All Commentary
Wednesday, July 1, 1970

Throttling the Railroads: 3. The Thrust to RegulatioN


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.

Mercantilistic Vestiges

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

Impossible Dreams

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

 

—FOOTNOTES—

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. 


  • Clarence Carson (1926-2003) was a historian who taught at Eaton College, Grove City College, and Hillsdale College. His primary publication venue was the Foundation for Economic Education. Among his many works is the six-volume A Basic History of the United States.