From the 1930 book, Our Times, Pre-War America.

THE railroads, in the beginning, were subject to but one legal limitation upon the rates they could charge, an ancient restraint originally devised to apply to carters and draymen and very inadequate for such organized instrumentalities of transportation as railroads came to be.

The railroads were, under the ancient common law, “common carriers.” As common carriers, the railroads were required (1) to render their services to all who sought them, without discrimination; and (2) to exact only reasonable charges. The remedies for the public under the common law were confined to suits in courts.

The remedies were (1) to tender a reasonable amount in payment and recover damages for any loss sustained because the service was not supplied after such tender; or (2) to pay under protest the charge demanded and recover by suit any amount in excess of a reasonable charge.

In addition to this restraint common to all railroads, some were limited, by stipulations in their original charters, as to maximum rates they could charge.

§ I

With these exceptions — not important under the conditions of the nineteenth century, and not material to the present history of the development of statutory regulation — the railroads in their early days were, with regard to the rates they could charge for transportation, as immune from regulation by government as any other owner of private property; they were wholly free from statutory regulation, wholly free from administrative supervision by government.

They were, in their power to fix arbitrarily the price of what they sold (transportation), on the same footing with mill-owners, farmers, merchants, ship-owners, physicians, and other producers of goods or sellers of services; each had in this respect the same status with respect to government, the broad legend common to all being, “A man can do what he will with his own.” The practice, with the railroads, as expressed in a phrase of the day, was to “charge all the traffic will bear.”

As respects this immunity from regulation, railroads were on the same basis as other forms of private property. But railroads had a right, a privilege, that other forms of private property had not. Railroads had the right called “eminent domain.”

The possession by the railroads of this special right was the reason for the raising of a question about their immunity from government interference with the price at which they sold their services. And the raising of this question is the beginning of the history of railroad rate regulation.

§ II

For their rights-of-way, early railroad builders needed narrow strips of land which had to be acquired, in most cases, through purchase. Usually the owner was willing to sell, or even, if he believed the presence of the railroad would be an advantage, to donate the necessary strip of land.

But there were occasions when an owner, seeing his opportunity to hold up the railroad, demanded an exorbitant price. And other occasions when a farmer, moved by his affection for the land that was almost a part of himself, or instinctively fearful of the disruption which the railroad would bring to his familiar and beloved ways of life, or suspicious about the city strangers who would be brought to his door, or solicitous for the safety and peace of mind of his cattle and horses that would be terrified by the engine’s noise and endangered by its speed, was flatly unwilling to sell at all.

When such cases arose, the railroads went to the courts, called attention to their right of eminent domain (granted to them in their charters), and pleaded that the courts, in accordance with that ancient doctrine, should condemn the land, bestow title upon them, and fix the amount of compensation to be paid.

The courts always granted the plea (unless there was some defect in the railroad’s charter, or other technical legal objection).

Eminent domain traditionally had been a principle associated chiefly with a public service, granted to forms of property affected with the special attribute of performing a public service. Eminent domain could only be conferred by government; it was a grant by government of a portion of its own prerogative.

Eminent domain was analogous to the three supreme controls which government exercises over private property: the police power, taxation, and expropriation or destruction during wartime.

Only upon the representation by the railroad promoters that their lines would perform a public service, did legislatures grant, and courts apply, the doctrine of eminent domain for the railroads’ benefit.

Without the privilege of eminent domain, the railroads could not have been built — but it was the possession of this privilege that ultimately led to their subjection to public control of their rates. It was the spectacle of railroads exercising the right of eminent domain that caused the public to reason that if the railroads had this extraordinary privilege, it ought to be accompanied by an analogous right on the part of the public.

§ III

The idea took concrete form and came to a head in the Midwest. There, “hard-headed old pioneers from New England and Northern Europe who thought as they plowed” reasoned that “the railroad was only another form of highway.”

Holding this conviction, and feeling that they and their communities were wronged by some rates that the railroads dictated, the farmers formed the “Patrons of Husbandry,” popularly known as the “Grangers.” The aim of the Grangers was to secure legislation which would give the State governments the right to regulate rates, which would deprive the railroads of their power to make such arbitrary rates as they chose.

This demand the railroads resisted with as much self-righteous defiance as if they were ordinary owners of private property against whom injustice was being attempted. To defend themselves they became more active in politics than before.

As it was put by Robert M. LaFollette, the railroads “saw that they must either accept control by the State, or control the State.” This statement is historically accurate, and logical; a further statement by LaFollette is colored to some degree by his mordant anti-railroad bias, “They adopted the latter course; they began right there to corrupt . . . all the States of the Middle West.”

Presently, in four mid-western States, Wisconsin, Minnesota, Iowa, and Illinois, the anti-railroad movement won in the local legislatures, and then in the courts, the right of the State to regulate a part, but only a part, of transportation. The portion of transportation that a State could regulate was the portion that was intrastate, transportation in which the shipment or journey began and ended within the same State.

But this was of small avail, for the bulk of railroad transportation is interstate, that is, begins in one State and ends in another. Some States, notably Illinois, attempted to regulate this interstate portion of railroad transportation. The railroads fled to the sanctuary of the Federal courts.

The Supreme Court (in the case of Wabash Railroad versus Illinois declared that “a statute of a State intended to regulate . . . transportation from one State to another is not within the class of legislation which the States may enact, in the absence of legislation by Congress.”

In the absence of legislation by Congress, interstate transportation could not be regulated. Congress had the power to enact such legislation, had the “power to regulate commerce . . . among the several States,” but, aside from two unimportant laws, had never exercised the power during more than forty years following the building of the first American railroad.

“Bills were introduced . . . and laid aside; some investigations were made. But it all came to naught.”

§ IV

About the time the effort of Illinois to regulate interstate rates was thwarted by the Supreme Court’s decision, the representative of Illinois in the United States Senate was Shelby M. Cullom. Cullom, taking account of his State’s determination to achieve regulation, and of the agitation attending it, had introduced in the Senate a bill providing for regulation by the Federal Government.

“Never . . . was a bill,” Senators remarked during the ensuing debate, “which would inevitably affect, directly or remotely, so great financial and industrial interests.”

The decision of the Supreme Court forever ending the hope of the States (as States) to regulate interstate commerce was handed down October , 1886. Four months later, February 4, 1887, Cullom’s bill for regulation by the Federal Government came to a final vote in the Senate. It was passed, as a direct result of the agitation attending the Supreme Court’s decision.

§ V

By the Interstate Commerce Law of 1887 was created a new instrumentality of government, without precedent in our Federal institutions, the Interstate Commerce Commission. To the Commission, Congress delegated to a limited degree the power of Congress to control the railroads, in particular its power to regulate rates.

At the time, public sentiment echoed the exalted opinion which Congress itself held about the reforms the bill would work. The occasion was hailed as an historic landmark.

As respects assertion by Congress of its power to regulate rates, the act of 1887 was a landmark; from that assertion Congress never receded. As respects the creation of a new instrumentality of Federal government, the Interstate Commerce Commission, that was likewise a landmark and likewise remained permanent.

But as respects the powers given the Commission through which it could function, as respects the controls which the Commission was authorized to exercise over the railroads, most of these were in time destroyed, neutralized, or weakened.

The railroads, far from submitting docilely to the yoke of Federal regulation, entered upon a long siege of legal attacks upon the new law, questioning the constitutionality of the whole of it and of each of its parts.

In court after court, railroad lawyers argued, in part, that the railroads were citizens of the individual States that had given them their charters, and that therefore they were amenable only to the States, and not to the Federal Government. This was the reverse of their previous plea — used when the railroads were defending themselves against State regulation — that they were “citizens of the United States” in the sense defined in the Fourteenth Amendment to the Federal Constitution, and that therefore the States could not regulate their interstate rates.

This nimble scurrying of the railroads from the shelter of their United States citizenship to the shelter of their State citizenship suggested an epigrammatic indictment — like every epigram, not containing the whole of the truth, and maiming what part it does contain — which pictured them as playing hide-and-seek with the public in that twilight zone, that no-man’s-land, which lies between State sovereignty and Federal sovereignty.

In their attacks upon the new law, the railroads were in large part victorious. Their success, it was charged, was due no more to the plausibility of their contentions, or the talent of their lawyers, than to their influence with the courts, an influence so powerful by 1904 that it was described in inflammatory words by a member of the Interstate Commerce Commission, Charles A. Prouty.

Commissioner Prouty’s violent charge must be read in the light of his temperament, which was ardent, and his political philosophy, which was somewhere between independent and radical: “The railroads own many of our courts and other public bodies. Not because they have of necessity bought them by the expenditure of money; they have a different way of doing things. They see to it that the right men, the men of friendly inclinations, are elected.”

He added, in bitter emphasis upon the impotence to which court decisions had reduced his own office, supposed to regulate the railroads, “If the Interstate Commerce Commission were worth buying, the railroads would try to buy it . . . . The only reason they have not tried to purchase the Commission is that this body is valueless in its ability to correct railroad abuses.”

Hand in hand with the process by which the railroads overcame the Interstate Commerce Act of 1887, they guarded themselves against future legislation. Railroad lawyers and other representatives of railroad interests in the various States made themselves political bosses, or allied themselves with existing bosses.

The bosses elected pliant legislatures, the legislatures sent to Washington Senators satisfactory to the railroads, in some cases lawyers who stepped from — if they did step wholly from—the office of railroad counsel to take their seats in the Senate.

In the Senate, the railroads completed their chain of power by seeing to it that members favorable to them were placed upon the Interstate Commerce Committee. “The railroads had firmly determined to stop any further railroad regulation.”

The combined result of the success of the railroads’ attacks in the courts upon the 1887 law, and of their prevention of the passage of new legislation by Congress, was a condition which the Interstate Commerce Commission formally described in its annual report for 1897: “Under the law as now interpreted, there is today and there can be no effective regulation of interstate carriers.”

As Teddy Roosevelt more tersely put it in his autobiography: “The law . . . was a dead letter.”

§ VI The Pass, Its Potency and Its Passing

One of the means by which railroads prevented regulation of their rates or other legislation undesired by them was the pass. “In the Pennsylvania State Senate, the representative of the Pennsylvania Railroad had a desk in the front row, alongside the secretary of the Senate; his business was to record requisitions and issue passes daily [i. e., ‘trip’ passes for constituents — every member of the Senate had his own “annual” as a matter of course].”

“The representative of the Pennsylvania Railroad was probably the most popular and important individual on the floor of the Senate, and participated in all its activities except the roll-calls. The same condition prevailed in other legislative bodies throughout the country.”

The pass was not only the railroads’ buttress against legislation; it was their shield, in some cases, against unfavorable action by courts and unfriendly mention by newspapers. The system was intricate and practically universal.

In each State, as the 1st of every January approached, the railroads sent annual passes to the Governor and all State officials, to all the members of the legislature and, especially, to the heads and leaders of the two party organizations; in every community they delivered passes to the county or municipal officials, to the local officials of the two party organizations, to the newspaper editors, to practically every person in a position to influence either legislation, court decision, administrative action, or public opinion.

If ever any one to whom a pass was tendered refused it, the case was apt to be that of an unusual temperament, or a most extraordinary conscience.

Far from being seen as a bribe or an impropriety, or a thing to conceal, the pass was regarded more nearly as an honor. Everywhere, to “flash a pass” on the railroad conductor was a gesture of distinction, of a sort — a sign of having arrived at some degree of power. To pay railroad fare was a mark of failure to emerge from the herd. “Men of high degree who would look with horror upon a direct bribe, were as eager for passes as a dipsomaniac for drink.”

Annual passes were but the beginning. Immediately below the top caste of the social system that carried “annuals,” was an order composed of those who, by direct application or by negotiation through superiors, could get “trip passes.”

The ability of a member of the legislature, or any other political leader, to get trip passes for his constituents or partisans, was perhaps the most potent form of patronage he had. Any important political boss, such as Quay of Pennsylvania, could command trip passes by the thousand for the accommodation of such delegates as would support him in a State convention, and such hundreds of henchmen as would cheer him from the galleries or chant his name in parades.

“A political boss who has obtained and used for the purpose of debauching his followers, a bushel or more of passes is not likely to be indifferent to the expressed wish of the railroad company for some new kind of crook in legislation, or the suppression of bills which ought not to be suppressed.”

“Thus the railroad company corrupted the boss, and the boss added a new taint of putridity to the ancient corruption of the railroad company; and, both together, they put depravity into politics and filled the land with knavery. There is really no exaggeration in the assertion that no single influence proceeding from one source and operating in one direction has done so much to poison the very fountains of political life as the railroad free pass.”

The protest against political bosses that came to be called the Progressive movement had many roots, and its beginnings were too multifarious to be stated within a paragraph. But any fair outline of the sources and the history of that movement would list, as one important contribution, the part played by the pass in building up the boss system.

In every State, the railroads had legitimate need of a lawyer at the State capital or in some cases at the principal large city, supplemented by a local lawyer in each county seat, for the purposes, originally blameless, of looking after damage suits, taxation, and the like.

These lawyers had power to requisition passes, often, likewise, for legitimate purposes — a farmer whose cow had been killed by the engine would accept more readily a pass that would cost the railroad theoretically nothing, than the fifty or a hundred dollars that would be so much subtracted from the railroad treasury.

Railroad lawyers thus equipped became persons of consequence, in politics as well as in the courts. Other corporations, following the shrewd lead of the railroads, retained them, for purposes both political and legal; and thus their influence grew.

Presently, in many States, the counsel or other representative of the railroad interests was the political boss of the State, and the local county representative was the political boss of the county, and the whole was a vast pyramid of compact power, its base resting upon railroad passes, its peak at the very dome of the National Capitol.

One railroad, the Pennsylvania, had long been lavish with passes to Senators and Representatives in Congress; and also to Washington newspapermen, for whom it provided each year, in addition to ordinary passes, a free vacation of several days at a seaside hotel. “So far as I am concerned,” said one Washington correspondent of that time, “if the Pennsylvania Railroad wants the Capitol Rotunda for a roundhouse they can have it.”

The Pennsylvania, during the prevalence of its lavishness with passes, had its station and some of its trackage in Washington on land owned by the government. When a new union station was projected, Congress cooperated handsomely with an appropriation of $1,500,000. Whether Congress was amiably open-handed with the railroad in return for favors in the form of passes to individual Senators and Representatives, need not be asserted. That such was the case was, at that time, a common assumption, an assumption less than fair to the railroad.

At any time, in any case of the passage of legislation favorable to railroads, it was a question whether legislators were making payment for their passes — or whether, in their mental attitude, they insisted upon passes as the price of not being unfair to the railroads. It is a fact that many railroads, particularly after 1900, were a reluctant and coerced party to the exchange of passes for legislative indulgences and immunities.

By the early 1900’s the whole pass system had become distasteful to the railroads. Railroad managers came to doubt whether the friendship of those who received passes balanced the animosity of those who were denied them. Also, the practice had acquired such dimensions that some trains did not carry enough paying passengers to defray their costs — President Cassatt of the Pennsylvania produced figures to show that the passes issued in a year made a difference of a million dollars in the gross earnings of his road.

Furthermore, the railroads had long been under fire for giving rebates to favored shippers, and now the giving of passes had come to be regarded as another public grievance. In intervals when those who disapproved of passes got temporary control of legislatures or town councils, legislation was passed adverse to the railroads, some of it attempting occasionally to forbid or limit the giving of passes to public officials.

Finally, some railroads, convinced that the pass had become more a liability than an asset, decided to get rid of it. The directors of the Pennsylvania, on December 13, 1905, resolved “that the issue of passes and free tickets of all kinds be discontinued from and after 1st January next.” Like action was taken a day later by the Philadelphia and Reading, the Central Railroad of New Jersey, and the New York Central. Later and slowly, the movement spread to some other roads.

Whether the voluntary abolition of passes by some railroads was a wise gesture toward placating public opinion, or whether it was an imprudent surrender of their chief defense against undesired legislation, became, in the light of some subsequent happenings, a controverted question.

That it was the latter was the sad belief of a cynical spokesman, the editor of The Wall Street Journal, who, writing in 1925, said that the abolition of passes “was in its consequences perhaps the most devastating blow our railroads ever sustained. . . . Its provocative effect, its deadly force [is] obvious to anybody who knows the influences which control American politics.”

“Without a single exception,” this financial editor said (with a superlativeness of terms that suggests some danger to truth), “without distinction of creed, or color, the hand of every politician was turned against the railroads.”

Citing statistics to prove his assertion, this authority pointed out that after the abolition of passes, “new [State] regulatory commissions were created in about thirty States, while the others brought their powers up to what might, without temper or offense, be called the persecution level. In the prohibition of passes, virtue was its own — and only — reward.”

That judgment is rather too confident to be certainly sound. The movement toward regulation of rates, State as well as Federal, had too strong a momentum by 1906 to be entirely headed off, though its rapidity may have been accelerated by the abolition of passes.

That there was a relation of cause and effect between the abolition of passes and the proposal for regulation of railroad rates by the Federal Government was occasionally asserted at the time; it was epitomized by the New York Sun, January 8, 1906, in a head-line:

MAY RETALIATE ON RAILROADS
CONGRESSMEN HURT BY THE CUTTING OFF OF PASSES

It is of record that within a month after the railroads began to abolish passes, in December, 1905, began also the climactic fight in Congress for a law to regulate railroad rates.

The coincidence will not bear portrayal as isolated cause and effect. Abolition of passes undoubtedly — to express it accurately — took away from some members of Congress (and from politicians everywhere) a sense of obligation to the railroads. But this fact should not be given more than contributory weight.

More important was the action of Theodore Roosevelt, who about the same time threw himself wholeheartedly into the fight for Federal rate regulation . . .

. . . but that is another story.