lite ICton JUttt (jju^tion.
WHAT IS THE TROE POLICY
STATE OE NE¥ TOEK?
DISCUSSED BY
J. W. BROOKS, ESQ.
H E ALBANY :
WEED, PARSONS & CO M PA NY.
* 7 71
THE PRO RATA QUESTION.
WHAT IS THE TRUE POLICY
OF TETE
STATE OF NE¥ YORK?
DISCUSSED BY
J. W. BROOKS, ESQ.
ALBANY :
WEED, PARSONS & COMPANY.
1860.
PREFACE.
To the Public :
In anticipation of the contest which is now taking place
before the Legislature of the State of New York, in regard to
the imposition of restrictions upon the carrying trade of our
railways, the undersigned addressed a letter to John W.
Brooks, Esq., of Boston, asking his views on the subject.
The following reply, though written in December last, is re¬
markably pertinent to the present state of the discussion, and
will throw much valuable light on all the questions involved.
It is worthy of the careful attention, both of those who
enact our laws and those whose interests are to be affected by
them.
GEORGE H. THACHER.
Albany, Jan. 28, 1860.
DISCUSSION
ON THE
PRO RATA FREIGHT LAW.
In considering wliat the effect would be upon the New
York Railroads, and upon the State of New York, to
have her roads embarrassed in their efforts to procure
business from the West, their geographical position and
that of their rival lines must be examined.
The business of the Western States has several cen¬
tres, to and from, or through which, the traffic of the
various districts passes. The order in which these are
geographically situated, most favorable to the New York
Central Road, are somewhat as follows :
1st. Detroit, through which passes most of the traffic
of the State of Michigan, including that of Lake Supe¬
rior.
2d. Cleveland, through which passes the business of
the northern portion of Ohio, the most of Indiana, the
southerly half of Illinois, a portion of north Missouri
and of southern Iowa.
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3d. Chicago, to which converges the business of the
northern part of Illinois, Wisconsin, Minnesota, part of
Iowa and a part of north Missouri.
4th. St. Louis, through which passes a large portion
of the business of Missouri, a portion of Kansas, and
much of the lower Mississippi valley generally.
5th. Cincinnati, through which passes much of the
business of the southern part of Ohio, the Ohio valley
below Cincinnati, and a portion of the business of the
lower Mississippi valley.
The distances of these various points, through which
the business of the respective districts is drained, to New
York, are as follows :
I.— Detroit to New York:
Miles.
1. Via Great Western, N. Y. Central and Hudson River,.. 676
2. " Toledo, Lake Shore and Erie, 77G
3. " Steamer to Cleveland, Pittsburgh and Philadelphia, 681
4. " Steamer to Dunkirk and New York and Erie, 6S0
5. " Toledo, Cleveland, Pittsburgh and Philadelphia, .. 765
6. " Toledo, Cleveland, Wheeling and Baltimore and
Ohio, S81
H.— Cleveland to New York :
1. Via Lake Shore, N. Y. Central and Hudson River, 624
2. " Lake Shore and New York and Erie, 602
3. " Pittsburgh and Philadelphia, 591
4. " Cleveland and Pittsburgh to Wheeling and Balti¬
more and Ohio, 707
III.— Chicago to New York :
1. Via Michigan Central, Great Western, N. Y. Central
and Hudson River, 960
7
Miles.
2. Via Michigan Southern, Lake Shore and New York
and Erie, 957
3. " Michigan Southern, Cleveland, Pittsburgh and
Philadelphia, 947
4. " Pittsburgh and Fort Wayne and Pennsylvania Cen¬
tral, 908
5. " Pittsburgh and Fort Wayne to Alliance, Cleveland
and Pittsburgh to Wheeling and Baltimore and
Ohio, 1031
IV.— St. Louis to New York :
1. Via Chicago, Michigan Central, Great Western, New
York Central and Hudson River, 1341
2. " Terre Haute, Alton and St. Louis, Wabash Valley,
Toledo, Cleveland, Buffalo and Albany, 1197
3. " Terre Haute, Alton and St. Louis, Bellefontaine and
Crestline, Cleveland, Lake Shore, New York
and Erie,.. 1133
4. " Crestline, Cleveland, Pittsburgh and Philadelphia, 1122
5. " Ohio and Mississippi to Cincinnati, Marietta, N.
W. Virginia and Baltimore and Ohio, 1116
V.— Cincinnati to New York :
1. Via Cleveland, Columbus and Cincinnati, Lake Shore,
New York Central and Hudson River, 879
2. " Cleveland, Lake Shore, New York and Erie, 857
3. " Columbus, Pittsburgh and Philadelphia, 711
4. " Columbus, Central Ohio to Wheeling, Baltimore
and Ohio, 826
5. " Marietta, North Western Virginia and Baltimore
and Ohio, 776
From these distances, it appears that the New York
roads can never, under any circumstances, be anything
but co-workers with the more southern lines, in the
transportation business between the West and the city
of New York. They cannot monopolize it, nor can
8
they even participate in it, except at low rates of trans¬
portation.
From those districts, which, from their age, wealth,
and the magnitude of their business, have made the city
of New York what it is, the New York Central is so
much longer than the m oie southern routes, that it must
work at a much less rate per mile than they do, or it
would lose the traffic altogether.
A well-established and popular passenger route will
continue, at a moderately higher rate of charge, to carry
a decreasing proportion of the passenger business ; but
even in this class of traffic, if a difference is long allowed,
it will finally prove fatal to the interest of the road charg¬
ing the higher rate, while in the transpox-tation of freight,
the line chai'ging a higher rate than another, between the
same points, at once loses the business. It is, therefore,
clear, that the New York Central cannot make a rate of
charge independently of the other lines competing for
the same business. Should it charge more, it would get
none of the traffic ; should it charge less, the trade of
the other lines would at once be diverted, and they
forced to adopt the same rates.
Much bitter and expensive experience has settled the
principle, that the rates between all competing points
must be alike over all the routes, which would share in
the carrying trade, irrespective of their length.
As no two of these routes are of the same length, the
prices charged upon any articles of freight between two
.competing points, must be at a different rate per mile
9
upon each of the routes—less per mile upon the longer,
and more per mile upon the shorter line.
From Chicago to New York, by the shortest route, in
connection with the New York Central Road, is 960
miles; by the Baltimore and Ohio it is 1050 miles.
The former would get about 7 per cent more per mile
than the latter for the same business.
From Cincinnati to New York, by the shortest route
in connection with the New York Central Road, is 879
miles ; the same via Pittsburgh and Philadelphia, is 711
miles. The former must, consequently, carry for about
23 per cent less per mile than the latter.
Each road will, therefore, get more per mile upon
some of its long traffic than its rival lines, and less upon
other of its long traffic.
It has been found in practice, that the only equitable,
as well as practicable method of dividing the price
received for the transportation of freight between com¬
peting points, over a route composed of several separate
roads, is, by the distance carried upon each road, a pro
rata per mile, with such moderate allowances for ferries,
&c., as may be equitable to the parties who support them
for the common benefit.
Any road which would not recognize this principle,
and should insist upon a uniform rate upon freight from
all sources, would soon lose a large portion of its long
traffic. If, for example, the New York Central would not
take its pro rata portion of the through rates with the
roads west and south of Cleveland, those lines would
10
send their business from all of Ohio, Kentucky, Indiana,
Illinois, Wisconsin, Iowa, Minnesota, Missouri, in fact
the business of the whole of the Ohio and Mississippi
valley, by the more southern routes to New York. Any
other plan of division would take from one road a por¬
tion of its earnings to give to another. It inevitably
results, that every line participating in the long business,
must carry the same kinds of freight at different rates of
charges, when coming from different competing points,
at lower rates when the road forms a part of the longer
line, and at higher rates when it forms part of the shorter
line, between the competing points.
It may be suggested, that the through rates are lower
than is necessary ; this may well be left to those whose
daily business is but a continued experience, qualifying
them as judges in this matter. Except in cases of
unsettled competition, when the public gets all the
advantage, the interest of the companies will lead them
to procure as high rates as the business will bear.
Before the great increase of railroads in the Western
States, the business of each district of that great region
had but one general way to get to and from a market.
The trade of the Ohio and Mississippi valleys proper
went via New Orleans, and that of the lakes by the Erie
canal. Rates of freight could then be changed without
so sensibly affecting the course of the traffic, and without
very materially reducing the area drained in any particu¬
lar direction. Moderate changes would, in those days,
rather have affected the production, than changed the
11
current of traffic. The multitude of railroads which now
lattice the Western States, have rendered all the natural,
as well as the artificial channels of trade, accessible
throughout every part of that region.
Facilities for transportation have increased upon all
the outlets for Western freight, methods of management
have been simplified, the cost reduced, certainty, dispatch
and safety very much enhanced, not only upon the Ohio
and Mississippi, in efforts to take business via New
Orleans, but as well upon the northern artificial avenues
to the seaboard.
If the rate of freight between St. Louis and New York
be raised but a little too high, a large proportion of it
will go via New Orleans ; and that requiring a more
speedy route to market, will take the river via Cincinnati
and Wheeling, reaching the seaboard by the Baltimore
and Ohio and Pennsylvania Central Roads. The same
may be said of the rate from Cincinnati ; and whatever
changes the route of freight from these points, will also
change that of two-thirds of the whole West, and other
kindred causes will alike affect the rest. It is, therefore,
wholly out of the power of the railroad lines to control
the price of the long freight ; they must take it at the
rates at which it is moving through other channels, or
lose it altogether.
A large proportion of the long freight, between Boston,
New York, and other eastern cities, and the Mississippi
valley, as high up as west of Chicago, now goes round
via New Orleans, and, but for the low inland rates of the
12
past two years, the increased facilities in coasting and
river transportation would have made serious inroads
upon the business of the northern lines, which run east¬
ward and westward.
The margin for profit upon all produce transactions
and mercantile business generally, in the Western States,
has been reduced by the extended use of the magnetic
telegraph and the increased facilities for transportation,
thereby rendering all holders of property for transportation
very sensitive to small changes in the rates, which would
not, in years past, have been noticed. These and other
causes have rendered the tenure, by which the East and
West lines hold a portion of the traffic of the West, such
as to require constant and watchful care. A very moderate
increase of rates, especially while the Ohio and Mississippi
are free from ice, would largely reduce the area of country
drained to the eastward.
Within the year, another natural avenue of trade with
the West has been opened to use. A considerable number
of vessels are now loaded at ports upon the lakes for a
direct European trade ; and the St. Lawrence outlet will
be rendered a still more formidable competitor by the
now opened Grand Trunk Railway, which can transfer
produce directly from its cars into vessels bound for
Europe, at Montreal or Portland, and will be likely to
reap a large return traffic, in merchandise, with the West.
New York city has been made what she now is, by the
trade of the West. She once held the only avenue to that
source of wealth, and was the sole market for a vast
13
region. Within two years, three new and powerful routes
have been opened from all this region to the seaboard,
all adverse to the interests of New York ; the Pennsylvania
Central and Baltimore and Ohio upon the south, and the
Grand Trunk upon the north.
The increasing disposition to embark in a direct trade
between the lake ports and Europe, renders the present
a time when great prudence and foresight should be
brought to a consideration of all matters calculated to
affect the current of trade passing through the State of
New York.
It may be urged, that as the trade of the West can reach
New York as well by the more southern routes, as those
of New York State, the experiment of a light toll might
be put upon the latter without proving eminently hazard¬
ous to the western business.
The answer to this would be, that, although the other
lines are as short, and in many cases shorter, to New
York, than the New York routes, yet they are controlled
and managed by an interest wholly adverse to that of
the State of New York.
With all these avenues opened from rival cities to the
source of trade which has created New York, her every
effort should be exerted to add to and not reduce her
facilities for trade with the West. Is it wise for New
York to be indebted to rival interests for her trade with
the West ? Is it prudent to allow her traffic to pass
through rival cities before reaching her 1
14
It is well worth, while to inquire into the relative
distances between the great centres of Western trade and
the cities of New York, Philadelphia and Baltimore.
They are as follows :
Miles.
From Detroit to New York, 676
From Detroit to Philadelphia, 677
From Detroit to Baltimore, 695
From Cleveland to New York, 624
From Cleveland to Philadelphia, - - 603
From Cleveland to Baltimore, 521
From Chicago to New York, 960
From Chicago to Philadelphia, 820
From Chicago to Baltimore, 845
From St. Louis to New York, 1,197
From St. Louis to Philadelphia, 1,034
From St. Louis to Baltimore, 930
From Cincinnati to New York, 879
From Cincinnati to Philadelphia, 623
From Cincinnati to Baltimore 640
From this it appears, that very large portions of the
West are much nearer to Philadelphia and to Baltimore
than to New York, via the New York roads, and some of
the most wealthy and populous districts are more than two
hundred miles nearer. During the year 1858, by an ar¬
rangement between the four trunk lines reaching to New
York, Philadelphia and Baltimore, the rates of freight from
Boston and New York to the West were fixed at a price
somewhat less when, forwarded via Philadelphia and
Baltimore, than when sent directly inland from Boston
or New York. This, of course, made the rates from
Philadelphia and Baltimore considerably lower than from
15
New York, and the injury to the lines through the State
of New York was immediately felt. Under this arrange¬
ment, goods were taken from New York to Baltimore and
Philadelphia, thence west to the Ohio and Mississippi
rivers, then north as far as Galena, and thence east to
the interior of Illinois. The western importing merchants
directed their importations to the more southern cities,
thus diverting from and depriving New York of the
advantages of their importing business, and its roads of
their carrying trade.
In view of the fact, that the western importer is likely
to make his home purchases in the city where his imports
arrive, it is of eminent importance to New York that the
passage of their imports through her city should be
retained. This clearly cannot be done, excepting the rate
of freight to the West be as low as from the other cities.
These more southern cities are but just entering upon
the advantages of their position. Want of communica¬
tion has heretofore excluded them from participating in a
trade built up and until now monopolized by New York.
Philadelphia's population has increased to nearly half
a million without these advantages, and her progress with
them will certainly be greatly accelerated.
Both the Pennsylvania Central and Baltimore and
Ohio railroads, were built from motives of state and city
policy. A profitable investment for capital was not the
moving cause for the construction of either: they were
constructed for the promotion of the interests of their
respective States and the cities where they terminate.
16
Their destiny cannot be fulfilled, excepting by taking
to their cities a large share of the trade of the West.
The means of defence possessed by New York, to
counteract the effect produced by these new rivals for a
trade heretofore her own, are simply the New York
Central and New York and Erie railroads. If there is a
way by which these lines can better facilitate the long
traffic, or by which it can be done at a still more mode¬
rate rate of compensation, it is greatly for the interest of
the State of New York that such a method should be
devised. The canal can carry the heavy goods, but the
freight which goes by rail, will find its way over some
one of the railway lines. It is therefore for the interest
of New York to enable her roads to carry all freight
which the most liberal policy and well devised system
can obtain, and as the rate is the prime moving cause to
direct the current, every possible accommodation should
be given to business from competing points, and the
most liberal policy towards the New York roads is abso¬
lutely essential to enable them to do and retain this
business. Not only does much of the present trade of
New York with the West depend upon this, but also that
of all its future increase.
It has been suggested, that it was unfair to charge rates
for local business, materially higher for the distances
carried than those for through business. A little con¬
sideration will exhibit the fallacy of this view. The
especial advantages resulting from the Central Road to
the traffic along its line and to the long or foreign traffic,
17
are largely in favor of the business upon its line. By
its construction and its vast equipment, it has provided an
avenue and market for the business upon its line through]
out the whole year, whereas but a few years ago, this
whole business was at a stand-still for five or six months
in the whole year, excepting so much of it as was done
by teaming. From it, this community has received all
the advantages derived from the difference between rail¬
road charges and the cost of teaming, or all the advan¬
tages arising from a business of twelve months in each
year, instead of six or seven months only.
The simple question bearing upon the rate for local
charges, should be, are they in amount just and proper?
They most certainly are if about equal to the usual
charge of other railroads and will then no more than
yield a fair income upon the capital invested in the
enterprise. It is neither wi*ong nor unjust to the people
along the line, that the foreign traffic should be done at
lower rates, provided that it is not done at less than cost.
In the latter case the company would be rendered less
able to do the local business at a fair rate, but as long as
the through business paid any profit at all, it would, to
just the extent of that profit, render the company able to
modify its local charges, and still act justly as trustees to
its stockholders.
All thinking men concede that unprofitable railroads
do not satisfactorily respond to the just expectation of
their patrons. It is for the interest of all parties that
every enterprise of public utility, should be remunera-
2
18
tive to those who engage in it, and especially is it for the
interest of the community, directly reaping the advan¬
tages of a good, safe, well-managed railroad, or rather
reaping the inconveniences and discomfort of an unsafe,
unreliable one for the transaction of their daily business.
These positions being true, it is for the interest of all
concerned that the New York road should do all the
through business it can procure, from which any profit
can be gleaned, even if the rate be very low indeed.
The cost of doing contingent business is not as great
as that of the original or fixed business ; there are cer¬
tain very large expenses not influenced by the amount
of business, such as the decay of all perishable materials
in the track, bridges, stations, wooden portions of cars>
&c., a great variety of expenditures which, in the aggre¬
gate, would probably amount to one-third of the whole.
The expenses which should be regarded as properly
attachable to any new business, procured from abroad by
competition, are but about two-thirds as much as those
chargeable to the business already done. With this just
view of the cost of new business, as compared with that
already being performed, it is clear that new business
can be sought at pretty low rates and still yield a profit.
I have said that parties interested in the local business
should not complain unless the long business should be
done at less than cost, and the company thus be ren¬
dered less able to do the local business at a fair rate.
There may be exceptional cases ; if, from any causes
of competition, connected with the foregn traffic, the
19
road is liable to lose its hold upon that traffic, it is for
the local interest that every method should be taken to
retain it, even should it be carried for a time below cost.
Better suffer this for a time than risk the permanent loss
of a profitable business.
In this matter, it seems to me that the interests of the
company and of its local patrons are the same ; there
can no possible harm result to the local patrons from
any rate yielding, a profit, at which the long business
may be done, but rather good in proportion to the profit
obtained upon it.
Nothing can be clearer, than that the New York roads
could not keep their local charges as low as they now
are, should they lose the through business. They would
assuredly lose it at a higher rate of charge, for it must be
evident that being carried, as it is obliged to be carried,
at a low figure, yet it is the highest that can be obtained.
There is only left for consideration, whether the profits
realized are exorbitant ; whether they yield such divi¬
dends as may justly subject them to the complaint of
the community ; the reverse of this latter proposition
would seem to be the case, as exemplified by the low
rate at. which the stock may be purchased in the market.
The foregoing considerations, lead to the following
general results :
1st. The increase of railroads throughout the whole
West has been so great that every part of that region,
which was once solely tributary to New York, has now
several avenues to other and rival markets.
20
2d. The number and character of the new outlets
from the West, decide by the natural laws of trade what
goods shall go by canal and what by more expeditious
routes, and no power rests with the State of New York,
or her railroads, to change it, and any abridgment of
the freedom or ability of the New York railroads to
compete for the long business, will only throw that busi¬
ness upon other lines and send it to other markets.
3d. The cities lying to the south of New York, having
just been brought as near to all, and much nearer to
large portions of the West than New York, the pros¬
perity of the latter city requires that the railroads of
New York should carry the long business at the lowest
possible rates of charge, consistent with their being kept
in a requisite state of efficiency.
4th. But about two-thirds of the operating expenses
are directly increased with the increase of business, and
therefore the cost properly to be estimated against new
business, which has other outlets as rivals to the road, is
but about two-thirds the average cost of the whole, and
thus it is fair to estimate that a profit may be obtained
on such business, though the price received for it be
only equal to the average cost of the whole ; but if the
local business be done at the same rate, it is clear that
the entire capital of the company would be lost.
5th. All that portion of the State drained by the road,
and to the city of New York, is equally interested with
the companjr in having all the business done upon it,
which can be procured and which will yield any profit
21
whatever, as it all tends to increase the ability of the
company to charge moderate local rates, and benefit the
State at large by inducing business through its territory.
6th. As the business done against the competition of
rival routes, though taken at rates below a fair price, is
charged as high as those routes will carry for, the pecu¬
niary advantages rendered to the people who furnish it,
are far less than those rendered to interior localities,
where the railroad charges during much of the year, are
greatly lower than any other means of transportation,
and all through the year it furnishes extensive facilities
not otherwise attainable.
7th. The city and State of New York having just lost
their monopoly of the trade of the "West, must look to
their two great railroads in their effort to retain a fair
share of it, and happily in this the interests of the State,
fairly understood, are entirely identical with those of the
roads.
J. W. BROOKS.