Semi-annual report of the Railroad Commission of the State of Georgia, submitted to the Governor 1880-1887, second through fifteenth report

SECOND
SemiAnnual Report
Railroad Commisn
OF GEORGIA
NOVEMBER 16 1880
ATLANTA GEOKGIA
CONSTITUTION PUBLISHING COMPANY 1880
JAMES M SMITH Chairman
CAMPBELL WALLACE V Commissioners
SAMUEL BARNETT
R A Bacon Secretary
i
SECOND ANNUAL REPORT
OF THE
RAILROAD COMMISSION
Office of the Railroad Commission of Ga
To His Excellency Alfred H Colquitt Governor j c
SirIn making a second semiannual report to your Excellency it is our purpose to present a simple review of the action of the Commission and of the general effect of such action upon the railroads of the State It was our intention to make the present report full and elaborate upon all matters of interest connected with the Commission and its labors j but this has been rendered impossible for the present by the severe illness of one of the Commissioners We hope to be able at no distant day to present to your Excellency a report covering the entire field of our duties and labors
In the action of the Commission we have sought to keep constantly in view the two great objects of the law viz the prevention of extortion and of unjust discrimination in freight and passenger rates The whole animus of the Commissioners has been to do equal and impartial justice to both railroads and people In our view we have come much nearer this end by our present rules and rates than by those of force
Atlanta November 16tln 1880
action
4 Report of Railroad Commission
at the date of our last report We reasonably hope for more constant approximation as study and experience familiarize us with our duties
There have been complaints more or less well founded of the correctness of our views but in general the comment applies that local prejudices have yieded on discussion to broader views and that many of the complaints as to discrimination on our part have come from places or classes once the beneficiaries of partial and unfair advantages It is not unnatural that those favored by unjust discrimination should desire a continuation of that policy
It would be tedious to go through with the entire work of the Commission in detail in the body of a report We submit herewith to your Excellency documents showing our action in establishing rates rules and regulations for the railroads and the means adopted by us to prevent unjust discrimination in freight and passenger rates
RESULTS
Since the organization of the Commission very material reductions in rates have been effected as a result of its operations and much has been done in the way of graduating and equalizing rates to standards One of the most useful effects of the labors of the Commission has been to enlarge the mutual knowledge of the railroads and the public and to bring each to a clearer recognition of the rights and duties of the other Increased knowledge of rates has been achieved and to tenndency resulting from our work has been to reduce speculation and encourage reliance for success on sound business principles
PASSENGER RATES
The maximum passenger rates on many of the railroads of the State have been reduced by the Commissioners tariffs from five cents and in some instances six cents per mile to four cents per mile Experience
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has shown that this reduction while greatly beneficial to the public has not injured the interests of the railroads On the contrary the increase of travel occasioned thereby has added materially to the earnings of the roads The right to reduce passenger fares below the maximum fixed by the Commissioners has not been restricted The law places these upon a different footing from freight rates and the Commission has therefore left with the railroads themselves the power to fix their respective passenger charges at any amount below the maximum of four 4 cents per mile established by the Commission
FREIGHT RATES
Since our rates went into operation the revenues of the roads from the freight traffic the most important branch of their businesshas largely increased over corresponding periods in previous years 5 and this too in the face of the fact that large reductions in rates on the principal articles of production and consumption have been made For more particular information at this point we respectfully refer your Excellency to the statements contained in the accompanying document marked Exhibit A
COMPETITION
It is evident that there is no advantage to be secured t the people nor to the railroads of the State by allowing other roads not under the jurisdiction of the Commissioners to take the business uncontrolled by what we regard to be the legitimate principle of competition yet not of force or recognized by roads without the States limits It should be remembered that competition affects the whole round of transportation from end to end and back and that this complex condition so largely affecting our roads exists principally beyond our jurisdiction
The most important regulation adopted by the Commission in regard to competition was briefly referred to in our first report and is as follows
Reeqrt op Railroad Commission
Rule 6The freight rates prescribed by the Commission are maximum rates which shall not be transcended by the railroads They may carry however at less than the prescribed rates provided that if they carry for less for one person they shall for the like service carry for the same lessened rate for all persons except as mentioned hereafter and if they adopt less freight rates from one station they shall make a re duction of the same per cent at all stations along the line of road so as to make no unjust discrimination as against any person or locality
When however from any point in this State there are competing lines one or more not subject to the jurisdction of the Commission then the line o lines which are so subject and are working at the lowest rate under the rules may at such competing point or other point injuriously affected by such competition make rates below the Standard Tariff to meet such competion without making a corresponding reduction along the line of road
By this rule it was intended to make competition conform to principles of right and justice Thus instead of a war of rates being confined to any little village along the line of two countries say for example Canada and the United States such war if made would under the operation of this rule be declared along the whole line The roads may thus make legitimate war but it would extend to every station on the line Such we regard to be legitimate competition as distinguished from illegitimate and injurious competition If rates are lowered at strictly competitive points alone the neighboring stations are injured and a result brought about of freights being shipped back and in the opposite direction to their destination to be carried a second time over the same part of the road more cheaply than by direct shipment to the point of delivery To avoid this result when the rate is lowered at the immediate point of competition a graduated
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7
rate is supplied to neighboring stations so as to make the direct charges something less from the initial point to that of destination than the sum of the two rates from the shipping station to the near competitive point and thence back to the place of destination
The Commissioners are of the opinion that they have no power to force competition between the roads nor do they think that they ought to be invested with such power Experience proves that unrestricted competition is often detrimental to the best interests of the public as well as the carrier We claim the right to restrict competition within legitimate limits and we think this object can be accomplished by the enforcement of Rule 6 of our regulations
EMBARGOES PREVENTED
The Commissioners have always believed that shippers are entitled to the benefits of any market they may select according to the natural or artificial advantages it may possess unrestrained by arbitrary ruleSi Our labors have been diligently and systematically devoted to the accomplishment of this end
One of our most recent efforts in that direction is shown in the accompanying order dated October 29th 1880 The effect of this order we think will be to remove the practical embargo which for some time past has been lid upon commerce between certain points in this State and other points without the States limits Heretofore there seems to have existed some reason which induced a number of railroads in the State to decline to receive for shipment more than certain percentages of freights of a particular character or class
j The order just referred to is as follows
State of Georgia
Office of the Railroad Commission Atlanta October 29 1880
In consequence of the accumulation of cotton at this point and elsewhere in this State md ah injurious
Bepot op Bailhoad Commission
blockade of freights anticipated and now partially existing the railroad companies in this State are hereby notified that no avoidable blockade of freights will be permitted and that when such avoidable blockade occurs because of any arrangement existing between railroad companies fr distributing amongst themselves for transportation according to percentages the cotton or other freight offered for shipment such companies will be held accountable for damages arising from such detention And the railroad companies are requested and directed to remove cotton and other freights when delivered for shipment to the extent of their facilities without unnecessary delay and without regard to any contract express or implied that may exist amongst themselves in reference to the division and distribution of freights between the respective companies
By order of the Commissioners
R A Bacon Secretary
Your Excellency will observe that this order contemplates nothing more nor requires more of the railroad companies than a faithful discharge of their duties as contemplated by the laws of the State governing common carriers irrespective of the powers conferred by the act creating this Commission
MANUFAOTOKIES
It has been the intention of the Commissioners to permit the railroads to offer such inducements to manufacturers as would encourage them to make investments in the State This is clearly effected by Note 1 of our rules from which we give the following extract
The rates specified for ores sand clay rough stone common brick bones lumber shingles laths staves empty barrels wood straw shucks hay fodder corn in ear tan bark turpentine rosin tar household goods and for articles manufactured on or near the line of said road and for materials used in such manufacture are maximum rates but the roads are left
Report op Railroad Commission 9
free to reduce tliem at discretion and all such rates are exempted from the operation of Rule 6
This note permits the railroad companies to make lower rates for articles manufactured on or near their own lines or the lines of connecting roads without coming under the restraining clause in Rule 6 provided that no more is charged for a less than for a longer distance
COMPLAINTS
Numerous requests and complaints have been received by the Commissioners both from the citizens and the railroads and occasional discussions have been heard of conflicting interests Considering the number and importance of the questions presented for solution the changes made in our tariffs and regulations have been few The railroad companies in some instances casually omitted to furnish us with full information of their unprinted or special rates Most of the changes made by us after the first publication of the standard tariff were rendered necessary by these omissions
With a view of placing ourselves in possession of the information needed for a proper revision of our standard tariff we issued a circular addressed to all the railroad companies of tle State calling on them to furnish us a comparative statement of the earnings and expenses of their respective roads during the months of May and June 1879 and 1880 The action of the Commissioners based upon responses to this Circular is embodied in Circulars Nos 7 8 9 and 10 herewith transmitted
The operation of Circular No 10 has led to some discussion not so much in regard to actual as to relative rates The Commissioners gave the whole subject their most thoughtful consideration and we think that their action will be found satisfactory
The question of the operation of the Central Railroad as a unit or in the several divisions expressed in Cir
s
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Report of Railroad Commission
cnlar 10 was much argued In our opinion the conclusion readied by the Commissioners was correct and the only one consistent with authority Enforced unity against the consent of the railroad companies we did not consider within our province
The whole subject of joint rates between railroads in this State is gradually opening before us the chief principles having been to some extent involved in tile ielation of local and joint rates on the several divisions of the Central railroad The Commissioners have never believed that they had the power under the law to make a joint rate between points on any two roads which would be less in amount than the sums of the local rates charged on such roads between these points except by the request or consent of the roads interested
CLASSIFICATIONS
The classifications of railroad freight tariffs have ever been undergoing changes That adopted by the Southern Railway Steamship Association and stereotyped in February 1880 it was thought by many prominent railroad officials would remain unchanged for a considerable time Since then however another and different classification has been found necessary Some persons have thought the Commissioners too unyielding because of the very few changes made in our standard tariff and classification since they went into effect As every change involves heavy expense for printing we have made only such as in our judgment strict justice and pressing necessity required
PRINTING
The Commission has no choice in the method of publishing its tariffs revisions etc as the law specifies how it shall be done A large amount of printing expenses has been saved however by adopting a standard tariff and then adapting it to each particular road by circulars This was done upon the most
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careful consideration as the best means of economy consistent with carrying out the law
The first publication of tariffs rules and regulations was necessarily very expensive as it embraced a ful classification of all freights covered by the rates
Had we attempted to make a separate tariff and classification for each road in the State the expense of printing the same would necessarily have been the amount of the present expense multiplied by the whole number of railroads in the State
No law exists providing the means to pay the expenses of printing the tariffs etc issued by the Commission
The law requires that the rates and revision of rates established by the Commissioners shall be published once a week for four consecutive weeks in some public newspapers published in the cities of Augusta Albany Atlanta Savannah Macon Rome and Columbusin this State before going into operation We found it necessary to appeal to the proprietors of the newspapers to make the required publications and to await the action of the General Assembly for compensation A copy of the circular letter of the chairman on this subject is herewith transmitted Your Excellency furnished the Commission with twelve hundred dollars to be used as an advance on account of printing expenses Accompanying this report will be found a full statement of the disposition made of this amount Werespectfully suggest to your Excellency the propriety of recommending to the General Assembly an appropriation for the payment of such just balances as may be found due on account of printing done for Commissioners
OFFICE EXPENSES
The Legislature appropriated the sum of five hundred dollars to pay for office rent stationery etc Commissioner Wallace furnished us rentfree the commodious offices over the Merchants Bank on Alabama
Report op Railroad Commission
street which we have occupied during the present year lhe whole of the appropriation mentioned has been drawn from the Treasury and appHed to the uses directed by law There is still a small balance on account of expenses incurred amounting to 3913 irtynine dollars and thirteen cents remaining un
Below we give a statement showing the disposition made of the appropriations paid on the following accounts
Office furniture
Office gas light fixtures
Office matting for office floors
Whitewashing offices
Mounting three maps
Office boxes for pigeon holes etc
Office two signs and placing them
Postage and postoffice box rent
Gas Light Company bills
Wages of Porter
Coal and wood for fuel
Stationery desk furniture books etc
Subscriptions to newspapers and periodicals
Express charges on books etc from other commissions Telegraphing
Printed matter tariffs etc for distribution
98 75 9 30 60 63 2 00 2 50 36 30 9 25 49 86 13 20 44 15 21 15 27 85 24 95 12 45 7 70 79 96
In the spring of the present year Morris K Jesup rustee c filed his bill in chancery in the Circuit Court of the United States for the Northern District of Georgia praying that the Commissioners be restrained from enforcing their rates and regulations on the Savannah Florida Western Railroad Upon the hearing of the application for injunction the bill was dismissed Immediately thereafter another bill was filed however by George H Tilley in the same court asking for a similar remedy A restraining order was granted in this case by the court enjoining the Commissioners from enforcing their established rates on
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said railroads until the further order of the court The application for injunction in the case of Tilley has been continued from time to time at the instance of the complainant and is still pending
In consequence of this action by the court the Commissioners rates have not yet gone into operation on the Savannah Florida Western Railroad No other litigation that we have been advised of involving the action of the Commissioners has been instituted We transmit herewith a copy of the affidavit filed by the Commissioners in response to the application for injunction in said case which will furnish your Excel lency with a clear statement of the reasons which controlled us in establishing our standard rates and regulations The railroad companies with the exception mentioned have complied in the main with the rates rules and regulations of the Commissioners although the law gives us no power to summarily enforce our action In view of the great interest effected by our action this may justly be considered a most gratifying result
BOOKKEEPING AND OPERATION OF RAILROADS
Our report upon the condition and operation of the railroads of the State cannot be as full and satisfactory as it would be with a good and uniform system of bookkeeping on the part of the several roads Some have very good systems but they are diverse and for some purposes connected with a report intelligible to the public are not the very best Few persons appreciate the difficulty of getting at any facts from such reports not intended specially to be presented and of tabulating such facts in any satisfactory form
We are preparing forms for a more complete system embracing all the needful particulars to record the business of the roads and make it intelligible to all To achieve these desirable objects not only bookkeeping but the principles of tabulation need to be studied and thoroughly mastered
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Report op Railroad Commission
The system we are preparing will comprise full information of the capital invested in each road the annual earnings of each road the rates and tonnage of each the annual expenses the profits made and the use made of the same the effect of the action of the Commission on each road the actual savings to the public due to the action of the Commission the light of comparison furnished to the railroads the need of economy on the part of the roads and the inward and outward tonnage and business of each station c
A general as well as a detailed view necessary to render reference back and forth easy thereby reducing the area of conjecture and enlarging that of calculation will be supplied The comparative methodthe great means of improvement which gives a sense of security and mastery will be provided for This system will enable every one to obtain a better general idea of the extent and importance of the railroad property of the State and of the great interest of the public therein
In addition to the value to the public and to the railroads of such a system of reports one of the chief advantages resulting therefrom will be the establishing of proper bases for taxation of railroads and railroad property in the State which information the operations of the Commission under this system would always exhibit
SECRETARY ETC
The Commissioners believing it best to secure the services of a Secretary thoroughly versed in railroad busines elected Mr R A Bacon to that position The salary now allowed him by law does not compensate him adequately for the labor and peculiar skill and knowledge required in performing the duties of his place We respectfully suggest that your Excellency recommend to the General Assembly the propriety of authorizing such an increase of the salary of the Sec
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retary as will j ustly compensate him for his services
In submitting this imperfect report to your Excellency we desire to state that it will be our pleasure as it is our duty to furnish to your Excellency and to the General Assembly all the information in our power with reference to the important interests which have engaged our attention during the past year
Respectfully submitted
James M Smith
Campbell Wallace
Samuel Barnett
Railroad Commissioners
Circular to Newspapers
Office of the Railroad Commission
Atlanta Ga March 5th 1880
gIRThe Railroad Commissioners have selected the
as the paper at Georgia in which
the required publication of the rates established by them for the railroads of the State will be made In our letter of 23d ult we suggested that on account of the failure of the Legislature to provide the means of paing for the work the papers publishing the rates c would be expected to await the action of the next General Assembly before receiving their compensation therefor The Governor has furnished from his Contingent Fund however a sum which enables us to make a partial payment for the service
Upon consideration we have concluded not to make contracts with the papers fixing their charges for doing the work We think it would be fairer to both them and to the public that this question should be left open to be ascertained and settled upon a quantum meruit
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Report op Railroad Commission
In view of this conclusion upon our part we beg to say that former correspondence on this subject is considered as withdrawn The corrected printed copy will go to you in a few days
James M Smith Chairman
Balances due the following Newspapers for Printing the Schedule of Just and Seasonable Bates and the revisions thereon to and including Circular No 10 as per their bills
Atlanta Constitution
Augusta Chronicle and Constitutionalist
Albany Advertiser
Columbus EnquirerSun Macon Telegraph and Messenger
Home Courier
Savannah News
1603 80 566 10 546 75 566 10 566 10 500 00 566 10
3914 95
Account of Disbursement of Twelve Hundred Dollars 1200 00 furnished by Governor Colquitt from Contingent Fund to pay on account to Newspapers for publishing Schedule of Just and Seasonable Bates and the revisions thereon
PAID TO
Atlanta Constitution
Augusta Chronicle and Constitutionalist
Albany Advertiser
Macon Telegraph and Messenger
Columbus EnquirerSun
Rome Courier
Savannah News
300 00 150 00 150 00 150 00 150 00 150 00 150 00
1200 00
The Atlanta Constitution set up from manuscript made all the changes required and kept the type in form for some months while other papers set up from printed copy
CIRCULAR NO 7
Office of the Railroad Commission of Georgia
Atlanta May 71880
ce Fresh Pish and Meats on Ice or otherwise when heretofore transported on passenger trains was permitted to be charged double firstclass rates This permission is hereby revoked and the maximum freight rates on these articles will be on less than car loads 6th class on car loads class L on any kind of train
2dRailroad companies will observe rule 11 strictly
3dBran and Millstuffs in car loads will be class P
By order of the Board of Commissioners
James M Smith Chairman
R A Bacon Secretary
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CIRCULAR NO 8
Office of The Railroad Commission Atlanta Ga June 191880
Upon a full and fair showing of two months business by the Columbus Rome Railroad the allowance of 25 per cent on the u Standard Rates is continued as the maximum rates as to Cotton Fertilizers and Lumber and on all other classes one hundred per cent on the Standard Rates is
allowed as a maximum I
James M Smith Chairman
R A Bacon Secretary
CIRCULAR NO 9
Office of the Railroad Commission Atlanta Ga July 291880
Upon careful consideration of the report of the Atlanta and West Point Railroad its relation to the Standard Tariff is changed as follows viz
1st Cotton Fertilizers and Lumber maximum remaining at Standard
2d On all other classes maximum rates can be estimated at 25 twentyfive per cent above Standard Rates
James M Smith Chairman
R A Bacon Secretary
CIRCULAR NO 10
Office of the Railroad Commission Atlanta Ga August 131880
Upon a full and careful consideration of the elaborate reports of the Central Railroad and Banking Company the Atlanta Charlotte AirLine Railway Company and the Macon and Brunswick Railroad Company showing the effect of the rates authorized by the Commission on their business for May and June 1879 and 1880 the following changes are made in the relations of these Companies to the Standard Tariff
THE CENTRAL RAILROAD AND BANKING COMPANY
1st The Central Railroad and Banking Company is authorized to operate their railroads in the following divisions The Savannah the Southwestern Railroad the Atlanta the Savannah Griffin and North Alabama Railroad
2d On the Savannah and Southwestern Railroad Divisions and the Savannah Griffin and North Alabama Railroad upon all classes other than Specials the maximum Freight rates between 30 and 40 miles to be 50 per cent on Standard Rates between 40 and 70 miles 40 per cent between 70 and 100 miles 30 per cent and one hundred miles and over 20 per cent as heretofore fixed
2
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Report op Railroad Commission
3d Upon the Atlanta Division on all classes other than Specials the maximum rates to be 30 per cent over Standard
4th Upon Cotton Class J the maximum on either Division or on Savannah Griffin North Alabama Railroad for all distances shall be 15 per cent above Standard All other Specials K L M N O and P remain at Standard
5th A tariff of joint rates on all the roads operated by the Central Railroad Banking Company prepared with the approbation of the Commission will be furnished by the Company on application
THE MACON AND BRUNSWICK RAILROAD COMPANY
6th The rates applied to the Savannah Division of the Central Railroad apply also to the Macon and Brunswick Railroad in lieu of rates heretofore in force
THE ATLANTA AND CHARLOTTE AIRLINE
7th The maximnm rates on this road on Fertilizers are fixed at 15 per cent and on all other classes at 10 per cent advance on Standard Rates
RULES RATES AND CLASSIFICATION
8th In car loads the maximum rates on Rosin and Crude Turpentine shall not exceed Class K of Standard and on Spirits of Turpentine shall not exceed Class D of Standard and reduced rates may be made under Note 1
9th Shingles Laths and Staves are hereafter included in Class O
10th To Rule 1 prefix the words Unless otherwise specified
11th Note 1 having been sometimes misconstrued is altered so as to read as follows
NOTE 1 The rates specified for Ores Sand Clay Rough Stone Common Brick Bone Lumber Shingles Laths Staves Empty Barrels Wood Straw Shucks Hay Fodder Corn in ear Tan bark Turpentine Rosin Tar Household Goods and for articles manufactured on or near the line of road and for materials in such manufacture are maximum rates but the roads are left free to reduce them at discretion and all such rates are exempted from the operation of Rule 6 Any complaints as to such rates will on presentation be duly considered Shippers of car loads m Classes L M N O and P may be required to pay the cost of loading and unloading
R A Bacon Secretary James M Smith Chairman
Report op Railroad Commission EXHIBIT A
19
ANSWER OF THE COMMISSIONERS TO THE BILL IN CHANCERY OF GEORGE H TILLEY
George H Tilley 1 Bill for Injunction c in the Circuit vs L Court of the United States for the South
The Savannah Florida I ern 5i8trict of Georgia
Western Railway Co J
In the above stated case we James M Smith Campbell Wallace and Samnel Barnett being duly sworn do make the following statement The first work of the Commission was a very careful study of the various freight tariffs in actual operation on the several railroads in this State and also for a broader basis of induction of the roads of some other States both contiguous and remote This study was embarrassed by the complexity arising from the large number of classes of freight and the variety of distances To avoid this complexity in the prosecution of results the rates in the tables to be presented are given only on selected classes and for selected distances approximating sufficiently for a general view the results of a fuller comparison The material for this fuller comparison however are also givensee Exhibit 2 but they will be found not largely to vary from the briefer and more general view The selected classes are as follows viz Class 4 as representing about the mean general merchandize embraced in the numerical columns B Bacon and D Grain as representing the lettered columns and Cotton the most important single item of freight
The general result as to the relative results of the Savannah Florida Western Railroad as compared with other leading roads in the State is to b seen ip the following table

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Report op Railroad Commission
TABLE
Showing a comparison of the Tariffs of all the leading Railroads of Georgia over 75 miles in length operating these rates in actual operation in March 1880 as established by the Railroad authonties untrammelled by the Railroad Commission and furnished the Commission as the basis of information as to the Rates then existing
rates eor fifty miles
4th Cl Bacon Grain Cotton Mean of
1 Western Atlantic Eailroad 24 12 9 20 4 Classa 16
2 Georgia Railroad Banking Co 21 21 12 27 20
3 Atlanta West Point Railroad 32 21 14 25 23
4 Central Railroad Atlanta Div 30 20 15 30 24
5 Savannah Div 30 22 18 30 25
6 Atlanta Charlotte AirLine 24 20 17 21 20
7 Macon Brunswick Railroad 35 23 25 20 26
8 Brunswick Albany Railroad 30 20 20 45 29
9 Savannah Florida Western RR 55 30 20 75 45
RATES FOR 100 MILES
4th Cls Bacon Grain Cotton Mean for 100 miles
Western Atlantic Railroad 35 20 15 25 24
Georgia Railroad 32 32 15 38 29
Central Railroad Atlanta Division 45 25 22 30 30
Savannah Division 35 25 22 40 30
Atlanta Charlotte AirLine 33 29 24 26 28
Macon Brunswick Railroad 40 25 29 40 33
Brunswick Albany Railroad 45 30 30 45 35
Savannah Florida Western R R 65 35 23 75 49
RATES FOR 140 MILES
Western Atlantic Railroad 40 25 19 25 27
Georgia Railroad 36 36 17 42 33
Central Railroad Savannah Division 38 28 23 40 32
Atlanta Charlotte AirLine 40 32 28 26 31
Macon Brunswick Railroad 40 30 30 40 35
Brunswick Albany Railroad 55 30 25 45 39
Savannah Florida Western RR 65 35 28 75 50
GENERAL RESULT OF COMPARISON
50 100 140 Mean
Miles Miles Miles Distance
Mean rate of all the other Railroads 23 30 32 28
Mean rate of three weakest Railroads 25 32 3o 30f
Rate of Savannah Florida Western RR 45 49 50f 48
Mean general result 3 weakest roads being 100
And Sav Fla Western RR being nearly 160
The material for comparison of the rates of expenses to gross receipts at our command was quite imperfect
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Repoet of Railroad Commission
There were no recently printed reports of the Western Atlantic Railroad the Macon Brunswick Railroad the Brunswick Albany Railroad and the Savannah Florida Western Railroad The following
Central Railroad Atlanta Division Central Railroad Savannah Division Central Railroad Southwestern RR Div
Georgia Railroad
Atlanta Charlotte AirLine including some
reconstruction
Atlanta West Point Railroad
Sav Fla Western Railroad 3 years average U u 1879
Ratio of expenses to Net
Gross Receipts
58 42
56 44
59 41
65 35
68 32
55
69 31
71 29
AS TO REASONABLE AND JUST PROFITS
the views taken by different railroad presidents and experts as to a satisfactory rate of profit were diverse In the argument of Gen E P Alexander Presiden of the Georgia Railroad before the railroad committees of the Legislature and before the Commission he stated that six per cent if reliable on the value of the Georgia Railroad stock would be satisfactory Col Wadley fixed upon seven per cent The Railroad Commission inclines to the view that eight per cent would be about the proper rate viz seven per cent as lawful interest and one per cent for contingencies spent on road and other investments Bonds of the Upited States and of various cities and corporations and of the different States bearing less rates were at
par or above
Mr Haines view required 10 per cent Presenting these views in a tabular form the result is as follows
Profit rate
m 6 per cent
General Alexanders views p
7 per cent
Colonel Wadleys views F
TT 10 per cent
Mr Haines views o cent
Railroad Commissioners views v
A road charging high rates would do well to get 7 per cent perhaps while a road with low rates might properly not be checked so low
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Report of Railroad Commission
The inquiry Upon what sum should a given road pay interest involves many and nice considerations Evidently in the opinion of the Commission the value of the property as distinguished from its original cost is the criterion But to determine the value is different Still practically this determination must needs be frequently made and acted on Valuation is necessary annually for taxationalmost daily for sales and purchases such a valuation as determines practical application
These general views of principles and facts open the way for a closer discussion of the action of the Commission and its reasons The objects as set forth in the law were twofoldthe prevention of extortion and unjust discrimination
The general mode of procedure of the Commission is set forth in the first serhiannual report herewith appended as exhibit No 1 from which it will be manifest that a very broad basis of induction was before the Commission in many particularsderived from the action of other Statesfrom reports of Commissioners of other States and from the railroad reports of this State In some respects these reports however fail to furnish adequate information and hence the need of improved methods of keeping accounts fundamental to the decision of the question as to what rates are just and reasonable for each road
The basis of estimate as to what is just and reasonable may be briefly set forth as follows viz In their double aspect as corporations of a quasi public character and also private corporations in their means and resources the same railroad corporations are entitled to a reasonable profit on the value of their corporate property We pray for light from the court if it can give better methods being very desirous of a right basis
The value must be ascertained not merely the cost for railroad property like 11 others fluctuates in value
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Report op Railroad Commission
and the cost is but an element or factor in the estimate of value
Various methods have been adopted to determine value There may be difficulties in the way of such determination but they are exactly the same for this purpose as for all others and are of a sort that have to be determined for other purposes as say for taxation for sale or purchase or for a proper report etc Practically an estimate is put upon the property in every respect in the general exhibit To rectify this and make it as accurate as possible is really one of the chief duties and functions of the higher officers who profess in their reports to give information to the stockholders and the public Without entering more into the exact means of estimating the value it may be remarked that the proper and frequent use of the Profit and Loss account is indispensable to reconcile the fluctuations of actual value for information and for action for sale and taxation Reports etc are intended that the condition of the corporation should be intelligibly stated Huge errors of the most practical character and disastrous to all interests arise from the failure to do this thing The huge lumping standing item with which most exhibits begin The Road and its outfit is really subject to these very changes most important of all to be known and understood As well have a thermometer of solid contents instead of quicksilver and complain that it is too tioublesometo use one with liquid This is the final result the resultant of all the bookkeeping and needs to move up and down according to the facts the value meter Upon this value as actual and important though an annual estimate will perhaps suffice etc a reasonable profit is to be made
This profit is the excess of the earnings over the operating expenses The measure of its reasonableness is another thing to be determined and this depends upon the general profits of other investments of
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Report of Railroad Commission
capital It should generally be such a profit as to embrace legal interest and a certain increase for the risks of stocks as compared with bonds Probably in Georgia about 8 per cent7 per cent interest and 1 per cent insurance This profit should be the excess of earnings over expenses with average economy of management If the road is managed with superior skill it is entitled to the gain thereby effected If without proper conomy the profits must be reduced the loss and waste to tall where it belongs on the poor management
It has been our aim constantly to reduce the domain of mere conjecture and to enlarge that of calculation With a proper system of book keeping and tabulation not less important the question of reasonable rates can be made about as soluble as many other practical questions and much more certain than the conjecture and fluctuating and guessing work actually resorted to The fact that it is difficult argues more diligence in solution instead of more guesswork The system under preparation by the Commission it is believed will go some ways toward furnishing data for a well advised estimate of value of rates
The Commission would gladly have waited before any approximate tariff of rates for the proper information in full form But there were grounds of necessary promptitude of action on its part which are only partly set forth in the report Chieflythe first approximation was much closer in the opinion of the Commissioners than existing rates and so pending the needful additional action they came as near as they could to a just schedule on which to act till a clearer approximation was possible The rates in operation were more unjust to the public than the new rates to the railroads It was not intended to make the new rates unjust in any degree to the railroads yet in the first approximation to err rather in favor of low rates than high rates coming as near exact justice as pos
Keport op Railroad Commission
25
sible On the Savannah Florida Western Railroad existing rates were largely excessive in our judgment
Our report and circulars all show for themselves that the system of thought is provisional and to be modified as may be necessary The basis of induction however already in use is far wider than the individual action of any one road It is founded on the broader and not narrow views by comparison of road with road and roads in Georgia with roads in other States
The first principles have been carefully considered and studied and incorporated
If questions of doubt as to constitutionality exist these are questions for the Court We are bound to pursue the law It is claimed that the Savannah Florida Western Railroad had the legal right by charter to fix its own rates and by virtue of contract was protected from change Were this true in fact it was none the less the duty of the Commission to report as to the justice and reasonableness of the rates and justice or injustice of the discriminations made in order that the Legislature might know the extent to which the contract right was abused The Legislature might think it even proper to exercise its rights under Section of the Constitution quoted in Complainants bill and protect the public by buying the road But by the act of 1863 and the construction of the law in 8 Otto the Commission considered this road to stand on the same footing with all the roads chartered since 1863 viz not on contract but on the same broad ground as all other individual or corporate citizens entitled to protection and subject to proper legal restraint against doing wrong and of special restraint for special reasons of monopoly or otherwise
It is also to be remembered that the whole subject is not yet so definitely settled that we could always venture upon first principles as definitely fixed and established We were necessarily compelled to modi
26
Report of Railroad Commission
fy to a considerable extent by the experience and practice of the railroads
The court appreciating the difficulties of the case and the great labor used in trying to overcome them will see that there has been no abuse of discretion
Taking up the railroads seriatim the special case of the Savannah Florida Western Railroad came up in its order It is hardly necessary to say that it was considered without prejudice of any sort whatever or any reason therefor Any allegation of prejudice is wholly gratuitous and the actual facts afford a full explanation of the action of the Commission reasonable and proper without any need of aspersion of motives
Comparing the various tariffs the Savannah Florida Western Railroad was strikingly exceptional unless the other roads in the State were wrong in their tariffs and many of them doing themselves injustice The SavannahFlorida Western Railroad was wrong in both the respects which the General Assembly desired to regulate and correct viz excessive rates and wide discrimination which to the Commission seemed unjust discrimination though with no imputation on our part of improper motives
Indeed if any call for constitutional and legislative interference existed in this State it was developed in the tariffs of this road beyond all others If the rates of the Savannah Florida Western Railroad were really reasonable and just as to amount and discrimination then the other roads certainly with few exceptions were badly managed and worked without reasonable reference to their own interest This conclusion seems to us inevitable
COMMENTS OX THE TABLES
The tables show the freight tariffs of the Savannah Florida Western Railroad to be the highest charged by any road in the State and we may add of any road without the State within our knowledge The
Report of Railroad Commission
27
rates of other weak roadsfor example the AirLine the Macon Brunswick and weakest of all the Brunswick Albanyrun far below those of the Savannah Florida Western Railroad The rates of these roads were such as were fixed by themselves all untrammelled by any rules or regulations governed only by a sense of their own interests and obligations High above them all towered the tariff of the Savannah Florida Western Railroadabove any other submitted to us for consideration in or out of Georgia long or short weak or strong They were also very discriminating in their relations to distances as will appear more clearly by reference to the accompanying diagrams
These were the considerations which influenced the action of the Commission and no feelings whatever of prejudice against any interest corporation or locality
To compare next the relation of earnings to expenses
After proper allowance for relative tonnage it seemed to the Commission that this ratio was also very high The ratio of net profit to gross receipts on the Central Railroad being over 42 per cent that on the Savannah Florida Western Railroad seemed out of line So the comparison with the AirLine Railroad was not favorableit also having a small tonnage and a more expensive road to maintain The Georgia Railroad worked at very low rates showed a larger ratio The exceptionally high rates of the Savannah Florida Western Railroad counterbalanced the relative lack of tonnage That road too is level straight sandy and easily drained and kept in order Fuel and crossties are cheap Long trains relatively can be drawn by its engines Take it altogether while the data at command were not adequate to a solution they clearly indicated a want of proportion in this regard And the Commission takes occasion here to express its conviction that in this very particular of ratio of net to
28
Report of Railroad Commission
gross earnings lies one of the chief reforms really attainable in railroad management
It is to be remembered also that a fall in rates is by no means necessarily a fall of like per cent in income as illustrated by postage by Georgia Railroads passenger and by Savannah Florida Western passenger rates
Mr Haines the official head of the Savannah Florida Western Railroad in response to our Circular No 1 of March 4th 1880 appeared before the Commission It is proper to remark that by his temporary absence the Circular did not reach him promptly so that there was some delay in his response to it Meanwhile any delay in our action would necessarily affect the whole operation of the tariff not only on his road but throughout the State This explains the attitude of the Commission which of necessity required promptness as before explained
Mr Haines presented his argument and had a full and complete hearing His presentation was excellent and characterized by great clearness and power and to a considerable extent was approved as to the principles included
The Commission differed from the views presented however in certain particulars The valuation was regarded as too high The following will show about the relative views of the authorities of the Savannah Florida Western Railroad on the one hand and of the Commission on the other
Estimate of value Proper rate of profit Proper income relative tariff rates
Relation
Gross Earnings
Expenses
Per cent of gross earnings
Net earnings
Per cent of gross
S F W R R Commission
4710000 00 4000000 00
10 07
471000 00 300000 00
1 00 60
1000000 00 850000 00
I 700000 00 550000 00
70 65
300000 00 300000 00
30 35
This estimate deducts 20000000 according to Mr
Report op Railroad Commission
29
Haines views from the gross earnings as the result of the standard rates leaving 80000000 then add 5000000 as the result of the increase of 20 per cent subsequently made
These figures cannot of course be exact but are approximate Data for exactness in some particulars did not and do not exist
But the Commission accompanied its action by cir culars indicating its readiness to review this action upon the presentation of sufficient data It may have erred in its judgment there was room for honest error there was a difference of view in the Commission itself as to the proper percentage to be added on the standard tariff of rates But there was no intention to wrong any interest nor to adhere to any error when shown to be such The subsequent action of the board from time to time has illustrated the general spirit it has endeavored to cultivate of candor and justice to all interests Nor was this any mere afterthought Their Circular No 1 and their report were both written in advance of any complaint or suit The circulars modifying rates on the showing of the railroads illustrate the desire of the Commission to conform by closer and yet closer approximation to improved information
The annexed table shows the general tenor of the reports made by the railroads of the business of Jnne and July 187980 It is to be remembered that even the light afforded by the operations of these two months is insufficient and especially as to expenses which are distributed through the year according to convenience
Complaints are made also in the bill of the Rules and Regulations of the Commission These rules and regulations are directed against the chief matters of public complaint and legislative injunction especially against unjust discrimination Their object is to apply to communities as far as possible the same rule of im
30
Report of Railroad Commission
partiality as to individuals There are great difficulties in the way and conscientious efforts have been made to meet them
To some extent our action in the premises will be perhaps best explained by reference to our second semiannual report not yet complete but a copy of certain portions of which is hereunto appended Exhibit
In all these matters so difficult in themselves our judgments may have been often erroneous but have been honest Seldom we believe has a more painstaking and elaborate consideration been given to the problem in all its length and breadth or more anxious provision made for the correction of errors We trust that patience and diligence will enable us to add something to the solution of the difficult and important problem
James M Smith
Campbell Wallace
Samuel Barnett
Sworn to and subscribed before me this sixteenth day of September 1880
C D Woodson
N P and exofficio J P Pulton County Ga
SEAL
EXHIBIT 3
TABLES
CUmnn rates of freight on principal articles of production amd consumption charged
accmdin a to published tariffs by t ailroads m Georgia over to miles tn lengtn
nrior to the issuance of Commissioner s Standard lamff for lu mites U
miles 140 miles 200 miles and 250 miles same articles and for same distances and Standard s t o e jr Tariff P3 m u Q 1 rates m o on 2 0 S
1st 4th 5th 6th R 6 o o
RATES FOR 10 MIXES
Central RR Sav Div 65 25 22 20 20 20 15 25 08
Central RR AtlantaDiv 30 18 15 13 13 13 10 10 05
Northeastern Railroad 18 12 10 08 10 08 08 07
Atlanta C AirLine 23 15 12 10 12 10 10 10
Georgia RR Bankg Co 07 07 06 05 07 05 05 07 10
Sav Fla Western RR 35 20 18 15 15 15 10 30
Western Atlantic 18 10 09 08 08 06 05 10 04
A tlanta West Point RR 30 20 18 16 12 12 08 15 06
Macon Brunswick R R 45 20 15 12 12 12 12 12 08
Brunswick Albany RR 45 Commrs Standard Tariff 16 20 18 15 08 15 15 15 45 05
10 09 08 06 05 12
RATES FOR 50 MILES
Central RR Sav Div 70 30 25 22 22 22 18 30 08
Central RR Atlanta Div 60 30 25 20 20 20 15 30 15
Atlanta C AirLine 40 24 20 17 20 17 17 21
Georgia RR Bankg Co 27 21 19 16 21 16 12 27 06
SavFla Western RR 65 55 45 35 30 35 20 7t 15
Western Atlantic 32 24 20 14 12 10 09 20 6f
Atlanta West Point RR 40 32 28 23 21 24 14 25 09
Macon Brunswick RR 68 35 30 25 23 24 25 30 08
Brunswick Albany RR 60 30 25 20 20 20 20 45 s 08
Commrs Standard Tariff 30 22 18 13 13 10 09 20
RATES FOR 100 MILES
Central RR Sav Div 80 35 30 25 25 25 22 40 12
Central RRj Atlanta Div 70 45 30 25 25 25 22 30 15
Atlanta C AirLine 58 33 29 24 29 24 24 26
Georgia RR Bankg Co 48 32 25 20 32 20 15 38 15
Sav Fla Western RR 90 65 55 45 35 42 23 75
Western Atlantic 45 35 30 24 20 15 15 25 9
Macon Brunswick RR 75 40 35 29 25 25 29 40 10
Brunswick Albany RR 70 45 35 30 25 25 20 45 i
Commrs Standard Tariff 45 RATES FOR 140 MILES 30 23 18 18 15 14 30 10
Central RR Sav Div 85 38 33 28 28 28 23 40 12
Atlanta C AirLine 67 40 32 28 32 28 28 26 15
Georgia RR Bankg Co 62 36 27 22 36 22 17 42 15
Sav Fla Western RR 90 65 55 45 35 42 28 75
Western Atlantic 50 40 35 25 25 20 19 25 10
Macon Brunswick RR 85 40 35 30 30 29 30 40 12
Brunswick Albany RR 85 50 45 35 30 30 25 45 11
Commrs Standard Tariff 57 34 27 22 22 19 18 34
RATES FOR 200 MILES
Central Railroad 120 65 55 40 40 40 35 55 20
Atlanta C AirLine 82 52 42 33 42 33 33 42 15
Georgia Railroad 65 40 30 25 40 25 20 45 15
SavFla Western RR100 70 60 50 40 45 30 75
Commrs Standard Tariff 70 40 32 27 27 23 20 37 13
RATES FOR 250 MILES
Central Railroad 130 70 60 45 45 45 40 65 20
Atlanta C AirLine 93 61 48 38 48 38 38 42 15
Sav Fla Western RR110 65 65 55 45 47 30 75 15
Commrs Standard Tariff 75 45 35 30 30 25 22 40 T5
THIRD SEMIANNUAL REPORT
OF THE
OF THE
STATE OF GEORGIA
Submitted to the Governor May 1 1881
ATLANTA GEORGIA
CONSTITUTION PUBLISHING CO STATE PEINTER8 1881
JAMES M SMITH Chairman CAMPBELL WALLACE SAMUEL BARNETT
Commissioners
R A Bacon Secretary
THIRD SEMIANNUAL REPORT
Office of the Bailroad Commission Atlanta Ga May 11881
To Ilis Excellency Alfred H Colquitt Qovernoi
The act of 1879 organizing a Bailroad Commission makes it their duty from time to time to recommend such legislation as they may deem expedient under the provisions of this act
The provision was a thoughtful one doubtless suggested by the experience of the General Assembly which passed the act in regard to the magnitude of the interests to be considered and their special character of complexity and intricacy To get to the bottom of the subject much thought and study are necessaryit is indeed a profession Each General Assembly is of course inexperienced and must rely mainly upon committeework and the committees themselves are likewise largely inexperienced The solution in Georgia right or wrong was a very thoughtful and longconsidered one
In other States large volumes have been published embracing the decisions of the courts and the discussion of special questions In the United States volumes of testimony have been taken before any action in the premises In Great Britain there are large folios of information before Parliament Several volumes of the United States decisions bear chiefly on the transportation problem A whole literature of confused information exists and is constantly extending and well it may be since nearly the whole business of the country and all its interests are included in it the difficulties of the problem indeed being not inferior to its importance
We propose once for all to sketch the whole outline of thought and present the argument on the merits to which we may hereafter refer and expand any particular portion needed for a special purpose
While much has been done to aid their solution during forty years of experience throughout the civilized world the present General Assembly addressing itself to the study will find the problem to grow upon it with reflection
and if at the first it may seem easy and obvious selfconfidence will gradually give way to selfdistrust This at all events is the usual history of students of the railroad question and it has certainly been so with ourselves Eighteen months of careful study has satisfied us that the guidance of experience is essential notwithstanding all the light to be derived from the study of first principles Indeed in this as in many other studies experience has gone ahead of political economy and corrected its errors Under the provisions of the law requiring such recommendations from us we propose to give to the General Assembly the best views suggested by our reflections and experience with modesty and candor
By reason of the importance of the subject we shall discuss
FirstThe grounds of the right of the State to regulate railroads by law
SecondThe limits of that right
ThirdThe proper manner of its exercise
FourthThe legislation now needed
These topics will not be discussed in perfectly formal order but are so closely related as necessarily to be much intermixed in the treatment
To begin with the right of the General Assembly to regulate railroads by law Upon this as a legal right all students of law are now agreed
It might suffice simply to refer to
THE CONSTITUTION
which provides as follows article 4 section 2 paragraph 1
The power and authority of regulating rail road freight and passenger tariffs preventing unjust discriminations and requiring reasonable and just rates of freight and passenger tariffs are hereby conferred upon the General Assembly whose duty it shall be to pass laws from time to time to regulate freight and passenger tariffs to prohibit unjust discriminations on the various railroads of the State and to prohibit said roads from charging other than just and reasonable rates and enforcethe same by adequate penalties
4
Par VII The General Assembly shall enforce the provisions of this article by appropriate legislation
Under these sections the regulation by law became not only a legislative right but a legislative duty The Constitution on this point is not simply permissive but mandatory It might therefore suffice to refer to these provisions as already settling the whole matter by the same broad authority as that under which the General Assembly itself holds its sessions and under which it exercises any legislative authority whatsoever
But there is no need to rest the right upon mere authority Powerful and discriminating views of the just grounds upon principle on which the legislative right rests form
THE BEST BASIS OF LEGISLATIVE ACTION
in the premises These grounds will grow clearer and yet clearer by discussion and reflection In a word the Constitution itself hafe a solid bottom of right oh which to rest Georgia moreover in this matter is in good company The same conclusions with hers as to the right and the mode of its exercise have been reached by many of the most advanced states of the Union an the most enlightened countries of Europe The laws enacted on the subject have likewise been tested by the judicial tribunals and sustained by them thoroughlyboth abroad and at home in the State and Feberal Courts so that no right of legal regulation is now more thoroughly recognized than the right in question that of regulating railroad corporations by law
Yet there are intelligent and thoughtful men possibly members of the General Assembly ai well as private citizens who not having given special study to this subject have entertained doubts upon it and who will be really surprised at the mass of careful reasoning by which th right is sustained With such minds while authority may command respectful consideration it is always best so to deal with their doubts that they shall rather be convinced satisfactorily by argument than silenced by mere authority In addressing this class of thinking menit is to be remarked that there are principles as old as the civil law and the common law which rightly applied govern the whole matter These principles pertained to the subject matter known in their days as well as in
ours as the regulation of roads bridges ferries and turnpikesof common carriers innkeepers and the likenearly all of these subjects relating it will be observed to transportation
We give a rapid summary of the classes of cases in which legislative control has been for ages exercised as a mere matter of course and without question
1 Corporations being dependent for their very existence on legislation are subject to whatever conditions the Legislature may originally impose either expressly or implied
Here we would observe however by way of proper caution that while as a mere creature of Legislature it is so subject to conditions the action of the creative body should never be capricious or arbitrary but the conditious and regulations imposed should be themselves well considered reasonable and just
2 Franchises carry with them the right of regulation unless exceptions are granted of such exceptions more will be said hereafter
3 Special privileges for a yet higher reason carry the same right for instance the right of way through private grounds in which the right of eminent domain is brought into play not for mere private use but for the public use so as necessarily to involve the right of protection against abuse
4 Reasonable facilities under such circumstances are to be secured to the public and the failure to provide for them is a failure to fulfill the legislative duty
5 Again monopolies are subject to regulation by law Such a monopoly exists in the case of railroadsoften by law always in fact The reasons are well worthy of close consideration Almost any one of the railroads in Georgia could do fourfold the business it actually does on its present track without addition thereto No new road could afford therefore to set up a rivalry as it would ruin both roads Again the ruin would be unavoidable for a railroad is immovable A rival steamship can be transferred to some other route but a railroad is an absolute fixture Even if the rival roads combined they could but share a business of which either is capable of doing the whole and much more More commonly they fight one another and the work of both is done in the dark with a scramble for business and a system of rebates by which unjust discrimination is introduced
5
Finally as to monopoly if competition exists anywhere it is limited to terminal points there is no practical competition along the line Between terminal points it ends either in combination or in absorption which is the most complete form of combination
6 The right of regulating turnpikes bridges and ferries has always been conceded and exercised In general and as covering the whole principle when two parties deal upon wholly unequal terms the law protects the weak as in the case of minors femme coverts and of the insane or imbecile It protects the weak making them the wards of the State and providing Ordinaries etc to see tc their rights and guard them against imposition
Not to he tedious upon any one of the foregoing grounds the right of regulation can safely rest Each has supplied the actual practical ground of legislation for ages Any student will find perhaps somewhat to his surprise that in the case of railroads the right rests not on any one of them singly but upon them all combined In a word that the regulation of railroads by law is better fortified by principle as well as by authority than that of any other single subject of legal control
Corporations as such being a legal entity dependent on legislation for their very existence franchises special privileges monopolies turnpikes bridges ferries common carriers these are each and all of them subject to legal control The railroad is
ale of these in one
It is a corporation endowed with franchises and with special privileges a monopoly a common carrier and it takes the place of ordinary roadsfor all considerable distances superseding them entirely Nor is this by any means all In each case the need of regulation of railroads as compared with the old methods is intensified both on public and economical grounds The argument is highly cumulative combining all the grounds in one in a way seldom paralleled and each ground far stronger than in the original analogous case The old analogies have grown some of them to be false and all of them feeble
To illustrate by the functions of a railroad as a common carrier It has in great measure displaced the highway it has displaced the equipment of the same it has displaced the old common carrier Thus the road theequip
ment and the carrier are all special The owner too is special no longer the general public The conditions of competition are in a large measure displaced The private methods scarcely amount to competition at all It is a stupendous and absolute revolution still difficult to appreciate but at length the facts are forcing themselves on our attention
COMMON CARRIERS
On the public highways before the days of railroads between important places there were always several common carriers between whom you could choose or else use the highways yourself on equal terms with the public carrier There was real competition and protection here and yet for the public convenience the government regulated even the old common carrier so subject to competition
RAILROADS COMPARED WITH OTHER MONOPOLIES
But the railroad is not thus free from competing carriers or tor the customeis own use When first introduced it was indeed regarded as simply a new kind of roadbed which customers could hire by paying toll But soon it was evident that the railroad company must of necessity itself run the road Other carriers or the customers themselves could not provide the new and expensive rolling stock engines and cars In like manner experienced enginemen were necessary Almost any one could drive a wagon not so an engine In a word the monopoly was greatly intensified by the needful specialization of machinery and workmen Rapidly the railway became for large sections the only road available The monopoly of this special way is no v usually the monopoly of all available transportation As already seen the rival road if built would ensure the ruin of both roads and be a waste of capital since either could do all the business which offers and much more nor could either withdraw from the competition
The roads so shut up are condemned unless they combine and exact double rates to pay interest on a double capital to a bloody duel It is a war to the knife as though both were shut up in a dark room with doors locked and no escape for either for a railroad if once built in the wrong place cannot be moved It must fight it out on that line
Common carriers having always been regulated by law this particular common carrier
6
needs regulation tenfold more tlian any other ever did and for a hundredfold more business The public highways of old were common to all This particular sort of roadbed so splendid in the improvement it presents needs regulation more than ever did any other road bridge or ferry
The railroad being thus a monopoly of a peculiar character entirely too powerful for private competition who shall fix the rates Not the monopolist the railroad on the one hand not the shipper also a party interested on the other hand but the law by some method capable of properly and impartially fixing them and from time to time adapting them to varying circumstances The object on the one hand is to save the public from force fraud secrecy extortion and unjust discrimination Any failure to do this is a deprivation to a large extent of one of the most important privileges of the citizen On the other hand however in the protection of the citizen every just right of the monopolist is to be protected with like impartiality
We have dealt thus far chiefly on the law and the practice of governments But the right rests on a deeper foundation viz on the strong
BASIS OF NATURAL LAW
At the hazard of some repetition or even tediousness we propose rapidly to trace to their foundations the origin of this right beginning very far back and showing what seem to us to be the bottom truths and principles on which it rests It is imbedded in the whole constitution of nature
In the gradual rise iu the scale of being the most obvious distinction even between plants and animals is the animals power of locomotion The plant can get its sustenance all that is necessary to its living in one spot without moving about from place to place while the animal must necessarily roam for its food To this rule man is no exception on the contrary in getting his support he moves over larger surfaces than any otfier living creature Nature furnishes both the need and means of locomotion But man is distinguished also from the lower animals by another powerthat of
TRANSPORTATION
This power exists in the world of lower animals in hut a small degreea few of them can drag their prey seizing it with their teeth the
elephant can handle things with his trunk but even the powerful horse except under human control cannot adapt himself to such work Man alone transports His natural means of locomotion are not superior to those of numerous animals but by artificial means he cannot only change his own location but can transport what he needs for comfort or enjoyment or exchange
EXCHANGE
The chief end to which his immensely enlarged powers conduce is that of exchange which is the great instrument of civilization being also the necessary foundation for the
DIVISION OF LABOR ITS PRECURSOR
As a means of locomotion even the lower animals made paths for themselves So probably man begun by clearing a path for conveniently making his own way Then he improved as his needs increased by adapting his paths to each stage of progress He first learned to make use of the lower animals by riding them by packing burdens upon them then by teaching them to drag a brush or sled and after no short while he reached at length the great improvement of a cart on wheels thus immensely reducing friction Every new device being fruitful of other improvement afterwards came wagons coaches carriages upon springs and other vehicles and to suit the improved vehicles came also cleared roads turnpikes graded roads and the like and at the last railroads really but another device for removing friction
LAND AT FIRST FREE TO ALL
To his right of locomotion and transportation in the savage state man found no bounds nor limits except such as were imposed by his enemies The obstruction of this right of locomotion indeed is the loss of liberty itself its loss is equivalent to prison or jail bonds
PUBLIC ROADS
When the right of property in land began to be exercised it became necessary for government to provide adequately for this same universal and natural right of locomotion therefore public roads were laid out atpublic expense And when the exigency did not require a public road the right of needful private roads over a neighbors land was made an exception to the general right of private property in land Even in the government of the United States
7
a government of specified and limited powers one of the powers distinctly conferred is that of laying off post roads and by implication a second powerthat of making military roads Each State likewise either provides roads or allows the counties to do so and makes provision also for bridges ferries etc Every statute book contains numerous provisions relating to roads bridges ferries turnpikes and the like
TRANSFER TO PRIVATE PEBSONS
Instead of a road built and maintained at public expense under some circumstances the right to build and maintain such a road is transferred to a county a corporation or an individual But the government can rightfully do this only on conditions which secure the public properly against loss of the right of use upon payment of just and reasonable rates The road must be open to all A ferry will illustrate this principle The public convenience requires that some one should keep the ferry so that when the traveler reaches the obstruction of a river crossing the highway some man will be on hand to help him across without the delay of hunting up a ferryman The ferryman must be on hand all the while with his ferry boat As usually it would not pay two or more men the law here bestows a qualified monopoly upon one No one can compete with the ferryman But then the law fixes the charges and requires that they be posted conspicuouslyso much for a man so much for a horse so much for a buggy and so on and imposes penalties for exceeding these rates The traveler might protect himself perhaps by going to another ferry some miles up or down but for the general convenience a regally regulated monopoly serves the best purpose for both parties So in the case of toll bridges The continuous highway is kept up and this is best accomplished by a regulated monopoly
GRADUATED PAYMENTS
Observe that in these cases the burdens and benefits are rightly distributed more exactly even than in the ordinary case of a road or bridge kept up entirely by the public They pay the expenses who specifically get the use Government instead of itself maintaining roads as well as bridges frequently transfers the right or the duty generally requiring each county to maintain its own and adjoining
counties to divide expenses of bridges etc so that the payment shall be by the parties most interested Again government authorizes a corporation or an individual to build a bridge or to provide a turnpike or a causeway regulating however the charges to be made It being the province of government to provide roads it is only upon condition of security to the public in the use of the needful roads that it can rightfully transfer this right otherwise it abdicates an important part of its functions and leaves the people unprotected
From these little beginnings many of them still the best methods known among savage nations arose our present grand system of common carriage on land and sea With every improvement the
IMPORTANCE OF TRANSPORTATION
has had a corresponding increase Its prodigious growth even in our own daygreater by far than in any preceding agemay be illustrated by such facts as these within the memory of a man a merchant has carried a load of cotton by wagon from Middle Georgia to Philadelphia and returned with a wagon load of goodscamping out by the way occupying three months in the journey and making his will as a proper preliminary to such an expedition Now pot a week is needed to go and return This remark read in the conference of the Commission over the present report elicited other facts of the same sort The father of one Commissioner rode on horseback from Savannah to New York and back A second member of the Commission had a similar fact to relate his father having driven a sixhorse wagon from East Tennessee to Philadelphia loaded with furs and skins and returned with a load of goods meeting with no detention by the way except that he was arrested in Pennsylvania for driving his wagon on Sunday
So too in regard to the spread of information Less than one hundred years ago in framing the Constitution of the United States the difficulty of getting the returns to the seat of government was urged as a serious objection to frequent elections of President In the Federal Debates 5 Elliott p 339 we read Mr Butler was against the frequency of elections Georgia and South Carolina were too distant to send electors often Mr Williamson remarked The expense will be considerable
8
and ought not to be unnecessarily repeated If the elections are too frequent the best men will not undertake the service Now the returns from California are read the next morning after the election at the breakfast tables of the citizens of remote villages The day after the assassination of the Czar of Russia two pages of the New York Herald were filled with the particulars and with the details of his history Is it wonderful that changes so huge should need some corresponding changes in the means of regulation
WITH THE GROWTH OF FACILITIES
the growth of business has kept pace train loads taking the place of wagon loads and this is a growth which will not cease while civilization extends in range and depth How much more important is the question of transportation to the white man than to the Indian to the civilized man than to the barbarian In some advanced countries it is even held that the railroad is no exception but that the government is itself under obligations to build and operate railroads as the best known means of transportation Another reason urged is that they fall under that class of cases which present to the community collateral advantages greater than the direct advantages to the stockholders Accordingly the whole history of legislation among civilized people shows such provisions for protecting the great rights of locomotion and transportation on which fseedom and prosperity are founded For many ages the turnpike or macademized roads were the best known and legislation was adapted to them while these still exist their use is confined to short distances or to thinly settled regions
Only a half century ago the railroad was introduced and with it a huge train of consequences The graded roadbed and parallel iron rails being a new device as a road a new power also accompanied it in an equal degree superior to the old To these were adapted new cars holding many tons And in place of the old wagondriver a much more highly trained expert controlled the new power on the new road with these immensely increased loads while a separate conductor discharged the duty of the common carrier as to receiving and delivering and the care of the goods The change was
AN ABSOLUTE REVOLUTION
perhaps the most momentous in the material progress of mankind Yet for a long time its magnitude was not appreciated Men looked with wonder on the imposing appliances of the magnificent engine and its long loaded train but the imagination was even more excited than the business faculty and they failed to perceive that its utility surpassed even its astonishing display of power and speed
If the old methods of common carriage needed regulation by law how incomparably more important is such regulation now with the immensely increased volume of business with the absolute impossibility of private competition or selfhelp and with the complexity of the management such that not even the owners and shareholders can at all understand the business except as reported to them by the managers How much more is the public at the mercy of the railroad management with our present huge commerce than it was in the power of the old common carrier with his small and comparatively insignificant littl barter Slowly mankind has been adjusting itself to the problemrevolutionary in factestimated to be very great but not estimated at a tithe of its real greatness
TRANSPORTATION IS KING
He who controls it controls everything else He can set up one business man and put down another He can set up one whole community and put down another Government itself has not greater powers indeed governments are among the things controlled We have seen the foundation of the right of regulation in the common law as well as the civil and also in the deeper seated law of nature Not less necessary in this right is its
POLITICAL BEARINGS than in its legal and economical aspects
We begin to see the answer to the question How is the railroad distinguished from the plantation or the store or from its yet closer analoguesthe factory the mine or the rolling mill and the like properties Because it is a monopoly and cannot well be otherwise because its powers are immense and of a public character so in fact and so held by law and legal decisions It is important and instructive to study these distinctions which are real and
9
practical and such study makes the right not only apparent but imperative Suppose in former days a monopoly of
A NAVIGABLE RIVER
conceded to a company wholly unrestricted by law How stupendous the consequences and how the grant would need to be hedged about with proper regulations and restrictions Suppose the yet more unlimited monopoly of the great ocean itself or of the right of shipbuilding yet even such grants would fall short in importance of the monopoly of internal transportation
Imagine a proposition of this sort seriously made in the Legislature of the State To give to a particular company or set of companies the exclusive right to all the highways and public roads of the State they to make such terms as they shall think proper with travelers and carriers of freight what a shout of universal indignation would this raise Yet this power over the real transportation of the country has ignorantly and gradually been actually thus transferred to the railroad companies of the States Virtually the highways actually used and the only highways which in the present state of commerce man can afford to use for any considerable distance to compete to advantage in the struggle of life are the railroads For distances over thirty miles the common road bears to the railroad the same relation which carrying burdens on ones back bears to the common road It is merely a means of getting the freight to the proper vehicle
Government was called upon to confront a new problem which at the first neither government nor the railroad companies understood No wonder that the huge and absolute revolution in transportation was met improvidently The railroads themselves did not understand it And we have seen among these new rival corporations when rivalry existed as it did between distant terminal points the old process of civilization and
GRADUAL SUBJECTION TO LAW
reenacted before our eyes The competition was murderous the old savage history of war to the death then of subjection to slavery then of alliance and finally of regulation by law has been repeated in the advance towards civilization of these new powers just as we have
seen at depots the fierce struggles of hackmen ending sometimes in murder and restrained only by the strong arm of the law Combination or absorption gradually served the purpose of stopping this warfare among themselves indeed but this did not necessarily save the public On the contrary the alliance among themselves simply subjected the public to their own termsfor better for worse for use or abuse
Legislation too was improvident for the needful conditions were not as yet understood and so of course could not be incorporated in the law The experience of a thousand years was at command in regulating common roads even now the experience of less than fifty years in regard to railroads with their vastly larger interests and relations The projectors of the Georgia Railroad estimated that its cost would be not less than 3000 per mile and that its business would amount to thirtyfive passengers a day counting both ways and perhaps to
10000 bales of cotton with other corresponding freight Special privileges were granted which would not have been thought of with a knowledge of the facts Some of these were for limited terms others for unlimited Some of these exempted the road from taxation others from regulation in sundry particulars It has been supposed by some that the reservation of the right of regulation would crush enterprise Yet on this head the fact is that by the act of 1863 reserving such rights of regulation no such check was given but on the contrary immense building even overbuilding has since that time occurred
There has meanwhile been a steady progress in the improvement of the various parts of the railway and its equipment in engineering in machinery for grading and masonry in bridging and in the heaviest item of all the rail in which steel has superseded iron in great measure Also the telegraph the airbrake the lessened amount of fuel the improvement in locomotives etc have added new facilities Bessemer the inventor of the Bessemer steel rail is estimated to have saved to Great Britain alone during the life of a steel rail not less than 800000000 A steel rail on one side of a track has outworn a dozen iron rails on the other side
So vastly different are the present railroad advantages from the first rough experiments
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The railroad company does not simply furnish a track as does a mere turnpike company hut it furnishes also the vehicle the driver the conductor and in Great Britain conservative and free trade as she is following the actual development it is made not a common carrier only but a forwarder also and this by law not merely by consent For such is the relation required by the public convenience the law regulating it however so as properly to protect the forwarder
Complaint has been made that the Legislature of 1879 was improvident Certainly much more improvident was all the legislation prior to that date the act of 1879 being on the whole perhaps the most carefully considered and cautiously criticized of any legislative action had in the State for many years and containing in itself studious provisions for the rectification of any error in its own provisions RELATIONS OF TRANSPORTATION TO CIVILIZATION
Facilities for transportation are at once the measure and the means of civilization itself Water transportation where practicable far surpasses that by land the first civilization was developed along the indented shores of inland seas and on islands It followed the course of navigable rivers and the heads of navigation were the most important points in a country Facilities of navigation promoted intercourse the exchange of products and the exchange of ideas Exchange rendered division of labor practicable and such division underlies special skill rapid work and indeed all improvement
In Georgia especiallythe cotton crop being her main productnearly all production is expressly intended for excahnge and return transportation in like manner being necessary no people are more interested in this general question But everywhere production itself is guided stimulated or limited by transportation which has become now incomparably more important than at any former time because the increased facility of exchange has immensely increased the division of labor and thereby in corresponding degree the necessity for the exchange of its products Labor does not aim to produce merely for its own consumption but almost exclusively for exchange Men now wear on their persons the products of distant lands eat or drink daily at their tables the
fruit of the tropics or of the most remote regions warm by coal brought from afar and are sheltered by buildings the very framing of which was done hundreds of miles away Indeed transportation is the chief question of modern times unless it be free trade which itself is but the removal of impediments to freedom of transportation
We have seen that upon all the grounds of government regulation the railroad is peculiarly subject thereto whether the grounds considered be legal or natural economical or political Coming closer home they are especially and more authoritatively and impressively implanted in the fundamental law of Georgia ratified by an unprecedented majority of its people for this thing was not done in a corner nor in a day It was not until after much consideration by the Constitutional Convention of 1877 and of the Legislature during two protracted sessions that Georgia following the example of Great Britain and a number of the other most enlightened countries in Europe and of many of the most advanced States of the Union established a Bailroad Commission as the best means of dealing with this most important question of transportation
Acting with the knowledge of the legal tests severely applied to the lawfulness of such a board in its general scope and to the lawfulness in detail of its constitution and powers her own Commission was established upon a basis derived from so large an experience and such critical tests
THE CONSTITUTION OF GEORGIA
contains perhaps the most complete and careful safeguards for the rights of the people and the rights of corporations to be found in the fundamental law of any State in the Union This is said advisedly and a careful comparison will justify the remark Accordingly in bestowing the right and duty of the regulation of railroads upon the Legislature the Constitution carefully and anxiously provided against any abuse in the method It provided against any breach of contract previously made against the revocation of grants and against any interference with vested rights it provides also for impartial and complete protection of property and for the general application of 1 aws In the regulation of railroads it provides further against any want of adaptation to varying conditions by requiring action to be had from
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time to time and by declaring the objects of reglation viz simply to prevent extortion and unjust discrimination in conformity with the universally conceded right and duty of government to regulate common carriersclothed in this case with special privileges possessing also a virtual and often a legal monopoly and being pure creatures of law subject to terms in their creation and renewal
The same cautious instrument places numerous restraints on legislative power and requires the courts to declare unconstitutional laws null and void Such is the general scope and character of the fundamental law of the State unusually and remarkably clear in its provisions for the protection of all rights It contains no better considered or more argued feature than that which provides on the one hand for the protection of the public against the unjust and unreasonable exercise of corporate powers and on the other hand against any interference with their just and reasonable exercise
LEGISLATIVE ACTION OF 1879
In carrying out the constitutional provisions the powers and duty of the Legislature were exercised with like caution and care The General Assembly might have acted directly in the matter by an immediate exercise of its rights and itself have prescribed tariffs rules and regulations Obviously however the want on the part of the General Assembly for fitness for a work of such detail was like that of the Constitutional Convention itself which preceded it For such work the organization of a legislative assembly consisting of one hundred and seventyfive Representatives and fortyfour Senators certainly does not in anywise adapt it All experience has shown this The Legislature therefore wisely forbore to undertake the task of framing tariffs and making rules and regulations for so complex a state of affairs as exists on any one road much more in the railroad system of the State The whole of the forty days session once in two years would not be sufficient merely to put it in attitude for this purpose As well might that body fit itself for the work of the Superior Court or the practice of medicine The proper regulation of railroad business is in itself a profession and requires a distinct tribunal to acquire by experience and reflection the special knowledge of facts and principles for which even the courts
of the country can scarcely be fitted compatibly with their other functions In thus establishing in conformity with the precedents of so many enlightened States a Commission charged with this special business the Legislature took great and unusual pains Such pains were necessary by reason of the magnitude of the interests involved and the complexity of the subject Committees of both Houses like the committees of the Constitutional Convention had the matter long under consideration both during the sessions and in the intervening vacation and heard argument upon it invited discussion from citizens business men and railroad men The press was largely called into requisition for the representation of conflicting interests and views and the whole subject was elaborately discussed and considered A number of bills and many amendments were introduced and members were kept informed of the action of other States and corresponded with leading minds on all sides of the question At length the bill was prepared and passed It is thought and we believe correctly that in the preparation of the bill and in the criticism of it before it was offered leading and influential railroad men were freely consulted and their objections and suggestions well considered
The bill also in like manner with the Constitution was framed with careful reference to all the rights and interests affected by it as well those of the railroads as of the public It was no violent and indiscreet action made recklessly and in haste but was a carefully considered act so framed as to gauge the powers of the Commission in order to adapt them to the protection of all interests
Following the English law one Commissioner was to be of experience in the law and one in railroad matters while one should represent the general public interest To secure experience and stability the first appointments were for two four and six years respectively afterwards each appointment for a term of six years It was designed thus to educate impartial experts as a guide and servant of both the Legislature and the Courts Impartiality between railroad interests was also secured by requiring the Commissioners to hold no railroad stock and a very searching oath prepared by the Governor for the faithful and impartial discharge of their duties To provide for any improvidence or mistake in legislation the
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Commission was charged with the duty of making to future Legislatures any suggestions derived from reflection and experience
Such were the surroundings of the act Its actual provisions when framed make extortion and unjust discrimination in general terms penal The Commission is then required to make rules and regulations against extortion and unjust discrimination and against secret rebates etc and as its chief and first duty to prepare a tariff of just and reasonable rates for each of the railroads of the State and to pub1 lish the same Proper powers are given them to investigate and examine so as to ascertain what rates are reasonable and just in each case Freights starting or going beyond the State are excepted from the act
But the Commission has no powers of its own to enforce its decisions It simply prepares the case for judicial trial Its action must be passed upon after all by the Courts in which both parties have their regular day in Court before the enforcement of any penalty whatever Ample notice and opportunity of rectification is given and then if not rectified no execution issues but only suit is instituted and the matter is settled by the Court the Commission having simply served as amicus curiae not even as arbitrators hut rather as advisers The law requires the publication of all the rates on all the roads at the same time so as to secure a systematic and comparative study of the subject as a whole and a wide basis of induction and comparison covering the whole field of the State and indeed of railroad operations everywhere Such are the provisions of the law and the Constitution
THE COMMISSION
with such careful provisions constitutional and statutory before it as an example and sworn to the discharge of its duties entered upon its work Of the nature and results of that work two reports have already been given As ample time as possible was taken to adapt their work to the exigencies although there was much pressure by the press and from communities and individuals for expediting it So cautious were they however that their first tariff went into operation on the same day with their first semiannual report nearly six months after their organization
Railroads being of a mixed characterrpartly public corporations and partly privatethe
object of the Commission in dealing with them in their quasi public character is to serve as the means of regulating them in their various relations external and internal to acquire and diffuse information by reports to the State and people to act as an inquest on behalf of the State in its relations to these corporations and as an arbitrator between them and the public and between the corporations themselves in matters of public concern After so much time concentrated on this one work they can but appreciate the unfitness of a great legislative body to deal with its details It would be difficult even to explain intelligibly the needful expedients devised to simplify the work and bring its great mass of details within grasp
Before the proposed tariff of rates went into effect a circular was issued for criticism and suggestion as to any and all of its provisions In conformity with information thus developed various changes were made and incorporated in the full publication of May 1 1880 which was a clean sheet to date embracing the whole matter of rates without need of outside reference Legislative adaptation would here again have failed Circulars subsequently were issued chiefly because special rates not being printed were not furnished by the railroads to the Commission and these specials included some new factors Here again legislative adaptation would have been inadequate to the correction of its own errors from want of information or changes of condition
On the whole it is obvious that the general provisions of the act are well considered and judicious providing a proper tribunal well fitted to accomplish its purposes viz for the thorough study and preparation of tariffs rules and regulations and also to change modify and vary them as conditions change to correct its own errors and to sift facts and arrive at correct informotion
The action of the Commission is a well considered
REPORT NOT A JUDGMENT
It prepares cases for trial but does not try them finally Upon a proper case made their action inoperative unless sustained by the courts can be taken from one court to another in due order to the Supreme Court of the State or the Supreme Court of the United States
The composition of the Commission and its duties as to rates are really those of
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A MASTER IN CHANCERY appointed by the Legislature instead of the courts and constituted with such powers and limitations of power as to furnish it with the best opportunities of comprehensive and general views to be reported to both the Legislature and the Courts How inadequate is a session of forty days in two years with numerous other duties to the performance of such a work
Our object in the foregoing discussion has been to show not only the constitutionality and legality of regulating railroads by law but more especially to show its rightfulness also nay its necessity and the beneficial effects which reach not only the general public as we have already shown but in no less degree as we shall hereafter see the real parties in interest on the other side the stockholders themselves We shall see that no other portion of the general public is more deeply interested in a properly constituted commission than is the stockholding public to whom legal regulation secures far greater real advantages than the apparent ones it displaces
We think these considerations make it clear that the exceptions concerning regulation are to the full as well founded as the rule Nay to quote from a recent wellconsidered article in the Fortnightly Review So fundamental are these limitations that they must be looked upon not so much as exceptions to a general rule as definitions of the essential elements of the rule itselfas to the conditions of a proper contract Whenever ti one of the parties is in condition to dictate his own terms the Legislature consequently must make provision for the protection of the other party Marked inequality between the parties when the transaction arises out of the necessities of one of them and is of such a nature as to put him to some extent in the power of the other these are the conditions which require legal regulation
In a word monopoly on the one side and necessity on the other furnish the highest possible ground of regulation by law and in the relations in question these conditions usually exist and often in their greatest intensitythe monopoly being ofteu absolute and the necessity always so
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limits of the right of regulation
These arise out of the constitution itself or out of previous contracts and the limitations
are quite as important as the right itself Indeed the general concurrence now prevailing as to the possession of the right renders the reasons for respecting its limits all the more powerful The reasons for such consideration of the exact breadth and extent of the power and its limits go to the very bottom of the social structure to the foundations on which the right of property itself is based And the more plausible and seductive the opportunity of attacking these sacred rights in any case especially in that of corporations which may to some extent have abused their powers and provoked discontent the more sacred the trust of preserving the strong foundations on which all property rests The strength of the brakes should ever be proportioned to the power of the engine
It is to be remembered that the railroad is itself private property though clothed with a public trust It is a regulated monopoly and the regulation must be in conformity with all lawful regulation viz just and reasonable Whatever the agency for the purpose whether direct legislation or a commission it should be
A BULWARK AGAINST AGRARIANISM
in any and every form however plausible The interest of society in the maintenance of law and right is never for an instant to be ignored The sense of security in property and rights of the impartial protection of law and the general steadiness and confidence of a stable community governed by known laws administered by just tribunalsall this is of inestimable worth and the very thought of confiscating any portion of the property of any portion of the people for the benefit of any other portion is dangerous to the rights and liberties of all Such a policy rel axes the bonds which hold society together and tends to anarchy public plunder and a return to a savage state Society must not only forbear to rob but must itself by its organized forces protect every interest and class from robbery
A suggestion already made is here again in point viz that as a corporation being a mere creature of law is not therefore the creature of caprice the lawmakers being bound to impose no conditions except such as are just and reasonable in themselves even so in the right of regulation the exercise of the right should be in all respects just and reasonable and such as not to affect the confidence of the parties regu
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lated in the justice of government and in its impartial administration
To require just and impartial rates on the part of the railroads is a just exercise of the power but there must be no reduction of rates below what is just and right and ample provision should be made for testing the question whether or not the rates are really such
Of course in addition to this broad principle of impartiality towards the railroads and the citizens owning them as toward any other citizens all constitutional restrictions State and Federal are to be observed and all lawful contracts and engagements made with the railroads by the State to remain inviolate
All this is consistent with the most pronounced and decided maintenance on the part of the State of the right of regulation the State itself being likewise under law constitutional and natural
THE DELEGATION TO THE RAILROADS
of this right of regulation to one party however would be an abdication by the State of a great public duty The repository of the power must be as impartial as any judicial tribunal or juror
In many ways in the proper exercise of its right the State will really have greatly subserved the interest of the real owners of the railroads against arbitrary and irresponsible agents
Many nice questions have arisen as to the power of government to depart with its pawer of regulation taxation etc and to grant special exemptions The Constitution of 1877 deals with most of these questions and provides means of rectifying the errors of the past asserting even as a last resort the right of eminent domain and the purchase of the property for just compensation if this should become necessary to correct the errors of the past also in the novation of any charter it provides for subjecting the railroad to legal regulation under the act of 1863
It will have been observed that in the wholeof the preceding line of argument we have not assumed the advanced ground taken in some recent discussionsthat the railroads are themselves public property Whether this view be a correct one or not it is certainly not essential to the argument which is perfect and complete without such assumption
Nor has there been any reference to the legal decisions abundantly sustaining the views above presented both in their general aspect and their details especially the learned and powerful decision of Judge Woods printed in the appendix to this report meeting the exact issues each and all of them with singular clearness and fullnees We have preferred to present rather the general principles which lie at the basis of the authorities on the subject
NO WANT OP POWER
The limitations we have referred to on the right of regulation do not depend upon any want of power in the General Assembly nor arfy want of jurisdiction of the subject matter but rather upon the just exercise of legislative discretion Nor does the right of legislative regulation depend merely upon the principles set forth in the decision of the Supreme Court of the United States in Munn vs Illinois as expressed by a majority of the court it falls fully and clearly within the minority decision also upon the views above set forth the court were unanimous Under that decision indeed the power of each and every State Legislature is limited only by the Constitution of the United States and of the State itself In Georgia on this point there was no need for this decision Within the limits just named the Legislature of Georgia is as omnipotent as the British Parliament The State Constitution itself settles the question aside from a 11 other considerations or decisions by the broad grant of authority in article 3 section 8 paragraph 22 which provides that
The General Assembly shall have power to make all laws and ordinances consistent with this Constitution and not repugnant to Constitution of the United States which they shall deem necessary and proper for the welfare of the State A wide grant not peculiar however to the last Constitution but continued from those previously in force
Now in the Constitution not only is there no inhibition of th regulation of railroads by law but a direct and express provision requiringsucli regulation as a legislative duty The Legislature is not straitened as to power but only as to its just exercise and to a careful use of its discretion On this point we fully concur in the view presented in the article already referred to in the Fortnightly Review that legislation cannot
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be too cautiously applied by virtue of the infinite variety of conditions and circumstances ever shifting and changing It must of necessity indeed provide to meet these shifting occasions by a tribunal ever ready to consider them and to make the needful modifications and adjustments
3
MODE OF EXERCISING THE RIGHT OF REGULATION
At all the latter stages of transportation by high road turnpike etc there was appropriate legislation for the protection of the public sotnetimes direci sometimes through the medium of the county authorities or commissioners of roads
In the fifty years of railroad experience there have been many efforts for proper means of regulation the final result of which has been the establishment of Railroad Commissioners for the purpose These have proved by far the most satisfactory and successful means of dealing with the problem being a welladapted instrumentality now so well established as not likely to give place to any other and which would indeed probably survive even the great change contemplated in some of the European States of direct government ownership Government even in such case in order to act advisedly would need to act through a commission Its adaptation is as complete as that of the judiciary system itself Analysing the different views held on this subject by various persons to the state of parties in a deliberative assembly expressed by the terms
LEFT CENTER RIGHT
Extreme LeftLeft CenterEight Center ExtremeRight
the commission occupies a central position at once conservative and safe The extreme Left would leave the railroads wholly unregulated by law the extreme Right representing only the interest of citizens would consider the railroads wholly as public property forgetting private right Again as to the manner one would leave regulation entirely to the railroad officials the other would trust as entirely to direct 1 legislation As to the fact of regulation the extremes and proper means would stand thus the extreme Left the total failure to regulate would be abdication the extreme Right exces i
sive regulation would be usurpation while proper regulation would simply be the fulfillment of a constitutional duty
As to the mode of regulationleaving the whole matter to the corporations interested would be but a rope of sanddirect legislation would be an iron rod inflexible and harsh while regulation through the medium of a commission is both efficient and safe this furnishes a link flexible elastic and adjustable
In comparing the different instrumentalities we have already seen that the legislative assembly is as little fitted for this special business as it is for those of a court of justice No such functions are exercised by it except in the one case of impeachment very costly and of rare occurrence
The judiciary itself is not well fitted for the task except through the medium of experts and the very object of the law creating a commission is to educate a board of experts to aid judicial decisions The great principle of THE DIVISION OF LABOR
applies in this case In great Britain for example there are separate tribunals for the trial of common law cases equity criminal cases etc each court being educated to its special duties The study of the transportation question involves matters really requiring more distinct and special study and wider apart in their details than the several departments of the law With a properly constituted board of commissioners this board would naturally be better informed upon railroad matters to which its attention was exclusively devoted than any one department of the judiciary could well be with its seldom and occasional contact with the railroad problem as but one of many subjects Except as informed by impartial experts the courts would rather advise an appeal from the courts to the Commission than vice tersa from the Commission to the courts
Indeed the Railroad Commission as a special department for dealing with one of the most important and delicate departments of public regulation stands now in Great Britain and elsewhere upon a basis not less impregnable than that which supports the judiciary system itself It is indeed a special department of the judiciary
There are a thousand questions nice and delicate to be settled of a peculiar and professional sort requiring a special education The
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need of a special tribunal is obvious enough by reason of the number and importance of the principles involved requiring nicely adapted study and long experience The questions which arise as to classification of the thousands of articles to be transported such as cotton breadstuffs provender manufactured goods coal fertilizers etc etc through the endless catalogue of all production can only be understood by experts So the principles of prorating fairly per mile and per ton the relative influence and effect of distance and of way and through business the expense of loading and unloading billing and bookkeeping of rates as affected by value weight bulk convenience cleanliness season of the year etc all these are involved
Nor will it do to say that the railroad officials themselves have this matter in charge and are competent to deal with it The public have an interest to be represented and a right of regulation not at all secured by this means Really this is one of the troublesof the evils to be remedied viz that these railroad officials do understand it and no one else does and so the information and bias are all on one side The lack to be supplied is that of experienced and
EDUCATED EXPERTS
without bias To study and decide upon these questions gives ample occupation to a separate tribunal The questions to be settled are not inferior in importance to those settled by the Supreme Court of the State They involve as much property and as nice questions of right
The effort accordingly has been in Great Britain and elsewhere in Europe and in many of the States North and South to constitute a tribunal of the highest character in point of intelligence integrity and impartiality It is to acquire special knowledge of railroad matters business and laws just as the Supreme Court of the principles of jurisdiction
Again it must be prompt for often the delay of justice is equivalent to its denial and accessible to all so that no one will be too insignificant to get his rights or too poor to contend with the most powerful corporation Such a tribunal is useful to both parties to the railroads and the public and hurtful only to corrupt and dishonest officials Its results in England and America have been eminently satisfactory
Of course the Commission may err and it is
said are such powers to be entrusted to three men with human frailty and liability to mistake and passion They are nothowever so entrusted in fact for the action of the Commission in Georgia is a report and not a judgment And even were it final must there not at the last be finality somewhere Are not the lives liberties and prosperity of the whole people of the State subject now to three men who constitute the Supreme Court of the State To quote a homely saying we cannot have better flour than can be made of wheat we cannot get better judges than men And the law in this instance provides for the
COKKECTION OF ERROKS
and mistakes in the most complete and informal way by an appeal to the Commission itself without any motion for a new trial and before and aside from an ultimate appeal to court after court to the Supreme Court of the State and the United States So much for mistakes As for corruption it may well be said that the railroads rather than the public would have thp advantagehaving by far the best means for that purpose And the law moreover provides for the removal of a Commissioner in an informal way should there be reasonable ground of suspicion of any sort whether of corruption or other maladministration without awaiting the necessity of a formal conviction The law certainly was intended to be very prudent in this as in all other points
The number of appeals from the decision of the Commission has been small Of the needed facilities for such appeals we shall say more hereafter We have been compelled by the Tilley case to a very careful review of the act of 1879 and the powers of the Commission
Almost every form and mode of dealing with the question has been the subject of actual experience in Europe and in this country Government ownership of the whole as is proposed in Germany government ownership of lines sufficient to establish competition as in Belgium government suppressing competition among the lines and itself regulating rates as in France government regulating the monop oly but not prohibiting competition as in Eng land The great point and most difficult of at tainment is not so much the prevention of ex tortion as that of illegitimate form of competi tion which affects not the whole business but special points or person and is the parent of
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unjust discrimination Not improbably the establishment of a national commission will be essential to this result
A very large part of the efficiency of a commission is really in the
PUBLICITY
given to railroad affairs This conduces as much to the interest of the stockholders as of the publicespecially of the small stockholders A mere formal compliance with a law requiring publication of statements however is wholly insufficient and illusive The publication often
CONCEALS RATHER THAN REVEALS
the state of the companys affairs Huge fortunes have been made by misrepresentation Examples are to be found in the Glasgow Sank abroad and the Tallassee Factory in a neighboring State in numerous Insurance companies etc etc Perhaps indeed it is not necessary to go beyond the limits of the State for illustrations No other corporations have greater facilities for misrepresentation than railroads indeed no other is so difficult to represent properly with the most honest intentions and efforts How to do this effectually has been one of our chief studies as it underlies all else
On the whole a railroad commission is the best adapted means yet discovered or likely to be discovered of dealing with the subject as is seen by a comparison of its adaptation with that of any other means say of regulation by the government or by the Legislature or a committee thereof or with a court Superior or Supreme State or Federal or with a jury in the various needful qualificationssay of experience opportunity relative study and means of knowledge and of the division of labor as a means thereto
The duty of making a tariff of just and reasonable rates instead of making rates on one or two articles at a time is obviously fit and right because a preparation for part involves a preparation for all The study must be systematic else its results will be a piece of patchwork
The chief engineer of the Cincinnati Southern railroad which travels a difficult country suggested a fit illustration of this necessity of studying the problem as a whole Many plausible partial routes were proposed over this line of road but he had ever to bear in mind the whole Ime and usually found that while best for
a short distance these suggestions did not fit in at both ends and so could not carry him through
Here too a comparison of the Commission as an agent with the president and directors or the general freight agents or soliciting agents of different railroads is in point as to impartiality between the railroads and the public as to breadth of view and careful computation of all the elements and factors of valuation rates profits expenses etc and as to covering the whole field and more than a single year or administration
As the decision of the Commission affects the one interest or the other so will the complaints be Thus circular No 10 brought out complaints from certain portions of the public circular No 11 from the railroads So it is in each case The Commission can only hope to escape censure by real justice capable in the course of time of being made obvious justice
It is found that local prejudices do in fact gradually give way with increasing light and information and that in like manner railroad prejudices yield to time and reflection Usually it is found also that those who are hurt in one respect are helped in others so bringing about an equilibrium The action and its results need to be studied as we endeavor to study them as a whole The separate study of each item without the reduction of all to correct principles and systems is like the search for a word in a dictionary not arranged in alphabetical order It is almost as troublesome to find a single word as to alphabet the whole
REVIEW OF EXISTING LEGISLATION
This has been to some extent anticipated The Georgia system is based on the idea of a systematic view of the whole subject and a comprehensive report of what on such a view are reasonable and just rates and rules and regulations A large field of comparison and basis of induction are secured of comparison of railroad with railroad in the State and of our own roads with those of other States
In the study of the subject and in the practical operation of the conclusions reached just as the shoe pinches this dr that interest is the representatives of such interest sure to be heard A large view of the several
CONFLICTING INTERESTS has been developed in the State of New York There the railroads themselves are very power
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ful and anxious to be let alone entirely The city of New York raised the first loud outcry regarding itself as threatened with ruin by rates discriminating against it and in favor of rival cities The power of the city was also great though of course since much of the railroad stock was owned in the city this interest was not a unit As this outcry called attention to the matter the country too began to see its interests and an equally intense agitation began representing the agricultural interests and complaining that the high priced lands of New York State were virtually placed west of the Mississippi and all natural facilities subverted and turned upside down by the huge discriminations between through and local freights After all it has ever been the question of discrimination which has given the greatest trouble
As we have already seen
ILLEGITIMATE COMPETITION
as distinguished from fair and legitimate competition has been the prolific parent of all the abuses of unjust discrimination The termini have usually not merely gotten their rights but much more at the expense of the way stations As each case involves these principles the propriety of the Georgia system of studying the subject as a whole is manifest The greatness and difficulty of the question render it one of slow and patient and gradual solutionpatiently to be worked upon Through freights especially and classification are the most difficult features
In the endeavor of the Commission to meet the exigency Rule 6 with modifications was adopted reading as follows viz
u Kule VI Regulations Concerning Freight RatesThe freight rates prescribed by the Commission are maximum rates which shall not be transcended by the railroads They may carry however at less than the prescribed rates provided that if they carry for less for one person they shall for the like service carry for the same lessened rate for all persons except as mentioned hereafter and if they adopt less freight rates from one station they shall make a reduction of the same per cent at all stationsalong the line of road so as to make no unjust discrimination as against any person or locality
Competing lines not all within the
JURISDICTION OF THE COMMISSION When
however from any point in this State there are competing lines one or more not subject to the jurisdiction of the Commission then the line or lines which are so subject and are working at the lowest rate under the rules may at such competing point or other point injuriously affected by such competition make rates below the Standard Tariff to meet such competition without making a corresponding reduction along the line of road
This rule has given perhaps more discontent to the railroad authorities and more satisfaction to the public than any other rule or regulation adopted by the Commission Even the termini affected have to a large extent however admitted the reasonableness and propriety of the rule It has done all that is within our power to equalize and distribute burdens and benefits within this State Were its application general it would largely remove the evils of unjust discrimination affecting the public interest and act as a flywheel giving quietness and reliability to rates and steadying all railroad operations
The modifications we were compelled to make arose from the fact that the Legislature of Georgia could only control the railroads within her own borders Of course it could not interfere with business without her limits though needing a like control
The cooperation of the contiguous States and even of States beyond them is necessary to complete the beneficial action of the rulesay in Georgia the cooperation of the States of Tennessee and Kentucky especially and also of Alabama and the Carolinas
Such cooperation of a properly harmonious character it is almost impossible to obtain The States and their special interests are too numerous and either too conflicting in fact or supposed to be so to make it at all probable that they can concur in the same exact policy It is possible that that feature of the United States Constitution by which Congress is empowered to regulate commerce between the States will have to be invoked as a necessary and proper means of effecting this object of common and harmonious action The efforts of any State are necessarily cramped by its territorial limits and yet just here it is that the strongest safeguards are needed by virtue of the excessive discriminations between way and through freightthe very point of complaint
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Perhaps the exercise of this Federal power distinctly granted for such purposes in the Constitution can alone supply the needful protection and certainly the reasons for interstate regulation are in a manifold degree greater now than when the Constitution was framed While the States do not themselves directly throw obstacles in the way nor use the railroads as indirect agents for the purposethe latter are themselves too powerful in this particular respect for State control and the States are powerless to enforce the necessary regulations If the constitutional power is so invoked then a Federal Railroad Commission would seem to be indicated as the proper solution for precisely the same reasons as those given for the delegation of power within the State to a Commission instead of a direct exercise of legislative authority for evidently Congress is no more fitted for the direct adjustments needed than is a State Legislature Herein lying the chief trouble viz in getting the several States to cooperate in a common policy here seems to be the best remedy and the best mode of applying it by an exercise of Federal authority through a Commission not conflicting with State rights but on the contrary cooperating with and supplementing them and giving effect to sound State policy by preventing irregular and jerky action just at the border lineslevelling off the transitions and letting State lines for purposes of commerce be what they should be but imaginary lines offering no impediment This absence of impediment to commerce has been one of the chief causes of American progress and prosperity There would be no more invasion of State authority in this case than in furnishing aid to the State in suppressing an insurrection within its limits Each is but the exercise of a constitutional right and duty on the part of the Federal government expressly conferred and for wise purposes
INTERNAL RELATIONS
RELATIONS OF THE STOCKHOLDERS TO THE MANAGERS OF RAILROAD COMPANIES
Any view of the railroad question which left out the very remarkable and unique relations of the owners to the management of the railroad corporations of the country would be strikingly incomplete and yet these relations are little understood and dwelt upon
Two important distinctions are to be ever
kept in mind 1 The distinction between the railroad interest and the public interest these are not identical as is often alleged 2 The distinction between the stockholders interest and the managers interest no more are these identical
Indeed errors as to the supposed necessary identity of these two distinct intereststhe stockholding interest and the managers interest underlie half or more of the current fallacies which have been diligently cultivated and extended by corrupt managers whose personal interest is widely different not only from the public interest which they do not professedly and exofficio represent but even from the corporate interest which they do professedly represent and in fact control but too often with the widest difference of actual interest both in feeling and in fact
Let it be observed here that the doctrine of modern political economy is sound and true which teaches that the
REAL HONEST INTERESTS
of all men are harmonious and so the real honest interests of the public and the railroads and their officers are in harmony If men pursued simply their honest interests there would be no trouble in these nor in any other relations But then law would become unnecessaryeach man being a law unto himself and the millenium would have arrived
In our present mundane state however supposed selfinterest erects itself over these honest interests and needs to be governed by restraining laws We have not yet reached that state of social progress in which law has become unnecessary and even law itself is often made the instrument of injustice Just such a supposed identity of interest as we are discussing exists also between
THE RULERS AND THE RULED
Yet on the whole the great problem of government is to prevent rulers from abusing these necessary powers of government The very use of a Constitution is to accomplish this object to throw checks and restraints about the rulers whose honest interests are identical with those of the ruled but who are prone to see it otherwise and abuse their powers The whole machinery of government is devised to correct this evilby limited delegation of authorityby reelectionsby impeachment and the like
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preserving the responsibility of them who are in power
Even so with the railroad management It would happen even if the corporation were controlled in the exact interest of the stockholders as seen by the directors that the selfish element would prevail and the general public be left out of the calculation This accords with human nature and there is at least as much human nature at all events of its selfish elements in corporations as in individuals Indeed the corporate conscience has become somewhat proverbial
Now this argument applies still more strongly in the relations of the railroad management to the general public than it would apply if the corporation could act as a whole instead of through the agency of a board of directors The reasons for this we shall presently see for it is very important to explain it fully and it can be made very clear
But yet a higher climax is reached when we consider the relations of the official interest to the mere stockholding interest Not only is the public fair game but the stockholders themselves are still fairermore completely within the reach and power of corrupt managers
The natural tendency of human selfishness in an agent is to make the principals interest collateral and subordinate and to make personal benefit and advantage the main object The means for accomplishing this end are greater perhaps in railroad management than in any other management whatever political or corporate and why Because stockholders are less informedmore scatteredmore powerless and more manageable than any other like body of men There are more chances of deception more opportunities of imposition than in almost any other business The business is very varied in its formsextends over a wide territoryis related to numerous outside enterprises and so it is hard to understand and keep up with it even with the best intentions on the part of the officials to make it intelligible
THE MACHINERY
for keeping the officers right and responsible is very imperfect On the whole the diversity between official duty and selfinterest finds no higher expression than in this very case of railroad management
High official character has heretofore been
almost the sole safeguard of the stockholder and it must ever be his chief safeguard Yet there are various means which may aid his interests especially publicity in all corporate transactions and a supervision exercised over them unaccompanied by selfish interest in rerults
THE AGENT STPERIOR TO THE PRINCIPAL
This case of railroad management belongs to that class of cases in which the agent is vastly superior to the principal in knowledge and power in knowledge of the business and in power to control it The old rule of the masters eye is here reversed The master is ignorant and powerlessthe servant understands the business better than he
Whenever this is the case the master may well look out There is danger with him just at hand and danger hereafterdanger now and danger all the time
Now this superiority exists perhaps nowhere else in so remarkable a degree It begins at the beginning for the stockholder is not an engineer nor surveyor and cannot understand what selfinterest may mislocate the road to build up a town or break one down And it goes step by step through the whole management even when that ends in the bankruptcy of the road and its stockholders and the overgrown fortunes of those who control its operations the nominal control is not always real There is sometimes a ring within a ring and a central figure within all
NEED OF LIGHTRAILROAD ACCOUNTS KEPT DECEPTIVELYMISLEADING
The necessity of light and openness is illustrated in the following remark of Mr Sterne
One of the crying evils of our railway mismanagement is the wretched system of keeping railway accounts of which we recently had such a glaring illustration in the New Jersey Central Railroadthe President of which lost a million and a quarter of his property for no other reason in the world except the abominable condition of the accounts of the railway of which he was in charge It caused him to believe that it was a sound concern when it was hopelessly insolvent
The stockholders have not fared any better than the public as to the treatment they received at the hands of the managers The former are but a fluctuating disorganized mass
21
called together but once a year to pass upon a prearranged programme to elect a ticket made by the directors They are quite powerless
The two great passions of cupidity and resentment which play so large a part in human affairs both affect the railroad official in the direction of least resistance both being gratified at the expense of others In railroad wars the stockholder pays for the ammunition He is the cats paw and the bui nt fingers are his the enjoyment and sport are his nominal agent and real masters
The usual safeguards of selfinterest are not invoked The fighting superintendents in wars of rates enjoy a victory costless to themselvesdear bought to the stockholders The character of the soliciting agent is thus sketched hy Colonel Fink
It is well known that the general instructions which are given to soliciting agents to do as others are doing or supposed to be doing are carried out with great alacrity by these agents as their importance and occupation depends upon such contingencies
Under these instructions the management of the competitive business is practically turned over to these agents and the proprietors of the roads or its managers lose all control over it and become mere figure heads as far as this important branch of the business isconcerned upon which to a great degree the financial success depends
Now really the entire corporate management is as independent of the corporators as the soliciting agents are of the managers Even if rates are lowered by such means it is not a wholesome method for the community being irregular and uncertain partial and spasmodic It is beneficial to sharpers and speculators not to honest and steady industry and is unprofitable to the commonwealth Speculators stock jobbers and railroad jockeys often including officials of the highest rankare opposed to stability and prefer a scramble in ti e dark or rather with darklantern in hand in an arena dark to others but lighted up for themselves
Were it the selfinterest of the real owner the case might be different but this is really inoperative The whole wealth and power of the corporation is wielded by one or a few handsirresponsible to the true owners The great ship is turned about by a very small helm and the helmsman fortified and out of
reach The ship goes flipflap with his whims caprices or resentments and no one can stay his hand The general public is greatly interested in the protection of the true owners for its own sake as well as theirs
Never in former history was there such a concentration of great financial power in a few irresponsible hands The harness ought to be made to fit closely and not to pull and haul by jerks and with uncertainty as to time direction and who is to be hurt
How does the distinction between the owners and the agents manifest itself In many ways The ways and means of mismanagement are numerous and intricate
In the controversy between experts and nonexp erts the experts have all the advantageNow the nonexperts are not the general public alone but the stockholding public as well There are three things that ought ever to go together Interest Information and Influence To combine these three ins is to steady and settle things wonderfully It is the best security to both the publicsthe general public and the stockholding public For the general public it secures a proper and healthy uniformity and regularity The stockholders it saves from speculation and peculation One other in is suggested forming a wholesome and wellmatched quartetteas safe as human affairs can be madeIntegrity
It may be well to name some of the not uncommon means by which stockholders are deceived deluded and defrauded The management has all the advantagethe poor stockholder has interest alone without information except such as it chooses to give or influence except such as it chooses to allow Sometimes deception sufficessometimes intimidation or force becomes necessary
One method is first to bear the stock and buy then bull it and sellrepeating according to taste and opportunity The control of the books and the expenses being in their hands this is an easy process The income of the road is all expended in improvement in the purchase of iron and steel in ballasting and bridging etc etc thus enhancing the actual value of the property Meanwhile dividends are suspended and no unnecessary show made of the improvements till the tired stockholders or needy ones sell out Thus the real value appreciates while the market value goes down
and the stock is in a condition for purchase The process is now reversed and preparation made for sale Nothing is expended on improvements but the old improvements made to show to advantage and written up while all the income goes into dividends or a stock dividend is declared Then comes the sale after which the controlling ring is ready for repeating the process and probably rich enough to buy up another road or two and enlarge their operations
A smart unscrupulous superintendent can easily make a reputation in the same way letting the road go downand the dividends UPleaving as a legacy to his successor if honest the hard duty of restoring the condition of the road by using all its income in renewal and facing the hungry stockholders used to excessive dividends while giving them none
Sometimes the method is rather to make the road subsidiary entirely to some outside interest as that of a city The management then relies in making the whole road in which their interest is comparatively small bend to the support of city property in which their interest is large Both the public and the stockholders here suffer
Sometimes yet more special private interests are built up as by building expensive improvements to enhance the value of contiguous property
Sometimes the road is made to embark in new enterprises in the interest of the management not of the stockholders Personal cupidity is not the only ground for this often personal resentments against a rival corporation are gratified the stockholder alone bleeding But the ways are endless in which an irresponsible management can take advantage at once of the company and the public Who could be unreasonable enough to ask for a better chance or to have things more his own way It is all carte blanche dependent only on will and honor The stockholders are kept ignorant the reports are either untrue or unintelligible the directors keep in power by a vicious proxy system nepotism plays its part also and the controlling ring becomes invincible so that it is a rare case for the honest stockholders ever to escape its grasp They are squeezed out and shouldered off till not the actual control only but the majority of the stock gets into the hands of the ring
Sidney Smiths illustration is partially in point of the anaconda which after swallowing a bullock digests it quietly and at ease as a court of chancery does a great estate The parallel does not hold all through however as the railroad anaconda does not even temporarily lose his activity his digestion is rapid and he never needs rest
The temptations which power and secrecy present are great One false step leads to another and men who begin with honest intentions rapidly lapse into evil ways and sustain bad conduct by worse and are comforted by colossal fortunes and these without loss even of social positiontheir bad practices sometimes concealed sometimes condoned
But the name of the methods is legion and we cannot catalogue them
Power and fortune enable the managers to grow unscrupulously in power and fortune both having that developing facultylike a rolling ball of snow they gather everything in their pathand they have the means of corruption and bribery to an unlimited extent in their own hands and the same want of scruple which accumulated the fortune suffices to use it for such corrupt purposes Consequently Legislatures and the press are constantly plied in this way
The railroad journals and leading articles generally not always represent the opinions and wishes of the officers The arguments convince the dupes the system of accounts keeps them uninformed a little occasional show of candor or of zeal against a rival corporation goes a long ways and this furnishes a scapegoat to explain whatever goes wrong The better informed minority is powerless The organization has the patronage the command of friends the allies and employees along the whole line of road the opportunities of deceptionindeed all the strings of power
When the stockholders meet in nominal convention to exercise a nominal supervision the management with its batch of proxies quietly laughs them to scorn for thinking that right and actual interest can have any power If concealment and chicanery fail of their purpose arrogance steps into their aid Even such a spectacle has been seen as that of the agents and servants of a corporation adminis tering public and official rebukes to the owners
and masters for the offense of looking into their own business
While all these evils have not invaded the South as they have the North and Europe they are inherent in the nature of the system and are bound to come out in time as measles or smallpox Of course there are good Eulers and good Eailroad managers conscientious and upright men who will not abuse their opportunities and powers but these are the advocates of checks upon power and of the protection of stockholders and minorities They see the evils and dangers and cooperate willingly and anxiously in providing safeguards
POWERS TOO HUGE
These powers are too great to be trusted in irresponsible hands Never in former history were such known Powerful in wealth and patronage powerful to bribe and to punish powerful in the lobby and on change this power is all concentrated and organized and resides not in the stockholders but in a single board of directors usually controlled by two or three directors and these by one manthe ringmaster
In many States it is already
STRONGER THAN GOVERNMENT
stronger than the people With heavy means and heavy stakes in the result it assaults the Legislature in the lobby or anticipates the lobby by sending its own members It puts judges on the bench of the State courts the Federal courts and even of the United States Supreme Court It makes legislatures and governors and plays a huge part in president making Said we not well that the regulation of railroads by law is as importantnay more importantin its political than even in its legal and economical aspect
While here in Georgia the abuses have been relatively small save in the losses by State aid it is to be hoped that before they ripen we shall ptofit by the experience of other States The era of combination which is an era of danger has begun with us Constant vigilance and supervision is necessary Legislation must keep even pace with events the right to regulate should never be surrendered No one legislature has the right to surrender it this power of protection is the chief function of legislation The whole future is not to be given away by a stroke of the legislative pen
Is this extravagant Is it an overdrawn picture This is hardly the day to ask the question for so common and so monstrous have been the abuses that the public mind is thoroughly aroused and the danger is now rather of excess The proper policy is regulation by law not by passion nor yet by letting evils alone and uncorrected
Not in this country alone is the stockhoding public as much in need of protection from their own officials as the general public but in England and in Europe generally this has been equally true A very distinguished writer and thinker years ago gave a clear view of the abuses in Great Britain and the relations especially of the directors and proprietors in an essay on
RAILWAY MORALS AND RAILWAY POLICY
The direction ceasing to fulfill its theory as a deliberative body whose members possess like powers falls under the control of some one member of superior cunning will or wealth to whom the majority become so subordinate that the decision on every question depends on the course he takes Proprietors instead of constantly exercising their franchise allow it to become on all ordinary occasions a dead letter retiring directors are so habitually reelected without opposition and have so great a power of insuring their own election when opposed that the board becomes practically a close body and it is only when the misgovernment grows extreme enough to produce a revolutionary agitation among the shareholders that any change can be effected
Threats of resignation which ministries hold out in extreme cases are commonly made by railway boards to stave off a disagreeable inquiry With most this assumption of offended dignitp tells and under the fear that the companys interests may suffer from any disturbance measures quite at variance with the wishes of the proprietary are allowed to be carried The directors are greatly aided by their officials in their struggles with shareholders
Meanwhile had been developing a secondary set of influences which also contributed to foster unwise enterprises namely the business interests of the lawyers engineers contractors and others directly or indirectly employed in railway construction
If we are toid of squires soliciting interviews with the engineer of a projected railway
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prompting him to take their side of the county promising support if he did and threatening opposition if he did not dictating the course to be followed through their domains and hinting that a good price would be expected we are simply told of the special modes in which certain private interests show themselves If we hear of an extensive landowner using his influence as chairman of a board of directors to project a branch running for many miles through his own estate and putting his company to the cost of a parliamentary contest j to carry this line we hear only of that which was likely to occur under such circumstances
Kemembering all this and remembering that those who were successful are not likely to have forgotten their cunning but rather to have yearly exercised and increased it we may naturally expect to find railway lawyers among the most influential of the many parties conspiring to urge railway proprietaries into disastrous undertakings and we shall not be deceived To a gxeat extent they are in league with engineers From the proposal to the completion of a new line the lawyer and the engineer work together and their interests are throughout identical While the one makes the survey the other prepares the book of reference
Gentlemen are now in some cases elected on boards simply because they are members of Parliament The reverse process also occurs a gentleman becomes a member of Parliament because already a member or attorney of a board
Shareholders occasionally find that their directors have given to Parliament pledges of extension much exceeding what they were authorized to give and they are then persuaded that they are bound to endorse the promises made for them by their agents
In pursuit of their ends directors will from time to time go directly in the teeth of established regulations
Proxies are obtained mostly from proprietors scattered everywhere throughout the kingdom who are very generally weak enough to sign the first document sent to them Then of those present when the question is brought to an issue not many dare attempt a speech of those who dare but few are clearheaded enough to see the full bearings of the measure they are about to vote upon and such as can see them
are often prevented by nervousness from doing justice to the views they hold
The tactics of the aggressive party are commonly as skilful as those of their antagonists are bungling
Finally consider that the classes interested in carrying out new schemes are in constant communication and have every facility for combined action
This belief in the identity of directorial and proprietary interests is the fatal error commonly made by shareholders It is this which in spite of many bitter experiences leads them to be so careless and so trustful
Such was the pictureof affairs in England years ago sketched by a master hand It has been matched in all its details in parts of our own country The expressions look hard but the expressions are moderatethe facts it is which are hard
How is all this to be remedied It cannot all be remedied but the best method to deal with it and cure what is curable is to make the showings of the directors real not nominal A good honest showinga real exhibit of the affairs of the company true and intelligible is the best security for good management Fraud loves darkness and flees from the light a city well lighted at night is already half policed
This leads us from the unpleasant subject of corporate abuses to the more attractive one of the remediesthe chief of which and most important by far is
BOOKKEEPING
Perhaps all our readers will without argument concur in the view that good bookkeeping underlies the whole railroad problem A mans individual success in his own limited affairs depends on his understanding his business Ordinarily his own private business is not too big for him yet even the ordinary lawyer physician etc needs to keep booksmuch more the merchant Certainly not less important is it to the success of a railroad that the business should be understood but to understand it properly is a thousand times harder to do When a business passes beyond a certain degree of complexity the whole of it becomes confusedthe manager becomes dizzy and dazed is lost in the wilderness ofdetails and perfectly bewildered
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Nearly all joint stock companies are too big for an ordinary mind and need men of unusual talent system and clear headedness to manage them In England the number of stockholders in corporations is usually small and each stockholder has a larger portion of his whole property invested and has a particular department of the business under his immediate personal superintendence so that the management is not by agents but by the actual parties in interest and not with a mere nominal interest at that but a real interest bearing a large proportion to the whole means of the stockholder He is in the best attitude not only for attending to his part of the business but for seeing whether the other partners are attending faithfully and honestly to theirs It is really but an enlarged partnership in management as well as ownership
In America the state of affairs is quite different the stockholders are numerous and their interest in the particular enterprise frequently bears a small proportion to the entire property Hence the small stockholders have little influence or importance Bhe whole system is vicious and slacktwisted Really the owner has no hold of the reins and no control over the driver
RAILROADS COMPARED WITH BANKS AND OTHER CORPORATIONS AS TO BOOKKEEPING
If other corporations need a good systema fortwrirailroads need such a system imperatively for the difficulties are peculiarly great A factory or a bank is all in one spot and all capable of supervision from the same standpoint But the operations of a railroad are numerous and scattered there is a great mass of facts to be recorded and rerecorded covering hundreds of miles of space the business being as varied as all the productions of the country occupying hundreds sometimes thousands of employees dealing with many thousands of customers having millions of transactions and extending over long periods of time The proper record of such a huge mass of material is no small task and the proper exhibition of them is still more difficult Nor are the advantages less than the difficulties It is yet more important to understand a big business than a small and the evils of failure are more aggravatedand less remediable
When we see the difficulties that beset the 4
public with the fairest and best intentions we must also be struck with the power of dishonest officials to hide evade and conceal the truth or to pervert it to their own gain and the loss of stockholders and the public
When we consider the thousands of bookkeepers engaged in the railroad service we see at once the importance of their working to the best advantage
The solution is equally
IMPORTANT TO ALL INTERESTS
to the railroads managers stockholders and creditorsto the general public the Commission the courts the Legislature and the State at large which for want of this has lost hundreds of thousands of dollars in taxation It is injurious only to those to whom ignorance and darkness are desirable Uniformity of methods is also of much importance so that mastery of one system is mastery of all
In accordance with its importance has been the study of the subject by railroad men by the commissions of States and the State and Federal authoritiesthe latter being interested especially in the Pacific Railroad reports Many of the railroads have most elaborate and valuable systems the Convention of the Railroad Commissioners of eighteen States recommends a particular form We cannot say after all that a satisfactory solution has yet been reached The field covered by railroad accounts is like that of a census Could one see the piles of folios in one great railroad office accumulated and dusty and then compute the number of roads he would be struck with the immensity of the labor involved And yet after all the view afforded of railroad operations is often as different from a real repoit as is a pile of brick from a house Many years ago the Astor House started a new era in hotels with its various parts all corresponding with broad hays consecutive stairways story over story alike and all easily understood A like improvement is needed in railroad tabulation It is easy to err and hard to make clear
We may be met here with the objection that to require such reports of the railroads is inquisitorial and wrong But not so the railroads are
NOT ENTITLED TO SECRECY
no more so than the banks which are required by law to publish statements semiannually
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Not so much so indeed as the banks for the public regulation of the roads is even more essential Indeed publicity to the stockholders themselves is usually incompatible with secrecy to the public they are so numerous that reports need to be in print If but few the public is in the greater danger The bank statements also like those of the railroads seldom furnish the exact information needed
THE STOCKHOLDERS ARE ENTITLED TO INFOR
MATION AND THE PUBLIC IS ENTITLED TO
INFORMATION
The bookkeeping forms are not intelligible to the stockholders no not to the average directornot even to the average bookkeeper
Really tabulation needs to be as carefully studied as bookkeepingthe mode of exhibiting results as that of recording them Tabulation is a science just begun not yet solved The whole work of the census department is to develop the best system of tabulation that is the best method of presenting results to the mind and this must ever be done through the eye the quickest and most varied of the senses Without proper tabulation the facts gathered into immense volumes in the census department or the railroad office are almost as inaccessible as if still scattered in nature The facts exist anyhow to express them readily is the thing to be accomplished
Whether as a corruption fund or to buy steel rails to bribe a commissioner or a legislature to build a bridge or to give a dinner or pay the coupons of another concernsuch things have all been knownthe showing is important in either case and interesting reading besides If the fact exists it ought to be knownand if known reported
There should be
ONE ALLCOMPREHENSIVE TABLE embracing the whole and exhibiting it at one view and suggesting all th other tablesa Trunk table whose limbs and ramifications reach out by successive stages to the original transactions To do this all the resources of bookkeeping and tabulation are necessary but these resources properly applied are adequate to the exigency
Reference should be had in the ingathering of facts to the object in view of setting them out again in proper form They are all to be uttered owiered and the mnering process should have reference to this result
Are these considerations of practical use Why they lie at the very bottom of all sound knowledge of the affairs of a company
Aside from the profit and loss account no company however absolutely broken and unable to pay a cent on the dollar shows by its books that it is broken On the contrary by the very principles of bookkeeping this account neglected
IT CANNOT BREAK ON THE ROOKS
were it to break a score of times in fact Its accounts always balance to a quarter of a cent The note of any pauper sho vs as high on the books as personal gilt edge secured by bonds
Oh the heartbreakings that would have been and may hereafter be saved by honest showings on the part of corporations We talk and write of it easily coolly but the hard earnings of many a poor workieg man the savings of the widow the bread of the orphan have fallen through the gaps which bad bookkeeping left open
It is the chief trick of the knave the heartless speculator on theignorance and misfortune of others The fact that could be told the history of suffering and distress the hidden meaning involved in the expressionthe Glasgow bank has brokentherailroad com
pany has gone into the hands of a receiver we need not go out of Georgia for illustration would make one shudder and pray for some remedy by which such pitfalls should not lie hidden in the dark but a beacon light be placed by each trap
We would not disparage the efforts made to avoid these evils but we do mean to say that huge evils still exist and that many reports are but shams as to any showing of actual condition and serve as convenient hiding places for poor or corrupt management And yet the Railway Age remarks When the railway accountant can be found who will concede that the system of bookkeeping of any other accountant is superior to his own the millenium will have set in It very properly adds Most men however expert in anyvbranch of science can learn something from those similarly engaged
There are many good tables Iiere and there to be found In the reports of the Georgia Railroad and Banking Company for example for a number of years past are to be found two unusually complete tablesone showing the busi
27
ness of the road from its opening to the date of the report now over forty years giving the miles of road in operation passenger receipts freight receipts operating expenses and net profits with special items of an interesting character showing for example the cotton grain and flour transported This is an admirable table giving remarkable insight complete and chronological into the history of the business A table of dividends is also given necessary to complete the foregoing The second table to which we refer presents the business of each station and of each connecting road and is also very useful
In 1859 there was a valuable estimate of the annual cost of renewal of road equipment etc
The more recent reports incorporate a number of additional improvements of great value In the report of 1879 the very full statement of NET INCOME AND ITS APPLICATION
Page 1 gives real information to the stockholders On page 20 is another valuable table showing what interest is to be paid before dividends can be reached and also what outside sources of revenue are to be relied upon aside from road profits A comparison of five years business on page 21 is also vry instructive A comparison of bank profits page 49 for ten years furnishes also the best sort of data for estimating the probable future
The use of the Profit and Loss account on which we lay so much necessary stress is exemplified well on page 52 by which many worthless assets are relegated to the oblivion to which they belong
In the Central Railroad reports also especially the reprte for 1870 and some years thereafter we find much to commend although still incomplete A fresh start is occasionally taken and a new broom sweeps clean After a time the familiarity of the officers with the condition of affairs has a tendency to interfere with the completeness of the reports these seeming almost unnecessary to them yet not being at all unnecessary to the public and the stockholders The late reports do not come fully up to the standard of those of the years above referred to
The reports of the Savannah Florida and Western Railroad especially as to expenses are tobe commended for clearness and fullness
The whole country and the whole railroad interest are indebted to
THE LOUISVILLE AND NASHVILLE ROAD
for the admirable improvements inaugurated by Col Fink and continued and improved from time to time by Col DeFuniak and others connected with the management of that road We desire also to express our great indebtedness to the system of Col Talcott of the Richmond and Danville Road and to his admirable analysis of the elements of business
The reports of the United States Commissioner upon the Pacific Railroad the forms prepared by the Wisconsin Commissioner especially and by the Ohio Commission and those of the eighteen Railroad Commissioners in convention have all furnished valuable suggestions Finally while making acknowledgments we must refer to the class tonnage furnished by Mr Carlton Hillyer as perhaps the most valuable of any single report received Scarcely less valuable are the passenger analyses The forms of the Western and Atlantic Railroad are also excellent in many respects
After the careful study and comparison of all these forms however we have been satisfied that there are missing elements still in the material recordedand yet more essential omissions in the manner of tabulationwhich to the general public is the important matter The want of a clew to the whole system is usually fatal
We have endeavored in the system elaborated during many months past to incorporate all the good elements possible and to eliminate the unimportant and the sources of error and confusion
System alone can exhibit a complex array of facts without confusion and the effort has been to reduce the showing into the form of an intelligible systemshowing the whole and all the parts and this in their
PROPER RELATIONS AND PROPORTIONS
To suppose that we have been entirely successful in this would be presumptuous but we hope to have contributed something towards the solution
The exact methods suggested will be found in the appendix being of too technical a character to interest the general reader who however is greatly interested in the results if not in the means
The public has no use for a report that does not report an exhibit that does not exhibit Worse still is a report which substitutes error
for mere ignorance and stands like an index at I the forks of the road pointing the wrong way
Knowledge we must have and pay the price for it whatever it costs it is cheaper than ig norance and error
THE BOOKS MUST CHANGE WITH THE FACTS
Books are but a dead thing after all the men it is who are alive Books are but instruments they rapidly lapse into empty forms Men must use them and keep both themselves and the books alive It is easier of course to show to the stockholders when they meet the same old showing made last year but of what use is it
These showings are just like the hands of a clock which doesnot run and so is useless as a time piece such a report and such a clock are equally worthless
Is it too much trouble to keep the clock running Then a change of management is already necessary
Let us have the present tense the present tense in each report Unless the facts are unalteredlet the expression be altered to correspond
What sense is there in a system which makes exactly the same showing of a solvent concern and an insolvent Day and night white and black yes and no are not more contrary and yet the report is the same
It is all important that the showings of the corporations should be true to date and known to he true Bottom should be felt
If we have contributed anything to the correction of this evil we have hit the nail on the head Every day exhibitsin a melancholy waythe absolute need of corporate showings at once true and intelligible Only perjury should be between the public and the needful information no mere sham of form
THE DEBT OF GRATITUDE ARGUMENT
It has been said and with the utmost truth that the railroads have bestowed immense and unspeakable benefits on the country at large have helped human progress have benefited all outside interests etc and indeed that the collateral advantages surpass those pertaining to the stockholders themselves It were difficult to overestimate these collateral advantages and certainly the public should be considerate in subjecting the donors to any disadvantage
It is well however to let the thanks and consideration go to whom they belong They are very liable to take the wrong direction
To whom are they really due Partly to the inventors of the road the improvers of the rail of the power etc the cheapeners of processes etc The inventing public are entitled to large credit
Again The original stockholders are usually entitled to these collateral considerations as public benefactors They often contribute more than their due share and the selfish and indifferent reap the collateral results along with them The original stockholders in all corporations often indeed usually break and a new set comes in who buy both the property and the experience at low rates
To a third class the public is perhaps indebted in a somewhat different sense viz to the managers who have pushed new enterprises on the stockholders rather against their will certainly beyond their interests and knowledge Not always wisely but no small proportion of the railroad system has been thus built Not public spirit but private interest has often dictated such enlargements and the debt of the stockholders to such manager is naught and that of the public small
A fourth class is the most forward to press the claim of gratitude who are entitled to the reverse viz the stockjobbing class who have gobbled up roads and whose claim consists in having ruined the real benefactors of the public with selfish ends in view No other classes are half so loud as the last two3 and 4 No 4 scoop up the road as the transaction is significantly called putting in nothing but a net and drawing out the fish
They get blocks of stock form syndicates etc etc So it happens that much of the sympathy and consideration is wasted To pension off those who broke in public service were perhaps the better way At all events to protect them from sharpers
THE TRUE WAY
to pay the debt of gratitude is to prevent the shocking abuses to which they are frequently subjected
THE MISSING LINK
in political economy is knowledge If real supply and demand and supposed supply and demand were the same its problems would be greatly
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simplified Not now the real but the supposed controls human action Not the fact but the opinion Advantage of this is taken by sharpers to create artificial demand and supply to glut the market or denude it flood or drain They use short cuts in bulling and bearing the telegraph the press and brokers as instruments and make exchanges betwixt right hand and left and so the knaves prosper
They purchase often not so much the stock as the control excepting to confiscate the minority
When the era of combination begins the stockholders acquire real control and then the small stockholders are in danger also the honest managerfor he must either be bribed and enter the ring or give way to a man of less scruple So it works The current changes direction and not Scylla but Charybdis is now to be avoided
The same old human nature is here only with greater temptations and fewer impediments It is the property of water to wet and of fire to burn so of temptation to seduce so of wealth to grow to him that hath shall be givenand he shall have abundance He is like the swingrising higher and higher with each stroke
Modern times have developed such easy ways of making fortunes in comparison with which frebooting is respectable as to modefor the freebooter has never been trusted and as to amount freebooting is utterly insignificant Fallstaff should have lived at this day and had an easy time of it
Burglary from safes has kept up with all improvements so stock jobbing has grown into a fine art The 6ommon stockholderreally entitled to gratitudewakes up good easy mam to find his all licked upas by a sponge He learns the yanity of riches which take to themselves wings and fly away
We are not ministering to a mere popular prejudice and fanning a flame which is to consume what is most valuable in the accumulations of the past but on the contrary guarding against serious dangers and endeavoring to extinguish the flame by removing the fuel There is a method in our madness Light is good for all While the showing of the facts may reduce the apparent corpulence of many a road it will reduce in like proportion al those which have been exhibited alike If they dwindle down to reality that is all right Only
those really empty will collapse under the prick of this pin
There must be enough vigor and spirit left after the losses by the friction of wrong methods to correct the evils even if some harm is done in correcting them by reason of ignorance of the exact means
The roads are right to make selfdefense against ignorant and reckless interference but should rather guide than resist the efforts to correct real evils Many know the evils who are ignorant of the remedy and this remedy is not in the denial but the study of the facts There are many railroad officials of the highest character for probity and intelligence who gladly cooperate as experts in these studies and efforts
We quote the following strong and pertinent views from a paper by Henry C Lord in The Railway Age
SPECULATION IN STOCKS AND ITS EFFECT UPON THE MORALE OF RAILWAY OFFICERS
AND EMPLOYES
The president of a railroad company with his board of directors has no moral right to speculate in the securities of the property of which they are guardians and sponsors
A board of directors of a modern railway company convenes in secret session The president in his chair in the receipt of a salary larger than that paid to a judge of the Supreme Court and quite often larger than that paid to a justice of the Supreme Court of the United States the directors are gathered around him and the question before them is a financial policy the payment or passing of a dividend They have the power to do one or the other If a dividend has been earned they can either pay it or under the excuse that more equipment or additional tracks or shops are wanted they can delay or pass it and their proceedings are secret until they choose to reveal them to anxious and expectant stockholders with perhaps their whole income and support dependent upon the results or to impatient brokers seeking whom they may devour Mean whilethese excellent gentlemen in the faithful execution of a legal and moral trust proceed in their own interest to buy or sell and to give points to personal friends to the terrible upturning of the market and the possible and more often probable loss of thousands of private investors guardians of minor heirs administrators of ea
30
tates who have confided in them Meanwhile these officers are enriching themselves by buying short or selling long as the case may be One director devoted to the welfare of his constituents will upon his own knowledge of the policy determined upon by himself and his colleagues but not yet made public deposit five or ten thousand dollars as a margin and buy a hundred thousand dollars stock a director of another company equally well advised will deposit the same amount and sell at thirty days a thousand shares and the poor and anxious shareholder has to foot the bill
Now these parties represent a sacred trust one which they have no right to trifle with or to imperil The man who frequents a faro table knows what he is about takes his chances and there is and should be no sympathy for him if he loses his all but I pity the poor boy who without knowledge runs the risk He is on a dangerous pathway to ruin and while he must suffer now the grown men who lure him on encourage and stimulate him will suffer more in the bye and bye It is impossible to draw a sound moral distinction between the officers of a corporation delegated and sworn to administer a special duty or charge involving property individual rights and too often personal comfort and support using their official knowledge and position in the market and over the market for their individual gain and the gamester who invites patronage to his bank and his richly laden table In fact the latter will make a better record and show a cleaner one when weighed in the unerring scales of justice and humanity
The law recognizes the opportunity of the trustee to convey a public impression as to the value of the property which may influence the opinion and action of buyers and forbids him to take any advantage of that opportunity Alas how true in the speculative dance of the present age is that proverb of Solomon It is naught it is naught sailh the buyer but straightway he goeth and boasteth I have sometimes thought that this wise man must have been a speculator in stocks or in his maturer years he would not have written his book of proverbs or been able to support so large a family Fortunes are made out of individual owners who do not act intelligently being misinformed or not informed at all by those whose duty both legal and moral it is to give them full and exact information
These things often occur where no certificates of stock change hands and the books of the company show no record of the transactions of its officers A trustee and those relying upon his fidelity loses his self respect and just in proportion as he loses his own he loses that of his subordinate officers and employes He becomes demoralized and unworthy in his own estimation or greatly conceited and his influence if not wholly lost is greatly lessened The less constant he is in the discharge of the immediate duties assigned to him the more exacting he is apt to become his rules and orders are not well considered his employes understand it they become too independent of authority too often careless and are tempted to take risks and ventures themselves which they have no right to do and thus the moral of the whole railway system is disturbed and endangered 1876This was a year of great excitement in the market when speculation was at fever heat and when the chief executive officers of our railroads were fighting one another in an utterly destructive competition doing business for no profit and often at a great loss ruining innocent shareholders and creditors and destroying railway credit both in this country and in every market of Europe at the same time being buyers and sellers of stocks The word trust might as well for the time being have been stricken from the English language The direct natural and necessary result of a wicked and wholly unnecessary competition and speculation in which and by which the guardians the legal and moral custodians of great railroad trusts sacrificed their constituents without mercy and most cruelly
Now what was the result upon the moral the conduct of the employesand I use these two words as synonomous in this connection They were by the thousands unpaid at all or deferred or paid in scrip which they were glad to sell at any price and the rate of their hard earned wages was reduced involving great suffering not only to themselves butstill greater to their wives and children
Now who were at fault Was it the engineer with his right hand on the throttle of his engine his watchful eye peering into and through the darkness the unpaid fireman by his side the companion of his danger feeding the fire which created the steam to draw a train which George Stevenson never dreamed of Was it the brakeman at his post of danger the
31
conductor responsible for the discharge of his peculiar duties the mechanic or blacksmith in the shop or the trackman on his round of duty and hard labor No The fault lay with their superior officers presidents and directors speculators in the securities of their own and other companies with which they had contracts or running arrangements competing for business at ruinous rates without any regard to the laws of trade of commerce of ordinary business transportation but thoughtful all the while of market vales rather than the property under their charge and of their own private gains rather than the benefit and security of shareholders and the poor brave men who hourly imperilled their lives in their service
Before dismissing this part of the subject we will refer to one additional illustration of wholesale fraud and mismanagement to show what can and does go on under the sun
The President of the Boston Hartford and Erie Railroad at their recent annual meeting addressed the stockholders13500000 of stock being representedexposing the frauds which had been practiced upon them by their trusted agents and official protectors The facts alleged are virtually that the whole corporation and its assets have been swallowed like a bolus at one gulp Its very name has been changed to the New York and New England Railroad Company so that the original stockholders and parents do not now know their own bantling by name The proceedings of the scoopers are set forth as follows It seems that a mortgage on the road known as the Berdell mortgage was given in the creation of which the stockholders had no voice The conditions even of this nonvalid mortgage were violated and little value received for it by any one The trustees named in the mortgage were all bought off but one who was in collusion with the fraud To comply with the forms of law sham suits undefended were instituted the trustees acquiescingand such proceedings were had that the bondholders took possession and the stockholders found themselves left out in the cold
Such are the allegations We do not prejudge the matter but a huge grab is contemplated on the one side or the other
One crying abuse the Pennsylvania law endeavors to checkthat of railroad officers speculating in their own stock with special advan
tages to betray Contrary to public policy and private honesty they create the very exigencies on which they speculate They virtually by telegraph and through the agency of brokers and the press employ bybidders at auction they operate upon those whom it is their duty to inform and protect and are thus morally guilty of larceny after a trust and so they graze hard by two or three penitentiary offenses in their unscrupulous ways of cheating those who have trusted them
No better means of preventing such frauds can be adopted than that of putting all persons ON A LEVEL
as to railroad information
Knowledge possessed by sometrustees unworthy of trustand concealed from others owners entitled to informationis the great lever of fraudulent speculation
We acknowledge with great satisfaction the earnest cooperation in this matter of many railroad officers of the highest position and character in and out of the State both in regard to obtaining and diffusing information Said a railroad man referring to the forms of report proposed by the Commission in no disapproving way why you wish to know all we do Yes and to tell all we know
The rights of minorities are
1 To have the charter stuck to
2 To be free from byends and sideinterests whether of communities individuals directors etc
3 To be informed fully
4 To be properly represented within the limits of the charter
5 To have proxies honestly represent them
6 To be protected from blocks syndicates violent fluctuations etc
7 To be informed of negotiations and probable arrangements stock dividends etc in advance
Speculators of a private sort may not require these limitations but stock speculators do The dodges have been actually reduced to a nomenclature
FUNCTIONS OF THE COMMISSION
The chief function of the Railroad Commission is the same with that of all the machinery of law and political economy viz to improve and apply remedies Rights are unaltered but better remedies provided For this pur
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pose as we have already seen an adequate or1 tions as to publicity and as to impartial rates gan is needed to represent the general public in not robbing Peter to pay Paul
its relations to the railroads with judicial impartiality
While the discussion has to a large extent anticipated this topic it is well to have a systematic view of the office and functions of a Railroad Commission
In general terms it is the duty of a Commission to see to the proper fulfilment of the duties of the railroads growing out of their relations external and internal Those relations are chiefly as follows
EXTERNAL RELATIONS
1 Relations to the State at large
a As corporations or artificial persons
The Railroad Commission must see to the obedience of the railroad companies to the law of their creation
Must act as a grand inquest for the State to scrutinize and see to the performance of all their chartered obligations express or implied and report any and all violations of the same and suggest means of correcting abuses
The Commission is expected to acquire the qualifications of experts to understand and investigate just such matters
Especially to represent the State in proper tax returnsa matter of peculiar difficulty and in which great errors and losses have occurred to the general detriment of taxpayers
To provide safeguards against the peculiar dangers arising from the existence of corporations of immense realative wealth and power with an almost inevitable tendency to concentrate in a few hands and with insufficient knowledge and consciousness diffused among its stockholders even when numerous They do not know what is going on with their own property
b As special persons viz 1 as common carriers with duties to citizens of reasonable facilities accommodations etc and 2 as monopolists specialized highly Here really the chief duties of the Commissioners reside
c Lastly their relations to the State by contract as to exemption from taxation and from regulation as to the limits of each and the continued obligation of the contract by virtue of its fulfillment by the corporations themselves
2 Their relations to the Public as to just rates as to proper facilities rules and regula
3 To CreditorsBy proper publicity and fairness of showings
4 To other Roads1 Tocompeting roads an intensely practical matter to which Rule 6 and its modifications apply 2 To connecting roadsby proper forwarding and by impartiality act 1874 To insure fulfillment of contracts Examine and approve or modify with refence to public obligations Publicity among themselves
INTERNAL RELATIONS
To stockholders and the inside public the Commission has really the functions of an Ordinary between the trustees and the owners By reason of the want of consciousness and power on the part of the owners and the need of selfinterest as ballast to prevent trustees from speculating in their own stock To provide for get ting together the three InsInterest Influence and Information as the best safeguard of the stockholder and the general public
Various views are held of the proper limits etc of the powers of a Commission The American idea is that one man is as good as another man There are few specialists relatively and small division of labor and rotation in office exists in politics With railroad magnates there is no rotation and so superior training They are all experts vs nonexperts
The Commission is based on law and on public opinion In Massachusetts it is advisory not systematic In England compulsory not systematic In Georgia it is just between the two as to powers it has piima facie powers and is systematic
RESULTS OF THE COMMISSION
In Georgia the railroads are made amenable to law and opinion The recognition is effected by railroads of their public obligations and the recognition by the publie of railroad rights By accounts reports publicity and tabulation a torch is lit up in what has been a dark cave Social laws exist but still there are needed legislation and a judiciary so with the economical laws which obtain in the case of a monopoly there must be a tribunal to regulate
An important use of the Commission is so to acertain the actual value of stocks and so to publish the same as to give greatly increased stability and confidence founded on satisfactory information A Commission in every State
33
would do much to stop speculation by stopping the cutting of rates etc for the purpose of low ering values of stock We have seen that these quasi public corporations are not entitled to secrecy What would be inquisitorial in private matters here becomes matter of public investigation and necessary for all interests Indeed secrecy to the public is incompatible with openness to a thousand stockholders and creditors etc
The Commission indeed is an Exchange in which railroad information is collected and by which it is diffused By means of proper bookkeeping the facts are all obtained and by proper tabulation they are really made known and not nominally only Thus real publicity is reached
Thus it protects from ignorance and error both the public and the owners and so acts as a flywheel giving stability to values by giving publicity to the elements which enter into estimates
ACTION OF THE COMMISSION
The distinct objects set forth in the law are the prevention of extortion and unjust discrimination and the whole action of the Commission bears on these two subjects to ascertain what is just and reasonable and to make rates rules and regulations in conformity with what is so ascertained
The circulars issued have been fewstability as well as adaptation being desirable Compared with the changes made for example both as to rates and classification by the Southern Bailway and Steamship Association those made by the Commission are comparatively few
CIRCULAR NO 11
concerning passenger rates is one of the most important ever issued by the Commission It is one of great and general interest for all persons producers and nonproducers old and young male anc female white and colored have an interest in passenger fares Even those who cannot travel have friends who come to see them Like taxes this rate comes home to all classes and conditions
Now of all the possible accommodations and facilities for travel cheapness is the greatest facility People will travel if they can afford to do so
In regard to the rates of fare it is to be observed that if a reduction of rate increases the 5
number of passengers it does not make any material increase of expenses The same trains and employes needed for twenty passengers will need little added expense for fifty
Again it is to be remarked that the reduction not being confined to one or two roads each road is better fed as to travel not only along its own line but by increased travel fed to it from other lines
Nor is the effect limited to State bounds The increase of distant travel corresponds partially with that of local travel Indeed in the present case the example set in Georgia was catching this time health being catching and not disease and rates without the State were also affected favorably by the Georgia reduction
Aside from the direct increase in travel there is a consequent general increase in business for persons who go from home are apt to make purchases and ship them home They see the stocks in the cities and towns they visit and are induced to buy
TRAVEL IS A GREAT EDUCATOR
People learn by contact with one another and with new things As they learn they are stimulated to improvement they acquire new wants which spur them to new efforts A higher standard of knowledge and of life is attained and an increased civilization with its added wants and industries largely increasing transportation
Our own State furnishes in the AirLine road an admirable illustration of all this How great the relative development of that section as compared with its condition before railroad facilities were supplied Compare the business now and a few years ago Production has increased towns have sprung up and the country is alive
The population naturally intelligent was isolated and needed only intercourse to develop habits of enterprise and increased indnstry
Such considerations of general policy induced the adoption of circular No 11 reducing passenger fares not with intent to injure the railroads or with indifference to their interests but with the conviction that the collateral advantages would certainly compensate for any partial or temporary loss and the belief that the direct results would themselves be satisfactory
So far as reports have yet reached us they have been more than satisfactory The in
Creased travel has more than compensated for the reduction of rates and there being little increase of expense the increase of gross receipts has really been an increase of net
Thus the railroads have not only not suffered but as a general rule have been benefltted by the change while the general public has received a very grateful relief and improved facilities
The exact effect on all the roads has not yet been reported to us but will be embraced in the supplementary report of the Commission when received
If it shall be found to have worked any hardship upon any road or branch the evil will be remedied by an increase of rates if need be unless another method be practicable viz a diminution of expenses On this subject it may be well here to state as to the result of our experience and observation that low rates are better on the whole than fast or frequent trains In a thinly settled country it is easy to adapt ones plans to a triweekly instead of a daily train The cost of the travel is the great impediment Ninetenths of the people can start oh Tuesday instead of Monday with little inconvenience and by saving one daily train the road can afford cheap rates We know this to be true from actual experience A fejv persons will grumble at it of course but the great majority can spare time better than money and really a mere change rather than loss of time is involved
Circular 11 was received by the public at large as working a valuable change if it should be just to railroads On the part of the latter there as considerable anxiety and it was by some regarded as a rash experiment It was not rash however but well considered at the time even had it proved erroneous Its actual operation has been alike beneficial to the roads and the public
Circular 12 relates entirely to the Savannah Florida and Western Railroad The injunction imposed by the United States Circuit Court having been dissolved the Savannah Florida and Western Road was promptly placed on the same footing with the Macon and Brunswick and the Savannah division of the Central Railroad
Circular 13 relates entirely to classification and part of circular 14 to the same subject The rest of circular 14 refers simply to the Waycross and Florida Road
A very considerable portion of our work has arisen from lack of information as to
SPECIAL UNPRINTED RATES
This is but one of the numerous illustrations of the absolute need of light in order to correct action
We cannot indeed too strongly express the need of knowledge as a guide in this complex matter of railroad regulation It is just as necessary as a light when one rises in the night it were as easy to arrange the furniture of a room satisfactorily in the dark as to regulate railroad tariffs without knowledge of the conditions Special rates unrepresented to us have given more trouble to the Commission the public and the railroads themselves than any other one cause
This is one of the numerous reasons for the great pains we have taken in the forms of reports and the principles of bookkeeping and tabulation In the appendix will be found the method adopted and the accompanying letter sent to the railroads
Numerous applications have been made to us from time to time for the correction of alleged grievances and action had thereon which would not interest the general public As a general rule we have endeavored to have the railroads and the shippers to arrange between themselves with such suggestions as we deemed proper and quite frequently this has been satisfactorily done When necessary of course the Commission took such action as their duty under the law required
AN IMPORTANT RULE
adopted by the Commission will be found in the appendix concerning notices of any proposed action in order that the parties affected may be heard in advance The regulation is analogous to what is known in courts as a rule nisi nisi unless being a notice that such and such action will be had unless cause is shown to the contrary
Accompanying the supplementary report there is
A CORRECTED RAILROAD MAP
of the State with some additional matter adding much to its value and little to its cost It is impossible to study railroad relations and affairs without a map It gives to the eye superior information to any which can be conveyed
35
by mere description just as a portrait does of a person
The report contains also a complete copy or else a reference to those parts of the Constitution and laws of the State applicable to railroads and the work of the Commission also of the rules and regulations and tariffs adopted by the Commission revised and corrected making
A CLEAN SHEET
up to date so as to let the reader be assured that he has all the data necessary to understand our action
This is very important as it is confusing even to an experienced railroad man to have to look here and there for this rule and that and not be sure whether this is still of force or whether that has superseded it leaving him doubtful and uneasy
The object is to give the private citizen information on which he can rply to understand his own rights and relations to the railroads
With no part of our work have we taken greater pains than with the system of reports to be made by the railroads to the Commission as the foundation of our reports to the public The system adopted after much and anxious consideration and frequent comparison with other systems is set forth in a folio pamphlet marked form No 10 and with the title Report of theRailCompany to
the Railroad Commission of Georgia for the
ending188
Infinite pains have been taken with this form and more will be as the light of experience guides us If we have not gone to the bottom it is because we have not known how and one or two years experience will enable us to go deeper There is no greater desideratum
Reduction to measurementto figuresis the first step towards science and proper means of verification the second There is ever danger of error and so need of repeated verification only thus can we know that we know
How can the Commission report to the Public unless the Railroads report to them
How can the railroads report unless they know
How can they know except by bookkeeping and how can we report except by correct tabulation
If any one can suggest a cheaper and easier method we shall be glad to learn and will be attentive scholars
A system of Blank Forms is very important as a set of pigeon holes in which to put information Equally important is it that the information put in should be true and according to the facts
Truth and error look alike but are very wide apart One may fill every blank with a falsehood and it is of no use but to mislead An intelligible system filled out with the truth is what is needed
Some complaints have been made that we have not given information concerning the actual condition and operations of the railroads In the present report the complainants will find probably as much or more than they can readily digest although put in the most convenient and digestible form We did not know ourselves how to get it and how to present it uhtil after prolonged study Forty or fifty years of railroad experience has not yet developed a complete system We have been grappling with a big problem and trying to do our share towards its solution We are not ashamed of our contribution as the result of a few months of arduous study One or two years will suffice to revolutionize this matter of real reliable intelligible information level to the capacity of all and furnishing information which hitherto even the railroad officials have not had in so complete and systematic a form
IN THE CASE OF TILLEY YS THE RAILKOAD COMMISSION
the discussion of principles as well as the constitutionality of the law and the legality of our action as a commission were all brought up very thoroughly The rights of the State the rights of the Legislature the rights of the Commission of the railroads and of citizens were all involved
The whole policy of the State concerning one of its most vital interests was involveda policy settled by the Convention ratified by the people and put into operation by the General Assembly after prolonged consideration and that not by a mere act of ordinary legislation but by means of a specially devised organization established for the purpose and intended to carry into effect the important ends contemplated by the people of the State speaking through their most authoritative mouthpiecea Constitutional Convention
The chief point discussed was not so much the legislative right of regulation as the right
3 6
of delegation The constitutionality of the act the legality of the delegation and the action of the Commission were all sustained by the court
The bill of complaint as argued by brief was a bold and unsparing attack along the whole lineomitting no objection not even sparing motives but more than hinting partiality if nothing worse on the part of the Commission and attacking also the Legislature the Executive and the State itself and by indirection the courts also There was no stone unturned and the appeal was made to rhetoric as well as logic to passion as well as reason Of this we have no complaint to make We desired a fair and full judicial testthe parties speaking their mind and they did speak it very plainly We were however in good company for the attack was unsparing upon the State and all its departments as well as upon the Commission
The upshot of the decision was to hold that the Constitutional Convention did not exceed its powers nor the Legislature theirs nor the Commission theirs
Indeed the Legislature not only did not go vitra vires by legislation but would have gone so by failure to actthe Constitution just as definitely requiring action on this as on a score of other points Failure to actnot action would have been a violation of the Constitution In the Constitutional Convention there were several distinct efforts to make legislative action optional and permissive not imperative but these all failed some sort of legislative action was obligatory under the oaths of the members
The mode of action by delegation was also sustained It was not only a right method and allowable but needful and the only proper method See Illinois case
The right to delegate municipal powers is universally conceded and acted on There is in the Constitution no more express grant of such a power to the Legislature than of the right to delegate this of regulating railroads The reasons for the latter far surpass those for the former for the needful municipal regulations are much more cognate to the ordinary action of the Legislature than are those pertaining to railroads and require far less special even professional knowledge and power of adjustment and frequency of modification
Nor was the action of the Commission ultra vires On the contrary it was sustained by the court as prudent and conservative and with evident and laborious intent to do justice Its report as a master in chancery was sustained
The powers of rate making rule making and regulation making on which the changes were so rung are exercised in detail in Great Britain and in Europe and in many of the States If each separate rate be so allowed why not a systematic review and report of the rates as a whole by class and distance So rule making being allowed in detail why not a consistent and harmonious system of rules and regula tions The British system ends at last in the j Georgia system
In establishing an orderly system the Commission in Note 1 in which larger discretion was left to the railroads endeavored carefully to include those special cases in which such discretion seemed necessary Why should a whole field be left unregulated because a spe I cial department of it is hard to regulate right
ly
Some of the objections were obviously tech j nical the railroads for example would prefer to rely on a Commission with its relative accessibility to argument and its flexibility than on direct legislative action and so to a far j greater extent on the Commission than on a jury which is the special detestation and dearest foe of the railroad
One exception might he made perhaps viz THE HOPE OF LOBBYING
to exert improper influences over legislation That method is now criminal under the law Yet the offense is difficult to define and the law hard to enforce
Whatever the present innocence of such of j fenses may be here in Georgia there are not wanting many examples abroad State and Federal
To dislodge a mans convictions it is some 1 times necessary and important to know the hole they came i