UNFAIR RAILWAY AGITATION
A reply to the articles on railway regulation by Governor
Robert M. La Follette published in The Saturday
Evening Post.
I. ORANGER LEGISLATION AND ITS RESULTS.
The present sentiment against the railway manage¬
ment of the country has its foundation verj' largely
in misinformation and misrepresentation.
Even if the evils which are complained of exist as
it is claimed they do, they are not general enough to
produce the clamor with which Congress and the legis¬
latures of the states are assailed. The opinions of the
great majority of those who are demanding legislation
in restriction of the rights of railways are founded
upon information which has been given them by
others. The character of that information becomes,
thenj of the foremost importance in determining what
weight should properly be attached to the demands
of the public. If they have been grossly misled and
materiallv misinfoncned it is fair to assume that if
they had been correctly informed their opinions wordd
be the opposite of those which they now hold.
The articles which have been published in The Sat¬
urday Evening Post, from the pen of Governor and
Senator-elect LaFollette of Wisconsin, afford a strik-
2 UNFAIR RAILWAY AGITATION.
ing example of tlie unfair and misleading methods of
the propaganda upon which the present agitation
against railways rests. These articles are plausible
upon their face, but they are filled with the half-truths
that make the most dangerous form of falsehood.
The position of The Saturday Evening Post in the
public estimation gives the people an unusual degree
of confidence in any statements which appear in its
pages, and the position of Governor and Senator-elect
LaPollette gives added weight to statements which ap¬
pear over his signature. Therefore, it seems but fair
to the readers of these articles to discuss the correct¬
ness of the assertions made and examine the accuracy
of the conclusions attempted.
The manifest intent of the first article of the series,
was to show that the Granger legislation of 1873
worked no injury to the railroads and none to the
commerce of the states in which it was enacted. The
pages of history completely refute this theory, and the
arguments put forth in its behalf establish exactly the
opposite of the contentions presented.
Inaccubacy of Statistics.
Before considering the effect of the statistics pre¬
sented by Governor LaPollette upon this point, I wish
to call the attention of his readers to the inaccuracy
with which they were given. The use of percentages
in such comparison is mathematically unjustifiable,
and actually misleading. The percentage of increase
in railway mileage has no bearing whatever upon the
prosperity of the railways or the people. The rail¬
ways might be more prosperaus; and might earn a
A REPLY TO GOVERNOR LA FOLLETTE. 3
higher revenue in a thickly settled country where
there was no need for further construction, than in a
sparsely settled and newly developing country where
the demand for extension was large. Eailways do not
grow from seeds nor multiply from bulbs, and, there¬
fore, the relation of existing track to new construc¬
tion has no bearing upon the question of prosperity.
New construction is regulated wholly by the demand
for it.
The facts are, taking the figures given in the table
presented, that the average increase in mileage in the
arbitrary groups into which the country is divided, for
the period from 1873 to 1875, was as follows :
Miles.
Wisconsin, 206
Four Granger States, each 222
Granger States, except Wisconsin, 227
Michigan, Missouri, Indiana and Nebraska, each 112
Middle Atlantic States, each, 135
Southern States, each, 39
The construction of an average of about seventy
miles a year in the four Granger states, during the
years of 1873, 1874, and 1875, when those states were
undeveloped and should have been, as they were soon
after, rapidly developing, amounts to an absolute stag¬
nation of railway construction which completely re¬
futes the statement that the Granger legislation did
not retard railway construction and industrial and
agricultural development. But for this legislation
it caimot be doubted that the increase in these states
would have been many times larger at that period.
The other states are so grouped that they should not
be expected to show much development at that time.
4 UNFAIR RAILWAY AGITATION
Nebraska bad not been opened np, there was no special
growth in Missouri during those years, Indiana was
well supplied with railways and the portion of Michi¬
gan which was settled at that time had railways sufiB-
cient for its needs. The other groups include well
settled portions of the country in which there was no
special activity that demanded, in those trying times
the venture of new enterprises. The four Granger
states were the center of agricultural and industrial
development, and had it not been for the retarding
influence of adverse railway legislation, they would
have been much more rapidly developed.
Shokt Dukation op "Wisconsin Geangee Laws.
That the relative development of Wisconsin has
been much more rapid than any other of the four
Granger states is amply attested by the impartial
pages of the Federal census. This is due in part to
the fact that the Granger legislation fell with lighter
force upon Wisconsin than upon others. In compar¬
ing the conditions of the four states, an attempt is
made to create the impression that this legislation was
in force in Wisconsin two years. It is said: "The
Wisconsin law was enacted in the early part of 1874,
and repealed in 1876;" "From the enactment of the
law in Wisconsin until its repeal two years later;"
".From 1873 to and including 1875. the time when the
Wisconsin law was in force." Technically, these
statements are true, but practically they are materially
untrue. It is true that the law was enacted in the
early part of 1874, but it did not go into operation un¬
til October of that year. The commissioners ap-
A REPLY TO GOVERNOR LA FOLLETTE. 6
pointed under it had no opportunity to do much more
than get it in working order before the legislative ses¬
sion of 1875 convened, and at that session the law was
materially amended as to the rates which might be
charged by the companies. The amended schedules
and classifications were put in force March 17, 1875,
and the law was repealed in January, 1876. In fact,
the original Gtranger legislation of Wisconsin was not
actually in force more than three or four months, and
in its amended and much less harmful form it lasted
less than a year. Its repeal was the result of a de¬
mand spontaneous and wide-spread, based on the com¬
mercial and industrial suffering which its operation
threatened and imposed upon the people, and the as¬
sertion at this late day that it was repealed because
"the railroads regained control of the legislature" is
a gratuitous assumption. As between the control of
the legislature by the railroads, and its subserviency
to the imperial will of a political boss, the people have
little choice, so far as their best interests are con¬
cerned. Neither condition has prevailed in Wiscon¬
sin, nor have the people been seriously threatened
with either condition, until this year.
Relation op Geoss ani> Net Earnings to Rates.
t
The figures which are furnished the readers of The
Saturday Evening Post on the subject of gross and net
earnings are as misleading concerning the questions
discussed as though they were absolutely false.
Neither gross earnings nor net earnings of themselves
prove anything in a discussion of rate control. Of
themselves, and without the necessary eorelated data
6 UNFAIR RAILWAY AGITATION.
they have no bearing on the question of rates. Gross
earnings are the product of tonnage, and net earnings
are the product of operation, each without reference
to rates. That is, a larger amount of tonnage at a
lower average of rate will produce a greater gross
revenue, than a smaller amount of tonnage at a higher
average of rate. On the other hand, a smaller amount
of tonnage at a lower average of rate might, under
certain operating conditions, produce a greater net
earning, than a larger amount of tonnage at a higher
rate. Without the amount of tonnage on the one hand,
or the ratio of operating expenses on the other, neither
the gross earnings nor the net revenue afford any in¬
formation. And yet, as used in The Saturday Even¬
ing Post, they could not fail to produce the impression
that the railways were more prosperous in the Gran¬
ger states from 1873 to 1875 than they were elsewhere.
But even when taken in consideration with these facts,
they do not reach the point which is contended for
until the investment involved is applied to the net
earnings realized, for it is clear that the larger amount
of net earnings might in fact be the smaller return on
the capital actually invested. It is by such methods as
these, plausible in themselves, but grossly misleading
in fact, that the sentiment against the railways has
largely been created.
Wisconsin Earnings op St. Paul Eailway.
In the second article of the series, it is stated that
''the net earnings of The Chicago, Milwaukee & St.
Paul Railway Company are $1,109 per mile greater
upon its Wisconsin mileage than for the other states
through which its lines extend. " It is not possible that
A REPLY TO GOVERNOR LA FOLLETTE. 7
this statement could be true, because the data upon
which net earnings could be computed for any one
state through which the lines of the Chicago, Milwau¬
kee & St. Paul Eailway pass, or into which they ei^
tend, do not exist. It is not possible to determine
what the net earnings of that company are in any one
of the states through which it passes. It has no net
earnings in any one state. Its business is so largely
interstate and so thoroughly intermingled, that the
net result of any one state could not be computed,
for no one state by itself produces a net re¬
sult. The Chicago, Milwaukee and St. Paul Railway
Company is a corporate entity, and not a commercial
federation. Its net result is from its whole opera¬
tions. Fifty per cent, of the business which this com¬
pany does in Wisconsin is business that passes
through the state, neither originating nor terminating
withiu the borders of Wisconsin. The terminal charges
of various sorts, none of which is capable of exact
computation, are a considerable factor in the net earn¬
ings which this business produces. Business of this
character certainly produces half of the revenue
earned within the state, and it is probable that three
quarters of the cost charged against it in the end is
incurred outside the state. It is true that the railway
companies render certain statements to the railroad
commissioners of the various states concerning state
and interstate business. These statements are ren¬
dered in compliance with the laws of the states, and
are the figures demanded by the respective commis¬
sioners in response to the provisions of law. They
are valueless from a statistical standpoint, and are
not statements by which the railway companies can
s UNFAIR RAILWAY AGITATION.
in any manner be bound. No railway company would
make them of its own volition, or treat them as the
basis of any representation whatever. While gross
earnings can be apportioned with substantial accu¬
racy to the mileage traversed, operating expenses can¬
not be, because the actual cost of operation varies
materially with different conditions under which the
operation is conducted. The railroad commissioners
of the ditferent states, in their national association,
have adopted a rule requiring all interstate roads to
apportion their operating expenses for the purposes
of their reports, on the basis of train revenue miles.
This is done by the railways because it is required,
but it is an inaccurate and misleading result, and
proves nothing when táken in connection with the
gross earnings.
The reason that the gross earnings of the Chicago,
Milwaukee & St. Paul Kailway are larger in Wiscon¬
sin than in the other states through which it passes
is not because the freight rates are higher in that
state, but because its main line from Minneapolis and
St. Paul to Chicago, its lines from South Dakota and
Southern Minnesota, and its lines from Northern
Iowa, pass through Wisconsin, and on its Wisconsin
lines, on the way to its eastern terminal, all the busi¬
ness of North and South Dakota, Minnesota, and a
considerable part of Iowa passes through the state.
The business from Chicago to these states also makes
Wisconsin tonnage. This of itself accounts for the
difference in earnings which forms the basis of this
assertion. All this tonnage gets a haul of over 230
miles in Wisconsin, while the average haul in the en¬
tire state is but 97 miles, so that it is not difficult to
A REPLY TO GOVERNOR LA FOLLETTE. 9
see the effect which this bxisiness has on the result.
The earnings from this large tonnage which merely
passes through the state and which were used to swell
the figures given as for Wisconsin, have no relation to
the freight rates in that state. No part of such earn¬
ings is paid by the people of Wisconsin, and they are
no more concerned about these earnings than they are
with the passing breeze. The conclusion of Governor
LaFollette that because the earnings in Wisconsin are
larger, the freight rates are necessarily higher, is a
non sequitur. It has been demonstrated time and
again that the freight rates in Wisconsin are not only
not higher than they are in the neighboring states, but
that they are better adjusted to meet the commercial
needs of the state.
Position of People of Wisconsin on Railway Ques¬
tion.
It is stated that "If any question can be definitely
settled at the polls, the people of Wisconsin in the last
election declared for the establishment of a commis¬
sion to control railway services and railway rates on
state commerce." The clear intent of this statement
is to create the impression that the people of Wiscon¬
sin endorsed the position for which Governor LaFol¬
lette is contending. If such was not the intent of the
statement, it would have been limited in its applica¬
tion. This is not as frank a statement of the facts as
the reader has a right to expect from so distinguished
a writer. The fact is that in Wisconsin last year no
man could have cast a vote which did not declare for
a railway commission, for a plank in that behalf was
in the platform of each political party. But Governor
10 UNFAIR RAILWAY AGITATION.
LaFollette stood before the state as the exponent of
a particular theory of railway regulation. He
stumped the state in one of the most brilliant politi¬
cal campaigns ever waged in Wisconsin, exploited his
theories thoroughly before the people of the whole
state, and at the end was only saved from complete
political rout by the unprecedented vote accorded the
president, who was at the head of the ticket on which
he was a candidate. As it was, he ran 105,000 votes
behind his ticket, and the candidate for state treas¬
urer whom he had removed from ofiSce for malfeas¬
ance, and whom he openly charged from the public
platform with having personally misused the funds
of the state, and whom he and his followers exerted
their utmost endeavor to defeat, received 35,000 more
votes than he. Nor could this vote against the rail¬
way theories of Governor LaFollette be charged to
the classes to whom he so contemptuously refers in
his public addresses as "favored shipjiers" and "co¬
erced employes." Twenty-five of the strongest agri¬
cultural counties of the state, in which he received an
aggregate majority of 33,000 on the occasion of his
first election, gave, last year, an aggregate majority
of over a thousand against him. These were solid and
substantial farmer counties, where the people remem¬
bered the Potter law of thirty years ago. The people
of Wisconsin were for railway regulation, but not for
regulation that seizes and confiscates the business of
the carriers, such as was proposed and is now advo¬
cated bv Governor LaFollette. There is no over-
%/
whelming popular clamor for any issue which 105,000
voters, more than a quarter of the entire voting popu¬
lation of the state, affirmatively reject.
A REPLY TO GOVERNOR LA FOLLETTE. 11
Comparative Peosperity op Wisconsin.
But, if govemmeut control of railway rates were a
necessary factor in the prosperity of a state, ought
we not, by this time, to have had some evidence of it
in the advancement of those states in which it has been
for some years in force. Governor LaFollette has for
•/
the most part rested his case upon comparisons of
Iowa and Wisconsin. It is of interest, then, to turn
to the pages of the census, to see what the material
effect has been upon the relative development of the
two states.
The total population of Iowa in 1890 was 1,911,896,
and in 1900, it was 2,231,853, an increase of 16.7 per
cent. The total population of Wisconsin in 1890 was
1,686,880, and in 1900, it was 2,069,042, an increase of
22.6 per cent., Wisconsin's gain being 35.3 per cent.,
greater than that of Iowa.
The value of products manufactured in Iowa
in 1890 was $125,049,183; in 1900, their value was
$164,617,877, an increase of 31.6 per cent. The value
of products manufactured in Wisconsin in 1890 was
$248,546,164; in 1900, their value was $360,818,942.
an increase of 45.2 per cent. The increase in Wiscon¬
sin was 43 per cent larger than the increase in Iowa.
Wisconsin has three times as much invested in fac¬
tories as Iowa.
In 1890, the wage earners in Iowa numbered 58,553,
and in Wisconsin 142,076. In Wisconsin, the wages
earned amounted to $58,407,597, and in Iowa, $23,-
931,680. Wisconsin employed 393,000 horse power in
its manufacturing industries, and Iowa 125,000.
12
UNFAIR RAILWAY AGITATION.
In Volume 8 of the Twelfth Census, in the general
article on the industries of Iowa, it is stated,
"In the thirty years since 1870, however, the
difference in the rate of growth of the \fage earn¬
ing class, as compared with that of the total pop¬
ulation has been much less pronounced, the pop¬
ulation having increased 86.9 per cent, and the
wage earners 133.9 per cent. It is furthermore
indisputable that the gain during this period in
per cent, of average number of wage earners over
population is limited to the decade ending in
1890."
If this observation of the experts of the Census De¬
partment means anything, it means that during the
decade in which the Granger legislation was first es¬
tablished in Iowa, it stopped the growth of the indus¬
tries of that state. The next decade had seen the ad¬
justment of interstate rates so as to afford the people
of Iowa some relief, which, howevei", was temporary,
and did not continue beyond 1890. It shows that while
the ratio of wage earners to population is constantly
increasing in Wisconsin it does not increase in Iowa.
The distance tariff has paralyzed the industrial growth
of lotva.
The following statements are made in the general
article on Wisconsin in the same volume of the Cen¬
sus:
"The remarkable growth of manufactures in
Wisconsin is to be attributed to the ahimdant
supply of materials and excellent market facili¬
ties. Manufacturing is not concentrated in a few
localities, but is distributed throughout the state.
* * * In 1900, Wisconsin had 6,531 miles of
railroads which have contributed to the develop¬
ment of agriculture and manufactures."
Iowa is pre-eminently an agricultural state, and yet
A REPLY TO GOVERNOR LA FOLLETTE. IS
Wisconsin has taken the lead of her in daisying by
fnlly a third. This is due to the fact that dairying
can be encouraged in Wisconsin by the concentration
and commodity rates which the tariffs of the railways
afford, while in Iowa, nothing is open to the shippers
but the straight distance tariff within the state, or the
direct route to market by interstate rates. Iowa is a
great live stock state, almost a tenth of the entire
traffic of the state being in that commodity. And yet
she tans no hides, while the leather output in Wisconsin
amounted to $20,074,373 in 1900. This is because the
commodity tariffs of this state permit the transporta¬
tion of the bark used in tanning at low rates, and be¬
cause the hides to be tanned can be shipped in cheaply.
In Iowa the distance tariff makes no distinction between
raw material and finished product.
Grovernor LaFollette's assertion .that the rates on
merchandise in Wisconsin are 30 per cent, higher than
I
the rates in Iowa, is one of those half truths that serve
an argument as well as an untruth. There are rates
in Wisconsin which are higher than rates that
are in force in Iowa, but it has been shown time and
again, and proved by limitless comparisons, that the
rates on which the traffic is actually moved, and the
rates between points where there are actual shipments,
are in the main about the same in each state. In fact,
to one who is at all familiar with the transportation
question, nothing could be more absurd than the state¬
ment that a general average of rates could be main¬
tained thirty per cent, higher in one state than in
another contiguous state, with which its commerce
is in constant competition, and with which its com¬
modities are in constant interchange. It would be a
14 UNFAIR RAILWAY AGITATION.
physical impossibility. Such a difference in rates
would amount to a dam across the channels of com¬
merce over which no business could possibly flow.
Of itself, the railway business is a large interest,
and its related importance to the commerce of the coun¬
try is not inconsiderable. For the most part, its man¬
agement is committed to the hands of men whose time
and energies are engrossed in its affairs. They have
not the time to devote to the literary propaganda and
the lecture platform, which some of their more for¬
tunate fellow citizens possess. It, therefore, happens
that in the nature of things much more is said and
written to arouse the prejudices of the people against
the railways than can be prepared in answer to the
baseless charges which are bandied about for polit¬
ical purposes, and in refutation of the half-true statis¬
tics upon which the anti-railway agitation rests. It
may be asserted, however, as a general truth, that
"fair railway regulation" cannot be successfully based
upon "unfair railway agitation," and that in the end,
the broad and underlying good sense of the American
people can be relied upon to arrive at the basic facts,
and to flnd, through all the din and clamor, the ulti¬
mate truth upon which conservative action will be
based.
II. MISLEADING STATISTICS ANALYZED.
In all Ills public discussions of the transportation
question, Governor LaFollette has used computations
which do not support the conclusions he draws from
them, and he has always involved the question in a
maze of technicality which is foreign to the issues.
It is true that there is no business more involved
with intricate complications than the adjustment of
the transportation rates which control to a large de¬
gree the flow of commerce, but there is no technical
complication in the commercial results attained by
the railways. There are three departments into which
railway statistics are divided: financial, traffic and
operating. These departments are as distinct as though
they were separate transactions, although to a large
extent they involve the same business. In treating
the transportation problem, Governor LaFollette
habitually disregards the lines between these divis¬
ions. He confuses his readers and misleads them, by
attempting to apply computations from one depart¬
ment to the transactions of the others.
The system of railway accounting is so simple that
it may be easily understood by all. The volume of
business is represented by gross earnings. That is
the money received from the traffic carried, and corre¬
sponds to the sales account of every merchant. From
this, the cost of operation is deducted, and the result
is net earnings, which corresponds to the profit and
loss account of every set of books. This shows in
gross amount what a railway company has made, and
there is no other computation necessary to arrive at
the amount of its actual earnings. Neither igross
15
16 UNFAIR RAILWAY AGITATION.
earnings nor net earnings have any bearing npon the
question of what rate has been charged for transpor¬
tation, any more than the amount of the profit and
loss account of a merchant determines what price he
has charged for the articles he has sold. The net
earnings of the railways may increase materially in
the face of a Riaterial reduction in rates, and they
may decrease materially in the face of a material in¬
crease in rates.
The Bate Peb Ton Pee Mile.
There is but one computation in railway accounting
that has any hearing upon rates, and that exactly de¬
termines what the average rate has been on the traffic
actually moved. That is, the rate per ton per mile.
The rate per ton per mile is obtained by first multi¬
plying the weight of each shipment by the distance
it is transported, which gives the equivalent of the
weight transported one mile, and when this is re¬
duced to tons and the whole freight movement is added
together it gives the equivalent of the whole amount
of tons moved one mile; the total revenue received is
divided bv the total ton miles, and the result is the
y
average amount received for transporting one ton one
mile. Inasmuch as traffic is moved upon an infinite
variety of rates for an infinite variety of distances,
the only unit to which the business can he reduced
is the movement of one ton one mile, and the revenue
derived therefrom. In all the statistics which Gov¬
ernor LaFollette has presented to the readers of The
Saturday Evening Post, the rate per ton mile is ig¬
nored, and a complicated array of confusing figures,
having no bearing whatever upon the rate question, is
presented.
A REPLY TO GOVERNOR LA FOLLETTE. 17
The statistics presented by Governor LaFollette, in
their fundamental inaccuracy are characteristic of all
his public discussions of this question. The facts of
transportation show that rates have generally declined,
and that for the last few years all the elements of
cost have increased beyond the slight recovery shown
in rates. In the face of these facts, Governor LaFol¬
lette has made a presentation, plausible, upon its face,
and by its very plausibility calculated to mislead those
who read it and force upon them wrong conclusions
concerning the questions involved. It is, therefore, of
interest to examine in detail the statistics upon which
his charges rest.
Unwarbanted Assbetion op Eevenub Inceease.
The statement is made that "the coal rates; the iron
schedules; the rates upon grain and its products; lum¬
ber; live stock and its products, are generally higher
than four years ago—the increases upon coal rates
alone amounting to very much more than $25,000,000
per year." If it were true that the increase of rates
on coal alone amounted to $25,000,000, there is no way
in which that fact could be established from any data
which are available. The report of the Interstate
Commerce Commission for 1903, however, does con¬
tain facts which indicate very strongly that this as¬
sertion probably is not true. As the statistics for
1903 are the latest figures published, it will be assumed
that when Governor LaFollette speaks of "the last
four years" he means 1900 to 1903, inclusive.
The classes of traffic which are specified as having
advanced, constituted in 1903, 75.42 per cent, of the
entire traffic of the country. The rate per ton mile
in 1900 was 7.29 mills, and in 1903, it was 7.63 mills.
Í8 unfair railway agitation.
having advanced thirty-four one-hundredths of a mül.
The ton mileage of 1903 was 173,221,278,993. When
the advance in the rate per ton mile is applied to the
ton mileage of 1903, it would indicate that the advance
in rates added to the revenue of the companies in all,
only $58,895,234.
In view of the fact that in these four years there
was no advance in rates on soft coal, and that hard
•coal constitutes but about 6.3 per cent, of the entire
tonnage of the country, it does not seem probable that
almost 50 per cent, of the entire advance could have
fallen upon that commodity alone without producing
a serious disturbance in its relations to other com¬
modities. While there are no data upon which the
statement can be refuted, all the probability is against
its accuracy. There certainly are no data in existence
by which such a statement can be substantiated.
It is interesting in this connection to note, while
$58,895,234 of the increase in gross revenue of 1903
over 1900 is attributable to the advance of .34 of a mill
in rates, that during the same time the operating ex¬
penses of the companies increased $296,110,341. The
advance in rates from 1900 to 1903 amounted to 4.6
per cent. Against this the ratio of operating expenses
to tonnage handled increased 7 per cent, during the
same time.
The Eate "Feb Each Ton of Peeight."
The rate per each ton of freight—^not per ton mile—
is stated to have been about 12J cents higher in the
spring of 1904 than in 1899. This is a computation
made by the statistical department of the Interstate
Commerce Commission, which can be accounted for
upon no more serious theory than the satisfaction of
A REPLY TO GOVERNOR LA FOLLETTE. 19
curiosity. Inasmucli as no such thing exists in the
railway business as a rate per ton, except for a certain
distance, it is clear that the separation of the com¬
modity from the distance transported, leaves a result
which is of no force or value whatever. The fact that
the rate per ton, separated from the element of dis¬
tance, was 12| cents higher in 1904 than in 1899, does
not show that any greater amount was charged for the
transportation of freight, but it does show, and all
it does show is, that in the average each ton was trans¬
ported farther and, therefore earned more revenue.
The report of the Interstate Commerce Commission
shows that the average haul per each ton did increase
3 per cent, during this period, while the increase of
12| cents is an advance of less than one per cent.
Governor LaFollette states that when this increase
was applied to the traffic of 1903, it was found that it
meant an increase of over $155,000,000 in gross earn¬
ings from this cause alone. It is evident that his au¬
thority for this statement is the report of the Inter¬
state Commerce Commission to the United States Sen¬
ate, dated April 7, 1904, in which it was asserted that
the increase in rates from 1899 to 1903 had added to
the gross earnings of the carriers for the year 1903
the sum of $155,475,502. According to the figures
given by the Interstate Commerce Commission them¬
selves this could not have been true. Their report
shows that from 1899 to 1903, the rate per ton mile
increased .39 of a mill, and that the total tonnage of
1903, was 173,221,278,993. This, multiplied by the in¬
crease in rate, shows that the increase in gross revenue
was $67,556,298. Inasmuch as the increase in rate is
shown to have been but 5.4 per cent., it is difficult to
see how the assertion that 36 per cent, of the revenue
so UNFAIR RAILWAY AGITATION.
was derived from increases in rates can be tmie. The
figures themselves as they are given by Governor La-
Pollette disprove the assertions he makes concerning
them.
Incobrect Statement of Increase of Traffic.
Governor LaFolIette states that the volume of traffic
has increased 52 per cent., comparing 1902 with 1897.
This percentage he arrives at by comparing the tons
of freight "carried one mile per mile of road." This,
like the rate per each ton, is a mere statistical computa¬
tion not based upon a fact, nor leading to the conclu¬
sion of a fact. It is arrived at by dividing the number
of tons of freight carried one mile by the miles of road.
It is obvious that it has no bearing whatever upon the
volume of business. For illustration, take two roads
with the same number of tons carried one mile, but with
different mileage; this computation would show that
one road averages more ton mileage per mile of road,
but it would still be true that they each carried the
same number of tons per mile. The fact is that
in 1897, the munber of tons carried one mile was
95,139,022,225, while in 1902, it was 157,289,370,053, a
gain of 62,150,347,828, or 65.3 per cent, and not 52 per
cent, as stated by Governor LaPollette.
Inaccurate Estimate of Increased Equipment
Efficiency.
The deductions which Governor LaFolIette seeks to
draw from the increased efficiency of equipment are
not sustained by the facts which he gives. It is true
that it does not require as many ears to handle a given
quantity of freight as it did some years ago, and it is
true that more tons are hauled with one engine than
A REPLY TO GOVERNOR LA FOLLETTE. HI
formerly were, and it is true that the tonnage per
train has increased, and that the revenue per train
mile has correspondingly advanced; hut it is not true
that the cost of transportation has decreased in the
ratio by which these facilities have increased. The
larger cars cost more, and it requires as much power to
haul a million tons of freight in 1268 cars as it does
to haul a million tons of freight in 1647 cars. The
fact that one locomotive will haul more freight than
another, does not indicate that the cost of transporta¬
tion is reduced in proportion to the relative power of
the engine, because the larger the engine, the more
fuel it consumes and the more it costs to run it. What
Governor LaFollette has presented, and the facts upon
which he bases his assertion that the efficiency of rail¬
way equipment has increased 42 per cent, is merely
the result of improvements in efficiency and not the
causes which have brought it about. There is but one
way in which the relative efficiency of equipment can
be determined, and that is, by the work it does. This
would be accurately arrived at by dividing the number
of tons hauled one mile into the operating cost of
hauling that tonnage. Owing to the fact that the
railways do not report, and in the nature of things
cannot determine operating expenses separately for
freight and passenger business, the exact figures can¬
not be arrived at. However, the ratio of freight and
passenger traffic to each other is substantially the same
in any two recent years, and so the ratio of operating
expense to the ton mileage, while not the exact figure
at which the tonnage is transported, affords a basis
for comparison as between any two years. At any
rate, it is the nearest we can get to the efficiency of
SS UNFAIR RAILWAY AGITATION.
equipment. We find upon this basis that in 1897, the
ton mileage was 95,139,022,225, and the operating ex¬
penses were $752,524,764, or 7.9 mills per ton mile.
In 1903, the ton mileage was 173,221,278,993, while
the operating expenses were $1,257,538,852, or 7.2 mills
per ton mile. It must be borne in mind that these fig¬
ures are relative and not actual, because the operating
cost of the passenger service is included in the operat¬
ing expenses and figured against the ton mileage of
the freight business only. However, this shows an
increase in efficiency of 9.72 per cent, and not 42 per
cent, as asserted from the mere added capacity of
equipment.
Incorrect Statement op Increased Earnings.
Governor LaFollètte states that the gross earnings
per mile increased from 1897 to 1902, 40.9 per cent.
Gross earnings have no relation to the mileage, and
a mileage result is materially misleading. In 1897,
the gross earnings were $1,122,089,773, and in 1902,
they were $1,726,380,267, The gain was $604,290,494.
A very simple computation will determine that the in¬
crease was 53.8 per cent and not 40.9 per cent.
Governor LaFollette states that the increase in net
earnings per mile from 1897 to 1902 amounted to 46
per cent. The actual net earnings in 1897 were $369,-
565,009, and in 1902 were $610,131,520 ; the gain being
$240,566,511 or 65 per cent., and not 46 per cent.
The ton mileage of 1902, as compared with 1897,
increased 65.3 per cent. Therefore, if the rates had
been the same in 1902 that they were in 1897, the gross
revenue would have increased 65.3 per cent. As a mat¬
ter of fact, it did increase 53.8 per cent., showing that
rates must have declined in order to carry an increase
A REPLY TO GOVERNOR LA FOLLETTE. SS
I
in tonnage larger than the increase in revenue. In
1897, the rate per ton mile was 7.98 mills, and in 1902,
it was 7.57 mills, a decrease of .41 of a mill or 5.4 per
cent. Deducting the percentage of decrease in rate
from the percentage of increase in tonnage leaves the
net increase 59.9 per cent., which is within 6.1 per cent,
of the increase in gross revenue.
In the five years covered by this comparison, this
difference of 6.1 per cent, might easily arise from the
variation in data in the different years. However, it
clearly demonstrates that during this*period rates not
only could not have advanced, but the indication is
that in the actual application to the traffic carried they
declined more than is indicated by the rate per ton
mile, which may have resulted from the shifting of
the proportions of business as between high grade and
low grade traffic.
We find that the net earnings for this period in¬
creased 65 per cent. If the expenses of operation
had been the same for this period, gross earnings
would have shown the same increase. We find, how¬
ever, that gross earnings increased but 53.8 per cent.,
showing an excess of 11.2 per cent, in the increase of
net earnings over gross earnings. This is the result of
the increased efficiency of equipment to which Gov¬
ernor LaPollette refers, and as we have seen, this
amounted in this period to 9.72 per cent, and should
have produced an excess of increase in net earnings of
that amount. The difference of 1.48 per cent, is not
a material variation.
Governor LaPollette states that net earnings in 1897
were equal to 6 per cent, on $33,600 per mile, while in
1902, they were equal to 6 per cent, on $50,800 per
mile. The difference is $17,200 a mile, and would indi-
S4 UNFAIR RAILWAY AGITATION.
cate an increase in net earnings amounting to 51.2
per cent. This fact is inaccurate, for, as we have seen;
the net earnings actually did increase 65 per cent.
The increase of 65 per cent, in net earnings is not only
justified by the growth and expansion of the business,
but it has not kept pace with the development of expen¬
ditures. As compared, with 1897, the trust obligations
outstanding for equipment alone had increased in 1902,
123 per cent. The additional equipment required to
handle the enormously increasing volume of business,
and the replacing of old equipment worn out, had of
itself exceeded the increase in net earnings by 58
per cent. The increase in labor occasioned by the
growth of the business during this period, both in
amount of labor employed and increased wages paid,
amounted to 48 per cent, of the expenditure in that
direction in 1897. During that time the expenditures
for fuel had increased 40 per cent.
MisLBiDiNG Effect of Net Earnings Per Mile.
The expression of net earnings upon a mileage basis
is grossly misleading. It is obvious that the net
earnings should be measured by the volume of busi¬
ness and the expense of transacting it, rather than by
the mileage operated. The miles of track have no re¬
lation whatever to the business done, while the equip¬
ment and the expenditures are vital factors in the
transaction of the business. The unfairness of such
a comparison as this would be readily seen if the
earning capacity per mile of the Pennsylvania Railway
between Jersey City and Philadelphia were compared
with an equal number of miles of the Chicago, Mil¬
waukee & St. Paul Railway in North Dakota. It is
manifest that the difference in volume of business
A REPLY TO GOVERNOR LA FOLLETTE. «5
would render sucli a comparison entirely valueless.
The difference of 65 i)er cent, in volume of busi¬
ness from 1897 to 1902 renders the compari¬
son of earnings per mile on the railways of
the entire country just as valueless. The net
result, however, is very easy to ascertain by
computing the ratio of net earnings to the ton mileage,
which compares the net result with the amount of busi¬
ness transacted. As heretofore explained in a similar
comparison, it contains the inaccuracy of having the
result of passenger business in the net earnings, while
only the freight business is compared to it, but as this
is true of both years, for the purpose of comparison,
the relation between the two years would be the same.
We find in this computation that in 1897, the net
earnings were $369,565,009, and the ton mileage was
95,139,022,225, the ratio being .0038 per cent. In 1902,
the net earnings were $610,131,520, and the ton mileage
was 157,289,370,053, the ratio being .0038 per cent. We
thus find that despite the reduction öf 5.4 per cent, in
the rate per ton mile as between these two years, the
relation of net earnings to the ton mileage remained
the same, showing that the increased economies in
operation just equaled the decrease in rates. With
this result the amormt of "earnings per mile" has
nothing whatever to do. No matter how much they
may have increased per mile, the figures show that for
the two years compared, they were exactly the same, on
the business transacted.
The increase in net earnings of railways is fre¬
quently referred to as evidence that rates are too
high. Such increase is due, not to high rates, but to
constantly increasing tonnage, which is being handled
with constantly increasing economy.
se UNFAIR RAILWAY AGITATION.
The state has the power to fix the rates of interest
which may be charged for the loan of money, and it
does fix such rates. Under this rate some banks are
prosperous, while others are not able to earn a sub¬
stantial profit. The same thing is true of railway
rates. Under the same tariff schedules some railways
earn satisfactory revenues^ while others meet bank¬
ruptcy. In the case of both banks and railways it is
not the rates, on which the profits are primarily made,
but the volume of business and the economy of man¬
agement. The fact that some banks earn large divi¬
dends is as much a reason for further reducing the
rates of interest, as that because some railways show
a profitable earning capacity, the rates of freight
should be reduced. If exactly the same campaign
should be started against the banks of this country
that has been waged against the railways, there would
be no difficulty whatever in enlisting popular support
for the enactment of laws by the different states fur¬
ther reducing the interest rate, and this campaign
could be based solely on the assertion that the banks
are making too much revenue. And yet, every one
knows that if the legal interest rate were reduced, it
would only make it that much harder for people need¬
ing financial accommodation to secure it. The reduc¬
tion of railway rates, even though at the present rates
some companies are prosperoiis, could not be effected
without depriving many railways of necessary reve¬
nue, with the result that in the end, the commerce of
the country would "be inevitably crippled by the read¬
justment of transportation conditions to depleted treas¬
uries and unprofitable operation.
A REPLY TO GOVERNOR LA FOLLETTE. Ä7
I'igures Juggled to Produce Desired Effect.
The presentation of these statistics is further tainted
with an irregularity which is unworthy either the
source from which it emanates, or the subject to which
it is applied.
The first comparison is between 1904 and 1899; the
next between 1897 and 1902; the next between 1897
and 1903, and the next between 1897 and 1902.
Up to this point all the comparisons, except the
first, which is not a material one, are between periods
at which the rate per ton mile, which is the actual
average of rates in force, was higher at the earlier
date than at the later one, and in any one of these in¬
stances if the rate per ton mile had been used in con¬
nection with the other data, it would have refuted every
argument made. However, when the rate per ton
mile is quoted, 1899 is compared with 1902, two years
which are not compared for any other purpose. This
shows for that period an increase in the rate per ton
mile because in the commercial depression of 1899,
and especially because of the excessively low rates in
force that year on bituminous coal, which constitutes
20 per cent, of the traffic of the country, the rate had
declined to an abnormal figure. From this abnormal
depression there has been since 1899 a steady recov¬
ery, so that in 1902 the rate had reacted from 7.24
mills to 7.57 mills, an increase of 4.5 per cent., though
it was still 5.4 per cent, below 1897, the basis of
nearly all of Governor LaFollette's comparisons.
If Governor La Follette had taken the average rate
per ton per mile for 1897, the year from which his
other data are for the most part drawn, he would have
shown a decline in rate from 7.98 mills to 7.57 mills.
It was clearly to avoid showing this decrease that he
»8 unfair railway agitation.
took the unusual and exceptional figures of 1899. On
the other hand, had he used 1899 for the earlier pe¬
riod of his other comparisons, it would in every case
have reduced the showing which he desired to make.
It is not fair to people who depend for their informa¬
tion upon the statements given them to produce arti¬
ficial results by such juggling with the facts.
Advance in Wages and Materials.
According to the figures given by Governor LaFol-
lette, rates have advanced but 4.55 per cent., and yet
he dismisses an advance in wages amounting to an
average of 6.10 per cent, for trainmen, 4.46 per cent,
for shopmen and 4.89 per cent, for trackmen and other
employes, as of no special account. He seeks, through¬
out the entire presentation of the subject, to charge
against the railways all the increase in volume of busi¬
ness, with no allowance for the increased cost of trans¬
acting the additional business, as well as the actual
increase of cost by reason of the advance in labor and
materials. It will be noted in the above percentages
of labor increases that the larger increase has been
in the department where the most men are employed,
and among the class of employes who receive the
larger amounts of compensation. This adds mate¬
rially to the net result of the increases.
Governor LaFollette says: "It is true that mate¬
rial is somewhat higher." This is a conservative
statement of the fact. The accompanying statement
shows what the effect of these prices which are ' ' some¬
what higher" have had on the purchases of supplies
by The Chicago, Milwaukee & St. Paul Railway Com¬
pany, comparing 1902 with 1897.
A REPLY TO GOVERNOR LA FOLLETTE. B9
PRICES OF 1902 COMPARED WITH 1897.
Article.
Iron and Steel (Supplies)
Kerosene Oil
Car Oil ....
Engine Oil .
Linseed Oil .
Lard Oil ...
Valve Oil . .
Copper
Lead .
Tin . ..
Portland Cement .
Air Brake Hose.. ,
Water Hose
Steam Hose
Car Heating Hose
Fire Hose .
Air Brakes
Hard Coal ...
Foundry Coal
Smithing Coal
Tough Coal ..
Coke Coal .. .
Waste
Brick
Brick Paving ...
Brick Locomotive
Amt.
Bought
per cent
Lumber and Timber .. .,
Net increase in cost
50.
1.26
1.08
1,14
.74
.13
.76
1.5
.52
.58
3.
.44
.19
. .07
.12
.05
2.69
.65
.24
.23
.09
.54
.76
.36
.04
.40
25.
Ad¬
vance
per cent
Decline
per cent
70
114
92.58
63.
20
8
11
89
15
13
9
38
75
61
2
39
40
10
15
7
25
20
Increase
per cent
31.5
0025
0052
0015
001
,0005
,005
Decrease
per cent
00009
.dd()d3
.0009
.odds
.00008
.002
.0003
.002
.0002
.00008
9.75
41.27168
41.25
012
0004
.0001
.00008
.006
.0004
.01898
The amount of purchases is the per cent, of the given commodity of
the total purchases made by the purchasing department, which does
not include fuel, steel rails, or equipment of any sort, but is confined to
' supplies.The advance or decline is the difference in price between
1902 and 1897 in per cent. The increase or decrease is the amount in
per cent, which the advance or decline in price, applied to the amount
purchased, affected the expenditures of the company.
so UNFAIR RAILWAY AGITATION.
In the supplies covered by this statement, the in¬
creased cost due to rise in values, amounted to $2,333,-
998.94. In steel rails the increase in price since 1897
is 61.4 per cent, which, on the purchases of this com¬
pany in 1902 amounted to an additional cost of $692,-
588.97. From 1899 to 1902 there was an advance of
14 cents a ton in the average cost of fuel for this road,
which, on the purchases of 1902, made an additional
cost of $262,456.60. It is true that "material is some¬
what higher."
The situation of the Chicago, Milwaukee & St. Paul
Eailway in this connection is not different from the
other railways of the country. In the North Amer¬
ican Eeview for February, 1905, Mr. W. Morton Grin-
nell presents statistics which show that the average
advance in the wages of railway employes since 1898
has been fully 15 per cent., and in the same periodical
for March, 1905, Mr. David Willcox shows that since
1899 all railway expenses, including the cost of all
materials which the railways use and consume, have
increased in greater ratio than income.
Feeight Not Paid by the Consumée.
An economic fallacy to which the opponents of rail¬
ways have clung with great tenacity is the "tax of
transportation" upon consumers for the necessities
of life and other merchandise.
Practically speaking, it is true that the freight on
merchandise does not to any extent whatever affect
the price at which goods are sold. The system of
transportation is such that this tax, while relatively
high in rate, is the lightest burden which transported
commodities bear. The transportation of merchandise
A REPLY TO GOVERNOR LA FOLLETTE. SI
does not in the average represent 2 per cent, of its
value from production to consumption. It is obvious
that no merchant could or does compute the amount of
freight per pair of shoes, or the amount of freight per
hat, or the amount of freight per suit of clothes. It is
within the common knowledge of every one that stand¬
ard makes of hats, shoes and clothing and established
brands of cigars are sold in Seattle at the same price
they are sold in New York, though transported across
the continent. The amount of transportation charged
is so small that it does not affect the retail price.
This is very strikingly shown by the statistics of re¬
tail prices of different commodities in different states,
prepared by the Hon. Carroll D. Wright, of the Gov¬
ernment Bureau of Labor and Statistics.
As compared with Wisconsin, in Iowa, Illinois, Min¬
nesota and Texas, where there are railway commis¬
sions, in 1893, the prices of the principal commodities
which may be classed among the necessities of life
were, generally speaking, materially higher.
Article
Wisconsin.
Minnesota.
Minnesota.
Texas.
Texas.
Price
Cents.
Price
Cents.
Higher
Cents.
Higher
per cent
Price
Cents.
Lower
Cents.
Lower
per cent
Price
Cents.
Higher
Cents.
Higher
per cent
Price
Cents.
Lower
Cents.
Lower
per cent
Rib Roast
12.5
10.42
24.17
15.
20.33
8.33
4.88
40.
40.
50.
9.25
10.
12.50
25.
5.
2.28
5.25
11.88
13.25
13.63
13.54
Í5Í5Ó
22.
10.
6.25
50
51.25
50.
11.54
10.83
13.08
40.
5.
2.40
5.25
13.54
15.58
1.13
3.12
9.
29.9
• • • * r-"
13.54
28.75
20.
27.50
10.
5.83
75.
107.
65.
11.
Round Steak
3.12
4.58
5.
7.16
1.67
.95
35.
67.
15.
1.75
29.9
18.9
33.3
35.2
20.1
19.4
87.5
167.5
30.
18.9
Dairy Butter
22.
2.17
9.9
Cheese
.50
1.67
1.67
1.37
10.
11.25
.03
8.2
20.4
28.1
25.
28.1
• < • •
24.7
8.3
4.6
60.
Effffs
Rice
Sugar
Tea
Potatoes
Molasses ...
Lard
2.29
.83
.58
15.
Corned Salt Beef
Dressed Chicken
Mocha & Java Coffee .
Wheat Bread
Patent Best Flour . ..
Fresh Milk
.12
5.2
10.
4.75
90.4
2.21
.07
3.1
Pork Chops
1.66
2.33
13.9
17.5
Sugar Cured Ham....
-
15.
1.75
13.2
Article.
Wisconsin.
Iowa.
Iowa.
Illinois.
Illinois.
Price
Cents.
Price
Cents.
Higher
Cents.
Higher
per cent
Price
Cents.
Lower
Cents.
Lower
per cent
Price
Cents.
Higher
Cents.
Higher
per cent
Price
Cents.
Lower
Cents.
Lower
per cent
Rib Roast
12.5
10.42
24.17
15.
20.33
8.33
4.88
40.
40.
50.
9.25
10.
12.50
25.
5.
2.28
5.25
11.88
13.25
13.85
12.5
24.17
17.08
• • • • »
8.33
5.66
50.
1.35
2.08
10.9
19.9
• ♦ 1 • •
Í8!é7
14.42
12.
26.58
19.17
24.71
8.33
5.
50.
78.33
50.
11.67
13.63
28.33
5.
6.
« • « « •
13.92
1.92
1.58
2.41
4.17
4.38
15.4
15.1
9.9
27.8
21.5
Round Steak
Dairy Butter
Cheese
2.08
13.9
Effsrs
1.66
9.0
Rice
Sugar
.78
10.
16.
25.
.Í2
10.
38.33
2.4
25.
95.8
Tea
Potatoes
Molasses
• • • • •
12.92
33Í33
5.
2.59
* • • • •
14.38
20.
Lard
3.67
39.7
2.42
1.13
3.33
26.1
9.0
13.3
• « • • •
66.66
Corned Salt Beef ....
Dressed Chicken
6.
4.
Mocha & Java Coffee .
Wheat Bread
8.33
33 3
Patent Best Flour ...
Fresh Milk
.31
13.7
.75
14.2
2.14
.14
6.5
Pork Chops
2.50
6.75
21.0
50.9
ÍÓ.Ó8
1.80
17.8
Sugar Cured Ham .,.
.67
5.
SJf UNFAIR RAILWAY AGITATION.
As shown by the accompanying table, in Iowa they
ranged from 10 to 50 per cent, higher ; in Illinois, with
two exceptions, from abont 10 per cent, to 27 per cent,
higher, one of the exceptions noted being 2 per cent,
higher and the other 95 per cent, higher ; in Minnesota,
with one exception, they run from 3 per cent, to 60 per
cent, higher. In Texas they run from 13 per cent, to
167 per cent, higher. From the above statements,
must be excepted eggs in Iowa, which are 9 per cent,
lower than in Wisconsin, and dairy butter in Minne-
sota, which is practically 10 per cent, lower; corned
salt beef, flour and pork chops in Illinois, all of which
are lower, and flour, in Texas, which is slightly lower.
It would be absurd to contend that because the prices
of these commodities in Wisconsin are so markedly
lower than they are in the other states, that therefore
the freight rates of Wisconsin are equally lower; and
it is as absurd to claim that a difference in freight
rates would increase the price.
Inceeased Revenue Due to Increased Business.
Brought down to its final results, then, we find that
the increase in either net or gross earnings of the rail¬
ways, is substantially commensurate with the increase
in volume of business, modified by the slight advance
in rates, which is more than overcome by the increased
cost of labor and materials, and which, on the com¬
parisons presented by Governor LaFollette, has re¬
duced the increase in net earnings below the increase
in gross earnings. It would seem as though the car¬
riers had taken their share of the burden of increas¬
ing values.
On the other hand, it must be borne in mind that
A REPLY TO GOVERNOR LA FOLLETTE. 35
all the commodities transported are worth more than
they were five years ago, and that the slight advance
in rates which is shown is by no means equal to that
advance. So that not only are the carriers actually
receiving less for their service than they were five
years ago, but the shipper, in proportion to the value
of the service to them are also paying much less.
It seems reasonably clear that if the case of "fair
railway regulation" rests for its foundation upon ex¬
cessive or advancing railway rates, it is a foundation
that there is no evidence to sustain, in the face of
rates that have been constantly and steadily lowering
for thirty years, and which in the very nature of the
course of commerce must continue to lower as the vol¬
ume of tonnage increases. Certainly there is no
wrong here which requires the intervention of gov¬
ernmental regulation.
m. THE CONTROL OF TRANSPORTATION RATES.
A fair conclusion to be drawn from the introductory
portion of Governor LaFollette's third article in The
Saturday Evening Post is, that the commercial and
industrial interests of this country are in danger of
annihilation and destruction unless the restraining
hand of the government is laid with its extreme power
upon the carrier corporations.
There are hut two ways in which the carriers could
impair the commerce of the country, passing hy for
the moment the inherent absurdity of the proposition
that they would do so if they could ; that is hy the
imposition of either exorbitant rates, or discrimina¬
tive rates. No fair minded railway official attempts
to question that it is not only within the power of the
government to prevent both these injustices, hut that
it is also its duty to do so. So far as real railway
regulation is concerned, the opponents of railways
build up a man of straw which they valiantly hatter
down.
m
Elkins Law Prevents Rebates and Discriminations.
In a page and a half of space devoted to these propo¬
sitions, Governor LaFollette devotes a line and a half
to the Elkins amendment of the Interstate Commerce
law which has, practically speaking, done away with
rebates and discriminative rates. In proof of his as¬
sertion that rates are unreasonable and extortionate,
he quotes numerous excerpts from the demands of the
members of the Interstate Commerce Commission for
an extension of their powers. So far as the evil of
secret preferences and rebates is concerned, the In-
36
A REPLY TO GOVERNOR LA FOLLETTE. 37
terstate Commerce Commission itself is of the opinion
that the present law is ample and that it will abolish
that evil, if it has not already done so. In the report
for 1903, on pages 10 and 11, the commissioners say:
' ' Indeed, it is believed that never before in the
railroad history of this country have tariff rates
been so well or so generally observed as at the
present time. • * * ijj its present form, the
law seems to be about all that can be provided
in the way of prohibitive and punitive legislation.
Unless further experience discloses defects not
now perceived, we do not anticipate the need of
further amendments of the same character, and
designed to accomplish the same purpose."
According to this testimony of the Interstate Com¬
merce Conunission, the law now provides full and am¬
ple protection from rebates and secret preferences,
and the government, in the exercise of its power, is
enforcing the equal rights of all in the use of the
highways of commerce on the same terms. And yht
Governor LaPollette disposes of this most important
law in a sentence, and in the next sentence calls atten¬
tion to the fact that it affords no protection from ' ' un¬
reasonable and extravagant rates."
It may be asserted, upon the authority of the Inter¬
state Commerce Conunission, that in considering the
need for railway regulation, the subject of undue pref¬
erences and rebates may be eliminated, as being amply
covered by the present law. It is, therefore, interest¬
ing to note just what evidence can be brought to sup¬
port the contention that rates charged are exorbitant
or excessive.
The United States has the cheapest transportation
S8 UNFAIR RAILWAY AGITATION.
rates of any country in the world in which railways
are operated. The rates in this country are only a
third of those in Great Britain and France, and half
of those in force in Germany. It is true that with the
tonnage of our railways our rates ought to be lower,
but the point is that they are.
In its annual report for 1893, the Interstate Com¬
merce Commission said :
"To-day extortionate rates are seldom the sub¬
ject of complaint." page 12.
"We are not troubled with the question that
rates are * * * too high." page 17.
"It is significant that there has been, under the
operation of the interstate commerce law, a steady
decrease of complaints based on charges unreason¬
able in themselves." pages 218 and 219.
In 1898, the chairman of the Interstate Commerce
Commission testified before the Committee on Inter¬
state Commerce of the United States Senate, that the
question of excessive railway charges—"that is to
say, railroad charges which in and of themselves are
extortionate, is pretty much an obsolete question."
When this testimony was given, the rate per ton
mile was within one one-hundredth of a cent of what
it was in 1903. So that it may be safely asserted upon
competent and irrefutable authority, that the rates, of
themselves, are not subject to reasonable complaint.
No one complains that he is charged too much for
transportation. The whole complaint, and all the
agitation against railways in this country, is based
upon the adjustment of rates with relation to other
rates. This fact should be clearly understood by
every one who wishes to give to the matter the un-
A REPLY TO GOVERNOR LA FOLLETTE. S9
biased consideration upon which a fair conclusion must
he founded.
Wabfaee of Politicians fob Poweb.
The present warfare, which is being waged against
the railways is a gigantic battle of the politicians, to
secure a power which, if obtained, will pale to insig¬
nificance the imperial autocracy of Rome and plimge
the commerce of this country into the direst disaster
it has ever known.
It will not be seriously contended by any one that
the adjustment of rates as between themselves is per¬
formed by the railways with satisfaction to the inter¬
ests affected, nor will it ever be, so long as the human
heart is selfish, and commercial nature is avaricious.
The whole basis of complaint against the adjustment of
rates is, that some particular interest, or some par¬
ticular community, or section of country, deems itself
entitled to better rates in certain directions than it
has. This is a condition that will always exist so long
as there are people who think they ought to have more
business than they have, or more money then they pos¬
sess. It is a manifestation of the universal discontent
of the human heart, and no railway, or combination of
railways, nor any railway commission, can ever change
that óondition. That some people should be more fa¬
vorably situated with reference to transportation facil¬
ities than others, is as natural and as inevitable as
that they should be more favorably located than others
with reference to raw material. Absolute equality is
not afforded to any one by nature, or in commerce,
and the railways cannot overcome the natural limi¬
tations under which they and others labor.
¡fi UNFAIR RAILWAY AGITATION.
The universal discontent which exists in respect of
taxation, which is a purely government function, and
subject entirely to government control, is similar to
the general dissatisfaction with the adjustment of
freight rates. Indeed, the inequities of taxation, and
the inequalities of assessment growing out of political
favoritism, and resulting from political influence are
practically universal throughout our taxing system,
and are much more glaring in their injustice than any
difference in freight rates which has ever been com¬
plained of. If the government in the unrestricted ex¬
ercise of its power cannot produce a taxing system
which commands the confidence of the people, when all
that is involved in making it equitable is to apply the
same measure of value to the property of different
people, how can it be reasonably expected that the
government administration of so complex a system of
tariffs as railway charges could be administered either
with justice to conflicting interests, or with satisfac¬
tion to the people.
Beal Danger Is P^rom Demagogues—Not Bail ways.
/
From the political platform, alarming prognostica¬
tions are frequently made of the disaster which con¬
stantly threatens the welfare of the nation from the
unlicensed and unbridled power of the carrier corpo¬
rations. But when we turn to the pages of the cen¬
sus, where there is written down in impartial honesty
the record of our achievements, commercial and indus¬
trial, we find that from one end of the nation to the
other, there has been the unbroken sweep of unparal¬
leled prosperity, except in those unfortunate periods
A REPLY ÏO GOVERNOR LA FOLLETTE. 4I
of our country's history, 'W^hen the suffrages of the
people have been misled by the voice of demagogues,
and they have written laws upon the statute books
which have attempted to subject the natural course
of commerce to artificial control. Wherever the rail¬
ways of this country have pushed their iron bands
into the wilderness or across the prairies, towns and
cities and villages have sprung up, and the hum of
industry has followed in their wake. From the ear¬
liest days of our development until now, the railway
has been the unfailing handmaiden of prosperity.
Every shadow that has fallen across the prosperity
of this nation can be traced with absolute directness to
the economic fallacy of some designing politician. Not
one instance of commercial depression or industrial
paralysis can be traced directly or indirectly to any
voluntary act of any railway.
If the railways of this country possessed the auto¬
cratic power, which Governor LaFollette ascribes to
them, would not the experience of half a century have
placed upon the records some specific instance of its
misuse to the general detriment of the country?
It is true that specific instances of individual cases
are here and there brought to the attention of the
public. Some of them are true, but many of them are
false. Those which are true are bad enough, and it is
unfortunate that they should exist, but they are the
isolated instances and the rare exception, and none of
them reach proportions that affect the general result.
Substantially, none of these cases is of such a nature
that the exercise of the power of the govermnent to fix
rates would affect them. In practically every such in¬
stance, the complaint arises, not out of the rate, but
JtZ UNFAIR RAILWAY AGITATION.
out of its enforcement. The law is ample now to en¬
force the rate, and all that remains to correct such
cases is the fearless and impartial enforcement of the
Interstate Commerce Act, as it stands tq-day.
The business of eighty million people on two hun¬
dred thousand miles of railway, involving two billion
dollars a vear, could not, in the very nature of
human frailties, be conducted without some friction,
some injustice, and some inequity; but, in the main,
this business has been transacted satisfactorily to the
patrons and profitably to the railways, and under con¬
stantly and steadily declining rates.
In every state there is a statute against murder, but
in every state murder is committed. In every state
there is a statute against theft, but in every state theft
is committed. Would it be fair, because it is impossi¬
ble to enforce these statutes without infraction, to ar¬
rest all the citizens and put them in jail to be sure
that none should steal, or to hang them so that none
should murder? It would be as reasonable to do that
to make it certain that no theft should be committed
or murder done, as to insist that because some infrac¬
tions of the duties of railways are committed, the
management of all the railways shall be taken out of
the hands of their owners.
Duty of State to Regulate.
No one attempts to deny that it is the duty of the
state to see that the highways of commerce are kept
open to all upon exactly the same terms, and that the
charges for transportation imposed by the carrier
corporations shall be just, reasonable, equitable and
uniform. That is the law of the land, and it should be
A REPLY TO GOVERNOR LA FOLLETTE. 4S
the province of the government to enforce that law,
just as it enforces every other law, and in no different
way. The penalties for the infraction of that law
should be so severe that no shipper would dare to de¬
mand from a railway company a sx)ecial concession or
an unjust preference. The punishment should be so
swift that no railway company would consider yielding
to the demands which are constantly made upon them
for unfair and undue preference. That this can be
done is amply evidenced by the operation of the Elkins
law. This is as drastic as the most ardent opponent of
railways could ask, and yet, while it protects the in¬
terest of both the carrier and the shipper it does not in¬
fringe upon the rights of either. Under its operation,
rebating and deviations from published tariffs have
practically ceased. There is probably not a statute
upon the books, either of the United States, or any
state, under which, for the same period of time, there
has been a smaller percentage of infraction. The
Interstate Commerce Commission itself in repeated ex¬
pressions upon the subject has said that exorbitant or
unjust rates are rarely complained of, and that dis¬
criminatory rates have been practically eliminated
from the tariffs of this country.
The Interstate Commerce Commission, as well as
all unbiased students of the transportation problem,
agree that rates, of themselves, as they exist, are gen¬
erally just and equitable, and that the principal evil
which threatens, in the relations of transportation
companies to shippers, is the undue preference and
the rebate. It is not easy to see how the power to
make rates conferred upon a railway commission will
in any manner whatever affect the evil of rebates or un-
H UNFAIR RAILWAY AGITATION.
due preference. It would be as easy to grant a rebate
from a rate fixed by a commission as it is under tbe
present law to grant one from a rate fixed by the rail¬
way. The law that would prevent granting a re¬
bate from a rate fixed by the commission would pre¬
vent granting a rebate from a rate fixed by the car¬
rier. If the evils of transportation lie in the undue
preference of any sort, it is clear that the remedy
for it is not in taking away from the railways the
power to make their rates. It has not been shown,
and in the face of the facts as they exist, it cannot be
shown that the rates themselves, if they are enforced
alike for all, are unjust, unreasonable or inequitable.
Political Power op Political Bate Making.
It is but natural then. to inquire why this constant
and persistent demand from politicians seeks to take
from the carriers the right to fix their rates, and place
that power in the hands of a political body. The an¬
swer is easy, for it comes out of the mouths of those
who make the demand. It is true that in the hands
of a political commission, the right to fix rates would
exert over the commerce and industries of the country
exactly the power which it is contended the railways
exercise. The reason this power would inhere in a
political commission, while it cannot exist in a com¬
mercial corporation, is that if the power were trans¬
ferred to a political body, the only consideration which
restrains its use by the railways, and the only natural
force which always has operated, and always wiU oper¬
ate to reduce rates, would be removed. The railway
company in the nature of its business cannot build up
one section of country at the expense of another, nor
A REPLY TO GOVERNOR LA FOLLETTE. 4^
biiild lip one conmmnity to tbe detriment of its neigh¬
bor, nor build up one industry at the expense of its
competitor. Under its common law duty as a com¬
mon carrier, which can always be enforced in the
courts, it could be prevented from doing this, but the
selfish interest of the corporation itself is a stronger
safeguard for the interests of the public even than
the law. The carrier must have the business. It
must have the business from all sections through
which it runs, from all communities with which it is
identified, from all industries upon its line. It is
necessary, in order to secure the tonnage which natur¬
ally belongs to it, that the railway should provide for
different sections of its territory the special facilities
which the nature of the business in particular local¬
ities requires. To this extent, it may be said that cer¬
tain sections of territory are specially favored. Every
effort is undoubtedly made by every railway manager
to develop every industry and every community that
will produce tonnage for his road, but this is never
done at the expense of other communities having simi¬
lar interests. The whole complaint against the ad¬
justment of rates rests on the unfounded claims of
communties and localities for artificial advantages in
commerce which do not of right or by nature belong to
them.
The present agitation against railways had its in¬
ception some years ago in an effort made by a little
coterie of grain brokers in Milwaukee, of which Mr.
E. P. Bacon was a leading factor, to secure for Mil¬
waukee, advantages as a grain market which it does
not naturally possess, and which it was not within th«
power of the railways to provide for it, even had they
j^e
UNFAIR RAILWAY AGITATION.
been disposed to do so. The recent complaint of New
York shippers against the grain rates for export at
Baltimore and Philadelphia was the result of dissatis¬
faction with the adjustment of rates which secured to
the two latter cities the equality with New York in
the export trade, which the natural facilities of those
ports afforded. Substantially every discontent con¬
cerning the adjustment of railway rates which now
exists can be traced, not to the effort of the railways
to confer artificial commercial advantages upon com¬
munities or localities, but to the demand of some com¬
munity or locality for artificial commercial advantages
to which it is neither in nature nor in reason entitled.
If those who are misled by the sophistries of the poli¬
ticians would but for a moment pause and think the
question out for themselves, they would see how pre¬
posterous are these claims of favoritism and discrim¬
ination. It is not pretended that the railways refuse
to haul for a portion of their customers, but it is con¬
tended that in various ways they give advantages and
preferences to certain favored shippers. If this were
true, would it not be obvious that if it could do so, the
railway would be more interested in fostering the
business of those to whom preference and advantages
are not given, for the simple and selfish reason that
such business would yield a greater revenue? As ab¬
surd as the assertion is, it is its own best answer. It
has never been explained why a railway company
should be interested in building up the business of one
community as against another, when its revenues de¬
pend upon the business of both. There is no aestheti-
cism in the railway business which makes potatoes
A REPLY TO GOVERNOR LA FOLLETTE. ^.7
pleasanter to haul from one station than from an¬
other. It is immaterial to the railway company where
its freight comes from, so long as it comes. If the
public would but stop to think a moment, it would
readily be seen that this theory of favoritism and dis¬
crimination, in whatever direction it is worked out,
constitutes a sj^stem of commercial suicide, of which
the railways of this country have not yet been guilty.
It is not intended to assert that preferences and dis¬
criminations have not existed. But it is intended to
show that they constitute an evil from which the rail¬
way is the most direct and severe sufferer, and that it
is one from which the railways welcome relief. In
other words, is it reasonable to suppose that the rail¬
ways are so anxious to give away their money that
they would oppose the enforcement of a law that would
prevent it ?
In the hands of a political commission, however,
having no interest in the commercial success of the
carriers, and having no responsibility to the owners
of the railways, political considerations would nat¬
urally become paramount, and with power of pitting
section against section, town against town, and class
against class, political favoritism would inevitably
spring up and the interests of favored sections be
given undue consideration in return for political pre^
ferment. A striking illustration of the probability of
this evil is shown in the Galveston and Houston dif¬
ferentials, which the railway commission of the State
of Texas, the only commission that exercises full
power to make rates, maintains for the commercial
iS UNFAIR RAILWAY AGITATION.
benefit of those communities as against the mercantile
welfare of the rest of the state.
Railway Consolidation.
Governor LaFollette devotes some attention in
closing his presentation of the question of railway
regulation, to the consolidation of railway interests
into what he states to be practically 90 per cent, of
the railway mileage of the country under substan¬
tially one control. The common experience of every
business man in the United States refutes this state¬
ment. Competition in whatever form it may express
itself is the opposing efforts of different people to
secure the same business. In order to secure business
in preference to others, there must be some induce¬
ment offered. In the railway business, as the law ex¬
ists today, this inducement cannot consist in any con¬
cessions of rate unless effected by published modifica¬
tions of tariff open to all alike. There is going on
today, just as there always has been, the constant
modification of published tariffs in order to secure
business in competition. One hundred and thirty rail¬
roads are classified by Governor LaFollette as Van-
derbilt lines. It is presumed that in this classifica¬
tion is included, for instance, the Nickel Plate, the
Lake Shore, and the Michigan Central. There is no
one whose business produces tonnage available for
all these roads, who does not know that the competi¬
tion for business between them is as keen as it ever
has been, and as sharp as it is between any one of
them and the Pennsylvania Ifines. While the financial
owners of some railways have undoubtedly become
A REPLY TO GOVERNOR LA FOLLETTE.
financially interested in other railways, it is not tme
that there has been any general consolidation of the
management or operation. As long as the manage¬
ment remains separate, all wholesome competition
which affects the course of rates will remain in force
as thoroughly as though the financial interests of the
railways were entirely distinct. The reason for this
is that the competition between the different lines,
while it has a tendency to lower rates, has an actual
tendency to increase tonnage, which more than offsets
any reduction in rates when the net results are com¬
puted. Tonnage is the important factor in railway
operation, and so long as separate management exists,
and so long as more money can be made out of a larger
volume of tonnage, nothing can eliminate the element
of active and actual competition to secure that ton¬
nage.
Operation of Eailw-^ys Cannot Be Consoijdated.
Further than this, no matter how the railways of
this country may be owned, they must always be sepa¬
rately operated. The statutes of nearly all the states
prohibit parallel or competing lines from consoli¬
dating, and the Sherman anti-trust law, as construed
by the Supreme Court of the United States, forbids
«I
any agreement between railways which would destroy
competition or operate in restraint of trade. It is
legally impossible, as the law in this country stands
today, for the different railways to so combine as to
prevent competition or restrain the natural course of
commerce.
But after all, the most potent factor in railway com-
50 UNFAIR RAILWAY AGITATION.
petition has always been, and always will be the ne¬
cessity of providing markets for the constantly in¬
creasing production and consumption of the coimtry.
The widening of market area will always of itself pro¬
duce a lowering of rates, and as long as the railways
can make more money out of increasing tonnage, tbey
will continue to lower the rate in response to the de¬
mands of increasing business. No combination of
railways could stop this downward tendency of tariffs
without immediately clogging the channels of business
upon which the prosperity of the transportation com¬
panies depends.
It is not true that 90 per cent, of the railway mileage
of the country is subject to one control. It is not
true that 90 per cent, of the railway mileage of the
country is subject to the control of six interests. No
such control of transportation, as is stated by Gov¬
ernor LaFollette exists today, nor is there any proba-
bilitv that it ever will exist.
What Can Be Expected From Poijtical Rate
Making?
What benefits, then, may reasonably be expected
from "fair railway regulation" as advocated by Gov¬
ernor LaFollètte.
Certainly, we cannot expect to secure cheaper trans¬
portation. We now have in the United States the
cheapest transportation in the world, and at rates that
have steadily declined for years, and which there is
no reason to expect will not continue to decline as tbey
always have done.
Certainly we cannot expect to give any stronger
A REPLY TO GOVERNOR LA FOLLETTE. 51
guaranty that the highways of commerce shall be open
to all on any more equal terms than they are, for we
have the assurance of the Interstate Commerce Com¬
mission itself, as well as the experience of the busi¬
ness world, in support of the statement that the pres¬
ent law, if enforced, is ample to prevent the evils of
rebates and preferential rates.
There is no reason to expect that we should be able
to secure any fairer adjustment of rates as between
themselves from a political commission than we do
from the railways, for the railways have back of their
adjustment of the rates the selfish interest of their
own prosperity, which depends upon the prosperity of
all the business on their lines, while a political com¬
mission if given this power would have nothing at
stake but the political success of the influences which
placed it in oflSee.
If it were proposed to delegate the right of Con¬
gress in levying a protective tariff to a political com¬
mission, and give that commission authority to make
such adjustments of the schedules as the interests of
different communities and different people might from
time to time require, the dangerous power which such
a privilege would confer, would be obvious. To place
the power to make railway rates in the hands of a
political commission would result in more disaster to
the country and its commerce, many times over, than
would the politicalization of the tariff. It would con¬
fer a power over the commerce of this country which
no railway has ever possessed, and which a complete
control of all the railways by one owner could not at¬
tain, for the railway, even if it were an absolute
monopoly, would still be restrained by the law of self
5Z
UNFAIR RAILWAY AGITATION.
preservation, while the political commission, respon¬
sible to no one but the political power which created
it, would be at liberty to exercise such sectional favor¬
itism as its own political exigencies might dictate. If
the power to fix railway rates is ever vested iu a
political commission, and the commerce of this coun¬
try thus plunged into the direct channels of political
warfare, we shall see in the United States a section¬
alism beside which all the differences of our past his¬
tory- will seem to have been mere passing pleasantries,
and the devastations of war itself will be prosperous
productiveness in comparison. The commercial in¬
terests of this country which are from time to time
assailed by the political nature of our protective policy
have had enough experience with business in politics.
It is to be hoped that the hand of the politician can
be stayed long enough for the people to get their sober
second thought, and that in this recurrence of our
periodical attack of national hysteria on economic sub¬
jects, the ambitions of modem Caesars will not be per¬
mitted to convert this nation into a second Rome.
Chicago, April 3,1905.
Burton Hanson.
3 5556 042 147132