Dr. Carson is a frequent contributor to THE FREEMAN and other journals and the author of several books, his latest being The War on the Poor (Arlington House, 1969). He is Executive Director of the Constructive Foundation in Atlanta, Georgia.
The courtship of the railroads by government ended rather abruptly in the 1870′s. Not only were the governmental favors reduced or shut off but governments began to turn their energies to regulating, controlling, restricting, and containing the railroads. True, there had been some opposition to railroads from the beginning which resulted in some restrictive legislation: there were early fears that the human body could not withstand such tremendous speeds as 15 to 20 miles per hour; farmers’ fields were sometimes ignited by sparks from train engines; cattle owners resented the threat the moving steam engine posed to their herds; and some people resented the trains running on Sunday. Some states passed fencing laws, and some communities would not allow trains to pass through on the Sabbath.
But, in the main, the people of the United States wanted railroads, and their governments responded by offering various aids and inducements to railroad building, as has been shown. The policies began a major shift in the 1870′s, and they were probably accelerated by the Credit Mobilier exposures. Communities still wanted railroad service, but they turned from inducement to compulsion to get it. In the course of time, railroads became, in the eyes of some, Public Enemy Number One.
What brought on this about-face? Did railroad rates skyrocket once the public’s dependence on this mode of transportation was established? Was service refused to some and reduced to others? Did the railroads cease improving their equipment once they were built? Did the railroads fail to expand markets, to bring goods at competitive prices from distant points, or provide a world market for American farm produce?
Performing a Service
In general, each of these questions must be answered in the negative. A survey of the situation in the latter part of the nineteenth century — the period when the clamor for government intervention was mounting but before such control had been generally instituted — provides impressive evidence of the benefits of the railroads to the American public. Despite the great handicaps under which many of the railroads had been or were being built and operated — such handicaps as heavy indebtedness, haphazard construction fostered by fickle legislation, overbuilding promoted by political expedience, the invitation that government aid and the possibilities of suborning legislatures offered to sharp operators, the technological difficulties of a new means of transportation, the immensity of America and the unfriendliness of much of its terrain and weather — almost all indications are that the railroads were doing a good job.
Energetic entrepreneurs put together great railroad systems out of the hodgepodge of short lines that had been built, linking great cities and providing far-flung services for the hinterlands. So it was with such systems as the Pennsylvania, New York Central, Southern, Chicago, Burlington, and Quincy, Atchison, Topeka, and Santa Fe. James J. Hill wrought the Great Northern with private funds and succeeded in competition with the heavily subsidized Northern Pacific.
Railroad equipment was improved as new technology became available, and service was usually bettered by these improvements. Steel rails replaced wood and iron; flanges were placed on wheels rather than on the rails; passenger coaches with aisles down the middle became standard; sleeping cars were introduced and steadily improved; air brakes and signaling devices added greatly to the safety of the railroads. Interchange arrangements were frequently worked out with other shippers, though initially railroads were sometimes chary of cooperating with one another. The railroads were the instigators of a standard time within time zones for the whole United States, a system that was much later prescribed by the Federal government. That privately-owned railroads were generally improving the quality and extent of their service should be beyond doubt.
Rail Rates Were Declining
As far as rail rates were concerned, they usually declined from the 1870′s to the early twentieth century. Only in three years —1878, 1880, and 1883 — was there a counter movement in freight rates. In 1868, the average railway revenue per ton mile was over 1.9 cents; by 1900, this had been reduced to only a little more than 7 cents.’ Of the benefits of the railroad to wheat farmers in opening up markets to them, one book has this information: "Mr. Edward Atkinson has estimated at 66 cents the saving effected from 1873 to 1887 in the cost of growing a bushel of wheat in the United States, carrying it 1,200 to 1,500 miles by rail, and by lake and rail, to the Atlantic seaboard and thence by vessel to Liverpool. Not less than 50 per cent of that saving Mr. Atkinson attributed to the reduction made in the charge for carrying the wheat to the Atlantic, 25 per cent to the reduction in the charges for ocean transportation, and only 10 per cent to the reduction brought about in the cost of planting and harvesting." 2 Andrew Carnegie was, in part, remarking the marvelous impact of the railroad, when he said: "To make a ton of steel one and a half tons of iron stone has to be mined, transported by rail a hundred miles to the lakes, carried by boat hundreds of miles, transferred to cars, transported by rail one hundred and fifty miles to Pittsburgh…. How then could steel be manufactured and sold without loss at three pounds for two cents? This, I confess, seemed to me incredible… but it was so." 3
Of course, the greatest benefits from rail service went to consumers, both domestic and foreign —that is, to virtually everyone. Americans quickly became accustomed to having on the shelves of their stores products from all over America and from much of the rest of the world. They not only could have them with great predictability, but they could also have them much cheaper than ever before in the latter part of the nineteenth century. The decline in rail rates was measured by the consumer in the general decline of prices, a decline that was sometimes absolute and at others relative to wages.
Why, then, was the political power of the state and Federal governments turned against the railroads? That power is traced from and responsible to the American people. And, the American people were surely the beneficiaries of the railroads. The explanation is that some portion of the American people did not see it or understand it this way, that they had come to view the matter from other angles than their common interest as consumers. Much underlay the thrust to regulation, but what was involved can be reduced to and treated under five headings.
1. Opposition to Big Business
The railroads were among the first large corporations in the United States. In the 1870′s several had or were to become giants, doing business across the lines of several states or territories and extending their tracks over whole regions. These great corporations owned thousands (or even millions) of acres of land, numerous freight and passenger stations, thousands of miles of track, and thousands of pieces of rolling stock. They frequently bought out smaller railroads and extended their facilities into new areas or covered more fully the old. By cooperation with one another the railroads were providing nationwide transportation facilities, and in their wake other businesses became nationwide, spearheaded by Standard Oil.
Americans have long been ambiguous in their attitudes toward and treatment of big businesses. They have patronized them, else they would not have become big businesses. Those who live in towns or cities where corporations are headquartered take pride in their edifices and the number employed is often a local boast. Men seek employment with large corporations, for they observe that pay is better and jobs more secure. Yet, Americans often bestow their vote on those who claim that they will bring the corporations to heel, who describe them as irresponsible leviathans which must be regulated and controlled, who engage in antibusiness demagoguery. A double standard of behavior when applied to economic and political realms appears to be involved.
A part of this animosity toward big business can most likely be ascribed to just plain human cussedness. People quite often like to think of the mighty being brought low, are jealous of the successful, and behave inconsistently and irresponsibly at the ballot box. (Where is there a greater lure to irresponsible behavior than in voting? Men may vote for the demagogue who appeals most breathlessly to their prejudices and then denounce politicians for their inconstancy and venality.) Moreover, people are apt to be suspicious of anything large, removed from their direct surveillance, and whose workings they do not understand. Thus, they are ready enough, in the main, to believe the worst of large businesses.
All Industries Affected
The opposition to and fear of the railroads did, however, have a particular historical setting. The growth of large railroad corporations was paralleled by the growth of other large businesses. In the last two decades or so of the nineteenth century, it appeared, or could be made to appear, that consolidation was leading toward the domination of whole industries by single companies. While this did not immediately portend for the railways, a similar result might be achieved by pooling, or so it was feared. Nationwide industries were something which Americans had not yet much experienced. Would energetic companies squeeze out all competitors and be in position to practice extortion on the American people? That such a view did not take into account the exigencies of business, the potential role of competitors in the free market, or what it would be most profitable for a business to do, does not mean that it could not be believed. What would happen in most industries would be that once one company had shown how to provide goods or services on a nationwide scale others soundly financed and well managed would follow in their path. So it happened in the oil industry, and many another.
Meanwhile, critics turned the searchlight on the railway industry and found in their practices —whether innocent or not so innocent but, whichever, determinedly misunderstood — dangers to the republic and potentialities for spreading evil. Traffic associations and pools would permit the railroads to act monopolistically. Rate differentials between large and small shippers were prejudicial to the "little man." The railroads issued many free passes, and these were described as efforts to suborn public leaders and officials. Railroads sometimes "discriminated" by charging more for a short haul than for a long haul. Even competition, when it resulted in lowering of rates, was frequently described as ruinous and dangerous.
Examination into the basis of railway practices will be taken up later, but the point here is that they were described in such a way that some came to think of the railroads as a menace to be contained.
2. The Ambiguous Legal Status
The railroads have paid, and continue to pay, an excessively extortionate price for the early favors received from governments and, what is more to the point, so have and do the shipping and traveling and consuming public. This latter point needs to be kept ever in mind. Governmental agents can conceive of all sorts of devices by which to penalize and constrain railroads, but they have hit upon none, to my knowledge, which have not been passed on in one way or another to the public. Even so, governments have beset the railroads with all sort of taxes, regulations, restrictions, and controls. The bases for part of these were the favors granted and for much of the rest the ambiguous status that these confirmed.
The railroads were bred in legal ambiguity, developed in limbo, and have languished in a maze of regulation and restriction which was issued on the basis of this dubious status. Law in the United States, with the exception of Louisiana, is a combination of the common law — that is, English practice, immemorial custom, precedents set by judicial decision — and legislative enactments. In the absence of specific constitutional provision and subsequent legislative enactment, the common law generally prevails. The common law is itself a wondrous maze of judicial decisions reaching back to the dim English past and threading through the centuries in any particular matter amidst changing cultural patterns. It embraces both relics of feudal serfdom and modern contractual relations of free men.
Railroads were chartered as corporations. The corporation arose as a medieval device by which various groups were authorized and granted privileges and immunities. Its most obvious use was the chartering of towns and communities as political units, a practice continued by the states in America. Corporations were, then, governmental or semigovernmental in character. Railroad corporations had some of the residues of this governmental character, since they could, under court supervision, exercise the power of eminent domain. The getting of a charter involved the tacit or explicit acknowledgment of the authority of the sovereign — in this case, the state — to lay down rules for the operation of the corporation. The charters of railroads usually either spelled out such rules or reserved the privilege to regulate rates, and so forth. Historically, charters had frequently been given for such undertakings as bridges and roads. The public was said to have a special interest in these; they often had monopolies; and their fees were subject to supervision.
The public or private status of the railroads was further confused by aids granted for their building. That railroads should receive land grants, use the credit of government, or be subsidized certainly implied that they had a different public character from that of, say, farms.
The railroads, it turned out, were not thoroughfares, not necessarily nor particularly monopolies, nor once they were finished with the power of eminent domain were they governmental. A doctrine was exhumed from the past to define their legal status. It is the doctrine, as we know it, that they are common carriers. This doctrine has its roots in the Middle Ages in the notion that certain sorts of undertakings are common callings. As one writer describes the matter, "For some reason that is not entirely clear certain of these common callings, including the services of innkeepers, wharfingers, ferrymen, and carriers were singled out for special consideration by the courts, and a body of court decisions grew up limiting the freedom of action of individuals engaged in these businesses."4 The common carrier doctrine as it took shape required those who undertook to serve in this capacity to serve all corners on equal terms and at reasonable rates, among other things. (There were, of course, protective limits to the service that had to be provided.) The implicit serfdom here is appropriate to the time of its origins and helps to account for some of the resentment customers of the railroads encounter from personnel. Americans, at least, do not like to be made to serve, but welcome the opportunity when they are free to do so or not.
The stage was set for bringing these medieval relics into play by the acts of incorporation and aids granted to the railroads. Even so, they might have been permitted to continue to atrophy, as they were for a time. From the early years of railroad building into the 1870′s the tendency in the United States was away from medieval and mercantilistic practices toward full-fledged private property in provision of goods and services, toward competition and away from chartered monopolies, toward allowing prices to be set in the free market, toward making the privileges of incorporation available to all by general acts of legislatures. Railroad historians generally agree that states did not much exercise their powers of regulation and that when they early attempted to do so they either abandoned the attempts or did not pursue them vigorously. With the abandonment of extensive aid in the 1870′s, the railroads might have become fully the private property of their owners to use as they saw fit, subject only to general laws and such specific ones as might be necessary for public safety. In the 1880′s the Supreme Court confirmed this direction by declaring that corporate property was property in the meaning of the Fourteenth Amendment and protected by it.
Once the hue and cry was raised against the railroads, the relics in the common law served as a basis for regulation. The charges against the railroads acquired much of their force from the supposed public character of the roads. What the railroads charged and the service they provided would be only the affair of contracting parties if they were fully private; if they were semipublic (or however it should be described), their charges would be of public interest and might be publicly determined. When the Supreme Court decided in the 1880′s that the so-called Granger laws regulating railroads were invalid for interstate shipments, an additional basis for regulation was supplied by the commerce clause of the United States Constitution. None of these laws or precedents or constitutional provisions caused the regulation of the railroads; instead, they served as a legal basis for the action and added impetus to the thrust to regulation by supporting the notion that railroad practices were of public concern.
3. Political Face Saving
It became politically advantageous to be against the railroads in the latter part of the nineteenth century. This did not come about so much at first because of public opposition to the railroads as because of public distrust of politicians. For several decades scandal after scandal occurred as a result of government grants to railroads. The culmination came nationally with the Credit Mobilier revelations, which were associated with other scandals of the Grant Administration as well as those a Reconstruction state and local governments. Politics and politicians were very nearly discredited for many Americans. How deeply politicians became mired in scandal is illustrated by this example from Wisconsin in the 1850′s involving a projected railroad:
With eight exceptions — those who were to benefit in other ways — each legislator who voted for the bill received a package containing the promised amount of La Crosse and Milwaukee securities. A few who had rendered special services, such as Senator Hadley and Assemblyman Falvey, received more than their colleagues. In addition, the comptroller, the lieutenant-governor, the chief and assistant clerks of the Assembly, and the governor’s private secretary also received five or ten thousand dollars in securities. Kilbourn had a package of ten thousand dollars worth of bonds prepared for Judge Abram D. Smith of the Supreme Court, and Governor Bashford got fifty thousand dollars worth. The two senators and twelve assemblymen who did not vote received no package. Six senators and seven assemblymen refused the bonds and voted against the bill.5
Such scandals not only reflected on the individuals involved but upon the profession of politician itself.
Much of the public ire was turned on the politicians initially, though of course the bribers were guilty along with the bribed. The "scoundrels" were sometimes turned out of office wholesale in states. Constitutions were adopted which greatly restricted state grants and aids to businesses. Legislative acts sometimes doubled the penalties for bribery when committed by public officials.
But there was another route politicians could take to save face and reclaim some public respect. It was to shift the onus from politics to business, to expose businessmen as malefactors and reveal politicians as guardian angels. Possibly, no one thought it out in such all encompassing fashion. In fact, however, such a shift did occur. What an individual politician could do would be to vote against the railroads and establish his innocence of bribery. A vote to contain, obstruct, and restrict big business could be worn as a badge of innocence.
4. Interest Group Support
The thrust to regulation gained ground by focusing attention on the impact of the railroads on particular groups, locales, and regions rather than upon the general interest — e., that of consumers. Group was ranged against group, interest against interest, community against community, and region against region. Historians have often written as if the situation were one in the latter part of the nineteenth century in which the railroads were pitted against the general welfare of the United States. This is nonsense; the already indicated benefits to consumers proves the contrary. Nor were big businesses pitted in class array against the general welfare. They were much more apt to be pitted against one another in ways beneficial to the rest of the country; anyone who will take off the Marxian blinders can ascertain this for himself.
But to say that railroads benefited everyone as consumers is not to say that all were benefited equally, and they certainly did not benefit all producers and distributors and communities equally. There was the rub! When the railroads were being built, the merchants, manufacturers, farmers, and the people of an area in general had great hopes for what the railroad would do for them. Those in small communities had visions that their villages would become trading centers, manufacturing and mining centers, centers of art and culture, and even great cities. One railroad historian describes the spread of such notions this way:
The inception and progress of the [railroad] fever came in time to have a pattern. First, some up-and-coming individual, or simply a fanatical dreamer, said forcibly that what his home town of Brownsville needed, if it were to share in America’s great destiny, was a steam railroad. He talked the idea to anyone in Brownsville who would listen or could not get away, and the more he talked…, the better the idea seemed to him. It grew and blossomed and burgeoned and even soared…. It also dripped with gold, gold for all of Brownsville, soon to be a mighty metropolis, teeming with commerce, with industry, with the stir and bustle of countless travelers.6
Such dreams did sometimes become realities. Some villages did become metropolises, aided by the railroad. One could name, off hand, Chicago, Denver, St. Paul, Atlanta, Kansas City, and Fort Worth. But for most of them it was an impossible dream. The railroad was built through the town, but it remained what it was before — a small town. The fault, it was alleged, lay with railroad practices, particularly the differential in rates to localities. If Social Circle, Georgia, could have the same rate from New York as Atlanta (such a case was once heard), it, too, might become a great trading center.
Small towns were not the only ones in which there was interest in manipulating rates to local advantage. New York City exporters wanted to maintain their favorable position in relation to other eastern ports. Eastern ports wanted as good or better rates from the railroads for midwestern produce as Gulf ports. An early study of the cases brought before the Interstate Commerce Commission indicates that in case after case it was business interests within communities ranged against the railroads. The author concluded that "in most of the cases brought before the Commission the conflict has not been between the railways and the people, but between one section of the public and another section of the public, each such section being served by its particular railway or railways."7 The railroads were, of course, caught in the middle. Generations of historians have taught that it was railroad discrimination against poor western farmers that produced the Granger laws. Recently, a historian has rediscovered the fact that proposals for rate-law reforms, "sponsored for the most part by merchants and businessmen, can scarcely be interpreted as agrarian attacks upon the business community. On the contrary, they were designed to protect vested commercial interests…."8 Or, I might add, to promote certain commercial interests. A new order of political priorities existed, then, once the railroads were largely built. When railroads were being projected, the politician’s advantage lay with getting railroads built into the area where his constitutents lived. Once the railroads were built, the pressure was on the politician to use political power to secure an advantage for his constituents from the railroads. If only one reason could be given for the thrust to regulation, this would be it.
5. Socialist Ideas
However, it is doubtful that local chambers of commerce, special interests of local producers and distributors, or communities ranged against one another could have brought off and maintained the sustained political assault on the railroads. They would need allies, and they got them. After all, the quest of businessmen for special advantage is easily unmasked as vulgar self-interest. Any political cause that is advanced for a considerable period of time requires a rhetoric which will give it the ring of nobility. The rhetoric for this cause was provided by socialism.
Socialists could, and did, link together the various thrusts and provide ideological foundations for them. Socialists were at the forefront of those denouncing big business. Marx, and others, had proclaimed that businesses would grow bigger and bigger until all competition had been extinguished. Despite the brave progressive talk, socialism contains a large measure of nostalgia for medieval practices in which property was not quite private; hence, it could and did subsume such doctrines as that of a common calling. Socialists read the whole conflict in terms of class conflict, gave politicians a rhetoric, and allowed them to appear noble when they advanced the special interests of their constituents, or tried to do so. Above all, socialism provided the egalitarian emphasis in terms of which railroad practices appeared to be unfair.
How socialism entered the stream of American politics is too complicated and abstruse to be told in detail here. Tiny socialist groups were being organized by the 1870′s. Socialist ideas informed such labor organizations as the Knights of Labor. The Grange and the Farmer’s Alliance at least provided organizations within which the ideas could be spread. Third parties, such as the Greenbackers and the Populists, were definitely under the influence of socialist ideas. Various intellectuals, utopians, and reformers helped to give voice to ideas drawn from socialism. From these varied sources they came to influence American political action.
Railroads Used as Scapegoats in Latter Nineteenth Century
The railroads were the leading villain of radicals in the latter part of the nineteenth century. The following is an indictment of them by a man who frequently lectured for the National Farmer’s Alliance. He said that "the railroads are now menacing the peace and prosperity of the country in a far more grave and dangerous manner than was thought of by the people a half-century ago. Their power to centralize population, to control the commerce of the country, to build up a city or tear it down, to prosper one businessman and ruin another, to control legislatures and Congress, to pack courts, is what the people have come to fear."9
Senator William Peffer described the situation of the farmer in this way in 1891:
… The railroad builder took the initiative. Close by his side was the money changer. The first took possession of the land, the other took possession of the farmer. One compelled the settler to pay the price fixed upon the railroad lands by the railroad; the other compelled the settler on the public lands within the grant to pay the increased price, and to borrow money through him to make the payments on both. This system continued until the farmer, accommodating himself to prevailing conditions, was in the hands of his destroyers.’9
General James B. Weaver, Populist candidate for President in 1892, belabored the railroads in this fashion:
In their delirium of greed the managers of our transportation systems disregard both private right and public welfare. Today they will combine and bankrupt their weak rivals, and by the expenditure of a trifling sum possess themselves of properties which cost the outlay of millions. Tomorrow they will capitalize their booty for five times the cost, issue their bonds, and proceed to levy tariffs upon the people to pay dividends upon the fraud.11
The doings of certain railroad financiers have long been the stock-in-trade stories of reformers. Here is Thomas E. Watson, another Populist, declaiming against Collis P. Huntington and Leland Stanford for allegedly taking funds from their company for nefarious ends:
It’s not all they took, by a jug full. At this good hour Huntington, instead of being behind the bars as a convicted thief, is one of the Grandees of Plutocracy, and Stanford, instead of being in jail, is in the United States Senate!
Of course, had these men stolen a bunch of cattle, they would have been shot down without ceremony…. But they showed better judgment. They stole enough to buy Judges, corrupt Legislators, and muzzle the Press.¹²
Those who would use governmental power to control the railroads, then, took the attention away from the benefits of the railroads to focus upon railroad practices. In order to evaluate their charges and the potentialities for harm in the fears they raised, it will be helpful to examine into the economics of railroading. This will provide a basis, also, from which to explore the impact of intervention.
Next: The Nature of Railroading
1 Gilbert C. Fite and Jim E. Reese, An Economic History of the United States (Boston: Houghton Mifflin, 1965, 2nd ed.), p. 334.
2 Hugo R. Meyer, Government Regulation of Railway Rates (New York: Macmillan, 1906), pp. 212-13.
3 Fite and Reese, op. cit., p. 294.
4 Russell E. Westmeyer, Economics of Transportation (Englewood Cliffs: Prentice-Hall, 1952), p. 94.
5 Robert S. Hunt, Law and Locomotives (Madison: State Historical Society of Wisconsin, 1958), p. 14.
6 Stewart H. Holbrook, The Story of American Railroads (New York: Crown, 1947), p. 40.
7 Meyer, op. cit., p. 337.
8 George H. Miller, "Origins of the Iowa Granger Law," in Harry N. Scheiber, ed., United States Economic History (New York: Alfred A. Knopf, 1964),p. 311.
9 N. B. Ashby, "Transportation," in Irwin Unger, ed., Populism: Nostalgic or Progressive (The Berkeley Series, 1964), p. 27.
10 Quoted in Vincent P. De Santis, et al., America Past and Present (Boston: Allyn and Bacon, 1968), II, 185.
11 Thomas A. Bailey, ed., The American Spirit (Boston: D. C. Heath, 1963), II, 520.
12 Paul Glad, ed., The Process of American History (Englewood Cliffs: Prentice-Hall, 1969), p. 144.