The measures which they thus forced upon the statute books and which represented the first comprehensive attempt to regulate railroads have always been known as the "Granger Laws." These differed in severity in different States, but in the main their outlines were the same. Practically all the Granger legislatures prohibited free passes to members of the legislatures and to public officials. A law fixing the rate of passenger fares—the maximum ranging all the way from two and one-half to five cents a mile—was a regular feature of the Granger programme. Attempts were made to end the "long and short haul" abuse by passing acts which prohibited any road from charging more for the short distance than for the long one. More drastic still were the laws passed by Iowa in 1874 and the famous Potter bill passed by Wisconsin in the same year. Both these measures, besides fixing passenger fares, wrote in the law itself detailed schedules of freight rates. The Iowa act included a provision establishing a fund of $10,000 which was to be used by private individuals to pay the expenses of suits for damages under the act, and this same act made all railroad officials and employees who were convicted of violations subject to fine and imprisonment. The Potter act was even more severe. It not only fixed maximum freight rates, but it established classifications of its own. The railroads asserted that the framers of this law had simply taken the lowest rates in force everywhere and reduced them twenty-five per cent. But Iowa and Wisconsin and practically all the States that passed the Granger laws also established railroad commissions. For the most part these commissions followed the model of that established by Massachusetts in 1869, a body which had little mandatory authority to fix rates or determine service, but which depended upon persuasion, arbitration, and, above all, publicity, to accomplish the desired ends. The Massachusetts commission, largely owing to the high character and ability of its membership—Charles Francis Adams serving as chairman for many years—had worked admirably. In the most part these new Western commissions were limited in their activities to regulating accounting, obtaining detailed reports, collecting statistics, and enforcing the new railroad laws.

These measures, following one another in rapid succession, produced a national, even an international sensation. The railroad managements stood aghast at what they regarded as demagogic invasions of their rights, and the more conservative elements of the American public looked upon them as a violent attack upon property. Up to this time there had been little general understanding of the nature of railroad property. In the minds of most people a railroad was a business, precisely like any other business, and the modern notion that it was "affected with a public interest" and that the public was therefore necessarily a partner in the railroad business had made practically no headway. "Can't I do what I want with my own?" Commodore Vanderbilt had exclaimed, asserting his exclusive right to control the operations of the New York Central system; and that question fairly well represented the popular attitude. That the railroad exercised certain rights of sovereignty, such as that of eminent domain, that it actually used in its operations property belonging to the State, and that these facts in themselves gave the State the right to supervise its management, and even, if necessity arose, to control it—all this may have been recognized as an abstruse legal proposition, but it occupied no practical place in the business consciousness of that time. Naturally the first step of the railroads was therefore to contest the constitutionality of the laws, and while these suits were pending they resorted to various expedients to evade these laws or to mitigate their severity. A touch of liveliness and humor was added to the situation by the thousands of legal fare cases that filled the courts, for farmers used to indulge in one of their favorite agricultural sports—getting on trains and tendering the legal two and a half cents a mile fare, a situation that usually led to ejectment for nonpayment and then to a suit for damages. The railroads easily met the laws forbidding lighter charges for long than for short hauls by increasing the rates for the longer distances, and the laws fixing maximum rates within the State by increasing the rates outside the State. When the courts decided the cases against the railroads, as in most cases they did, these corporations set about to secure the repeal of the laws. They started campaigns of education, frequently through magazine or newspaper articles pointing out the injustice of the Granger laws and insisting that they were working great public damage. It is a fact that a decrease in railroad construction followed the Granger demonstration, and the friends of the railroads insisted that timid capital hesitated to embark in an enterprise that was constantly subject to legislative attack. These campaigns succeeded much better than the more violent opposition to which the railroads had first resorted. The Western States in the majority of cases repealed their most drastic legislation. Nearly all the laws fixing maximum rates disappeared from the books, and even Iowa and Wisconsin substituted for these measures supervisory and advisory commissions after the Massachusetts model.

While the Granger movement thus failed effectively to curb the railroads, it succeeded in arousing great popular interest in the railroad problem and in placing before the public several of the most important details of that problem. Not the least of its achievements were the decisions which it obtained from the Supreme Court of the United States. The Granger cases are among the most epoch-making in American history, and they fixed for all time the principles of American policy in dealing with the railroad question. They are particularly worthy of study by those who have regarded the Supreme Court as the bulwark of social injustice and as a body which can always be relied upon to protect the rights of property against the interests of the masses. In its railroad decisions this change hardly holds; for these Granger cases sustain practically all the legal contentions made by the Granger legislatures. * The cases fixed for all time the point that a State, acting under the police power, may regulate the charges of a railroad even to the extent of fixing maximum rates. They even went so far as to hold that the right to fix rates is not subject to any restraint by the court on the ground of unreasonableness, a principle which the Supreme Court has reversed in more recent times. The courts also held that a State, at least until Congress acted, could regulate interstate commerce, but this decision also has since then been reversed. These subsequent reversals of decisions which were exceedingly popular at the time, however, not only constituted sound law but promoted the public interest, for they established that body of law which has made possible the present more comprehensive system of Federal regulation of railroads.

* The cases of particular interest were: Munn vs. Illinois, 94 U.S. 114; Peik vs. Chicago and Northwestern Railway Company, 94 U.S. 164; and Chicago, Burlington and Quincy Railway Company vs. Cutts, 94 U.S. 155.

Meanwhile the demand for regulation was gaining strength in the Eastern States, but for somewhat different reasons. The farmers of New England, New York, and the Eastern region in general had not particularly sympathized with the Granger legislation; they already had great difficulty in competing with the large Western farms, and a reduction in rates to the seaboard would have made their position even less endurable. This attitude was unquestionably selfish but entirely comprehensible. The agitation for railroad reform in the East came chiefly from the manufacturing and commercial classes. Here the main burden of the complaint was the railroad rebate. This was a method of giving lower rates to large shippers than to small—charging the favored shipper the published rate and then, at stated periods, surreptitiously returning part of the payment. This was perhaps the most vicious abuse of which the railroads have ever been guilty. That the common law forbade the practice and that it likewise violated the implied contract upon which the railroad obtained its franchise was hardly open to dispute; yet up to 1887 no specific law in this country prohibited the practice. For many years the rebate hung over the American business world, a thing whose existence was half admitted, half denied, a kind of ghostly economic terror that seemed persistently to drive the small corporation to bankruptcy and the large corporation to dominating influence. The Standard Oil Company was the "monster" that was believed especially to thrive upon this kind of sustenance, though this was by no means the only industry that maintained such secret relations with the railroads; the Carnegie Steel Corporation, for example, accepted rebates almost as persistently. It was not until 1879, when the Hepburn Committee in New York State had its hearings, that all the facts concerning the rebate were exposed officially to public view. The contracts of the Standard Oil Company with the railroads were placed upon the records and these showed that all the worst suspicions regarding this practice were justified. This disclosure made the railroad rebate one of the most familiar facts in American industrial life; and in consequence a demand arose for Federal legislation that would definitely make the practice a crime and also for some kind of Federal supervision to do effectively the work which the state commissions had failed to do.

By this time it was clear enough that the only hope of adequate regulation lay with the Federal Government. Congressman Reagan, of Texas, had for years been pushing a bill to regulate interstate commerce and to prohibit unjust discriminations by common carriers; other measures periodically made their appearance in the Senate; but the Houses had been unable to agree and nothing had been done.

Two facts presently gave great impetus to the movement; in 1886 the United States Supreme Court, reversing its previous decision, decided that no State could fix rates for railroad lines outside its own borders, in other words, that interstate rates were exclusively within the jurisdiction of the Federal authority *; and a Senate committee, under the chairmanship of Shelby B. Cullom, conducted an investigation of railroad conditions which made clear the need of immediate reform. As a consequence, Congress passed the Interstate Commerce Act, which received President Cleveland's signature on February 4, 1887. This measure specifically made illegal rebates, pools, higher charges for short than for long hauls (when the hauls in question were upon the same road); it required railroads to file their tariffs, and it established a commission of five members, who had powers of investigation, including the right to make the companies produce their books. This commission received power to establish systems of accounting and the like, but it had no prerogative to fix rates. Inadequate as this measure seemed to the radical element, it was generally hailed as marking the beginning of an era in the Federal control not only of railroads but of other corporations, and this impression was increased by the high character of the men whom President Cleveland appointed to the first board.

* Wabash, St. Louis and Pacific Railway Company vs. Illinois, 118 U.S. 557.

The Interstate Commerce Commission lasted essentially in this form for nearly twenty years. On the whole it was a failure. Such was the judgment passed by Justice Harlan of the United States Supreme Court when he remarked in one of his decisions that the commission was "a useless body for all practical purposes"; and such, indeed, was the judgment of the commission itself, for in its report of 1898 it declared that the attempt at Federal regulation had failed. The chief reasons for this failure, the commission said, were the continued existence of secret rates and the fact that published tariffs were not observed. * The managers of the great American railroad systems would not yet admit that the fixing of railroad rates was the concern of any one but themselves, and they still regarded railroad management as essentially a private business. If they could obtain large shipments by granting special rates, even though they had to do it by such underhanded ways as granting rebates, they believed that they were entirely justified in doing so. Thus rebates flourished almost as much as ever, passes were still liberally bestowed, and pools were still formed, though they sometimes took the shape of "gentlemen's agreements."

* But it should be added that the effectiveness of the commission as an administrative and regulating body was diminished by decisions of the courts, notably the decision of the Supreme Court in the maximum rate case. See 160 U.S. 479.

In 1906, when President Roosevelt became intensely active in the railroad problem, conditions were fairly demoralized. Attempts to enforce the anti-pooling clause had led railroads to purchase competing lines, and when the United States Supreme Court pronounced this illegal, the situation became chaotic. The evils of overcapitalization also became an issue of the times. The Interstate Commerce Commission had become almost moribund, and there was a general sentiment that the trouble arose from the fact that the commission had no power to fix rates and that the solution of the railroad problem would come only when such power was vested in it. * The Interstate Commerce Act which became a law on June 29, 1906, was the outcome of one of the greatest battles of President Roosevelt's political life. The act increased the membership of the commission from five to seven members, placed under its jurisdiction not only railroads but pipe lines, express companies, and sleeping-car companies, added to the other familiar restrictions a "commodities clause," which prohibited any railroad from transporting a product which it had produced or mined, "except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier"—this clause was intended to end the railroad monopoly of the coal mines—and made the failure to observe published tariffs a crime punishable with imprisonment. The amended law did not give the commission the right to fix rates in the first instance but did empower it, on complaint, to investigate charges and on the basis of this investigation to determine just maximum rates, regulations, and practices, though carriers were given the right of appeal to the courts.

* The Elkins Act of 1903 had, it is true, increased the effectiveness of the commission in dealing with discriminations, but it had not solved the problem of securing reasonable rates.

Thus, in essence, the public had obtained the reform which it had been demanding for years. The reorganized commission did not hesitate to exercise its new powers. It soon began actually fixing rates, and from being a half-alive despised institution it rapidly developed into one of the most powerful agencies of administration. In the succeeding ten years its powers were still further enlarged by acts of Congress and the privilege of fixing charges practically passed out of the hands of the railroads into the control of the Interstate Commerce Commission. The railroads, that is, practically lost the power to regulate their own income. Meanwhile, the progressive movement in American politics had led to the creation of commissions in most of the States, with similar authority over rate making within the States, besides exercising numerous other powers over service and capitalization. Many railroads fell upon evil days and receiverships again became common. Naturally the railroad managers attributed these calamities to the fact that they were so constantly being regulated; but they probably pushed this claim too far, for the causes of their troubles were more complex.

In 1916, in the heat of a political campaign, the Federal Government took a step which introduced a new principle into railroad management and made the roads practically helpless. The four brotherhoods of railroad operatives were making demands for a so-called eight-hour day, and threatened a general strike that would paralyze all business and industry and throw the whole life of the nation into chaos. Properly to appreciate the consequences of this event, it is necessary to keep in mind the fact that the plea for an "eight-hour day" was spurious. An eight-hour day cannot be rigidly enforced on railroads; the workmen well knew this, and indeed they did not really demand such working hours. What they asked for was a full day's pay for eight hours and "time and a half" pay for all in excess of that amount; that is, they demanded an increase in wages. President Wilson, having failed in his attempt to settle the difficulty by arbitration, compelled a Democratic Congress over which his sway was absolute to pass a law-sponsored by Chairman Adamson of the House Committee on Interstate Commerce—which granted practically what the unions demanded. In passing this law, Congress asserted an entirely new power which no one had ever suspected that it possessed—that of fixing the wages which should be paid by common carriers and possibly by other corporations engaged in interstate commerce. The railroads immediately took the case to the United States Supreme Court, which promptly sustained the law. This decision, unquestionably the most radical in the history of that body, declared virtually that Congress could pass any law regulating railroads which the public interest demanded.

And thus, after fifty years of almost incessant struggle with the public, was the mighty railroad monster humbled. It had lost power to regulate the two items which represent the existence of a business—its income and its outgo. The Interstate Commerce Commission was now fixing railroad rates, and Congress was fixing the amounts of railroad wages. It remained for the Great War to precipitate the only logical outcome of this situation—government control. The steadily increasing responsibilities of war soon told heavily upon all lines until, in the latter part of 1917, the whole railroad system of the United States had all but broken down. The unions were pressing demands for wage increases that would have added a billion dollars a year to their annual budgets. The fact that so large a part of the output of American locomotive works was being shipped to the Allies made it difficult for the American lines to maintain their own supply. Nearly all coastwise ships and tugs were utilized for war work, a large part of them had been sent to the other side, and this put an additional strain upon the railroads. The movement of troops, the heavy building operations in cantonments and shipbuilding plants, the manufacture and transportation of munitions, all put an unprecedented pressure upon them. Everywhere there was great shortage of cars, equipment, and materials. Possibly the railroads might have risen to the occasion except for the fact that the enormous increase in the cost of labor and supplies made demands upon their treasuries which they could not meet. They repeatedly asked the Interstate Commerce Commission for an increase in rates, but this request was repeatedly refused. The roads were therefore helpless, and their operations became so congested as to create a positive military danger. Under these circumstances there was profound relief when President Wilson took over the roads and placed them under government control, with William Gibbs McAdoo, Secretary of the Treasury, in active charge.

McAdoo immediately took the step which the Administration, while the railroads were under private control, had steadily refused to sanction, and now increased the rates. These increases were so great that they made the public fairly gasp, but, under the impulse of patriotism, there was a good-natured acquiescence. McAdoo also increased wages by hundreds of millions of dollars. His administration on the whole was an able one. He ignored for the moment the prevailing organization and managed the roads as though they constituted a single system. He instituted economies by concentrating ticket offices, establishing uniform freight classifications, making common the use of terminals and repair shops, abolishing circuitous routes, standardizing equipment, increasing the loads of cars and by introducing a multitude of other changes. All these reforms greatly increased the usefulness of the roads, which now became an important element in winning the war. Properly regarded, the American railroads became as important a link in the chain of communications reaching France as the British fleet itself. It is not too much to say that the fate of the world in the critical year 1918 hung upon this tremendous railroad system which the enterprise and genius of Americans had built up in three-quarters of a century. In February, 1918, Great Britain, France, and Italy made official representations to the American Government, declaring that unless food deliveries could be made as they had been promised by Hoover's food administration, Germany would win the war. McAdoo acted immediately upon this information. He gathered all available cars, taking them away from their ordinary routes, and rushed them from all parts of the country to the great grain producing States. All other kinds of shipments were discontinued; officials and employees from the highest to the lowest worked day and night; and presently the huge supplies of the indispensable food started towards the Atlantic coast. So successful was this operation that, on the 12th of March, the supplies so exceeded the shipping capacity of the Allies that 6318 carloads of food stood at the great North Atlantic ports awaiting transportation. This dramatic movement of American food supplies was an important item in winning the war and fairly illustrated the great part which the American railroads played in turning the tide of battle from defeat to victory.



BIBLIOGRAPHICAL NOTE

General literature on the history of American railroads is surprisingly scarce. While numerous volumes have been written in recent years on special phases of the railroad question, few histories of any real value are available. Probably the best outline history of American railroad development as a whole is still Arthur T. Hadley's "Railroad Transportation, its History and its Laws" (1885), but this necessarily covers only the earlier periods of railroad growth and its discussions are limited to the problems which confronted the carriers many years ago. An extremely valuable book (now out of print) giving a very complete picture of railroad building and expansion in the pre-Civil War period is "The Book of the Great Railway Celebration of 1857", by William Prescott Smith. This is primarily a description of the opening of the Ohio and Mississippi Railway, which connected the Mississippi Valley for the first time with the Eastern seaboard. A volume of real value, but somewhat technical, giving a complete and accurate view of the reorganization period of the great railroad systems, from 1885 to 1900, is "Railroad Reorganization", by Stewart Daggett (1910). This book contains outline sketches of the histories of nearly all of the large systems, as well as very accurate details of the financial reorganizations of all of the defaulted properties. The most comprehensive history of any American railroad system is "The Story of Erie", by H. S. Mott (1900), but even this is partially unreliable and much of it is compiled from unofficial sources. On the financial history of the Erie Railroad, the really valuable authority is Charles Francis Adams in his "Chapters of Erie" (1871). This book furnishes a full and accurate account of the regime of Daniel Drew, Jay Gould, James Fisk, Jr., and the famous "Erie ring," including "Boss" Tweed, and also throws side lights on the character and career of Commodore Vanderbilt. Among other important histories of particular railroad systems may be mentioned "The Union Pacific Railway", by John P. Davis (1894) and "History of the Northern Pacific Railroad", by Eugene V. Smalley (1883); but neither of these volumes covers the recent and more interesting periods in the development of these properties. To get a complete and satisfactory view of the later development of the Northern Pacific system, one must turn to modern biographical works, such as the "Life of Jay Cooke", by E. P. Oberholtzer (1910), the "Memoirs of Henry Villard" (1909), and the "Life of James J. Hill", by Joseph Gilpin Pyle (1916), which also recounts at length the rise and development of the Great Northern Railway system. But in these volumes, as in many biographies of great men, the authors often betray a bias and misrepresent facts vital to an understanding of the development of both of these railroad systems. A recent volume entitled the "Life Story of J. P. Morgan", by Carl Hovey, although extremely laudatory and therefore in many ways misleading, contains valuable information about the development of the Vanderbilt lines after 1880 and also about the financial vicissitudes and rehabilitation of the many Morgan properties, such as the Southern Railway, the modern Erie system, the Northern Pacific, the Reading, and the Baltimore and Ohio.

Some of the railroad companies many years ago themselves published histories of their lines, but most of these attempts were of little value, as they were always too laudatory and one-sided and evidently were usually written for political purposes. The best of this class of railroad histories was a book issued by the Pennsylvania Railroad many years ago, giving a record (largely statistical) of the growth and development of its lines. But this book has been long out of print and covers the period prior to 1885 only.

For original material on American railroad history, one must depend almost entirely on financial and railroad periodicals and official and state documents. By far the most valuable sources for all aspects of railroad building and financing during the long period from 1830 to 1870 are the "American Railroad Journal" (1832-1871) and "Hunt's Merchant Magazine" (1831-1870). Both of these periodicals are replete with details of railroad building and growth. And for the period from 1870 to the present time the best authority is the "Commercial and Financial Chronicle", with its various supplements. The story of modern railroading is so intertwined with finance and banking that to get any broad and complete view of the subject one must consider it largely from the viewpoint of Wall Street. For facts regarding operation and management of modern railroads, the "Railroad Age-Gazette" also is extremely useful. By far the most valuable sources for railroad statistics, railroad legislation, and all related facts, are the annual reports and bulletins of the Interstate Commerce Commission, which have been regularly issued since 1888. Many state commissions also have issued volumes of value.

The best account of the origin of the Granger laws is contained in S. J. Buck's "The Granger Movement" (1913). The beginnings of Federal regulation are traced in L. H. Haney's "A Congressional History of Railways in the United States, 1850-1887" (1910). The history of recent railroad regulation by state and Federal legislation, and of court decisions affecting the railroads, is clearly and succinctly told in William Z. Ripley's "Railroads: Rates and Regulation" (1912), and in Johnson and Van Metre's "Principles of Railroad Transportation" (1916).

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