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REPORT OF TUE SPECIAL COMMITTEE
ON
OP THE
CCltamlïcv of öüommcm of the ^tate of |]leiu-|¡orh,
ON THE REPLY MADE BY
Hon. LELAND STANFORD,
President of the Central Pacific R. R. Co.
TO THE QUESTIONS ON THE RAILROAD PROBLEM,
PROPOUNDED BY THE COMMITTEE.
APRIL 7th, i83i.
NWW- YORK:
PEESS OP THE CHAMBEE OP COMMERCE.
1881.
REPORT GE THE SPECIAL COMMITTEE
ON
R^IL^D TpSPORpOíi
OF THE
iSIhambe»: of €iomttWïcc of the <^íaíe of ||iettt-||orh,
ON THE REPLY MADE BY
Hon. LELAND STANFORD,
President of the Central Pacific R. R Co.
TO THE QUESTIONS ON THE RAILROAD PROBLEM,
PROPOUNDED BY THE COMMITTEE.
APRIL 7th, 1881.
NEW- YORK;
PRESS OF THE CHAMBER OF COMMERCE.
1881.
I! K N 12 Y K K S K V . P « 1 N T E 11 ,
So. 4' t'a.lsr Stioe", N«»\*-York.
REPORT.
To the Chamber of Commerce :
The Special Committee on Railroad Transportation respectfully
report, for the information of the Chamber, that among the answers
to the series of questions propounded some time since by your Com¬
mittee to various eminent men, that of Hon. Leland Stanfoed,
President of the Central Pacific Railroad, seems worthy of careful
examination and consideration. The object of your Committee in
propounding these questions was to stimulate discussion of the
principles governing the relations of railroads to the public, and
thus endeavor to arrive at an equitable adjustment of same. Hav¬
ing previously printed the answers of Judge Black and of the
Railway Commissioners of Massachusetts, each treating the subject
from a different point of view, your Committee now present to the
Chamber the views of President Stakfoed, which, as before stated,
are valuable as-presenting, in an exceptionally able manner, the rail¬
road side of the question under consideration. It is evident that
this expression of opinion has received careful legal supervision and
interpretation, and yet it is remarkable for a boldness of assertion
of railroad claims, and a lofty contempt for the decisions of our
Courts, which can only spring from a consciousness of power, and
which fairly joins issue with those made in behalf of the public. It
now remains to be seen—not which is nearest right, for the highest
Court in the land has already decided the principles involved, in
favor of the people, but whether the people, through their Govern¬
ment, can control the railroads, or whether the railroads shall abso¬
lutely control the people.
Briefly stated. Governor Stanfoed's propositions are as follows :
1. He denies that railroads are public highways and common
carriers, deriving their existence from the State, and asserts that they
owe no duties to the public other than those of the merchant, the
farmer or the laborer.
4
2. He denies tlie existence of discriminations upon the roads with
which he is connected, but justifies them in principle.
3. He substantially admits that railroad companies contribute
large sums to control nominations or elections, and states tbat it is
no better or Avorse than Avhere the same is done by individuals.
4. He claims that stock-watering is a matter which aifects only in¬
dividual owners, and in Avhich the public have no interest.
5. He repudiates the idea of State regulation of railroads Avith
the words : "What you propose in regard to railroad property is,
" to my mind, on a par Avith the principles contended for by the
" Communists ; and the agitator, Kearney, advocated no doctrine
" in regard to property more atrocious than the principles embodied
" in the Granger cases, and the laws which they sustain."
6. The panacea proposed by President Stanford for all the evils
of the present system of railroad management is, "Let us alone."
To such claims as these, it is useless to apply argument ; Ave there¬
fore meet them Avith facts, and leave the members of this Chamber
and tbe public to judge them.
Regarding the first clause, the Courts from the. loAvest to the
highest have decided that railroads are public higbAA'ays and com¬
mon carriers, bound to make but reasonable charges, and these Avith-
out favoritism or discrimination. A recent decision of Judge
Baxter, of the United States Circuit Court, says :
" Railroads are quasi public institutions. They are authorized to
facilitate, and not to control or force from legitimate and natural
channels, or liinder or obstruct the business of the country. Rail¬
road companies, as common carriers, are bound to the extent of their
corporate means to supply all the accommodations and facilities de¬
manded by the regular and ordinary business of the country
through Avliich they pass. Neither the railroad comp.anies nor the
Courts can discriminate in favor of one or more parties as against
others. All are entitled to the same measure of accommodation
Avho may offer to do the like business."
Second. In .answer to the denial of Governor Stanford, that dis¬
criminations against communities or individuals .are pr.acticcd by
roads with which he is connected, Ave submit the folloAving extracts
5
from a speech made in Congress February 21, 1881, by Hon, R. M.
Daggett, Representative from Nevada.
" The merchant at Toano having a special contract, pays $82 pel¬
ear load less freight than the merchant at Palisade, although, as
before mentioned, the carriage is 129 miles more." * * *
" The freight on a box of eggs from Ogden to Toano costs one man
$3.35 per box, and the same number of eggs in the same sized box,
and of the same weight, costs another man 65 cents. A hundred
pounds of squashes costs one man in freight $1.36, while it costs
another 55 cents." # * it *
All merchandise consigned from New-York to railway points in
Nevada must pay, " 1st, full through rates from New-York to San
Francisco, when in reality the freights are not taken through, but
delivered 600 or 700 miles east of San Francisco ; and 2d, excessive
way rates from San Francisco to points of delivery in Nevada of
the same freights which have neither been forwarded beyond nor
brought back by the railway company making this cold-blooded
charge."
For instance, a car load of candles is taken from New-York to
San Francisco for $300, but if left at Elko, 619 miles less distance,
the charge is $800, being the through rate to San Francisco, plus
the local rate from San Francisco hack to Elko.
Third. Regarding the assertion that it is no worse for railroads
to contribute money to control nominations or elections than it is
for individuals, we answer, that while in principle it is not, in prac¬
tice it is far more dangerous and objectionable, it being largely a
question of degree, just as one predatory animal is more dangerous
than another according to its size and strength. The corruption of
our elections and legislation by great corporations is one of the
most dangerous and regretable of features in modern society. It
is a matter of official record in this and other States. The Hep-
BGEíT Committee allude to this subject in the following terms :
" The possible exercise of this vast political power direct and in¬
direct, not to discuss its exercise in the past, seems to your Commit¬
tee an unanswerable argument in favor of instituting governmental
supervision of railroads, and holding them in their management to
a strict accountability."
Fourth. The fallacy of the claim that stock-watering does not
affect the public interest is shown by the fact that the dividends
paid in 13 years last past on the watered stock which the late Mr.
6
VAKOEKiiiLT put into the N. Y. C. and H. R. R. R., (in the years
1867 and 1868,) have amounted, with interest thereon compounded
annually, to over seventy-five millions of dollars, or, in other words,
if, instead of thus inflating these stocks, they had been maintained
at the amount then ouistanding, and rates for transportation cor¬
respondingly lowered, the public would have been seventy-five
millions of dollars better off, and forty-seven millions of watered
stock (now quoted at 146) would not be in existence to afford
an excuse for further taxing the production and commerce of
the country for all time to come. This practice of creating ficti¬
tious values in public, enterprises is perhaps the most detrimental
to the public interest of all the abuses attending uncontrolled
management of railroad and telegraph corporations. It is accom¬
plished by many different methods. " Construction " or " develop¬
ment " companies are a favorite method. The " Credit Mobilier,"
in connection with the Union Pacific Road, is a case in point, and
a more recent instance is illustrated by the following, from the
"Graphic " of March 18th, 1881 :
" The Central Construction Company is now paying at its office.
No. 80 Broadway, a final dividend in Western Union Telegraph
Company new stock at par of 150 per cent, on the $5,000,000 of
subscriptions made last year for the construction of the American
Union lines. With the previous dividend of 150 per cent, in
American Union Stock, this gives to the subscribers the equivalent
of 300 per cent, in a new Western Union stock at par on their in¬
vestment. This was the first of the construction companies estab¬
lished by Jay Gould, and whose subscriptions have been so eagerly
sought for by the wiser class of investors. The others are said to
promise to pay fully as well as this."
Capitalizing " surplus earnings " is another form of stock water¬
ing which is described by the Legislative Committee of 1878,
which investigated the coal combination, as follows :
" During the receipt of these enormous profits many of the coal
corporations, as was the case with railroads not engaged in the
coal carrying trade, unable, under their charters, or for other
reasons, to declare dividends upon thçir stock that would absorb
their unexpended surplus, issued additional stock to the stock¬
holders, for which they paid nothing. Inaugur.ated what is
commonly known as stock-watering, or a capitalization of surplus
earnings, which is in substance exacting money from the people,
creating an indebtedness representing the same, and making this
the basis for forever asking the public to pay interest upon their
own money so exacted."
7
Even stealings have, in the past, been capitalized, prominent
examples of which are found in the former management of the
Erie and the New-York and New-Haven Railroads. The SchuvLeb
frauds of the latter were at one time famous. The President of
the road, Mr. Schuyler, issued and sold a large amount of bonds,
applying the proceeds to his own use. It might he thought that
the stockholders would have assessed themselves to make up the
deficiency caused by the unfaithfulness of their own servant, but
inste.ad of doing this they "increased their capital," or in other
words issued and sold stock enough to cover the fraudulent bonds, and
since that time have maintained rates high enough to pay dividends,
generally of 10 per cent., upon the whole amount of stock thus inñated.
What would be thought of a merchant making a bad debt who
assessed the amount upon his paying customers ! And even this
would not compare to the injustice of the other, for when the bad
debt had been assessed and paid that would end it, but in the case
of the increased stock of the New-Haven and other railroads it
remains a burden upon the public so long as rates for transportation
are maintained high enough to yield dividends upon it. The Central
Pacific Railroad Company has been an adept at these practices, and
through its "construction and finance company" it has inflated its
obligations to the fullest possible extent.
Fifth. Regarding the denunciation of the decisions of the
Supreme Court of the United States by President Stanfoed it is,
as above stated, useless to argue. It may, however, account for
the recent attempts to place upon the Supreme Court bench a
prominent railroad attorney, and in the face of such utterances it
behooves all patriotic citizens to jealously guard against the prefer¬
ment in any department of our Government of men who have been
the servants of great public corporations, who are likely to sympa¬
thize with these corporations to the detriment of the public interest.
It recalls to mind the recent notable words of United States Senator
David Davis :
The rapid growth of corporate power, and the malign influence
which it exerts by combination on the National and State Legisla¬
tures, is a well-grounded cause of alarm. A struggle is pending in
the near future between this overgrown power, with its vast ramifi¬
cations all over the Union, and a hard grip on much of the politi¬
cal machinery, on the one hand, and the people in an unorganized
condition on the other, for control of the government. It will be
watched by every patriot with intense anxiety."
8
Sixth. Regarding the claim made by President Stanford, that
railroads should be left alone to manage their affairs in their own
way, and decide what is a reasonable charge for the service "rendered,
we call attention to the results already attained by this policy in the
case of President Stanford and his associates, as set forth in the
following extract from the speech of Congressman Daggett, before
alluded to. These statements are extraordinary, hut were made in
Congress, have been officially printed, extensively circulated, and
your Committee are not aware that any attonpt has been made to
controvert them :
" how the central pacific was built.
" Nor can the necessity of securing a fair return for the money in¬
vested by the Central Pacific Railroad owners be urged in explana¬
tion of their extraordinary charges. When they began the construc¬
tion of the road they paid taxes in the aggregate on property of
all kinds amounting to less than §150,000. To-day their railroad
property alone, with the indebtedness standing against it deducted,
is valued by them at the enormous sum of over one hundred and
eighty-six million dollars. But it cannot be shown that they ever
advanced money enough from their own jjockets to build a single
mile of the road. The bonds of the Government and the subsidies
and gifts of the people were more than sufficient to build and stock
the road entire.
" The original incorporators paid in 10 per cent, on $1,000 a mile for
one hundred and fifteen miles, the estimated distance from Sacra¬
mento to the Nevada line. Twelve hundred and fifty shares of
stock were subscribed at $100 per share, of which Messrs. Stanford,
Huntington, Hopkins and Crocker, took six hundred shares. As¬
suming, however, that they advanced the required 10 per cent, on
all the shares subscribed, and their original investment did not ex¬
ceed $12,500, all told. On this small investment the gentlemen have
done well—so well, in fact, that in 1877 President Stanford report¬
ed the property of the Central Pacific to be worth $187,003,680.66,
while Mr. Crocker, President of the Southern Pacific, valued the
property of that road at $115,359,011.98, making a total valuation of
$302,362,692.64. The indebtedness of the Central Pacific was given
by Mr. Stanford at $85,391,350.64, and the indebtedness of the
Southern Pacific was placed by Mr. Crocker at $30,415,332.95,
making the total indebtedness of the two roads $115,806,683.59.
The account then stood as follows :
Value of the property of both roads, $302,362,692 64
The indebtedness of both roads, 115,806,683 59
Assets over liabilities, $186,556,009 05
"Independently of the United States bonds loaned to the Central
Pacific, the gifts to the two roads amount to $91,011,280, according
9
to the estimates of their executive officers. The net earnings of the
roads are reported at $75,000,000. In reality they have been much
larger, as their expense, like their construction accounts, have
afforded large margins of profits to their managers in other capaci¬
ties.
" A part of the wealth of these railroad gentlemen two years ago
consisted of $54,000,000 of watered stock of the Central Pacific and
$36,000,000 of the Southern Pacific,being an aggregate of $90,000,000
in stock, which cost them only the price of printing, and upon
which they are compelling the public to pay them eight per cent,
yearly in dividends.
" The Southern Pacific has heen constructed andjoaidfor from the
earnings of the Central Pacific, yet the owners issue $50,000 in
stock, and $40,000 in bonds per mile, and charge such rates as will
enable them to collect annually eight per cent, on the stock and six
per cent, on the bonds.
In the face of such figures as these, can President Stanford's plea,
" let us alone," be tolerated ?
Can such a power of taxation be safely left subject only to the
regulation of the corporate conscience ?
Great efforts are now being made by persons in the railroad inter¬
est to prove that railroad consolidation, with all its increase of power
in the hands of a few men, is in the interest of commerce, because it
reduces the proportionate expense of operating these modern high¬
ways, and the constant decline in charges for transportation is
pointed to ip confirmation of this theory. Your Committee are of
course aware of the greater proportionate economy of operating
large than small establishments of all kinds, and to this rule railroads
are not exceptions. We have no objection to all the railroads in
the United States being consolidated into a single system, jorowicfec?
that system is controlled in the interest of the public, but so long as
railroad managers permit gross favoritism and discriminations
against both communities and individuals ; so long as they seek by
stock-watering and other devices to obtain from the public more
than a reasonable compensation for the service rendered ; so long
as they try to perpetuate these abuses by obtaining control of the
legislative, judicial and executive departments of our government,
just so long must we esteem the consolidation of railroad power
detrimental to all classes of citizens, and a perpetual menace to the
public welfare, for it is calculated to re-distribute the wealth of the
country, virtually concentrating the commerce of the nation in few
hands, and making all others tributary thereto. Reduced rates for
transportation, and the development of new industries and new
sections of our country, are no equivalent for results like these, and in
10
point of fact it is not so niucii the economies of consolidation which
have given the public decreased rates of transport, as it is the brains
of our inventors. Steel rails last from four to six times as long
as iron rails, and cost but one-quarter more. Locomotives haul one-
half more load than they did ten years since. Freight cars carry a
much larger paying load in proportion to weight of rolling stock,
than formerly. Improved signals, improved appliances for handling
freight, &c., greatly reduce the cost of labor required in operating
railroads, and collectively, the effect of these inventions has been
so great, that railroads have been enabled to largely reduce their
charges, and still yield enormous returns to the capital actually con¬
tributed for their construction. Steam applied to transportation,
and electricity as a means of carrying intelligence, have conferred
enormous benefits upon the people of the world, hut not to the de¬
gree they should have done. The National Board of Trade, at its
last annual meeting, adopted a report stating,
" The degree to which the great powers of steam and electricity
have been allowed to pass into corporate hands, which employ them
as a means to tax the public unduly for their use, is at this time
forcing itself upon the attention of our statesmen, and there is a
widespread feeling that the public welfare demands that the power
and privileges of corporate grants shall be limited in the future."
Further comment is unnecessary at this time ; your Committee
ask the members of the Chamber to carefully consider the views of
President Stanford, which are printed in full as an appendix to
this report, and compare them with the facts herewith submitted.
New-Yoek, April 7, 1881.
(Signed,) Charles S. Smith,
Jackson S. Schultz,
B. B. Sherman,
F. B. Thuebee,
C. C. Dodge,
Of Special Commit¬
tee on Railroad
Transportation,
APPENDIX.
LETTER OF HON. LELAND STANFORD, PRESIDENT OF THE
CENTRAL PACIFIC RAILROAD.
San Feancisco, January 20, 1881.
Chaeles S. Smith, Jackson S. SchtiltZj B. B. Sheeman, F. B.
Thuebbe and C. C. Dodge, a Special Committee on Trans¬
portation of the Nexo- Yox'k Chamber of Corrmiex'ce :
Gentlemen,—I Lave received from you several documents,
among others a list of questions pertaining to railroads and railroad
matters ; also Judge Bljíck's answer to these questions. I shall
not undertake to answer the questions separately and specifically,
hut will, in a general manner, endeavor to substantially cover the
essential points of all. The general scope of your questions goes to
the control, to a greater or less extent, of property which the stock¬
holders in railroad companies believe to be of right their own.
Here it is pertinent, it seems to me, to call attention to the
principles upon which our Government is founded. They are laid
down in that great bill of rights kn(>wn as the Declaration of Inde¬
pendence. There it is clearly enunciated that governments are
instituted to secure the people in their inalienable rights—life,
liberty and the pursuit of happiness. This was a new departure in
government, and in direct antagonism to that theory of government
which was based upon the divine right of kings—to govern, to
control, and to arbitrarily fix burdens upon the people for their
own personal aggrandizement. The " rights of sovereignty " is a
phrase common throughout all our law books, but if the origin of
these " rights " be closely scanned, they will be found to be almost
invariably in confiict with the fundamental idea of our Government.
Tariffs and the supervision of commerce and trade originated in a
barbarous age, and were the direct offspring of robbery and rapine
enforced by the hand of might.
the question of ownbeship is in conteol.
If the question of the control of railroads were to be treated
purely from a legal standpoint, I should have nothing to say,
because it is stare decisis. The essence of ownership is in control.
The value of property consists in its use or the rents and profits to
be derived. In the celebrated " Granger cases," so called, the use.
12
the profits and the conti'ol were declared to he the subject of legisla¬
tion. The principle in these eases, especially as enunciated in the
" Warehouse " case, was that the right of the Legislature to control
the use and the benefits of the property of private individuals, in
connection with their own personal services, was to be determined
by the nature of the business or the number of peoj^le Avith whom
the business might be transacted.
To sustain these decisions there was a violent assumption of fact.
It does not follow that the Avarehouseman necessarily does business
Avith a large number of people. A single individual might tax to
the utmost the capacity of the AA'arehouse—and, indeed, of several.
To illustrate : one citizen of California, from a single crop, had
forty thousand tons of wheat. This Avould have filled eight ware¬
houses of a capacity of five thousand tons each, and under the
decisions in the case referred to this farmer might have had appro¬
priated to his benefit these eight warehoAises, and the personal
services of those engaged in attending to the business. In such a
case, if one or more indudduals may use the property and appro¬
priate the services of one or more persons, there is no limit to which
the poAver may be exercised over all kinds of business. Then, AA'here
is the hai-mony betAveen a decision of tbe Courts sustaining this
doctrine and the fundamental principles of our Government, to
Avhich allusion has before been made ? These decisions sustain
Judge Black's assertion, but there can be no denying that they are
a most flagrant violation of tbe principles of free government, and
are entirely in harmony with that theory of gOA'ernment Avhieh
rests its foundation in might and asserts the divine right of kings.
The idea of our system of government Avas that men should be free,
independent and self-reliant ; that eA'ery man should depend upon
himself for his success in life. The establishment of commissions
of espionage, the appointment of ofiicers to inquire into or to regu¬
late men's business affairs, and tbe attempt of the Government to
make contracts for individuals, all tend to destroy this independence,
and are departures AA'hich should be carefully considered. It was
never intended that this should be a paternal government, yet does
it not begin to assume that form when it is claimed that it should
fix the terms of contracts betAveen independent parties, by attempts
at regulating the rates shippers shall pay and carriers shall receive
for their services ? But I proceed to treat the subject in its politico-
economic aspects.
no the states create the eaileoads ?
In your first interrogatory you seem to beg the Avhole question,
and assume that " railroads are public higbAvays and common car¬
riers, and derive their franchise and existence from the public." I
do not think that the assumption is proper. Corporations are formed,
I believe, throughout all the States of our Union under general in¬
corporation laAVS, and they are formed by the individual incorpora¬
tors. Tbe property of the incorporation is contributed by the
stockholders, and the State no more creates the corporation or its
13
property than it creates a joint partnership between individuals or
the partnership property. I take it that there is a wide misappre¬
hension as to what the State does for the various railroad corpora¬
tions. There is an idea that the State confers a franchise of value.
This, I presume, grows out of the ideas associated with and derived
from that species of corporation, now nearly obsolete, created by
special acts of the Legislature before tbe existence of our general
incorporation laws, and which was necessarily a monopoly. To in¬
corporations created in this way, there were granted of course
franchises supposed to be of value, but to the modern corporation
the State gives nothing but the right to exist. The corporation ob¬
tains nothing Avhich cannot be had by any set of individuals who
choose to associate themselves together, as a corporation, for the
same purpose ; and all it costs in the State of California to create
such a corporation, with the privilege of paralleling every mile of
railroad in the State, is the mere fee for filing the articles of incor¬
poration (amounting to about $10.) If a thing has a greater value
than it can be had for at any time by anybody, I am unable to per¬
ceive it.
THE EIGHT OP EMINENT DOMAIN.
Many have the impression that there is a right of eminent domain
attaching to this railroad corporation which is of value. To this I
say that the right of eminent domain is not exercised by the railroad
company, but by the State, in whom only exists this power, and is
exercised upon the theory that the investment by the railroad in¬
corporators of their time and private jiroperty is of a character
highly beneficial to the public. The State does not do it for the
benefit of the railroad company, and has no right to take the benefit
of the railroad company into consideration.
The State requires the railroad corporation to pay to the indi¬
vidual whose property has been taken its full value. And here let
me say, that the legitimacy of the investment of the means of the
individual incorporators, and its character, are stamped by the State
Avhen it declares that that investment is of so great a public benefit
that it is justified in exercising the right of eminent domain to
enable the investors to carry out the objects specified in the articles
of incorporation. If, then, this is the economic character stamped
upon the investment by the State, why, in the next breath, dis¬
courage that investment by limiting the possible profits and hamper¬
ing the investors in the control of the property that they, and they
alone, placed in the corporation? "Why discourage them from put¬
ting in their individual property to aid an enterprise of such great
public advantage ? When the State exercises the right of eminent
domain in taking the property of the individual and allowing the
railroad company to use it upon full payment of its value, it is upon
the theory, and only upon the theory, that the use of that property
would inure so largely to the benefit of the public. Now, Avhat
portion of the people is benefited. Why, that portion, and that
portion only, whom you, by an arbitrary reduction of rates, would
14
further benefit. Now, why exercise the right of eminent domain,
and require the railroad company to pay the individual for the use
of his property, and not do the same thing again when you take
the property of incorporators, and the use of this identical property
taken by the right of eminent domain, and give it to the same
public ? And here I might say, in passing, that when the life of the
corpoi'ation ceases the right of way expires with it, and the uncon¬
trolled use of the property reverts to the owner in fee.
Your second question is, "Railroad managers justify the practice
of giving low rates to some shippers and refusing them to others on
the ground of development of business in certain localities. * *
* * Is it consistent with the public welfare and the rights of
citizens to allow railroad managers to decide what persons and
places shall be thus developed?" I shall not say any thing to
justify discrimination against individuals and communities, but con¬
tent myself on this head by simply stating that such has never been
practiced by the railroad companies with which I am connected.
So far as they are concerned, they practice the same general business
principles that govern and regulate individuals in the management of
their affairs.
the peisiaet consideeatioh with eaileoad managees.
The primary consideration with railroad managers, under the ob¬
servance of the golden rule, is their treasury. With this idea in
view, and to meet competition, they often carry freight at less rates
for a longer than for a shorter distance, and they accept the less
rate because they cannot do better, and because a small profit is
better than none. This is only in accordance with the principles of
industry, of thrift and of economy, which should ever be en¬
couraged. To deny the companies the privilege of working for a
small profit, would be on a par with saying to an individual, " Better
be idle than take small earnings when larger cannot be had."
You have been pleased to forward to me an extract from "Gate's"
letters, referring to this question and relating directly to the Cen¬
tral Pacific Railroad Company. The principle there stated I pro¬
pose to justify, although the facts, as he states them, are largely
magnified. It is the policy of the Central Pacific, and, I believe,
of the railroad companies of the United States generally, to accept
a small profit where a larger cannot be obtained, as it is also its
policy to encourage the development of the resources of the coun¬
try. In doing so, it practices no unjust discrimination. It charges
nobody else more because of the low rate it is compelled to accept
from others, but it puts into practice a common and economic prin¬
ciple which I think will be recognized as just by a simple illustra¬
tion.
Four individuals have different articles which they desire to
transport in bulk to a market, the general conditions of transport¬
ing being about equal, but the goods varying in value as one,
two, three and four. It is a question of constructing a road—we
will call it a railroad—to move the four different commodities of
15
these four different persons to the same market. We will further
suppose that Avithout the construction of the road it would he im¬
possible for either of these parties to move their property, and that
the property once moved to market, the road would be of no further
use. Is it not clear that the proportion of the expense to be
contributed by each should be determined by the value of the
different commodities to be moved ? Articles 1 and 2 would
not justify the average expense consequent upon the building of
the road ; hence, if articles 3 and 4 did not pay a larger share, 1
and 2 could not be moved, and perhaps without the aid of 1 and 2,
3 and 4 could not alone afford the construction of the road. Hence
all four commodities might remain in the hands of the owners, un¬
able to reach a market.
THE QUESTION OE " DISCRIMINATION."
Another illustration in point is found in the case of the ware¬
houseman who has his building two-thirds full at regular rates. To
fill the other third he often will accept a less rate for cheaper com¬
modities that cannot afford to pay the higher rate, because it is
better for him to take this small addition to the aggregate receipts
than to have any portion of his building idle. If he had nothing
offered, hoivever, but the cheaper class, he could not afford to con¬
tinue business. The same principle is recognized by the owner of
the quartz mill, say of fifteen stamps. If of high grade rock he
can obtain sufiicient to keep ten stamps employed, he can run the
other five on the poorer article, because, while tbe mill must be
run to work the good ore, the low grade can be crushed and the
metal saved at little cost beyond the Avear and tear of the battery.
Anything, however small, earned over fixed expenses is better
than nothing, and the warehouseman, the millman and the railroad
company gladly accept a low rate, (Avhich helps pay expenses that
must be incurred,) when the articles offered cannot afford to pay a
higher. If, however, they had nothing which paid the higher rates,
all Avould fail. Every ship plying the ocean practices this principle
of business.
It is on this principle that we justify the carrying of low grade
ores at a rate that possibly barely covers the expense consequent
upon its movement, while we charge for those of higher grade a
rate that will enable us to operate the road and pay a fair rate for
the services rendered. This principle of charging according to
values is entirely in harmony with the rule of taxation leA'ied for
the supjiort of the Government.
In fixing the charge for service by railroad companies there are
various things that may enter into the determination of the rates,
prominently among them the quality of the article carried, and the
quantity, the distance moved, the climatic and other difficulties to
bo overcome in the transportation, the volume of business, whether
the movement in either direction is about equal, and the question
of competition. It is to meet competition that freight is carried
from New-York to San Francisco for a less rate than from
16
New-1. Ork to Salt Lake City. Tlie rate to Salt Lake is the sum
of the regular rates charged by the various railroad companies be¬
tween those two points. The merchant at Salt Lake pays as freight
on his goods from New-York to Chicago the same rate, and only the
same, as Chicago merchants pays, and from Chicago to Council
Blutfs the same, and only the same, as the shipper at Council Bluffs
pays. But when freight moves from New-York to San Francisco
the railroad companies meet competition hy water, and they are
compelled to work for a very low rate, or else accept comparative
idleness. The only rates that are absolutely fixed hy the railroad
companies are those on that small portion of the business paying
the maximum. All others are fixed and influenced by the various
circumstances before mentioned and beyond the control of the
companies.
the influences that determine rates.
Your Committee is undoubtedly aware that a very large portion
of the coarse, unmanufactured products of the country is moved
below the average rate of the cost of transportation, yet, in doing
so, nobody is harmed. The railroad companies find the smallest
profit better than none, and a rate barely sufficient to pay the
expense of movement is better than idleness. Under this rule the
country obtains a development, homes for the people are j>ossible at
remote distances from markets, and every industry finds encourage¬
ment. Under this s)*stem the whole civilized world has become,
for the interchange of commodities, one great neighborhood, and
the product of the bees at San Diego, SOO miles south of San Fran¬
cisco, comes to the latter place, is transported across the continent
and across the ocean, and competes with the product of the same
busy little fellows in Europe. In consequence of the cheap trans¬
portation of food products, the artisan in Europe and America
prosecutes his calling in the most remote corners as easily as though
living in the centre of the food-producing districts. I shall not,
however, attempt to enumerate the benefits and the general pros¬
perity that have grown up in our country under a system of railroad
management, which has been heretofore substantially untrameled,
and the control of which has been in the hands of those who have
created the property. But one thing is certain ; wherever the
I'ailroad comjiany has made for itself a dollar, it has created many
for others, and its property is at last as much a part of the com¬
monwealth as that of the farmer, towards the increase of whose
wealth it has so largely contributed. Its jiroperty is taxed for the
benefit of government the same as other private property is taxed ;
and it would seem to me pertinent for Judge Black, when he as¬
serts that there is no proprietary interest in the stockholders in this
species of property, to intimate that it should no more be taxed
than the State-houses, canals and other things belonging to the es¬
tate. Under the substantially unlimited control of their own affairs
Avhich the railroad companies have enjoyed, rates of transjiortation
have steadily been reduced, until, at present, their general rates are
far below what even your Committee would ten years ago have
17
deemed possible. Under tliis management, the coarse, unmanu¬
factured products of the country move at a low rate. The burden
of transportation of this class of property usually falls upon indi¬
viduals. Thus, with the farmer in Iowa, the difference of a mill
per ton per mile may determine the question of his ability to pro¬
duce corn, but oftentimes this product is moved at rates below tlie
average cost of transportation, and the railroad company is only
able to do this because it is carrying something else more costly
that can easily afford to pay above the average. The higher the
maximum rate, the lower is the possible minimum. Given a certain
amount to be earned, and a reduction of the maximum necessarily
increases the minimum. These minimum rates largely affect indi¬
viduals, and the question of the production and the general develop¬
ment of the country. The maximum chai'ge being upon manufac¬
tured and costly articles is not felt by the producer or by the con¬
sumer, and a reduction of this rate, of great consequence to the car¬
rier and to the producers of cheap unmanufactured materials, and
without which a very large portion of the latter commodities could
not be produced or moved, would go substantially to the benefit of
the middlemen, without making these articles any cheaper to the
consumer. It is of a great deal of consequence that the artisan in
Massachusetts should have cheap food, but the product of his manu¬
facture would probably not be sold to the consumer at any less cost,
even though transported by the carrier for nothing. A pair of
shoes, weighing a pound, might ]Day a cent to the carrier for trans¬
portation from Massachusetts to the grain fields west of the Missis¬
sippi, but the merchant or the manufacturer "only would be the
gainer. The Avorkman who made the shoes, or the man avIio will
AA'ear them, Avill gain nothing. In other words, the great efforts
made to reduce rates Avould not, if successful, be of any advantage
to the laboring man who makes or the laboring man who consumes.
Reductions are sought by those engaged in business, and, if made,
would inure almost solely to their benefit ; and for this reason
they are seeking to exercise a control over the property of others.
TRUE nUSIIíESS PRINCIPLES, THOSE AVHICII ACTUATE RAILROAD
MANAGERS.
There is not a principle of business exercised by the railroad com¬
panies in the management of their business that is not deemed
honorable and which is not in constant practice by the merchant,
the manufacturer, the lawyer, the doctor and the farmer. When,
in consequence of a short crop in Europe, the European buyer enters
our market in competition with the home buyer for the purchase of
the Avheat or other product of the farm, the farmer avails himself
of this competition and takes two prices as cheerfully as he took
one when there ivas no comjietition, and the consumer has to pay
accordingly. The merchant sells his goods at different per centages
of profit. The lawyer discriminates between his clients according
to their ability to pay, often, because he has the time, taking a case
at a small rate sooner than to be idle, and charging a larger fee
18
^vllen he can ohtain it. The benevolent doctor practices his pro¬
fession on similar principles, and often administers his medicines
Avithont charge. The manufacturer of steel for the railroads is
glad at one time to sell to them for forty dollars per ton, while at
another time he charges, because he can get it, eighty dollars, the
cost of production being about the same in either case, and that he
may enjoy this large protit there is IcA'ied, in the Avay of a tariff,
twenty-eight dollars per ton, as tribute, from every consumer of his
material.
Contemplate, gentlemen, if you please, the application to your
own business and that of others of the principles contended for by
those who Avould regulate the railroad companies, and see Avhat the
result would be. It seems to me that instead of having a Govern¬
ment merely to secure persons in their liberty, their property and
in the pursuit of happiness, Ave should have one-half of the people
guardians of the other half, to see that the latter managed their
business to the satisfaction of the guardian portion of the com¬
munity, for are Ave not all interested in the good management of the
time and property of each? Your interrogatory whether the
guardianship exercised over banks and insurance companies is bene¬
ficial or not, I do not noAV propose to discuss. In these cases the
liability ami ability of the Commissioners to do harm are limited,
and the Avorse feature about them is a system of esjAionage.
rON'TKOL OF THE PEOPERTT OF OTHERS POOLIXG THE INTERESTS OF
THE PATRON AND CARRIER COAIAION.
As to the idea suggested by question fii-e, that a Court, whether
under the name of Railroad Commissioners or otherivise, be estab¬
lished to determine, upon full inquiry, the questions of justice be-
tAveen the carrier and its patron, that is one matter ; but so far as
the establishment of a Board of Commissioners to exercise control
over the property of others is concerned, that is another matter, and
Avhich, after Avhat I have said of the principles of government, I
cannot be expected to approA'e.
As to question six, I am not informed that competition is mainly
supplanted by pooling arrangements. I believe that this pooling
reaches only to the through business of a feiv roads. But if the
Government is to equitably regulate railroads, the earnings of all
Avill have to be pooled or the roads consolidated.
Question seven I have answered already, Avherein I stated the
principles Avhich may influence charges for railroad services. I am
not aAvare that railroad companies have announced the theory of
charging " all the traffic Avill bear." It certainly is not one upon
AAdiich the Central Pacific Railroad acts, although if such Avere the
theory it Avould be only that Avhich you, gentlemen, as individuals,
possibly apply to the management of your OAvn business. A rail¬
road company, boAvever, cannot consistently adopt such a theory.
Its interests are so intimately connected Avitli the general prosperity
of its patrons, that it is compelled to study the interests of the
latter ; and there are no people so earnest in their efforts to fix a
19
rate so low as to eticourage the general industries of the country äS
railroad managers themselves. It is in pursuance of this wisely
directed policy, and not in the exercise of the theory which you
indicate, that in the most remote corners of the civilized world
exchanges are possible for almost every commodity.
Question eight is local in its application, and I therefoi-e pass it by.
THE QUESTION OF THE LIMITATION OF EAILKOAD EAENINQS BT LAW.
Your ninth question is : "The railroad laws of some of the States
limit railroad earnings to ten per cent, upon the actual cost of the
construction. Do you think this a just provision, and if so, should
not means be taken to prevent evasions of this law by erecting a
fictitious basis of cost, through construction companies and other
forms of stock-watering ?" This question involves a principle, and
I might answer it by asking a question in return. Do you think it
riglit to discourage the exercise of a wise sagacity, thrift, industry
and economic enterprise by denying to them their just reward ?
And if you are to limit the possible profits in the prosecution of a
business, are you not attacking all the economies of life that ought
to be encouraged, or at least permitted full exercise ? Perhaps, as
an encouragement to doubtful enterprises it might be well, if you
apply a limit of a certain per centage to be earned, that you should
guarantee the amount which you seem to think proper to be
obtained by the investor.
THE EVIDENCE OF TITLE AND ITS EELATION TO THE PUBLIC, AND TO
EAENING CAPACITY.
Questions ten and eleven embrace subjects that, I am aware, have
engaged some general attention, and for which reason only I suppose
they are asked by such intelligent gentlemen as yourselves. I do
not suppose that you for one moment think that the certificates of
stock issued by the company, which are but the mere title-papers
representing an undivided ownership in property, have anything to
do with the rates actually charged or obtainable for the service
performed. As to issuing an increased number of shares of stock
in a corporation, that is a matter, I suppose, that affects only the
individual owners. The value of the property or its earning
capacity is not affected. How the public, or any one doing
business with the corporation, can be injured by the manner in
which title to property is evidenced, whether by one share of stock
or one thousand, I cannot perceive. And if the railroad companies
should pay dividends on stock issued to represent surplus earnings
over dividends, that also is a matter, J conceive, pertaining j)urely
to the stockholders themselves, and does not affect the aggregate
amount to be divided. I suppose that stockholders have as good a
right to enjoy the profits of their business and to re-invest in the
same business, as the man who loans his money at interest has to
enjoy that interest and to loan it again ; or as the merchant or
20
other business person who makes profit has a right to enjoy that
profit and use it to extend and increase his business.
I might further illustrate this point by taking the cases of two
prominent newspapers of Xew-York City—the Herald and the
Tribune. The former is owned almost wholly by one man, and the
title maybe said to be represented by one" share of stock. The
latter is owned by a corporation. Would it make any difference in
the earning capacity or value of these properties, whether owner¬
ship were evidenced by one share of stock or ten thousand ? Could
they charge any more, or could they be compelled to accept any less
on account of .any increase in the amount of stock ? Is it anybody's
business but their own whether they choose to have their title repre¬
sented by a few shares or many ?
THE EAILEOADS IN POLITICS THE POWEE OF AN OWNEE OVEE
HIS PEOPEETY.
As to question twelve, "What do you think of the practice of
the railroad companies or railroad managers contributing large sums
to control elections, or to influence legislation, or for political cam¬
paign funds '?" I answer that I think of that as I do of individuals
doing the same thing ; it is neither better nor worse in the one case
than in the other. I know, however, that if the railroad companies
do these things, it is invariably when they are compelled to do so
to resist aggression, and oftentimes threatened confiscation of their
property nnder the plea of regulation.
You have furnished me with an extract from the report of the
United States Senate Committee on Transportation Routes, in which
it speaks of the railroad companies exercising " a power that Con¬
gress would not dare to exei'cise." The railroad companies, in this
case, do not exercise a greater power over their own jiroperty than
is exercised by individual owners of property. What analogy the
exercise of a power by Congress in the legitimate discharge of its
functions bears to that exercised over his property by the individual,
I cannot perceive. The farmer determines the question whether he
will plant corn or potatoes in a particular piece of ground, or
whether he will do neither ; and that is an exercise of power in re¬
lation to that particular piece of property which Congress would
hardly find within the scope of its power. The railroad companies
and tlie farmer exercise property rights—nothing more.
I repeat, the corporation property i.s contributed by individuals.
The State contributes nothing. It is this private property, whether
it be labor put into tlie construction of the road, the material com¬
posing it, the rails, the ties, the spikes, the chairs, the rolling stock,
the sagacity and intelligence and the general services of individuals
in operating and maintaining it, over which it is proposed to exer¬
cise control.
BEUULATION COMMUNISM THE ANTAGONISM OF CAPITAL AND LABOE.
Question thirteen reads : "Do yon think the uncontrolled power
of large railroad corporations and their subsequent violations of
21
publie rights, as developed in late railroad investigations, is re¬
sponsible in any degree for the growing spirit of communism and the
antagonism of capital and labor in this country ?" Leave the rail-
road industry uncrippled. Leave the control of railroad property
as you leave that of other property, and you will never have occa¬
sion to ask such a question. It seems to me that communism does
not come from the people who seek to control only their own pro¬
perty, but rather from those who wish not only to control and regu¬
late properties in the creation of which they had no part or owner¬
ship, but also the labor of others bestowed in their management.
"What you propose in regard to railroad property is, to my mind,
on a par with the principles contended for by the communists ; and
the agitator, Keaeney, advocated no doctrine in regard to property
more atrocious than the principles embodied in the " Granger
cases," and the laws which they sustain.
You seem to think it a matter of right and an easy thing to regu¬
late the projjerty of others, and it is only a question in your minds,
as to railroad property, whether its regulation shall be arbitrarily
by the legislation of the States or of the United States, and that
the questions of difference between a railroad company and its pa¬
trons are not judicial matters to be determined like differences be¬
tween other individuals, but are to be settled arbitrarily by some
Legislature. Let us see, however, how legislation would regulate
these railroads, and whether it is practical. In any scheme of Con¬
gressional legislation the mileage would have to be taken into con¬
sideration in order to be just, allowing to one company the same
rates as allowed another for the same service. It would take into
consideration the difficulties of operation, the different grades, the
various climatic influences, the different cost prices of labor and
supplies, the question of the movement of freight in different di¬
rections, the volume of business, local and through, and the dis¬
tance each moved, and so on. Under such a system it would be
found that the advantages offered for transportation by the different
companies would be unequal. The road having the least number of
miles, were a mileage rate adopted, would move freights between
two given points at a less rate than the other roads, and upon this
basis it would command the entire business.
regulation illustrated.
If in distance the various roads were equal, the one having the
easiest grades would have the advantage ; and so on, through all the
various circumstances that probably would be taken into considera¬
tion by a legislative body in making up rates. It would be found
that things that are unequal in themselves cannot be made equal by
any mere declaration of equality. The topography and the geog¬
raphy of the country are controlling factors in the regulation of
rates, and they will remain unchanged. Business would seek the
route offering the cheapest and best service between two points.
To give a fair distribution of business, so that the different roads
might live, would require a minimum as well as a maximum price to
22
be establislied. Here yon would liave an arbitrary system of regu¬
lation that would necessarily deny the }3rivilege of competition, and
disregard all those economic principles which should govern and
regulate business.
To further illustrate some of the • difficulties in the way of
arbitrary legislation, take Chicago as a starting point, and the
place of destination is the place of consumption. A large portion
of the freight that moves from Chicago, eastward, is moving to the
European market. There are various water routes and railroad
routes of different lengths, with unequal grades, with different rates
for labor and supplies, v ith different volumes of business, and with
unequal terminal facilities. They are in competition with each
other. The shipper has offered to him these various routes to the
seaboard. The lakes and the Erie Canal, the lakes and the Welland
Canal, and the St. Lawrence—mostly through foreign territory—
the canals and Mississippi River to the Gulf of Mexico, together
with the rail routes. If it were possible by legislative enactment
to equalize these routes so that each might have a fair per cent-
age of business, there would still be a failure of complete regula¬
tion, because the shipper himself is not regulated, and he would
make his choice, being governed bj'' questions of terminal facilities,
of the time required for transportation to market and other inffu-
ences. The legislative attempt to regulate upon principles of
justice would therefore be utterly frustrated, and it would at last be
recognized that the only way to regulate at all would be by adopt¬
ing a system of pooling the earnings of all the competing lines, or
by a general consolidation. The local business would be influenced
by the untrammeled water routes and by artificial ones under the
control of the different States.
A EEOADEE FIELD IN WHICH TO VIEW THE ATTEMPT AT EEGULATION.
But there is still a broader field in which to view this attempt at
regulation. Commerce moves half way around the civilized world,
and the man in China looks east and west to sec how he shall reach,
at least cost, a desirable place in Europe or America. If he wants
to reach Europe, there are the Pacific Ocean, the overland railroad
and the Atlantic Ocean. He can send by the Isthmus of Panama,
or by Cape Horn, or by the Cajie of Good Hope, or by the Suez
Canal ; and yet you would h.ave the Legislature attempt to regulate
this business by regulating a single link in one route, and making
the price per mile for this class of freight moving in this link from
San Francisco to Neiv-York the same as if moved from some interior
point. Utterly impracticable all this, and the whole difficulty comes
because of the disregard of the principles upon which our govern¬
ment is founded, and the disregard of the rights of individuals and
of property, and the assumption of a jirinciplc in the administration
of governmental affairs that had its origin in robbery and the idea
of the divine right of kings.
23
eaileoad peoeeett should be left to the management of its
ownees.
From the foregoing, my conclusion is inevitable that railroad
property should be left to the management of its owners. The
business is legitimate. Any interference by those who do not own
it is a burden upon the property, and one which must eventually be
borne by the people. If the people want to exercise a control over
the road, thej' must do as they have said to the corporation it must
do when the State exercises the right of eminent domain ; that is,
to pay to the individual owners the full value of whatever is taken
for public use. And to this it must come at last, if the control is to
be taken from the stockholders without confiscation. There is only
one honest way to acquire control of projierty.
the constitutional power to regulate.
Perhaps, since the wide circulation given to Judge Black's com¬
munication in answer to your questions, I may be pardoned if I
refer to some of his statements. He finds authority to regulate
charges upon railroads in that clause of the Constitution of the
United States giving to Congress the authority to regulate com¬
merce among the several States. Under this reading the power of
regulation is a power to regulate the carrier, whether that carrier
be a corporation or an individual. The regulation of railroads upon
this ground is entirely foreign to that which has heretofore engaged
our attention, and the difficulties of regulation upon this theory are
practically insurmountable, substantially for the same reasons, with
the added difficulty that barriers would be erected to the commerce
between individuals living in different States that would not exist
between individuals living in the same State. New-York, perhaps,
might so regulate the price between Buffalo and New-York City
that it would be below that established by Congress for inter-State
commerce passing through Pennsylvania and New-Jersey, for
instance, to the injury of the Erie road. And yet the road from
Buffalo to New-York, following the great natural routes of the
Mohawk Valley and the Hudson River, would find this low rate a
better compensation than the higher rate established for inter-
State commerce passing through Pennsylvania, New-Jersey, Mary¬
land or Delaware.
concerning the aid given by government to the pacific
railroads.
As you have furnished mo with Judge Black's opinion, and as
he has deemed it of consequence to refer to the Pacific Railroads,
I briefiy answer his allusions to the aid given by the Government.
The Judge has fallen into a great error, and one which, I am sure,
when he conies to be aware of the facts, he will very much regret.
So far from the aid of the Government being sufficient to build the
24
Central Pacific Railroad, I can say, becanse I know Avbereof I speak,
that every dollar derived from the loan of the Government credit
went into the constrnction of the railroad, together with a much
larger amount derived from the other resources of the company,
and had the company developed and created no more business than
existed when the roads were commenced, we would never have
heard of siich wild statements as those of Judge Black, because
the roads would long since have passed into the hands of their
creditors. It is susceptible of easy demonstration that the work
of grading the first 150 miles of the Central Pacific Railroad, from
Sacramento eastward, was more than would suflice to grade the road
for a single track from the Rocky Mountains to the Hudson
River.
ïiie pacific eoads and theie obligations to the goveeniient.
These Pacific roads have, in their construction and in their operation,
redeemed every promise and.every hope that the public entertained.
Never have they failed in a single obligation to the Government,
and they have done their business at rates far below those which, at
their inauguration, were thought possible. They have largely
opened up to settlement and development the greater portion of the
territory of the United States. They have created vast property
interests for others, and in doing so they have found their own
benefit. They are prosperous roads, and their stockholders are in
possession of a valuable projierty Avhich has been created by their
construction, and which had no prior existence.
In conclusion, gentlemen, allow me to say, that maximum rates
determine the possibilities of minimum rates ; that maximum rates
have enabled railroads to develop to the extent that they have the
vast re.^ources of the country ; that the railroads, in opening up
new countries, adding new industries, conferring additional facili¬
ties for the interchange of commodities, and bringing the buyer
and sellei« close together, have furnished and do furnish labor for
the common welfare far beyond other agencies. The reduction of
rates, under the plea of regulation, is a great blow to the laboring
man who produces, and to the laboring man who consumes. In my
opinion, any reduction scarcely goes to the benefit of the many, but
to that of the comparatively few and comparatively wealthy, who
occupy the positions of middlemen between the producer and the
consumer. This question of transportation is of an importance that
prevents it being settled, excepting upon just and correct principles.
Now that the question is before Congress, no doubt it will be
thoroughly discussed, and, in the end, wisely settled.
Respectfully, etc.,
Leland Stanford.
25
The Special Committee on Railroad Transportation print, as
an indication of public opinion, the following remarks of the
gentlemen who participated in the discussion which took place at
the meeting of the Chamber of Commerce on the 7th instant, when
the foregoing report was submitted for the adoption of the Cham¬
ber :
eemaeks of me. ciiaeles smitu, chaiemam of the committee.
Me. President : I wish to move the adoption of the i'eport,
with the permission to print it for the information of the Chamber.
I M'ill only add, sir, that your Committee are of the opinion that the
subject of this report should command the intelligent and careful
consideration of the Chamber. The previous reports of your Com¬
mittee have found such a unanimous support in this body, that little
discussion has been had upon the merits of the important questions
involved. We wish now to challenge discussion, and hope the
members -will not fail to submit the report herewith offered to a
searching investigation and criticism. ,
eemaeks of me. john f. heney.
Me. President : In regard to the letter from Gov. Stanford,
President of the Central Pacific Railroad, I think his position is
unreasonable, to say the least, when we take into consideration the
fact that he has been able to make, personally, from thirty to fifty
millions of dollars through contracts and subsidies from the United
States Government to build his railroad, (the Central Pacific,) and
when it is a notorious fact, that the road was made many miles
longer than it need have been in order to get from $50,000 to $75,000
per mile, when it was actually built for less than half what they
received from the government. Many people think that the Union
and Central Pacific roads run nearly all the way over frightful moun¬
tains, whereas, in truth, they pass for most of the way over level
ground and sandy plains. There are Ceockee, Hopkins and half a
dozen others, ivho have each made, on an average, at least, $20,000,000,
and now the absurd claim is made that the United States Government
has no right to regulate the charges or in any way control railroads
in the interest of the public, nor compel them to treat all citizens alike
under like circumstances, but modestly (?) ask of the Government
to be let alone, and be allowed to water their stocks as much as they
please, and compel the public to pay charges that will pay large
dividends on the watered as well as the honaßde stock.
Two years ago the charge from New-York to San Francisco for
through freight Avas $4.00 per hundred pounds ; and to their
s])cc.ial favorites, $2.00 for the same ; but since the report of the
IIepiu rn Committee and the agitation of this Chamber, they
charge their favorites $2.50 per hundred pounds, but still charge the
general public $4.00 as before.
The freight to any point from 300 to 1,500 miles this side of San
26
Francisco is about double the amount paid by the favorites clear
through to San Francisco over the same roads.
The Union Pacific charge $4.50 to Ogden, and $4.80 to Salt Lake
City, which is about 900 miles this side of San Francisco, when, at
the same time, they charge only $2.50 through to San Francisco on
special contracts ; and the extortion is even greater at the smaller
stations.
While the people, through Congress, had conceded them the right
of eminent domain, and, in addition, given them large grants of
money and millions of acres of land, it strikes me that this injustice
to great numbers of our citizens is intolerable.
We have the same trouble nearer home. Some parties pay more
than three times as much as others under similar circumstances.
Let this Chamber perform their duty to the public, and dividends
on watered stocks can be prevented. There can be no objection to
dividends on honest stock, but I, for one, object to any scheme for
the acquisition of wealth by dishonest men at the expense of the
public.
eem4¿rks of h01í. f. a. conkliïtg.
Mr. President,—I was a member of the Thirty-seventh Con¬
gress which, in the year 1862, enacted the Charter of the Pacific
Railroad Company—perhaps I might more properly say railroad
companies. When I recall the history of the transaction, when I
take into the account the use which has been made of the vast fran¬
chises of this act of incorporation, as set forth in the able report
of the Committee, I cannot regard the communication of which it
treats in any other light than as a piece of brazen-faced effrontery.
It is no exaggeration to say, that the charter in question was the
most monstrous legislative measure ever adopted in this or any other
country. For the construction of the road, the Secretary of the
Treasury was authorized to issue United States bonds, payable in
thirty years after date, at the rate of $16,000 per mile for about
350 miles, $48,000 per mile for '300 miles, to include the sections
crossing the Rocky Mountains and Sierra Nevada, and $32,000 per
mile for about 850 miles, included between the two ranges named.
The right of way to the extent of four hundred feet in width was
granted through the public domain, with all the necessary ground
for stations, depots, machine shops, side tracks, &c., with the right
to take from the adjacent land earth, stone, timber and other ma¬
terials ; and in addition thereto, alternate sections of land were
granted for ten miles on each side of the road, the United States
agreeing to extinguish the Indian title to all lands falling under the
operation of the act. The Company was further authorized and
required to construct upon the like terms and conditions a railroad
from the western boundary of the State of Iowa to the one hun¬
dredth meridian of longitude, so as to form a connection with its
main line ; and also to build a road from Sioux City to connect
with the Union Pacific Road by the " nearest and most practicable
route." The same aid was granted by the act to the Leavenworth,
27
Pawnee and Western Railroad Company of Kansas, and to tlie
Central Pacific Railroad Company of California. The aggregate
amount of bonds thus secured to the Pacific Railroads was sixty-
four million dollars—a sum nearly, if not quite, sufficient of itself
to build the entire road, had the money been honestly and economi¬
cally applied.
This mammoth scheme was urged by a powerful and unscrupu¬
lous lobby at a moment when our armies were encountering disaster
in Virginia, and when the very life of the nation appeared to be
stakedhipou the issue. In these throes of national agony Congress
Avas beset by a base and venal crew, eager and determined, rvhether
the country survived or perished, to clutch the sixty odd millions
of national bonds, and a vast extent of the public domain, Avhich
had already been solemnly dedicated to the use of the actual
settler. •
Opposing these vampires, as I did, to the utmost of my ability,
and overborne by their clamor, to say nothing of the corrupt agencies
which they employed, I hax-e since carefully watched the develop¬
ment of this scheme. The grants of bonds and lands were j^rodigal
beyond all precedent, but they failed to satisfy the piratical creAV, Avho,
in violation of faith and in defiance of the Avill of Congress, had
seized the charter, with its unparalleled franchises. Accordingly,
instead of proceeding to build the road—indeed, before a dollar had
been expended for that purpose—they came back to Congress for
further grants and concessions.
In 1804 they succeeded in procuring a second act, infinitely sur¬
passing the former one in enormity. By the original act, the bonds
issued to the Comjjany by the Government Avere declared to be a
first mortgage upon the road, and the grant Avas made on the ex¬
press condition that they should be paid by the Company at ma¬
turity. The second act substantially Aviped out any provision for
the security of the public.
Every interest of the people which was guarded in the first act
was sacrificed in the second. The lien of the Government upon the
road and its appurtenances Avas subordinated to a prior mortgage,
amounting to over sixty million dollars, and the reservation of any
part of the bonds until the road should be completed Avas repealed.
The five per cent, of the net earnings to apply to the liquidation of
the bonds, and the provision for applying the earnings of the road
on Government transportation, Avere so altered as to require but one-
half to be so applied. All restriction as to the amount of stock
Avhich any one man might hold was removed. Last, but not least, the
land grant Avas doubled, thus giving the different Pacific roads a
territory nearly equal in extent to twice the area of the Briti.sh
islands, including England, Ireland, Scotland, Wales, Guernsey,
Jersey, the Isle of Wight and the other islands of the British seas,
and equal to the entire area of France, as at present constituted,
Avithout Alsace and Loraine. In short, nothing, apparently, that
the ingenuity of man could suggest for the benefit of the Company
was Avithhehl.
Who voted for this amended act it is impossible to ascertain.
28
The record shows that iill attempts to obtain the ayes and noes on
its final passage failed utterly. It was notorious that Durant, the
Vice-President, charged the Company with the sum of $500,000, as
having been expended in Washington to secure the passage of the
act, claiming that the money was expended in a confidential way,
and declining to furnish any vouchers. One thing is certain, that
the men who were most active in carrying through this legislation
were the same who subsequently became infamous in connection
with the Credit Mobilier iniquity and the other frauds and villanies
which have disfigured the more recent annals of Congress.
By section sixteen of the charter it is provided, that all the rail¬
road companies named in the act, or any two of them, are authorized
to consolidate and form themselves into one company. Under this
section, it is probable that one vast corporation will arise, at no dis¬
tant day, wielding a capital greater than was ever before consoli¬
dated on the face of the earth, exercising a power which will
etfectuallj' defy all legislative control ; a power that, by making and
unmaking Presidents, Senators, Congressmen, Governors, legisla¬
tures and judicial ofiicers of States, will endanger the liberties of the
people ; a ]>ower that can and will force every interest in the coun¬
try to pay it tribute as the price of its existence.
I come now to a new and still darker phase of this stupendous
swindle. Sometime in the year 1859, that notorious mountebank,
George Francis Train, obtained from the Legislature of Penn¬
sylvania, a charter for what was called " The Fiscal Agency of the
State of Pennsylvania." It was copied substantially from the
Credit Mobilier of France, the twin brother of the Credit Foncier,
two mammoth schemes born of fraud and folly, which inflicted
nntold evil upon the French people, and played no unimportant
part in the final overthrow of the lower Empire. About the year
180:3, Thomas C. Dur.vnt and others obtained control of the
charter in question, and changed the name to the " The Credit
Mobilier of America."
It is no exaggeration to say, that the whole job was conceived in
sin and brought forth in iniquity, and that its working has been
only evil, and that continually. It was a daring conspiracy to de¬
fraud the peojde of the money and lands set apart for the construc¬
tion of the road, and the unsuspecting shareholders of their rights
and pro)ierty. It may well be doubted whether its parallel is to be
found, for barefaced villainy, in the whole history of human govern¬
ment. Col. II. S. McCojib, one of the Directors of the association,
in his sworn testimony before a Committee of Congress, thus de¬
fines its objects : " The idea of the organization was to relieve the
directors and shareholders of the Union Pacific Railroad Company
from any individual responsibility in building the ro.ad, and enable
tin m to share the profits in building the Union Pacific Railroad ;
that was the design. It was obtained to cover up anything that
might have been done—to relieve individuals from responsibility."
The managers of the Union Pacific Railroad Company and of the
Credit IVIobilier, with few exceptions, were the same. Thomas C.
Durant was the Vice-President of the one and at the same time
29
the President of the other. In the morning he voted as Vice-
President of the Railroad Company to give a contract to the Credit
Mobilier, and in the afternoon, as President of the Credit Mobilier,
he went through the ceremony of formally accepting it.
In September, 1864, a contract was executed to one Hoxie for
building 100 miles of railroad at the rate of 150,000 a mile, when
it was well known that $30,000 a mile was ample for the purpose.
This contract was assigned by Hoxie to the Credit Mobilier, as it
was expected it would be when made. The assignment was
formally accepted on the 11th of October by Dorant, Bushnell
and McCosib, Directors, and Gray, a stockholder of the Union
Pacific Railroad Company, as trustees of the Credit Mobilier Asso¬
ciation.
About this time Cakes Ames became enlisted in the Credit
Mobilier Association, for the avowed pui'pose of taking the contract
to build the road. The Hoxie contract and its renewals did not
make money fast enough to satisfy the cormorants. In the lan¬
guage of Ames, it was now the policy " to enlist public men in it,
so as to secure their influence." Accordingly, in the spring of
1867, the capital stock of the. Credit Mobilier was increased fifty
per cent., and a present of the first mortgage bonds of the Union
Pacific Railroad Company, equal in amount to his subscription,
was made to each subsci-iber. It will be remembered, that by the
act of 1864 a priority had been given to these bonds over the
mortgage held by the United States Government as security for the
aid given to build the road. The manner in which they were thrown
about on this and on other occasions is worthy of note, as illustra¬
ting the character and purpose of the conspiracy from its inception
to its close.
In August of that year a contract was entered into between the
railroad company and Oakes Ames to build 667 miles of road,
at prices ranging from $42,000 to $96,000 per mile, the aggregate
amount being $47,000,000. This transaction had been preceded,
like that of Durant with Hoxie, by an agreement that Ames should
transfer the contract to seven persons, denominated "Trustees,"
and that the profits should be divided among the shareholders of
the Credit Mobilier Association. It was at this juncture that the
policy was inaugurated of bringing leading members of Congress
into the conspiracy, by putting the stock "where it would do the
most good."
Having seen in what manner the " swag " was distributed, it may
not be amiss to dwell for a few moments upon one of the devices
which the conspirators employed in order to swell its amount. In¬
stead of building the road as contemplated by the original act, and as
good faith required, from Sioux City to the Pacific Railroad, by the
" nearest and most practicable route," so as to form a short and direct
line to Lake Superior, they built it from Sioux City, down tlie valley
of the ]\Iissouri River, upon the dead-level bottoms of that stream.
By this means they obtained from the Government a subsidy of
$16,000 a mile, or an aggregate sum of $1,600,000, and a grant of
lands at the rate of 12,800 acres per mile, or an aggregate of
30
1,280,000 acres. And they got rich alluvial lands instead of lands
in the interior, distant from the river, and comjiaratively worthless.
But this is not all. For a distance of sixty-eight miles, after leav¬
ing Sioux City, every mile took them further from the Pacific
coast than they were at the end of the preceding mile, so that at
the end of the sixty-eight miles they were twenty miles further
from the Pacific Ocean than they were at the point whence they
started ; and after traversing the entire distance of one hundred
miles from Sioux City and joining the Pacific road, they were but
six miles nearer the Pacific than at the point of departure.
One thing more. A time-honored adage says, when a certain
class of persons fall out, honest men get their dues. By the
evidence given in the suit of BrsiiNEr.i. vs. Ames and Pomeeoy,
which rvas tried in the Supreme Court for this Judicial District on
the 4th inst., it appears that this branch road was built, at the rate
of one mile for each day, for the sum of 88,000 a mile ; that the
Company M'as re-imbursed 82,000 a mile by comity subscriptions ;
and, furthermore, that they put out bonds as they extended the
road for 810,000 a mile—a six per cent. bond. Many other facts of
a like character m-ere disclosed in the course of the trial, but I for¬
bear to trespass longer on the indulgence of the Chamber.
By section eighteen of t^ie act it M'as provided, that after the net
earnings of the road should exceed ten per cent., exclusive of five
per cent, reserved to pay the United States, or in other m'ords, after
the net earnings should exceed fifteen per cent, per annum, Congress
■should have the right to fix the rates of fare by law. Could any
thing, under all the circumstances, have been more just and proper
than this? Nom', m'hat did the conspirators do ? They set to m'ork
to render this provision of the laM' nugatory, by sm'elling the nomi¬
nal cost of the road to a fabulous sum, so as to sM'amp the revenues ;
and in this, as in every other piece of rascality, the Credit Mobilier
played the most conspicuous part. Is it too much to say that a
more consummate scheme of plunder, it never entered into the
imagination of man to conceive ? Is it too much to ask m'hether
the sovereign people of the United St.ates, in Congress assembled,
granted this charter to be used as an instrument of robbery and op¬
pression ? Is it too much to ask m'hether the sovereign people of
the United States m'ill permit this foul m'rong to go on indefinitely ?
The truth is, that this great avenue of trade and travel, destined
to be far greater in the future th.an it is at present, has cost its
om-ncrs and managers not one dollar. It is the free gift of the Govern¬
ment of the United States. When I refiect upon the m'holesale
robberies m'hich it has perpetrated, and is to-day jrerpretrating,
m'hen I le.arn from the gentlemen m'ho have just addressed the
Chamber, that the author of this letter and several of his associates
have each amassed from ten to fifty million dollars by means of
their depredations upon the honest labor of the country, I must be
permitted to repeat that, for brazen-faced audacity, I know of
nothing comparable to the letter in question.
In conclusion, Mr. President, I move that 1,000 extra copies of
the report be j)rinteJ for the use of the Chamher.
31
REMARKS OP MR. ELLIOTT P. SHEPARÖ,
Mr. Presidext : At this meeting the Railway Interest of the
eountry seems to he in the condition of the naughty little boy who
is brought up to be whipped by each of the school-masters in turn.
I do not suppo.se that anything that can be said will influence a
single vote, but that this audience has assembled for the express
purpose of voting in a p,articular way.
However, let me ask, if you think making money in railroads is
an evil, and yet set before the public, in the manner mentioned in the
Committee's report, the plans which have been the most successful
in making the largest profits, will you not be showing others the
way to make money in railroad entérprises, and thus increase the
evil which the Committee condemn f
It seems to me that the Committee's complaint is substantially
one against money-making, and that the relief which they really
seek could be accomplished only by a statute abolishing enterprise,
and another abolishing railroads.
Had the railroads of this country been fettered by legislation, we
should not now possess our one hundred thousand miles of railroad.
Legislation is just as inadequate to control and regulate the details
of our expansive and expanding courses of commerce on the rail,
as to do so for agriculture, manufactures or any other material
national interest. Who ever heard of a law to regulate the width,
length, weight, number of threads, color and pu'ice of dry goods ?
AVhile it may be freely admitted, that there are some ills in the
variegated railroad management of the country, yet they are due to
the inherent imperfection of all things human, and do not exceed
the proportionate ills to be found in the grocery trade, in banking,
in every calling of life.
The laivs of trade are found sufScient to regulate other businesses,
and correct abuses when any creep in ; and it is to them, and not
to special, partial and class legislation, to which you should look.
Are the members of this Chamber prepared to say, that money-
making is a crime ? Shall their bursting pocket-books rise up to con¬
demn them? Yet the principle which underlies the Committee's
report is substantially that " riches are crime." But is it true, that
railroads furnish the only examples of rapid accumulations ?
I look around mo and see gentlemen who are in the puirsuit of
wealth, as grocers, druggists, furriers, dealers in lands, bankers,
merchants.
Now, if you give a grocery merchant 1X00,000 capital, and ten
per centum profits on his sales, a mark considered only fair and reason¬
able in his trade, and, with enterprise, he makes sales of $2,000,000 a
year, his annual profits on his capital will be two hundred per cent.
And he has actually made this enormous profit on flour, tea, coffee,
sugar, beef, the actual necessities of life to the poor, lie has used
the franchi.se conferred upon him by law, in the protection of his
person and property, process for collection of debts, and cheap
transportation by the free and unlimited incorporation of railroads,
and has actually robbed the poor man out of a tremendous sum
32
of money ! A law, restricting his profits to six per centum per an¬
num on the capital invested, would have compelled him to sell
these necessities of life at a lower rate, and thus benefited the peo¬
ple. But I am not aware that our distinguished grocery member, the
Vice-President of the Farmers' League, has ever proposed the es¬
tablishment of a commission to regulate the methods or profits,
either of the grocery trade or of agriculture.
In the drug line, it has been said, that Mr. Fare began business
with a pair of old shoes and a pair of torn breeches, and yet died
leaving a fortune of $10,000,000. John Jacob Astoe is said to
have commenced with a capital of two Spanish shillings, and to
have left $100,000,000. One of your members bought a piece of
real estate in this City for a certain price, and leased it for an an¬
nual rent of the total cost of the property. How little A. T.
Stewart had to begin with, and how much to end with, illustrates
thrift in the dry goods trade. Is the Chamber prepared to be
frightened by these and other instances of the prosperity of its
members into a trembling and shrieking political economy at vari¬
ance with the laws of trade ?
As to the beau-ideal of a grievance, quoted by the Committee from
Mr. Daggett's speeech in Congress, I think we should remember
that the supposed rate of freight for a car-load of candles, from New-
York to Elko, via San Francisco, is very gi'eatly less than it would
have been before the railroad ; and, in the next place, that such a
shipment has probably never been attempted to be made direct to
Elko. The best light that can be gotten out of this car-load of
candles shows that they obeyed the laws of trade, and went to
San Francisco as a great distributing centre ; and, being there,
the Elko merchant could buy and have shipped to him as few
boxes of candles as he desired. It was much better for him to pay
the additional freight on the smaller quantity, from Elko to San
Francisco and back, than to pay a pro rata freight from New-York
to Elko, upon the larger quantity, with all the attendant loss of
interest, depreciation of price from a glut in the market, and de¬
terioration of the goods whilst he was slowly working them ofE at a
sacrifice.
Instead of drawing disparaging comparisons between through
and way freights, it ought to be remembered that it is the small
and reasonable profit on through freights that enables way freights
to be made as low as they are.
Again, I think the Committee have gone out of their way in
flinging an insinuation against the gentleman who has been nominated
by two Presidents of the United States as Associate Justice of our
Supreme Court. The gentleman's practice has undoubtedly em¬
braced some railroad business, as does that of every prominent
lawyer the country over. But he has had much other practice be¬
sides ; and, as a jurist, distinguished by learning, incorruptible
integrity, mental capacity and uprightness, the Hon. Stanley
Mathem'S is the peer of any one who could be named for the
bench. If any one is weak enough to suppose that there was anything
degrading in the charge, they may have their fears set at rest
83
by considering that charges were made against two celebrated
members of that Court, on the similar ground that they were rail¬
road lawyers, when their appointments were pending ; but that the
careers of Mr. Justice Steong and Mr. Justice Beadley show
that the moment a lawyer assumes the judicial function, he loses
all his interest as an advocate, is governed by the immortal and
scientific principles of the law, and not by prejudice or favor ; and
no one has ever dreamed of saying that either of those Judges ever
failed to hold the scales of justice in railroad matters with firm and
equal balance.
On the contrary, Mr. Justice Beadlet has led the Court in mak¬
ing the hardest decisions against railroads ; and, at this moment, I
recall one, in which to arrive at his decision, he had to overthrow
railroad law, as laid down by our own Court of Appeals and by the
highest English Coui'ts. I also recall that charges were made against
John Jay and Chief Justice Maeshall, and their appointments
sought to be defeated. Everything of worth, and every person of
positive force, is bound to be attacked ; but the worse the reasons,
the more do those advancing them assume the energy of despair.
But, to return to the principal subject, Mr. President, I believe
that nearly every State of the Union has a general railroad law ;
and if it should really be true in the long run that railroading is
profitable, new railroads will spring up, and prices, as they have
heretofore, will give way to competition.
Mr. C. S. Smith : Yes, and then their earnings will be pooled.
Mr. Shepaed : If that should prove to be the case, it would
undoubtedly be because Mr. Smith, as President of such a Company,
should decide that it was for their interest.
The laws of trade are universal in their application ; they have
led to our railroads, and to their growth, and will regulate their
continuance, multiplication and management. There are those here
who remember when freights to Buffalo were $36 per ton ; railroads
have reduced them to one-tenth that sum, and should be commended
and not scolded for so doing.
It is absurd to call that a monopoly, which, in a free country, can
freely be engaged in by everybody, and requires a total capital of
five thousand million dollars, a figure utterly beyond the reach of
any combination, conspiracy or monopoly, and engages the time and
labor of a quarter million energetic wide awake freemen, and virtu¬
ally supports twenty millions of our people. It would be just as
reasonable to quarrel with the magnitude of the agriculture of our
country as with that of our railroads.
Neither can any amount of legislation, or any number of Com¬
missions, defeat the men of foresight and faith, or deprive their
enterprise of the rewards of fame and wealth.
34
remarks op mr. f. b. thürber.
Mr. President : I desire to briefly touch upon a few points ad¬
vanced by Mr. Shepard. His allusion to railroad managers being
bad little boys, who are periodically brought up in this Chamber
and punished, would be amusing, if it wei'e not such a serious bur¬
lesque upon the facts. Any one who has sought legislation in
behalf of public interests, or who has had the courage to declare
his independence of great corporations, knows their power, and the
unrelenting and unscrupulous manner in which it is exercised.
Mr. Shepard says things are all right ; let them alone ; why stir
this question ; it will only teach others to go and do likewise, if we
show how easy it is to make money by such practices. Is there any
reason in a proposition to prevent the spread of disease by letting
it alone ?
Mr. Shepard asks if it is a crime to be rich, and instances Mr.
Astor, Mr. Stewart and others. I answer no, when they acquired
their wealth as Astor and Stewart did. But when a public fran¬
chise is used to rob the public, it is quite a different matter. Mr.
Astor did not accumulate his enormous fortune in a few years by
stock-watering and extortions.
Mr. Shepard draws the old, old comparison which railroad attor¬
neys have made when seeking to evade their duties, from time im¬
memorial, between the railroad and the butcher, the baker or the
grocer. Why if these persons combined to the public detriment
they could and ought to be regulated, notwithstanding they do not
exist and do business by virtue of a public franchise, as a railroad
does ; besides, the one performs a private function, while the lat¬
ter is a common carrier, and its business is of a public nature. His
reference to a merchant's profits is equally absurd.
Mr. Shepard asks, if, with all their over-charges, railroads are
not better than the old turnpike roads. Yes, but should a few men
be permitted to monopolize all the advantages of such inventions ?
This is not the principle of our patent law, which only protects for
a time, after which all the advantages accrue to the public. Mr.
Shepard asks if the railroad business is not open and free, and
whether the laws of trade and competition will not regulate them.
I answer no. By its very nature a railroad is a monopoly. Capital
is not readily gathered to build competing lines. The pooling
of the trunk lines proves that competition cannot be relied upon
for maintaining reasonable rates, and the discriminations in rates
by which one man is made very rich and others kept poor, shows
that, if we would preserve the principles upon which our Govern¬
ment is founded, there must somewhere be lodged a superior power
to protect the people.