Problems in the Management OF A Railway System. JOHN T. Brooks. YOU wish to know something of the prac- tical management of railways. I might ask, How is a university or a shop man- aged ? Universities and shops are not all man aged alike, neither are all railways. The man- agement of railways, as of shops and universities, depends on the amount of work they have to do and the kind of men who manage them. A sys- tem which controls large mileage and a large vol- ume of traffic naturally requires more diversified and thorough organization than one whose mileage and traffic are small. When the business of a railway is not too large, an intelligent, energetic President, aided by proper assistants, may direct all its affairs ; but there are few railways whose affairs can be so managed. Generally speaking, the railway of to-day is a combination of several lines ; its traffic is large ; its business is closely blended with that of other lines ; its income is affected by- the operation of rival lines. Hence arises the necessity of organization ; a classifica- tion of duties, and a general supervision of policy by a principal executive officer, details being man- aged by associates, each responsible for the opera- tion of his own department. The success of railway administration depends on two principal factors : wise policy, careful at- tention to details. Herein is apparent the neces- sity of wise men in control. The measure of their wisdom is the measure of success of the railway. The railway system of the United States is the product of evolution. First, in the mode of creation. Originally rail- way companies were created by special charter. This means that a State Legislature enacts a law declaring that the persons therein named, their 0« 3 successors and assigns, are made a corporation, with power to build, operate and maintain a rail- way between designated points ; other specific powers being granted, such as the applicants for the charter wish to have, or as the law-making power is willing to grant. Two evils resulted from this mode of creating a railway corporation ; first, applicants for a charter wished to obtain special and valuable privileges, for which in many cases, they were willing to pay money. Hence resulted bribery of law-makers and sacrifice of public interests. Next, special laws creating rail- way companies were necessarily of great length ; they conferred generally the same powers and privileges; as applications for charters became numerous, and were generally granted, the statute books became swollen to large size and many vol- umes. Thereupon constitutions were adopted in most States requiring all corporations to be created under general laws, and forbidding special powers to be given to any. Thus a system of laws re- lating to railways has been developed in nearly every State, prescribing in general terms the 3 4 mode in which all companies must be created, and the powers which all may enjoy. A corpo- ration is spoken of as a creature of law ; also as a legal entity. These terms are sometimes con- fusing. A corporation is a number of persons associated together for some purpose recognized by law, and permitted by law to do certain things on certain conditions. The privileges granted to persons thus associated, aside from the special object of their association, are chiefly these : They may transact business under one name, selected by themselves ; they may sue and be sued in that name, and they and their successors and assigns may continue to do business for a long period or forever. The death of one member does not, as in case of a partnership, terminate the corporation. The powers and privileges en- joyed by railway companies are called franchises. This word is a mystery to many people. A fran- chise is merely a right, conferred by law, to do or have some particular thing. The second step in the evolution of the railway system, consists in consolidation and the acquisi- 4 5 tion of additional lines. I have said that origi- nally a railway company is created to build and operate a railway between designated points, as between *'A'' and '*B/' So great has been the multiplication of railways in modern times, so fierce has been the rivalry between them, so great has been the necessity of giving the public the best service at the lowest possible cost, that lav/s have been enacted from time to time, permitting one railway company to lease, operate or buy ad- ditional railways ; also permitting two or more railway companies to consolidate and become a single company. There can be no question that the policy which permits consolidation of railway companies is a wise one. Passengers and freight can be carried long distances without change of cars, in quicker time, and at less cost ; yet many people fear large railway companies, and believe newspapers and stump speakers, who say that these large companies are a menace to the people. There is no ground whatever for this fear. A large railway company has no other or greater powers than a small one. A large company does 5 6 more business than a small company, but both do the same kind of business, in the same way. You can bring a large company into court, before a Justice of the Peace or an Alderman, as easily and as surely as a small one. No railway com- pany however large, dares disobey the order of a magistrate. If it be said that a large railway company, in" receipt of a large income, can bribe public officials, more easily than a small company, two answers may be given : First, elect officials who can not be bribed ; the people always have this remedy in their hands. Second, the resources of a small railway company are ample to bribe an official, if he is willing to be bribed. The millions of a large corporation are not needed for this pur- pose. Put these facts to the next man you hear talking of the danger of large railroad combina- tions. The third step in the evolution of the railway system is the object for which a railway is con- structed. Years ago, railways were built because they were needed. People wanted easy access to markets where they wished to buy or sell ; 6 7 they subscribed money, applied it as far as it would go, and borrowed what was needed to com- plete the railway. In modern times, many rail- ways are built not because they are needed, but because certain men wish to make money by building them. They win or lose in proportion as they induce the public to buy the stocks and bonds they issue. It has long been the policy of the law to limit the amount of stock and bonds a railway company may issue, to the necessary and reasonable cost of construction. But the law has not yet become wise enough to limit the amount which may be issued for the purchase of a rail- way. Hence, the exploiters of balloon railways organize two companies : First, a railway com- pany ; second, a construction company. Then,, as a railway company, they contract with them- selves as a construction company, and agree, as a. railway company, to issue a certain amount of bonds and stock, and deliver all these bonds and stocks to themselves, as a construction company, to pay for building the railroad. There is no re- lation whatever, between the cost of the railway 7 8 and the amount of bonds and stock they take for building it, except that universally the latter largely exceed the former. These promoters sel- dom expect to make money by operating the rail- road. If they succeed in selling to an ignorant publrc the bonds and stock they have issued, then in a short time the public loses its money ; or if the promoters do not succeed in unloading on the public their bonds and stocks, then the loss falls on themselves, and they have their railroad and their pains for nothing. A railway once built, though yielding nothing to its owners, is seldom destroyed. It passes from one stage of reorganization to another, always on a downv/ard scale, until it reaches a level where its income may be sufficient to keep it in opera- tion. Meanwhile, in its efforts to avoid repeated bankruptcy, it cuts rates, carries passengers and freight at a loss, and in the process impoverishes and sometimes destroys the value of other railway properties. Public opinion in this country has not yet reached the stage of protecting people who have 8 invested their money in railways which serve the public, by preventing the construction of new rail- ways which are not needed. But people will some day see the folly of permitting speculators to take other men's land and encumber streets and high- ways with a useless railroad, merely to make money for themselves; and some day they may think it wise to protect the public against worth- less railway stocks and bonds, as they now protect it against quack lawyers, doctors, foods and medi- cines. The functions of a railway company are two- fold : First, to serve the public by carrying people and freight ; second, to yield income to its ov/ners by doing so. The public, no less than railway officials, often lose sight of the mutual duties and responsibilities which come of this relationship. The public should be well served by railway com- panies. This means that trains should be moved safely, punctually and at reasonable rates. On the other hand, the public should allow capital thus employed in its service to receive fair in- come. How many persons ever think of this? 10 Hostility to railways has come from a variety of sources : First, the owners of a railway are usually numerous, widely scattered and unknown. Hence, in dealing with it, the public loses the sense of personal relationship which is usually observed in dealing with individuals. Men are often re- strained from doing wrong to an individual, because he is personally known, or they know that incon- venience, loss and possibly ruin, would follov/ their wrongful act. On the other hand, the shipper who gives false weights, the passenger who sneaks his way on a train, the tax commissioner who levies an intolerable assessment, the law-maker who in one session adds to the expenses and cuts down the income of railways, the jury that gives ex- cessive damages against a railroad company, re- gard the particular theft or award they are guilty of as a mere moiety compared with the gross earn- ings of a railway company. They have no idea of injurious, personal loss ; nor do they consider that the number of shippers, passengers, tax offi- cials and juries who are doing precisely as they are doing is infinite, and the result to railways destructive. lO II Next, railways, by reason of the large capital they represent, the magnitude of their operations,, the vast number of persons employed, create a jealousy of their operations which is distinctly human. The personal friendship which subsists between employer and employe when they v/ork side by side, is wanting in the case of a railway company. In the earlier period of railways, their ofificers were sometimes arbitrary, inconsiderate and unjust ; their employes were often careless, impudent and rude. If freight was delayed, dam- aged or lost, a long time elapsed before compen- sation was paid. When persons were injured, managers did not accept the theory of the injured party, hence arose mutterings, law suits, and re- vengeful feelings. Persons involved in these various mishaps did not make fine distinctions as to their causes. If brakemen were insolent, the passenger did not consider that when employes are counted by thousands it is impossible to se- cure a gentleman in every employe. Shippers did not consider that human beings serving as rail- way employes make mistakes the same as other II 12 men ; nor the more important fact, that when claims for damages amount to thousands, each must be adjusted in the order of presentation. Gradually railway companies have emerged from the feudal stage of administration ; competi- tion has made their managers less arbitrary ; or- ganization has secured promptness in settlement of claims ; experience has taught that railway companies have many points to overcome before they have an even chance with a private individ- ual before a jury. The result is that under wiser policies lawsuits diminish in number, settlements without suit increase, and the causes of prejudice gradually disappear. hi the practical administration of a railway the daily object in view is the same as in any other kind of business — increase earnings ; reduce ex- penses. Formerly, when railroads were local af- fairs, with limited mileage and traffic, the Presi- dent was usually a prominent business man, banker, lawyer or capitalist, hi those days busi- ness came unbidden to the company. All the lat- ter had to do was to exercise judgment on ques- 12 13 tions of policy, aided by experts in matters of construction, operation and traffic. These primi- tive methods have gradually given way to changed conditions. Railways have multiplied, extended, consolidated ; separate lines have been amalga- mated into a single system. There is hardly a fractional point of the compass to which one or more railways is not directed ; traffic no longer flows in natural channels. It is invited, solicited, bought and fought for. Under these conditions, organization, classification, subdivision of duty is the order of the day. Each department has its specially trained em.ployes, most of them having spent their lives in railway service. Every year the management and operation of railways be- comes more and more a distinct, technical profes- sion. A majority of railways derive from one-half to three-fourths of their earnings from freight traffic. A few, leading to summer and winter resorts or between large cities, find their main income in passenger traffic, hi any event, modern condi- tions require a freight department and a passenger 13 14 department to secure traffic ; an operating and maintaining department to haul the traffic ; ' a treasury department to receive and keep the money that is earned ; an accounting department to show whence the money comes and whither it should go, and a law department to give daily and hourly advice, prepare deeds, contracts and mort- gages, and especially protect the company's rights when the same are involved in litigation. For the purpose of securing traffic the freight and passenger departments are conducted on a basis similar to that of wholesale commercial houses. Territory in which the system is located, territory beyond either terminal and on either side of the main line, is divided into districts, each in charge of division agents, each supplied with solicitors for traffic, who travel from town to town, from city to city, and in cities from house to house, in search of persons who wish to travel or have something, carried. This army of men working to secure traffic is in hourly communication with superior officers by mail, telegraph and telephone. The typical passenger agent persuades people to 15 travel by his line who neither wish nor need to travel. The typical freight agent represents a line which carries so safely, swiftly and cheaply ahead of all competitors that even dead freight rejoices in the prospect of traveling over it. Sometimes the cost of securing traffic exceeds all income that is derived from carrying it. Closely allied to the question of earning money is the question of earning it at least possible cost. Herein are involved matters of operation and main- tenance. The pole star of train movement is high speed and safety. Transportation is merely means to an end. A person at A. has business at B.; he wants to go from A. to B. as fast as he can and get back as soon as he can, but he wants to go and come without injury. Freight traffic not wanted at A. is wanted at B. Capital invested in it is idle till it reaches destination. On the other hand, engines and cars are unproductive when not in motion, and the loss is great unless trains move safely. A thousand conditions are essential to secure speed and safety. It is not difficult to get engines whose capacity for speed 15 i6 will meet the wishes of all. The obstacles are in the track, in grades which limit the speed of move- ment, in curves which increase the distance to be traveled. The nearer a track approaches a straight and level line the greater the possibilities of success in both speed and safety. But while a railroad once straight is always straight, a rail- road once level is not always level. Rain, frost, continuous ^nd heavy pounding of trains perpetu- ally cause defects in the track. These defects must be perpetually repaired ; otherwise, costly engines and cars are injured, and liability to more costly accidents ensues. A good track is, there- fore, the indispensable condition of success. 1 have said that engines and cars are unpro- ductive when not in motion. Their profit is also diminished by slow movement; a small amount of equipment, efficiently handled, answers the purpose of a large amount inefficiently handled, hi this connection, it is also important that cars should be quickly loaded and unloaded. The daily mileage of a freight car is an indication of the efficiency with which it is handled. A few i6 17 years ago, the average daily mileage of these cars on certain railways was between fifty and sixty miles ; on the same railways, it has declined in some instances to between twenty and thirty miles. Part of this reduction is due to poor man- agement ; a greater part is due to causes which can not be controlled. For want of adequate facili- ties at large cities or terminal stations, loaded and empty cars are detained days and even weeks, waiting to receive or discharge their burden. This evil is to some extent overcome by the mod- ern system of demurrage, under which a nominal charge of a dollar or two per day is made when cars are detained beyond a specified time. Speed and safety are not the only requisites of successful railroad operation. It is essential in movement of freight traffic, that the greatest pos- sible number of tons should be carried by each train. I think it may be said that the most inter- esting and complex problem in freight movement is to constantly increase the number of tons per train ; each train must have one engine and staff of men— engineer, fireman, conductor, brakemen. 17 i8 It is easily seen that the more freight this outfit can safely carry, the greater is the profit. Ob- serve now what is developed in order to secure this important result. Large engines take the place of smaller ones ; a heavier load can be hauled over a light than a heavy grade ; there- fore grades are reduced to the lowest possible limit. To make this work effective, it is some- times necessary to reduce only the highest, or, as it is called, the ruling grade, to attain the desired level ; at other times, a number of lighter grades may be reduced, the number of cars or tons per train increased, and the increased load carried over the ruling grade by aid of an extra engine. Sometimes the expense of reducing grades is so great that in view of the amount of traffic, it is not profitable to change them. The expediency of the proposed change is determined by the civil engineer, who reports the cost of the proposed change, and the manager, who calculates what he can save by the increased tonnage per train. It is a pure question of mathematics, and, as I have said, an interesting and important one. i8 19 The larger engine needed to haul heavier trains calls for stronger bridges and heavier rails. The longer trains call for longer sidings ; main tracks are doubled and trebled ; additional right of way must be bought, freight stations and platforms must be enlarged. Time does not permit a closer examination of these details. Suffice it to say the brightest minds are ever on the alert to devise new means to in- crease the tonnage per train and reduce the cost of operation and maintenanceo In this respect the highest encouragement is afforded to students of technical schools, like Purdue University. The graduate of one of these schools, armed with a diploma and clothed in overalls, can make rapid progress in a railroad shop and soon find a place where honorable employment and sure pay will attend him as long as health and life are spared. The maintenance of track is no longer, as form- erly, confided to supervisors who have been used to pick and shovel, and accustomed to work and direct by the rule of thumb or jolt. That most important work is now performed by trained civil 19 20 engineers, who bring to their daily task the best and latest methods of their profession. A railway company having effected plans to secure traffic and carry it cheaply and safely, mu^t next provide that the money earned shall be received and properly applied ; hence exist the accounting and treasury departments. The former tells whence every dollar of revenue should come and how it should be applied ; the latter receives and pays the cash. The operations of a railway are hardly less destructive than those of war. Materials are necessarily consumed daily as if they were cast into a fiery furnace. In spite of all precaution structures give away, trains are wrecked, prop- erty is injured, limb and life are destroyed ; wages accrue every day ; interest on bonds grows every day in the week and every hour of the day. Pay- ments on these accounts must be made every day, and unless there is an inexorable system of se- curing daily the money which has been earned the movement of trains must cease. 20 21 The earnings of a railway company come from persons counted by tens and hundreds of thou- sands ; classification makes the problem simple. This army of persons is made up of passengers, shippers of freight, station agents, conductors ; also treasury officials who receive large sums due on interchange of business ; also on contracts with other railway companies, express and sleep- ing car companies and the government. Passen- gers must pay in advance for the service they receive, either in purchase of a ticket from the station agent, or in cash to the train conductor ; shippers of freight or consignees must pay for freight carried before it is delivered at destination. Conductors are required to deliver cash collected at the end of each trip ; station agents must remit each day the cash receipts of that day. By means of a thorough system of accounting the use of way bills, manifests, daily reports, etc., the accounting department can tell to a dollar how much money each station agent or other receiv- ing agent of the company should remit, and he is charged with that amount. Traveling auditors 21 22 call often and at unexpected times to examine the accounts of agents. Between these calls it is possible for an agent to manipulate his accounts,, accumulate a considerable sum of money and run aw^y with it. To protect the company in cases of this kind every receiving agent is required to give bond for good behavior. No ingenuity has yet been able to devise a perfect check on the accounts of a conductor who collects cash fares, on a train. As railway systems become enlarged and the magnitude of their operations attracts public attention, railway employes naturally ac- quire a higher sense of duty and honor. To this cause equally with the thorough organization of the accounting department, which makes the dis- covery and punishment of dishonesty almost cer- tain, is to be attributed the success of railway companies in collecting their vast revenues. Hun- dreds of millions may be involved, and not a case of embezzlement occur in years. The relation of a law department to a railway company is so apparent that it is hardly necessary to define it. The law holds railway companies ta 22 23 • a liigh degree of responsibility, and with few ex- ceptions, makes them liable for acts of their em- ployes, and for the character and condition of track, tools, machinery and equipment. The high speed at which trains are moved causes accidents to employes, passengers and people and domestic animals on the track. The movement of heavy engines and cars in yards and on side tracks, the shifting, coupling and uncoupling of cars in making and dismembering trains, is a pro- lific cause of injury which can not be avoided. In spite of thorough organization and rigid rules for the inspection of track, engines, cars and ma- chinery, passengers and employes are injured. Freight is delayed, injured, stolen or destroyed. Passengers are ejected from trains. Defective culverts and drains cause water to accumulate on adjacent land. Sparks from engines kindle fire in adjoining fields; claims and suits for damages are always pending, based on the accidents and injuries enumerated. It is the duty of the law department to protect the company in cases of this kind. It also begins suits to condemn addi- 23 24. tional lands, to enforce the company's contracts,, to protect it against unlawful taxes and assess- ments threatened by city, township, county and State authority. It assists in prosecution of per- sons who have committed crime against the property, employes and patrons of the company. It is also called upon hourly to prepare contracts, deeds, leases, mortgages, and to give advice to officers and employes in respect to their duties and the rights of the company. The organiza- tion of the law department of a railway company depends on the magnitude of the company's op- erations. Usually there is a general counsel, aided by assistants, clerks and stenographers at the general offices of the company, and the terri- tory in v/hich the railways of the system are situated is divided into districts, each in charge of a regular solicitor. It is the duty of district solicitors to prosecute and defend in all civil causes arising in their respective districts, also to attend coroner's inquests when persons have been killed by trains ; also to represent the com- pany before city, township and county authorities 24 25 in matters where the company's interests are the subject of consideration. A prominent feature in a modern railway sys- tem is the department of claims. The destructive character of the operation of a railway creates so many claims for damage that it has been found expedient to establish a special department to ad- just these claims. To this department reports by wire and mail are promptly made of all cases of personal injury and death, in order that experts may at once investigate the cause of the accident, gather proof, name and address of witnesses, and in cases where the company is liable, arrange a speedy and satisfactory settlement, hi many cities there are attorneys who give special attention to what are known as personal injury and death claims against railway companies. They read newspapers carefully to get early in- formation of railroad accidents. If persons are injured or killed they go or send an agent to the injured person, or in case of death, to the house of mourning, and offer their services to bring suit against the railway company. Sometimes they 25 go to the family of a deceased person before the funeral has taken place. Sometimes they begin suit for damages in behalf of persons who have not employed them. It is not surprising to know tha^t attorneys like these rob their clients of from one-third to one-half of all they collect, charging for their unimportant services of a few hours as much as an injured person receives who spends the remainder of his life a cripple, or as much as a family receives which has been bereft of a hus- band or father. To guard against outrages of this kind the claim department, with its thoroughly equipped agents, makes speedy investigation of every accident, and in cases of liability promptly tenders compensation for the injury it has caused. By this arrangement those who have suffered in- jury receive compensation, avoid the exactions of attorneys, and the slow and vexatious course of legal proceedings. This work is both politic and humane, and tends to relieve railway companies of much of the prejudice which has arisen against them. 26 27 I have spoken of the classification of the busi- ness of a railway system and its distribution among various departments. Something remains to be said of the general policy of its management. Reference has already been made to the gradual enlargement of different systems of railways ; the large increase of mileage and the vast amount of capital involved in their operations. Several lead- ing railways have their eastern termini on the Atlantic coast line, and extending westward across several States, have western termini on the great lakes ; also on rivers which find an outlet in the Gulf of Mexico. Their operations are subject to control by State and Federal authority. They are in ceaseless competition with each other. Traffic of the same kind moves in opposite directions on the same line. Their own traffic at one point is in competition with the same kind of traffic at another point. This traffic is local, interstate and international, each demanding consideration pe- culiar to itself. These various lines are operated on unequal conditions. One has the longest dis- tance ; another has easier grades ; a third has 27 28 cheaper fuel ; a fourth traverses a populous coun- try ; another has little traffic, except between terminal stations. Some have no rival lines at important centers of trade ; others have from two to a dozen competitors at one or more terminal points. One company is burdened with a heavy debt ; its rival has moderate interest charges. As a result of all these varieties of condition, the cost of moving traffic is not the same to any two com- panies. Except on rare occasions, the supply of railway service is largely in excess of the demand. Back of all is the ever aggressive greed of the large shipper, whose custom every railway wants, and is given to the railway which will charge the least for its service. Every hour of the traffic manager's life is afflicted with news that a valued patron has been persuaded to ship by another line, or can be retained only by a deep reduction of rates, involving a loss of revenue to the railway company amounting to hundreds, thousands, tens . of thousands and even hundreds of thousands of dollars in a single case. These troubles are inci- dent to the mere acquisition and preservation of 28 29 traffic ; they are incessant, corroding and destruc- tive ; they turn men's hair gray, smite them with palsy and drive them to early graves. In the intervals between losing traffic and buy- ing it back at deadly cost, how is the railway man- agement occupied? Lands must be bought for additional right of way and depot facilities. Ship- pers want side tracks to their elevators, ware- houses and shops ; coal operators, stone quarriers, furnace men want branch lines built ; connecting railways want a joint use of tracks and facilities ; weak holders of worthless railroads want to sell them ; new lines must be built to protect those already owned ; old employes want pensions ; myriads of outsiders want employment; village councils want street crossings lighted ; city coun- cils want to pave streets, establish sewers, secure new railways and give bounties to manufacturers, largely at the expense of railways ; others de- mand change of grade of tracks, elevated tracks, viaducts, and sometimes order to destruction one kind of improvement they have ordered to be built, before it is paid for, to make way for another 29 30 which will better please their taste or gratify their revenge. People along the line want every con- venience at stations. Boomers of towns and cities want special train service. Lawmakers want to give everything that is asked for against railways, and men in every department of public service, village, city, county. State and Federal, want to ride free; not all, but nearly all, and not merely for themselves, but for their families, friends and companions ; meanwhile, old debts are maturing and new bonds and mortgages must be created. Current interest and other obligations must be met. No one would expect that in this increase of burdens and decrease of income railways could continue to be solvent. I might with truth add that, except the security holders, no one would care ; and the fact justifies the expectation ; within two years last past more than twenty-five per cent, of the total railway mileage of the United States has been in the hands of receivers. To cap the climax, at a time when railroad property is most worthless; when more than one-half the capital invested in railways is unproductive, there 30 31 are people who want to lay heavier burdens upon them, reduce still further their income, and in- crease the taxes which are levied upon them. The people of the United States are just, and if they know the facts, they are not willing to be guilty of injustice. They will concede that capital honestly invested should yield reasonable income; especially are they willing that the man who serves them should be compensated for that serv- ice ; no one will deny that railway companies ren- der service to the public. They carry people, freight, express, parcels, newspapers and letters; no inconvenience can be imagined which would affect so large a body of people as that which would result if railway trains should cease to move. Burdens imposed by Legislatures, taxes levied by tax commissioners would not be excessive if it were known that these burdens and taxes were too severe. Law-makers would not reduce the income of railways, nor would they forbid railway companies to make arrangements with each other to protect their income, if they believed the income so protected were necessary to properly operate 31 32 and maintain these railways, and, in addition, yield a fair dividend to stockholders. The fact is that, at this time, one-third of all railway bonds in the United States are in default of interest, and more than two-thirds of all railway stocks yield no divi- dend. The aggregate amount of these bonds and stocks in default is between five and six billion dollars, and every one of the railways is in opera- tion, serving the public, and more than half of them receiving no pay for the service. The blame of this situation rests not wholly on the public. The public can no more guarantee profit to all railways than to all mills or farms. Many railways were built, not because they were needed, but because exploiters wished to make money in building them. Others were built in good faith, but in bad judgment, hence predestined to bankruptcy ; nevertheless, railways built by exploiters and those built by men of bad judgment, no less than those which were built for an honest purpose and in good judgment, serve the public unceasingly, by carrying them and their freight, 32 33 their newspapers and their letters. What is the duty of the public toward them ? The first duty of the public towards railways is to deal with them with knowledge, not in ignor- ance ; with reason, not in prejudice. How many people know that recently twenty-five per cent, of the entire railway mileage of the country was in bankruptcy ? How many know that one-half the money invested in American railways yields not a cent to its owners ? This knowledge should, and will when it prevails, convince people that railways are not earning too much money. Many people believe that railway property is not taxed, or if taxed, not taxed enough. They learn this from newspapers and street talkers. Go to the Treasurer's office in any township, city or county in the State ; ask your servant, the Treasurer, what is the fact ; you ought to be willing to be- lieve him. If you think railway companies are earning too much money, go to another high serv- ant of yours, the Auditor of State ; ask him to tell you how many railway companies in the State have been bankrupt, how many pay dividends to (3) 33 34 stockholders and interest to bondholders ; ask him and ask the Governor to tell you if they think the railways in Indiana earn too much money, and if they say yes, ask them to specify what companies they refer to, and tell how much they earn and how much less they ought to earn. In this way you will get knowledge, and no longer act in ignor- ance. Prejudice is an intangible, impalpable, invisible enemy, most difficult to conquer ; a vague im- pression, derived from unworthy or unreliable sources. The longer it exists in the mind the stronger it becomes, and as it rests not in reason, but wholly in ignorance, you can not assail it with reason. There is no hope for the case unless it is willing to learn facts and become enlightened. A prejudice exists against railways. They are feared because times and conditions have consoli- dated them into large systems. But why do you fear a large railway more than a small railway ? Do you think a thousand miles of track under one control more formidable than a hundred miles, or ten ? , Is a long train of cars more dangerous to 34 35 your liberties than a short train ? Is a spacious, airy, well furnished car a menace to your rights ? Surely danger does not lie in the number or length of rails, or trains, or the furnishing of a car. Do you fear that large railways will set themselves above the law or defy the courts ? Go to any Justice of the Peace in any township, in any State in which is situated the largest railway in America, ask that Justice of the Peace if he has any dif- ficulty in bringing that colossal railway company into his little forum ; he will answer, Not a bit. I send the constable with a little piece of paper, telling the company to come before me and it comes,'' Ask any prosecuting attorney in any county in America whether he has any diificulty in- indicting or punishing a railway company or employe for a crime? He will tell you, '*Not any more than in case of individuals.'' Do you fear the influence of large railway companies more than small companies in corrupting juries, public officials and law makers ? Ask any attorney in any county in America whether he knows of rail- way attorneys bribing juries, or whether it is dif- 35 36 ficult for a poor man to get a verdict against a great railway company ? He will tell you that it is easier for a camel to pass through the eye of a needle than for a large railway company to win a jury verdict in any kind of a case. If you fear large railway companies more than small ones in their power to bribe public officials, consider whether there is really any difference between the two.- A large railway company has no greater inclination to bribe than a small com- pany. The value of a local privilege which a railway company might wish to have, is no greater t^ a large company than to a small one. Neither does the vaster income or credit of the large com- pany count for more than the smaller income of the smaller company. If the small company is disposed to bribe, its smaller resources yield all that is needed to satisfy the corruptible official. When you have explored every source of your" fear of large railway companies, you find at last that no greater danger is to be apprehended from a large than a small company. Each is managed by men of about the same stature, weight, ability 36 37 and sentiment, and the resources of each for the attainment of its wishes or protection of its rights are equal to the other. A prejudice exists against railway companies under the vague impression that railway stocks are watered, and on this prejudice rests a demand that railway rates be reduced. In other words, it is said the public is forced to pay higher rates, than it should, in order that dividends may be paid on watered stock. If people will take time to learn the facts bearing on this question they will see that their claim is unfounded. What are the facts? First, 70 per cent, of all American railway stocks yield no dividend whatever. Sec- ond, the remaining 30 per cent, receives less than 4 per cent, per annum. Third, a considerable part of this 4 per cent, is not earned by the com- pany, but is paid by some other company, under contracts made years ago, when railways were few and the earnings of each railway were greater than now. Fourth, railway stocks are bought and sold hourly ; in many cases the owner of to- day was not the owner of yesterday. Now, bear- 37 38 ing in mind that the only proper objects of wrath on the part of the public, in relation to watered stock, are the men who issued it — not the men who have since bought it — what conclusion can w6 draw from the foregoing facts? First, that as to 70 per cent, of all railway stocks there is no just cause of complaint, whether watered or not, because the public does not pay dividends on that stock; second, as to the remaining 30 per cent, on which less than 4 per cent dividends are paid, a greater part of it is paid, not because it is earned, but because there is a contract which re- quires it to be paid. And, finally, there is no certainty, if railway rates should be reduced, and thereby reduce the dividend which is paid on one- third of the railway stocks from less than 4 to less than 3 or less than 2 per cent., that the blow would fall on those guilty of issuing watered stock. Therefore if the people reduce railway rates on account of watered stock, they act like a blind giant who swings a club in a crowd in his aim to strike one man by whom he has been hurt. 38 39 Certain railway stocks have been watered ; other stocks are thought to be watered, but in fact are not ; still other stocks are not watered, and are not supposed to be. Let the people know the situation and they will be fair. First, When boomers build railways — not to operate, but to sell — they proceed as stated above. They give a block of stocks and bonds to them- selves as pay for building a railway. The amount of these stocks and bonds has no reference to the cost of the railway. If the cost of con- struction and equipment, honestly incurred, ex- ceeds the amount of stocks and bonds issued, then there is no water in either stocks or bonds. Such a mistake on the part of the boomers has never been heard of. Usually (always so far as is known) they issue stocks and bonds largely in excess of the cost of building and equipping the road. This excess is water, and dirty water too. To avoid being injured by it, the public need not rob all railway companies who have acted in good faith. They can correct the evil by changing the law, which permits anybody to build a railroad 39 40 anywhere, and make the building of a railroad a question of public necessity, to be determined by disinterested public officials. Township roads, county roads, city streets, are not opened through private property nor cast upon the public for re- pairs, except on petition of certain persons and their necessity approved by proper public officials. Next, before anybody is allowed to build a rail- way, he should file in some public department sworn estimates of its cost, and be compelled, under heavy penalties, to limit the issue of stocks and bonds to its actual cost. Under such law we would have no watered railway stock. Second, When are railway stocks supposed to be watered, but are actually not watered.? I answer, when such stocks are based on extensions and additions to an existing railway, and are paid for at cost out of earnings. A railway is built from A to B ; it has cost ten million dollars, honestly expended, for which five million in bonds and five million in stocks have been issued. No one complains of that. The railway begins operations, increasing traffic de- 40 41 mands additional tracks, lands and cars. Where shall the money be got to pay for these necessary additions? If additional bonds are offered at that early stage, they will sell at so low a figure that it is not wise to make the attempt. The stockhold- ers, at that early period, are not disposed to sub- scribe additional stock and pay in more money. If they were willing so to do, the most rabid enemy of railways would not complain of it. What then is to be done? The public clamors for increased facilities. It is not wise to sell bonds at a discount ; stockholders are not able or willing to make further advances of cash, but they are willing to do some- thing else which enables the public to have the increased facilities it demands. They say to the Directors of the company, make these desired improvements and pay for them out of surplus earnings ; meanwhile we will ask for no dividends. Five or ten years of this policy continues, and at the end of the period, ten additional million dollars have been expended and the railway is worth double what it was at first. The stockholders now say, we will take ten millions of stock to represent that addi- 41 42 tional value. Can stock so issued be called watered stock ? Certainly not. Why ? The public needed the additional facilities ; after they were made, the capacity of the road to do business and accommo- date the public was doubled, and the value of the property was doubled. If stockholders had sub- scribed for additional shares and paid for it monthly or quarterly as the work of extension proceeded, nobody would have thought of complaining ; or, if stockholders had drawn from the company divi- dends, and at once turned those dividends back to the company and received stock for it, no one would have complained. What difference then, is it to the public, whether the stockholder draws dividends and converts it into stock, from time to time, or allows all surplus earnings to be applied to the work of extension and takes his share of stock for the cost of the extensions, when the same are completed. 1 will admit that no additional stock should be issued to represent an increased value of the railway, caused by lapse of time or increase of busi- ness. The public has a right to share that increase 42 43 with the stockholder. The right to issue addi- tional stock should rest on the fact of additional cash put into the property to increase its ability to serve the public. If stock issues are restricted to these limits, the people will not complain of watered stock, and they can protect themselves fully in this respect, and innocent stockholders as well, if they will, under heavy penalty, limit the issue of bonds and stock to cost of the railway and additions and to pay debts which can not other- wise be paid. This brings us to a phase of the question not often discussed, yet important to be understood. It is clear that a sound policy requires that stock and bond issues of a railway company should be limited as far as possible to cost of the property, but experience has shown that railway companies, in spite of good management, will fall in debt. These debts must be paid in cash, stock or bonds, hence the law has permitted stock and bonds to be issued in payment of debts. Large amounts of stock have been issued in this way. A railway company becomes insolvent and is reorganized. 43 44 Its old stockholders cling to the faith that some day in the future, the stock will have value, hence they want to be represented in the new company. For a better reason, bondholders whose interest for ; years has not been paid, want something to represent their unpaid interest, and are entitled to a place ahead of stockholders, and they receive income bonds or preferred stock in payment of their unpaid interest. Thus a reorganized com- pany begins its career with a large amount of stock, and the suspicion of the public is aroused against it. The cases are exceptional and should receive particular treatment. To compel all rail- road companies to reduce their rates because some companies have issued fictitious stock, and others have issued stock in payment of debts, would be like putting a whole town in jail because one in- habitant was a thief. The newspaper editor, the platform lecturer, the State or National law maker, who, in general terms, denounces railway companies for issuing watered stock, is guilty of gross calumny against the railways of the United States, and does great wrong to hundreds of 44 thousands of innocent people. We do not de- nounce all editors because some are blackmailers ; we do not condemn all lecturers because a few are ignorant and rash ; we do not call all law makers criminals because some are bribe takers ; we do not say the human race are assassins be- cause some of them are murderers. We should not charge railway companies with swindling the public because a few companies have issued ficti- tious stock. Let there be light on this subject, and the people will be just to railway companies. Hostility to railway companies exists mainly because they do not give uniform rates to the public, and sometimes charge more for a short than a longer haul in the same direction, hi other words, it is said they favor certain shippers at the expense of others. Railway companies derive all their powers from the public ; they are created for the purpose of serving the public, therefore it seems odious that they should give lower rates to one part of the public than to another. Laws are enacted to prevent this dis- crimination, and require rates to be alike to alL 45 46 The companies evade these laws by charging uniform rates and giving a portion back to fa- vored shippers by way of rebates, drawbacks and other devices. Then other laws are enacted to prevent the companies from giving back any portion of the rate, by any kind of payment or favor, and these laws in turn are disobeyed. Every one knows this to be the situation in respect to every railway company, the result be- ing that all companies are conspicuous, persist- ent, defiant law breakers. No wonder they are scourged by juries, law makers, tax commission- ers and public opinion. Why then do railway companies persist in a course which makes them all criminals and brings the majority of railways to bankruptcy ? . Public opinion rests on the single fact that rail- way companies are law breakers ; no inquiry is made why railway managers break the law, or whether the law is just. Possibly an investiga- tion will show that law makers as well as law breakers are at fault. 46 47 Although the people give corporate life and power to railway companies, they do not furnish the money to build, equip and maintain railways. This money is furnished by private individuals. A railway, therefore, is private property devoted to a public use. Nothing can be more just than that this private property devoted to a public use should be allowed to yield some profit to its own- ers, and at least to protect itself from insolvency. This proposition is not fully nor fairly met by the counter proposition that railway charges should be uniform to the public, unless a reasonable interpretation is given to the phrase uniform charges.'' What then are the rights of the public in respect to a railway ? What is meant by uni- form charges ? What are the rights of a railway company in respect to earning money ? Take the case of a railway, built from Chicago to the seaboard. The people of Illinois, Indiana or Michigan, Ohio, Pennsylvania or New York, and of New Jersey have united in giving corporate life and powers to this railway company. Each State expects to be benefited by the existence of 47 48 the railway. Next, there are many cities, towns and hamlets in each State, along the line of this railway. Some of these places enjoy the advan- tage of competing railway or lake or river service ; others have not this advantage. None of these places are exactly alike in the conditions of labor, materials, workmen or capital. The situation is further complicated by the existence of several other railways built from Chicago to New York, each on a different route, each under conditions different from either of its rivals. The laws of the different States between Chicago and the sea- board limit the rate which railway companies may charge for their services ; that is, they prescribe the maximum rate. None of these States fix a minimum rate ; the theory of the law on this point is, that railway companies might charge too high a rate if not restricted, but there is no danger of their charging too low a rate ; hence, while the law prescribes a maximum rate, it does not pre- scribe a minimum rate. The omission of law to fix a minimum rate jus- tifies the public in assuming it is at liberty to get 48 49 as low rates as it can, and justifies the companies in assuming that they may lower rates as much as they please/ Thus the public gets the benefit of competition, which every one concedes it has a right to get. But railway companies naturally wish to get all they can, and never reduce the rate except under compulsion. Hence, they main- tain rates where they have no competition, and lower rates where they have competition. The right of the public to get as low rates as it can applies to every station on a railway ; and in- asmuch as the conditions which induce a railway company to lower its rates are not the same at all stations, it is impossible that rates should be uni- form at all stations. Where competition exists, the public, in the exercise of its undoubted right, will secure lower rates than at points where there is no competition. To force a railway to make a uniform rate at all stations, would be to give to some communities advantages to which they are not entitled, and to deprive other communities of advantages they have rightfully acquired. It is not the duty, nor is it in the power of a railway (4) 49 50 company to equalize conditions between different communities. The right of a railway company to lower its rates at competitive points is inseparable from the right of the public to get as low rates as it can. And if it be conceded that in the absence of law fixing a minimum rate which a railway may charge, the public has a right to as low rates as it can get, the conclusion is inevitable that a railway company which charges different rates at different stations is not guilty of discrimination. This argument does not apply to different patrons at the same station. The rights of all members of the public at any given point are identical. If rates are lowered to one they should be lowered to all. Though one patron ships ten tim.es as much at one station as another patron, the rights of the public at that station are the same, and what the railway does for one it should do for all. This right of the public to have as low rates as it can get is the source of all complaints against railways on account of discrimination. At com- petitive points the railway company lowers the 50 51 rate under compulsion ; it makes the best bargain it can, and the result is all shippers are not served alike. In all these cases of so-called discrimina- tion, whether at competitive or non-competitive points, the railway traffic manager acts precisely as the merchant and manufacturer does under like circumstances. He reduces the price to those who buy largely ; he sells at little or no profit, rather than lose, a customer. The public wishes to have as low rates as it can get; it knows the more railways are built the lower will be the rates; therefore it wishes as many railways as can be built. At this point the public stops wishing and thinking, and begins to smite railways because of discrimination. It fails to see that competition and discrimination are in- terchangeable terms. It passes laws to prevent discrimination, and with incredible folly passes other laws forbidding railway companies to do the only thing that can prevent discrimination, to wit, make arrangements between themselves to main- tain uniform rates and compensate each other by division of traffic or earnings, a subject in which 51 52 the public has no conceivable interest what- ever. Why are the words competition and dis- crimination interchangeable terms ? Competi- tion is a condition resulting from the presence of two or more rival railway lines. Discrimination is a condition under which different individuals in the same community do not get the same rates from railway companies ; neither one, two or three of the rival lines can do all the business at the competitive point ; each line will and must get a share of the business. The conditions under which the various rival lines are maintained and operated are not alike in any two cases. There- fore the rates they can each afford to accept are not the same in any two cases. And inasmuch as no single company can do all the business, leaving the others to starve, a different scale of rates charged by each company is the inevitable result. Thus we find discrimination to be the inevitable concomitant of competition ; for the result to the public is precisely the same, whether one railway company gives a different rate to each of its 52 53 patrons, or whether half a dozen different com- panies give different rates to the public. The result in either case is that all shippers at competitive points are not treated alike. Certain railways can afford to accept a less rate than other less favored lines. The less favored lines must have a portion of the traffic, for small profit is better than none. Here begins scramble for traffic and demoralization of rates. No rail- way company will quietly lie down and die. Neither public opinion or penal statutes will pre- vent its managers from trying to get traffic and continue to do business. In this pell-mell scram- ble for traffic the public is robbed and the railway companies are ruined. The business of large ship- pers is sought after and secured at any price. Smaller shippers do not get as good rates as the larger, and the result is that small dealers are driven out of business and larger dealers increase their power and wealth. Even the large dealer is not wholly at fault in this carnival of ruin. The competition which affects the railv/ays affects the different merchants and manufacturers. Each 53 54 must meet his rival in the field of trade on equal terms and get the lowest possible rate for trans- portation. Unrestrained competition crushes and grinds as remorselessly as the wheels of Jugger- naut. If railway companies were permitted to make arrangements with each other for division of traffic or earnings, the destructive results of competition could be largely obviated. Hitherto the public mind has associated such arrangements with the idea of pools and monopolies, and forbidden rail- way companies to make them under heavy pen- alties. Nine years ago Congress prohibited pool- ing of railway earnings or tonnage, thinking thereby to secure unrestricted competition and prevent discrimination. It did not understand that unrestricted competition meant unlimited discrim- ination. The country has never known such de- moralization of railway rates, dissatisfaction of shippers and bankruptcy of railway companies as since the passage of the interstate commerce law. If railway companies were permitted to make and enforce agreements among themselves rela- 54 55 tive to a division of earnings or traffic, they could secure uniformity and stability of rates, and the public would be entirely safe against exorbitant rates. Each State controls the maximum rate which a railway company may charge for the transportation of passengers and freight. That maximum rate can be lowered at the will of every Legislature. If railway companies should agree upon a rate which the public deems unreasona- ble, the remedy is in the hands of the Legislature to reduce the maximum. Whatever rate the law permits to be charged is presumed to be reason- able, and no harm can come to the people if rail- way companies are permitted to agree upon a rate which is equal to or less than the rate which the law declares reasonable. If railway earnings becom.e too large under the operation of pooling contracts, let the maximum rate be further lowered, and railway earnings will at once di- minish. A railway pool differs from a pool of manufac- turers or producers in this : The public can not control the price which private persons may charge 55 ^ 56 for what they produce, hence a pool or monopoly of producers may force prices up to an extravagant figure ; but the public does and always will control the price of transportation, and no railway com- pany win dare to charge above the maximum rate which is fixed . by law. Many people think de- moralization of rates and bankruptcy of railways would cease if railway traffic managers were hon- est and wise. They do not understand the situa- tion. First, while a majority of traffic managers are both honest and wise, all are not so, and one foolish, dishonest traffic manager can bring con- fusion to the whole situation. Second, if all were honest and wise, they could do nothing without concert of action, and this concert of action is for- bidden by law. Railway companies are, there- fore, by public opinion and statute law condemned to destruction and forbidden to make any effort to save themselves. The situation is precisely as it would be if a community, made up of wise and ignorant, virtuous and vicious, honest and dis- honest people, were by a higher power prevented from passing laws and establishing courts for mu- 56 . 57 tual protection, and thus left to prey upon each other, like savages in a wilderness. Any kind of despotism is more tolerable than such a state. It is noted with pleasure that public opinion is changing on the subject of railway pools. Those who are capable of learning facts, and can under- stand the truth which those facts convey, are no longer opposed to a law which will allow railway companies to make reasonable contracts with each other for division of traffic or earnings. The ignorance of law-makers on this subject has caused stupendous disaster to individual and corporate fortunes. It is hoped that the dawning of a better day is at hand. Railway companies being created by law and regulated by law, their oificers and employes are in constant touch with servants of the people who make, interpret and enforce the law. The temp- tation is great to give and receive money, in mat- ters wherein the interests of the railways are in conflict with those of the public. Some railway managers are willing to pay the price, and some officials are willing to betray the public. Happily, 57 58 these are in the minority. Under our modern - system of law, which forbids the granting of cor- porate privilege by special statute, the railway companies are seldom in legislative halls except under compulsion, to try to protect themselves against threatened injury. There are men who make a living by work in shops, fields and mines. There are other men who make a living by working legislative bodies. They gather at the State Capitol as buzzards gather about a carcass. Usually they have served one or two terms in a Legislature, and learned in the mysteries of law making. They soon know what members are there to serve the public, and who are there to serve themselves. This is fact number one. The next factor on which they count is the fear of corporation officials that laws will be enacted increasing the burdens on corpora- tions. The third stage is the introduction of bills to increase taxes, impose severe regulations or re duce income of corporations. This blackmailing process is aimed at all manner of corporations, railway, express, sleeping car, telegraph, insur- 58 59 ance and loan associations. Sometimes the officers of tliese corporations are cowards and think it necessary to pay promptly the ransom demanded by legislative brigands ; others whom long experi- ence in the business has made familiar with these operations, pay the tribute as the easiest way out of trouble and regard the exaction as one of the elements of modern civilization ; a third class have faith in the principles of honesty, trust to the people for fair play, and by proper presenta- tion of arguments and facts, defy the blackmailers and defeat their schemes. Corporation officials who act in this way seldom fail to protect the companies they represent to the full extent to which they are entitled to protection, but as long as some officials are willing to pay tribute, so long the system of legislative corruption continues, and all railway companies are denounced by the people as partners in the crime. The same influences, but to a very limited extent, prevail in the action of Tax Commissioners. Prosecuting attorneys, sheriffs, auditors and coroners are in position to help or hurt a railway company. Their opera- 59 6o tions are mainly characterised by a sense of jus- tice, but often they are willing to give and receive. In presenting these facts to the young men before me, many of whom will probably some day be called to railway service, and all of whom wish to become upright citizens, 1 wish to emphasize the following truths : Railway employes are, in a certain sense, serv- ants of the public ; the manner in which they dis- charge their duty has much to do with the welfare of the public. Let that duty be performed with courage, but always in the desire to do justice to the public, no less than the company they serve. When the public learns that railway officers and employes are animated by this sense of duty and of justice, prejudice against railways will disap- pear; the burdens which are laid upon them will be reasonable; the fetters which bind them to disaster will be removed. 60