Transcriber’s Note:

The cover image was created by the transcriber and is placed in the public domain.

THE HEART
OF THE
RAILROAD PROBLEM
THE HISTORY OF RAILWAY DISCRIMINATION IN THE UNITED STATES, THE CHIEF EFFORTS AT CONTROL AND THE REMEDIES PROPOSED, WITH HINTS FROM OTHER COUNTRIES

BY

Prof. FRANK PARSONS, Ph.D.

AUTHOR OF “THE STORY OF NEW ZEALAND,” “THE WORLD’S BEST BOOKS,” “THE CITY FOR THE PEOPLE,” “THE RAILWAYS, THE TRUSTS, AND THE PEOPLE”

BOSTON

LITTLE, BROWN, AND COMPANY

1906

Copyright, 1906,

By Frank Parsons.

All rights reserved

Published April, 1906

THE UNIVERSITY PRESS, CAMBRIDGE, U. S. A.

PREFACE

This work is one of the consequences of a conversation years ago with Dr. C. F. Taylor, of Philadelphia, editor and publisher of The Medical World and of Equity Series. The doctor said that Equity Series should have a book on the railroad question. The writer replied that there was room for a book dealing with the political, industrial, and social effects of different systems of railway ownership and control. A plan was adopted for a book, to be called “The Railways, the Trusts, and the People,” which is now on the press of Equity Series. For the preparation of this work the writer travelled through nine countries of Europe and over three-fourths of the United States, studying railways, meeting railroad presidents and managers, ministers of railways, members of railway commissions, governors, senators, and leading men of every class, in the effort to get a thorough understanding of the railway situation. He also made an extensive study of the railroad literature of leading countries, and examined thoroughly the reports and decisions of commissions and courts in railroad cases in the United States.

As these studies progressed, the writer became more and more convinced that the heart of the railroad problem lies in the question of impartial treatment of shippers. The chief complaint against our railroads is not that the rates as a whole are unreasonable, but that favoritism is shown for large shippers or special interests having control of railways or a special pull with the management. This book consists, in the main, of the broad study of railway favoritism, which was made as a basis for the generalizations outlined in the brief chapter on that subject in “The Railways, the Trusts, and the People,”—one of the thirty chapters of that book. This study reveals the facts in reference to railway favoritism or unjust discrimination from the beginning of our railway history to the present time, discloses the motives and causes of discrimination, discusses various remedies that have been proposed, and gathers hints from the railway systems of other countries to clarify and develop the conclusions indicated by our own railroad history.

Special acknowledgments are due to Dr. Taylor, who paid a part of the cost of the special investigations on which the book is based and has taken a keen interest in the progress of the work from its inception, and also to Mr. Ralph Albertson, who has worked almost constantly with the writer for the past eight months and more or less for two years before that, and has rendered great assistance in research, in consultation and criticism, and in the checking and revision of proof.

FRANK PARSONS.

Boston, March, 1906.

CONTENTS

THE HEART OF

THE RAILROAD PROBLEM

CHAPTER I.
THE LAW AND THE FACT.

It is a principle of the common law that common carriers must be impartial. “They cannot legally give undue or unjust preferences, or make unequal or extravagant charges.... They are bound to provide reasonable and sufficient facilities. They must not refuse to carry any goods or passengers properly applying for transportation.... They have no right to grant monopolies or special privileges or unequal preferences, but are bound to treat all fairly and impartially.”[^[1]] That is the rule of the common law which represents the crystallized common-sense and practical conscience of the Anglo-Saxon and every other civilized race. The legal principle that a common carrier must be impartial was established long before the Interstate Commerce Act was passed, or the Granger laws enacted,—yes, before railways or steamboats were born. They inherited the family character and the family law. It has been applied to them in innumerable cases. There is a solid line of decisions from the infancy of the English law to the present time. Constitutional provisions and State and Federal statutes have been passed to affirm and enforce the rule. The railroads themselves declare the rule to be right. And yet, in spite of the railway conscience and the common law, the universal sense of justice of mankind, and the whole legislative, executive, and judicial power of the government, the rule is not obeyed. On the contrary, disregard of it is chronic and contagious, and constitutes one of the leading characteristics of our railway system. In spite of law and justice our railway practice is a tissue of unfair discrimination, denying the small man equal opportunity with the rich and influential, and breaking the connection between merit and success.

The railways unjustly favor persons, places, and commodities, and they do it constantly, systematically, habitually. If every instance of unjust discrimination that occurs to-day were embodied in human form and the process were continued for a year,[^[2]] the outlaw host would dwarf the Moslem hordes that deluged southern Europe in the days of Charles Martel, outnumber many fold the Grand Army of the Republic in its palmiest days, and, shoulder to shoulder, the dark and dangerous mob would reach across the continent, across the ocean, over Europe and Asia, and around the world.

The railways discriminate partly because they wish to, and partly because they have to. The managers favor some interests because they are linked with the interests of the railways or the managers, and they favor some other interests because they are forced to. The pressure of private interest is stronger than the pressure of the law, and so the railroad manager fractures his conscience and breaks the statutes and common law into fragments.

CHAPTER II.
PASSES AND POLITICS.

One of the most important forms of discrimination is the railroad pass. Many persons of wealth or influence, legislators, judges, sheriffs, assessors, representatives of the press, big shippers, and agents of large concerns, get free transportation, while those less favored must pay not only for their own transportation, but for that of the railway favorites also.

A farmer and a lawyer occupied the same seat in a railroad car. When the conductor came the farmer presented his ticket, and the lawyer a pass. The farmer did not conceal his disgust when he discovered that his seat-mate was a deadhead. The lawyer, trying to assuage the indignation of the farmer, said to him: “My friend, you travel very cheaply on this road.” “I think so myself,” replied the farmer, “considering the fact that I have to pay fare for both of us.”

The free-pass system is specially vicious because of its relation to government. Passes are constantly given to public officials in spite of the law, and constitute one of the most insidious forms of bribery and corruption yet invented. I have in my possession some photographs of annual passes given by the Pennsylvania Railroad in 1903, 1904, and 1905 to members of the State Legislature, and the Common Council of Philadelphia.

The Constitution of Pennsylvania, Section 8 of Article 8, says: “No railroad, railway, or other transportation company, shall grant free passes, or passes at a discount, to any persons except officers or employees of the company.”

The question is whether the members of the Legislature are employees of the Pennsylvania Railroad.

Recently the Pennsylvania Railroad gave notice that after January 1, 1906, no free passes would be issued except to employees. As we have seen reason to believe, this may still include members of the Legislature, and even if the order should happen to be enforced according to the common acceptation of the word “employees,” there are plenty of ways in which free transportation can be given to men the railroad management deems it desirable to favor. Railroads have made such orders before, and in every case the fact has proved to be that the order simply constituted an easy method of lopping off the overgrown demand for passes, a ready excuse for denying requests the railroad does not wish to honor, without in the least interfering with its power of favoring those it really wishes to favor. In cutting off passes under said order to multitudes of city officials in Pittsburg lately the Pennsylvania railroad officers stated that the demand had become so great that those having free rides were actually crowding the paying passengers on many of the trains. The Philadelphia North American declared that in that city every big and little politician expected free passage when he requested it, and that there was no ward heeler so humble that he might not demand transportation for himself and friends to Atlantic City, Harrisburg, or any other point on the Pennsylvania line. The Springfield Republican said: “It does not appear to be recognized, in the praise given to the present action of the railroad company, how great an impeachment of its management the old order constituted. We are told that passes were issued literally in bundles for the use of political workers, big and little.”

We watched with much interest to see what the railroad would really do when the time for full enforcement of the order came. In Pennsylvania, as was anticipated, the order has been used as a basis for refusing passes to the overgrown horde of grafters who have feasted so long at the Pennsylvania’s tables. The railway does not want anything this year in Pennsylvania that the grafters can give it, and it is an excellent opportunity to punish the Pittsburg politicians for allowing the Gould lines to enter the city. But in Ohio the situation is different, and, in spite of the recent order, the time-honored free passes have been sent to every member of the Ohio Legislature. A press despatch from Columbus, January 1, says: “One of the notable events that marked the opening of the general assembly to-day was the unexpected arrival of railroad passes for every member. The Pennsylvania, first to announce that the time-honored graft would be cut off, was the first to send the little tickets, and the other lines followed suit.”

The Pennsylvania is not alone in its delicate generosity to legislators and other persons of influence. The practice is practically universal.[^[3]] From Maine to California there is not a State in which the railroads refrain from giving passes to legislators, judges, mayors, assessors, etc. And the roads expect full value for their favors. Some time ago a member of the Illinois Legislature applied to the president of a leading railroad for a pass. In reply he received the following:

“Your letter of the 22nd to President ——, requesting an annual over the railroad of this company, has been referred to me. A couple of years ago, after you had been furnished with an annual over this line, you voted against a bill which you knew this company was directly interested in. Do you know of any particular reason, therefore, why we should favor you with an annual this year?”

The railroads give passes to legislators and public officials not, as a rule, in any spirit of philanthropy or respect for public office, but as a matter of business; and if a legislator does not recognize the obligation that adheres to the pass, the pass is not likely to adhere to him in subsequent years.

In many cases the pass is the first step on the road to railroad servitude. Governor Folk said to me: “The railroads debauch legislators at the start by the free pass. It is a misdemeanor by the law of this State to take such a favor.[^[4]] But it seems so ordinary a thing that the legislator takes it. He may start out with good intentions, but he takes a pass and then the railroad people have him in their power. He has broken the law, and if he does not do as they wish they threaten to publish the number of his pass. He generally ends by taking bribe money. He’s in the railroad power anyway to a certain extent, and thinks he might as well make something out of it. In investigating cases of corruption I have found that in almost every instance the first step of the legislator toward bribery was the acceptance of a railroad pass.”

At the annual dinner of the Boston Merchants’ Association, January, 1906, Governor Folk said: “One of our greatest evils is the domination of public affairs by our great corporations, and we will never get rid of corporation dominance till we get rid of the free pass. That is the insidious bribe that carries our legislators over the line of probity. First seduced by the free pass, destruction is easy. No legislator has a right to accept a free pass; no more right than to accept its equivalent in money.” Even the laws against the free pass, Governor Folk says, often play into the hands of the railways and emphasize and fasten corruption upon the State by putting legislators and officials at the mercy of the railroads in consequence of the fact that the taking of a pass is a violation of law, so that the railway has a special hold upon the donee as soon as the favor is accepted. This is likely to be the effect unless the law is so thoroughly enforced as to prevent the taking of passes, which is very difficult and very seldom achieved.

Governor Folk is doing his best to abolish the pass evil. It used to be a common thing for officials of all grades to ride on passes. And any influential person in Jefferson City could get a pass by seeing a member of the House or Senate, who would send a note to Colonel Phelps and a pass would be forthcoming. Now the legislators decline to accommodate their friends by making these little requests, for the matter might come to the ear of Governor Folk. Moreover the government employees in Missouri have been cut off from these railroad “courtesies.” The statute does not apply to appointive officers, but the Governor does not intend that his department shall be honeycombed with railroad influence if he can help it. One of the officers of a subordinate branch of the government went to him and asked him about the matter. “I do not want a pass for myself,” said the interrogator, “but Mr. W. told me that he would like for me to see you before he accepted a pass and see if you had any objections. And I want to add, Governor, that it has always been the custom for the employees in this department to use free passes.” Governor Folk’s countenance lost its smile for the moment, as he said very slowly and sternly: “Tell the employees of your department that if any of my appointees ride upon railway passes they will be instantly discharged.”

These insidious bribes in the guise of courtesy and honor for position—these free passes which Governor Folk denounces as the first steps to corruption—are prevalent in all our States. Even in honest old Maine, the frosty forest State, I found the railroad pass in full bloom. Speaking to a joint committee of the House and Senate at Augusta a few months ago, I exhibited a number of photographs of passes given to legislators and councilmen by one of our big railroads. The members examined these photos with much interest and some facetious remarks. On the way into town a famous lobbyist who has long and close acquaintance with the legislature of Maine laughed till the tears ran down his cheeks over the memory of the scene, puffing out between his explosions the explanation of his merriment: “Every one of those fellows has a railroad pass in his own pocket.” Inquiry in other directions tends to confirm his statement.

It is hardly possible to imagine that the ordinary legislator or judge can be entirely impartial in reference to a railroad bill or suit when he is under obligation to the railroads for past favors and hopes for similar courtesies in the future.

When a judge finds that jurors in a railroad case have accepted passes from the railroad he discharges the jurors as unfit for impartial service,[^[5]] yet that same judge may have in his pocket an annual pass over all the lines of the road that is plaintiff or defendant in the case.

Some railroad presidents and managers have told me that passes are given as mere courtesies and are not intended to influence the conduct of officials. This may be true in some cases, but as a rule the railroads do not give charity; but expect favor for favor, and value for value, or multiplied value for value. Railroad men have sometimes admitted to me that the psychology of the pass is closely related to that of the bribe, and that they sought and obtained political results from the distribution of transportation favors. And aside from such admissions the evidence on the facts is overwhelming.

A prominent judge who had been on the bench for years in one of our best States and had always received passes from various railroad companies, found at the beginning of a new year that one of the principal railroads had failed to send him the customary pass. Thinking it an oversight he called the attention of the railroad’s chief attorney to the fact. “Judge,” said the lawyer, “did you not recently decide an important case against our company?” “And was not my decision in accordance with law and justice?” said the judge. The attorney did not reply to this, but a few days later the judge got his pass. After some months it again became the duty of the judge to render a decision against the company. This second act of judicial independence was not forgiven. The next time he presented his pass the conductor confiscated it in the presence of many passengers and required the judge to pay his fare.

The railroad commission in one of our giant States says the fact “that for the most part passes are given to official persons for the purpose of influencing official conduct, is made manifest by the fact that they are not given to such persons except while they hold official positions.”[^[6]]

The president of an important railroad is stated to have said that he “saved his company thousands of dollars a year by giving annual passes to county auditors.” And a man who had been auditor for many years said that the taxes of the —— railroad company were increased about $20,000 a year because it was so stingy with its passes.[^[7]]

Members of legislatures and of Congress have told me that after voting against railroad measures the usual passes were not forthcoming.

A little while before the introduction of the rate legislation now pending, in pursuance of President Roosevelt’s regulative policy, a congressman from the Far West was visiting with us. He had free transportation for himself and family anywhere in the United States any time he wanted it. A lady in the family asked him if it was the same way with the rest of the congressmen, and he said “Yes.” I have in my notes conversations with senators and representatives from eighteen States, and all of them stated, in reply to my questions, that passes were an established and regular part of the perquisites of a member of Congress.

But since the Esch-Townsend bill for the fixing of rates by a government commission came on deck, I understand that the congressmen who supported it are learning the lesson conveyed in the pass-denying letter above quoted, as some of the railroads are refusing all the requests of such congressmen for free transportation. The president of one of these railroads is reported to have said: “I never was in favor of granting political transportation, and now I have a good opportunity to cut off some of these deadheads. Transportation has been given them in the past on the theory that they were friends, but when we needed friends they were not there.”

This, however, is only a passing phase—an emergency measure to punish a few congressmen who have shown so little appreciation of the right of the railroads to make the laws affecting transportation, that they actually voted for what they deemed right or for what the people desired, rather than for what the railroads wanted.

Aside from such little eddies, the great stream of dead-headism flows on as smooth and deep as ever. The people take the thing so much as a matter of course that it has been a constant cause of surprise to passengers on the New York, New Haven, and Hartford Railroad to see Governor Douglas pay his fare day by day as he travelled to and fro on an ordinary commutation ticket.

A prominent judge of Chicago tells me that for years the leading railroads entering that city have sent him annual passes without request. I found the same thing in Denver, San Francisco, New York, Boston, and nearly everywhere else I have been in this country. The mayor of one of our giant cities told me this very morning that the principal railroads sent him annuals but he returned them. It would be better if he would turn the next lot over to a publicity league or put them in a museum.

In many cases the railroads are practically forced to give passes. A. B. Stickney, President of the Chicago and Great Western Railroad was asked by the Industrial Commission[^[8]] about the giving of passes to members of the judiciary of Minnesota and Illinois. President Stickney said, “If any of them ask for transportation, they get it; we don’t hesitate to give to men of that class if they ask for passes; we never feel at liberty to refuse.”

“Is there any good reason why a judge who gets a good salary should have a pass—any greater reason than why John Smith should have a pass?”

“That depends,” said President Stickney, “on what you call a good reason.... Twenty-five years ago I had charge of a little bit of a road that was a sort of subordinate of a larger road.

“I had occasion to visit the president of the superior road about something, and he said: ‘Mr. Stickney, I see that the sheriff of this county has a pass over your road. I should like to know on what principle you gave that sheriff a pass.’

“‘I did it on the principle that he was a power, and I was afraid to refuse him,’ I said.

“‘Well,’ said he, ‘I refused him.’

“‘You will wish you hadn’t before the year is over,’ I replied.

“Sometime afterwards, and during the year, I went into the office to see the superintendent, but he was not in; I went into the general freight agent’s office, and he was not in; I went into the general manager’s office, and he was not in. So I then went into the office of the president and said, ‘What kind of a road have you got? Your superintendent is not here, your general freight agent is not here, and your general manager is not here.’

“He hung his head down and said: ‘Do you remember that conversation we had about that sheriff’s pass? He’s got all those men on the jury and has got them stuck for about two weeks.’”

Q. “That answer seems to indicate that railroads would be afraid to refuse for fear of the penalties?”

A. “I think the railroads find there is a class of men that it is to their interest not to refuse if they ask for passes.”

Van Oss says that at one time in this country half the passengers rode on passes.[^[9]] That seems incredible. There is no doubt, however, that the pass evil was enormous before it was checked by State and Federal legislation, and still prevails to an astonishing extent. Six years after the Interstate Act prohibited all preferences, and twenty years after the State crusade against passes and other discriminations began, C. Wood Davis, a railway auditor of large experience, and an executive officer having authority to issue passes, stated that “ten percent of the railway travel of this country is free, the result being that the great mass of railway users are yearly mulcted some $33,000,000 for the benefit of the favored few. No account of these passes is rendered to State, nation, or the confiding stockholders.”[^[10]] If ten percent still ride deadhead, as is quite probable, the resulting tax upon paying railway users is now over $50,000,000 a year. The effect of legislation has been to give the railways an excuse for shutting off the less influential of the former deadheads, while the big people ride free in spite of the law.[^[11]]

The Hon. Martin A. Knapp, Chairman of the Interstate Commerce Commission, says: “A gentleman told me that on one occasion he came from Chicago to Washington along in the latter days of November, and every passenger in the Pullman car, besides himself, was a member of Congress or other Government official, with their families, and that he was the only passenger who paid a cent for transportation from Chicago to Washington, either for his passage or for his Pullman car.”[^[12]]

Paul Morton says: “Passes are given for many reasons, almost all of which are bad.... Passes are given for personal, political, and commercial reasons.”[^[13]]

Big shippers and their agents get them as a premium on or inducement to shipments over the donating railroad. When we went to the St. Louis Exposition we had to pay our fare, but the shipping manager of a large firm I have in mind was given free transportation for himself and family, though he was abundantly able to pay. In fact, those best able to pay ride free, while the poor have to pay for the rich as well as for themselves.

One way in which the railway managers evade the Interstate Commerce Law, in giving passes to large shippers and others, is to designate the recipients as employees of their own or other companies.[^[14]]

President Stickney, of the Chicago and Great Western Railroad, said in a recent address before the Washington Economic Society:

“The law which makes it a misdemeanor for any individual not an officer of a railway company to use a pass was enacted by Congress and approved by the President 18 years ago, and as an individual rule of action it was ignored by the congressmen who passed it and by the President who approved it; and subsequent congressmen and presidents, with rare exceptions, have ignored its provisions. Travelling, they present the evidence of their misdemeanor before the eyes of the public in a way which indicates no regard for the law. The governors of the States, many of the judges,—in short, all officialdom from the highest to the lowest,—the higher clergy, college professors, editors, merchants, bankers, lawyers, present the evidence of their misdemeanor in the same manner.”

As we shall see presently, there are other forms of passenger discrimination, such as the free private car, the rate war, etc.

But neither of these nor the selling of tickets below the normal rates through scalpers, constitutes so inequitable or dangerous a form of discrimination as the pass system. As Hadley says: “The really serious form of passenger discrimination is the free-pass system. It is a serious thing, not so much on account of the money involved, as on account of the state of the public morals which it indicates (and develops). When passes are given as a matter of mere favoritism, it is bad enough. When they are given as a means of influencing legislation, it is far worse. Yet this last form of corruption has become so universal that people cease to regard it as corrupt. Public officials and other men of influence are ready to expect and claim free transportation as a right. To all intents and purposes they use their position to levy blackmail against the railroad companies.”[^[15]]

Other leading countries are not afflicted with this pass disease to any such extent as we are; some of them do not have the malady at all. In France and Italy I was offered passes, but the government roads of Austria, Germany, and Belgium not only did not offer passes, but refused to grant them even when considerable pressure was brought to bear.[^[16]] The Minister of Railways in Austria informed me that he had no pass himself, but paid his fare like any ordinary traveller. No amount of personal or official pull could secure free transportation. The same thing I found was true in Germany. Only railway employees whose duty calls them over the road have passes. The Minister pays when he travels on his own account. And the Emperor also pays for his railway travel. It is the settled policy of government roads in all enlightened countries to treat all customers alike so far as possible, concessions being made, if at all, to those who cannot afford to pay or who have some claim on the ground of public policy: as in South Africa where children are carried free to school; in New Zealand, where men out of work are taken to places where they may find employment, on credit or contingent payment; and in Germany and other countries, where tickets are sold at half price for the working-people’s trains in and out of the cities morning and night.

Even in England, though the roads are private like ours, the working-people have cheap trains, and public officials pay full fare. The King of England pays his fare when travelling, and if he has a special train he pays regular rates for that too. Members of Parliament also and minor public officers pay for transportation. Passes are not given for political reasons. The law against this class of discriminations is thoroughly enforced. But in this country not only members of Congress and other public officials, but some of our presidents even have subjected themselves to severe criticism by accepting free transportation in disregard of Federal law.

CHAPTER III.
PASSENGER REBATES AND OTHER FORMS OF DISCRIMINATION IN PASSENGER TRAFFIC.

In addition to the passengers who travel free on passes, there are many who have free transportation in other forms. One method of favoritism is the payment of rebates, which are in use in the passenger departments as well as in the freight departments of our railroads. Passenger rebates are repayments of a part or the whole of the amounts paid by favored parties for tickets or mileage. For example, large concerns that employ travelling men buy ordinary passenger mileage books, and when the mileage is used the cover of the book is returned to the railroad and a refund is made.[^[17]] In the investigation of the Wisconsin railroads, instituted by Governor La Follette in 1903, it was found that every railroad of importance in the State had been paying passenger rebates in large amounts every year for the whole six years that were covered by the search. From 1897 to the end of 1903 the Chicago, Milwaukee and St. Paul refunded $170,968 in passenger rebates, the Chicago and Northwestern refunded $614,361; adding the Chicago, St. Paul, Minneapolis and Omaha, the Wisconsin Central, and the “Soo Line,” the total passenger rebates paid by the five roads named in the said time was over $972,000.

In the case of some favored shippers in Wisconsin it was found that the railroads secretly refunded the entire original cost of the mileage books bought by the said shippers for themselves or their agents, or $60 per book. So that these favored houses “were able to send out their entire force of travelling men without paying one cent of railroad fare, while their competitors paid full fares.”

One of these Wisconsin concerns, the Northern Grain Company, received from the Northwestern Railroad alone $151,447 rebates in five years, or over $30,000 a year, partly as refunds on the passenger mileage books of their travelling men and partly as cash rebates on their business. The president of the Northern Grain Company is O. W. Mosher, who was a State senator in 1901 and 1903 and fought the railroad reforms proposed by Governor La Follette. He vigorously defended “individual liberty” and the right of the railroads to “control their own property,” and it is easy to understand his earnest opposition to railroad regulation since it has come out that “individual liberty” and railroad laissez faire meant $30,000 a year to his company.

The Deadhead Passenger Car.

Along with the less-than-carload lots of deadheads travelling on trip passes or annual passes, or transportation with a rebate attachment, there are carload lots going deadhead in private passenger cars.

In a tour to the Pacific coast and back a score of private cars at different times were attached to the various trains I was on. A friend who went a year or so later counted nine private cars on his journey in California, four of them being attached to the same train at the same time, and in the whole 9000 miles he travelled the total number of private cars ran up to 54. Any trust or railroad magnate or governor of a State may have a private car with his retinue, while the lesser deadheads ride in the ordinary cars or Pullman coaches; and the common people pay for it all.

Ticket Scalping.

For many years the railroads aided and abetted the ticket scalpers, paying commissions on the sale of tickets,[^[18]] or making arrangements so that scalpers could get tickets from the railway offices for less than the regular prices. Railroad offices have been known to sell tickets systematically to scalpers at 33, 50, and 66 percent off, or ⅔, ½, and ⅓ of the regular rates. The scalper shared the discount with the passenger, and the railway prevented some other line from getting the traffic.

In some cases scalpers induced conductors not to cancel tickets taken up, so that they could be resold in the scalping offices, the profits being divided with the conductors. In 10 States where statutes were passed against scalping, the brokers and the railroads practically nullified the law. And by collusion with these brokers the railroads secretly violated the Interstate Commerce Act.

A mass of facts upon this subject appears in the expert testimony pro and con before committees of both Houses of Congress, notably in January, 1898. It was shown that at that time 346 newspapers, substantially all the railway and steamship passenger lines of the United States, the laws of 10 States, the long example of Canada, the resolutions of numerous national, State, and mercantile associations, the resolutions of the railway commissioners of 19 States, the insistent and repeated views of the Interstate Commerce Commission, the lesson taught by every other railway country of the earth, the due protection of the large organizations to whom special fares are granted and of the railways granting them, the due observance of law, and the best moral sense of all the commercial world, were all arrayed on the honest side of every phase of this question. Ticket brokerage was defended by not over 3 railroads and 560 ticket brokers. The two organized bodies of scalpers, the American Ticket Brokers’ Association and the Guarantee Ticket Brokers’ Association, stood behind the scalping business.

George R. Blanchard, former commissioner of the Joint Traffic Association, says in his testimony before the United States Industrial Commission (IV, 623): “There are two organized bodies of scalpers: the American Ticket Brokers’ Association and the Guarantee Ticket Brokers’ Association. They have their directors, officers, and agents, rules and regulations, and they adopt resolutions and discuss and decide questions of cut fares.”

One railroad president told me that most of the tickets the scalpers sold they got directly from the railroads. Another railroad president has given similar testimony before the Industrial Commission, and also stated that he did not believe the railroads could stop the scalping trade in unused tickets.[^[19]]

This method of discrimination has, however, received a serious setback so far as railway collusion is concerned. The presidents of the leading railroads have agreed with each other to support the law, and scalping is a more limited profession than it formerly was. In fact, a much larger claim than this is made by some. In going over this year the materials I have collected on the subject, I came upon the statement that “scalping has been practically abolished.” I put up my pen and went down town to see. I found on Washington Street (Boston), in the ticket-office district, a man with “Cut Rates” printed in large letters on his back. The same sign was above a door near by, and on the stairway. I went up.

“What will it cost me to go to Chicago?” I asked.

“I can give you a ticket for $12 if you are going within a few days.”

“Suppose I don’t go for a month or two?”

“Well, I can give you a $15 rate most any time.”

“First-class?”

“Yes.”

“Over what route?”

“The Boston & Maine and Grand Trunk.”

“What can you do over the Boston & Albany?”

“I’ll give you transportation on that route for $18.”

“Will that be first-class?”

“No.”

“Tourist?”

“Yes.”

“Do you have the $12 tickets often?”

“Sometimes; but I can give you a $15 rate any time.”

I went to the railway ticket offices and learned that the fare from Boston to Chicago by the Boston & Maine and Grand Trunk was $18 first-class, and $17 tourist; by the Boston & Albany $22 first-class, and $19 tourist, and through New York $25.

It is clear, therefore, that scalping is not a lost art. The regular one-price ticket agents say that the cut-rate business is still in flourishing condition. It may be that railway offices no longer act with scalpers to evade the law, but when a scalper says he will give you a first-class ticket (worth $18 at the depot) for $15 any time you want it, it looks as though he had some pretty certain source of supply. One scalper here, I am told, is the brother of the advertising manager of a monthly magazine. Railroads advertising in the magazines pay in tickets and the manager turns these tickets over to the scalper. The same thing is done in New York and Chicago, and probably in other places. Scalpers also get unused portions of excursion and other tickets. And perhaps some of the railways are still in direct collusion with scalpers. Every freight pool or agreement to prevent cutting freight rates that was ever made was broken by some railroad secretly cutting prices, and it may be that an agreement to maintain fares is not safe against secret cutting either.

One of the most peculiar things about scalping is that, unlike other forms of discrimination, its benefits go to the poor man instead of the rich man. It is the only kind of discrimination that gives the poor man any comfort or tends to diffuse wealth instead of concentrating it. In this one case the rich help to pay for the poor man’s transportation; in all other cases the poor man and the man of moderate wealth help to pay for the service the rich man gets. Perhaps this partly explains why it is that many railroads have taken a more decided stand against this abuse than against any other in the long list of evils that afflict transportation in this country.

CHAPTER IV.
FREIGHT DISCRIMINATION.

We come now to a kind of discrimination that enables a railway manager to determine which of the merchants, manufacturers, mine owners, etc., on his line shall prosper and which shall not; what cities and towns shall grow, what States shall thrive, what industries shall be developed.

The purpose of discrimination may be (1) to keep business from going to a competing line; (2) to increase revenue by creating new business for which, if necessary, rates may be dropped very low, as anything above the cost of handling on new business will add to income; (3) to simplify and solidify traffic; (4) to favor persons who, through political influence or other power may aid or injure the road, or who, through friendship, marriage, business or civic relation, or otherwise, have a “pull” with the management; (5) to advance the interests or enhance the value of a business, or property, or place, in which the railway or its officers or their friends are interested; or (6) to kill or injure a place or person or business that has incurred the enmity of the railways or their allies.

As a result of the play of these motives our railroad history is full of unfair discriminations between persons, places, and industries in the United States, and between domestic and foreign trade. The methods and forms are many and have grown more numerous with each succeeding epoch, but the predominant forms vary in the different strata. We still have plenty of living specimens of the species that prevailed in earlier periods, but the leading forms now are comparatively recent evolutions.

The history of discriminations would fill many volumes. The Hepburn Committee (1879) appointed by the New York Legislature collected about 5000 cases of discrimination. It was shown to be a common thing for railroads to give favored shippers discounts of 50, 60, 70, and even 80 percent from the regular rates. The special contracts involving favors in force for one year on a single railroad, the New York Central, were estimated at 6000. The United States Senate Committee of 1885, the Congressional Committee of 1888, the Interstate Commerce Commission, 1887–1905, the United States Industrial Commission, 1900–1902, the Wisconsin investigation in the fall of 1903, the United States Senate Committee of 1905, the State railroad commissions, the courts, and other investigating bodies have brought to light additional thousands of discriminations. We shall select some examples illustrating various methods of discrimination.

CHAPTER V.
THE EARLY YEARS, HEPBURN REPORT, ETC.

One of the discriminations most complained of in early years was the charging of lower rates for a long haul than for a short haul on the same line—less for the whole than for a part.

For example, the rate from New York to Ogden was $4.65 per hundred, while $2.25 per hundred carried the same freight all the way from New York to San Francisco. The railroads charged more if the car stopped part way than if it went on to the Pacific,—more than twice as much, in fact, for the part haul as for the full distance, so that the extra charge for not hauling the car on from Ogden to Frisco was greater than for hauling it the entire distance from ocean to ocean. They seemed to be willing to take off half for the privilege of hauling the car another 1000 miles. These methods are still in practice.

The C. B. & Q. hauled stock from points beyond the Missouri River to Chicago for $30 a car, while charging $70 a car on much shorter hauls to points in Iowa. The Northern Pacific charged twice as much from New York to points a hundred miles or more east of Portland, as from New York clear through to Portland. Freight was shipped from New York State to Council Bluffs and then back to Atlantic, Iowa, 60 miles west of Council Bluffs on the Rock Island, for less than the charge direct to Atlantic. From Chicago to Kankakee, 56 miles, the Illinois Central charged 16 cents per cwt. for fourth-class goods, while it carried the same goods to Mattoon, 116 miles farther on, for 10 cents per cwt. The grain rate on the Pennsylvania Railroad from Chicago to Pittsburg was 25 cents in 1878, while the same road would carry the grain clear through from Chicago to New York for 15 cents. Glassware paid 28 cents a hundred from Pittsburg to Chicago, and only 14 cents from Philadelphia to Chicago, half the rate for nearly double the distance. A tub of butter from Elgin, Ill., to New York, 1000 miles, paid 30 cents, while the freight on the same tub from points 165 miles out of New York City was 75 cents. The railways put the farmers of Western New York further from market than their competitors in the West. By such arrangements as this it was claimed the railroads had caused a depreciation of $400,000,000 in the value of improved lands in New York, Pennsylvania, New Jersey, Maryland, and Delaware, while the area of improved lands in those States had increased 4,500,000 acres.[^[20]]

The evils of unjust rates and railway favoritism for persons and places were earnestly discussed in the press, and in State legislatures, and in Congress. One of the examples of discrimination that caused much discussion in Congress was the Winona case. Cotton paid $1 a bale from Memphis to New Orleans, 450 miles; from Winona to New Orleans, 275 miles, travelling possibly in the same train with the Memphis bales, the rate was $3.25 per bale. Another example adduced in Congress was the 75 cent rate from New York to New Orleans, while points half way paid $1.00 for the same service.

The Granger Laws.

In the early seventies (1872 and following years), Iowa, Nebraska, Minnesota, Kansas, and other States of the Middle West passed what are known as the “Granger laws,” fixing maximum rates and forbidding discriminations. Railroad commissions were also established in these States to control the roads, and it was hoped that these commissions, which grew out of the Granger agitation and were to represent the public interest and the people’s sovereignty in their relations with the railways, would be able to diminish greatly and perhaps abolish unjust discriminations. In this hope, however, the people were disappointed.

Speaking of this experience Governor Larrabee of Iowa said in 1893: “Every year seemed to add to the grievances of the public. Success greatly emboldened the railway companies. Discriminations seemed to increase in number and gravity. At many points in the western part of the State freight rates to Chicago were from 50 to 75 percent higher than from points in Kansas and Nebraska. A car of wheat hauled only across the State paid twice as much freight as another hauled twice the distance from its point of origin to Chicago. Minnesota flour was hauled a distance of 300 miles for a less rate than Iowa flour was carried 100 miles. Certain merchants received from the railroad companies a discount of 50 percent on all their freights, and thus were enabled to undersell all their competitors. The rate on coal in carload lots from Cleveland, Lucas County, to Glenwood was $1.80 per ton, and from the same point to Council Bluffs only $1.25, although the latter was about thirty miles longer haul. Innumerable cases of this kind could be cited. There was not a town or interest in the State that did not feel the influence of these unjust practices.”

The Hepburn Investigation.

This most famous and enlightening investigation of the early period was that of the Hepburn Committee of New York in 1879. The committee found that many shippers were paying two or three times, and in some cases five times, the rates paid by their rivals.

William H. Vanderbilt told the committee that, as a rule, all large shippers who asked for special rates got them. Among the men his road had helped to build up by special rates was A. T. Stewart, the great dry-goods merchant of New York. He had a rate of 13 cents from his factories over the New York Central to New York, while small concerns paid 20 to 40 cents for this same service. A big dealer in cotton cloth had a 20 cent rate, while others paid the regular 35 and 40 cent rate. Five grocery firms in Syracuse had a flat 9 cent rate instead of the published tariff of 37, 29, 25, and 18 cents, according to the class of goods. Four Rochester firms had a special rate of 13 cents against the regular tariff of 40, 30, 25, and 20 cents. Five firms at Binghamton and five at Elmira had rates from ⁵⁄₉ to ⅓ of the tariff. Three Utica dry-goods merchants had a rate of 9 cents and another had a rate of 10 cents, while the regular rates which the outside public paid were 33, 26, and 22 cents, according to class. Soap shipped by B. of New York to C. of Syracuse cost 12 cents freight per box if the freight was paid by the shipper in New York, but only 8 cents a box if the freight was paid by the consignee in Syracuse.

A report of the Erie Railroad showed 34 cases of special cut rates, and a New York Central report showed 33 examples. The books of the Central showed 6000 special rates granted during the first 6 months of 1880. About 90 percent of the Syracuse business and 50 percent of the entire business of the road was done on special rates.[^[21]] It had given special rates to individuals and firms at 22 points on its line between Albany and Buffalo. The specials generally went down to about ⅓ of the scheduled rates to the same place, but in Syracuse a special agreement was unearthed in which the rate was so emaciated as to be only ⅕ of the size of the regular rate on first-class goods to which it applied.

The committee also found the long-haul discrimination in full bloom. Flour went from Milwaukee to New York for 20 cents, while the charge from Rochester to New York was 30 cents. On some goods the rate from New York to Syracuse, 291 miles, was 10 cents; New York to Little Falls, 217 miles, 20 cents; New York to Black Rock, 445 miles, 20 cents also. Syracuse must have had a strange fascination for the railroad men, to keep them from making a lower rate from the point 400 miles away than from the point 200 miles away, for they love long hauls. Goods were shipped from Rochester to New York and then from New York back over the same road through Rochester to Cincinnati more cheaply than they could be sent direct from Rochester to Cincinnati. W. W. Mack, a Rochester manufacturer, testified that he saved 14 cents a hundred in this way, and that he saved 18 cents a hundred in his St. Louis business in the same way. In both these cases the railroad company carried the goods 700 miles farther than the direct course for a charge considerably less than for the direct haul.

Butter was carried from St. Lawrence Co., N. Y., to Boston for 60 cents a hundred, while the rate from nearer stations was 70 cents, 80 cents, and even 90 cents at St. Albans, Vt., increasing as the distance decreased. The railroads appear to recognize the fact that happiness consists in the exercise of the faculties, and they wish to exercise their faculties to the utmost by securing long hauls even though the long rate may not leave nearly so much profit as the rate for the short haul.

Some of the worst discriminations of the early years were those connected with the oil business.[^[22]] In 1872 the Oil Combine (then called the South Improvement Co.) secured a secret agreement from all the railroads running into the oil regions, first, to double freight rates on oil; second, not to charge the S. I. C. the increase; third, to pay the S. I. C. the increase collected from all other shippers. The rate to Cleveland was to be raised to 80 cents, except for the S. I. C., which continued to pay 40, and would receive 40 of the 80 paid by any one else. The rate to Boston was raised to $3, and the S. I. C. would receive $1.32 of it. The Combine was to have 40 cents to $1.32 a barrel rebate not only on their own oil which constituted only one-tenth of the business, but on all the oil their competitors shipped, so they would get $9 in rebates for every dollar they paid in freight. The S. I. C. were to receive an average of $1 a barrel on the 18,000 barrels produced daily in the oil regions. The rates were raised as agreed, but the excitement in the oil regions was so intense that mobs would have torn up the tracks of the railways if Scott and Vanderbilt and the rest had not telegraphed that the contracts were cancelled, and put the rates back. But some of the contracts afterwards came into court, and had not been cancelled at all. In 1874 the roads began gradually to carry out the plan that had been stopped by popular excitement in 1872.

In 1874 the Oil Combine had on some lines 10 different transportation advantages over its competitors, i. e., 49 cents direct rebate per barrel of refined oil, 22 cents rebate on crude-oil pipeage, 8½ percent of refined oil carried free (due to the method of calculating crude and refined equivalents), 13 cents a barrel advantage through possession of the railroad oil terminal facilities, 15 percent of by-products carried free, a rate to New York 10 cents a barrel less than the published rate on refined oil, and 15 cents on crude oil, exclusive use of tank cars, underbilling of carload weights, twenty thousand lbs. often for cars containing forty thousand or even sixty thousand lbs. of oil, or a lump sum per car regardless of excess weight, and a mileage payment from the railroads on the tank cars amounting in itself to a large rebate.

Nearly all the refineries of the oil region and of Pittsburg passed by sale or lease into the hands of the Combine in 1874–5.

W. H. Vanderbilt, and other prominent railroad men were stockholders in the Standard.

Frank Rockefeller, brother of John D., testified before a congressional committee July 7, 1876, that he believed Tom Scott, W. H. Vanderbilt, and other big railroad men shared in the oil rebates.

The New York Central and the Erie sold their terminal facilities for handling oil to the Standard Oil Co., thereby making it practically impossible for the roads to transport oil for the competitors of the Trust. The Pennsylvania Railroad also, under compulsion of a rate war, made a deal with the Standard by which the latter acquired the oil cars, pipe lines, and refineries of the Empire Company, a creature of the Pennsylvania Railroad.[^[23]]

Vanderbilt told the Hepburn Committee, August 27, 1879, that “if the thing kept on the oil people would own the roads.”

After the Pennsylvania fought the Standard in 1877 and lost, the Combine paid 11 cents net freight (after deducting rebate) on each barrel of oil to New York, while its competitors paid $1.90 per barrel,[^[24]]—a discrimination of 1600 percent by means of exclusive tank cars and rate arrangements. The trunk lines would not furnish competitors of the Standard with tank cars nor give them rates and conditions that would allow them to use their own tank cars.

The independents had to sell their tank cars or side-track them, because the Oil Combine prevented the railroads from giving them practical terms. At times when oil could have been shipped by the independents they could not get cars, though hundreds were standing idle on the switches.

So the independents had to ship their oil in barrels, paying a higher rate than on tank oil, and paying not only on the oil, but on eighty lbs. of wood in the barrel, making four hundred lbs. per barrel instead of three hundred twenty lbs. per barrel by tank.

Josiah Lombard of New York, the largest independent refiner of oil at the seaboard, testified as follows before the Hepburn Committee June 23, 1879:

“Tom Scott, President of the Pennsylvania Railroad Co., was questioned whether we could have, if there was any means by which we could have, the same rate of freight as other shippers got, and he said flatly, ‘No.’

“And we asked him then, if we shipped the same amount of oil as the Standard, and he said, ‘No.’

“We said that ‘if they had not sufficient cars to do the business with we would put on the cars.’

“Mr. Scott said that they would not allow that, and said that ‘the Standard Oil Co. were the only parties that could keep peace among the roads.’”

Cassatt, Vice-President, confirms the above and adds:

“The discrimination would be larger on a high rate of freight than a low rate of freight;” also admits that the “Standard Oil Co. had some 500 cars full here and at Philadelphia and Baltimore; that he had not discovered it until recently.”

Mr. Lombard further testified:

“Refineries were thus shut down for want of cars.

“Cassatt threatened, if the independents built the Equitable Pipe Line or any other lines of pipe [as follows]:

“‘Well, you may lay all the pipe lines you like, and we will buy them up for old iron.’

“R. C. Vilas, General Freight Agent of the Erie (and brother of Geo. H. Vilas, Auditor of the Standard Oil Co.), absolutely refused us cars, saying the Standard Oil Co. had engaged them all.

“J. H. Rutter, General Freight Agent, New York Central, would not furnish any cars, and also said, ‘We have no terminal facilities now.’”

A. J. Cassatt testified before the New York Committee that in 18 months the Standard Oil had received rebates amounting to $10,000,000.

In addition to many other advantages enjoyed by the Standard people the Pennsylvania Railroad in 1878 gave the Combine, through the “American Transfer Co.,” a “commission” of 20 cents a barrel on all shipments of petroleum,—not only on their own shipments, but on shipments made by the independents also. At the same time the New York Central and the Erie were paying the Standard “commissions” of 20 to 35 cents a barrel on all the oil shipped over those roads.

At one time the transcontinental lines charged $105 to return an empty “cylinder” tank car from the Pacific Coast to the Missouri River, while making no charge to the Standard for returning their “box” tank cars, each of which contained a cylinder, which, however, was set upright instead of being placed longitudinally; a distinction without a difference, but it served to make a discrimination of over $100 a car in favor of the Trust.

The railroads allowed the Oil Trust to stop its cars and divide up a tank load at two or more stations, but denied this privilege to the competitors of the Trust.

The Hepburn Committee reported (1879) that “the Standard Oil Co. receives rebates from the trunk lines, ranging from 40 cents to $3.07 a barrel on all oil shipments: That the trunk lines sell their oil-tank car equipments to the Standard and agree to build no more: That the Standard controls the terminal facilities for handling oil of the four trunk lines by purchase or lease from the railroads: That it has frozen out and gathered in refineries of oil all over the country: That it dictates terms and rates to the railroads: That the trunk lines have hauled its oil 300 miles for nothing to enable it to undersell seaboard refineries not then under its control: That it has succeeded in practically monopolizing the oil business: That the transactions of the Standard are of such character that its officers have been indicted, and that its members decline under oath to give details lest their testimony should be used to convict them of crime.”[^[25]]

The oily people were able in one way or another to gain ascendency over all the railroads. “We made our first contract with the Standard Oil Company,” said Mr. Cassatt, “for the reason that we found that they were getting very strong, and they had the backing of the other roads, and, if we wanted to retain our full share of the business and get fair rates on it, it would be necessary to make arrangements to protect ourselves.”

The Combine used the railroads to ruin its rivals, and did it with a definiteness and vigor of attack never before attempted, and with a success that would have been impossible without the use of the railroad power. An example or two will make the matter clear.

Mr. Corrigan, an oil refiner of Cleveland, became so prosperous in the seventies that he attracted the attention of the Standard Oil, and in 1877 he began to have trouble. He could not get the crude oil he bought shipped to Cleveland, nor his product shipped away, with reasonable promptness. The railroads refused him cars, and delayed his shipments after they were loaded. And he was driven to lease and finally sell his works to the Standard, which had no difficulty in getting cars and securing prompt service.

George Rice became a producer of oil in 1865. A little later he established a refinery at Marietta, Ohio. In January, 1879, the freight rates on oil were raised by the railroads leading out of Marietta, and by their connections. In some cases the rates were doubled, while the rates from Cleveland, Pittsburg, Wheeling, and other points where the Combine had refineries, were lowered. The Baltimore & Ohio, the Pennsylvania, the Lake Shore, and all the other railroads involved, made the deal in unison, and after a secret conference of railway officials with the Standard Oil people. The change hurt the railroads, cut off their business in oil from Marietta entirely, but they obeyed the orders of the Standard nevertheless.

“What would be the inducement?” the freight agent of the B. & O. connection was asked.

“That is a matter I am not competent to answer,” he replied.[^[26]]

Rice, finding himself shut off from the West, North, and East, developed new business in the South, but everywhere he went he was met with new discriminations, and even refusals in some cases to give him any rates at all. He could not ship to certain points at any price. In other cases the oil rates were jumped up for his benefit, and his cars were delayed or side-tracked by the railroads. Not satisfied with obstructing and in large part blocking the shipment of refined oil out of Marietta, the Combine did all it could to cut off Rice’s supply of crude oil from the wells. It bought up and destroyed the little pipe line through which he was getting most of his oil. Rice then turned to the Ohio fields and brought his oil in by rail over the Cleveland and Marietta Railroad. Under threat of withdrawing its patronage the Combine then compelled the road to double the rates to Rice and pay over to the Combine five-sevenths of all the freight the road collected on oil. Rice had been paying 17 cents a barrel from the oil fields to his refinery. His rate went up to 35 cents while the Combine paid only 10 and got 25 cents of each 35 paid by Rice.[^[27]] “Illegal and inexcusable abuse,” said Judge Baxter when Rice took the case into court; and the Senate Committee was also emphatic in its condemnation. The case is in line with the whole history of the railroads in their relations with the Oil Combine, the remarkable fact in this instance being that the victim had nerve enough to fight the Combine. He took the facts to the Ohio Legislature, to the courts, to investigating committees of New York, and Congress, and rendered a great public service by bringing the ways of the railroads and the trust to the light of publicity. If all the victims of the Oil Combine had manifested equal pluck and public spirit, the evil we are discussing would long since have ceased to exist.[^[28]]

CHAPTER VI.
THE SENATE INVESTIGATION OF 1885 AND THE INTERSTATE COMMERCE ACT.

In 1885 the United States Senate appointed a committee to investigate railway discriminations, etc., and this committee made one of the ablest reports that has ever been issued in relation to railway abuses. It threw a flood of light upon the nature and prevalence of discrimination, and the reasons for it. On page 7 of this report the committee says that our efficient service and low rates (low average rates) “have been attained at the cost of the most unwarranted discriminations, and its effect has been to build up the strong at the expense of the weak, to give the large dealer an advantage over the small trader, to make capital count for more than individual credit and enterprise, to concentrate business at great commercial centres, to necessitate combinations and aggregations of capital, to foster monopoly, to encourage the growth and extend the influence of corporate power, and to throw the control of the commerce of the country more and more into the hands of the few.”

On page 40 the committee says: “Railroad companies are not disposed to regard themselves ‘as holding a public office and bound to the public,’ as expressed in the ancient law. They do not deal with all citizens alike. They discriminate between persons and between places, and the States and Congress are consequently called on to in some way enforce the plain principles of the common law for the protection of the people against the unlawful conduct of common carriers in carrying on the commerce of the country.”

On page 188 the following example is given: “One reference to the testimony must suffice to illustrate the universality of individual favoritism, the reasons which influence the railroads in favoring one shipper to the ruin of another, and the injustice of the system. Mr. C. M. Wicker of Chicago, a former railroad official of many years’ experience, was asked if he knew anything of discrimination upon the part of the transportation companies as between individuals or localities, and testified as follows:

“Mr. Wicker. Yes; I do. And this discrimination, by reason of rebates, is a part of the present railroad system. I do not believe the present railroad system could be conducted without it. Roads coming into this field to-day and undertaking to do business on a legitimate basis of billing the property at the agreed rates would simply result in getting no business in a short time.

“Senator Harris. Then, regardless of the popularly understood schedule rates, practically it is a matter of underbidding for business by way of rebates?

“Mr. Wicker. Yes, sir; worse than that. It is individual favoritism, the building up of one party to the detriment of the other. I will illustrate. I have been doing it myself for years and had to do it.

“Senator Harris. Doing it for yourself in your position?

“Mr. Wicker. I am speaking now of when I was a railroad man. Here is quite a grain point in Iowa, where there are 5 or 6 elevators. As a railroad man I would try and hold all these dealers on a “level keel” and give them all the same tariff rate. But suppose there was a road of 5 or 6 or 8 miles across the country, and these dealers should begin to drop in on me every day or two and tell me that the road across the country was reaching within a mile or two of our station and drawing to itself all the grain. You might say that it would be the just and right thing to do to give all the 5 or 6 dealers at this station a special rate to meet that competition through the country. But as a railroad man I can accomplish the purpose better by picking out one good, smart, live man, and giving him a concession of 3 or 4 cents a hundred, let him go there and scoop the business. I would get the tonnage, and that is what I want. But if I give it to the five, it is known in a very short time.... When you take in these people at the station on a private rebate you might as well make it public and lose what you intend to accomplish. You can take hold of one man and build him up at the expense of the others, and the railroad will get the tonnage.

“Senator Harris. The effect is to build the one man up and destroy the others?

“Mr. Wicker. Yes, sir; but it accomplishes the purposes of the road better than to build up the 6.

“Senator Harris. And the road, in seeking its own preservation, has resorted to that method of concentrating the business into the hands of one or a few, to the destruction of the many?

“Mr. Wicker. Yes, sir; and that is a part and parcel of the system.”

On page 189 the committee says:

“The practice prevails so generally that it has come to be understood among business men that the published tariffs are made for the smaller shippers, and those unsophisticated enough to pay the established rates; that those who can control the largest amounts of business will be allowed the lowest rates; that those who, even without this advantage, can get on ‘the inside,’ through the friendship of the officials or by any other means, can at least secure valuable concessions; and that the most advantageous rates are to be obtained only through personal influence or favoritism, or by persistent ‘bulldozing.’

“It is in evidence that this state of affairs is far from satisfactory, even to those specially favored, who can never be certain that their competitors do not, or at any time may not, receive even better terms than themselves. Not a few large shippers who admitted that they were receiving favorable concessions testified that they would gladly surrender the special advantages they enjoyed if only the rates could be made public and alike to all.”

Again, on page 191:

“Universal complaint has been made to the committee as to the discriminations commonly practised against places, and as to the conspicuous discrepancies between what are usually termed ‘local’ rates and what are known as ‘through’ rates.”

In summing up the testimony on pages 180–182 of their report, the committee presents this tremendous indictment:

“The complaints against the railroad systems of the United States expressed to the committee are based upon the following charges:

“1. That local rates are unreasonably high, compared with through rates.

“2. That both local and through rates are unreasonably high at non-competing points, either from absence of competition or in consequence of pooling agreements that restrict its operation.

“3. That rates are established without apparent regard to the actual cost of the service performed, and are based largely on what the traffic will bear.

“4. That unjustifiable discriminations are constantly made between individuals, in the rates charged for like service under similar circumstances.

“5. That improper discriminations are made between articles of freight and branches of business of a like character, and between different quantities of the same class of freight.

“6. That unreasonable discriminations are made between localities similarly situated.

“7. That the effect of the prevailing policy of railroad management is, by an elaborate system of special secret rates, rebates, drawbacks, and concessions, to foster monopoly, to enrich favored shippers, and to prevent free competition in many lines of trade in which the item of transportation is an important factor.

“8. That such favoritism and secrecy introduce an element of uncertainty into legitimate business that greatly retards the development of our industries and commerce.

“9. That the secret cutting of rates and the sudden fluctuations that constantly take place are demoralizing to all business except that of a purely speculative character, and frequently occasion great injustice and heavy losses.

“14. That the differences in the classifications in use in various parts of the country, and sometimes for shipments over the same roads in different directions are a fruitful source of misunderstandings, and are often made a means of extortion.

“15. That a privileged class is created by the granting of passes, and that the cost of the passenger service is largely increased by the extent of this abuse.

“16. That the capitalization and bonded indebtedness of the roads largely exceed the actual cost of their construction or their present value, and that unreasonable rates are charged in the effort to pay dividends on watered stock, and interest on bonds improperly issued.

“18. That the management of the railroad business is extravagant and wasteful, and that a needless tax is imposed upon the shipping and travelling public by the unnecessary expenditure of large sums in the maintenance of a costly force of agents engaged in the reckless strife for competitive business.”

The result of this investigation and report was the passage of the Interstate Commerce Act, in 1887, affirming the common law rule that carriers’ charges must be reasonable and impartial. Common carriers are forbidden to give “any undue or unreasonable preference or advantage to any person, locality, or description of traffic in any respect whatever, or subject any person, locality or description of traffic to any undue or unreasonable disadvantage in any respect whatsoever.” “No common carrier” says Section 2, “shall directly or indirectly, by special rate, rebate, drawback, or other device, charge or receive from any person greater or less compensation for any service in the transportation of passengers or property than it charges or receives from others for a like and contemporaneous service under substantially similar circumstances and conditions.” Section 4 makes it “unlawful to receive more for a shorter than for a longer distance, including the shorter on the same line, in the same direction, under substantially similar circumstances and conditions,” except where the Commission created by the Act shall authorize the carrier to charge less for the longer than for the shorter distance. Rates must be published and filed with the Commission, and 10 days’ notice must be given of advances. Any deviation from the published tariff is unlawful. The Act excepted traffic “wholly within one State,” and provided that property might be handled free or at reduced rates for the United States, State, or municipal governments, or for charitable or exhibition purposes; that preachers might have reduced rates, and that passes might be given to employees of the road or by exchange to employees of other roads. The penalty for breach of the law was made a fine not exceeding $5000 for each offence, and victims of discrimination, etc., could collect damages.

CHAPTER VII.
THE INTERSTATE COMMISSION.

A strong Commission was appointed, the Chairman being Thomas M. Cooley, one of the ablest jurists in the country, Chief Justice of the Michigan Supreme Court, author of “Constitutional Limitations” and other works of the highest authority. The Commission started with a review of the evils the Interstate Act was intended to abolish, and entered earnestly upon the great work of enforcing the law.

The Commission’s statement of the arrangements used by the railways for discrimination is so admirably clear that a part of it cannot fail to be useful here.

“These arrangements,” says the Commission, “took the form of special rates, rebates and drawbacks, underbilling, reduced classification, or whatever might be best adapted to keep the transaction from the public; but the public very well understood that private arrangements were to be had if the proper motives were presented. The memorandum book carried in the pocket of the general freight agent often contained the only record of the rates made to the different patrons of the road, and it was in his power to place a man or a community under an immense obligation by conceding a special rate on one day, and to nullify the effect of it on the next by doing even better by a competitor.

“Special favors or rebates to large dealers were not always given because of any profit which was anticipated from the business obtained by allowing them; there were other reasons to influence their allowance. It was early perceived that shares in railroad corporations were an enticing subject for speculation, and that the ease with which the hopes and expectations of buyers and holders could be operated upon pointed out a possible road to speedy wealth for those who should have the management of the roads. For speculative purposes an increase in the volume of business might be as useful as an increase in net returns; for it might easily be made to look to those who knew nothing of its cause like the beginning of great and increasing prosperity to the road. But a temporary increase was sometimes worked up for still other reasons, such as to render plausible some demand for an extension of line or for some other great expenditure, or to assist in making terms in a consolidation, or to strengthen the demand for a larger share in a pool.

“Whatever was the motive, the allowance of the special rate or rebate was essentially unjust and corrupting; it wronged the smaller dealer oftentimes to an extent that was ruinous, and it was generally accompanied by an allowance of free personal transportation to the larger dealer, which had the effect to emphasize its evils. There was not the least doubt that had the case been properly brought to a judicial test these transactions would in many cases have been held to be illegal at the common law; but the proof was in general difficult, the remedy doubtful or obscure, and the very resort to a remedy against the party which fixed the rates of transportation at pleasure might prove more injurious than the rebate itself. Parties affected by it, therefore, instead of seeking redress in the courts, were more likely to direct their efforts to the securing of similar favors on their own behalf. They acquiesced in the supposition that there must or would be a privileged class in respect to rates, and they endeavored to secure for themselves a place in it.

“Local discriminations, though not at first so unjust and offensive, have nevertheless been exceedingly mischievous, and if some towns have grown, others have withered away under their influence. In some sections of the country if rates were maintained as they were at the time the interstate commerce law took effect, it was practically impossible for a new town, however great its natural advantages, to acquire the prosperity and the strength which would make it a rival of the towns which were specially favored in rates; for the rates themselves would establish for it indefinitely a condition of subordination and dependence to ‘trade centres.’ The tendency of railroad competition has been to press the rates down and still further down at these trade centres, while the depression at intermediate points has been rather upon business than upon rates.

“The inevitable result was that this management of the business had a direct and very decided tendency to strengthen unjustly the strong among the customers and to depress the weak. These were very great evils and the indirect consequences were even greater and more pernicious than the direct, for they tended to fix in the public mind a belief that injustice and inequality in the employment of public agencies were not condemned by the law, and that success in business was to be sought for in favoritism rather than in legitimate competition and enterprise.

“The evils of free transportation of persons were not less conspicuous than those which have been mentioned. This, where it extended beyond persons engaged in railroad service, was actual favoritism in a most unjust and offensive form. Free transportation was given not only to secure business, but to gain the favor of localities and of public bodies; and while it was often demanded by persons who had, or claimed to have, influence which was capable of being made use of to the prejudice of the railroads, it was also accepted by public officers of all grades and of all varieties of service. In this last case the pass system was particularly obnoxious and baneful. A ticket entitling one to free passage by rail was even more effective in enlisting the assistance and support of the holder than its value in money would have been, and in a great many cases it would be received and availed of when the offer of money made to accomplish the same end would have been spurned as a bribe. Much suspicion of public men resulted, and some deterioration of the moral sense of the community traceable to this cause was unavoidable. The parties most frequently and most largely favored were those possessing large means and having large business interests.

“The general fact came to be that in proportion to the distance they were carried those able to pay the most paid the least. One without means had seldom any ground on which to demand free transportation, while one with wealth was likely to have many grounds on which he could make it for the interest of the railroad company to favor him; and he was oftentimes favored with free transportation not only for himself and family, but for his business agents also, and even sometimes for his customers. The demand for free transportation was often in the nature of blackmail, and was yielded to unwillingly and through fear of damaging consequences from a refusal. But the evils were present as much when it was extorted as when it was freely given.”[^[29]]

The Commission had plenty to do. Complaints of unreasonable rates and unjust discriminations between shippers, commodities, and places poured in upon it, and vigorous decisions against favoritism and excessive rates poured out upon the railroads. During 1887 and 1888 the Commission dealt with cases of passes issued in contravention of law,[^[30]] preferential fares for drummers,[^[31]] commissions on the sale of tickets,[^[32]] discounts on freight rates to large shippers,[^[33]] discrimination by combination rates,[^[34]] by preference of tank shipments of oil,[^[35]] by unfair distribution of cars,[^[36]] by underbilling,[^[37]] false classifications,[^[38]] commissions to soliciting agents,[^[39]] etc. Underbilling, false classification, false weighing, and commissions to soliciting agents were investigated by the Commission in 1888 at New York, Buffalo, Detroit, Chicago, Omaha, Lincoln, and Washington.[^[40]] All these methods of discrimination were found widely prevalent, and new legislation was asked for imposing a penalty on shippers who fraudulently obtained reduced rates.

When Congress met for the session of 1889 it was believed that the law had greatly reduced the number of passes issued, straightened out a part of the long-haul discriminations, and accomplished a good deal in the way of suppressing rebates, but it was clear that much remained to be done. In one way or another all over the country secret discriminations were still being made for the benefit of favored shippers. Congress therefore in March, 1889, amended the Interstate Commerce Act by adding to the fine a penalty of two years’ imprisonment in the penitentiary in case of unlawful discrimination, and pronouncing the same penalties against shippers and their agents who secure advantage by false billing, false classification, etc., or by soliciting or otherwise inducing a railway to discriminate in their favor, or by aiding or abetting any such discriminations. It was also provided that 3 days’ notice must be given in case of any reduction of rates, and that homeless and destitute persons, as well as preachers, might be favored with low fares.

The stringent provision for imprisonment did not prove any more effective than the milder law that preceded it, less so apparently, for the following years were flooded with unfair discriminations.[^[41]]

CHAPTER VIII.
EFFECTS OF THE INTERSTATE ACT.

An investigation by the Commission in May, 1889, concerning passes, and covering 27 railroads, showed that passes were issued freely to expressmen, telegraph men, press men, managers of excursions, attorneys, persons contracting with the railroads in consideration of advertising, shippers, members of legislative bodies, United States, State, and municipal officers, officials of steamship and steamboat lines, etc. These passes were chiefly limited to a State, but to some extent were good for interstate journeys. Of State passes the larger numbers were issued to members of legislatures and drovers; “complimentaries” came next, with United States and municipal officers, newspapermen, and shippers, in the order named.

The Commission said: “The Interstate Commerce Act was intended to end all the abuses attending free transportation of persons, and to a considerable extent it has done so. But very largely the carriers, especially the strong systems, where the abuse has been greatest, have tried to avoid the law by falling back on State protection, and issuing passes within the limits of each State. Three of the large railroad systems, when called on by the Commission to make an exhibit of the passes issued by them, declined to do so on the ground that the passes were limited to the bounds of the State, and therefore not within the jurisdiction of the Commission. If the New York Central and Pennsylvania railroads can thus issue passes at discretion it is impracticable to enforce the laws against their competitors.”[^[42]] By issuing to a favored individual a pass good in Pennsylvania, another good in Ohio, another for Indiana, another for Illinois, etc., the Pennsylvania Railroad can give the beneficiary as full freedom of its lines as any interstate pass could give.

Pass making went merrily on all over the country, with a complaint now and then to let in the light, but no effective crusade against the disease. The Boston and Maine, for example, issued passes in Maine, New Hampshire, Vermont, and Massachusetts, to public officers of the States and the United States, members of legislatures, and railroad commissions, agents of ice companies, milk contractors, newspaper men, etc.[^[43]] The Commission recorded its protest and declared that the “similar circumstances” of the Interstate Act do not relate to the social or official position of the passenger;[^[44]] but the pestilence is beyond the reach of the national board, and after eighteen years of Federal prohibition our railroad business is still honeycombed with political and commercial passes, as we have already seen in the second chapter of this book.

Ticket scalping, “an obvious evasion of the law,” and the payment of commissions on the sale of tickets in addition to salaries, so that the brokers were tempted to cut rates dividing their commissions with their customers, continued in full bloom in spite of the Federal law. The commissions were $1 from New England points to Chicago; $1 from Chicago to the Missouri River; and $1 from the river to Denver. In addition to such definite amounts some roads paid 10 percent on their receipts for the passage, making a total commission of $4 or $5 or more in some cases for the sale of a single ticket.[^[45]] “In cases of commissions of only $1 for short distances there may be little or no inducement for the agent to divide with the passenger, but in cases of cumulative commissions for long distances the temptation to divide is stronger, and the probability of abuse is so great that the impropriety of putting the opportunity before the agent is manifest. It is not unusual for a single company to pay a sum of $100,000 or even more in a year, and the aggregate entailed reaches millions of dollars. This money is illegitimately spent; it is paid in excess of salaries to agents for the purpose of taking business from competitors, and when competitors all do it, it is difficult to see how any benefit can accrue from it to any company.”[^[46]]

In 1890 the Commission reported that scalpers were supported by the railroads. They found 15 scalping offices in Chicago, 9 in Cincinnati, 13 in New York, 7 in Kansas City, etc. In 1895 they found that scalping “was steadily enlarging in scope and volume.”[^[47]] In 1897 the “vicious practice” was still in full swing, though New York, New Jersey, and eight other States had passed stringent laws against it.[^[48]] But it has now been largely reduced, though by no means abolished, and the diminution has come, not because the law acquired sufficient vigor to get itself enforced, but because the railroad presidents combined to stop the practice, which was recognized to be injurious to railroad interests.[^[49]]

In respect to other forms of discrimination between passengers the Commission ordered that rates for groups or parties must not be lower than the regular fare for one passenger multiplied by the number of persons in the party,[^[50]] and that although separate cars might be provided for colored persons, they must have equal accommodations with white people who pay the same fare.[^[51]]

Turning to freight discriminations, we find that a bewildering mass of questions and complaints has pressed upon the Commission. It has shown an earnest desire for justice, and for the most part good judgment, but it has accomplished comparatively little in the way of stopping unjust discriminations. Witnesses refused to testify, on the ground that testimony in respect to rebates and other forms of discrimination might be used to convict them of crime.

In the Counselman case (142 U. S. 547), Jan., 1892, the U. S. Supreme Court decided that a witness could not be compelled to testify in regard to discrimination in which he was involved, since the Federal law made it a criminal offence to make or benefit by discrimination. Unless the law exempts the witness from prosecution in consequence of his answers or in relation to the subject of them, he is not obliged to answer a question when the answer might tend to incriminate him.[^[52]] Refusal to answer on such a plea is of course equivalent to confession of guilt. In this case Counselman, a large grain shipper, had been given rates on corn some 5 cents less per hundred than the rates paid by others from Kansas and Nebraska points to Chicago, over the Rock Island, Burlington, and other railroads. Five cents a hundred is an enormous profit on corn which the farmer had sold at 18 to 22 cents per hundred, and such a margin would enable the favored shipper to drive every one else out of the trade; and on many western roads it has been practically the case that only the railway officials and their secret partners can do business. Counselman refused to tell a United States grand jury whether or no he had had any rebates from the railroads in 1890. He said he had received none from Stickney’s road, nor from the Santa Fe, had had no business with the latter, he thought, but as to the Rock Island, C. B. & Q., etc., he declined to answer on the plea that to do so might incriminate him.

Some railroad officials testified freely, but neglected to tell the truth.[^[53]] Discriminations as a rule were secret. Even when it was clearly known that favoritism was being shown, shippers were generally afraid to complain, and in the small percent of cases where complaint and investigation took place it seemed impossible to get at the truth in any large way, because the railroad men for the most part would not “cough up” the facts. Still, something was done by the Interstate Commission, the courts, and the Industrial Commission. Some progress was made and some light secured. The jets of flame that here and there came up through the cracks from the under-world showed very clearly what was going on beneath the surface of railway affairs.

Direct Rebates.

Direct rebates on interstate traffic appear to have been checked for a few months after the passage of the Commerce Act, but the railroads admitted that they still gave rebates on traffic within a State[^[54]] just as they continued to give passes, making them good within one State, insisting in respect to both rebates and passes that they had a right to give them because the law did not reach State traffic. Nevertheless, as the Commission remarked, such rebates inevitably affect the rates upon interstate traffic, and a competing road whose traffic is taken a little further, crossing the state line, may be compelled to give rebates or surrender important business.

As a matter of fact, discriminating rates and rebates on interstate as well as State business were soon as much in fashion as ever.[^[55]]

In one small town in the Middle West judgments for nearly $40,000 were recovered against a railroad for illegal discriminations in that one town. In some cases the discriminations amount to $40 a car. These cases were all subsequent to the Interstate Act.

Some years ago the Chief Justice of Kansas declared that the Santa Fe management preceding the present one was notorious for giving secret rebates. The president of the road was asked to resign because the railroad funds were some millions short, due, it is said, to the secret rebates the company had paid. An expert went over the books and discovered that some $7,000,000 had been paid in rebates by the Santa Fe in a few years.

Shippers who would not or could not get rebates or concessions were in danger of serious loss and perhaps ruin. Mr. H. F. Douseman, for many years a grain shipper in Chicago, and chairman of the board of trade of that city, had to go out of business because he would not take the rebates he might have had. Before 1887 he took rebates of 10 or 15 percent (2 or 3 cents on the cwt.), but after that he refused them. “Virtue is its own reward,” and Mr. Houseman got his pay in that form. “I feel that I have been driven out of business because I would not accept a rebate,” he told the Industrial Commission. “I have never taken a rebate since the Interstate Law went into effect. I did not propose to put myself in the shape of a criminal.”[^[56]]

It may be a matter of surprise to many that even one man of this kind could be found in Chicago. If such virtue were prevalent the enforcement of law would be easy. Mr. Douseman says that for 6 months after the Interstate Law was passed no rebates were paid; everybody was on an equality. “After the first six months, rebates began to be given. At the end of the first year they were quite frequent, and they have continued ever since. Prior to 1887 the only time when rates were absolutely solid, when every one was on the same basis, was when the Vanderbilts were trying to bankrupt the West Shore road, and rates were down to 12 cents in New York. Everybody then, as I understand, had the same rates.”

The condition of things in 1890 is shown by the reported statement of a Chicago railroad manager quoted by the Commission. “The situation in the West is so bad that it could hardly be worse. Rates are absolutely demoralized, and neither shippers, passengers, railways, nor the public in general make anything by this state of affairs. Take passenger rates for instance; they are very low; but who benefits by the reduction? No one but the scalpers.... In freight matters the case is just the same. Certain shippers are allowed heavy rebates, while others are made to pay full rates.... The management is dishonest on all sides, and there is not a road in the country that can be accused of living up to the Interstate Law. Of course when some poor devil comes along and wants a pass to save him from starvation, he has several clauses of the Interstate Act read to him; but when a rich shipper wants a pass, why, he gets it at once.”[^[57]]

Complaints and investigations from time to time in subsequent years showed the continuance of these conditions. For one concern a large number of cars of corn were carried from Kansas City to St. Louis at 6 cents per hundred lbs. while the tariff was 15 cents.[^[58]] In the traffic to Chicago one firm shipped all the grain over one road, and another firm “had the rate” on another line. It was clear that these shippers had advantages that enabled them to keep other shippers out of the field.[^[59]]

A wholesale grocery house getting 25 percent rebate on its shipments established branches in various cities. Through a disagreement with one of the railroads that thought it was not getting its share of the business, the rebate enjoyed by one of the branches was withdrawn, and the branch in that city went out of business. A leading dry-goods firm declared that so long as it secured a rebate of 25 percent it had no objection to existing methods of rate-making.[^[60]]

The International Coal Company declared, in a suit against the Pennsylvania Railroad for damages, that it was driven out of business by discrimination, its rival receiving rebates of 20 cents per ton in 1898–9 and 10 cents per ton in 1899–1900.

The railroads show a disposition to back each other in disregarding the law. Mr. McCabe, traffic manager for the Pennsylvania lines west of Pittsburg, said the Pennsylvania system would stand by any rate made by its connecting lines.[^[61]]

CHAPTER IX.
SUBSTITUTES FOR REBATES.

Numerous substitutes for the direct rebate were used. In some cases $10 a car was paid on shipments of flour from the Northwest under pretence of paying for the cost of loading the car above the minimum weight.[^[62]] Railroads paid 50 cents for the loading of each private stock car, and ¾ of a cent for every mile the car was hauled, loaded or empty. Yardage was also paid to the car-line for keeping the cattle in its charge in its own yards, at the rate of 3½ cents per hundred lbs. for all cattle hauled to its yards. “The amount of these rebates,” said the Commission, “more than pays the entire cost of the improved stock cars within 2 years, besides covering operating expenses.”[^[63]]

Twenty-six railroad companies operating in the territory extending in different directions from Chicago, and engaged in the business in which discriminations by allowances of car-mileage were supposed to exist, were summoned to make a showing of the allowances paid by each of them for car-mileage for the different classes of cars furnished by shippers, car companies, and individuals, or connecting lines. A single railroad company paid car-mileage to 65 different companies or firms owning cars, of which number 54 were shippers and the rest fast freights. The Commission found that the mileage paid on private cars yielded a profit in many cases of 25 percent, 50 percent, and even more.

“The rates allowed for car-mileage were shown to be as follows: For ordinary freight cars, a uniform rate of ¾ of a cent a mile; for Pullman palace cars, 3 cents a mile; for Pullman tourist sleepers, 1 cent a mile; for ordinary passenger cars exchanged with other companies, 3 cents a mile; for baggage, mail, and express cars exchanged with other companies, 1½ cents a mile by some roads, and 3 cents a mile by others; for refrigerator cars used for carrying dressed beef, 1 cent a mile in some cases, and in other cases ¾ of a cent a mile; for furniture cars, oil-tank cars, palace live-stock cars, and other cars owned by private individuals and companies, ¾ of a cent a mile. Some companies pay mileage on tank cars both loaded and empty, and some only when loaded. For palace horse-cars no mileage is allowed on some roads, shippers in such cars paying for the car.

“The cost of the investment in cars, and the amount of mileage allowed for their use, show that the investment is very profitable. Refrigerator cars cost from $900 to $1000; private cattle-cars cost about $650; oil-tank cars about $610; cars used for the transportation of live hogs about $500; ordinary freight cars from $450 to $500. Repairs on the cars are made by the railroad company in whose use they are when repairs are required. The life of a box car averages 15 years, and of a refrigerator car 8 years.”[^[64]]

“Private cars,” owned by the railroads but chartered for private use, were the subject of discrimination of another kind. For example, a commercial salesman travelled with his assistant over the Northern Pacific in a private car stocked with samples. For the first trip he paid 15 round-trip fares between St. Paul and Portland, but for subsequent trips the road charged 15 local fares from point to point where stoppages were made. As theatrical and other parties in private cars were usually carried for 15 round-trip fares it was alleged to be unfair to charge the drummer local rates.[^[65]]

Terminal charges for delivery at certain places were made a means of discrimination.[^[66]] Free cartage for some shippers and not for others,[^[67]] or for one town and not for another, gave a decided advantage to the favored shippers.

To get the business of B., a Pittsburg dealer in beer, the B. & O., with the approval of Wight, one of its general officers, gave B. 3½ cents per hundred for hauling his own beer from the station, while K., another beer dealer there, received no such concession, but paid the same freight rates and hauled his beer at his own expense. Wight was indicted and convicted before the district court for violation of Section 2 of the Interstate Act, and the United States Supreme Court sustained the decision in 167 U. S. 512, May, 1897, holding that the cartage allowance in one case and not in the other was a discrimination under the 2d section of the Commerce Act.

In Grand Rapids, Michigan, free cartage had been in vogue for 25 years, but in Ionia, near by, no free cartage was afforded by the railroads, although the station was nearer the centre or main delivery area of the city than in Grand Rapids. This had the effect of a discrimination against the merchants of Ionia amounting to about 2 cents per hundred lbs.[^[68]]

In June, 1889, the Commission asked most of the leading roads, 585 in number, for information about free cartage delivery. From the answers it appears “that 65 railroads allowed free cartage delivery or equalizing cartage allowances, and 389 railroads do neither; 200 companies only switch cars over to mills and manufacturers. No company furnishes free cartage delivery at all stations, but as a rule, only at a few stations. The estimated cost of free cartage delivery will average about 2½ cents per hundred pounds. Where an allowance is made for switching or for equalizing distances from shippers, the average cost is about $2 per car or $2.50.”[^[69]]

Denial of the stoppage-in-transit privilege at one locality while allowing it to others is unlawful.[^[70]] Differences in the time allowed for unloading may amount to a substantial preference. At Philadelphia 96 hours was allowed for unloading, against 72 hours at interior points, for coal, coke, or iron, and 48 hours for other goods. With demurrage charges of $1 for each day’s delay in unloading beyond the allotted time, the difference between 48 and 96 hours would mean $2 a car.[^[71]]

Free storage is another method of favoritism, sometimes used systematically and extensively, as described by the Commission. “A shipper sends a carload of freight to a specific destination consigned to his order by arrangement with the carrier. The freight is kept in the car or freight house or some warehouse which the carrier controls, and on orders of the shipper or his agent issued from time to time the freight is delivered in small lots to designated persons. These persons are the actual consignees, and the shipper is enabled by this means to avoid paying the higher less-than-carload rate and to reap other advantages through this privilege of storage. Such special facilities as storage, handling, cartage, distribution, and reshipment of less quantities, either without charge or at extremely low compensation for the character of the service, amounted substantially to providing a shipper with branch business houses.”[^[72]]

Overbilling and underbilling have been found to be very convenient substitutes for the rebate. A bill of lading may acknowledge the receipt of 70 barrels of flour; 65 only are shipped, and the railway pays damages for the loss of the 5 non-existent barrels. On the other hand railroads have been known to suggest to millers that they ship flour on the generous plan of shipping 200 barrels and billing 125.[^[73]] Some shippers have been allowed to ship only 4 boxes of peaches to the hundred lbs., while others were permitted to ship 6 boxes to the hundred lbs. “That is the billing. Sometimes peaches are billed 4 boxes to the hundred lbs. to one point, and 6 boxes to the hundred lbs. to a point 350 miles farther on.”[^[74]] At another time the cashier of an important firm is made a nominal agent for the railway company, and under the name of commission to him an enormous rebate is allowed for all the business his employers send over the line. Or again, the railway company purchases from a favored trader its supplies of the goods in which he deals, at a fancy price.

The “expense bill system” has proved to be an instrument of preference and fraud. On presentation of an “expense bill” showing payment for shipments into Kansas City the railroads would allow reshipment of an equal weight from Kansas City to Chicago at the balance of the through rate from the point of origin to Chicago.[^[75]] This gave grain from the West an advantage over grain grown near Kansas City. When the rate from Kansas City to Chicago was 20 cents on wheat and 17 cents on corn the grain carried on the balance of the through rate under the expense bill system was carried 8 to 10 cents less than grain grown in Missouri and Iowa.[^[76]]

Not satisfied with the discounts obtained on actual expense bills, shippers altered bills and forged new ones to enlarge their traffic at the cut rates. In this way “expense bills showing a high balance were constantly substituted for those showing a low balance.”[^[77]]

Rebate equivalents were given in the form of elevator rebates and allowances. Elevators owned or controlled by railroad companies were leased at nominal charges to favored shippers, or secret commissions were paid to favored parties for all grain consigned to specified elevators. One railroad for example paid a concern, holding a line of elevators on the railroad, 1¼ cents per 100 on all grain consigned to those elevators.[^[78]]

In this case the consignment was 150 cars a day from November to May, averaging 32,000 to 34,000 lbs. a car. The commissions therefore amounted to $4 a car, $600 a day, $120,000 a year.

The United States Industrial Commission says, under the head of “Freight discriminations and allowances to elevators:” “On each of the leading railways from grain-producing sections to Chicago, allowances, ranging from one-half to 1½ cents per bushel, are made on grain to one or two favored firms.... The favored elevators are thus enabled to pay higher prices for grain. The average profit in handling grain is less than 1½ cents per bushel, and smaller buyers can thus easily be driven out of business.... The small shipper being driven out of business, the large dealer is then in a position to depress the price of grain to the producer.”[^[79]]

The railroads deny equal rights in the building of elevators. A railroad which had granted the right for two elevators at Elmwood on the company’s right of way refused to give H. & Co. the same privilege. The State Board of Transportation ordered the railroad to discontinue the discrimination against H. & Co., and give them the same privileges as others. But the United States Supreme Court held that the road could not be forced to grant its property for private use.[^[80]]

One method of discrimination I learned of in the West a few years ago is not adequately described in any report.[^[81]]

The head of a road running into Chicago from Missouri River points formed a grain company to buy grain in Kansas City and sell it in Chicago. The railway guaranteed the grain company against loss. When wheat was 50 cents in Kansas City and 60 cents in Chicago, the grain company paid 51 cents in Kansas City to get the grain. The railroad charged the regular 10 cent tariff. The grain was sold at 60. The railroad paid back 1 cent on the guarantee and still made 9 cents. And the railroad-grain-company-combine was able to drive other buyers out of the market and other railroads out of the traffic. The Santa Fe, for example, carried 28 percent of the grain going into Kansas City, but only hauled 3 percent out to Chicago.

Railroads sometimes seek to evade the law by contracting to deliver goods at a certain price including the freight and the payment for the goods in one lump sum, so that the freight charge is merged and cannot be ascertained. Nine years ago, in 1896, the Chesapeake and Ohio Railroad contracted with the New York, New Haven and Hartford to deliver 2,000,000 tons of coal at New Haven at $2.75 a ton. The published freight rate at that time was $1.15 and the price of the coal at the mines $2 a ton. The Interstate Commerce Commission held that this was a discrimination by the Chesapeake and Ohio Railroad against every independent mine owner in its territory, and that the railroad had no right to contract to sell coal at any price. The Federal Court sustained this view, and it is stated that the Department of Justice will ask the Supreme Court for a blanket injunction against the two railroads, restraining them from carrying freight at less than the published rates. It is said that J. Pierpont Morgan guaranteed that the Chesapeake and Ohio would perform the contract.

Action against an individual or company is quite as effective a form of discrimination as action in favor of a rival. Shippers at a certain place on the Chicago and Northwestern were handicapped by refusal of through rates on asbestos, compelling them to pay higher rates than their competitors.[^[82]] A Southern railroad charged the Bigby Packet Company a much higher rate on cotton from Mobile to New Orleans than the established rate on local shipments of cotton, in order to discourage shipments by way of the Packet Company from the point of origin in Alabama, and compel the cotton to travel all the way by rail.[^[83]]

CHAPTER X.
DENIAL OF FAIR FACILITIES.

The refusal to furnish cars in fair proportion is a familiar form of discrimination all through this period, usually in combination with other forms of preference. In Kansas, on the line of the St. Louis and San Francisco Railway, were two coal companies whose plants were of about equal capacity, and several individual shippers. The railway and its officials became interested in one of the coal companies, and by rebate and other process it was given rates which averaged only forty percent of the rates charged other shippers. The result was that all the other shippers were driven out of business, part of them being hopelessly ruined before giving up the struggle. In addition to rate discrimination the railway practised gross favoritism in the distribution of cars. For example, during one period of 564 days, as was proven in court, the road delivered to the Pittsburg Coal Company 2,371 empty cars to be loaded with coal, although such company had sale for, and capacity to produce and load, during the same period, more than 15,000 cars. During the same time this railway company delivered to the Rogers Coal Company, in which the railway company and C. W. Rogers, its vice-president and general manager, were interested, no less than 15,483 coal cars, while 466 were delivered to individual shippers. In other words, the coal company owned in large part by the railway and its officials, was given 82 percent of all the facilities to get coal to market, although the other shippers had much greater combined capacity than the Rogers Coal Company.

During the last four months of the period named, and when the Pittsburg Coal Company had the plant, force, and capacity to load thirty cars per day, they received an average of one and one-fourth cars per day, resulting as was intended, in the utter ruin of a prosperous business and the involuntary sale of the property, while the railway coal company, the railway officials, and the accommodating friends who operated the Rogers Coal Company, made vast sums of money; and when all other shippers had thus been driven off the line the price of coal was advanced to the consumer.

Another railway interested in a coal mine furnished cars in abundance to that mine and to others that would sell their product to the mining company in which the railway was interested, but systematically failed to furnish cars to other operators.[^[84]] One operator, after being forced for years in this way to sell his product to the railway mining company at a very low price, was obliged to build a railway of his own in order to reach other lines of railroad and so have a fighting chance for cars.

In Arkansas a coal mine owned by the Gould interests was able to ship its product to market at very low rates, while the owners of an adjoining mine were forced to haul their coal to the same market in wagons because the rates charged them from the coal railway were so high as to absorb the whole value of the coal at destination.

A big capitalist in the West got hold of great oil fields on the Pacific slope, wonderful prospects, contracts to supply big cities, etc. Some one told him he had better see the railroads before he made his contracts. He thought the transportation question would be all right and went ahead. When he got his contracts made and wanted to ship the oil, he asked for cars, and then he found the transportation question was not all right. He could not get the cars.

Sometimes a railroad has arbitrarily refused to haul goods to certain consignees. A case of this kind came before the Texas Railway Commission in the case of the Independent Compress v. Chicago, Rock Island and Texas Railway Company. The Bowie Compress, located at the same station with the Independent, had some sort of pull which caused the railroad to refuse to haul cotton to that station unless consigned to the Bowie Compress. The railway also allowed compression charges out of the through rate on cotton shipped to the Bowie Compress, refused freight from points of origin, and reshipped the cotton from the Bowie press at through rates, while refusing such concessions to others.[^[85]]

The refusal to deliver at a certain place may be as effective sometimes as the refusal to deliver at all. When in 1890 Mr. Nelson Morris tried to establish competitive stock yards in Chicago to get rid of the graft of the Union Stock Yards owned largely by railway interests, the Vanderbilts being in the lead, his enterprise was loudly applauded by the stock raisers of the West; but the railroads made short work of Morris. They simply refused to deliver to his yards the cars shipped there. They did not recognize any such place as the Morris yards and calmly hauled all cars to the old terminal. If Mr. Morris wanted them he must come and get them and pay switching charges. This ruined the venture.

Big shippers may be given an undue advantage by excessive difference between the rates on carloads and less than carloads.[^[86]] On June 29, 1898, the Western railroads advanced their less-than-carload rates to the Pacific Coast to a minimum difference of 50 cents a cwt. above the carload rate; and “on a great many commodities the difference is greater than the profit on the goods.”[^[87]] The Interstate Commission regards a moderate reduction on carload shipments as fair, but will not sanction lower rates for cargo or train-load quantities than for carloads.[^[88]]

CHAPTER XI.
CLASSIFICATION AND COMMODITY RATES.

Classification and commodity rates afford many examples of discrimination in the period we are studying. We find furs and fur scraps classed as double first-class, while hats and fancy products, for which these commodities constitute raw material, were first-class.[^[89]] Celery was classed with peaches and grapes, instead of with cauliflower and asparagus, lettuce and peas.[^[90]] The charge for beans and peas (70 cents) was almost double the charge on tomatoes (44 cents).[^[91]] Flour for export was carried at much lower rates than wheat. Before 1886 wheat was carried from Texas, Missouri, and Kansas at 15 cents per hundred lbs. less than flour, without regard to distance. From 1886 to the end of this middle period the rates on wheat for export show a difference of 4 to 11 cents per hundred below the rates on flour. As the profit to American millers on flour for export is from 1 to 3 cents per hundred it is clear that such discrimination is prohibitive upon American millers in favor of English and other foreign millers. The public policy and good railway policy seem to require the same rate on export wheat and export flour.[^[92]] Corn was carried between Kansas points and Texas points for 7 cents per hundred less than corn meal,—a strong discrimination against Kansas millers.[^[93]] The Eastern railways also carried corn at lower rates than corn meal to Eastern mills, and carried the meal, hominy, ground corn, etc., back to Indiana. This gave the railways more traffic, but it was a tremendous waste of industrial force and injured the Western mills, since a discrimination of 5 percent was sufficient to eat up three or four times the profit of any miller.

The Southern Railway put soap in the sixth class with a rate of 49 cents a hundred, or 33 cents when shipped by large manufacturers, while Pearline was put in the fourth class with a rate of 73 cents a hundred. Pearline and soap are competitors. There is no appreciable difference in the cost of transportation. But Pearline commands a higher price, so the railways charged more than double the rate they got for soap from the manufacturers. In another case brought before the Commission in 1889, soap in carload lots was put in class V, while sugar, cerealine, cracked wheat, starch, rice, coffee, pickles, etc., were in class VI. One make of soap was put by many railroads in the second class, while other soaps of similar use and value were in the fourth class.[^[94]]

One of the strangest anomalies of classification is the rating of patent medicines as first-class, while ale and beer are third class. In a complaint on the latter score by a prominent manufacturer of patent medicines against the New York Central and other railroads, it was shown that the medicines were similar in bulk and intrinsic value to the liquors, and it is possible that the similarity went much farther than this.

Blocks intended for wagon-hubs took one rate on the Lake Shore and Michigan Southern and boards for wagon boxes another rate.

Railroad ties have been charged a higher rate than lumber. A high rate on railroad ties prevents their being shipped and depreciates their value at home, so that the discriminating company is able to buy them at a low price.

The Union Pacific years ago made prohibitory rates on steel rails in order to hinder or prevent the construction of a road that promised to become a competitor of one of the Union Pacific’s connecting lines. Prohibitory rates on rails, ties, etc., have often been maintained to obstruct the building of competing lines, and to render them more costly.

CHAPTER XII.
OIL AND BEEF.

Oil in Standard hands continued to receive favorable attention from the railroads throughout the middle period. The Combine was preferred by an “unreasonable mileage” payment of ¾ of a cent a mile on its tank cars, loaded or empty,[^[95]] while others who attempted to ship in tank cars had to pay mileage to the railroads for the return of their empties; by practically compelling independents to ship in barrels, and charging for the weight of the barrel; and by making an arbitrary allowance of 42 gallons for leakage on tank shipments with no allowance for waste in barrel shipments.[^[96]]

The Commission held it unjust to allow for leakage on tank shipments and not on barrel shipments; that the weight of the barrel must not be charged for if the weight of the tank is not, the same quantity of oil must have the same rate no matter what the package might be, unless the shippers were offered facilities for shipment by tank as well as barrels so that the option was theirs. The representative of the oil combination was questioned by the Interstate Commerce Commissioners, in relation to the mileage, etc.

“Are you allowed mileage on tank cars?”

“No, sir.”

“Neither way?”

“Neither way.”

But the railroad officials in this case refused to commit oil-perjury. Asked what mileage they paid the Combine they replied: “Three-quarters of a cent a mile.”

When Rice asked what the railroads would charge him for bringing back his empty cars if he shipped in tanks, he was told he would have to pay 1½ cents or more a mile. He found that if he tried to sell his oil in California it would cost him $95 to get the empty tank car back, while the railroads paid the Standard for the privilege of hauling its empties back. Rice saw that from the South he could get return loads of turpentine, but the railroads absolutely refused to give him rates.[^[97]]

Besides all this the Standard was accorded the privilege of systematic underbilling. According to the testimony before the Commission in 1898 by the Boston & Albany agent in East Boston, the centre of the Standard Oil business in New England, the Combine’s tank cars, which usually weigh from 35,000 to 50,000 lbs., were ordinarily billed at 24,000 lbs. Out of 14 cars sent over another road from East Boston to Newport, R. I., at least half were billed and paid for on the basis of 24,000 lbs. to the car, although their average weight was shown to be 48,550 lbs. per car. It was claimed that these underbillings were clerical errors. In considering the motives and reliability of such a claim we must not forget the curious habit shown by these clerical errors of piling up in great bunches in the Standard Oil business, and the still more curious fact that all the errors are in favor of the Trust—none against it. Long before the Commission had found that the railroads leading from the oil fields were in the habit of “blind billing” the Standard cars at 20,000 lbs., though the actual weight was frequently 30,000, 40,000, 44,000 or more.[^[98]] Rice complained of this to the Commission in July, 1887. Immediately all the old numbers on the 3000 tank cars of the Oil Trust were painted out and new numbers painted on, so that the cars mentioned in the railroad accounts could no longer be identified with the cars on the tracks.[^[99]] The Standard has some very oily ways, and knows how to use a pot of paint and a brush as well as a rebate.

The Standard desired to fix the rates on oil to New England, the South, and the West, and as usual the railroads let it have its way. The result was a practice of adding the Boston rate to the local rate on shipments of oil into New England, which puts the independent refiners at a great disadvantage. The rate on corn from Cleveland to Boston is 15 cents per hundred lbs., and to New Haven the same, but the rate on petroleum from Cleveland to Boston is 24 cents, and to New Haven it is the Boston rate, 24 cents, plus the local rate, or a total of 36 cents from Cleveland to New Haven. Now the Standard Oil has got large warehouses in East Boston, and they bring their oil by boat and store it there, and then they get the freight rates simply from Boston down to the Connecticut point, whereas the Western refiner who has no storehouse has to pay first the Boston rate, and then this local rate also to the other point, even though the oil may go direct, so that the rates are practically prohibitive to the Western refiners.[^[100]]

To shut out the oil fields and independent refineries of Colorado and Wyoming, the Standard resorted to terrific discrimination in rates. The Chicago and Northwestern Road would bring a carload of cattle from Wyoming to Chicago for $105, but for a car of 75 barrels of oil the freight was lifted to $348. The rates from the Western fields to San Francisco were also put very high, and the Standard built great storehouses on the Pacific Coast, which it fills from the Eastern fields, the freight rates from the East being suddenly lowered when it wishes to refill the said storehouses, and put back again as soon as they are full. The people of California are compelled to buy Eastern oil for the profit of the Trust, instead of buying Colorado oil, because the freight on the latter is prohibitive.

Aside from these sudden fainting spells of the oil tariff at convenient seasons for the Standard, the ordinary arrangements showed thoughtful care for its comfort. The regular rate on oil from the Colorado oil wells to the Pacific Coast was made 96 cents per hundred, while the rate from Chicago through Colorado is only 78½ cents per hundred.[^[101]]

The Chicago pork-packers generally had things their own way in this period, but apparently not always. In 1890 the Commission decided that the railroads were discriminating against the Chicago packers by lower rates from the Missouri River on hog products than on live hogs.[^[102]] Even then, however, they were receiving rebates from the railroads which made questions of tariff rates comparatively insignificant.

In 1891 the Federal Grand Jury indicted Swift & Co., the Chicago packers, for having received $5,000 a month in rebates from one road alone, the Nickel Plate. Compared to the train loads of their cars passing east and west on other lines, their traffic on the Nickel Plate was light.

In his testimony to the Senate Committee this spring, Mr. Davis said: “A few years ago one of the Chicago packers was a director on a Western railroad. He was a large receiver of live-stock from Kansas City, upon which the freight rate was $54 per car. A rebate of $25 was paid to the packer at the time of shipment, and it was the custom to file claims for the remaining $29, which were allowed on the grounds of some imaginary loss or damage to the stock in transit. The same party paid rebates amounting to from $30,000 to $50,000 a month for every month in the year. On putting down on a piece of paper the amount of $10,000, and after placing this under the eyes of a superior officer, he would leave and subsequently look for that amount in currency by express, and would then proceed to divide it among certain favored shippers.”[^[103]]

A few years ago, in proceedings before Judge Grosscup of Chicago, it appeared that while the published rate on packing-house products was 23½ cents, the favored packers were given a rate as low as 15 cents.

Investigations by the Commission in December, 1901, and January, 1902, took the lid off of the dressed-meat business and discovered a large congregation of secret rebates. The Pennsylvania system was cutting the rate on packing-house products 5 to 7 cents below the published rate, making it 25 cents and sometimes 22 cents, in place of 30 cents, from Chicago to New York. Rates from Indianapolis, Cincinnati, and other points were also cut.[^[104]]

The examination brought out the fact that President Cassatt and other officers above the traffic manager knew what he was doing and authorized or permitted the rate cutting.[^[105]]

“Commissioner Clements. Who takes the responsibility for doing these things, for making these serious departures and cuts, in regard to the Pennsylvania Railroad? Is it you? Do you do it without any authority from the officers of that road above you, or do you have their approval of it?

“Mr. McCabe. I am in charge of the freight traffic, and I do the best I can under the circumstances.

“Commissioner Clements. Do you act independently of them, or do you have to have their approval?

“Mr. McCabe. I assume to do what I think is proper, being governed by the competitive conditions.

“Commissioner Clements. Do you have reason to know that the officers above you in the management of that company’s affairs knew of it?

“Mr. McCabe. Not in detail.

“Commissioner Clements. I do not mean the details. I could have answered that myself. But as to the general fact that the Pennsylvania Railroad was cutting the rate in this serious way, was it known to the president of that company and other officers?