A [transcriber’s note] follows the text.

THE BRITISH STATE TELEGRAPHS

THE BRITISH STATE TELEGRAPHS

A STUDY OF THE PROBLEM OF A LARGE BODY OF CIVIL SERVANTS IN A DEMOCRACY

BY

HUGO RICHARD MEYER

SOMETIME ASSISTANT PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY OF CHICAGO, AUTHOR OF “GOVERNMENT REGULATION OF RAILWAY RATES;” “MUNICIPAL OWNERSHIP IN GREAT BRITAIN”

New York

THE MACMILLAN COMPANY

LONDON: MACMILLAN & CO., Ltd.

1907

All right reserved

Copyright, 1907

By THE MACMILLAN COMPANY

Set up and electrotyped. Published October 1907

THE MASON-HENRY PRESS
SYRACUSE, NEW YORK

TO MY BROTHER

PREFACE

In order to keep within reasonable limits the size of this volume, the author has been obliged to reserve for a separate volume the story of the Telephone in Great Britain. The series of books promised in the Preface to the author’s Municipal Ownership in Great Britain will, therefore, number not four, but five.

CONTENTS

• [CHAPTER I]
  Introduction
• Scope of the inquiry.
• [CHAPTER II]
  The Argument for the Nationalization of the Telegraphs
• The indictment of the telegraph companies. The argument from foreign experience. The promise of reduced tariffs and increased facilities. The alleged financial success of foreign State telegraphs: Belgium, Switzerland and France. The argument from English company experience.
• [CHAPTER III]
  The alleged Break-down of Laissez-faire
• Early history of telegraphy in Great Britain. The adequacy of private enterprise. Mr. Scudamore’s loose use of statistics. Mr. Scudamore’s test of adequacy of facilities. Telegraphic charges and growth of traffic in Great Britain. The alleged wastefulness of competition. The telegraph companies’ proposal.

• [CHAPTER IV]
  The Purchase of the Telegraphs
• Upon inadequate consideration the Disraeli Ministry estimates at $15,000,000 to $20,000,000 the cost of nationalization. Political expediency responsible for Government’s inadequate investigation. The Government raises its estimate to $30,000,000; adding that it could afford to pay $40,000,000 to $50,000,000. Mr. Goschen, M. P., and Mr. Leeman, M. P., warn the House of Commons against the Government’s estimates, which had been prepared by Mr. Scudamore. The Gladstone Ministry, relying on Mr. Scudamore, estimates at $3,500,000 the “reversionary rights” of the railway companies, for which rights the State ultimately paid $10,000,000 to $11,000,000.

• [CHAPTER V]
  None of Mr. Scudamore’s Financial Forecasts were Realized
• The completion of the telegraph system costs $8,500,000; Mr. Scudamore’s successive estimates had been respectively $1,000,000 and $1,500,000. Mr. Scudamore’s brilliant forecast of the increase of traffic under public ownership. Mr. Scudamore’s appalling blunder in predicting that the State telegraphs would be self-supporting. Operating expenses on the average exceed 92.5% of the gross earnings, in contrast to Mr. Scudamore’s estimate of 51% to 56%. The annual telegraph deficits aggregate 26.5% of the capital invested in the plant. The financial failure of the State telegraphs is not due to the large price paid to the telegraph companies and railway companies. The disillusionment of an eminent advocate of nationalization, Mr. W. Stanley Jevons.
• [CHAPTER VI]
  The Party Leaders ignore their Fear of an Organized Civil Service
• Mr. Disraeli, Chancellor of the Exchequer, opposes the enfranchisement of the civil servants. Mr. Gladstone, Leader of the Opposition, assents to enfranchisement, but expresses grave apprehensions of evil results.

• [CHAPTER VII]
  The House of Commons is Responsible for the Financial Failure of the State Telegraphs
• Sir S. Northcote, Chancellor of the Exchequer in Mr. Disraeli’s Ministry of 1874 to 1880, is disillusioned. The State telegraphs become self-supporting in 1879-80. The House of Commons, under the leadership of Dr. Cameron, M. P., for Glasgow, overrides the Ministry and cuts the tariff almost in two. In 1890-91 the State telegraphs would again have become self-supporting, had not the House of Commons, under pressure from the civil service unions, increased wages and salaries. The necessity of making money is the only effective incentive to sound management.
• [CHAPTER VIII]
  The State Telegraphs Subsidize the Newspaper Press
• Why the newspaper press demanded nationalization. Mr. Scudamore gives the newspaper press a tariff which he deems unprofitable. Estimates of the loss involved in transmitting press messages, made by responsible persons in the period from 1876 to 1900. The State telegraphs subsidize betting on horse races.

• [CHAPTER IX]
  The Post Office Employees press the House of Commons for Increases of Wages and Salaries
• British Government’s policy as to wages and salaries for routine work, as distinguished from work requiring a high order of intelligence. The Fawcett revision of wages, 1881. Lord Frederick Cavendish, Financial Secretary to the Treasury, on pressure exerted on Members of Parliament by the telegraph employees. Sir S. A. Blackwood, Permanent Secretary to the Post Office, on the Fawcett revision of 1881. Evidence as to civil servants’ pressure on Members of Parliament presented to the Royal Commission on Civil Establishments, 1888. The Raikes revision of 1890-91; based largely on the Report of the Committee on the Indoor Staff, which Committee had recommended increases in order “to end agitation.” The Earl Compton, M. P., champions the cause of the postal employees in 1890; and moves for a Select Committee in 1891. Sir James Fergusson, Postmaster General in the Salisbury Ministry, issues an order against Post Office servants “endeavoring to extract promises from any candidate for election to the House of Commons with reference to their pay or duties.” The Gladstone Ministry rescinds Sir James Fergusson’s order. Mr. Macdonald’s Motion, in 1893, for a House of Commons Select Committee. Mr. Kearley’s Motion, in 1895. The Government compromises, and appoints the so-called Tweedmouth Inter-Departmental Committee.
• [CHAPTER X]
  The Tweedmouth Committee Report
• The Government accepts all recommendations made by the Committee. Sir Albert K. Rollit, one of the principal champions in the House of Commons of the postal employees, immediately follows with a Motion “intended to reflect upon the Report of the Tweedmouth Committee.” Mr. Hanbury, Financial Secretary to the Treasury, intimates that it may become necessary to disfranchise the civil servants. The Treasury accepts the recommendations of the so-called Norfolk-Hanbury Committee. The average of expenses on account of wages and salaries rises from 11.54 cents per telegram in 1895-96, to 13.02 cents in 1902-03, concomitantly with an increase in the number of telegrams from 79,423,000 to 92,471,000.

• [CHAPTER XI]
  The Post Office Employees continue to press the House of Commons for Increases of Wages and Salaries
• The Post Office employees demand “a new judgment on the old facts.” Mr. S. Woods’ Motion, in February, 1898. Mr. Steadman’s Motions in February and June, 1899. Mr. Hanbury, Financial Secretary to the Treasury, points out that the postal employees are demanding a House of Commons Select Committee because under such a Committee “the agitation and pressure, now distributed over the whole House, would be focussed and concentrated upon the Select Committee.” Mr. Steadman’s Motion, in April, 1900. Mr. Bayley’s Motion, in June, 1901. Mr. Balfour, Prime Minister, confesses that the debate has filled him “with considerable anxiety as to the future of the public service if pressure of the kind which has been put upon the Government to-night is persisted in by the House.” Captain Norton’s Motion, in April, 1902. The Government compromises by appointing the Bradford Committee of business men. Mr. Austen Chamberlain, Postmaster General, states that Members from both sides of the House “seek from him, in his position as Postmaster General, protection for them in the discharge of their public duties against the pressure sought to be put upon them by employees of the Post Office.” He adds: “Even if the machinery by which our Select Committees are appointed were such as would enable us to secure a Select Committee composed of thoroughly impartial men who had committed themselves by no expression of opinion, I still think that it would not be fair to pick out fifteen Members of this House and make them marked men for the purpose of such pressure as is now distributed more or less over the whole Assembly.”
• [CHAPTER XII]
  The Bradford Committee Report
• The Bradford Committee ignores its reference. It recommends measures that would cost $6,500,000 a year, in the hope of satisfying the postal employees, who had asked for $12,500,000 a year. Lord Stanley, Postmaster General, rejects the Bradford Committee’s Report; but grants increases in wages aggregating $1,861,500 a year.

• [CHAPTER XIII]
  The House of Commons Select Committee on Post Office Servants, 1906
• The Post Office Civil Servants’ Unions demand the adoption of the Bradford Committee Report. Lord Stanley, Postmaster General, applies the words “blackmail” and “blood-sucking” to the postal employees’ methods. Captain Norton moves for a House of Commons Select Committee. Mr. Austen Chamberlain, Chancellor of the Exchequer, in vain asks the Opposition Party’s support for a Select Committee to which shall be referred the question of the feasibility of establishing a permanent, non-political Commission which shall establish general principles for settling disputes between the civil servants and the Government of the day. Captain Norton’s Motion is lost, nine Ministerial supporters voting for it, and only two Opposition members voting against it. Mr. J. Henniker Heaton’s appeal to the British public for “An End to Political Patronage.” The Post Office employees, in the campaign preceding the General Election of January, 1906, induce nearly 450 of the 670 parliamentary candidates who succeeded in being elected, to pledge themselves to vote for a House of Commons Select Committee on Post Office Wages. Immediately upon the opening of Parliament, the Sir H. Campbell-Bannerman Liberal Ministry gives the Post Office employees a House of Commons Select Committee.

• [CHAPTER XIV]
  The House of Commons, under Pressure from the Civil Service Unions, curtails the Executive’s Power to dismiss Incompetent and Redundant Employees
• The old practice of intervention by Members of Parliament on behalf of individual civil servants with political influence has given way to the new practice of intervention on behalf of the individual civil servant because he is a member of a civil service union. The new practice is the more insidious and dangerous one, for it means class bribery. The doctrine that entrance upon the State’s service means “something very nearly approaching to a freehold provision for life.” Official testimony of various prominent civil servants, especially of Mr. (now Lord) Welby, Permanent Secretary to the Treasury from 1885 to 1894; and Mr. T. H. Farrer, Permanent Secretary to Board of Trade from 1867 to 1886. The costly practice of giving pensions no solution of the problem of getting rid of unsatisfactory public servants.
• [CHAPTER XV]
  The House of Commons, under Pressure from the Civil Service Unions, curtails the Executive’s Power to promote Employees according to Merit
• The civil service unions oppose promotion by merit, and demand promotion by seniority. Testimony presented before: Select Committee on Civil Services Expenditure, 1873; Select Committee on Post Office, 1876; Royal Commission to inquire into the Civil Establishments, 1888; from statement made in House of Commons, in 1887, by Mr. Raikes, Postmaster General; and before the so-called Tweedmouth Committee, 1897. Instances of intervention by Members of House of Commons on behalf of civil servants who have not been promoted, or are afraid they shall not be promoted.

• [CHAPTER XVI]
  Members of the House of Commons intervene on behalf of Public Servants who have been Disciplined
• Evidence presented before: The Royal Commission appointed to inquire into the Civil Establishments, 1888; and the Tweedmouth Committee, 1897. Instances of intervention by Members of Parliament. Mr. Austen Chamberlain, Financial Secretary to the Treasury, in April, 1902, states that at a low estimate one-third of the time of the highest officials in the Post Office is occupied with petty questions of discipline and administrative detail, because of the intervention of Members of Parliament. He adds that it is “absolutely deplorable” that time and energy that should be given to the consideration of large questions must be given to matters that “in any private business would be dealt with by the officer on the spot.” Sir John Eldon Gorst’s testimony before the Committee on National Expenditure, 1902.
• [CHAPTER XVII]
  The Spirit of the Civil Service
• The doctrine of an “implied contract” between the State and each civil servant, to the effect that the State may make no change in the manner of administering its great trading departments without compensating every civil servant however remotely or indirectly affected. The hours of work may not be increased without compensating every one affected. Administrative “mistakes” may not be corrected without compensating the past beneficiaries of such mistakes. Violation of the order that promotion must not be mechanical, or by seniority alone, may not be corrected without compensating those civil servants who would have been benefitted by the continued violation of the aforesaid order. The State may not demand increased efficiency of its servants without compensating every one affected. Persons filling positions for which there is no further need, must be compensated. Each civil servant has a “vested right” to the maintenance of such rate of promotion as obtains when he enters the service, irrespective of the volume of business or of any diminution in the number of higher posts consequent upon administrative reforms. The telegraph clerks demand that their chances of promotion be made as good as those of the postal clerks proper, but they refuse to avail themselves of the opportunity to pass over to the postal side proper of the service, on the ground that the postal duties proper are more irksome than the telegraph duties. Members of Parliament support recalcitrant telegraph clerks whom the Government is attempting to force to learn to perform postal duties, in order that it may reap advantage from having combined the postal service and the telegraphs in 1870. Special allowances may not be discontinued; and vacations may not be shortened, without safeguarding all “vested interests.” Further illustrations of the hopelessly unbusinesslike spirit of the rank and file of the public servants.

• [CHAPTER XVIII]
  The House of Commons stands for Extravagance
• Authoritative character of the evidence tendered by the several Secretaries of the Treasury. Testimony, in 1902, of Lord Welby, who had been in the Treasury from 1856 to 1894. Testimony of Sir George H. Murray, Permanent Secretary to the Post Office and sometime Private Secretary to the late Prime Minister, Mr. Gladstone. Testimony of Sir Ralph H. Knox, in the War Office since 1882. Testimony of Sir Edward Hamilton, Assistant Secretary to the Treasury since 1894. Testimony of Mr. R. Chalmers, a Principal Clerk in the Treasury; and of Sir John Eldon Gorst. Mr. Gladstone’s tribute to Joseph Hume, the first and last Member of the House of Commons competent to criticize effectively the details of expenditure of the State. Evidence presented before the Select Committee on Civil Services Expenditure, 1873.
• [CHAPTER XIX]
  Conclusion
• [INDEX]

THE BRITISH STATE TELEGRAPHS

CHAPTER I
Introduction

SCOPE OF THE INQUIRY

The story of the British State Telegraphs divides itself into two parts: the purchase of the telegraphs, in 1870, from the companies that had established the industry of telegraphy; and the subsequent conduct of the business of telegraphy by the Government. The first part is covered by Chapters II to VI; the second part by the remaining chapters. Both parts contain a record of fact and experience that should be of service to the American public at the present moment, when there is before them the proposal to embark upon the policy of the municipal ownership and operation of the so-called municipal public service industries. The second part, however, will interest a wider body of readers than the first part; for it deals with a question that is of profound interest and importance at all times—the problem of a large body of civil servants in a Democracy.

Chapters II to VI tell of the demand of the British Chambers of Commerce, under the leadership of the Chamber of Commerce of Edinburgh, for lower charges on telegraphic messages; the appointment by the Government of Mr. Scudamore, Second Secretary of the Post Office, to report upon the relative merits of private telegraphs and State telegraphs; the character of the report submitted by Mr. Scudamore; and the reasons why that report—upon which rested the whole argument for nationalization—was not adequately considered either by the Select Committee of the House of Commons, to whom the Bill for the purchase of the telegraphs was referred, or by the House of Commons itself. The principal reason was that the agitation carried on by the Chambers of Commerce and the newspaper press[1] proved so successful that both political parties committed themselves to nationalization before Mr. Scudamore’s report had been submitted to searching criticism. Under the circumstances, the Disraeli Ministry was unwilling to go into the general election of 1868 without having made substantial progress toward the nationalization of the telegraphs. In order to remove opposition to its Bill in the House of Commons, the Disraeli Ministry conceded practically everything asked by the telegraph companies, the railway companies and the newspaper press.[2] The result was that the Government paid a high price absolutely for the telegraphs. Whether the price was too high, relatively speaking, is difficult to say. In the first place, the price paid—about $40,000,000—was well within the sum which the Government had said it could afford to pay, to wit, $40,000,000 to $50,000,000. In the second place, the Government acquired an industry “ready-made,” with an established staff of highly trained men educated in the school of competition—the only school that thus far has proved itself capable of bringing out the highest efficiency that is in men. In the second place, the Government acquired the sole right to transmit messages by electricity—a right which subsequent events have proved to cover all future inventions, such as the transmission of messages by means of the telephone and of wireless telegraphy. Finally, in spite of the wastefulness that characterized the Government’s operation of the telegraphs from the day the telegraphs were taken over, the Telegraph Department in the year 1880-81 became able to earn more than the interest upon the large capital invested in the telegraphs. But from that year on the Government not only became more and more wasteful, but also lost control over the charges made to the public for the transmission of messages. It is instructive to note, in this latter connection, that the control over the rates to be charged to the public was taken out of the hands of the Government by Dr. Cameron, who represented in the House of Commons the people of Glasgow, and that another Scotch city, Edinburgh, had initiated and maintained the campaign for the nationalization of the telegraphs.

One of the most extraordinary of the astounding incidents of the campaign and negotiations that resulted in the purchase of the telegraphs, was the fact that in the debates in the House of Commons was not even raised the question of the possibility of complications and dangers arising out of the multiplication of the civil servants. That fact is the more remarkable, since the leaders of both political parties at the time apprehended so much danger from the existing civil servants that they refused to take active steps to enfranchise the civil servants employed in the so-called revenue departments—the customs, inland revenue and Post Office departments—who had been disfranchised since the close of the Eighteenth Century. The Bill of 1868, which gave the franchise to the civil servants in question, was a Private Bill, introduced by Mr. Monk, a private Member of the House of Commons; and it was carried against the protest of the Disraeli Ministry, and without the active support of the leading men in the Opposition.

In the debates upon Mr. Monk’s Bill, Mr. Gladstone, sitting in Opposition, said he was not afraid that either political party ever would try to use the votes of the civil servants for the purpose of promoting its political fortunes, “but he owned that he had some apprehension of what might be called class influence in the House of Commons, which in his opinion was the great reproach of the Reformed Parliament, as he believed history would record. Whether they were going to emerge into a new state of things in which class influence would be weaker, he knew not; but that class influence had been in many things evil and a scandal to them, especially for the last fifteen or twenty years [since the Reform of Parliament]; and he was fearful of its increase in consequence of the possession of the franchise, through the power which men who, as members of a regular service, were already organized, might bring to bear on Members of Parliament.”

Chapters VII and following show that Mr. Gladstone’s apprehensions were well-founded; that the civil servants have become a class by themselves, with interests so widely divergent from the interests of the rest of the community that they do not distribute their allegiance between the two great political parties on the merits of the respective policies of those parties, as do an equal number of voters taken at random. The civil servants have organized themselves in great civil service unions, for the purpose of promoting their class interests by bringing pressure to bear upon the House of Commons. At the parliamentary elections they tend to vote solidly for the candidate who promises them most. In one constituency they will vote for the Liberal candidate, in another for the Conservative candidate.

Thus far neither Party appears to have made an open or definite alliance with the civil servants. But in the recent years in which the Conservative Party was in power, and year after year denied—“on principle” of public policy—certain requests of the civil servants, the rank and file, as well as some of the minor leaders of the Liberal, or Opposition Party, evinced a strong tendency to vote rather solidly in the House of Commons in support of those demands of the civil servants.[3] At the same time the chiefs of the Liberal, or Opposition Party, refrained from the debate as well as from the vote. It may be that the Opposition Party discipline was not strong enough to enable the Opposition chiefs to prevent the votes on the momentous issue raised in the House of Commons by the civil servants from becoming for all practical purposes Party votes; or, it may be that the Liberal Party leaders did not deem it expedient to seek to control the voting of their followers. Be that as it may, the fact remains that the Conservative Ministry that was in power, repeatedly called in vain upon the House of Commons to take out of the field of Party politics the issue raised by the civil servants in the period from 1890 to 1905. The Conservative Ministry year after year denied the request of the Post Office employees for a House of Commons Select Committee on the pay and position of the Post Office employees. On the other hand, the support of that request came steadily from the Liberal Opposition. In the General Election of January, 1906, the Post Office employees threw their weight overwhelmingly on the side of the Liberal Party; and immediately after the opening of the new Parliament, the newly established Liberal Government announced that it would give the Post Office employees the House of Commons Select Committee which the late Conservative Ministry had “on principle” of public policy refused to grant.

Shortly after the General Election of January, 1906, the President of the Postal Telegraph Clerks’ Association, a powerful political organization, stated that nearly 450 of the 670 Members of the House of Commons had pledged themselves, in the course of the campaign, to vote for a House of Commons Select Committee. At about the same time, Lord Balcarres, a Conservative whip in the late Balfour ministry, speaking of the 281 members who entered Parliament for the first time in 1906, said “he thought he was fairly accurate when he said that they had given pretty specific pledges upon this matter [of a Select Committee] to those who had sent them to the House.” Sir Acland-Hood, chief whip in the late Balfour Ministry, added: “…nearly the whole of the supporters of the then [1905] Government voted against the appointment of the Select Committee [in July, 1905]. No doubt many of them suffered for it at the general election; they either lost their seats or had their majorities reduced in consequence of the vote.” And the new Prime Minister, Sir H. Campbell-Bannerman, spoke of the “retroactive effect of old promises extracted in moments of agony from candidates at the general election.” And finally, at the annual conference of the Postal Telegraph Clerks’ Association, held in March, 1906, Mr. R. S. Davis, the representative of the Metropolitan London Telegraph Clerks, said: “The new Postmaster General had made concessions which had almost taken them [the postal clerks] off their feet by the rapidity with which one had succeeded another and the manner in which they were granted.”

Chapters XIV to XVII describe the efforts made by the civil servants to secure exemption from the ordinary vicissitudes of life, as well as exemption from the necessity of submitting to those standards of efficiency and those rules of discipline which prevail in private employment. They show the hopelessly unbusinesslike spirit of the rank and file of the public servants, a spirit fostered by the practice of members of the House of Commons intervening, from the floor of the House as well as behind the scenes, on behalf of public servants who have not been promoted, have been disciplined or dismissed, or, have failed to persuade the executive officers to observe one or more of the peculiar claims of “implied contract” and “vested right” which make the British public service so attractive to those men whose object in life is not to secure full and untrammeled scope for their abilities and ambitions, but a haven of refuge from the ordinary vicissitudes of life. Members of the House of Commons intervene, in the manner indicated, in mere matters of detail of administration, because they have not the courage to refuse to obey the behests of the political leaders of the civil service unions; they do not so interfere from the mere desire to promote their political fortunes by championing the interests of a class. They recognize the fact that the art of government is the art of log-rolling, of effecting the best compromise possible, under the given conditions of political intelligence and public spirit, between the interests of a class and the interests of the country as a whole. Their views were forcibly expressed, on a recent occasion, by Captain Norton, who long has been one of the most aggressive champions in the House of Commons, of the civil servants, and who, at present, is a Junior Lord of the Treasury, in the Sir H. Campbell-Bannerman Liberal Ministry. Said Captain Norton: “As regarded what had been said about undue influence [being exercised by the civil servants], his contention was that so long as the postal officials … were allowed to maintain a vote, they had precisely the same rights as all other voters in the country to exercise their fullest influence in the defense of their rights, privileges and interests. He might mention that all classes of all communities, of all professions, all trades, all combinations of individuals, such as anti-vaccinationists and so forth, had invariably used their utmost pressure in defense of their interests and views upon members of the House….”

The problem of government in every country—irrespectively of the form which the political institutions may take in any given country—is to avoid class legislation, and to make it impossible for any one class to exploit the others. Some of us—who are old-fashioned and at present in the minority—believe that the solution of that problem is to be found only in the upbuilding of the character and the intelligence of the individual citizen. Others believe that it is to be found largely, if not mainly, in extending the functions of the State and the City. To the writer, the experience of Great Britain under the experiment of the extension of the functions of the State and the City, seems to teach once more the essential soundness of the doctrine that the nation that seeks refuge from the ills that appear under the policy of laissez-faire, seeks refuge from such ills in the apparently easy, and therefore tempting, device of merely changing the form of its political institutions and political ideals, will but change the form of the ills from which it suffers.

FOOTNOTES:

[ 1 ] The reason for the opposition of the newspaper press to the telegraph companies is discussed in Chapter VIII.

[ 2 ] The concession made to the newspaper press is described in Chapter VIII.

[ 3 ] The efforts of the civil servants culminated in the debate and vote of July 5, 1905. Upon that occasion there voted for the demands of the civil servants eighteen Liberalists who, in 1905-6, became Members of the Sir H. Campbell-Bannerman Liberal Ministry. Two of them, Mr. Herbert Gladstone and Mr. Lloyd George, became Members of the Cabinet, or inner circle of the Ministry.

CHAPTER II
The Argument for the Nationalization of the Telegraphs

The indictment of the telegraph companies. The argument from foreign experience. The promise of reduced tariffs and increased facilities. The alleged financial success of foreign State telegraphs: Belgium, Switzerland and France. The argument from British company experience.

In 1856 the Chambers of Commerce of Great Britain, under the leadership of the Chamber of Commerce of Edinburgh, began an agitation for the purchase by the Government of the properties of the several British telegraph companies. In 1865, the telegraph companies, acting in unison, withdrew the reduced rate of twenty-four cents for twenty words, address free, that had been in force, since 1861, between certain large cities. That action, which will be described further on, caused the Chambers of Commerce to increase the agitation for State purchase. In September, 1865, Lord Stanley of Alderley, Postmaster General, commissioned Mr. F. I. Scudamore, Second Secretary of the Post Office, “to inquire and report whether, in his opinion, the electric telegraph service might be beneficially worked by the Post Office—whether, if so worked, it would possess any advantages over a system worked by private companies—and whether it would entail any very large expenditure on the Post Office Department beyond the purchase of existing rights.”

In July, 1866, Mr. Scudamore reported, recommending the purchase of the telegraphs. In February, 1868, he submitted a supplementary report; and in 1868 and 1869, he acted as the chief witness for the Government before the Parliamentary Committees appointed to report on the Government’s Bills proposing to authorize the State to acquire and operate the telegraphs.[4] The extent to which the Government, throughout the considerations and negotiations which finally ended in the nationalization of the telegraphs, relied almost exclusively upon evidence supplied by Mr. Scudamore, is indicated in the statement made by the Chancellor of the Exchequer, Mr. G. W. Hunt, on July 21, 1868, that Mr. Scudamore “might be said to be the author of the Bill to acquire the telegraphs.”[5]

Indictment of the Telegraph Companies

Mr. Scudamore reported that the Chambers of Commerce, and the various writers in the periodical and newspaper press who had supported the proposal of State purchase, had concurred in the following general propositions: “that the charges made by the telegraph companies were too high, and tended to check the growth of telegraphic correspondence; that there were frequent delays of messages; that many important districts were unprovided with telegraphic facilities; that in many places the telegraph office was inconveniently remote from the centre of business, and was open for too small a portion of the day; that little or no improvement could be expected so long as the working of the telegraphs was conducted by commercial companies striving chiefly to earn a dividend and engaged in wasteful competition with each other; and, finally, that the growth of telegraphic correspondence had been greatly stimulated in Belgium and Switzerland by the annexation of the telegraphs to the Post Offices of those countries, and the consequent adoption of a low scale of charges; and that in Great Britain like results would follow the adoption of like means, and that from the annexation of the British telegraphs to the British Post Office there would accrue great advantage to the public, and ultimately a large revenue to the State.” Subsequently, before the Select Committees of Parliament, Mr. Scudamore maintained that in the hands of the State the telegraphs would pay from the start.

Mr. Scudamore continued his report with the statement that he had satisfied himself that in Great Britain the telegraph was not in such general use as upon the Continent; that “the class who used the telegraphs most freely were stock brokers, mining agents, ship brokers, Colonial brokers, racing and betting men, fruit merchants and others engaged in business of a speculative character, or who deal in articles of a perishable nature. Even general merchants used the telegraphs comparatively little, compared with those engaged in the more speculative branches of commerce.” He added that from 1862 to 1868 the annual increase in the number of telegraphic messages had ranged pretty evenly from 25 per cent. to 30 per cent., indicating merely a gradual increase in the telegraphic correspondence of those classes who had been the first to use the telegraphs. He said there had been none of those “sudden and prodigious jumps” that had occurred on the Continent after each reduction in the charges for telegraphic messages, or after each extension of the telegraph system to the smaller towns.

Mr. Scudamore held that it was a serious indictment of the manner in which the telegraph companies had discharged their duties to the public, that the small tradesman had not learned to order goods by telegraph, and had not thereby enabled himself to get along with a smaller stock of goods kept constantly on hand; that the fishing villages on the remote coasts of Scotland that had no railways, had no telegraphs; that the public did not send “millions of messages” of this kind: “I shall not be home to dinner;” “I will bring down some fish;” “You can meet me at four;” and that the wife and children, away from their home in the country village, did not telegraph to the husband and father: “Send me a money order.” Mr. Scudamore’s notions of the uses to which the telegraphs ought to be put were shared by the Chancellor of the Exchequer, Mr. Hunt, who looked forward to the day when “persons who have a difficulty in writing letters will have less difficulty in going to a telegraph office and sending a message to a friend than writing a letter.”[6]

Argument from Foreign Experience

Mr. Scudamore supported his position with the subjoined reports from countries in which the State operated the telegraphs. The Danish Government had reported that the telegraph was used by merchants generally and for social and domestic purposes. Prussia had reported that in the early days, when the charges had been high, the use of the telegraph had been confined almost exclusively to bankers, brokers, large commercial houses and newspaper correspondents, but that with each reduction in the charges, or extension of the telegraphs to small towns, the number of those who regularly sent out and received messages had increased considerably. Switzerland had reported that messages relating to personal business and family affairs formed as important a part of the whole traffic as the messages of banking interests and other trading interests.

France had reported that 38 per cent. of the messages related to personal business and family affairs; and Belgium had reported that nearly 59 per cent. of the messages related to personal business and family affairs.

To indicate the manner in which the use of the telegraph increased with reductions in the charges made, Mr. Scudamore reported that in Belgium, in 1863, a reduction of 33 per cent. in the charge had been followed by an increase of 80 per cent. in the number of telegrams; and that, in 1866, a reduction of 50 per cent. in the charges had been followed by an increase of 85 per cent. in the traffic. In France, in 1862, a reduction of 35 per cent. in the charge, had led to an increase of 64 per cent. in the number of messages. In Switzerland, in 1868, a reduction of 50 per cent. in the charge had been followed, in the next three months, by an increase in business of 90 per cent. In Prussia, in 1867, a reduction of the charge by 33 per cent. had, in the first month, increased the number of messages by 70 per cent. The increase in business always had followed immediately, said Mr. Scudamore, showing that new classes of people took up the use of the telegraphs.

Finally, Mr. Scudamore stated that in 1866, the proportion borne by the total of telegrams sent to the aggregate of letters sent, had been: in Belgium, one telegram for every 37 letters; in Switzerland, one telegram for every 69 letters; and in the United Kingdom, one telegram for every 121 letters. The relative failure of the people of the United Kingdom to use the telegraph freely, Mr. Scudamore ascribed to the high charges made by the telegraph companies, and to the restricted facilities offered by the companies.

In 1868, the British companies were charging 24 cents for a twenty-word message, over distances not exceeding 100 miles; 36 cents for distances between 100 and 200 miles; and 48 cents for distances exceeding 200 miles. For messages passing between Great Britain and Ireland, the charge ranged from $0.72 to $1.44. In all cases the addresses of the sender and of the sendee were carried free.

Promise of Lower Charges and Better Service

The Government proposed to make a uniform charge of 24 cents for twenty words, irrespective of distance. Mr. Scudamore stated that he fully expected that in two or three years the Government would reduce its charge to 12 cents. The only reason why the Government did not propose to adopt immediately the last mentioned rate, was the desire not to overcrowd the telegraphs at the start before there had been the chance to learn with what volume of traffic the existing plant and staff could cope.[7]

In 1868 there was in the United Kingdom one telegraph office for every 13,000 people. The Government promised to inaugurate the nationalization of the telegraphs by giving one office for every 6,000 people.[8] In the shortest time possible, the Government would open a telegraph office at every money order issuing Post Office. At that time the practice was to establish a money order office wherever there was the prospect of two money orders being issued a day; and in some instances such offices were established on the prospect of one order a day.

The contention that the public interest demanded a great increase in the number of telegraph offices, Mr. Scudamore supported by citing the number of offices in Belgium and France. In the former country there were upward of 125 telegraph offices which despatched less than one telegram a day. In fact, some offices despatched less than one a month. The Belgium Government, in figuring the cost of the Telegraph Department, charged that Department nothing whatever for office rent, or for fire, light and office fittings; nor did it charge the smaller offices anything for the time given by the State Railway employees and the postal employees to the Telegraph Department. In France there were 301 telegraph offices that took in less than $40 a year; 179 offices that took in from $40 to $100; and 185 offices that took in from $100 to $200.

Mr. Scudamore over and again assured the Parliamentary Select Committee of 1868 that the telegraphs in the hands of the State would be self-supporting from the start, and that ultimately they would be a considerable source of revenue. But he supported his indictment of the telegraph companies of the United Kingdom by drawing upon the experience of the State telegraphs of Belgium, Switzerland, and France, under very low rates on inland telegrams, as distinguished from telegrams in transit, or telegrams to and from foreign countries. In taking that course, Mr. Scudamore ignored the fact that the inland rates in question were not remunerative.

Belgium’s Experience

The Belgium State telegraphs had been opened in 1850. In the years 1850 to 1856, they had earned, upon an average, 36.8 per cent. a year upon their cost. In the period 1857 to 1862, they had earned, upon an average, 24.3 per cent. In 1863 to 1865, the annual earnings fell to an average of 13.5 per cent.; and in 1866 to 1869, they reached an average of 2.8 per cent. only. The reasons for that rapid and steady decline of the net earnings were: the opening of relatively unprofitable lines and offices; increases in wages which the Government could not withhold; a slackening in the rate of growth of the profits on the so-called foreign messages and transit messages; and a rapid increase in the losses upon the inland messages, which were carried at low rates for the purpose of stimulating traffic.

At an early date the Belgium Government concluded that the first three of the four factors just enumerated were beyond the control of the State, and therefore permanent. It resolved, therefore, to attempt to neutralize them by developing the inland traffic to such proportions that it should become a source of profit, that traffic having been, up to that time, a source of loss. Accordingly, on January 1st, 1863, the Government lowered the charge on inland messages from 30 cents for 20 words, addresses included, to 20 cents. As that reduction did not prove sufficiently effective, the charge on inland messages was reduced, on December 1st, 1865, to 10 cents for 20 words. Under that reduction the loss incurred upon the inland messages rose from an annual average of $13,800 in 1863 to 1865, to an annual average of $59,500 in 1866 to 1869; and the average annual return upon the capital invested fell to 2.8 per cent. This evidence was before Mr. Scudamore when he argued from the experience of Belgium in favor of a uniform rate, irrespective of distance, of 24 cents for 20 words, not counting the addresses. Mr. Scudamore shared the opinion of the Belgium Government that the rate of 10 cents would so stimulate the traffic as to become very profitable. As a matter of fact, things went from bad to worse in Belgium, and for many years the Belgian State telegraphs failed to earn operating expenses.[9]

By way of explanation it should be added that the so-called transit messages and foreign messages were profitable for two reasons. In the first place, the Belgian Government kept high the rates on those messages. In the second place, those messages are carried much more cheaply than inland messages. The transit messages, say from Germany to England, have only to be retransmitted; they are not received across the counter, nor are they delivered across the counter and by messenger. The foreign messages are burdened with only one of the two foregoing relatively costly operations. In 1866 the Belgian Government stated that, if the cost to the Telegraph Department of a given number of words transmitted as a message in transit be represented by two, the corresponding cost of the same number of words received and transmitted as a foreign message would be represented by three, while the cost of the same number of words received and transmitted as an inland message would be represented by five.

Swiss Experience

The Swiss State telegraphs, the experience of which Mr. Scudamore also cited in support of his Report, were opened in 1852; and in the period from 1854 to 1866 they earned, on an average, 18 per cent. upon their cost. Throughout that period the average receipts per inland messages were 21 cents, and the average receipts per foreign message were 39 cents. In the year 1865 the average receipts per message were 21 cents for inland messages, and 30 cents for foreign and transit messages, which constituted 39 per cent. of the traffic. In the following year, 1866, the average receipts upon the inland traffic remained unchanged; while those upon the foreign and transit traffic, 43 per cent. of the total traffic, fell to 20 cents. This reduction of 33 per cent. in the average receipts upon the foreign and transit traffic, caused a decline of 45 per cent. in the total net receipts, and reduced the earnings upon the capital from 15.2 per cent. in 1865, to 7.5 per cent. in 1866.

Thus far the receipts from the inland messages had not covered the operating expenses incurred on account of those messages. The profits, which had been very large, had come from the foreign messages and messages in transit.[10] The Government, alarmed at the decline in profits resulting from the fall in the average receipts per message in the foreign and transit traffic, resolved upon a special effort to stimulate the growth of the inland traffic. Accordingly, on January 1st, 1868, it lowered the rates on inland messages of 20 words, address counted, from 20 cents to 10 cents. The inland traffic immediately doubled; but the cost of handling it more than doubled. The increase in the traffic necessitated the stringing of additional wires, and the employment of more instruments, linemen, telegraphers and office clerks. At the same time the Government was obliged to concede all round increases of wages and salaries, in consequence of the general increase in the cost of living which accompanied the world-wide revival of trade ushered in by the discovery of gold in California and Australia, the introduction of steamships upon the high seas, and the building of railways in all parts of the world.

The inland messages increased by leaps and bounds from 397,289 in 1867 to 2,118,373 in 1876; and still the receipts from them did not cover the operating expenses. In 1874 and 1875, for example, those expenses averaged 14 cents per message. Accordingly, in 1877, the Government adopted a new scale of charges on inland messages, to wit: an initial charge of 6 cents per message, to which was added 0.5 cent for every word transmitted. The Government assumed that the average length of the inland messages would be 14 words; and that the average receipts per message would be 13 cents. It hoped soon to reduce the average cost per message below 13 cents, and hoped thus to make the inland traffic remunerative. But those expectations never were realized; and to this day the inland messages have been carried at a loss.[11]

French Experience

In 1861, the French State telegraphs reduced the rate for messages of 20 words, counting the address, to 20 cents for intradepartmental[12] messages, and to 40 cents for interdepartmental messages. In 1866 the average receipts per message were: 38 cents on the inland traffic; $1.38 on the foreign traffic; and 55.8 cents on the traffic as a whole. With these average receipts per message, the earnings were $1,541,519; while the operating expenses were $1,796,692. In other words, the State telegraphs lost $255,173 on the working, besides failing to earn any interest on the capital invested in them, $4,760,000.

In making the foregoing statement, no allowance is made for the value of the messages sent “on public service,” messages for which the State would have been obliged to pay, had the telegraphs been owned or operated by companies. No such allowance can be made, because the several official French statements submitted by Mr. Scudamore as to the number of messages sent “on public service” applied to the years 1865 and 1867, years for which the operating expenses were not given. Furthermore, the messages sent on public service in 1865 and 1867 were so numerous as to indicate so loose a construction of the term “on public service” as to make the returns worthless for the purpose of determining the commercial value of the saving resulting to the State from the public ownership of the telegraphs. For 1865, the number of messages “on public service” was returned as 568,647, the equivalent of 23 per cent. of the number of messages sent by the public. For 1867, the number was returned as 168,999, the equivalent of 5.94 per cent. of the messages sent by the public. That those figures represented an unreasonable resource to the telegraph for the transaction of the State’s business, is proved by the fact that in the United Kingdom, in the period 1871 to 1890, the value of the messages sent “on public service” was equivalent to less than 2 per cent. of the sums paid by the public for the transmission of telegraphic messages. On the basis of any reasonable use of the telegraphs “on public service,” the financial results of the French State telegraphs would not have been altered materially. The deficit, in 1866, on account of operating expenses, $255,173, was sufficient to permit of the sending of 457,300 messages “on public service,” the equivalent of 16 per cent. of the messages sent by the public. It would be unreasonable to assume that the State could have need of such recourse to the telegraphs.

Summary of Foreign Experience

To sum up the evidence from Belgium, Switzerland, and France, submitted by Mr. Scudamore in 1866 to 1869: This evidence was that rates of 20 cents and 10 cents for 20 words, applied to inland messages, developed an enormous inland traffic, but that that traffic was unremunerative. So long as the rates on foreign messages and transit messages had remained very much higher than the rates on inland messages, the Belgian and Swiss State telegraphs had paid handsomely. But as soon as the latter rates had approached the level of the former rates, the net revenue had tumbled headlong; and there was, in 1868 and 1869, no certainty that it would not disappear entirely, or be reduced to such proportions as no longer to afford an adequate return upon the capital invested in the telegraphs. In the case of France, no evidence was presented that the State telegraphs ever had paid their way, though the prices obtained for the transmission of foreign messages and transit messages were between three and four times the returns obtained from the transmission of inland messages.

English Companies’ Experience

While the evidence from Belgium, Switzerland and France, presented by Mr. Scudamore, did not support the proposition of a low uniform rate, irrespective of distance, the evidence furnished by the experience of the telegraph companies of the United Kingdom pointed strongly to the conclusion that a uniform rate, irrespective of distance, of 24 cents for 20 words, addresses not counted, was not remunerative in the then state of efficiency of the telegraph. In this connection it must be borne in mind that at this time messages had to be retransmitted at intervals of 200 or 300 miles; and that, while the maximum distance a message could travel was only 160 miles in Belgium, and 200 miles in Switzerland, it was 600 miles in the United Kingdom.

In 1861 the telegraph business of the United Kingdom was in the hands of two companies which had been organized in 1846 and 1852 respectively: the Electric and International Telegraph Company, and the British and Irish Magnetic Telegraph Company. In that year, 1861, a new company, the United Kingdom Electric Telegraph Company, invaded the field with a uniform tariff, irrespective of distance, of 24 cents for 20 words, addresses free. The established companies had been charging 24 cents for distances up to 25 miles; 36 cents for distances up to 50 miles; 48 cents for distances up to 100 miles; 60 cents for distances up to 200 miles; 96 cents for distances up to 300 miles; and $1.20 for distances up to 400 miles.[13]

The United Kingdom Company began operations in 1861 with a trunk line between London, Birmingham, Manchester, Liverpool and intermediate and neighboring towns. Shortly afterward it opened a second trunk line from London to Northampton, Leicester, Nottingham, Sheffield, Barnsley, Wakefield, Leeds and Hull; and across through Bradford, Halifax, Rochdale, and Huddersfield to Manchester and Liverpool. Subsequently the company extended its line to Edinburgh and Glasgow, thus lengthening to upward of 500 miles, the distance over which messages were transmitted for 24 cents.[14]

In July 1865, the Board of Directors reported as follows to the stockholders: “The Directors much regret to state that, notwithstanding their earnest efforts to develop telegraphic communication so as to render the shilling [24 cent] rate remunerative, the company has been unable to earn a dividend. The system of the company consists of trunk lines almost exclusively embracing nearly all the main centres of business, telegraphically speaking, of the country. Seeing that the company was working under the greatest possible advantages, and that upward of four years had elapsed since the formation of the company without the payment of any dividend to the proprietary, the directors conceived that they would not be justified in continuing the shilling [24 cent] system, and arrangements were therefore agreed to for its alteration. The directors waited until the last moment before reluctantly adopting this step, but having sought publicity in every way, having persistently canvassed in every department of business, and having endeavored by personal solicitations of numerous active agents to attract trade, they at last saw themselves compelled to agree to a measure that was greatly antagonistic to their personal wishes, but absolutely essential for the well-being of the company, and requisite, as they believe, for the premanentpermanent interests of the telegraphing community.”

In 1865, the United Kingdom Telegraph Company joined with its competitors, the Electric and International Telegraph Company, and the British and Irish Magnetic Telegraph Company, in the following rates for 20 words, addresses free: 24 cents for distances up to 100 miles; 36 cents for distances between 100 and 200 miles; and 48 cents for distances beyond 200 miles.

In July, 1866, the directors of the United Kingdom Telegraph Company reported that in the last half-year “the company earned an amount of profit equal to 6 per cent. dividend over the whole of its share capital.”

When the United Kingdom Company had entered the field, in 1861, with the 24 cent rate, the old established companies, the Electric and International and the British and Irish Magnetic, had been compelled to adopt the 24 cent rate between all points reached by the United Kingdom Company. In February, 1863, the directors of the Electric and International Company reported that the 24 cent circuit between London, Liverpool, Manchester and Birmingham still was unremunerative. The company was losing money on every message transmitted, though the 24 cent rate had increased business to such an extent that the company had been obliged to add two wires to the circuit in question. Since the business done by means of the additional wires did not pay, the directors had charged the cost of those wires to operating expenses, not to capital account. The company did not care for the business, but could not refuse to take it. In July, 1865, the directors reported: “After a trial of four years, the experiment of a uniform shilling rate [on certain circuits] irrespective of distance, has not justified itself.”

The half yearly reports of the British and Irish Magnetic Company from 1862 to 1865 reported that “for any but very short distances,” the 24 cent tariff was “utterly unremunerative.” The effect of the rate was to absorb in unavoidable additional expenses a very large portion of the increase in revenue coming from the increase in business.

In 1859 the London District Telegraph Company was organized for the purpose of transmitting telegraph messages between points in Metropolitan London. In 1860 the company had 52 stations and 73.5 miles of line; and it carried 74,582 messages. In 1862 it had 84 offices and 103 miles of line, and it carried 243,849 messages. In 1865 the company reached its highest point, carrying 316,272 messages. The company at that time had 123 miles of line and 83 offices. The London District Telegraph Company began with a tariff of 8 cents for 10 words, and 12 cents for a message of 10 words with a reply message of 10 words. It soon changed its tariff to 12 cents for 15 words, experience having shown that 10 words was an insufficient allowance.[15] Subsequently the company added porterage charges for delivery beyond a certain distance. In 1866, the company raised its tariff to 24 cents. The company never earned operating expenses; and in November, 1867, its shares, upon which $25 had been paid in, fluctuated between $3.75 and $6.25.[16]

Mr. Robert Grimston, Chairman of the Electric and International Telegraph Company, in 1868 commented as follows upon the experience of the London District Telegraph Company. “A very strong argument against the popular fancy that the introduction of a low rate of charge in towns and country districts would induce the shopkeepers and the lower classes to use the telegraph is furnished by the example of the London District Telegraph Company. A better or a wider field than the metropolitan for an illustration of this theory could not surely be furnished. The facts, however, being, that after several years of struggling existence, the tariff being first fixed at 8 cents, and then at 12 cents, the company has never paid its way.”

FOOTNOTES:

[4] A Report to the Postmaster General upon Certain Proposals which have been made for transferring to the Post Office the Control and Management of the Electric Telegraphs throughout the United Kingdom, July, 1868; Supplementary Report to the Postmaster General upon the Proposal for transferring to the Post Office the Control and Management of the Electric Telegraphs, February, 1868; Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; and Report from the Select Committee on the Telegraphic Bill, 1869.

Unless otherwise stated, all the material statements made in this chapter are taken from the foregoing official documents.

[5] Hansard’s Parliamentary Debates, July 21, 1868, p. 1,603.

[6] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; q. 2549 and 1581.

[7] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; q. 2508; and Report from the Select Committee on the Telegraphic Bill, 1869; q. 346.

[8] Report from the Select Committee on the Telegraphic Bill, 1869; q. 327; and Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; q. 88.

[9] Supplementary Report to the Postmaster General upon the Proposal for transferring to the Post Office the Control and Management of the Electric Telegraphs, 1868; and Sir James Anderson, in Journal of the Statistical Society, September, 1872.

[10] Archiv für Post und Telegraphie, 1903, p. 577.

[11] Archiv für Post und Telegraphie, 1903, p. 574.

[12] For administrative purposes France is divided into so-called “Departments.”

[13] Journal of the Statistical Society, March, 1881.

The Tariff of the Electric and International Co., for 20 words (addresses not counted after 1854), was as follows:

In 1840, and for some years after, the charge was 2 cents a mile for the first 50 miles; 1 cent a mile for the second 50 miles; and 5 cents for each mile beyond 100 miles.

In 1850 the maximum charge for 20 words was reduced to $2.40; early in 1851 it was reduced to $2.04; and in November, 1851, it was reduced to 60 cents for 100 miles, and $1.20 for distances beyond 100 miles.

In February, 1872, two years after the uniform rate of 24 cents, irrespective of distance, had been put in force by the Government, the Telegraph Department made a careful examination of 7,000 messages sent from the large cities to all parts of the United Kingdom. The average charge per message was found to be 27 cents; under the rates enforced by the telegraph companies in 1865, the average charge would have been 52 cents.—Report of the Postmaster General for 1872.

[14]

[15] Journal of Statistical Society, March, 1881.

[16] Miscellaneous Statistics for the United Kingdom, 1862, 1864, 1866 and 1868-9; Parliamentary Paper No. 416, Session of 1867-68; and Journal of the Statistical Society, March, 1881.

CHAPTER III
The Alleged Break-down of Laissez-Faire

Early history of telegraphy in Great Britain. The adequacy of private enterprise. Mr. Scudamore’s loose use of statistics. Mr. Scudamore’s test of adequacy of facilities. Telegraphic charges and growth of traffic in Great Britain. The alleged wastefulness of competition. The telegraph companies’ proposal.

Upon the foregoing evidence, taken from the experience of the State telegraphs of Belgium, Switzerland, and France, and from the experience of the telegraph companies of the United Kingdom, Mr. Scudamore reached the conclusion that in telegraphy, in the United Kingdom, private enterprise had broken down. He stated his conclusion in these words: “It is clearly shown, I think, … that the cardinal distinction between the telegraph system of the United Kingdom and the systems of Belgium and Switzerland is this: that the latter have been framed and maintained solely with a view to the accommodation of the public, whilst the former has been devised and maintained mainly with a view to the interests of shareholders, and only indirectly for the benefit of the public.” These words were intended to convey, and they did convey, the meaning that the policy of laissez-faire had broken down. That policy rests on the assumption that in the long run, and upon the whole, the public interest is conserved and promoted by the activities of the individual citizens who are seeking to promote their personal fortunes—by the activities of “the mere speculator and dividend seeker”—to employ the phrase that came into common use in 1866 to 1869, and ever since, has been made to do yeoman service.

Let us test by the evidence—of which a large part is to be found tucked away in the appendices to Mr. Scudamore’s reports—this conclusion that in telegraphy, in the United Kingdom, private enterprise had broken down, and the policy of laissez-faire had been discredited.

The first thing to note in this connection is, that in the case of telegraphy, as in the case of so many other British industries, public ownership has been a parasite. It has been unwilling to assume the risk and burden of establishing the industry, and has contented itself with purchasing “ready-made” the industry after it had been developed by private enterprise. When Mr. Ronalds attempted to interest the British Government in telegraphy, he was told “that the telegraph was of no use in times of peace, and that the semaphore in time of war answered all the required purposes.”[17]

In 1837, British individuals and companies began to stake their money upon the telegraph in Great Britain; and in 1854 they even carried the telegraph industry to continental Europe, notably to Belgium. In 1850 and 1851, the Governments of France, Belgium and Switzerland, profiting by the losses suffered, and the technical advances made, by British individuals and companies, appropriated, so far as their countries were concerned, the new industry.

History of British Telegraphy

The Electric and International Telegraph Company was formed in 1846, out of the reorganization of properties, that in 1837 had embarked in telegraphy in England, and in 1845 had carried the telegraph industry to Belgium.[18] At this time the use of the telegraph was confined almost exclusively to railway purposes, such as train signalling. The possibility of use for commercial purposes was so little appreciated by the public, that the Electric and International Company, after purchasing, in 1846, Messrs. Cooke and Wheatstone’s inventions, was looked upon as a complete commercial failure. The shares of the company for several years were almost valueless; the chief source of revenue then being contracts obtained from railway companies for the construction and maintenance of railway telegraphs.

Between 1846 and 1851 great improvements were made in telegraphy, and the public gradually learned to use the telegraph. In 1849 the Electric and International declared its first dividend, mainly the result of the contracts with the railway companies. In November, 1851, a cable was laid between Dover and Calais; for the first time the prices of the stock exchange securities in Paris were known the same day within business hours on the London stock exchange; and the financial and trading interests became convinced of the value of the telegraph.[19]

The Electric and International Company began in 1846 with a capital, paid in, of $700,000, which had been increased, by the close of 1868, to $5,849,375. The company grew steadily, and in 1867 it had 10,000 miles of line, and 49,600 miles of wire. In March, 1856, when the company had a record of five years for dividends ranging from 6 to 6.5 per cent. on the capital paid in, the stock of the company was selling at 80, which showed that the investing public deemed the returns inadequate, considering the risks attaching to the business. In January, 1863, when the company had a record of three years as a 7 per cent. company, the stock still stood under par—at 99.5. In 1864 the company paid 8 per cent., in 1865 it paid 9 per cent., and in 1866 to 1868 it paid 10 per cent.[20]

The British and Irish Magnetic Telegraph Company was formed in 1857 by amalgamation of the Magnetic Telegraph Company, organized in 1851, and the British Telegraph Company, organized in 1852. In March, 1856, the Magnetic had a paid up capital of $1,500,000, which was worth 60 cents on the dollar; and the British Company had a paid up capital of $1,170,000, which was worth 47.5 cents on the dollar. In January, 1864, the amalgamated company was paying 4.5 per cent., and its shares were worth 62.5. In 1865 the British and Irish raised the dividend to 5 per cent.; in 1866 to 6 per cent., and in 1867 to 7.5 per cent. In 1866 the stock sold at 78 to 90; and in 1867 at 90 to 97. In 1867 the company had 4,696 miles of line, and 18,964 miles of wire.

The United Kingdom Telegraph Company was organized in 1860, and began operations in 1861. In November, 1867, its shares were worth from 25 cents to 35 cents on the dollar. At that time the company had 1,692 miles of line, and about 9,827 miles of wire.

The London District Telegraph Company, which subsequently became the London and Provincial, began business in 1860 with 52 offices in Metropolitan London. In 1862 it increased the number of its offices to 84; and at the time of its sale to the State, it had 95 offices. The company never earned operating expenses. It began by charging 8 cents for 10 words; later on it charged 12 cents for 15 words; and in 1866 it raised its charge to 24 cents.

Very little new capital was invested by the telegraph companies after 1865, because of “the very natural reluctance of the companies to extend the systems under their control so long as the proposal of the acquisition of those systems by the State was under consideration,” to use the words of Mr. Scudamore.

Adequate Results of Private Enterprise

The foregoing facts show that private enterprise was ready throughout the period beginning with 1838 to incur considerable risks in establishing the new industry of telegraphy, and in giving to the public facilities for the use of that industry. Private enterprise did not at any time adopt the policy of exploiting the public by confining itself to operations involving little or no risk, while paying well. It is true that once a company had reached the position of paying 5, 6, 7, 8, or more, per cent., it tried to maintain that position, and refrained from making extensions at such a rate as to cause a decrease in the dividend. But that fact does not warrant the charge that the companies neglected their duty to the public. Until the threat of purchase by the State arrested extensions, and the dividends rose unusually rapidly, the earnings of the companies were moderate; and finally, though the companies tried to maintain whatever rate of dividend had once been attained, the investing public never believed that even the Electric and International would maintain indefinitely the 10 per cent. rate. That is shown by the fact that until the public began to speculate on the strength of the prospect of the State paying a big price for the property of the Electric and International, the stock of that company never sold for more than 14 years’ purchase.[21] Had the public believed that the 10 per cent. dividend would be maintained indefinitely, the stock would have risen to 25 years’ purchase, the price of the best railway shares.

Mr. Scudamore’s Statistics

In order to show that the people of the United Kingdom suffered from a lack of telegraphic facilities, when compared with the people of Belgium and Switzerland, Mr. Scudamore stated in his reports of 1865 and 1866, that there were: in Belgium, 17.75 miles of telegraph line to every 100 square miles; in Switzerland, 13.7; and in the United Kingdom, 11.3. He stated, also, that there were in Belgium 6.33 telegraph offices to every 100,000 people; in Switzerland, 9.9; and in the United Kingdom, 5.6.

Mr. Scudamore obtained the figures with regard to the United Kingdom from the Board of Trade returns.[22] For 1865 to 1867, those returns were very incomplete; but in 1868 they became very full. Mr. Scudamore’s reports of 1865 and 1868 were not ordered, by the House of Commons, to be printed, until April, 1868, when the completed Board of Trade returns were available. But neither in the reports as laid before Parliament, nor in the testimony given before the Select Committee of Parliament in 1868, did Mr. Scudamore draw attention to the fact that the statement that the United Kingdom had only 11.3 miles of telegraph line to every 100 square miles of area, and 5.6 telegraph offices to every 100,000 people, was based on incomplete returns.

The Board of Trade return for 1868 stated that the Lancashire and Yorkshire Railway Company had 432 miles of telegraph lines and that various other companies not enumerated in 1865, had, in 1868, 3,665 miles of line. If it be assumed that in the period from 1865 to 1868 the Lancashire and the other railway companies not enumerated in 1865, increased their net at the same rate as did the three railway companies that were enumerated in 1865, namely, 11 per cent., there must have been, in 1865, not less than 3,825 miles of telegraph line of which Mr. Scudamore took no account in fixing the total mileage at 16,066 miles. If it be further assumed that one-third of the 3,825 miles in question paralleled telegraph lines of the telegraph companies, there were left out of account in 1865 by Mr. Scudamore 2,550 miles of telegraph line, the equivalent of 2.1 miles per 100 square miles of area. On the foregoing assumptions the mileage that should have been assigned to the United Kingdom in 1865 was not 11.3, but 13.4.

Considerations similar to the foregoing ones, when applied to Mr. Scudamore’s statement that there were, in 1865, 2,040 telegraph stations, show that there probably were 2,680 telegraph stations in 1865, a full allowance being made for duplication. The last named figure would have been equivalent to 8.9 telegraph offices for every 100,000 people as against 5.6 reported by Mr. Scudamore.

The foregoing corrections probably err in the direction of understating the telegraph facilities existent in the United Kingdom in 1865. These corrected results show that in the matter of telegraph line per 100 square miles of area, the United Kingdom was abreast of Switzerland in 1865, though considerably behind Belgium; and that, in the matter of telegraph offices per 100,000 people, it was almost abreast of Switzerland, and considerably in advance of Belgium.

In this connection it is helpful to note that in 1875, after the British Government had spent about $12,500,000 in rearranging and extending the telegraph lines, as against Mr. Scudamore’s estimate of 1868 that $1,500,000 would suffice for all rearrangements and extensions, the number of miles of telegraph line per 100 square miles of area was, 20 in the United Kingdom, and 27.4 in Belgium.[23]

Mr. Scudamore’s Standards of Service

Mr. Scudamore submitted several other arguments in support of the statement that private enterprise had failed to provide the public with sufficient telegraphic facilities. He submitted a list of 486 English and Welsh towns, ranging in population from 2,000 to 200,000, and stated in each case whether or not the town was a telegraph station; and if it was one, whether the telegraph office was, or was not, within the town limits. Mr. Scudamore summarized the facts elucidated, with the statement that 30 per cent. of the 486 towns were well served; that 40 per cent. were indifferently served; that 12 per cent. were badly served; that 18 per cent. were not served at all; and that the towns not served at all had an aggregate population of more than 500,000.[24]

Mr. Scudamore did not define his standards of good service, indifferent service, bad service, and absence of service; but examination of his data shows that his standards were so rigorous that the state of affairs revealed in his summary was by no means so bad as might appear at first sight. Mr. Scudamore took as the standard of good service, the presence of a telegraph office within the town limits. He characterized as indifferent the service of 98 towns in which the telegraph office was within one-quarter of a mile of the Post Office, though outside of the town limits; as well as the service of 88 towns in which the telegraph office was within one-half a mile of the Post Office, though outside of the town limits. He called the service bad in the case of 38 towns in which the telegraph office was within three-quarters of a mile of the Post Office; as well as in the case of 22 towns in which the telegraph office was one mile from the Post Office. He said there was no service whenever the distance of the telegraph office from the Post Office exceeded one mile. In this connection it should be added that the telegraph lines followed the railway; and that in consequence of the prejudice against railway companies in the early days, very many cities and towns refused to allow the railway to enter the city or town limits.

Mr. Scudamore’s data showed that there had been in 1865 not less than 96 towns in which the distance between the Post Office and the nearest telegraph office exceeded one mile. In a foot-note, in the appendix, Mr. Scudamore stated that in 1868, not less than 25 of the 96 towns had been given a railway telegraph office; but no mention of that fact did he make in the main body of the report, the only part of the document likely to be read even by the comparatively small number of the Members of Parliament who took the trouble to read the document at all. As for the writers of the newspaper press, and the general public, they accepted without exception the statement that in 1868 not less than 18 per cent. of the towns in question, with an aggregate population of over 500,000, had no telegraphic service. As a matter of fact the statement applied only to 14.6 per cent. of the towns, with an aggregate population of 388,000;[25] and many of the towns that still were without service in 1868 would not have been in that condition, had not the agitation for the nationalization of the telegraphs arrested the investment of capital in telegraphs in the years 1865 to 1868.

Mr. Scudamore also submitted a table giving the total number of places with money order issuing Post Offices in England and Wales, Scotland and Ireland; and stated what number of those places had respectively perfect telegraph accommodation, imperfect telegraphic accommodation, and no telegraphic accommodation.[26] Mr. Scudamore contended that the public interest demanded that each one of those places should have at least one telegraph office, that office to be located as near the centre of population as was the Post Office. He submitted no argument in support of that proposition. But Parliament and the public accepted the proposition with avidity, since Mr. Scudamore promised that the extension required to give such a service would not cost more than $1,000,000, about 1/11 or 1/12 of the total sum invested by the several telegraph companies. Mr. Scudamore also promised that, after the service had been thus extended, the total operating expenses of the State telegraphs would be less than 45 per cent. of the gross receipts; that the State telegraphs would at least pay their way, and that they probably would yield a handsome profit. But when Mr. Scudamore came to extend the State telegraphs, he spent upon extensions, not $1,000,000, but about $8,500,000, and when the State came to operate the telegraphs, the operating expenses quickly ran up to 87 per cent. of the gross receipts in three years, 1874 to 1876. These errors of Mr. Scudamore justify the statement that he made no case whatever against the system of laissez-faire, or private ownership, on the ground of the extent of the facilities offered to the public, under the system of private ownership. For obviously it was one thing to condemn the telegraph companies for not building certain extensions, those extensions being estimated to cost only $1,000,000, and a different thing altogether to condemn the telegraph companies for refusing to build out of hand extensions that would cost $8,500,000 and would be relatively unremunerative, if not absolutely unprofitable.

Tariffs and Growth of Traffic

It remains to consider whether the facts as to the charges made by the telegraph companies for the transmission of messages, and the facts as to the rate of increase in the number of messages transmitted, supported Mr. Scudamore’s contention that the system of private ownership of the telegraphs had failed to conserve and promote the public interest.

In 1851, the Electric and International Telegraph Company carried 99,216 messages, receiving on an average $2.41 per message. In 1856, the year in which the Scotch Chambers of Commerce began the agitation for nationalization, the company carried 812,323 messages, receiving on an average $0.99 per message. In 1865, the year in which the telegraph companies abolished the rate of 24 cents, irrespective of distance, that had been in force between the leading cities, and the Chambers of Commerce increased the agitation for purchase by the State, the Electric and International carried 2,971,084 messages, receiving on an average $0.49 a message. In the period from 1851 to 1867, the messages carried by the company increased on an average by 28.76 per cent. a year; the average receipts per message decreased on an average by 7.58 per cent. a year; and the gross receipts of the company increased on an average by 13.61 per cent. a year.

In the period 1855 to 1866, the messages carried annually by the British and Irish Magnetic Company grew from 264,727 to 1,520,640, an average annual growth of 17.58 per cent. At the same time the average receipts per message fell from $0.96 in 1855, to $0.48 in 1866.

In the period from 1855 to 1866, the number of messages carried annually by all of the telegraph companies of the United Kingdom increased from 1,017,529, to 5,781,989, an average annual increase of 16.36 per cent.

In the same period, from 1855 to 1866, the telegrams sent in Switzerland increased on an average by 13.14 per cent. each year; those sent in Belgium increased on an average by 31.45 per cent.; and those sent in France increased on an average by 25.40 per cent. When one takes into consideration that in Belgium, in 1867, only 38 per cent. of the messages transmitted related to stock exchange and commercial business, and that in France in the same year only 48 per cent. of the messages sent related to industrial, commercial, and stock exchange transactions, there is nothing in the comparison between the rate of growth in the United Kingdom on the one hand, and in the countries of Continental Europe on the other hand, to indicate that the use of the telegraphs for the purposes of trade and industry was held back in the United Kingdom by excessive charges or by lack of telegraphic facilities. So far as the United Kingdom lagged behind, it did so because the public had not learned to use the telegraphs freely for the transmission of personal and family news. And when, in 1875, under State owned telegraphs, the public of the United Kingdom had learned to use the telegraphs as freely as the public of Continental Europe used them, Mr. W. Stanley Jevons, the eminent British political economist, in the course of a review of the price paid for this free use of the telegraphs, said: “A large part of the increased traffic on the Government wires consists of complimentary messages, or other trifling matters, which we can have no sufficient motive for promoting. Men have been known to telegraph for a clean pocket handkerchief”—Mr. Jevons, in 1866 to 1869, had been an ardent advocate of nationalizing the telegraphs.[27]

Mr. Scudamore in 1866 to 1869 caused many people to believe that the United Kingdom was woefully behind the continental countries in the use of the telegraphs. He did so by publishing a table which showed that in 1866 there had been sent: in Belgium, 1 telegram to every 37 letters carried by the Post Office; in Switzerland, 1 telegram to every 69 letters; and in the United Kingdom, 1 telegram to every 121 letters. That table, however, really proved nothing; for in 1866, there were carried: in Belgium, 5 letters for every inhabitant; in Switzerland, 10 letters; and in the United Kingdom, 25 letters. Had the people of Belgium and Switzerland written as many letters proportionately as the people of the United Kingdom, the table prepared by Mr. Scudamore would have read: Belgium, 1 telegram for every 185 letters; Switzerland, 1 telegram for every 172 letters; and the United Kingdom, 1 telegram for every 121 letters.

Mr. Scudamore could, however, have prepared a table showing that the people of Switzerland and Belgium used the telegraph more freely than did the people of the United Kingdom, but not so much more freely as to call for so drastic a remedy in the United Kingdom as the nationalization of the telegraphs. The table in question would have shown that in 1866, there was transmitted: in Switzerland, 1 telegram to every 3.75 inhabitants; in Belgium, 1 telegram to every 4.25 inhabitants; and in the United Kingdom, 1 telegram to every 5.3 inhabitants. The table in question would also have indicated the necessity of care in the use of the several kinds of statistics just put before the reader. The table placed Switzerland in advance of Belgium, while the other sets of statistics had placed Belgium in advance of Switzerland.

Alleged Wastefulness of Competition

Mr. Scudamore’s concluding argument was that little or no relief from the evils from which the public was suffering could be expected “so long as the working of the telegraphs was conducted by commercial companies striving chiefly to earn a dividend, and engaged in wasteful competition.” In support of the charge of wasteful competition he stated “that many large districts are provided with duplicate and triplicate lines, worked by different companies, but taking much the same course and serving precisely the same places; and that these duplicate or triplicate lines and duplicate or triplicate offices only divide the business without materially increasing the accommodation of the districts or towns which they serve.” But when Mr. Scudamore sought to substantiate this charge of waste arising out of competition, he could do no more than state that not less than 2,000 miles of line in a total of 16,066 miles were redundant, and that perhaps 300 to 350 offices in a total of 2,040 offices were redundant.

The evidence presented by Mr. Scudamore failed to reveal a situation that called for so drastic a remedy as the nationalization of the telegraphs. It revealed no evils or shortcomings that it was unreasonable to expect would be sufficiently mitigated, if not entirely removed, by the measures proposed by the telegraph companies.

Mr. Robert Grimston, Chairman of the Electric and International Telegraph Company, stated that the telegraph companies long since would have asked Parliament to permit them to consolidate, had there been the least likelihood of Parliament granting the request. Consolidation would have made the resulting amalgamated company so strong that the company would have been justified in adopting a bolder policy in the matter of extending the telegraph lines to places remote from the railways. No single company could afford to assume too large a burden of lines that would begin as “suckers” rather than “feeders.” A company with a large burden of that kind would be in a precarious position, because any of the other existing companies, or some new company, might take advantage of the situation and cut heavily into that part of the company’s business that was carried on between the large cities and was bearing the burden of the non-paying extensions. But if the existing companies were to consolidate, the resulting company would become so strong that it need not fear such competition from any company newly to be organized. That there was much strength in that argument appears from the fact that, in 1869, Mr. Scudamore as well as the Government adopted it in support of the request that the State be given the monopoly of the business of transmitting messages by electricity. Mr. Scudamore argued that since the State was going to assume the burden of building and operating a large number of unprofitable, or relatively unprofitable, extensions, it should not be exposed to the possibility of competition from companies organized for the purpose of tapping the profitable traffic between the large cities, “the very cream of the business.” Mr. Scudamore added that he had been told that a company was on the verge of being organized for the purpose of competing for the business between the large towns as soon as the properties of the existing companies should have been transferred to the State.[28]

The Companies’ Proposal

The telegraph companies proposed to give the public substantial safeguards against the possibility of being exploited by the proposed amalgamated company. They proposed that Parliament should fix maximum charges for the transmission of messages, in conjunction with a limit on dividends that might be exceeded only on condition that the existing charges on messages be reduced by a stated amount every time that the dividend be raised a stated amount beyond the limit fixed. The companies proposed also that shares to be issued in the future should be sold at public auction, and that any premiums realized from such sales should be invested in the plant with the condition that they should not be entitled to any dividend. Provisions such as these, at the time, were in force in the case of certain gas companies and water companies. They have for years past been incorporated in all gas company charters; and they have worked well. There was no reason, in 1866 to 1869, why the proposals of the telegraph companies should not be accepted; that is, no reason from the view-point of the man who hesitated to exchange the evils and shortcomings incident to private ownership for the evils and shortcomings incident to public ownership.

FOOTNOTES:

[17] The Edinburgh Review, July, 1870.

[18] Annales télégraphiques, 1860, p. 547.

The company obtained a concession covering the whole of Belgium. In September, 1846, it opened a line between Brussels and Antwerpen. The tariff charged was low, but the line was so unprofitable that, in 1847, the company declined to build from Brussels to Quiévrain, where connection was to be made with a proposed French telegraph line.

[19] Journal of Statistical Society, March, 1881.

[20] Statistical Journal, September, 1876, and current issues of The Economist (London).

[21] Journal of the Statistical Society, September, 1872.

[22] Miscellaneous Statistics for the United Kingdom, 1868-9, and Parliamentary Paper, No. 416, Session 1867-68.

Length of electric telegraphs belonging to railway companies and telegraph companies respectively.

In placing the total mileage of telegraph line at 16,066, in 1865, Mr. Scudamore excluded the mileage of the London, Chatham, and Dover Railway Company.

[23] In the Fortnightly Review, December, 1875, Mr. W. S. Jevons, the eminent British statistician and economist, stated that the telegraph mileage was 24,000 miles. This statement is accepted in the absence of any official information. From 1870 to 1895 neither the Reports of the Postmaster General, nor the Statistical Abstracts, nor the Board of Trade Returns stated the mileage of telegraph lines; only the total mileage of telegraph wires was published.

[24] Mr. Scudamore’s percentage figures, in some instances, were only roughly correct.

[25]

[26]

[27] The Fortnightly Review, December, 1875; and Transactions of the Manchester Statistical Society, 1866-67.

[28] Report from the Select Committee on the Telegraphic Bill, 1869: q. 321 to 329. In 1868, Mr. Scudamore and the Government had said that the State ought not to be given the monopoly of the telegraph business. Special Report from the Select Committee on the Telegraphs Bill, 1868; q. 124 and following, 319 and 320, and 2,464 and following.

CHAPTER IV
The Purchase of the Telegraphs

Upon inadequate consideration the Disraeli Ministry estimated at $15,000,000 to $20,000,000 the cost of nationalization. Political expediency responsible for Government’s inadequate investigation. The Government raises its estimate to $30,000,000; adding that it could afford to pay $40,000,000 to $50,000,000. Mr. Goschen, M. P., and Mr. Leeman, M. P., warn the House of Commons against the Government’s estimates, which had been prepared by Mr. Scudamore. The Gladstone Ministry, relying on Mr. Scudamore, estimates at $3,500,000 the “reversionary rights” of the railway companies, for which rights the State ultimately paid $10,000,000 to $11,000,000.

On April 1, 1868, the Disraeli Government brought into Parliament a “Bill to enable the Postmaster General to acquire, work, and maintain Electric Telegraphs in the United Kingdom.”[29] At this time the Government still was ignorant of the precise relations existing between the telegraph companies and the railways; and it did not foresee that the purchase of the assets of the telegraph companies would lead to the purchase of the reversionary rights of the railways in the telegraphs, the telegraphs having been, for the most part, erected on the lands of the railways, under leases of way-leaves that still had to run, on an average, 23.7 years. At this time, therefore, the Government contemplated only the purchase of the Electric and International Company, the British and Irish Company, the United Kingdom Company, and the London and Provincial, the successor of the London District Telegraph Company.

Purchase Price estimated at $15,000,000 to $20,000,000

In the course of the debate upon the order for the Second Reading of the Bill, the Chancellor of the Exchequer, Mr. G. W. Hunt, said that “if the House would excuse him, he would rather not enter fully into details with respect to the purchase at present. But he would say that, speaking roughly, it would take something near $20,000,000, or, at all events, between $15,000,000 and $20,000,000 for the purchase and the necessary extensions of the lines.” He added that if the purchase should be made, the telegraphs would yield a net revenue of $1,050,000 a year; and that sum would suffice to pay the interest on the debt to be contracted, and to clear off that debt in twenty-nine years.[30]

Parliament was to be prorogued in August; and a General Election was to follow prorogation. The Government naturally was anxious to avoid having to go into the General Election without having achieved the nationalization of the telegraphs; particularly, since the opposition party also had committed itself to State purchase. Then again, the Government believed that the value of the telegraphs was increasing so rapidly that the State would lose money by any postponement of the act of purchase. For these reasons the Government entered into negotiations with the various interests that evinced a disposition to oppose in Parliament the Government’s Bill, until finally all opposition was removed.

Politics forces Government’s Hand

The Bill, as introduced, proposed that the State pay the four telegraph companies enumerated, the money actually invested by them—about $11,500,000—together with an allowance for the prospective increase of the earnings of the companies, and an additional allowance for compulsory sale. The last two items were to be fixed by an arbitrator who was to be appointed by the Board of Trade. The companies flatly rejected this offer, pointing, by way of precedent, to the Act of 1844, which fixed the terms to be given to the railways, should the State at any time resolve upon the compulsory purchase of the railways. The Act in question prescribed: “twenty-five years’ purchase of the average annual divisible profits for three years before such purchase, provided these profits shall equal or exceed 10 per cent. on the capital; and, if not, the railway company shall be at liberty to claim any further sum for anticipated profits, to be fixed by arbitration.”

The Government next offered the companies the highest market price reached by the stock of the companies on the London Stock Exchange up to May 28, 1868, plus an allowance for prospective profits, to be fixed by arbitration. The companies rejected that offer, but accepted the next one, namely, twenty years’ purchase of the profits of the year that was to end with June 30, 1868.[31] Mr. W. H. Smith, one of the most highly esteemed Members of the House of Commons, who was himself a director in the Electric and International, subsequently spoke as follows of these negotiations: “In 1868 the telegraph companies were by no means desirous to part with their property, but the question whether the Government should be in possession of the telegraphs having been forced on their consideration, the three principal companies very reluctantly came to an arrangement with the Government of the day. He did not wish to express any opinion on the bargain which had been made, and would only say for himself and those with whom he was associated, that they very deeply regretted to be obliged to part with property which had been profitable, and which they had great pleasure in managing.”[32] Mr. Smith added that the net earnings of the Electric and International had increased from $336,815 in 1862, to $859,215 in 1868; and that the average annual increase per cent. had been 17.2 per cent.

The state of the public mind at the time when the Government introduced its Bill, was indicated in the issue of April 11, 1868, of The Economist, the leading financial newspaper of Great Britain. Said the journal in question: “Even if the companies resist, they will not be very powerful opponents—firstly, because the leaders of both parties have already sanctioned the scheme; and, secondly, because the companies are exceptionally unpopular. There is, probably, no interest in the Kingdom which is so cordially disliked by the press, which, when united, is stronger than any interest, and which has suffered for years under the shortcomings of the private companies. The real discussion in Parliament, should there be any, will turn upon a very different point, and it will be not a little interesting to observe how far the current of opinion on the subject of State interference with private enterprise, has really ebbed within the last few years. Twelve or fourteen years ago it would have been useless for any Chancellor of the Exchequer to propose such an operation…. It was [at that time] believed on all sides that State interference was wrong, because it shut out the private speculators from the natural reward of their energy and labor.”

Before the Select Committee of the House of Commons to which was referred the Government’s Bill, Mr. Scudamore argued that if Parliament could not make a reasonable bargain with the telegraph companies, it could authorize the Post Office to build a system of telegraphs. But that measure ought to be adopted only as a last resource. It was of paramount importance to avoid shaking the confidence of the investors that private enterprise would be allowed to reap the full benefits of its enterprise, and that it would be exposed to nothing more than the ordinary vicissitudes of trade. That the possibility of competition by the State, by means of money taken from the people by taxation, never had been included within the ordinary vicissitudes of trade. Coming to the question of paying twenty years’ purchase of the profits of the year 1867-1868, Mr. Scudamore said: “The telegraphs are so much more valuable a property than we originally believed, that if you do not buy them this year, you unquestionably will have to pay $2,500,000 more for them next year…. Their [average] annual growth of profit is certainly not less than ten per cent. at present. If you wait till next year and only give them nineteen years’ purchase, you will give them more than you will now give. If you wait two years, and give them eighteen years’ purchase, you will still give them more than you will now give, assuming the annual growth of profit to be the same. If you wait four years, and give them sixteen years’ purchase, you will again give them more, and in addition you will have lost the benefit accruing in the four years, which would have gone into their pockets instead of coming into the pockets of the nation.”[33]

Purchase price estimated at $30,000,000

In the House of Commons, the Chancellor of the Exchequer, Mr. G. W. Hunt, said: “The terms agreed upon, although very liberal, were not more liberal than they should be under the circumstances, and did not offer more than an arbitrator would have given. The companies had agreed to sell at twenty years’ purchase of present net profits, although those profits were increasing at the rate of 10 per cent. a year. He was satisfied the more the House looked into the matter, the more they would be satisfied with the bargain made.”[34] The Chancellor of the Exchequer continued with the statement that Mr. Scudamore estimated that the Postmaster General would obtain from the telegraphs a net revenue of $1,015,000 at the minimum, and $1,790,000 at the maximum. The mean of those estimates was $1,402,500, which sum would pay the interest and sinking fund payments—3.5 per cent. in all—on $40,000,000. The Government, therefore, could afford to pay $40,000,000 for the telegraphs. Indeed, on the basis of the maximum estimate of net revenue, it could pay $50,000,000. But Mr. Scudamore confidently fixed at $30,000,000 at the maximum, the price that the Government would have to pay. Mr. Scudamore’s estimates of net revenue “would stand any amount of examination by the House, as they had stood very careful scrutiny by the Select Committee, and for the Government to carry out the scheme would not only prove safe but profitable.”

By this time the Government had learned that it would be necessary to purchase the reversionary rights of the railway companies in the business of the telegraph companies. The Government had agreed with the railway companies upon the terms under which it was to be left to arbitration how much should be paid for those reversionary rights. The Chancellor of the Exchequer stated that he was unwilling to divulge the Government’s estimates of what sums would be awarded under the arbitration; for, if he did divulge them, they might be used against the Government before the arbitrators. “But Mr. Scudamore, whose ability with regard not only to this matter, but also to other matters, had been of great service to the Government, had given considerable attention to the matter, and Mr. Scudamore believed that $30,000,000 would be the outside figure” to be paid to the telegraph companies and the railway companies. The Chancellor of the Exchequer added that Mr. Scudamore’s “calculations had been submitted to and approved by Mr. Foster, the principal finance officer of the Treasury.”

In passing, it may be stated that Mr. Foster had stated before the Select Committee of the House of Commons that he had given only “two or three days” to the consideration of the extremely difficult question of the value that the arbitrators would be likely to put upon the railway companies’ reversionary rights.[35]

Parliament warned against Government’s Estimates

Mr. Goschen, of the banking firm of Frühling and Goschen, who had been a member of the Select Committee, and had taken an active part in its proceedings, replied that “the inquiry [by the committee] had been carried on under great disadvantages. An opposition, organized by private interests [the telegraph companies and the railway companies], had been changed into an organization of warm supporters of the Bill pending the inquiry. Before the Committee there appeared Counsel representing the promoters [i. e., the Government], and, at first, counsel representing the original opposition to the Bill [i. e. the telegraph and railway companies]; but in consequence of the change in the views of the opposition, who during the proceedings became friendly to the Bill, there was no counsel present to cross-examine the witnesses. Consequently, in the interests of the public, and in order that all the facts might be brought to light, members of the committee [chiefly Mr. Goschen and Mr. Leeman] had to discharge the duty of cross-examining the witnesses. The same causes led to the result that the witnesses produced were all on one side….”[36]

Mr. Goschen emphasized the fact that upon the expiring of the telegraph companies’ leases of rights of way over the railways, the reversionary rights of the railways would come into play, and that the Government, after having paid twenty years’ purchase to the telegraph companies, “would probably have to pay half as much again to the railways.” “The railways had felt the strength of their position so much, that they had pointed out to the committee that they would not only be entitled to an increase in the rate which they now received [as rent from the telegraph companies] as soon as the leases expired, but they would also be entitled to an indemnification [from the State] for the loss they would sustain in not being allowed [in consequence of the nationalization of the telegraphs] to put the screw on the telegraph companies.” Mr. Goschen said “he felt very strongly on this point because he was convinced that it was impossible to find an instance of any private enterprise which, while it returned a profit of 15 per cent. to its shareholders, enjoyed a monopoly for any great length of time.” If the Government purchased the assets of the telegraph companies, the railway companies would succeed in compelling the State to share with them the great profits to be obtained from the business of telegraphy. They would do so by compelling the Government to pay a big sum for their reversionary rights in the telegraph companies, as the price for abstaining from building up a telegraph business of their own, upon the expiry of the telegraph companies’ leases. No business that yielded a return of 15 per cent. could be worth twenty years’ purchase, for such returns were very insecure, because of the certainty that competition would arise from persons who would be content with ten per cent., or less.[37]

Mr. Leeman, who had sat on the Select Committee, and had, with Mr. Goschen, done all of the cross-examining directed to bring out the points that told against the Government’s proposal, followed Mr. Goschen in the debate. He began by stating that he spoke with “twenty years’ experience as a railway man;” and he directed his argument especially against the terms of the agreements made by the Government to purchase the reversionary rights of the railways in the telegraph companies’ businesses. “Mr. Scudamore, who was what he had already been described to be—a most able man—had not known, up to the time of the second reading of the Bill [June 8, 1868], what were the existing arrangements between the telegraph companies and the railway companies; and, subsequently, while still without the requisite knowledge on that point,[38] he went and agreed on the part of the Government to buy the interest of the telegraph companies at 20 years’ purchase of their profits. In addition it was to be remembered that the railway companies had reversionary interests which would come into operation after comparatively short time for which their arrangements with the telegraph companies were to continue. In July, 1866, Mr. Scudamore estimated the necessary outlay on the part of the Government at $12,000,000. In February, 1868, another officer of the Government raised the estimate to $15,000,000; but it was not until the Bill came before the committee [July, 1868], that Mr. Scudamore said that $30,000,000 would be required…. He [Mr. Leeman] undertook to say that Mr. Scudamore was as wide of the mark in his estimate of $30,000,000, as he had been in his estimate of $12,000,000. At the expiration of their agreements with the telegraph companies, several [all] of the railway companies would have it in their power to compete with the Post Office in the transmission of telegraphic messages. No doubt this fact would be brought under the notice of the arbitrators when the value of their reversion was being considered, and at what price would the arbitrators value this reversionary power of competition? Had Mr. Scudamore made any estimate on the subject? Owing to the position in which Mr. Scudamore had placed the Government, the railway companies had demanded and had been promised terms in respect of their reversions, which he, as a railway man, now said it was the duty of any Government to have resisted….”[39]

Railway Companies’ Reversionary Rights

For the better understanding of this question of reversions, it must be stated that the telegraph companies, for the most part, had erected their poles and wires on the permanent way of the railway companies, under leases of way-leaves, which, in 1868, still had 23.7 years to run, on the average.[40] As the leases should expire, the railway companies would have an opportunity to try to obtain better terms, or to order the companies to remove their plant, and then to erect their own plant, and themselves engage in the telegraph business. But the railway companies were handicapped by the fact that the leases did not expire together, and that it would be difficult to build up a new telegraph system piecemeal out of the parts of line that would become free in the next three years to twenty-nine years. There was, therefore, much room for difference of opinion on the question how far the railway companies would be able “to put the screw” on the telegraph companies upon the successive expirations of leases. The Stock Exchange doubtless took the contingency into consideration, that being one reason why the Electric and International shares did not rise above fourteen years’ purchase of the annual dividends. Mr. Scudamore, before the Select Committee, expressed the opinion that the railway companies could force the telegraph companies “to give them somewhat better terms; that would be the extreme result of any negotiations between the telegraph companies and the railway companies.” To Mr. Foster, principal officer of the Finance Division of the Treasury, whom the Government called to support Mr. Scudamore’s evidence, Mr. Leeman put the question: “Looking at it as a financial question, do you suppose all the railways in the country, having power to work their telegraphs at the end of ten years, but for this Bill, will not put in a claim for a very large sum in respect of that reversion?” The witness replied: “I do not think it would be of very great value in the first place, and in the next place it would be a value deferred for ten years, which would very much diminish it.” To the further query: “You do not take the view that we shall have to pay the railway companies and also the telegraph companies for the same thing,” he replied in the negative.[41]

Shortly after the Government’s Bill had been referred to the Select Committee, the Government made the railway companies this proposition, which was accepted. The Government was to acquire perpetual and exclusive way-leaves for telegraph lines over the railways, and the price to be paid therefor was to be left to arbitration. The railway companies were to have the choice of presenting their claims either under the head of payment for the cession of perpetual and exclusive way-leaves to the Government; or, under the head of compensation for the loss of right to grant way-leaves to any one other than the Government, as well as for the loss of right themselves to transmit messages, except on their own railway business. The Government was of the opinion that the sums to be paid to the railways under this agreement would not be large enough to raise above $30,000,000, the total sum to be paid to the telegraph companies and the railways.

Parliament enacted the Bill of 1868 authorizing the Government to purchase the property of the telegraph companies and the rights of the railways; but it provided that the resulting Act of 1868 should not take effect, unless, in the Session of 1869, Parliament should put at the disposal of the Postmaster General such monies as were required to carry out the provisions of the Act of 1868.

The Government immediately appointed a committee to ascertain the profits earned by the telegraph companies in the year that had ended with June, 1868. The committee, which consisted of the Receiver and Accountant General of the Post Office, and other gentlemen selected from the Post Office for their general ability, but especially for their knowledge of accounts, in June and July, 1869, reported that the aggregate of the sums to be paid to the six telegraph companies was $28,575,235,[42] the companies having put in claims aggregating $35,180,185.

While the Bill had been before the Select Committee, the Government had agreed to purchase the properties of Reuters Telegram Company (Norderney Cable), as well as of the Universal Private Company. The price paid for those properties absorbed the margin on which Mr. Scudamore and the Government had counted for the purchase of the reversionary rights of the railways.

In the meantime, the Disraeli Ministry, which had carried the measure of 1868, had been replaced, on December 9, 1868, by the Gladstone Ministry. On July 5, 1869, the Marquis of Hartington, Postmaster General, laid before Parliament a Bill authorizing the Post Office Department to spend $35,000,000 for the purpose of carrying out the act of 1868. The Marquis of Hartington said that $28,575,000 would be required for the purchase of the assets of the telegraph companies; that $3,500,000 would cover the claims of the railways, which had not yet been adjusted; and that $1,500,000 would suffice to rearrange the telegraph lines and to make such extensions as would be required to give Government telegraph offices to 3,776 places, towns, and cities, the present number of places having telegraph offices being 1,882.

The Marquis of Hartington stated that Parliament “was quite competent to repudiate the bargain of 1868, if they thought it a bad one…. Having given the subject his best consideration, he must say, without expressing any opinion as to the terms of the bargain, that if they were to begin afresh, he did not think they could get the property on better terms.” He added that the “Government would take over the telegraphs of the companies on January 1, 1870, on the basis of paying twenty times the profits of the year 1867-68. But that in consequence of the increase of the business since 1867-68, the $28,575,000 which the State would pay the telegraph companies, would represent, not twenty years’ purchase of the profits in 1870, but considerably under seventeen years’ purchase of those profits. The trade of the Electric and International had been found to be growing at the rate of 18 per cent. a year; that of the British and Irish at the rate of 32 per cent.”[43]

The Chancellor of the Exchequer, Mr. Robert Lowe, was by no means so sanguine. He spoke of the “immense price” which the Government was asked to pay, “a price of which he, at all events, washed his hands altogether. The Right Honorable Gentlemen opposite [Mr. Hunt, Chancellor of the Exchequer in 1868], had accused them of appropriating the honor of this measure. He had not the slightest desire to contest the point with the Right Honorable Gentleman, who was welcome to it all. The matter was found by the present Government in so complicated a state that it was impossible for them to recede; but unless the House was prepared to grant that [i. e. a government monopoly] without which they believed it would be impossible to carry on the business effectively, it would be better that they should reject the Bill altogether.”[44]

Mr. Torrens moved an amendment adverse to the Bill, but his motion was defeated by a vote of 148 to 23. Before the vote was taken, Mr. W. Fowler, of the firm of Alexander & Company, Lombard Street, speaking of the reversionary rights of the railway companies, had said: “Therefore, for what the House knew, there might be contingent liabilities for hundreds of thousands or millions of pounds sterling more.”[45]

The measure became a law in August, 1869; and on February 5, 1870, the telegraphs of the United Kingdom were transferred to the Post Office Department. In the course of the year 1870, the Government bought the properties of the Jersey and Guernsey Company and of the Isle of Man Company. Those purchases, together with a large number of minor purchases made in 1869, but not previously mentioned, raised the total sum paid to the telegraph companies to $29,236,735.

Reversionary Rights estimated at $3,500,000 cost $10,000,000

Not until 1879 were the last of the claims of the railway companies adjusted. The writer has not succeeded in finding a specific official statement of the aggregate sum paid to the railway companies for their reversionary rights and for the grant to the Post Office of perpetual and exclusive way-leaves over their properties, but he infers that that sum was $10,000,000 or $11,000,000. That inference is based on testimony given in 1888 by Mr. C. H. B. Patey,[46] Third Secretary to the Post Office, and on information given by the Postmaster General in 1895.[47] It will be recalled, that in 1869, the Marquis of Hartington, Postmaster General, had told the House of Commons that the payments for the rights in question would not exceed $3,500,000. The Postmaster General doubtless spoke on the strength of assurances given by Mr. Scudamore. It will be remembered also that Mr. Leeman, in 1868, had warned the House in strong terms that Mr. Scudamore’s estimates were not to be trusted. Finally, it will be remembered that in 1869, Mr. W. Fowler, a financier of high standing, had warned the House of Commons that “there might be contingent liabilities of thousands or millions of pounds sterling more.”

FOOTNOTES:

[29] Hansard’s Parliamentary Debates, April 1, 1868, p. 678, the Chancellor of the Exchequer.

[30] Hansard’s Parliamentary Debates, June 9, 1868, p. 1,305.

[31] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868. Mr. Scudamore: q. 3,477 and following, 3,352 to 3,364, 172, and 3,379 to 3,386.

[32] Hansard’s Parliamentary Debates, July 26, 1869, p. 755.

[33] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; q. 3,366 and following, 3,484 and following, and 2,204 to 2,226.

[34] Hansard’s Parliamentary Debates, July 21, 1868, p. 1,557 and following.

[35] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; Mr. Foster, q. 2,857, et passim.

[36] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868.

Mr. Leeman cross-questions Mr. Scudamore.

2,331. “Did you agree with the Telegraph Companies till after this Bill was sent to the Select Committee?”—“No.”

2,332. “At the time this Bill was sent to this Committee you had petitions against you, had you not, from 25 or 30 different interests?”—“Yes; quite that.”

2,333. “Since that time, have you, with the exception of the interest which Mr. Merewether now represents [Universal Private Telegraph Co.], bought up every interest, or contracted to buy up every interest, which was represented by those petitioners?”—“Yes, subject to arbitration and the approval of the committee.”

2,334. “They had largely, upon the face of their petitions, controverted the views you have been expressing to this Committee?”—“They had endeavored to do so.”

2,335. “They had in fact?”—“They had endeavored to put forward a case against me. I do not say it was a good case.”

2,336. “In direct opposition to the information you have been supplying to the Committee?”—“Undoubtedly.”

2,337. “The Electric and International Telegraph Company was the company most largely interested, was it not?”—“Yes.”

2,338. “That company had put forth its views controverting in detail what you have been stating to the Committee in the course of your examination?”—“Attempting to controvert it.”

2,339. “By your arrangements, since the time at which this Bill was submitted to this Select Committee to inquire into, you have in truth shut the mouths of all these parties?”—“They are perfectly welcome to speak; I am not shutting their mouths.”

2,340. “Do you propose to call them?”—“No, but they are here to be called.”

2,341. “You do not propose to call them. This is the fact, is it not, that this Bill was sent to the Select Committee, with special instructions to make inquiries into various matters raised by petitions from 25 to 30 different interests, and you have, since that time, subsidized every interest that could give any information to this Committee; is not that the fact?”—“Not quite.”

[37] Hansard’s Parliamentary Debates, July 21, 1868, p. 1,568 and following.

[38] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868.

Mr. Leeman examines Mr. Scudamore.

Question 2,330. “When the Bill was read a second time in the House of Commons, had you knowledge of the contents of the terms of the agreement between the Telegraph Companies and the Railway Companies, which enabled you to form any judgment financially as to what you might ultimately have to pay in respect of the Railway Companies?”—“No, I had not.”

[39] Hansard’s Parliamentary Debates, July 21, 1868, p. 1,578 and following.

[40] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; Appendix, No. 7.

[41] Special Report from the Select Committee on the Electric Telegraphs Bill, 1868; q. 2,980, 3,023, and 1,132.

[42] Parliamentary Paper, No. 316, Session 1873.

[43] Hansard’s Parliamentary Debates, July 5, 1869, p. 1,216 and following, and July 26, p. 759 and following.

[44] Hansard’s Parliamentary Debates, July 26, 1869, p. 767.

[45] Hansard’s Parliamentary Debates, July 26, 1869, p. 747.

[46] Report from the Select Committee on Revenue Department Estimates, 1888; q. 1,984.

[47] Report of the Postmaster General, 1895, p. 37.

CHAPTER V
None of Mr. Scudamore’s Financial Forecasts Were Realized

The completion of the telegraph system cost $8,500,000; Mr. Scudamore’s successive estimates had been respectively $1,000,000 and $1,500,000. Mr. Scudamore’s brilliant forecast of the increase of traffic under public ownership. Mr. Scudamore’s appalling blunder in predicting that the State telegraphs would be self-supporting. Operating expenses on the average exceed 92.5% of the gross earnings, in contrast to Mr. Scudamore’s estimate of 51% to 56%. The annual telegraph deficits aggregate 26.5% of the capital invested in the plant. The financial failure of the State telegraphs is not due to the large price paid to the telegraph companies and railway companies. The disillusionment of an eminent advocate of nationalization, Mr. W. Stanley Jevons.

Estimated Expenditure versus Actual Expenditure

As soon as the telegraphs had been transferred to the Government, the Post Office Department set to work to rearrange the wires wherever competition had caused duplication or triplication; to extend the wires into the centre of each town or place “imperfectly” served; to build lines to all places with money order issuing Post Offices that had no telegraphic service; to enlarge the local telegraph system of Metropolitan London from 95 telegraph offices in 1869, to 334 offices at the close of 1870; to give cities like Birmingham, Leeds, Edinburgh, Glasgow and Manchester, from 14 to 32 telegraph offices each;[48] to provide additional wires to meet the anticipated growth of traffic; and to release some 5,000 or 6,000 miles of wire for the exclusive use of the railway companies in the conduct of transportation. For these several purposes the Post Office Department, in the course of the three years ending with September, 1873, erected 8,000 miles of posts, and 46,000 miles of wire; strengthened 8,500 miles of line; laid 192 miles of underground pipes and 23 miles of pneumatic pipes; and laid 248 miles of submarine cable. By September, 1873, the Post Office Department had spent upon the rearrangement and extension of the telegraphs, the sum of $11,041,000.[49] Something over $2,500,000[50] of that sum represented the cost of repairing the depreciation suffered by the plant in the years 1868 and 1869, a depreciation for which full allowance had been made in fixing the purchase price. The balance, $8,500,000, represented new capital outlay.

In 1868 Mr. Scudamore had stated before the Select Committee of the House of Commons that it would cost $1,000,000 to rearrange the telegraphs and give perfect telegraphic service to 2,950 places.[51] In 1869, the Postmaster General, the Marquis of Hartington, had told the House of Commons that $1,500,000 would cover the cost of rearranging the telegraphs and giving perfect accommodation to 3,776 places.[52] In April, 1867, on the other hand, Mr. W. Stanley Jevons, an eminent economist, had estimated at $12,500,000 the cost of “the improvement of the present telegraphs, and their extension to many villages which do not at present possess a telegraph station.”[53]

Mr. Scudamore’s estimate of the cost of extending the telegraphs to 841 places that had no telegraphic accommodation, was based on the assumption that each such extension would require, on the average, the erection of three-quarters of a mile of telegraph line. But when the Post Office Department came to build to “new” places, it found that “the opening of upward of 1,000 additional telegraph offices necessitated the erection of not less than 3,000 miles of telegraph line.”[54]

The results have shown that Mr. Scudamore’s other estimates of the cost of rearranging and extending the telegraphs, presented by himself in 1868, and by the Postmaster General, the Marquis of Hartington, in 1869, were equally wide of the mark. Numerous Committees on the Public Accounts sitting in the years 1871 to 1876, together with the Committee on Post Office Telegraph Department, 1876, attempted to inquire into the enormous discrepancy between the estimated cost and the actual cost of rearranging and extending the telegraphs. But none of those attempts were rewarded with any success whatever.[55] The representatives of the Post Office and of the Treasury always attributed the discrepancy “to the purchase of undertakings which were not contemplated at the time when the original measures were submitted to the House, and to unforeseen expenses for extensions.” But the State, as a matter of fact, made no purchases beyond those contemplated in 1869—excepting the purchase of the Jersey and Guernsey cable for $286,750, and the purchase of the Isle of Man cable for $80,680. As for unforeseen extensions, in 1869, the Marquis of Hartington had counted on carrying the telegraphs to 3,776 places, and in 1878 there were but 3,761 postal telegraph offices, counting the 300 offices in London, and the numerous offices in the several large principal cities.[56]

Mr. Scudamore, aided by the state of public opinion created by the agitation of the British Chambers of Commerce under the leadership of the Chamber of Commerce of Edinburgh, carried away the Disraeli Ministry and the Gladstone Ministry. Even more powerful than Mr. Scudamore’s argument from the extensive use made of the telegraphs on the Continent of Europe, was Mr. Scudamore’s promise that the State telegraphs should begin by paying a profit sufficient to cover the interest on $30,000,000 at the lowest estimate, and $50,000,000 at the highest estimate; and that the profit should increase with the advancing years.

Penny Postage Precedent

Before examining the evidence upon which Mr. Scudamore predicted such large profits, it will be well to consider briefly the nature of the evidence afforded to Mr. Scudamore by Sir Rowland Hill’s epoch-making “invention of penny postage.” This is the more necessary, since Mr. Scudamore himself cited the success of penny postage in support of his proposal for a uniform rate of 24 cents for telegraph messages. Upon the introduction of the penny postage, the letters carried by the Post Office of the United Kingdom jumped from 76,000,000 in 1839 to 169,000,000 in 1840, and to 271,000,000 in 1845. But the net revenue obtained by the Post Office Department from the carriage of letters fell from $8,170,000 in 1839 to $2,505,000 in 1840. Though the net revenue increased each year beginning with 1841, not until 1863 did it again reach the point at which it had been in 1839. In 1863, the number of letters carried was 642,000,000—almost four times the number carried in 1840, and eight times the number carried in 1839.[57] In short, the evidence from the penny postage was, that care must be used in arguing from an increase of business to an increase of net revenue; and that the prospect of a great increase in business did not necessarily justify the incurrence of indefinitely large charges on account of interest on capital invested.