge of being organized for the purpose of competing for the business between the large towns as soon as the properties of the existing companies should have been transferred to the State.28

The telegraph companies proposed to give the public substantial safeguards against the possibility of being exploited by the proposed amalgamated company. They proposed that Parliament should fix maximum charges for the transmission of messages, in conjunction with a limit on dividends that might be exceeded only on condition that the existing charges on messages be reduced by a stated amount every time that the dividend be raised a stated amount beyond the limit fixed. The companies proposed also that shares to be issued in the future should be sold at public auction, and that any premiums realized from such sales should be invested in the plant with the condition that they should not be entitled to any dividend. Provisions such as these, at the time, were in force in the case of certain gas companies and water companies. They have for years past been incorporated in all gas company charters; and they have worked well. There was no reason, in 1866 to 1869, why the proposals of the telegraph companies should not be accepted; that is, no reason from the view-point of the man who hesitated to exchange the evils and shortcomings incident to private ownership for the evils and shortcomings incident to public ownership.