.I'kes't w* bIe;: ,, ..." ■
THE STOCK MARKET
RAILWAY PROBLEM.
OSSIAN D. ASHLEY.
Evening Post Job Print, New York.
THE STOCK MARKET
AND THE
RAILWAY PROBLEM.
By OSSIAN D. ASHLEY.
At. c
During the years 1858-59, following the great financial
crisis, an unusual and prolonged stagnation visited the
Stock Market. Something like a dry rot seemed to be
silently, but surely, consuming the business vitality of the
commission houses of the Street, and speculation had ap¬
parently fled from the Stock Exchange forever. These
discouraging features naturally excited serious apprehen¬
sion among the brokers, and there was much discussion
as to the causes of so much dullness and depression
at a period when all other kinds of business had been
steadily reviving from the shock of the panic. The writer
of this article was at the time a member of the New York
Stock Exchange, and he remembers an informal meeting,
held one evening at the house of David Grocsbeck in
Fourteenth street, by some fifteen or twenty of the leading
brokers, for the purpose of discussing this question of dull
and diminishing business, with a view also of suggesting
any practicable remedies for a state of things which had
certainly become very disheartening. Many of those who
were present have joined the ranks of the "silent majority,"
but among them he remembers David Groesbeck and EE A.
Johnson, now living, and the late EL T. Morgan, A. G.
Norwood and Elenry G. Stebbins. At the request of the
Chairman, Mr. Stebbins, who was a graceful and fluent
2
speaker, took the floor, and after some general allusions to
the financial and commercial crisis through which the
country had but recently passed, went on to explain what
he considered to be one of the most serious obstacles to the
revival of business at the Stock Exchange. This he found
in the secret method of dealing then in use—a practice
which he believed to be highly prejudicial, and to which he
attributed the reluctance on the part of the public to share
in the daily transactions. The lack of confidence on the
part of the people, in these transactions behind closed doors,
had much to do, he thought, with the painful inactivit}' of
the Stock Market, and his remedy was to open the doors
wide to the admission of the public, that all might see the
absolute fairness as well as the reality of the dealings.
This, he believed, would contribute powerfully to the res¬
toration of business at the Stock Exchange. It must be
borne in mind that at this time the rules of the Board only
permitted the admission of outsiders in small numbers, upon
application of the members who accompanied them, and the
suggestion of Col. Stebbins, which was in harmony with the
views of quite a number of the young and progressive
members, was well received, although from the silence
which followed his eloquent and persuasive speech it was
quite evident that no great expectations or hopes had been
excited among the attentive listeners. No one seemed dis¬
posed to continue the discussion, but the Chairman called
upon some of the quiet ones by name for an expression of
their views, and one of them, at length, delivered himself
somewhat as follows :
"Mr. Chairman, I have listened with a great deal of
pleasure to the interesting remarks of the gentleman
who has just addressed you ; but while I agree with him,
substantially, as to the policy of opening the doors of the
Stock Exchange to the public, and shall heartily support
such a movement, I do not believe this exclusion of the pub¬
lic has anything to do with the present dullness of business
at the Board. The trouble, in my judgment, is much more
deeply seated. We have passed through a terrible crisis,
caused largely by an excessive speculation in railway secu-
3
rities, and in these securities, which embrace four-lifths of
those dealt in at the Stock Exchange, there has been a fear¬
ful shrinkage in market values. The Street is full of
wrecked and bankrupt railway corporations, and the losses
in the stocks and bonds which represent thenr have weak¬
ened and alarmed the people who have hitherto been our
customers. In brief, the public has not only lost money,
but has lost confidence in railway securities, and the Street
is, comparatively speaking, deserted. Distrust is universal,
and until it is removed—until confidence begins to be re¬
stored, there can be no material change for the better. In
due time this change will come, but the process of recovery
is necessarily a slow one."
The meeting dissolved after this dose of cold, hard facts ;
but the conclusions of the last speaker were generally
adopted, and the members of the Stock Exchange patiently
followed the cycle of events.
More than thirty years have passed since this curious but
unimportant meeting, and Wall Street is again visited by a
"dry spell " which taxes the patience of the brokers and has
played havoc with the commission business, while specula¬
tion is only kept up by the attacks of the bears and the im¬
pulsive movements of the room traders.
What is the matter now ?
In order to answer this question intelligently, it becomes
necessary to review briefly the railway history of the coun¬
try during the last five or six years. In 1885, in con¬
sequence of the construction of railway lines in advance of
the transportation demands of the country, the competition
became so severe that a rate war broke out between the prin¬
cipal lines connecting the West with the Seaboard. This
resulted in a serious reduction of profits and dividends, and /
was the cause of much anxiety 011 the part of shareholders j
in railway companies. The steady trend of rates of trans-:
portation had been in the direction of lower figures, but the-
rapid multiplication of roads forced the pace, and the struggle'
which had made such heavy encroachments on the profits
before realized, brought into full relief the danger to railway
property introduced by over-construction. It was seen that
4
an oversupply of transportation, following the general laws
of supply and demand, brought lower prices, and that the
trouble would continue until demand overtook supply and
until excessive construction ceased. To meet the difficulty
a method of dividing earnings upon an agreed basis had
been adopted. This was called "pooling," and for a time
answered the purpose for which it was designed. Rate wars
measurably ceased, and, although the scale of charges con¬
tinued low, cutting and scalping was reduced toa minimum.
Then came into existence the Interstate Commerce law with
/ a clause prohibiting pooling, arid laden with various imprac-
! ticable provisions to hamper rate questions and embarrass
railway administration. Prominent among these was the
/ silly long and-short-haul clause, which never has been and
never will be enforced, because, in the nature of the case,
its full application is impracticable. As if foreseeing the
folly of such a law, Congress wisely qualified it by an excep¬
tion in favor of cases where the circumstances and condi¬
tions might be dissimilar, and through this wide gateway
the nominal offenders escape with little or no difficult}'.
The truth is, that whenever the letter of the long-and-short-
haul clause is violated, it is because " the circumstances and
conditions'' are seldom, if ever, substantially similar. Some¬
times it is in consequence of competition by waterways, and
sometimes it is because one line has palpable advantages
over another, either in gradients or in the cost of fuel, or in
other items embraced in the departments of operation and
maintenance, so that one line must reduce its charges to a
competing point or lose its business to a rival line, and if in
doing this it is obliged to reduce local charges in strict com¬
pliance with the long-and-short-haul clause, it would become
bankrupt. With all its crudities and absurdities, however,
the law was enacted and a new element of disturbance was
introduced. State legislation, which had previously been
moderate in its demands upon railways, now became harsh
and aggressive, especially in some of the Western States.
The Interstate law did not, until recently, undertake to fix
maximum charges, but confined its operations to complaints
of unjust discrimination and other alleged abuses and viola-
5
tions of the law. The States referred to not only adopted
the salient features of the Interstate law, but invested their
Commissioners with almost dictatorial powers, and al¬
though they were only required to enforce "reasonable
rates," they were, or at least assumed to be, the judges of
what constituted " reasonable " rates. This dangerous
power has been exercised to such an extent that railway
companies have been forced to resist or to submit to a rule
which might carry confiscation of their property in its
train.
Reserving criticism of both Interstate and State laws for
another chapter, if space cannot be found in this article, let
us consider the effect of these combined causes upon the
investing and speculating public.
ist. Railway property, which had before yielded fair
returns on the capital invested, is by the construction of
superfluous lines forced into fierce and disastrous competi¬
tion. Rates are thus carried down to unprofitable points.
2d. When a fairly efficient remedy is found and applied,
the Interstate law steps in and forbids the use of the
remedy.
3d. State legislation intcrfereSywith its limit of maximum
rates, not determined by the judgment of a court where
evidence of reasonable or unreasonable charges can be in- .
troduced, but by the arbitrary decision of Commissioners j
not invested with judicial powers.
Is not the natural result distrust and alarm on the part of
the owners of railway property ? If such property is ex¬
posed to the evil consequences of reckless overconstruc-
tion, and then to the usurped powers of hostile legislation,
what safety is there in it? Thus reasoning, people who
have money in railway property seek the first favorable
opportunity to dispose of it, and those who have money to
invest seek other channels for its employment.
Now it happens, as in 1859, 'hat the great bulk of the
transactions of the New York Stock Exchange is in railway
securities, and it follows that the same effects, although
6
from different causes, acting upon the productive capacities
of railways, have destroyed confidence in them.
This, and this alone, in the judgment of the writer, has
brought about the present stagnation in Wall Street so far
as the Stock Exchange represents it.
No business can thrive under such adverse conditions.
Railway property is threatened with destruction, and until
the threat is removed the alarm will not only continue, but
increase. The money invested in railway securities was
supposed to be in property having equal protection under
the laws of the land with other property. As common
carriers, railways were, of course, known to be subject to
certain regulations, but their rights to a fair compensation
for the services performed had never been questioned before
the persecution commenced by Congress and followed up
by State Legislatures. But a new doctrine, as dangerous
as it is new, has been introduced which claims not only to
regulate the compensation which carriers shall receive,
but to decide arbitrarily whether such compensation is
reasonable or not. In other words, shippers who are inter¬
ested in obtaining the lowest rates possible, may unite in
complaints to the Interstate or State Commissions, and if
the Commissioners, upon such investigation as they may
choose to direct, conclude that a reduction should be made,
, it is thus ordered. It is true the railway companies may
appeal to the courts, as in many cases they have done,
but the intent of the law, as interpreted by the Commission¬
ers, is to assume and maintain this power over the earning
capacity and profits of property which is as much entitled
to equitable consideration as property in real estate,
manufactures, or trade. The laws applicable to common
carriers, it is well understood and admitted, are intended
to protect the people from exorbitant demands, and
certain privileges are granted to the carriers, in exchange
for which the right of just and proper regulation is
claimed and exercised. In the days oí stages and baggage-
wagons, it would have been within the purview of the
law to fix the rates of transportation and of fare as a con¬
dition of license, just as carriage rates are regulated by
7
municipal law, but such powers were seldom, if ever, exer¬
cised and would never have been submitted to for a day if
the rates had been less than a fair compensation for the ser¬
vice performed, for the remedy was in the hands of the
owner of the stage or wagon. He would simply refuse to
perform the service, and if the charges were unreasonably
low, that is, unremunerative on the capital and labor re¬
quired to do the work, no one else would undertake it.
This remedy is not available to railway carriers. The work
of transportation must go on, and necessarily will go on so
long as operating expenses can be earned, including the
cost of repair and maintenance. The stoppage of railway
operation would paralyze the business of the whole country.
It could not and would not be permitted.
As compared with the common carriers in existence
before the age of steam, those of the present day are per¬
fectly helpless against oppressive legislation except by
tedious and expensive processes through the courts. This
assistance has been invoked to some extent and with good
results, but railway companies have not yet pressed the
constitutional questions involved, with earnestness or vigor.
The struggle is bound to come, unless public sentiment
forces legislation to respect vested rights, but belief in the
strong sense of justice, which is a fundamental idea oí our
republican government and which has hitherto been a ruling
principle with its people, inclines railway managers to wait
for its influence as investigation and experience prove the
error and wrong perpetrated.
Meanwhile the railway trouble continues, productiveness
diminishes and the Stock Market stagnates. What is the
remedy? What is the solution of the great Railway Problem
of the day ?
While these very difficult questions puzzle the brains of
practical business men, they do not confuse the intellects of
theorists and students of a philosophical turn of mind, who
take up the subject with as much assurance as they would
any social question, and discuss the disposition of property
valued at more than nine thousand millions of dollars with
as much nonchalance as if they were pondering the Chinese
s
question or explorations for the undiscovered passage
through Arctic Seas. It does not seem to occur to these
gentlemen that railway companies may have a grievance,
but in some mysterious way they discover defects in the
management, or labor under the impression that the cost of
railway transportation in the United States is extortionate.
In most cases there are no definite complaints, because,
as a matter of fact, there is no real foundation for any, but
if one is called upon to write an essay on such a com¬
plicated subject and wants an excuse for the proposal of a
patent remedy, it. becomes necessary to assume evils
whether imaginary or not, because if there is no disorder
the remedy would appear to bé superfluous. Hence, vague
accusations and false postulates which become necessary to
justify proposed reform. If the foundation stones are
wanting, the structure of an essay must be weak and shaky.
Thus, through a series of articles in the Independent of
August 28th, there is no attempt to prove the necessity of
reform in railway management, nor to show extortion.
There is not a particle of evidence offered to prove the
superiority of the railway systems of Continental Europe,
nor even of Great Britain, nor is there anything upon
which to hang an argument in favor of legislative interfer¬
ence except the unsupported statements of an ex-Governor
of Iowa, who is evidently anxious to justify his aggressive
course in that State. Isolated instances of unjust discrimi¬
nation ma}7 possibly be proven, and it would be strange if
some mistakes had not been made in the operation of Iowa
railways; but if the evidence on both sides could be given,
the verdict might not sustain the highly colored views of
the ex-Governor.
The reverend gentleman from Boston, whose graceful
pen interests, even when it does not convince, is evidently
almost as much at sea as " the man without a country" in
handling this difficult subject. He does not pretend to
prove the existence of a public grievance in the present
administration of railways, but boldly argues in favor of an
expedient adopted under monarchical governments while
still in its experimental stages, although many competent
9
judges pronounce the system of administration inferior to
that of the United States. He advances one argument to
prove the aptitude and superiority of governmental control
which will excite a sniile from those who are conversant
with the facts. This is his proposition :
" It is, however, before one begins to discuss the
" question, interesting to observe that, in many im-
" portant instances, the nation has already done the
" thing proposed, and is now doing it. What is
" more, the nation does it well. Overspeculation and
" bad administration have in the last twenty years
" reduced only too many railways to bankruptcy.
" Trade must be kept up. The daily lines must run,
" or the property becomes worse than worthless.
" In these cases, the nation, acting by a United
"States Court, steps in. The nation appoints 'a
" Receiver.' Observe that the poor fellow has not
" a cent of capital to work with ; he must take the
" daily earnings to do his daily work with. Yet, in
" many instances of great importance, as our readers
" know, such men are now carrying on railroads
" more successfully than their owners carried them
" on. They make both ends meet, as the owners
" could not."
This is part of Mr. Hale's argument in favor of govern¬
mental control. Now, Mr. Hale has no idea of deceiving
any one, and doubtless believes what he says; but are the
statements in this paragraph justified by the facts?
Not at all. In the first place Receivers are appointed by
United States or State Courts, as a last resort, in order to
protect the property for the benefit of its creditors and /
stockholders in the order of security. As a rule, interest/
has been in default on one or more of its mortgages. Tliq
Receiver takes possession and operates the road, but instcacjl
of being in the condition of the bankrupt company, he is ajt
once invested with extraordinary powers to raise money by
the issue of Receiver's certificates, which, being duly autho
10
ized by the Court, become a first lieu upon the corpus of the
property, taking priority even over its first mortgages.
With this security in his hands he can always raise money
without difficulty, unless the road itself is hopelessly ruined.
Not only can he raise all the money he wants, but he does
it at once, either for operating the road, paying off preferred
claims, or for buying steel rails, new engines and cars,
building new bridges and putting the track in first-class
condition. And this is what Mr. Hale calls "not a cent of
capital to work with." The " poor fellow " is invested with
unlimited credit, which he uses promptly and freely, and
consequently has the power of doing what the company-
could not do.
It is true that these repairs and new supplies of rolling
stock are just what the road needed, but the Receiver de¬
serves no credit whatever for it. Instead of being a poor
fellow " without a cent of capital to operate with,'' he is
made rich by the law, which gives him extraordinary pow¬
ers and undoubted credit. This is the equivalent of millions
of capital.
Then what does the Receiver do ? Does he begin to pay
interest or dividends with his surplus earnings ? Not at
all ; he pays only when ordered by the Court, and only
when his repairs and debts are paid or otherwise provided
for. In short, the idea that a receivership is an advantage,
except as a temporary protection of the property from the
confusion and difficulty of operating while different classes
of creditors are quarreling for the possession and control
of its assets, is a self-evident absurdity. With rare excep¬
tions, railways have been operated by Receivers with less
economy and with less profit than by its owners, and
scarcely an instance can be named where they have not
been very costly experiments. Sometimes the Receiver's
debts, which become a prior lien to any of the mortgages
and have to be paid, amount to millions of dollars, and the
legal expenses of such administrations are often appalling
' in magnitude.
i Can these costly legal processes, forced upon railway
corporations byr financial reverses, be fairly cited as evi-
il
dence of the superiorit)7 of government control and opera¬
tion of railways? Given the power to take all the profits
of a railway for repairs and new rolling stock, without
regard to the interest obligations of the Company, the Re¬
ceiver who could not operate a road to better advantage
after having acquired these increased facilities would be an
idiot of the first water. No, Mr. Hale, this is not a fair illus¬
tration. The administration of Receivers is not econom¬
ical, and they do not " make both ends meet " from earnings
alone, as you assert. They borrow money, take all the
earnings, and stop interest and dividends until arrears are
paid, and they involve the bankrupt companies in frightful
costs and debt. The only real good they do is in forcing
the provision of money for putting the roads in proper
working condition, and this is certainly an advantage, but
the property has to pay for it, and perhaps from a quarter
to half a million dollars per annum for legal expenses and
Receiver's compensation. Mr. Hale has only looked upon
the surface of this question.
And now comes Mr. Bellamy, the author of the very in¬
genious and popular fiction, " Looking Backward," and
in the pages of the Forum adopts the idea of governmental
control of telegraph and railways as an adjunct of his pecu¬
liar theory of what he calls " Nationalism."
It is almost superfluous to say that among the first steps
towards this Utopian progress Mr. Bellamy considers the
possession and operation of these public conveniences by
the general Government a prime necessity. It would be
impossible within the limits of this paper to follow through¬
out the argument of this gentleman. It will serve my pur¬
pose to take a " specimen brick " from the structure. Here
it is:
•' It is conceivable, indeed, that the railroad cor-
" porations might exercise their power over the com-
" merce of the country with such moderation and
" judgment as to induce the people to wink at the
" danger and absurdity of leaving such a power to
" private persons. In the actual case, however, no
12
" such plea for tolerating the corporate control of
" railroads can possibly be advanced. The tolls
" charged by the railroads are universally exorbitant
" —a tact necessarily resulting from the attempt to
" pay the largest possible interest upon capitalize
" tions which, whether owing to corrupt or wasteful
" methods of construction, to excessive stock water-
" ings, or to both, are greatly in excess of the actual
" value of the roads. Not only are the charges
" exorbitant, but the treatment of the public by the
i " managements is, in a large proportion of cases,
" capricious, vexatious, overbearing and arbitrary."
It would be difficult to construct a paragraph upon this
subject more widely at variance with the truth. It is not
to be supposed that Mr. Bellamy intends to misrepresent,
but he may be safely challenged to produce any trust¬
worthy evidence of the accuracy of his assertions.
ist. " The tolls charged by the railroads'' are not "uni¬
versally exorbitant." They are not only reasonable, but
they are the lowest of any railways in the world. Neither
in Germany, Belgium, France, or Great Britain are passen¬
gers and freight transported so cheaply, or anything near
as cheaply as in the United States.
2d. This statement can be easily verified by referring to
the railway" statistics of the countries named, and if it is
true, it effectually disposes of the assertion that exorbitant
rates are charged for the purpose of paying the largest pos¬
sible interest upon a capitalization " greatly in excess of the
actual value of the roads."
3d. The capitalization is not " in excess of the actual
value of the roads," if actual cost has any bearing upon the
actual value.
There are 160,544 miles of completed railway in the
United States, costing in stock and bonds $9,901,453,146, or
at the rate of about $62,000 per mile, and the proof that
this cost is not excessive is to be found in the fact that this
property could not be duplicated to-day at or near this
13
valuation. It includes the accumulated cost of many years
of substantial improvements ; expensive and enlarged sta¬
tions and terminal facilities ; iron and stone instead of
wooden bridges and culverts; steel instead of iron rails;
luxurious instead of very poor rolling-stock accommoda¬
tions; well ballasted instead of dirt roads; and a thousand
improvements in all departments of operation which have
been in process of accretion every year. Mr. Bellamy's
error, and it is a very common one, is in taking the super¬
ficial view of some of our progressive legislators in estimat¬
ing the value of a railway' by the cost at which a contractor
would agree to build a track over a level prairie. In this
careless method of arriving at cost and value, it is often
asserted that existing railway lines could be constructed
for $15,000 or $20,000 per mile, which will cost three times
the amount within five years after delivery by the con¬
tractor. People who are at all familiar with railway con¬
struction know perfectly well that the work of the contractor
is but the beginning of cost, and that from the time his con¬
tract work is finished, through many years, the cost is con¬
stantly increasing, and it is even now going on. As a matter
of fact there are not at the present date more than a dozen
railways in the United States which can be considered fin¬
ished according to the English standard.
It follows that these crude estimates of cost and value are
utterly unworthy of the serious attention of a critical writer.
Reference to the statistics of English railways will show an
average cost of inore than $180,000 per mile, or nearly three
times the cost or estimated value per mile of the 160,000
miles in the United States. Without going more into de¬
tails, it is sufficient to state that the cost of a railway can
neither be determined nor estimated by the work of a con¬
tractor. The valuation of railways in the United States,
based upon the par value of bonds and stock, and stated at
over $9,900,000,000, is, therefore, far from being an exagger¬
ated one. Whoever investigates the subject thoroughly
will come to the same conclusion.
These flippant statements as to cost and value are fre¬
quently made, and sometimes at severe loss to those who
u
act upon them. The projectors of the West Shore Rail¬
way started with the idea of duplicating the New York
Central system at half its valuation in bonds and stock, and
came to grief before their work was done. Carried to a
conclusion upon the scale of the New York Central, with
equal facilities in tracks and terminals, it would have cost
nearly double the present valuation of the Central.
4th. " Stock waterings," if they have not in all cases rep¬
resented actual cost of construction, have been offset, many
times over, by the extinction of stock and junior securities
in foreclosure.
5th. "Capricious, vexatious, overbearing and arbitrary"
management is a sweeping and undeserved censure, which,
I am confident, will not meet the approval or support of
the traveling or shipping public. Mr. Bellamy's displeasure
on this point is to be regretted, but it is one man's opinion
only, and fortunately, in this country, conviction does not
follow mere accusation. Many experienced travelers, who
have made frequent trips over European railways, have
often stated that the railways of the United States offer
greater conveniences than those of any other country, and
that upon the score of comfort they arc much superior.
When Mr. Bellamy's ideal government has been established
and has assumed control of the telegraph, the telephone
and the railway, he expects to do away with caprice and
vexation and to put an end to overbearing and arbitrary
conduct. The English guards and the German conductors,
we may suppose, are to be the models of official civility.
This proposition to transfer the control of the telegraph
and railways to the Government is an old story. It is re¬
vived periodically by men who have not given the subject
serious reflection and study, but has never had any popular
support whatever. It is radically opposed to the funda¬
mental principles of a true republican or democratic govern¬
ment, and can never be adopted while these principles domi¬
nate the heads and hearts of a liberty-loving people. It is
not only one of the most dangerous steps which a free people
could take, but it is not even recommended by successful
15
precedent. The system now on trial in Germany and
Belgium does not meet with the approval of many com¬
petent judges, but what might be in harmony with a system
of monarchical government may be, and is, entirely at
variance with the methods of a government of the people
and for the people.
What especial claims can be presented in behalf of
governmental control ? When and where has Government i
in the United States ever shown superiority in the manage-
ment of any of its departments over that of individuals? !
Is it in the Post Office Department? Postage remained at \
25 cents for any distance over 400 miles, i8| cents
for 200 miles up to 400 miles, I2| cents for less than 200
miles, and 6^ cents for 30 miles and less, for many years
until about fifty years since, Government having failed to
renew a contract, a man by the name of Hale entered into
competition with the mails and carried letters between
New York and Boston at five cents. This forced a reduc¬
tion by Government. Was not the Morse telegraph in¬
vention offered to Government for a mere trifle, and, after
trial by the Postmaster-General, actually rejected? Was
. not the penny post and the delivery by carriers actually
forced upon Government by "the Hussey Penny Post " ?
Is the superiority to be found in the War Department?
Breech-loading sporting guns had been in use quite a num¬
ber of years before the Civil War broke out, but the appli¬
cation of this wonderful device was persistently refused
for the use of the infantry, both before and after the war
had begun. One of the reasons for preferring the muzzle-
loading musket asserted that it was less complicated and
less liable to get out of order. But in actual use, it is well
known that the muzzle-loading musket would foul so much
in a dozen discharges that the bullet could with difficulty
be rammed home, while the breech-loader cleaned itself at
every discharge. It is not an exaggeration, in my judg¬
ment, to assert that by the adoption of the breech-loader
the war would have been shortened one year and, perhaps,
two. But the people's invention was not acceptable to the
War Department.
IG
Is it in the Navy Department that we may look for en¬
terprise and intelligence superior to that of the people ?
The answer is given in the history of the Monitor, the in¬
vention of the genius whose remains have just been sent to
his native land with well deserved honors. The Monitor
which saved the Minnesota and other warships near Fort¬
ress Monroe was actually forced upon Government by the
persistent influence of a few patriotic citizens, who not only
assisted the inventor with capital to carry on his work, but
finally prevailed upon the War Department to give the
Monitor a fair trial.
These conspicuous examples of inefficiency and lack of
enterprise in the departments named could be multiplied
indefinitely, but those given sufficiently illustrate the in¬
feriority of governmental administration as compared with
individual management. Nor is it intended in these refer¬
ences to the red tape and slow movement of the depart¬
ment to reflect upon the officials in charge at the time.
The policy of hesitation and delay is inherent to the system
of governmental control and, perhaps, unavoidable. Ma¬
chinery which runs in grooves must move constantly in
the same path, and cannot be changed in its movement or
direction without throwing the whole system out of gear.
When, however, it is deliberately proposed to turn over to
this antiquated and cumbrous agency the control of trans¬
portation, its claim to superiority should be carefully ex¬
amined.
But this proposition to turn over the telegraph and the
railway to Government involves an evil and a danger far
exceeding everything else in magnitude which can be
urged against it. By the census of 1890, the number of
men directly employed by the railway companies of the
United States exceeds 800,000, and by other estimates it is
much larger. Adding to these the number employed by-
telegraph companies, we arrive at a total of something like
a million of employees. This army of voters it is pro¬
posed to convert by one stroke into employees of the
Government. Has any scheme ever been devised so
fraught with evil consequences as this proposition to create
17
a million more of office-holders? Is it not airead}' evident
that one of the greatest evils of the present system
of government is in the quadrennial scramble for office
which follows every Presidential election ?" Shall we add a
million to the already large number, and convert Washing¬
ton into a gigantic rendezvous for the countless number of
office-seekers, which would swarm in vast crowds around
the dispensing agencies? Think of the immense patronage
under the control of the Government when a million more
are brought within its paternal fold! Could human inge¬
nuity invent any more certain method of perpetuating the
control of men in power than this, which would practically
make over to Government a standing army of voters ? The
people of the United States will hesitate to adopt a plan
which would threaten our very existence as a free nation»
or which, to say the least, would greatly enlarge the area
of Government patronage and convert a huge mass of citizens
into a throng of greedy applicants for the spoils of victory
every four years.
But suppose the scheme in its crude form should meet
with popular approval, and assume that the present owners
of telegraph and railway lines are not unwilling to part
with their property upon fair terms, how is it to be carried
out ?
Mr. Hale does not attempt to meet this question. Pro¬
fessor Ely of the Johns Hopkins University says:
" Existing lines should be purchased and a good,
" fair price, to be settled by arbitration, ought to be
" paid. There is no reason why an attempt should
" be made to get this property for less than its press-
" ent value ; on the contrary, there is every reason
" why a just price should be paid."
Mr. Bellamy says:
"As to the method of nationalizing railroads, vari-
" ous opinions may be held. At present, my own
" is that the purchase of the roads outright would
" be uncalled for and unwise, and that the best
" course would be the assumption of a permanent
18
" government control of the system. An analogy
" for such a control, although, of course, not a
" close one, may be found in that already exer-
" cised with such admirable success over bankrupt
" roads by United States receivers. The present
" security-holders would continue to receive such
" reasonable dividends, on a just valuation of the
" plants, as might be earned."
Professor Ely's proposition is not unfair, if Government,
by the will of the people, elects to force the sale of private
property ; but the difficulty of such schemes is in agreeing
upon a method of arbitration satisfactory to both buyer and
seller. On the one hand, the buyer is likely to stipulate that
all valuations based upon the prospective profits must be
ignored, and on the other hand, the seller attaches a value
to this feature of the case which in arbitration would be
difficult to estimate. In many cases these securities have
cost the owners prices which they can only hope to realize
by patient waiting, and in arbitration this element of hope
would not probably be considered worthy of much, if any,
consideration. And yet to pronounce stocks worthless
which have a market value founded only on hope or ex¬
pectation, would be a gross and inexcusable injustice.
Mr. Bellamy's idea favors the assumption of a control,
nolens volens, under which the owners " would continue to
receive such reasonable dividends, on a just valuation of
the plants, as might be earned.'' In this proposition, vague
as it is, more than usual difficulties are presented. What
would be "a just valuation of the plants " and what would
be " reasonable dividends"? Is the just valuation to be that
of arbitrators who are to assume that actual cost is to be de¬
termined by such superficial methods as Mr. Bellamy
himself adopts ? Is it to be accepted as a fact that a valua¬
tion of $62,000 per mile is fictitious, and made up . of
wasteful expenditures or stock waterings ? Is it fair to
reduce the profit-earning capacity of railways by oppressive
legislation, and then to value the property on its produc¬
tiveness thus reduced ?
These objections may not be insurmountable, but they
19
are difficulties which cannot be ignored. But Professor
Ely and Mr. Bellamy are more liberal towards the owners
of railway property than some of the advocates of govern¬
mental control. Many of the schemes to accomplish this
end come dangerously near to a policy of confiscation, but,
after all, they are not much more objectionable nor of a
more agrarian character than the usurpation of powers by
legislative bodies to regulate and control the revenues of
common carriers, to which reference has already been
made in this paper. If legislation can arbitrarily control
rates, whether reasonable or not, or even have the power of
determining what rates are reasonable, without the ruling
of a court of competent jurisdiction, there is but a short
step from this to seizure and appropriation.
The contention of the writer is that these "first steps
toward nationalism," as Mr. Bellamy terms them, which
contemplate the acquisition and control of the telegraph
and the railway, are retrograde and not progressive. The
concentration of such immense power in the hands of
Government, call such a process what we may, is but the
mask for social tyranny, subversive and destructive in its
tendency of those broad and dearly cherished principles of
freedom which have hitherto been the boast and glory of
this Republic. Whenever the people of a professedly free
country decree that one class of property, acquired in good
faith by its citizens, is not entitled to equal protection under
the laws as other property, it is dangerously near tyranny,
and whenever Government shall be invested with the con¬
trol of telegraphs and railways, and, perhaps, in accordance
with the ideas of Mr. Bellamy, the control and manage¬
ment of all industrial work, the American people will
resemble a race of automatons rather than the sturdy
branch of Anglo-Saxons from which a large proportion of
us claim descent. »
The true drift of intelligent movement should be toward j
greater emancipation from Government control. Under <
just and equitable laws Government should supervise all !
public works, such as the construction of fortifications and
ships for the Navy, as well as its armament, the manufac-
20
ture of arms and materials for the Army, and the carrying
of the mails ; but all of the actual mechanical work in these
departments, I believe, should be thrown open to public
competition and be done by contract. The administration
of the finances, coinage, the issue of paper money, and the
customs should remain in charge of competent and responsi¬
ble officers as now, but, except-as to a rigid and vigilant
supervision, I would try the experiment of enlisting the
unfettered genius of the people in carrying out and per¬
fecting all other works for the public service. All this is
compatible with complete direction, and its great advan¬
tage over present methods is, that it would do away with a
host of Government employees and invite the co-operation
and support of the governed, stimulate and develop their
inventive faculties, and, I fully believe, give to the country
better, cheaper and more satisfactory service.
Whenever this system has been tried, even upon a limited
scale, it has produced wonderful results. But for this invi¬
tation to individual work, it would have been very difficult
for the Government to have armed its soldiers during the
late war, and its beneficial effects as a policy is now in the
course of illustration in the cruisers and warships turned
out at private yards under the contract system.
The entire business of receiving, carrying and distributing
the mails can, in my judgment, be more cheaply, expe-
I ditiously and thoroughly done under the contract system
! than by the present machinery, and the saving of expense
to the Government would be correspondingly beneficial.
An experiment so easily tested would be more convincing
than any argument for or against it. If upon a fair trial the
superiority of individual work under the supervision of
Government officers is not satisfactorily demonstrated, the
old system could easily be restored, but many believe, as I
do, that if once attempted, it would supersede all other
methods. The simple fact that the present low rates of
postage are due to the enterprise and competition of indi¬
viduals is certainly a very strong argument in' favor of the
proposition.
The theory of this suggested co-operation of the people
21
rests upon a belief in the prodigious energies, the extraor¬
dinary enterprise, and the spirit of competition which have
always been called forth whenever public exigency required
their development. It rests upon an unlimited faith in the
genius of a race which shrinks from no undertaking within
the scope of human capacity, and it is fortified and en¬
couraged by the idea of enlisting the fertile brains of this
great people in the work of government ; not as mere pup¬
pets in a show, whose movements are controlled by strings
and pulleys, but as active, intelligent agents, voluntarily
undertaking specified work by contract, as the Messrs.
Cramp assume the work of building steel cruisers for the
Navy, and the great iron industries undertake the forging
of steel plates and the casting of heavy guns. I would trust
the people for everything wanted by Government, under
proper supervision and direction, and I would thus reduce
office-holding to a minimum and bring up the co-operation
of the people to a maximum.
This proposition is the converse of that submitted by the
advocates of governmental ownership or control, and of Mr.
Bellamy's " nationalism," the fundamental idea of which is
that substantial happiness can be best secured by vesting
and concentrating vast powers in the Government. I
would arrive at the same results, and, I think, much more
surely, by greatly reducing, instead of increasing, govern¬
mental control, and, for control, substitute supervision.
The disgraceful scramble for office by the adoption ol
such a plan of government would be greatly diminished,
and the people, encouraged by the supervising government,
would repay the confidence reposed in them a hundred
fold. Let no one distrust a people whose unparalleled
energies organized from its undisciplined numbers, within
two years, a million of the best soldiers of the world, after
frightful losses of life and the mutilation of hundreds cf
thousands of its volunteers, and let no one underrate the
capacity of a race which, within the same time, converted
a weak naval force into a formidable fleet, strong enough
to blockade three thousand miles of coast line effectively.
Therefore, with this unbounded faith in the intelligence
22
and patriotism of the people, 1 would open the doors of
Government work to competition, and leave to individual
enterprise a very large share of that which is now done in
a perfunctory way. And in this more equitable distribution
of Government employment I should expect to increase the
happiness and prosperity of the community to a much
greater extent than under any Utopian plan which contem¬
plates the extinction of individualism and the reduction of
the people to the monopoly of a machine government. If
these ideas are wrong, then, as it appears to me, the whole
theory of republican government is wrong. Equal rights,
equal protection under the laws to life and property—these
are the fundamental principles of our modern Republic. It
is not by ignoring these equal rights, or by discriminating
against one kind of property for the benefit of another, that
we can hope to aid in elevating the working classes, or in re¬
lieving the sufferings of the poor. The ways open to the
accomplishment of great social improvements are as clearly
perceptible as if illumined by electric lights, but they do
not lead in the direction of taking power from the people
and in multiplying office-holders.
The moral of this long discourse is, that the happiness
and prosperity of a free people are not to be found in an in¬
crease and concentration of power in the hands of Govern¬
ment, but in its reduction and distribution.
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