Railways in the United States : their history, their relation to the state, and an analysis of the legislation in regard to their control, with supplementary notes continuing the record to 1911

Introduction

( Simon Sterne was bom in Philadelphia, July *, 23, 1839, and died in New York, September 22, hi 1 90 1. In his professional career, which covered ^ a period of about forty years, he secured a place -^ in the first rank of the Bar of New York, while in i^ connection with the conduct of cases before the ■^ Supreme Court in Washington, with arguments presented to legislative committees and to national commissions, and with a long series of papers and reports on subjects of national importance, he won, with the profession and with intelligent citizens generally throughout the entire country, authority for his opinions, conclusions, and recommendations, and distinction and cordial regard for his personality.

There came to him, in fact, as a result of certain of his scholarly and incisive reports on subjects of world-wide interest, a transatlantic reputation. Mr. Sterne's incisive and convincing method of presenting a case brought to him fame as a capable S^ and successful advocate, while the thoroughness of his knowledge and the breadth and strength of his reasoning power placed him in the class of

iii iv Introduction

great jurists. Mr. Sterne was, however, something more than an advocate and something larger than a jurist. His tmselfish pubHc spirit and distinctive service to the community in work for the solution of questions of the day and of the problems of his generation, entitled him to be described as a great citizen. Mr. Sterne found time, or he made time, after fulfilling, with a high standard of conscientiousness and a full measure of success, his obligations to his clients, for continuous labor in the arduous task of educating legislators and voters on a long series of puzzling and vital problems which from year to year called for the decision of legislators and for the judgment of voters. Among the public subjects which secured the advantage of his study and service may be mentioned the following: Organized labor and its relations to the community; party politics and the relation of the conscientious citizen to party organization; municipal reform (in connection with his interest in this subject, he rendered practical service as Secretary of the Committee of Seventy to the demoHtion of the Tweed ring) ; proportional representation; methods of legislation; corporations, — their responsibility and their relation to their shareholders, to their clients, and to the government.

In his study of corporations, Mr. Sterne gave special attention to the problems connected, on the one hand, with the management of railroads and with the relation of railroads to the shareholders,

Introduction v

and, on the other, with the pubHc and with the government as representing the pubHc.

The present volume is made up of three papers contributed by Mr. Sterne on the subject of railroad management and of the relations of railways to the commimity. It covers the substance of certain reports prepared by him for commissions which were investigating the work of the railways. It is some years since these papers were brought into print, but the matters considered in them belong to a group of questions that are still awaiting solution. Excepting for the fact that the problem is larger to-day than it was when it was first taken up for consideration by Mr. Sterne, and that its vital interest for the commiinity has been more clearly emphasized, the conditions differ very little from those that were in force at the time the conclusions and recommendations arrived at by Mr. Sterne were first brought before the public. The present volume belongs, therefore, to the history of the development and of the management of railways in the United States, and it can be made available to-day in helping to educate the legislators and voters of the present generation whose judgment is required for the solution of railway problems.

It is seldom that a man who is so excellently qualified by natural capacity, by training and by experience, to guide public thought in regard to such problems has been able or willing to give the large measure of time that was given by Mr. Sterne vi Introduction

to the investigation and the study required for a thorough grasp of these problems. The papers that he prepared in response to the requirements of his own contemporaries are too valuable to be put to one side, and the publishers are well pleased to have an opportunity, in printing the present volume for circulation on both sides of the Atlantic, to re-emphasize the continued value and the importance of the recommendations of this large-minded and large-hearted citizen.

G. H. P.

New York, Oct. i, 191 1.

Preface

An important division of the present volume is made up of an article on "Railways" contributed by Mr. Sterne to the Cyclopcedia of Political Science, and included in this work under the courteous permission of the publishers, Charles E. Merrill & Co. This article, although written years before the enactment of the Interstate Commerce Law, contains information, suggestions, and recommendations which will still be found of importance in the consideration of the railway question. In reprinting the article, the editor has been able (by the use of additional material in brackets) to supplement certain of the statements, bringing the record down to the present date.

The volume includes, further, an address by Mr. Sterne delivered in 1895 before the Wharton School of the University of Pennsylvania, on the relation of the railroads to the State. At the date of the delivery of this address, the Interstate Commerce Act had been in operation for a series of years, and Mr. Sterne's conclusions as to the working of the Act, while having special interest for the students of the subject of that day, are still

vii viii Preface

valuable for the consideration of legislators and of voters. The problems touched upon in this address have still to secure a. satisfactory solution.

The value of Mr. Sterne's writings on railway questions arises from his intimate relation with many of the matters treated of by him. He was instrumental in securing the passage of the Act establishing the Board of Railroad Commissioners in the State of New York, having appeared for many years before the legislature of that State in advocacy of that Act. He was counsel for the Chamber of Commerce and for the Board of Trade and Transportation, before the Assembly Committee on Railways of that State, appointed by the legislature in 1879 to investigate the abuses alleged to exist in the management of the railways of New York. The report of that Committee, usually described as the Hepburn report, is based entirely upon the testimony elicited by Mr. Sterne on behalf of the two commercial bodies just named, and is referred to in almost every treatise on the railway question since.

Mr. Sterne was frequently consulted in the preparation of the Interstate Commerce Act, and drafted some of its provisions. He had previously been asked to present his views to the Cullom United States Select Committee on Railways, which had been charged with the work of preparing a regulating act, and his address printed in their report throws much light on the railway situation of the time.

Preface ix

Mr. Sterne was appointed by President Cleveland in 1887 to investigate and report on the relation of the Governments of Western Europe to the railways of those countries, and his report published as a government document is generally cited as authority.

For a sketch of his career the reader is referred to the Life and Public Services of Simon Sterne, by John Foord, published by Macmillan & Co., London, 1903. The following list of Mr. Sterne's writings relating to the railway question is taken from that work :

Argument for New York Cheap Transportation Association on Bill to Provide for Railway Commissioners and for Minority Representation in Boards of Directors of Railroad Companies. March, 1874.

Argument for New York Cheap Transportation Association on Bill to Provide for Railway Commissioners. March 2^, 1876.

Argument before New York Assembly Committee on Railways on Bill to Create a Board of Railway Commissioners. March 28, 1877.

Speech before Assembly Committee on Railways to Organize a Board of Railway Commissioners. September, 1877.

Argument before Assembly Committee on Railroads on Bill to Create a Board of Railroad Commissioners. March 7, 1878.

The Railway in its Relation to Public and Private Interests. An Address before Merchants and

X Preface

Business Men of New York, at Steinway Hall. April 19, 1878.

The Railway Problem in the State of New York. Opening Statement before Assembly Special Committee on Railroads, on behalf of the Chamber of Commerce and Board of Trade and Transportation of New York. Jime 12, 1879.

Railroad Poolings and Discriminations. Information in Answer to Questions Propounded by the Chief of the Bureau of Statistics, Treasury Department of the United States. June 27, 1879.

Closing Argument on behalf of the Chamber of Commerce and Board of Trade and Transportation of New York before the Special Assembly Committee on Railroads. December 2 and 3, 1879.

Address on Interstate Railroad Traffic, before the National Board of Trade. December 11, 1879.

The Corporation : its Benefits, its Evils ; as Benefactor, as Monopolist. Lecture delivered before the General Society of Mechanics and Tradesmen. January 8, 1880.

The Railway Problem. National Quarterly Review, April, 1880.

Argument before U. S. Senate Committee on Commerce in relation to Bills referred to the Committee, proposing Congressional Regulation of Interstate Commerce. January 29, 1884.

The Railway Question : Statement to the United States Senate Select Committee on Interstate Commerce, at Fifth Avenue Hotel, New York City. May 21, 1885.

Preface xi

Report to President Cleveland on the Relations of the Governments of the Nations of Western Europe to the Railways. January i8, 1887.

Some Curious Phases of the Railway Question in Europe. A Paper read at a Meeting of the American Economic Association, at Boston, May 24, 1887. Quarterly Journal of Economics, July, 1887.

Railway Reorganization. The Forum, September, 1890.

Recent Railroad Failures and their Lessons. The Forum, August, 1891.

The Relation of the Railroads to the State. Paper read before the Wharton School, University of Pennsylvania, November 27, 1895.

M. S. S.

New York, Nov. 15, 191 1.

A New Legal Maxim — De Maximis Non

Curat Lex 197

Index 203

xiii

CHAPTER I History and Political Economy of Railways importance of the railway

Of all the factors that have contributed, during this century, to the growth of wealth, to the increase of material comfort, and to the diffusion of information and knowledge, the railway plays the most prominent part. It has widened the field for the division of employments ; it has cheapened production; it has promoted exchange, and has facilitated intercommunication. In its aggregate it represents a larger investment of capital than any other branch of human activity; and the service that it renders and has rendered to society is, both from industrial and commercial points of view, greater than is rendered by any other single service to which men devote their activities.

Down to a very recent period in his history, man was remitted to water routes mainly for the transportation of goods. Migration of htmters and shepherds coiild and did take place over land from zone to zone even without roads; but the transportation of heavy goods, such as form the bulk of the consumption of mankind, after the agricultural period had fairly set in, was necessarily committed to the waterways. The lands bordering rivers and shores were, therefore, the first to be populated by agricultural tribes, which, by establishing commimication with other tribes by means of the waterways, started an exchange of products. Primitive commerce thus took its origin along the lines of rivers and the lagoons of coasts, occupied by tribes which were the forenmners of civilization in its developed form.

History gives us accoimts of Assyrian and Persian roads that were at best not more than 200 miles in length, which were built for military purposes mainly. The Greeks made no contribution to the world's great highways, the roads to Olympia and Delphos comparing unfavorably with the roads subsequently built by the Romans. Rome was the first nation that appreciated the advantages of highways ; and its great conquests of Gaul, of Alemannia, and of Britain were due quite as much to the genius of the Romans for road-building as to their prowess and skill in arms. The road made the forest insecure to the barbarian. From the fight in the ambush the road compelled the fight in the open, and gave to the higher civilization an immense advantage over the more primitive arms and the absence of tactical knowledge of less civilized man. The road, therefore, was the means of

The First Railways in England 3

conquest of the Roman civilization over barbarism in the pre-Christian era.

In the shape of the railway, the road has become the principal lever in man's conquest over want, distress from the accidents of birth in locality, and the disadvantages arising therefrom. It has diffused civilization, and has distributed the commodities of any one part of the civilized world over every other part, so that wants and satisfactions become substantially equalized throughout the industrial world. Famine and great general distress become impossible; by means of the railway a large degree of well-being has, with but slight modifications, mainly due to man's mistaken legislation, been diffused all over the world.

The story of the mechanical means by which, in times within the memory of men of middle age, this great revolution was wrought, has been so often told that it seems almost superfluous to repeat it here; and yet the requirements of the title of this chapter make it necessary that it should be briefly recounted once more.

THE FIRST RAILWAYS IN ENGLAND

To England the world owes the railway. In the coal districts of the north of England, rails of wood were laid during the seventeenth century for the purpose of reducing the friction caused by pulling the coal cart from the workings to the mouth of the pit. About 1767 cast-iron rails were introduced.

Stone props, instead of timber, were used by Outram for supporting the ends of the rails ; hence the term, still used in England, of tram roads. Between 1784 and 1820, Murdock, Trevethick, and Gray made experiments in steam engines. The modern railway, however, both by common consent and as the verdict of engineering specialists, owes its origin, as a success in transportation, to George Stephenson, who built engine No. I for the Stockton & Darlington Railway, which was originally organized as a horse railroad, but which was authorized in 1823 to use steam as a motive force. Stephenson himself acted as the engineer on the opening of the steam railroad line in the autumn of the year 1825. Following this, came the opening of the Manchester & Liverpool Railway in 1830, the first engine of which was also built by Stephenson, and which from the outset not only proved the success of the railway in the transporting of persons and goods, but also showed it to be a financial success to its promoters and stockholders in their investment of capital. Within the first year after the opening of the Manchester & Liverpool line, upward of 500,000 passengers were carried.

OPPOSITION TO THE RAILWAY

That the railway was not introduced without much opposition would go almost without saying. The large interest in the stage-coaches had either

Development of the English Railway 5

to be conciliated, bought off, or fought. The canal proprietors, who had just gotten well under way with their canal projects, and were making considerable sums of money out of them when this formidable rival appeared upon the field, were opposed to the competition of the railway. In the third place, the rich landed proprietor regarded the railway as a devouring monster, which would not only destroy the value of his fields, but which threatened to destroy his game preserves and his beautiful lawns and flower beds, and, with but few exceptions, the rich landed proprietor opposed the railway. But stronger than all these special interests in opposition to the railway, was the conservative spirit of the English people, which found expression in the British Quarterly Review, in the words: "We should as soon expect the people of Woolwich to suffer themselves to be fired off upon one of Congreve's ricochet rockets, as to trust themselves to the mercy of such a machine going at such a rate."

DEVELOPMENT OF THE ENGLISH RAILWAY

London was first connected by rail with the interior of England in 1833, when the through line to Birmingham was completed. From that time forth English railways rapidly developed, so that at the close of 1 88 1 the railway system of the United Kingdom consisted of 18,180 miles in a country of 120,000 square miles in area; representing a total capitalization of £746,000,000, and carrying annually 623,000,000 passengers, with yearly receipts of £64,000,000. [In 1908, the mileage was 23,205, capitalization £1,310,533,212, passengers carried, 1,278,115,488, and annual receipts £119,894,327. See Statesman's Year Book for 1 910, p. 81.]

THE EARLY RAILWAYS IN THE UNITED STATES.

The success of the Stockton & Darlington experiment produced in the United States a greater effect than it did in England. Before the Liverpool & Manchester line was built, in 1830, many lines of rail were already projected in the United States, and as early as 1825 what is now the New York Central system was begun to be built under the charter of the Mohawk & Hudson Railroad. In 1827, Massachusetts authorized the appointment of a board of commissioners, and caused surveys to be made of the most practicable routes for a railroad from Boston to the Hudson River at or near Albany. Two reports were made by these commissioners in the winter of 1829, giving a survey of the road, accompanied with the recommendation to make the commencement of the railroad on both the routes at the charge of the commonwealth. In 1830 and 1831 the Boston & Worcester Railroad and the Boston & Providence Railroad companies were chartered, and in 1832 work was already under way to connect Boston with New York. Pennsylvania started its railway system in 1827,

Early Railways in the United States 7

and Maryland and South Carolina in 1828. The Baltimore & Ohio railroad system was commenced in 1828. In 1830, almost simultaneously with the opening of the first railroad line in England, railways were being opened in the United States in every direction. The growth of the railway sys- 'tem in the United States is best indicated by the facts, that in 1828 there were three miles of railway; in 1830, forty-one miles; in 1840, 2200; in 1850, 7500; in i860, 29,000; in 1870, 49,000; in 18^0, 93,671; and at the close of 1881, 104,813 miles. In 1882 the increase was about 13,000 miles, jnaking a grand total mileage in the United States at the beginning of the year 1883 of about 115,000 miles of rail. [In 1909 the total mileage, according to Poor's Manual for 1910, was 236,378 miles.]

The capital account at the close of 1881 shows a total of $6,815,000,000. Adding, for 1882, $40,000 a mile for about 13,000 miles, increases the total capitalization $520,000,000, making a grand total of about $7,335,000,000. [In 1909 the total capitalization, according to Poor's Manual for 1910, was $17,942,282,575.] The gross earnings of the railways of the United States in 1881 amoimted to $725,000,000, $552,000,000 of which was from freight earnings, and $173,000,000 from passengers; resulting in the payment of a dividend, over and above fixed charges, of $93,344,200 interest on the bonds absorbed, of net earnings of $276,654, 119, the sum total of $128,587,302, in addition to what went into other sources. In 188 1 the tonnage transported was not less than 315,000,000 tons. [In 1909, the gross earnings were $3,418,677,538, $1,677,614,678 being from passengers, and about $1,740,000,000 from other sources. The freight tonnage transported was 1,556,559,741 tons. See Statistics of the Railways in the United States, for 1909, pp. 59, 72, 74-J

THE RAILWAY IN FRANCE

France was much slower than England and America in adopting the railway system. Independent of the fact that the Latin race is not so alert in adopting labor-saving contrivances as the Anglo-Saxon, there was a cause for the slower adoption of the railway in that country, as it was better supplied with highways than England, and transportation charges in the early half of this century were comparatively much cheaper in France than in England. With the exception of some few small lines, there was no development of the railway system in France until about 1842, when nine great lines were established, which subsequently were amalgamated into six. These at the present day [in 1883, and still in 1908] divide and occupy between them substantially the whole French territory. Besides these, however, there are a few state lines and branch roads of insignificant importance. The names of these six great lines are Chemin de fer du Nord, de VOuest, de I' Est, d'Orleans, Paris-Lyons-

Netherlands 9

Mediterranee and du-Midi. The extension of the railway system in France has not been so great as it has been in England or the United States, owing to circumstances which will be referred to later. [The length of French lines open for traffic in 1908 was 25,060 miles of line of general interest, and 4968 miles of local interest. The concessions granted to the six great companies expire at various dates from 1950 to i960; the periods of state guarantee of four of these terminate at the end of 19 14, and of the others in 1934 and 1935. See Statesman's Year Book for 1910, p. 776.]

BELGIUM RAILWAYS

The railway system of Belgium is 2000 miles in extent, in a country embracing an area of 11,373 square miles. Two thirds of the whole of the railway mileage in Belgium is composed of lines worked by the state, and one third by private companies. [In 1908, the mileage was 2913 miles, 2530 of which were worked by the state. See Statesman's Year Book for 1910.]

NETHERLANDS

In the Netherlands, with an area of 13,000 square miles, there are 1230 miles of road, of which the state owns 630 miles, and private companies 600. [In 1908, the mileage was 1908 miles. See Statesman' s Year Book for 1900, which adds that all railway companies are private, and that there is a state railway company, only so called because the road is owned by the state.]

GERMANY, AUSTRIA, AND RUSSIA

Germany, Austria, and Russia were somewhat behind the western nations of Europe in their railway development, but within the decade before 1880 an enormous extension in their development took place, for the purpose of competing with France for the eastern trade, as well as for the purpose of military operations of an offensive and defensive character. In the Franco-Prussian War the seizure and management of the railroads by the state, for the purpose of aiding strategical movements, formed so important an element in the military operations of Prussia against France, that throughout central Europe a large number of lines have since been built, to secure strategical advantages.

RAILWAY MILEAGE

The following table, taken from Spofford's American Almanac for 1883, gives the statistics of the railways of the world to Jan. i, 1881. [This is supplemented by a table of mileage for 1909, collated in Appleton's American Year Book for 1 910, and for 1908 in the Statesman's Year Book for 1910:

Railway Mileage

II )09

2,300

3.176

Miles. Miles.

1. North America.

Total North America . . 127,830 280,863

2. Middle America.

Costa Rica 105

Cuba (Spanish) 858

Honduras 56

Jamaica (British) 25

Nicaragua 34

Trinidad.. 16

Total Middle America. . i ,094

3. South America,

Argentine Republic 1,619

Bolivia 31

Brazil 1,899

Chili 1,193

Columbia (U. S. of ) 99

Equador 75

Guiana (British) 21

Paraguay 44

Uruguay 235

Venezuela 70

Total South America. . . 7,316 35.642

4. Europe.

Austria-Hungary ii,738 In 1908 25,852

Great Britain and Ireland 18,168 " " 23,205

Carried forward 72,073 120,513

16,033

H li

II II

12,209

II II

2,244

II II

II II

II II

II II

11 II

1,500

II II

1.540

11 11

Brought forward

Greece

Italy

Netherlands

Norway

Portugal

Roumania

Russia

Spain

Sweden

Switzerland

Turkey

1,227

1.039 916

14,067

3.849

3.836

1,636

Total Europe 105,895

Miles.

120,513

10,388

1,912

1,607

1,690

1.995

41.136

9,227

8,321 2,763 1.239

201,562

5. Asia.

Ceylon (British) ....

China

India (British)

Japan

Java (Dutch)

Philippines (Spanish).

Turkey in Asia

Total Asia ,

" 1906

3,746

9,872

" 1908

30,576

" 1907

4,898

3,498

1.536

" 1908

" 1909

2,836

14,131

44.450

6. Africa.

Algeria (French)

Cape Colony (British), now Cape of Good Hope

Egypt

Mauritius

Namaqualand

Natal (British)

Tunis

Total Africa

3.757

3.503 lOI

3.068

2,000

11,021

The Capitalization of Railways 13

Miles. Miles.

7. Australia.

New South Wales 1,183 In 1908 3,472

New Zealand 1,258

Queensland 801

South Australia 832

Tasmania 178

Victoria 1.247

Western Australia 93

5.592 17.475

THE CAPITALIZATION OF RAILWAYS

In England, by reason of the high price of land which the railways must occupy and acquire, and a rigid application of the rule requiring the railway corporation to pay for consequential and indirect damages, its railways represent the maximum of capitalization. Taking this extreme of capitaHzation of the English railways, of $200,000 a mile, as a maximum, and the capitalization of the cheapest American railways, of $25,000 a mile, including equipment, as a minimum capitalization, it is fair to say that the average capitalization of railways the world over is not less than $50,000 per mile. Upon that basis the 264,000 miles of railway in the world would represent a total valuation, in the way of capital invested in these vehicles and means of intercommunication, of $13,200,000,000. [Poor's Manual for 1910 gives the total stock bond and capitalization of the 236,378 miles of railways of the United States as $17,942,282,575, or at the rate of $75,905 per mile. The Statesman's Year Book for 1910 gives the mileage of railways of Great Britain and Ireland at the end of 1908 as 23,205, with a capitalization of £1,310,- 533,212, or at the rate of $273,000 per mile.] I J Compared with all the debts of all the nations of the earth, amounting, in round numbers, to $27,000,000,000, it appears that, within the period of the last fifty years [before 1880], the industrial world has invested a capital in means of intercommunication alone, of about one half the sum that has been raised by way of loans for the purpose of carrying on, during the last few hundred years, all the wars, and constructing all the internal improvements, of all the nations of the earth. [According to the World's Almanac for 1909 and 191 1, the world's national debts in 1909 totalled $36,548,455,489, and in 191 1 over $39,000,000,000. The total mileage of railways in 1908 was 572,550, and the total capitalization in 1908 was estimated at $46,000,000,000, or largely in excess of the total debts of the world.]

THE GOOD AND EVIL SIDE OF RAILWAY GROWTH

So great a manifestation of a social power, representing, as it does, a growth unprecedentedly rapid, must and does exhibit many peculiar phases of social and politico-economic problems, and must bring with it evils incident to its own existence which demand some form of intelligent treatment and cure. It would, indeed, be remarkable and

Effect of Growth 15

without parallel, that any human instrumentality, however beneficial, could grow to such enormous proportions without having some shadow side in the way of defects, evils, and even crimes attendant upon and concomitant to the immense good it brings forth. The first effect of the development of the railway system on the intercommunication of men, has been to give a great impetus to the transmission of intelligence and personal intercourse. One need but read the letters of Madame de Sevigne to see what an arduous task it was to travel during the middle of the seventeenth century. When she proposed to set out to visit her daughter, 200 miles distant, she prepared her will, and set about the journey with a solemnity of mind somewhat akin to that felt by a person at the present time who is about to investigate the sources of the Nile, or make a voyage to the North Pole. But one need not go back so far for examples of the dangers, both anticipated and real, that down to within this century beset the traveller. The Newgate calendar is part of the history of the stage-coach, almost to the very time when railways were introduced. Highwaymen scoured the country round, within a radius of ten miles from London. Hounslow Heath, Black Heath, Epping Forest, Clapham Commons, all embraced post routes, and were the scenes of the exploits of many a man who, within this century, came to his end at Tybiu-n and at Newgate. The time occupied in moving from great centres to the capital is indicated by an advertisement of the York and London stage coach in 1706, in which the advertisers promise to be in London on the fifth day out from York, and to run from London to York in four days.

It is said by Francis, in his History of the English Railway, that the abdication of James IL was not heard of in the Orkneys until three months after his flight. He says:

"In the seventeenth century the charge for conveyance amounted, in many instances, to a prohibition. Heavy goods cost, from London to Birmingham, £7 a ton; from London to Exeter, £12 were paid. Coal was rarely seen, save in the neighborhood of the district which produced it. Pack-horses, strong, enduring animals, the breed of which is now extinct, were employed to carry the produce of the weaver's patient skill, the pottery of Staffordshire, and even the coals of Newcastle, laboring along heavy roads, toiling beneath a burning sun, wending their way through bare, bleak moors, down steep descents, by dangerous rivers, on narrow tongues of land, between masses of mire and mud so deep as to be dangerous if they entered — a leading horse bearing bells to intimate the approach of the party he heralded. The group formed a most picturesque accompaniment to the wild, weird scenes it enlivened. . . . The private carriage, if such, indeed, should chance to approach, left the track at the risk of never returning to it, while more numerous parties either