RAILROAD LEGISLATION AND INVESTIGATION IN WISCONSIN. RAILROAD LEGISLATION IN WISCONSIN-ABSTRACT OF THE POTTER LAW--ABSTRACT OF REPORT OF COMMISSIONERS-NATURE OF THE CONTROVERSY BETWEEN THE PEOPLE AND THE RAILROADS-SELF-INTEREST OF CORPORATIONS NOT A SUFFICIENT GUARANTY AGAINST EXTORTIONS-COMPETITION TENDS TO CONSOLIDATION-EVILS OF RAILWAY CONSTRUCTION AND MANAGEMENT-CAUSES OF UNDUE COST-CONSTRUCTION ON CREDIT--CORRUPT LETTING OF CONTRACTS-MISAPPROPRIATION OF LAND GRANTS-ILLINOIS LAW-SUPERVISORY DUTY OF STATES HOLDING LAND GRANTS-ILLINOIS DECISION.

ANOTHER Source from which we have drawn largely, is the "First Annual Report of the Railroad Commissioners of the State of Wisconsin," lately published.

The people of that State had been eager for railroads. To build the first road, they had mortgaged their farms to the amount of over $4,000,000, and had granted other charters in excess of the real demand, and through unbounded confidence had failed to secure their own interests by proper guaranties. They had been taught by signal experiences the power of railroad corporations over legislatures. So far from being inimical to railroads, the contrary was true. They had "suffered long and were kind," until unjust discrimination in the matter of freights roused their indignation, and hastened the favorable hearing of their complaints. The strength of the Grange made them masters of the situation; a Granger Governor, perfectly familiar with the history of the roads and with legislation, was in the executive chair. This turning of the tables resulted in the passage of what is known as the "Potter Law," by the Legislature of 1873-4. This law classified the roads, determined a tariff for fares and freights according to such classification, and affixed severe penalties to its violation. The Supreme Court of the United States had held that the right of a company owning a road, to fix its rate or charges, was an “attribute of ownership." The railroad companies, therefore, declared the Potter law unconstitutional, and courteously informed the Governor, through their respective presidents, of their determination to resist it. The Governor as courteously, in a "proclamation," announced his intention to enforce it. By successive steps, the case finally reached the Supreme Court. The opinion of Chief Justice Ryan was rendered on the 15th of

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September, 1874; an injunction was granted "including all the railroads of the State," and the Wisconsin Railroad war closed in the declaration, through the President of the Chicago, Milwaukee and St. Paul Railroad Company, that, "as law-abiding citizens, the railroads would at once conform to the decision of the Court, and endeavor to obey it, in good faith, until it should be reversed by a decision of the Supreme Court of the United States, or until the law was repealed by the Legislature."

These two reports are an education in railroading, and we commend their careful reading to every Patron who desires to secure the great ends of these exhaustive investigations. The fact that the conclusions arrived at by these two independent committees are so nearly identical, seems to give them such additional weight as to justify the large space given them in this work:

To a considerable extent, the interests of the railroad corporations and the public are in harmony; thus it is clearly for the real interest of the corporations to build good and safe roads, and upon lines that will accommodate the largest number of people and the greatest amount of traffic; and yet, practically, they not unfrequently disregard both these elements:

First, because the wisdom and foresight that should eminently characterize the management of railways are often wanting; and,

Secondly, because the managers are not unfrequently in their places for the sole purpose of promoting their own personal ends. But again, there are cases in which the interest of railway corporations and the public are opposed. For example, it is the interest of the companies to prevent the building of competing roads; to hamper and embarrass rival lines already established; to force such traffic as they are able to command over as much of their own lines respectively as possible, though it be at the expense of time and other advantage on the part of the shipper.

For all these reasons, and others that might be named, the insufficiency of self-interest on the part of companies, as a protection to the public, has been long recognized.

Again, competition is an unequal reliance, though it is so invariably applicable as a restraint in all sorts of trades, professions, and ordinary commercial enterprises, that it is not surprising how long it has misled the public and legislative bodies. It always serves as a protection where it is full and permanently maintained, as well in matters of transportation as in the case of the trades and most individual enterprises. But therein lies the difficulty. Competition implies freedom of the operator, both as to material and forces. In case of the ordinary avocations, this freedom is practically quite complete; the materials and the labor to be used can be had in the open market, and fair purchase is protected by the active interest of those who have them to sell.

With regard to competition between railroad companies, this nat

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ural law is not certainly operative. There is neither freedom of means nor of forces. A road once built cannot be placed in any market the company pleases and compete for freight, as the manufacturer can compete for his raw material, or the merchant vessel for a cargo. It can only offer its facilities and bide its time. Should no rival spring up to contest the field, it can command the produce of the section of country tributary to it, on its own terms, so that it leaves barely margin of profit enough to the producer and dealer to induce production and delivery. And if, by-and-by, a rival line should be established, and the traffic should be less than equal to the carrying capacity of both, the two are almost sure, after fruitless efforts to drive each other from the field, to form a combination, agreeing either to demand equal rates, agreed upon, or to "pool" their earnings.

This point having been reached, the public have no ground of hope, except in the possibility of a falling out of the companies, and a renewal of the competition which gave origin to the compact. For the companies themselves, there seems, in most cases, to be no safety but in a still closer union, under an act of consolidation from which there is no breaking away.

The controversy, then, is irrepressible, if the reliance is upon economical laws alone; being a conflict between the necessities of society on the one hand, and the natural selfishness of strong monopolies on the other.

We will now consider other difficulties and evils of railway construction and management. To make the matter worse, the roads are often so constructed, and railway transportation so managed, as to almost compel heavy exactions on the part of the railway companies, and lead to dissatisfaction and condemnation on the part of the public. An overshadowing evil attendant upon railway construction and operation is the fact that all railway enterprise is the result of individual interest and purpose, subject to no harmonizing general control. To avoid inconvenience and losses, consequent upon discordant management, the companies themselves are impelled to consolidation by a constant law of self-interest, which the public have regarded with hostility and distrust. The result must and should be an appreciation of the fact that the true interest of the public, as well as of the corporations, lies in the direction of better organized and less discordant expenditure of energy and capital, and in the adoption of more comprehensive principles of legislation to that end. The facts ought to be realized not only that discriminations by exorbitant charges upon one locality at the expense of another, is an evil to be discouraged, but also that legislation discouraging investment by encouraging ruinous competition is equally to be deplored.

Prominent among these evils is the primary one of unwarrantable cost. A road having been built as economically as possible, no one can reasonably make complaint of charges that yield only a moderate per cent. of profit on the investment. Indeed, the public are willing that they who put their money into railways should have a very liberal profit, since it is attended with more risk than is the investment of money in many other ways. But if a road has cost

thousands of dollars per mile more than it ought, owing to want of skill and judgment on the part of the company, or if there is reason to believe that the assumed cost is not the real cost-the difference having gone into the hands of the officers, or their friends acting in the capacity of contractors or "promoters,"-then it is natural that there should be an unwillingness to allow even a moderate per cent. on the declared cost.

Unfortunately, these mere hints of dishonest management find warrant in actual facts in all countries.

If we inquire into the causes of undue cost of railways, they will be found with but little difficulty. Prominent among them are the following:

1. Slight pecuniary interest of the managers.

2. Construction on credit.

It is not essential that every dollar necessary to build a road should be in bank before the work of construction begins; if it were, few roads in a region of country like ours, where there is but little spare capital, would be built. A reasonable amount of credit is legitimate, indeed often absolutely essential; but since the use of it adds greatly to the cost of building, it should in all cases be employed as sparingly as possible.

3. Injudicious location of lines.

This particular cause of undue cost will be best appreciated by skillful engineers, who cannot have failed to note how very often lines of railway are made to cost much more than was necessary by careless surveys. But one need not be more than an ordinary engineer, or even a professional engineer at all, to detect expensive blunders of this sort on every hand-blunders which not only occasion a large increase in the cost of construction, but also a permanent extra expense of working.

4. Corrupt letting of contracts.

Probably the system of construction by "rings" formed inside to operate outside, for the private gain of individual officers and their friends, is, of all causes of excessive cost, the most prolific. Of course there are many railway officers too honorable to resort to measures for private advantage which involve the robbery of stockholders and creditors; but such practices are nevertheless so common as to make it somewhat doubtful whether they do not constitute the rule rather than the exception. Sometimes they are carried on by directors and officers openly, but oftener, of course, under cover. We would not be understood as branding every construction company, composed in whole or in part of officers and members of the company contracted with, as guilty of fraudulent dealings with stockholders. A construction company possesses some advantages for conducting the work of construction which a chartered railroad company does not possess-especially if many of the directors of the railway company are non-resident--and the undersigned have knowledge of some such who are believed to conduct the business of building in that way solely, because of these advantages, and wholly in the interest of the stockholders who compose the railway company. They are forced to believe, however, that the number of those who thus manage is comparatively small.

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It is impossible to estimate with any degree of accuracy he amount of the burden upon the industry of this country by fraudulent building contracts, but it is safely assumed to be enormous. 5. Fraudulent purchase of lines.

Kindred to the corrupt letting of contracts is the wrong of purchasing lines already owned, at prices far above their real value, the excess being divided secretly between the "ring ring" managers of the two companies. Transactions of this sort are usually managed with such adroitness that detection is difficult, if not impossible; but the cases are neither few nor far to seek in which the evidence is convincing that the terms conceded by purchasers must be accounted for either on the ground of dishonesty or lack of judgment.

6. Misappropriation of land grants.

The American government is the only one that has adopted the policy of making donations of the public lands of the country to aid in the construction of internal improvements, looking at the industrial progress of the nation.

In view of the newness of the country, the deficiency of cash capital for the construction of expensive works, and the extent and variety of its material resources, which must otherwise long remain undeveloped, this policy may have appeared at the time to be a wise one; indeed, it has promoted the industrial prosperity of the nation.

In the case of the trans-continental railways, the Union and the Central, already in use, and the Northern and Southern, now in construction-there was still another motive that influenced the government to bestow the immense grants they have received. The rebellion had taught us the danger of disintegration. The Atlantic and Pacific States were so removed that there was danger of an early political falling apart; there was need, therefore, that these great divisions of our common country be brought into closer relations. This was the argument.

Unhappily, experience has shown that there is another side to this question of government aid in the construction of railways-that land grants, how much soever needed for the encouragement of improvements in the interest of industry and commerce, have by no means been an unmixed good-that, in view of the corruptions engendered, and the public demoralization they have produced, it is quite doubtful whether they have not been a curse rather than a benefit.

In the act of conferring lands upon the Illinois Central Railroad Company, the State of Illinois made an honorable exception to the general rule, requiring, as a condition of receiving a grant, that the company should annually pay into the public treasury seven per cent. of its gross earnings, a sum now amounting, we believe, to something over three quarters of a million of dollars. So far as we know, this act of a provident Legislature stands conspicuous as being the only instance in which the interests of the public, in grants. made to the States to aid in the construction of railways, have been carefully protected.

The lands granted to Iowa and Minnesota, as well as to Missouri, Kansas, and Nebraska, have been given to the roads in those States, without other condition than the construction of the roads within a given date.