The Railroad Question Part 7

Q. He seems to be a grocer there? A. A small concern, perhaps.

Q. Small concerns are not worth developing, according to your opinion?

A. Our tariff rates are low enough for them at Rochester.

Q. That is to say, a small concern ought to pay 40, 30, 25 and 20, as against a large concern, 13; that is your rule? A. Well, if he is a grocer, most of his business is fourth-cla.s.s freight.

Q. And he ought to pay 20, as against 13? A. Yes, sir.

Q. That small man has no right to develop? A. He has the same chance that the other man has.

Q. At 20 against 13? A. Oh, yes.

Q. Do you call that the same chance? A. About the same chance, yes, sir.

Q. You consider it the same chance? A. Yes, sir.

Many reasons were a.s.signed by railroad men in justification of their practices. It was claimed that special rates were given to regular shippers, but it has been proved that not all regular shippers had special rates, and that persons who made only single shipments were often fortunate enough to obtain special favors. It was further claimed that special rates were given to those who, starting out new in business or developing new enterprises, needed aid and encouragement. But it was shown on the other hand that the aid and encouragement thus given to some bankrupted others, and in the end deprived the companies of more business than their policy of discrimination brought them. Railroad managers also argued that they could afford to make lower rates on large shipments than on small ones for the same reasons that the wholesale merchant can sell his goods for less than the retailer. But while this may be a good reason why rates on car-load shipments should be lower than rates on shipments in less than car-load lots, it is certainly no good reason why five car-loads belonging to one shipper should be transported the same distance for less than five carloads belonging to five shippers. In the case of local shipments the car is scarcely ever loaded to its full capacity; one shipment after another is taken from it as the train moves along, and the car perhaps reaches its final destination nearly, if not entirely, empty. The terminal charges are here also largely increased, and it is but just that the shipper should pay the additional cost of carrying and handling the goods. The case is entirely different when the railroad company carries five full carloads from one station of its line to another. Whether they have been loaded by one or five persons, whether they are consigned to one or five persons, matters little to the railroad company. It merely transports the cars, and in either case its responsibility and its services are the same. The car-load must therefore be accepted and is now generally accepted by the best railroad men as the unit of wholesale shipments, and any discrimination made in favor of large wholesale shippers is arbitrary and unjust. In the shipment of some commodities, such as wheat, flour and coal, a small advantage in rates is sufficient to enable the favored shipper to "freeze out" all compet.i.tors. It is certainly not to the interest of any railroad company to pursue such a policy; for by driving small establishments out of the business it encourages monopoly, which almost invariably enhances prices and decreases consumption. The railroad thus suffers in common with the public the consequences of its short-sighted policy. That even railroad managers realize that these practices cannot be defended upon any principle of justice or equity is apparent from the fact that one of the never-varying conditions of special rates is that they be kept secret. A specimen of a special rate agreement which was placed before the New York investigating committee is here presented to the reader:

"This agreement, made and entered into this eighteenth day of March, 1878, by and between the New York Central and Hudson River Railroad Company, party of the first part, and Schoellkopf & Mathews, of the city of Buffalo, N.Y., party of the second part:

"Witnesseth, That said party of the first part hath promised and agreed, and by these presents does promise and agree to transport wheat from the elevator in Buffalo, reached directly by said first party's tracks, except at such mills as time said tracks may be obstructed by snow or ice, to the which said second party may erect or operate at Niagara Falls, N. Y., at and for the rate of one and a quarter cents per bushel.

"And further, that said first party shall and will at all times give, grant and allow to said second parties as low rate of transportation on all property shipped by them from their said mills at Niagara Falls, and as favorable facilities and accommodation in all respects as are afforded by the party of the first part to the millers of Buffalo and Black Rock.

And also that the said party of the first part will transport for said second party all of their east-bound New York freight at and for the price or rate of forty-seven per cent. of the current all-rail through rates, via the route of party of the first part, from Chicago to New York, at the times of shipment, adding thereto three cents per barrel for flour and one and one-half cents per hundred pounds for mill feed or grain, as a terminal charge, to provide for the incidental expenses attending local transportation.

"And will transport their freight to Boston and all points in New England, taking Boston rates at the same rate as to New York, with ten cents per barrel added for flour and five cents per hundred pounds added for mill feed or grain.

"Provided, however, and this agreement is made upon the express understanding and consideration, that said second party shall regard and treat this agreement as confidential, and will use all reasonable precaution to keep the same secret.

"And upon condition also that said second party shall ship by the first party's road all the product from their mill at Niagara Falls destined to all points in New York, Pennsylvania and New England, reached by said first party, directly or by connections with other routes.

"And this agreement shall be and remain in force for the term of five years from and following the first day of September, 1878, after which period it may be terminated by sixty days'

written notice from either party.

"In witness whereof, the parties hereto have signed these presents the day and year first above written.

"N. Y. C. & H. R. R. R. Co., By J. H. RUTLER, General Traffic Manager.

SCHOELLKOPF & MATHEWS."

It will be noticed that this agreement was based upon the expressed condition that Schoellkopf & Mathews treat it as "confidential," and use all reasonable precaution to keep it secret. It is difficult to account for this strong injunction of secrecy except upon the a.s.sumption that the managers of the road, conscious of the great wrong which they inflicted upon the body of the people by their discriminations, hoped to escape public criticism by adopting a policy of secret dealing. Much as special rates were sought after, but few shippers to whom they had been granted were contented with their lot, for none was confident that his rivals did not have better rates than himself.

Discriminations between localities had their origin in the natural desire of competing roads to increase their business at the expense of their rivals. When two or more railroads touched the same point each would attempt to secure the largest possible share of the through business by holding out every possible inducement in rates to the shippers of that place. Indeed, the freight rates at compet.i.tive points were often so low that railroad managers found themselves placed in a rather unpleasant dilemma. They either had to admit that the rates charged by them at non-compet.i.tive places were exorbitant or that they were carrying the freights of compet.i.tive points at a loss and were thus squandering the money of their stockholders. They preferred as a rule to admit that they were doing compet.i.tive business at a loss, but a.s.serted that, inasmuch as they were compelled to run their trains, they could better afford to do compet.i.tive business temporarily at a loss than not to do it at all. The same logic might with equal propriety be employed by the grocer. To draw to him distant customers, he might offer to sell to them at cost or even at a loss; and then, to recuperate, he might advance the prices of his goods for his regular customers. If there is any difference between the grocer and the railroad company, it lies in the fact that the former's old customers would soon find relief at a rival store, while the patrons of the railroad at non-compet.i.tive points are like the traveler in the hands of a highwayman, without immediate redress. The railway company which discriminates between compet.i.tive and non-compet.i.tive points forgets that its line is a common highway for all points tributary to it; that all have equal rights, and that the only differences in tariff which the principles of the common law permit are those which arise from a difference of service and cost.

All other differences that railroad companies may make are unjust discriminations in violation of their charter and expose them to a forfeiture of the franchises conferred upon them.

The nature and extent of the discrimination practiced between different places are often such that no interest of the company can possibly be subserved by them, and the conclusion is forced upon us that the advantages granted by railroad managers to certain places are designed to serve chiefly personal and selfish interests. The great fortunes ama.s.sed in a brief period of time by railroad managers can in almost every case be traced to stock, real estate, commercial and other speculations directly or indirectly connected with railroad construction or management. And where other than personal interest cannot be shown, this is the only basis upon which the many apparent absurdities of railroad discrimination can be harmonized.

It is claimed by railroad men that transportation by water is a regulator of railway rates which they must respect. It is contended, for instance, that, although the cities situated on our large lakes enjoy superior commercial advantages which are mainly due to their having at their disposal water communication with the Atlantic Ocean, inland towns have no cause to complain against the railroads for not equalizing those differences which nature has largely created. It might be more difficult to meet this argument if, owing to peculiar combinations, these water rates were not made to extend their influence to almost every inland city north, east and south in the Union, and if those cities were not given much lower rates than hundreds of places much nearer the lakes.

The teamster who, half a century ago, found it impossible to compete with the ca.n.a.l, river or lake boats, simply surrendered the field to them and confined his operations to such a territory as could give him a.s.surance of a profitable business. Let the railroads do likewise. No company has a right to destroy a rival route, water or rail, by adopting special tariffs for competing points. There are at points accessible to water transportation certain freights requiring speedy carriage which will go to the railroads at profitable rates, but the heavier freights, as coal, lumber and even certain kinds of grain, should go to the carrier by water if he can afford to transport them at lower cost.

There have been but few legislative investigations of railroad abuses in this country, but the disclosures which they have made to the public are astounding. The most noteworthy of these were made by the Hepburn committee, of New York, to which reference has already been made. It is difficult to understand how a free and enlightened community could so long and so patiently bear railroad despotism. Individual discrimination might, under the veil of secrecy, long escape notice, but that a system of open and widespread discrimination affecting every non-compet.i.tive and even many a compet.i.tive point in the State, doing visible and irreparable injury to thousands of shippers, and infringing upon the rights of millions, should long be borne by a free and enlightened people, is a strange phenomenon of democratic endurance.

It would lead us too far from our subject to review in detail the many and glaring instances of local discrimination which the report enumerates. A few will suffice to show their scope and nature.

William W. Mack, of Rochester, a manufacturer of edged tools, testified that, in order to save fourteen cents per hundredweight on his freights to Cincinnati, he shipped his goods to New York and had them shipped from there to their destination, via Rochester; and that he availed himself of the same roundabout route for his St. Louis shipments, and saved thereby eighteen cents per hundredweight. In both of these cases the railroad company carried the goods 700 miles farther than the direct distance for a less charge.

Port Jervis millers had their grain shipped from the West to Newburgh, a point fifty miles to the east of them, and then had it returned to Port Jervis on the same line, at a less rate than that charged for a direct shipment.

The grain rates from Chicago to Pittsburgh were 25 cents per hundred in March, 1878, and only 15 cents from Chicago to New York.

Flour was carried from Milwaukee to New York for 20 cents, while the rate from Rochester to New York was 30 cents at the same time. It was also carried from East St. Louis to Troy at the same rate as from Rochester to Troy. The rate on b.u.t.ter from St. Lawrence County, N.Y., to Boston, over the Ogdensburg and Lake Champlain and Vermont Central, was 60 cents per hundred; from the nearer county of Franklin, 70 cents; it then continued to increase as the distance decreased, until it reached 90 cents at St. Albans, Vermont.

Soap shipped by Babbit & Co., of New York, to Crouse & Co., of Syracuse, paid 8 cents per box when the freight was paid in Syracuse, but 12 cents per box when paid by the shipper in New York.

It cannot even be said that New York fared worse than any of her sister States. There is hardly a business man in any community in the United States who cannot cite many cases of similar discrimination. Hundreds of well authenticated cases have been reported from every part of the country. A few striking ones may be given s.p.a.ce here:

The Illinois Central Company hauled cotton from Memphis to New Orleans, a distance of 450 miles, at $1.00 a bale, while the rate from Winona, Miss., to New Orleans, about two-thirds of the distance, was $3.25 a bale. The same company charged for fourth-cla.s.s freight from Chicago to Kankakee, a distance of 56 miles, 16 cents per hundred, and only 10 cents to Mattoon, 116 miles farther. The rate from New York to Ogden was $4.65 per hundred, and only $2.25 per hundred from New York to San Francisco. The car-load rate on the Northern Pacific was $200 from New York to Portland and just twice as much to a number of points from 100 to 125 miles east of Portland. The Chicago, Burlington and Quincy hauled stock from points beyond the Missouri River to Chicago for $30 per car-load, while it exacted $70 per car in Southwestern Iowa for a much shorter haul.

To what extent local discrimination has been carried by railroad companies is well ill.u.s.trated by the following incident: A nurseryman residing at Atlantic, Iowa, a station on the Chicago, Rock Island and Pacific Railroad, 60 miles east of Council Bluffs, bought a car-load of grapevines at Fredonia, New York. Finding that the through rate from Fredonia to Council Bluffs, plus the local rate from the latter place to Atlantic, was less than the rate for the direct shipment from Fredonia to Atlantic, he caused the car to be consigned to Council Bluffs, intending to have it thence hauled back to Atlantic. Being short of stock at the time the train containing his car pa.s.sed through his town on its way to Council Bluffs, the consignee prevailed upon the station agent to set out his car. In due time he received a request from the general office of the railroad to pay an amount equal to the rate per car-load from Council Bluffs to Atlantic. The request was promptly complied with by the appreciative nurseryman, who after all had been saved an annoying delay by the courtesy of the company's agent.

An infinite number of similar discriminations might be cited. They all show the same violation of the fundamental principles of justice and equity, the same despotical a.s.sertion of the power of the railroads to regulate the commerce of the country as the caprice or selfish interests of their managers might direct.

Discriminations between commodities, or, as they might also be called, discriminations in cla.s.sification, are probably the most common of unjust railroad practices. For the purpose of establishing as near as may be uniform rules in all matters pertaining to rates, the various roads operating in a certain territory usually form traffic a.s.sociations. The general freight agents of the roads that are members of the a.s.sociation in turn form a select body known as the rate committee. These committees of freight agents have for more than twenty years const.i.tuted the supreme authority in all matters pertaining to freight cla.s.sification. The trunk line cla.s.sification recognizes six regular and two special cla.s.ses, and every article known to commerce is placed in one of these cla.s.ses. One whom Providence has not favored with the mysterious wisdom of a general freight agent might suppose that considerations of bulk, weight, insurance and similar factors formed a basis of railroad cla.s.sification. Nothing, however, is farther from the truth. Freight charges, when permitted to be fixed by railroad companies, are invariably such as the traffic will bear, and freight cla.s.sifications are arranged on this principle, provided compet.i.tion by water, rail or other land transportation does not demand a modification.

It is, as a rule, not to the advantage of a railroad to entirely starve out any commercial or industrial concern along its line. Hence tariffs are scarcely ever made entirely prohibitory. Railroads proceed here upon the principle of the robber knight of mediaeval times, who simply plundered the wayfaring trader to such an extent as to reduce his profits to a minimum. He never stripped him, for by doing so he would have prevented his return and would have destroyed his own source of revenue. In like manner a railroad will never annihilate any weak branch of business along its line, nor will it, if it is in its power, permit any business to prosper without paying to it heavy tributes out of its profits. Every commodity is therefore made to pay a transportation tax based chiefly on its value and the profit which it yields, and all cla.s.sifications are prepared with this object in view.

The protection which, through exceptionally low rates, is extended by the railroad companies to certain industries, may not be objectionable _per se_, but the question arises whether the railroad companies or the people should exercise the right to determine when and where such protection is necessary. Moreover, to tax one branch of commerce for the benefits bestowed upon another is a practice of extremely doubtful propriety, and the power to do so should certainly never be conferred upon a private corporation. When customs laws are proposed in Congress ample opportunity is given to the representatives of the various industries of the country to be heard upon the subject. No hasty step is taken. Members of Congress have every opportunity to ascertain the sentiment of their const.i.tuents, through the public press, pet.i.tions and private correspondence. The subject is discussed in all its phases, both in the committee-rooms and upon the floors of both houses of Congress.

Every detail is fully considered, and many compromises are often necessary to secure for a bill the support of the majority. When it finally pa.s.ses it represents the will of the people, or at least the will of their legal representatives, who may be expected to know their wants and are accountable to them for their acts. Freight cla.s.sifications, however, while they are fully as far-reaching as customs laws, are made by a few freight agents meeting in secret session, listening to no advice and acknowledging no higher authority.

It is claimed by the railroad men that it is to the interest of railroad companies to do justice to all, and that the best cla.s.sification for the largest number of people is also the best for the roads. If this be true, it is difficult to see why railroads should fail to consult their patrons in the arrangement of their freight cla.s.sifications. Intelligent shippers may certainly be supposed to know as well as the railroad companies what cla.s.sification is to their common interest. Railroad managers are naturally despotical. They do not wish and do not tolerate any outside interference with what they obstinately term their private business. Even if the general policy of the companies designed the greatest good to the greatest number, the opportunities and temptations of their agents to pursue selfish ends or take advantage of individuals in the preparation or application of their tariffs are such that in the practical execution the evil will always outweigh the good.

It is not within the scope of the present inquiry to review in detail the various cla.s.sifications in force, or to point out the unjust features. The author will confine himself to showing by a few characteristic examples that the power now in the hands of the railroad companies to cla.s.sify the various commodities of commerce for the purpose of rating is greatly abused and is a potent means of railroad extortion. And that it may not be charged that abuses have been cited which are a thing of the past, the examples will chiefly be taken from cases which have come before the Interstate Commission for adjudication.

A complaint was filed with the commission in 1887 by T. J. Reynolds against the Western New York and Pennsylvania Railroad Company, from which it appeared that that company charged a greater price for the transportation of railroad ties from points in the State of Pennsylvania to points in the State of New York than was charged at the same time for the transportation of lumber between the same points. The commission held that this was a case of unjustifiable discrimination and ordered the company to place railroad ties in the same cla.s.s with other rough lumber. Many Western roads for years have been guilty of the same discrimination. The reasons for such a policy are obvious. A high tariff on railroad ties prevents their being shipped, depreciates their market price at home, to the sole benefit of the discriminating company, which is thus enabled to buy ties at a low price. Prohibitory rates on ties and rails are also often maintained by railroad companies to either delay or render more costly the construction of new lines which threaten to become their compet.i.tors. The Union Pacific Railroad Company several years ago even went so far as to make prohibitory rates on steel rails intended for the construction of a road which promised to become a compet.i.tor of one of its connecting lines.

From another case decided by the Interstate Commerce Commission it appeared that the Lake Sh.o.r.e and Michigan Southern Railway Company charged for blocks intended for wagon-hubs, and upon which only so much labor had been expended as was necessary to put them in condition, a higher rate than for lumber, claiming that such blocks were unfinished wagon material and were therefore, as articles of manufacture, subject to higher charges than raw material. The commission justly held that these blocks were as much to be regarded as raw material as the boards from which wagon-boxes are made.

In the cla.s.sification of the Southern Railway and Steamship a.s.sociation pearline was placed in the fourth cla.s.s, with a rate of 73 cents per hundred pounds, and common soap in the sixth cla.s.s, with a rate of 49 cents per hundred pounds. This latter article, when shipped by large manufacturers, enjoyed besides a special rate of 33 cents per hundredweight. Pearline and soap are compet.i.tive; there is no appreciable difference between them as regards the cost of transportation; but one commands a higher price in the market than the other, and upon this fact solely did the railroad company base its alleged right to levy upon pearline a transportation tax 120 per cent.

in excess of that levied upon soap, though the service rendered by the company was the same in either case. The commission held that the discrimination made by the "special rate" of the Southern Railway and Steamship a.s.sociation between pearline and common soap was unjust, and ordered that it be discontinued and that, with common soap in the sixth cla.s.s, pearline be placed in the fifth.

For years the rate from Indianapolis to New York was the same for corn as for its direct products, such as ground corn, cracked corn, corn meal, hominy and corn feed. Such a tariff made it possible for Western mills to compete with similar mills that had been established in the East, since a discrimination of 5 per cent. was sufficient to absorb three or four times the profits of any Western mill. It was shown by the evidence produced that the actual cost of transportation was substantially the same for direct corn products as for the raw corn. The only defense which the railroad company could make for this discrimination was that in the carriage of raw corn they had to meet lake compet.i.tion. The weakness of this argument will be perceived when it is remembered that Indianapolis is 154 miles from the nearest lake-shipping point. There is but little doubt that this discrimination was made by the railroad company because it was to its interest to haul the raw corn from the West to the East and to return it in altered form. Railroads care, as a rule, little for a waste of force, if such waste is to their own advantage.

In another case brought before the commission in 1889 it was shown that the "Official Cla.s.sification" placed common soap in carload lots in Cla.s.s V, while such articles as coffee, pickles, salted and smoked fish in boxes or packages, rice, starch in barrels or boxes, sugar, cereal line and cracked wheat are placed in Cla.s.s VI. The chief reply of the railroad companies to this complaint was that soap was justly placed in Cla.s.s V because the components from which it is in part made stood in Cla.s.s V.

In another case it was shown that one kind of soap was burdened with a higher transportation tax than another, irrespective even of cost, because one had been advertised as toilet and the other as laundry soap.

The principle of charging what the traffic will bear is well ill.u.s.trated by the relative rates on patent medicines and ale and beer, as maintained by the Official Cla.s.sification.

In a complaint made by a prominent manufacturer of proprietary medicines against the New York Central and other roads, it was shown that the complainant's products were shipped at owner's risk, and that they were in bulk and intrinsic value similar to ale and beer, but that in spite of these a.n.a.logies the former were rated as first-cla.s.s and the latter as third-cla.s.s goods, simply because they retailed at a higher price.