EXTRACTS FROM REPORT
0 P T H E
Committee appointed Nov. 11, 1873,
t
BY THE
CHAMBER OF COMMERCE
v
OF SAN FRANCISCO,
to prepare bills for legislative action on the subject OF
FARES AND FREIGHTS. -
committee.
C. T. HOPKINS, - - Chairman.
JOHN H. WISE, I. W. EAYMOND,
M. J. O'CONNOR, ~ ALBERT MILLER.
pRI^ITED FOR -CJENEF^L J)l£TRIBUTION.
HZ 7 / SAN, FRANCISCO :
1874..
> c >
\*Vi
%
imwr
2? FCO-:r" ' ''
*,• •. \iK« » C: J. u*
hEzi11 .cz
I if
RESOLUTIONS.
At the regular meeting of the Chamber, held November 11th,
1873, C. T. Hopkins moved the following resolutions, which were
unanimously adopted :
Whereas, The regulation of railroad fares and freights, by legisla¬
tive enactment, is now one of the most momentous questions before
the American people, and will doubtless engage the attention of
our next Legislature ; and
\ .
Whereas, The subject is one of vital importance to the mercantile
community of our city, and requires all the elucidations that can be
brought to bear upon it, either in the Legislature or out of it, in
order to avoid the great evil of hasty legislation on this most com¬
plicated of questions, be it >
Resolved, First: That a Committee of five members be appointed
by the Chair, under instructions to examine the subject in all its
bearings, and to prepare a bill or bills for legislative action thereon;
said Committee to report at a special meeting to be called for that
purpose during the month of December ;
Second: That all persons having suggestions to make or com¬
plaints to urge against the existing management of California rail¬
roads, be invited to present the same forthwith to said Committee.
Whereupon Messrs. C. T. Hopkins, John H. Wise, M. J. O'Connor,
I. W. Raymond and Albert Miller were appointed as Committee.
REPORT
To the President of the Chamber of Commerce at San Francisco.
9
The Committee raised at the last regular meeting of this body,
for the purpose of considering the subject of the regulation of fares
and freights on railroads by legislative action, and to embody their
views in a bill or bills, to be supported by the Chamber in the Leg¬
islature, have carefully performed the duty allotted to them, and now
beg leave to report as follows :
Your Committee has undertaken its labors at the close of a two
years' controversy between the people on one side and the railroad
company on the other. This contest has been marked throughout
with the bitterness, the suspicion, the exaggeration and personal
animosities that usually characterize American politics. * * * *
Though during last year several members of this Committee took
an active part in the Committee of One Hundred, and did all they
could to curb the power of the railroad by the inauguration of an
efficient opposition, we do not feel called upon to treat the present
topic in a partisan spirit. **********
We foresee a tendency, now that we have driven the enemy for
the time being off our own territory, to follow him into his own.
Let us take heed lest in demanding security for the future we crip¬
ple and disable the railroads, thereby not only inflicting serious
damage upon the State at large, but ultimately causing a reaction in
favor of the monopoly.
Laying aside, therefore, all political animosity, and regarding the
question merely from a business point of view, our duty is to exam¬
ine facts as they exist, in their bearings upon the general interests
of the State, and to deduce therefrom judicially—and not as attor¬
neys or party writers—the best course to be pursued for the common
1 nJL* ^ •!/
fifOOCl
Power of this State over Corporations.
The first question in our inquiry relates to the extent of the power
of the State of California over her railroad corporations.
Originally railroads, like other private corporations, were char¬
tered by the older States and by the British Government, through
special legislative enactment in each case respectively. These spe¬
cial charters were decided by the Courts to be in the nature of con¬
tracts, and the legislature lost control over them after they had been
6
accepted by the corporations. So when, in 1783, a bill was intro¬
duced into Parliament for the purpose of remodeling the charter of
the East India Company, it was opposed by Mr. Pitt and Lord.
Thurlow, not only as a dangerous violation of the charter of the Com¬
pany, but as a total subversion of the law and constitution of the
country. In the nervous language of the latter, it was "an atro¬
cious violation of private property, which cut every Englishman to the
bone." * In the 10th Section of the 15th Article of the Federal Con¬
stitution, it is declared that " no State shall pass any ex post facto*
law, or law impairing the obligation of contracts." Under this clause
it has been settled that the charter of a private corporation, whether
civil or eleemosynary, is an executed contract between the Govern¬
ment and the corporators, and that the legislature cannot repeal,
impair, or alter it, against the consent, or without the default of the
corporation judicially ascertained and declared.f But Chief Justice
Marshall says, in the celebrated Dartmouth College case, above re
ferred to : "A corporation is an artificial being—the mere creature-
of the law—it possesses only those properties which the charter of
its creation confers upon it, either expressly or as incidental to its
very existence."
Now what are the properties which the law of the State ol Cali¬
fornia confers upon the corporation in question ? If the Central
Pacific Railroad were incorporated by virtue of a special charter,
there might be some virtue in the argument of Governor Stanford
in his letter to your Committee, submitted herewith, when he says:
"I cannot see wherein the State has the moral right, if she have
the technical, to make radical changes in the Jaw, not merely of a
police nature, but which may directly and injuriously affect the
money value of the property called into existence under and by
operation of the State's own statutes." The fallacy in this plea
betrays itself in presence of the fact that this corporation exists
under and by virtue of a State Constitution containing this clause,
Art. IV, Sec. 31, " Corporations may be formed under general laws,
but shall not be created by special act, except for municipal purposes.
All general laws and special acts passed pursuant to this section may
be altered from time to time or repealed." Accordingly, Sec. 30 of the
General Incorporation Act, passed April 22d, 1850, which was the
law under which the Central Pacific and all our other railroad com¬
panies were incorporated, provides that " the Legislature may at any
time amend or repeal this act and dissolve all corporations created
under it" etc. The effect of this clause in the organic act is thus
explained in a recent case by the New York Court of Appeals:
"The general railroad act itself may provide that the corporations-
formed under it may be annulled or dissolved at any time by the
Legislature. The effect of this and similar provisions has frequently
been before us, and we have held that under the reserved power the
* Angell & Ames on Corporations, p. 784.
t Dartmouth College vs. Woodward, 4 Wheaton, 518, and many other cases cited by
Angell & Ames on Corporations, 785.
7
Legislature might interfere in many important respects with the
powers of corporations by subjecting them to new restrictions and
increased burdens." Albany Northern Railroad v. Brownell, 10
New York, p. 350.
Now, bearing in mind the difference between public corporations,
such as the governments of cities, towns, and counties, all of which
are at all times and everywhere subjected to unrestricted legislative
control, and private corporations, which, when chartered by special
act as in other States, are not so subject, we have to inquire
whether or not a railroad company is a mere private corporation, ,
whether specially chartered or otherwise. "We find this answered
in Swan vs. Williams, 2 Michigan, p. 27, where the Court says :
" A railroad" company, so far as the stockholders are concerned, is a
private corporation, though as it regards the power of the legislature
to authorize the taking of private property for public use, it may be re-
• garded as a quasi public corporation."
From due consideration of the above authorities we conclude :
That under the organic law of California and the statute passed
in pursuance thereof, under which the Central Pacific and associ¬
ated railroad companies were incorporated, as well as under the
quasi public character of those corporations, they are estopped from
pleading exemption from legislative control, even in financial mat¬
ters, and cannot plead any contract with the State, as a protection
against the enforcement of a clause in the Constitution itself. And
here we cannot but mark the wise forethought of the framers of our
Constitution, who introduced a clause so exactly designed to protect
-the people from the power of overgrown monopolies. Those men
were Democrats in the days when Democracy meant the rights of
the people against corporations and aristocracies. Is it not an
anomaly that notwithstanding the existence of these reserved powers
in our Legislature, it is only in the insurance business that that
body has ever undertaken to exert them, while railroad, banking,
mining, and all other forms of corporation , have been and are left
wholly free from inspection or control ? Do not the prices of gas
and water, as fixed by monopolies in this city, require legislative
regulation as well as freights and fares ?
Is the State Power overruled by the Federal?
Gov. Stanford has on several occasions advanced the theory ex¬
pressed in the postscript to his letter to your Committee, that Con-
fress having the sole right to regulate the Tariffs on the Central
'acific Railroad, the Slate has been superseded by the Federal
Government in its rights over that Company. We think this posi¬
tion to be untenable. The language of the Act of Congress, incor¬
porating the Union Pacific Railroad and incidentally conferring
lands, bonds, and rights of way upon the Central Pacific Railroad
Company of California—whose existence as a State corporation is
therein recognized—is as follows : **
" Sec. 18. And be it further enacted, that whenever it appears
8 '
\ 1
that the net earnings of the entire road and telegraph, including
the amount allowed for services rendered to the United States, after
deducting all expenditures, including repairs, and the furnishing,
running and managing of said roads shall exceed ten per centum
upon its cost, exclusive of the five per centum to be paid to the
United States, Congress may reduce the rates of fare thereon, if un¬
reasonable in amount, and may fix and establish the same by law ;
and the better to accomplish the object of this Act, namely, to pro¬
mote the ptiblic interest and welfare by the construction of said
railroad and telegraph line, etc., Congress may at any time, having
due regard for the rights of said companies named therein, add to,
alter, amend or repeal this Act."
: Now the Central Pacific was incorporated under* the laws of Cali¬
fornia as a State corporation. It was not, like the Union Pacific,
incorporated by Congress. The latter power merely recognized and
assisted it. The power to repeal, amend, etc., reserved in the fore¬
going section, could therefore only operate so as to deprive the
Company of what Congress had conferred upon it, not of its corpor¬
ate existence, nor of its branches in California. The power to regu¬
late fares would undoubtedly be available over the main line of the
road, which passes through other States than California, under the
right of Congress to control interstate commerce ; but as that right
is inoperative under the Act quoted until ten per cent, upon the
cost of the road has been exceeded, how can it be said that the State
cannot regulate within her own border or before that point has been
attained ? How does this Act of Congress operate to deprive the
State of her sovereignty, or to nullify in favor of the United States
the express language of her Constitution and laws ?
■ < . . .*
Why are Railroads a Political Power ?
We submit this brief resume of the law, (which might be indef¬
initely extended) in order to exhibit the motive which, in this State
peculiarly, furnishes the railroads an excuse for intermeddling with
politics. u Self-defense is the first law of Nature." Knowing the
weakness of their position on this question, and their liability to-
legislative interference at any time, they have sought to avert it
both in the Legislature and Congress by securing the personnel of
those bodies in their own interest; and until our State shall settle,
by just and permanent legislation, the course of policy it intends to
pursue towards the railroads, so long will the feeling of insecurity
stimulate them to continue the system of corruption in politics which
has roused such opposition against them. We now proceed, there¬
fore to examine how far it is expedient for the Legislature to exercise
the rights entrusted to it by the Constitution. -l •
- , . • _ ' • . • • ' . < \ . <
Inexpediency of Harsh Legislation.
* J|e * * * * jfc sfc sls '-* * * * *
we believe that no respectable body of men can be found who
really desire to make the legitimate business ofi building and oper-
9
ating railroads unprofitable in our State. Railroads are now an
indispensable adjunct of civilization. The 1,222 miles already in
operation have conferred incalculable benefits upon both city and
country. They have brought into market millions of acres of land,
and increased the receipts of wheat from 8,401,990 bushels in 1868
to 18,580,830 bushels in 1873. The benefits they are capable of
producing are just beginning to be felt, while their presence in some
portions of the State has made the need of them vastly more appa¬
rent in other portions. If by legislative enactment, the stockholders
in our present roads are deprived of dividends, what inducement
can we offer to others to prosecute the business in other directions,
or to undertake opposition to the monopoly ? The present indebt¬
edness of the Central Pacific to Europe and the East reaches
$54,084,000. Can we be blind to the fact that the credit of our
State in the great money markets of the world is far more depend¬
ent on the prompt payment of interest on this large sum than on
the protection of the three or four millions each of our city and
State bonds ? It is to Europe we constantly look for the means of
future development in the hundred channels of internal improve¬
ment. Should we not kill the goose that lays the golden eggs if we
allow passion or resentment to push the railroads into bankruptcy ?
Railroad Stocks do not pay Investors.
Furthermore, we have to consider that at present our railroad
stockholders are situated somewhat like the ass between two bun¬
dles of hay—their creditors on the one side, their customers on the
other. If the creditors are to get their dues, the people deem them¬
selves oppressed; while if the latter are gratified with low rates, the
creditors must be defrauded. Thus the burden may be shifted from
side to side in most uncomfortable fashion, while in view of the
scarcity of dividends thus far, the chances of the animal's getting
fat are not worth talking about. Certainly the railroads must be
allowed to earn their operating expenses, their repairs, interest,
maintenance of road and equipment. They must be suffered to
eventually earn the principal of their debts, and meanwhile the
money of stockholders, be it less or more, ought to earn a dividend
at least commensurate with the interest the money would be worth
if otherwise invested. The fact that the Government loaned the
Company $27,855,680 is no argument for reducing its income, so
long as the road is mortgaged for the advance and must ultimately
be foreclosed unless its earnings enable it to discharge the lien. Is
it not self-evident that if aft least ordinary liberty to manage railroad
business, so as to comply with their engagements, be denied to
investors, that style of investment must cease, or be relegated only
to sharpers and speculators who will seek their emolument in the
construction, not the operation of the roads !
We take the following figures from the report of the Directors to
the stockholders of the Central Pacific Railroad for the year 1872.
CENTRAL ELACIFIC RAILROAD
General Ledger Balance-Sheet, December 31, 1872.
To
ii
a
ii
Construction Account
Equipm'nt "
Real Estate "
Shops "
Machinery in shops
Furniture and Telegraph Instruments, Safes, etc
Steamers, Sacramento Liver
Sinking Fund, No. 1, for redemption of Convertible Mort¬
gage Bonds
Sinking Fund, No. 2, for redemption of California State Aid
Bonds
Sinking Fund. No. 3, for redemption of First Mortgage Bond^
of the Company, Series " A, B, C and D"
Sinking Fund, No. 4, for redemption of First Mortgage Bonds
of the Company, Series " E, F, G, H and I"
Material in Shops
Material in Store
Fuel
Balance of Accounts outstanding and in hands of Agents,
deducting obligations .'
Cash in hand of Treasurer
$130,485,'178 74
5,422. >91 04
9 8,976 '06
818,1 81 1,6
4 > >,241 29
76,692 05
830,372 90
497,817 00
165,500 00
165,500 00
50,000 00
985,283 23
112,769 24
325,018 53
2,386,130 90
147,156 06
$144,079,871 00
By Capital Stock.....
" Funded Debt
" Lands
Hospital Fund
" Government Bonds
" Profit and Loss
S54.283J90 00
54,081,000 00
398.436 01
24,004 79
27,855,080 00
7,433,960 20
$144,079,871 00
Statement of Earnings and
Expenses Yearly.
YEAR.
EARNINGS.
Coin.
$ 519,095 84
864,268 16
1,433,645 74
2,312,017 15
5,670,822 25
4,083,132 48
4,991,529 04
7,400,089 35
Currency.
$3,355,837 72
3,870,525 42
4,563,551 22
Total Coin
and
Currency.
$ 519,095 84
864,286 16
1,433,645 74
2,312,017 15
5,670,822 25
7,438,970 20
8,862,054 46
11,963,640'57
OPERATING EXPENSES.
Coin.
$ 190,886 14
200,722 96
333,623 92
843,166 54
2,993,523 19
3,549,032 30
3,799,280 54
4,953,612 42
Currency.
$114,986 11
41,522 38
57,666 42
Total Coin
and v
Currency.
$ 190,886 14
200,722 96
333,623 92
843,166 54
2,993,523 19
3,664,018 41
3,840,802 92
5,011,278 84
60
a
JH
©
q«
o
SH
©
>
o
oo
&c
g
•»—<
a
u
a
W
m
©
m
c
a>
R"
>>
o
a
®
t-
3
O
w
a
ej
O
O
$ 328,209 70
6(53,545 20
1,100,021 82
1,468,860 61
2,677,299 06
3,774,951 79
5,021,251 54
6,952,361 73
60
a
• iH
&
u
©
a
O
U-t
o
a
©
o
(-1
®
p«
on
®
«3
a
®
a
«
36.77
23.22
23.27
36.46
52.78
49.31
43.34
41.88
®
ej
(h
©
a
o
T3
d
o
Ph
on
©
£
18 to 56
56 to 94
94 to 137
137 to 468
468 to 742
742 to 900
900 to 1094
1094 to 1222
m
fcJO
g
©
g
©
a ® a
a °
® q
a d
c4
w
on
on
o
l-i
O
O
O
$14,029 62
11,523 58
12,359 01
7,630 42
9,373 26
9,060 87
8,888 72
10,349 18
DO
©
CO
g
©
ft -
X ©
a
s 1
a oi
«
a
o
i-l
l-l
3
o
60
a
si
t-i
©
a
o
o
O
$5,159 09
2,676 31
2,876 07
2,782 73
4,947 97
4,462 87
3,852 36
4,335 01
©
a
a
.2
a
i-
04
W
•M
©
&
58,870 53
8,847 27
9,482 94
4,847 69
4,425 29
4,598 00
5,036 36
6,014 17
Average $6,515 28
12
Let us allow, for the sake of argument, that the first of the above
tables gives a true statement of the cost of constructing the road.
"We have then-
Construction account $130,485,678 74
Equipment " 5,622,693 04
Heal Estate " 968,976 06
Shop " 813,986 96
Machinery in Shops ^ 466,241 29
Steamer.... 830,372 90
Total for 1,222 miles $139,187,948 99
Equal to $113,894 per mile.
i
But, deducting the item of $54,084,000 from capital account
(generally considered a doubtful item), the construction account
must be reduced to balance, and this would give the cost of the
road and equipment at $85,093,944, or $69,634 per mile.
According to the Company's statement, the net earnings per
mile have averaged 5f per cent, on the average cost of the road
per mile, and on our calculation 913050 per cent. Out of which the
Company must pay interest at an average rate of 6 per cent., show¬
ing that, if their accounts are true, they fail as yet to earn their
interest by three-quarters per cent, per year ; and if they are false
as to the item of paid-up capital, they have thus far realized but
3.35 per cent, per annum on the cost of the road.
No Reliable Basis for Legislation.
Now, bearing in mind that all the public know about this Com¬
pany is what its managers choose to tell us, and that their reports
to their stockholders are made to suit themselves, how are we to
know whether or not the present average fares are so high as to
require reduction by law ? Hence the very first requisite to intel¬
ligent action in the premises is wanting, and we have already
pointecLout the great danger of legislating in the dark. I'he first
thing we have to do, therefore, is to acquire on behalf of the State an
accurate knowledge of the interior construction and working of the Hail-
road Companies.
Another fact bears on this point. No one outside the railroad
employ knows anything accurately about the nature of that enor¬
mous and most complicated business. If the Legislature approaches
the subject by committee, what results ? The members of the
committee know little about it of their own knowledge. Ignorance,
fear, confused and impracticable notions, characterize all testimony
that can be adduced against the railroad, while the latter is always
prepared to completely overwhelm all opposition, as they did last
session, by producing on their side all the witnesses who really
understand the subject. If, under these circumstances, reports can
i
13
be obtained of any value except to the railroad, the men who make
them must ignore evidence, and decide according to prejudice or
passion, as they have lately done in Illinois.
Pro rata Kates Impracticable.
Deeming it, then, a charge not proven, and one that cannot be
proven under our existing lack of information—that the average of
fares and freights in this State, as compared with that unknown
quantity, the cost of the roads, demands reduction—hut admitting
that they may soon prove more than remunerative, owing to the
steady increase of business shown by the Company's reports, the
question arises, "How are we.to deal with the subject?" And
here we are met with difficulties at every turn. The usual propo¬
sition is to limit all charges to a certain equal or proportionate rate
per ton, or per passenger, per mile. To do this requires the adjust¬
ment of all freights upon the basis of weight and distance only,
without reference to the values of goods hauled, cost of handling,
grades and curves, empty mileage of trains, liability to damage,
amount of business done, or to competition. The effect of some of
these elements, and consequent difficulty of framing a just tariff, has
been exhaustively treated in the reply of Mr. Stanford to eleven
questions addressed him by this Committee, a copy of which, with
his reply, is submitted herewith. The simple rule of rates per mile
has been the basis of a vast amount of legislation in other countries
and States. But the result has always been a failure, for the fol¬
lowing reasons:
. 1st. No such rate can be fixed with justice to the railroads, except
at the average figure which the road ought to earn. Call this 3J
cents per mile, which is about the present figure in California.
Now, bulky materials—such as coal, lumber, grain, hay, stone, etc.—
cannot pay this price except for short distances. Coal from the
Rocky Mountains, hauled 1,000 miles at 3J cents, would cost $35
per ton for freight alone, while its value here is but $15. Hence,
this coal trade must cease ; though at $10 for freight it can be
continued at a profit. Lumber is now hauled from Colfax to San
Francisco (184 miles) at $40 per car load of 5,000 feet, or $8 per
1,000 feet. But at 3J cents per mile, the rate would be raised to
$17 per 1,000 feet; which, on a market price of $20 per M at San
Francisco, would at once destroy that branch of the lumber trade.
On the other hand, dry goods and other manufactured articles, now
paying 10jS, cents per ton per mile—as from Qgden to San Fran¬
cisco—and worth hundreds, perhaps thousands of dollars per ton,
have no cause for complaint, and would be unreasonably benefited
*>y a fixed rate of 3J cents, at the expense of the ruin of the coal
and lumber merchants. These principles run through the entire
list of articles transported by rail. '
2d. •'An arbitrary rate per mile cannot be established with the
slightest reference to the cost of running trains, or of constructing
i
14
the various portions of the roads, varying from $10,000 to $150,000
per mile. Such items as the following must he ignored : r ;
The amount of traffic to be handled. ,
The proportion of empty mileage to paying mileage.
Grades and curves.
Competition at some points and not at others.
Necessary arrangements with connecting roads beyond the State.
The fixed expense of loading and unloading, whether freights be
hauled a long or a short distance, respectively. ,
The variation in amount of business at different seasons, or in
different years. ,
3d. The cost of Removing crops would become nearly propor¬
tioned to the distance from market; whereby the value of distant
farms would diminish with the increased freight charges, until such
value would disappear altogether. It is in view of the fact that the
longer the haul (other things being equal) the cheaper can the rail¬
road afford the service, that the effect of distance has been in great
measure, destroyed by railroads. It costs as much to raise wheat
1,000 miles from market as ten miles. Its value in the market is
the same, wherever it is raised. But if it costs one farmer 35 cents
and the other $35 to haul it to market, the consequence in reversing
the present order of things becomes painfully evident. The result
would he to limit all wheat-raising within a given radius from mar¬
ket. Do we desire such a result in our State ?
Experience of Older States.
Charles Francis Adams, Jr., who has been a railroad commis¬
sioner in Massachusetts since the law was passed in 1869, and who
has contributed, perhaps more than any other man, to the intel¬
ligible railroad literature of America, expresses himself on this
subject, in his report for 1872, as follows:
" The great obstacle in the way of the practical success of legis¬
lative regulation of fares and freight, has been the excessive, if not
the insurmountable difficulty found in regulating a most complex and
delicate system, subject to all sorts of vicissitudes and requirements,
by laws of general application. Where the Acts passed were simple
and easily understood, as the many Acts which have been passed in
almost all the States of the Union regulating fares and freights at
so much per mile for each passenger and for each ton of freight,
they have in practice been found to work results so unanticipated,
and in many cases so unreasonable, that such Acts have proved
hardly more than dead letters on the Statute book., Nowhere has
this system been more persistently followed out than in Ohio. Rates
have there been repeatedly established by law for the carriage both
of persons and of merchandise but the State Commissioner on
railroads and telegraphs, in his last annual report, expresses himself
very distinctly on the practical operation of these laws. He says :
< There is not a railroad operated in this State, either under special
15
charter or general law, upon which the law regulating rated is not in
some way violated, nearly every time a regular passenger, freight,
or mixed train passes over it-' He then proceeds to enumerate the
laws, and to point out the anomalies to which the enforcement of
them must lead ; and finally closes his comments with the remark,
that 'a strict enforcement of these provisions would compel some
companies ultimately to suspend business, prohibit the transporta¬
tion of certain articles by rail, or compel their transportation below
actual cost.' Annual Report of Ohio, pp. 6-8."
Mr. Adams proceeds to remark: Simple and comprehensible
laws have uniformly been found impracticable in application.
Where, in order to avoid this difficulty, more complicated and dis¬
criminating statutes have been passed, the complexity of the system
has uniformly, so far as the Commissioners are advised, caused the
law, when put in operation, to break down under its own weight.
Where special legislation has been resorted to — as has been done in
England — long tariffs and lists of charges, covering all articles of
merchandise transported by rail, having been inserted in the charters
of particular companies — it has been found that the development
and necessities of trade have in. practice, and-even with common
consent, nullified these provisions, which did not possess the flexi¬
bility absolutely requisite to the movements of modern commerce."
True Principles of Legislation.
/
From the consideration of what we have thus far adduced, and
from such careful and we believe impartial study as we have been
enabled to give the whole subject, we think the following propo¬
sitions to be evidently true :
1st. The railroads in California are subject to regulation by the
Legislature.
2d. It is not expedient that the Legislature should so exercise its
power at present as to reduce the income of the roads, or do any act
or threaten any course at any time which would cripple them,
endanger the non-payment of interest on their debts, render them
an unprofitable investment, or property therein insecure, whereby
competition would be discouraged.
3d. That in the present absence of accurate knowledge as to the
cost of construction of our railroads, the Legislature cannot know
whether the rates of fares and freights should be reduced.
4th. That from the exceedingly complicated nature of railroad
business, no legislative committee, not composed of railroad experts,
can so investigate the condition and workings of the companies,
within the limits of any session, as to arrive at a safe basis for legis¬
lation. ' : , -
5th. That any such attempt at investigation must result in favor
of the railroads, for the reasons that all real knowledge of the subject
is confined to their employes, who would be witnesses.
6th. That nevertheless there is great need of such legislative con-
16
1 ' • • - • ' 1 ■ ft I. i. " : • • • . I;:
trol as will curb the present power of oppression by the railroads,
who are now wholly free to discriminate between persons and places,
to ruin their enemies and favor their friends by changes in fares and
freights; to intimidate the public by their reserved right to make
such changes without notice, to create monopoly in the express busi¬
ness, to speculate in town sites at the expense of old communities,
to bribe public officers by the use of free passes, and to refuse
justice to small claimants by reason of the expense of litigation. >r:
v 7th. That there is need for a department in the executive branch
of the State Government that shall be so constituted and empow¬
ered as to acquire for the use of the Legislature all necessary infor¬
mation, and meanwhile act as a constant check upon the railroads,
having powers to investigate, to arbitrate, and to advise in certain
cases, to prevent extortion and unjust discrimination, to protect the
people at every point where railroads might oppress them, and gen¬
erally to mount guard along the line where the liberty of the corpo¬
rations ends and that of the people begins. * 11
; 8th. That until such time as the investigations of such a depart¬
ment shall show to the Legislature wherein and by what means the
•income of the corporations is required to be reduced in the true in¬
terest of the people, the corporations should be free to manage their
own business in their own way, so long as they observe all the rights
of their patrons and the public.
9th. That, if the present Legislature shall see fit to enact these
principles into law, with assurance to the railroads of future security
from aggressive or wanton attacks upon their property, the motive
of self-preservation, now urging them continually into politics, will
disappear, and with it all pretense of justification for their past course
in this regard.
Bills Proposed by this Committee.
We now therefore submit to your consideration two bills, which,
we propose, shall be supported by this Chamber in the Legislature.
One of these, entitled : " An Act creating a Board of Transportation
Commissioners, and prescribing their duties and powershas been
suggested and mainly drawn from the railroad laws of Massachu¬
setts. But we have modified the law enacted by that Common¬
wealth in several important respects. For the circumstances of the
two States vary greatly. Massachusetts has forty railroad corpora¬
tions, running often in competition with each other. California has
but one, to which no competition is likely to arise for many years to
come. Moreover, the Massachusetts railroads being chartered by
the Legislature under special acts, are not under the control of that
body in the same sense, nor to the same extent as are those of Cali¬
fornia. We have therefore designed for our Transportation Com¬
missioners much more power than Massachusetts has entrusted to
hers. On the other hand,'we have given them much less than the
State of Illinois has thrown into the hands of her Railroad and
17
Warehouse Commissioners, who are authorized to dictate to all com¬
panies at what rates they shall do business.
The second bill, entitled : " An Act to prevent extortion and unjust
discrimination in the rates charged for the transportation of passengers
and freight on railroads and steamboats in the State, and to punish the
same," is modified from the famous Illinois Statute of 1872. We
have not deemed it at all advisable to follow the Granger legislation
of that State, which has invaded the liberties and rights of the cor¬
porations, and thus contributed largely to arrest the building of rail¬
roads, to destroy confidence in their securities, and bring on the re¬
cent panic in the Eastern States. In these respects that legislation
seems to us likely to overreach itself, and thus produce a reaction in
favor of those great combinations of capital which it was designed
to weaken. We have simply taken from it so much as we thought
expedient to protect the people. But we have added £ section pro¬
hibitory of free passes—except in certain cases—which we think
sound public policy requires ; though it is a new provision, so far as
we know, in any law on the subject.
In conclusion, while we are aware that some improvements may
be suggested in our work, we have taken every precaution that
occurred to us, in order to secure the constitutionality and legality
of the proposed measures. We have annotated several sections of
the bills, so as to give the benefit of our discussions to the Chamber
and the Legislature, and display the prominent points thereof.
Should the bills become law, we feel confident that under the admin¬
istration of the right kind of men as Commissioners, the railroads
will find their claws cut and their teeth drawn, in any attempt to
oppress the people ; while they will be left free to comply with all
their honest' obligations. As to the appointment of the Commis¬
sioners, we have provided handsome salaries, a long and secure
tenure of office, and a position of sufficient power and responsibility
to tempt the honorable ambition of the very best and most patriotic
minds among us. Cannot such men be found in California as have
adorned this office in Massachusetts.? If not, we deserve to suffer
from all the evils these measures are desigued to remedy.
All of which is respectfully submitted.
C. T. HOPKINS,
JOHN H. WISE,
M. J. O'CONNOR,
I. W. RAYMOND,
ALBERT MILLER,
Committee.
San Francisco, Dec. 24th, 1873.
18
San Francisco, Nov. 11th, 1873.
Hop. Leland Stanford,
Prest. C. P. R. R.
Sir :—The Chamber of Commerce, having appointed a Com¬
mittee for the purpose of maturing a hill on the subject of fares and
freights to be supported by that body in the Legislature, I am
requested by said Committee to respectfully ask of you replies to
the following questions :
1st. What general mathematical and commercial principles
underlie your present system ot fares and freights? Your tariffs
show wide differences for corresponding distances on the various
roads, as well as in the rates charged on the several classes of goods
carried. Not only does there seem to be no proportion between the
various charges per ton per mile, but we fail to perceive adequate
discrimination in favor of the steep grades and sharp curves of the
mountain road, compared with similar-charges on the cheaper road
in the Ban Joaquin Yalley. Furthermore, we find your rates for
short'distances vastly cheaper than the recent Illinois State tariff,
while for long distances said Illinois charges are far less than yours.
• 2d. How are these general principles affected by the arrange¬
ments you are compelled to make with Eastern connecting roads, on
through business ?
3d. How are they affected on through business by competition
by sea ? How on local business by water competition on tli6 Bay
and rivers ?
4th. Why is it necessary for you to send goods shipped from the
East for places between Ogden. and San Francisco, through to San
Francisco and thence back to the place of destination, charging
both the through freight and the way freight back to such place ?
5th. Hoes the Central Pacific hold itself responsible, under
through way bills from the East, for damages done to merchandise
beyond its own route ? If not, how are such damages collected by
the consignee ?
6th. How often do you change your tariffs ? Are such changes
periodical—each tariff being strictly executed by your subordinates
until a new one is promulgated—or do you change details from time
to time as occasion requires ?
7th. How many persons, all told, are authorized to administer
your present tariffs, inclusive of freight and passenger agents, ticket
sellers,.conductors and station agents ?
8th. Why do you reserve the right to change any freight charge
without notice to shippers ? Wherein would you be injured by
giving thirty days' notice of all changes ?
9th. Why are Stockton and Visalia discriminated against in your
°nt tariff ?
19
10th. Have you any objection to make against the prohibition
of free passes by law, except as to cases of charity and employes of
the road ? If so, what ?
11th. Have you any objection to the prohibition by law, under
adequate penalties, of discrimination between persons as to freight
or passage ? If so, what ?
As your full and complete answers to the above will greatly facil¬
itate the labors of our Committee, we trust, Sir, that you will find
it convenient to favor us with the' same at an early day. And mean¬
time, I remain very respectfully yours,
C. T. HOPKINS,
Chairman.
For the Committee.
San Francisco, 1st Dec., 1873.
C. T. Hopkins, Chairman of Freight and Fare Committee, Chamber
of Commerce.
Dear Sir:—Your favor of ^November 20th was duly received,
and has been under careful consideration. The various questions
suggested involve in their full and proper answer an amount of
explanation hardly commensurate with the limits of any ordinary
communication ; but having a desire that the queries you propound
should be understood by the public, I submit the following towards
promoting that end. You state "that the Chamber has appointed
a Committee for the express purpose of Maturing a Bill on the sub¬
ject of Fares and Freights." I trust that your Committee may have
no other design in this connection than either the total abolition of
o # .
the restrictions now upon our Statutes which fix maximum rates, or
if such rates are to be further limited, or changed, to provide ade¬
quate means whereby the substantial injury which legislation may
inflict upon corporations may be met by proper compensation by the
State ; for it is safe to assume that investments in railroads by indi¬
viduals, under our American laws, with their unusually beneficial
character to the public, should have the same protection from loss
or injury by any act of the State, as investments in property of any
other description ; and it is one of the compacts resulting from our
American civilization that no individual shall be deprived of his
property without just compensation, although all property is held
subject to and regulated by Jaw. To me it seems that the only
proper legislation on this subject is that of the total abolition of any
fixed rates by law, and this belief is founded partly* upon the fact
that in the other States, where is found the greatest harmony between
the people and the corporations, the laws upon this subject are either
extremely liberal and flexible, or contain no restrictions whatever;
and partly upon the fact that fixed rates by law should only properly
20
be restrictions upon monopoly, which under our laws, permitting
any number of aggregations of capital to be made for the same pur¬
pose, is not possible. Whenever undue profits upon an investment
in railroads or any other corporate property accrue, other capital
will always be found to enter into the same business to share such
profits, and by competition to reduce them to a legitimate standard;
and it should be borne in mind that ownership and control are insep¬
arable ; and so far as said control is interfered with, the ownership
is affected and transferred; it being also evident that the benefits
derived by the State from any railroad construction are spread over
the entire commonwealth and embrace the entire range of progress
and development, while the benefits to the owners of a railroad are
based solely upon the return which the limited capital invested may
secure to itself, and as such is but a small fraction of the. greater
benefits to the State, which in securing the same must not and can¬
not rightfully exert her power to that end at the special and unre-
munerated expense of the original investor.
The reason, therefore, does not appear why the profits in railroads
should be limited by law any more than the profits derived from
the growth and production of the necessaries of life, or from the in¬
vestment in other classes of business, whether corporate or private.
Without doubt the cause of the jealous supervision by the com¬
monwealth of all railroad interests is found in the paramount
importance of the proper transportation of her citizens and their
property ; but the enhanced values to the State at large, consequent
ufjon the general cheapening of transportation rates, being so
enormously disproportionate to the income derived by the investor
from his road, it seems to be founded upon a totally wrong principle
for the State to demand this great enhancement at the expense of
sujch investor, who, deriving perhaps but a tenth part of the total
values that he creates by his road, cannot be expected to supply the
expanding demand of a commonwealth for cheaper transportation
and enhanced values, which only can be met and supplied by the
great beneficiary itself, the body politic. And here, in my judg¬
ment, is indicated the only true solution of the problem, being the
attainment of the lowest possible rates in transportation, whereby a
dollar may be invested whenever a dollar may thereby be created,
the investor having the advantage of such creation, such investor,
of course, being the body politic ; and therefore it is, that I cannot
see wherein the State has the moral right,'if she have the technical,
to make radical changes in the law, not merely of1 a police nature,
but which may directly and injuriously affect the money value ot
the property called into existence, and now operating under and by
the exercise of the State's own statutes, and which statutes, as they
were when the corporations were organized, are the only guarantees
held by the lenders and investors of foreign as well as of home
capital, that their property will not be made the medium through
which the discussions and differences of a people and a corporation
may be forcibly adjusted.
The present depression in the finances of the nation, and the
withdrawal of foreign confidence in the integrity of our American
railway securities, is largely caused by what I think you will agree
with me, has been a most injudicious agitation, in and out of legis¬
latures, upon the most sensitive part of a railway property, which is
its means of income. So much for the general principles in the
contemplated action of your committee. I now proceed to consider
as well as possible the queries.
The scope of your queries (1) and (2) seems also to include (3),
and hence for convenience I will group the first three in one, re¬
producing the others in proper succession in this reply.
Queries (1) (2) (3).
1st. " What genenal mathematical and commercial 'principles underlie
your present system of fares and freights ? Your tariffs show wide
differences for corresponding distances on the various roads, as well as
in the rates on the several classes of goods carried. Not only does there
seem to be no proportion between the various charges per ton per mile,
but we fail to perceive adequate discriminations in favor of the steep
grades and sharp curves of the mountain roads compared with similar
cheaper roads in the San Joaquin Valley. Furthermore, we find your
rates for short distances vastly cheaper than the recent Illinois State
tariff, while for long distances said Illinois charges are far less than
yours.'"
2d. " How.are these general principles affected by the arrangements
you are compelled to make with Eastern connecting roads on through
business ?" •
3d. " How are they affected on through business by competition by
sea'? how on local business by water competition on the bay and rivers?"
Perhaps the most perplexing problem ever presented to a com¬
mercial people is the deduction of a mathematical formula, rule, or
even a general array of rigid mathematical principles by which to
mould and regulate tariffs on railroads. All the principal States
have in different ways and at various times grappled ineffectually
with the subject; and to-day, in the light of universal failure both
in America and in Europe, the^ truth is gradually being absorbed
by the public mind, that^ rigid formulae for tariffs means in many
instances absolute prohibition of carriage of many articles except at
a distinct loss, and in all cases a total inability to meet with proper
discrimination the fluctuation and changing demands of commerce
in the transport of all varieties of goods, complicated by the neces¬
sity of movement at all times and in all quantities, and these
changes through any one year still further complicated by necessary
changes from year to year to meet exigencies' which previous years
had not revealed.
With the problem still unsolved and its elements still presenting
themselves in new circumstances of time, place and people, you will
22
/appreciate my reluctance in attempting to base our procedure in
the matter of tariffs, upon the exact sciences.
Our railroad interests, from their incipiency to the present, have
been obliged to combine the following elements in the construction
of their tariffs :
(1.) The-acquisition of an income to meet interest on cost of con¬
struction and expenses of operating and maintaining of the road. (
(2.) The various physical, commercial and social characteristics
of the country in and from which we are to operate and secure that
income.
The first point has a prominent element of simplicity, in that it
involves the acquisition of an amount necessarily fixed with toler¬
able certainty; the second group, on the other hand, involves the
entire range of facts which makes one country different from another,
one State greater or less- productive than another, and one com¬
munity, town, or locality, more capable of inviting and sustaining a
railroad than another. And upon the proper understanding of all
the various elements of the second group, so far as our State is con¬
cerned, depends the justice or injustice of the general policy which
•we have been led to adopt in this State. We have had to take
under consideration the special characteristics of each portion of
California through which our road runs, or into which it has been
projected ; it is vital for us to know and form a judgment upon the
fact whether the San Joaquin Valley, subject as it is to all its
climatic conditions, offers by nature as many inducements to a per¬
manent and freight producing population as the Sacramento Valley;
whether the average class of freight produced will guarantee through
the year a steady and regular movement of trains, the tonnage one.
way balancing the tonnage the other ; or whether for the people of
either one of these valleys, a very small amount of train service.for
their supplies is required ; while a very large amount may be re¬
quired to carry out the production, as is the case in the San Joaquin
The capacity and probability of any particular locality having a
'large interchange of traffic between its own stations, is a matter
directly influencing the general rates for local business in such lo¬
cality ; it being readily seen that if a hundred-mile division of road
has so little local business as to require cars hauled from long dis¬
tances empty, to accommodate short hauls and imperfect loads, the
local tonnage handled must have the^e. facts considered in the
charges made. From Sacramento to the State line, the total vol¬
ume of business east and west? while having the. direct advantage
of the regular passing of trains in overland and Nevada business,
is still immensely affected by the character of road over which it
passes.
I can thus give you but a faint sketch of the various details and
considerations which go towards making up our freight tariffs. To
enumerate fully would require an elaboration of subjects quite too
great for this communication.
Valley
23
/
I can, however, state that we endeavor to see that each locality
pays its own way and bears its own expenses as nearly as the laws
of the State and the great variety of conflicting circumstances will
allow.
You state in Query (1) that your "tariffs show wide differences
for corresponding distances." In answer, your attention is directed
to the universality of the very popular error that distance is the
only controlling element in the fixing of tariffs. The contrary is
now so well established in the minds of those who have made the
economy of railroad management a study, that I here merely refer
to it, adding that the service performed must in all cases mainly
dictate the charges for freight, and in that service, as a matter of
fact, distance is not always the most important element.
Our moving loaded cars represent our earning equipment, and
upon the proper and economical use of these cars, aside from the
track itself, depends the. relation between the profit and loss of the
road. ^We possess a gross number of cars, found by experience
to be necessary to do the business of the year when forwarding
has obtained its maximum proportions. It must be evident that
the income per car at that period does not at all represent the
income necessary, when forwarding has dwindled to less than a
fourth of its maximum. It also seems to me to be reasonably
evident that, having a construction account upon which to meet
interest, and which is fixed in amount whether we run one train or
one hundred ; also, that a very large element of our operating ex-,
penses is independent of the amount of work we do, and hence
becomes .a fixed expense : that it would be unbusiness-like and
ruinous to us to fix a rate of income per car used for the entire
year, upon the basis of the maximum uses of those cars during the
season of greatest tonnage. This tonnage, fluctuating in amount
so radically as is done in this State, makes it absolutely necessary
that we should strive to. establish rates that should secure us an
income per car based upon the actual tonnage hauled, modified by
the amount of dead car mileage necessary in hauling said'tonnage,
and further modified by the relation of said working cam to their
capacity, if worked up fully to a point commensurate with the
gross expense account, which alone I show to be substantially the
same, whether we work our stock fully or partially.
The fixing of this rate must necessarily be a matter of judgment
in the administration of the road, and must be modified (1) by
the amount of the actual capacity of a car which is used, and (2)
by the proportion of empty mileage which the distribution of the
sources of supply and demand forces upon the cars actually used.
The (1) modification is a substantial element in the basis of classifi¬
cation, another element being the value of the articles carried, their
difficulty in handling, their liability to damage or the damage other
articles, increasing our risks and consequent responsibility in ac¬
cepting goods. At this point it-would be proper to state that owing
to the limit fixed by our California law, without any reference
/
24
whatever to the service performed, which depends upon the cost
of road, grades, curves, amount of business, its character and the
distribution of the same, distance hauled, climatic influences, and
the actual value of cars per diem, whether moved short or long
distances, there appear shown radical differences in the scale of
our tariffs compared with those of Eastern roads. Notably is this
the case with Illinois, whose present law being a direct result of a
recent, attempt at change by the farmers of that State, produces as a
Tariff a rate commencing with $2.40 per ton per mile and extending
to a distance of thirty miles before the 'decreasing scale reaches
our maximum of fifteen cents per ton per mile. For long dis¬
tances the Illinois scale descends quite rapidly, partly based up-
■ on the fact that short distances are made to ^>ay their own way and
hence relieve the long distance ; hut more fully upon the fact that
the long distances contribute a very large amount of tonnage, which,
leaving out our Overland business is not the fact in California. As a
direct consequence of this, our longer hauls have to help sustain the
shorter, in order to keep the average rate for all tonnage as low as
we have been able to keep it.
You will see that the deduction as to the average value of cars
per annum is based upon the assumption that each mile of road con¬
tributes to the use of these cars, in the same average amount: that
this is not the fact is apparent to every one, and upon the extent of
the difference between the contributions and demands of different
localities depends largely the visible differences in rates for^ equal
distances for such localities. i
Our car equipment in 1872 comprised 3,198 cars, flaf and box.
Of this number 182 made no mileage, leaving 3,016 cars that made
all the movements of the year. The actual car mileage made was
31,351,667 miles, equivalent to 313,516,670 ton mileage, while the
actual ton mileage was but 190,516,507, or 60 per cent, of the mile¬
age which the cars were compelled to make on account of the dis¬
tance of empty mileage and irregular distribution of tonnage.
It must not be lost sight of that this percentage represents but
the average performance of our freight rolling stock, and that in
order to meet the excessive amount of work demanded of us during
wheat seasons, it has been necessary to keep the entire 3,016 cars
in commission.
The actual freight mileage capacity of these cars, if steadily
worked and allowing proper time for loading-and unloading, is about
136,000,000 car mileage, or 1,360,000,000 ton mileage, while the
actual ton mileage performed, based upon the actual car mileage,
being but 310,000,000—we have the rather startling result of our
actual work in car mileage being but 23 percent, of the easily pos¬
sible car mileage ofthe equipment which the excessive fluctuations
of business in this State forces us to keep on hand.
As this 23 per cent, is still further reduced by the fact that, ofthe
actual car mileage made, but 60 per cent, was (on account of long
distance hauled empty or imperfectly loaded) of paying ton mileage,
25
we have as a final result that the total tonnage of our California sys¬
tem of roads, including " throughs," is hut 13 per cent, of the ca¬
pacity of the stock which we are forced to keep and keep moving
at different times of the year ; in other words, out of 3,016 cars, but
416 would represent the actual earning ones, did they have full loads
moving with regularity. Here perhaps, is the key to this question.
With this immense disproportion between what we should do and
what we do thus fully shown, it is proper to finally consider how
small a proportion of the general working capacity of the entire
1,222 miles, taken as a whole, we are able to utilize, as compared
with well-developed Eastern roads, or with our own ultimate capa¬
city. The simplest method of comparison is shown in the difference
in the gross tonnage per mile of road. While the gross tonnage for
1872 on the 1,222 miles of the Central Pacific Road was 614 tons
per mile, at a general average rate of 3 cents per ton per mile,
the Boston & Albany had a tonnage of 10,790 tons per mile, or say
seventeen times as much as our own ; while its rates, with that im¬
mense business, present an average of 2 ^ per ton per mile—for its
"local" business, is not at all proportioned to the immense differ¬
ence in " through " tonnage. Assuming this Massachusetts road as
a standard, you can see that we have a road, costing a fixed sum,
and then cannot work that road up to more than say one-seven-
steenth, or compared with other roads we could mention, to-one-
twentieth of its capacity ; and that the tariff that we carry must, of
necessity, pay seventeen or twenty times as much per ton moved, to
meet the fixed expenses due form construction, as would be the case
were the capacity of the road quite or nearly reached.
With these facts in view and considered, I think that we can
justly claim that we have given our patrons cheaper rates in pro¬
portion to the business done than any road in the United States.
From our utter inability under the 15 cents per ton per mile maxi¬
mum for short distances to make a car earn its proper daily aver¬
age income, together with the other reasons hereinbefore sketched,
as is allowed by the maximum rates of other States, appears the
reason of the difference in our highest rates and shortest distances
as compared with Illinois, and this inadaptability of our law to
short distances. Half loaded cars, light goods, heavy grades and
curves have necessarily imposed an additional burden upon the
tonnage of longer distances, which must perforce contribute indi¬
rectly to making up the losses incurred by short hauls at the pre¬
sent maximum rate. Our through business having a long average
haul, where all expenses are reduced nearly to a minimum, is
necessarily much more attractive to us than the violently fluctuat¬
ing local business of the State ; and the following facts are offered
in illustration as showing how much even at this date the small
amouut of through business has relieved the expensive and less
remunerative local business of portions of its expenses. In 1872
our total tonnage was about 750,000 tons ; of this but 98,000 tons
were "through " or but 13 per cent, of the whole. Notwith stand-
26
V
N '
ing the fact that the average through rate was but about 2 f0 cents
per ton per mile, a rate largely due to the competition by sea, this
13 per cent, of the total tonnage earned 31 per cent, of the total
freight income for the year. The 87 per cent, of local tonnage paid
an everage rate of 4.66 cents per ton per mile. A prolific source of
reflection is found in the fact that but of 881 miles of through line,
the average haul of each ton of through freight was 866 miles, while
with 1,222 miles of road, to create local business, the average haul
was hut 162 miles for each ton.
Before leaving this branch of the subject a statement of the rela¬
tions between our various divisions will perhaps more thoroughly
illustrate why differences exist in their rates.
The total business emanating from the Yisalia Division and sent
to San Francisco and Oakland for the year 1872, including grain,
amounted to 60,551 tons, while the total tonnage going from San
Francisco to that division was but 13,489 tons, in other words 78
per cent, of the cars required to bring the products of the San
Joaquin Valley out, had to go in empty. This represents the aver¬
age throughout the division. Considering each locality of the
division separately, We perceive that while the percentage of empty
mileage is less than here given near the lower Ond, it increases
rapidly near Visalia and the upper end, exceeding this 78 per cent,
where the production and demand are small. Your attention is
directed to this fact as one of the prime causes for what may appear
to be high rates up that Yalley. As against this, the Oregon divis¬
ion, with substantially the same relative situation, sent to San Fran¬
cisco 24,615 tons, receiving, however, from that point 25,487 tons.
Here the amounts are so nearly equal that but little empty car
mileage was required, this being one of the elements justifying a
v lower average rate than upon the Yisalia division.
The most apparent effect of the presence of the river competition
upon our rates is illustrated in the case of Sacramento, where low
class goods are carried to San Francisco at rates as low as one and
seven-tenths cents per ton per mile, and in the presence of such
water competition where we have the advantage of regular trains
moving on other business, we take business at very low rates rather
than not get it, our rule being to take all freight that offers sooner
than not to take it, if it will pay the additional cost consequent upon
its movement. This fact, however, would hardly justify any con¬
scientious legislator in demanding that all business of the road
should be conducted on the same basis.
Query 4.
" Why is it necessary for you to send goods, shipped from the East
for places between Ogden and San Francisco, through to San Francis¬
co, and thence back to the place of destination, charging both the through
freight and the way freight back to such places V
"We do not do this: all goods marked for any intermediate point
on the line of our road, go there ; but they are charged the sum of
27
the through rates of each road which they may traverse; the justice
of this can be made apparent.
The policy of all transportion companies, when in the presence of
competition, is to take goods very low, and sometimes with no
profit margin whatever, rather than not to take them at all. San
Francisco being considered as the terminus of a long line of rail¬
way from New York, Chicago, or other large cities, also holds the
enviable position of being the terminus of numerous sea routes, and
hence is a competitive point. This being a fact, and being desirous
of building up our overland business, we finally prevailed upon our
Eastern connections to waive their claims to their own usual chargesi
on their own individual roads, and to join in the authorizing of
agents in the large cities to receive goods and ship direct to San
Francisco at a very low rate, to meet competition by sea, each road
taking but a pro rata of such through rate as compensation for
hauling the cars and work done. At first this privilege was con¬
ceded alone to San Francisco on account of her position, all over¬
tures by us on behalf of other points being for a long time steadily
refused; for what is really the simple reason that such points in
California, not having the advantages of competition by sea, had
no more claims in the estimation of Eastern roads to the exceptional
advantages of the low through rate, than their own business, which
was through to them. We have finally secured for three other
points a recognition as through points, viz.: Sacramento, Marysville,
and San Jose ; but all further concessions in our State have been
resisted, and to-day it stands as a fact that any goods shipped from
New York, Chicago, etc., direct to Reno, Stockton, or any point
other than the four cities named, are sent way-billed with the
ordinary through charges of each road over which they may pass.
Shippers understanding this fact now rarely ship direct to thq place
of destination when other than the cities named, but prefer to take
advantage of and to profit by the exceptionally low rate forced by
the sea traffic, by first shipping to one of these four points, and then
re-ship, by the payment of our usual local rate, to the final point
of destination. In this way the aggregate charges are very much
lower than though the goods had been sent direct at the local rates
to which they were legitimately subject. You may, perhaps, see
from this, that instead of these arrangements being any proper
source of complaint, the advantages which all local points in our
State derive from having their tonnage delivered to them at the
rates secured to the larger cities alone, by reason of their excep¬
tional location, plus the local rate therefrom, should not be so per¬
sistently thrust in the background ; and it seems to be proper to
remember here that the building of the ov.erland railroad did not
and cannot change immediately California's generally isolated con¬
dition ; and our claims upon the Eastern system of railroads, for all
of the benefits of their lower rates, can only be met for the present
through our well known and largest centers, all other points receiv¬
ing only such concessions as their positions apparently entitle them
\
28
j
\
to. As fast as we can induce our Eastern connections to recognize
other points in this State as entitled to the benefits of the through
rates, we shall do so, and trust soon to announce that Stockton will
be added to the list. So far as Reno is concerned, it is out of reach
of any competitive advantages, and by its position has no claims
whatever to profit by the benefits conferred upon San Francisco or
Sacramento. If you will remember that competitive rates by no
manner of means represent the just or fair basis of charges for the
entire road, but are always the result of a contest for supremacy
between rival routes, and hence may often deplete .a railroad
treasury, instead of adding to it, I think you will agree with me
that points which have no competitive advantages have no just
cause for complaint, when asked to pay only such rates as would
naturally exist, did San Francisco have no sea traffic whatever.
#
Query 5.
"Does the Central Pacific hold itself responsible under through way¬
bills from the East, for damages done to merchandise beyond its own
route 2 ' If not, how are such damages collected by the consignee ? "
To this, we answer, no; but we are now, for the benefit of the
shipper, endeavoring to secure from our Eastern connections the
authority to adjust all losses and proper claims whenever they occur,
and charge the same to the Company which may be interested. At
present, in- cases of reclamation for damages beyond our line, our
General Freight Agent, as an accommodation to our customers,
enters into correspondence with the road upon which loss or damage
may have occurred; and, after more or less delay, we usually suc¬
ceed in having just claims allowed and paid. This is the usual
course of procedure of consignees; but, as we above stated, we hope
to have this changed, thus securing expedition in all such adjust¬
ments. .
Query 6.
uHow often do you change your tariff ? Are such changes periodi¬
cal f Is each tariff strictly executed by your subordinates until a new
one is promulgated ? or do you change details from time to time, as occa¬
sion requires '
We do not attempt a revision of our tariff as a whole but once a
year, at which period, the experience of the past year and expecta¬
tions of the future are brought to bear upon the tariff, and such
changes are made as are deeme'd necessary to secure us our proper
income. This procedure, however, does not apply to changes in
individual items of the tariff, which are made whenever by so doing
we can' promote and encourage business 6r development in any
direction, so as to bring traffic to the road, or when we find that the
moving volume of any leading article is lower or greater than we
had supposed when the tariff was made. All tariffs are strictly fol¬
lowed by subordinates until change in whole or in part is made.
/
29
Query 7.
"How many persons, all told, are authorized to administer your present
tariff, inclusive of freight and passenger agents, sellers, conductors
and station agents ?.
On our total of 1,222 miles we have 148 stations, 100 being upon
the Central Pacific main trunk. As each station deals with every
other station, there results by combination very' great opportunity
in our roads for the incorrect administration of our tariffs. For
instance, there are 21,904 of such combinations, and when you con¬
sider the liability to error in further dealing with the necessary
difference of classification of goods, the resulting liability to error
becomes very apparent. As each station is represented by an agent,
or where there is none, by the conductor, the number of stations
and their combinations substantially supplies the information desired.
i .
Query 8.
" Why do you reserve the right to change any freight charge without
notice to the shipper f Wherein would you he injured by giving thirty
days' notice of all changes ?"
The principal reason is again based upon our extremely change¬
able relations with the Eastern roads, and as we must holjl ourselves
in readiness to meet changes in through tariffs under telegraphic
notice, we can do no less than reserve the right to change our own
at any time. So far as relates to all local or State business, although
we are satisfied that such notice would be a cause of real inconven¬
ience to shippers at large, in this : that upon such notice being given
of a raise in rates, shippers of articles raised would rush to profit
by the lower rates, and not being able to secure cars any more rap¬
idly than would be usual at that station, would suffer inconvenience,'
perhaps loss, for which we could not be accountable; still, if the law
imposed such a stipulation upon us, it would not seriously affect the
efficiency of our administration.
Query 9.
" Why are Stockton and Visalia discriminated against in your present
tariff
Inasmuch as I am not aware that either Stockton or Yisalia is dis¬
criminated against, but that each has received and will continue to
receive the fullest consideration, which its w^ater competition and
the character, volume, and regularity of its business entitles it to de¬
mand, I can only answer this query by a denial of such discrim¬
ination.
Queries 10 and 11.
" Have you any objection to make against the prohibition of free
passes by law except as to cases of charity and employees of the road ?
If so, what ? Have you any objection ttf the prohibition by law under
(
30
adequate 'penalties of discrimination between persons, as to freight or
passage? If so, what?"
Although as a rule we believe that in the management of a rail¬
road the utmost freedom from restraint promotes the best general
results, and as outside of the general passes usually issued by cour¬
tesy to public officers, the theory is that they are only given for
some service performed or to be performed, still we should not be
unwilling to have all passes abolished by law, except for employes
and their families where deemed proper ; for charitable purposes ;
and for the officers or business agents of other roads with which we
are in communication. These reservations we deem necessary and
proper as promoting the actual efficiency of the road. As we have
repeatedly denied making discriminations between persons in the
carriage of their freight, where such freight was of like character,
from the same station, and similarly circumstanced, I can only repeat
such denial and express our willingness to abide by any law which
may be enacted, making discrimination against persons for the car¬
riage of the same articles, similarly circumstanced, unlawful.
Trusting that this communication may sufficiently answer the
subject matter of your letter, I am, very respectfully,
Your Obedient Servant,
Leland Stanford.
P. S.—Cong ress having the sole right to regulate the Tariffs on
the Central Pacific Railroad, I hope in any bill recommended by
your Committee on the subject, this fact, 3o far as affecting that
road, may not be lost sight of. L. S.
%