Stuart Daggett

“ The serious side of this situation in California is that the conflict of interest between buyers of transportation has exposed the railroad to temptations which it has had neither will nor ability to withstand. Where there is constant demand for favors there is likely to be discrimination unless the person or institution to which demand is made is fortified by a clear view of public policy and a sense of morality more than ordinarily acute.
It is no secret that the Southern Pacific has had neither the one nor the other of these qualifications. ”

“ The primary defect in the Traffic Association’s campaign lay in the fact that no man in the group of promoters interested in the new enterprise had sufficient prestige so to impress the public imagination as to lead investors to have confidence from the beginning that the projected railroad would be built. The composition of the Traffic Association was admirable for the purpose of encouraging water competition. It was as inadequate to the financing of a large railroad to be conducted without government support as it had been shown to be to the management of a political campaign. ”

“ What should two dry goods merchants and two dealers in hardware, who knew nothing first hand about railroad operation, have cared about the administration of a railroad 800 miles long? If they wanted interest on an investment, why money commanded 2 per cent a month in Sacramento itself. Only the prospect of still greater gains was likely to attract a speculative trader like Huntington, and the source of such profit could be found only in construction of the road. ”

“ In all fairness to the company, it should be said that this controversy does not truly represent its attitude at the present time. Stanford and Huntington are dead, and their properties are in other hands. The great railroad system which they left, controlled by leaders who are responsive to new policies, is in general no longer a profit-making device in the hands of a small group of men, but instead is a powerful machine for the promotion of industry and commerce on the Pacific Coast. ”

“ Appealing particularly to San Francisco, the promoters of the new enterprise declared that a competing railroad was essential to that city’s prosperity. San Francisco amounted to no more than any other collection of people unless it used its facilities as a seaport. Facilities unused might just as well not exist. It had been a part of the policy of all the transcontinental roads for many years to neutralize this seaport by all the means at their command, including the practice of maintaining excessively high local rates between the sea and the interior. ”

“ Wilson, of San Francisco, declared:
Here, then, will stand in our government a constitutional triumvirate as great in many respects as that of Rome in the olden time. They may raise and lower the rates of freight and fare to suit their powers, and thus they can play with the value of the stock in the market, and determine the value of the bonds and mortgages on the road.... They will be sole judges of what are abuses.... They will determine complaints on their own notions of right and wrong, and however erroneous or malicious their acts, there will be no remedy or appeal. ”

“ It was the contention of Mr. Huntington, indeed, that the very name “subsidy” was a misnomer. He said:
The Central Pacific never got a subsidy; they got the loan of a small subsidy. The government loaned money at six per cent and they expected and did receive direct benefits from the time the road was built. It was not a subsidy in any way.... A subsidy as I believe is where you give ... For instance if you will build a railroad I will give you $10,000 as a subsidy; as to being a loan of money it is no such thing. It is only a business negotiation. ”

“ Would a state corporation buying those certificates be in any different situation from an individual purchaser, if the State of its domicile had endowed it with corporate power to buy stock?”
Moreover, to continue the argument, though purchases of stock were subject to federal law, they would violate no provisions of the Sherman Act. A purchase or sale is not a contract in restraint of trade, for a contract is executory, implying something yet to be done; while a sale is executed, completed when made and because it is made. Nor is a contract in restraint of trade necessarily unlawful. ”

“ True, the legislature cannot exempt the city and county from liability, but it can authorize the corporation to refuse to contract with persons who do not waive the proportionate liability established for their protection. How the individual liability of a stockholder of a corporation can be a matter of public concern any more than the liability of a copartner, we are unable to perceive, and we are not aware that it has ever been claimed that the latter liability had its foundation in public policy. ”

“ Were not the Judges of the two United States Courts in San Francisco appointed at the instance of Leland Stanford? How many Superior Courts are there in the State in which a citizen may bring an action against you in full confidence that he will be fairly and impartially dealt with? Doubtless there are such but the difficulty is to find them. Before the recent elections how long did you control the government of San Francisco? ”

“ Well, the necessity of obtaining control of the Southern Pacific Railroad was based really upon the act of Congress providing for its construction. It became apparent that if that last was constructed entirely independent to those who were interested in the Central Pacific, it would become a dangerous rival not only for the through business from the Atlantic Ocean, but it would enter into active competition for the local business of California. It was of paramount importance that the road should be controlled by the friends of the Central Pacific ”

“ No land was to be leased for a longer period than fifty years, not more than 50 acres was to be leased to any one railroad, and no lease was to be assignable without the written consent of the commissioners. As a still further protection, it was provided that the beneficiary of the lease must be a railroad company. Such a company, moreover, must be incorporated within the state of California, and it might not be a corporation which, at the date of the passage of the act, had any terminal facilities in the city and county of San Francisco. ”

“ We do not meet here for the purpose of waging warfare or encouraging antagonisms between the shipping public and the railroads, or any transportation lines. We believe that the same theory would govern them as would govern ourselves as business men in the redress of any grievance of our customers. We believe that by united action we can present to the railroad and transportation companies views in reference to freights, classifications, etc., that will cause them to make changes that will be beneficial both to ourselves and to them.... ”

“ Along the whole line of their main trunk road from San Francisco to Ogden, as well as along the various branch roads of this company, nothing is heard but one continuous murmur of complaint, and it is safe to assert that this shortsighted, illiberal, and suicidal policy of the company has so completely changed the sentiment of the people that there is not in a single town on any of their lines of road, either in this state or Nevada, one individual who approves of this course, nor one who will speak well of the company, unless it be one of their subsidized agents or strikers. ”

“ A proposition to sell to the Railroad Companies at a reasonable price, so much of the southern water-front as would be actually necessary for depots, warehouses, workshops, etc., might be considered favorably, but a proposal to give to what is or will be virtually a single corporation two-thirds of the frontage of a city destined to be the second in America, is utterly indefensible ... ”

“ Every act of competition tends to drive competitors out of business, but competition is legal, in the absence of fraud or duress. It follows that an individual may buy out a competitor, and then another competitor, and so on, and a corporation may do the same thing. ”

“ All in all, the Central Pacific does not seem to have attempted to withhold its lands from the market, and there is no evidence that the settlement of the coast was retarded by the inability of prospective settlers to get land. The price which the Central Pacific could exact was held in check by the retention by the government of alternate sections, while the large sums which the company spent for advertising redounded to the advantage of the government as well as to that of the railroad. ”

“ The difficulty in bringing about a substantial lessening of competition by agreement with a water carrier is found in the fact that the sea is free, so that new ships and new shipping companies can readily take the place of those that are withdrawn. The peculiar strength of the Pacific Mail in negotiating with the railroad company lay in the fact that it enjoyed for many years the exclusive privilege of through-billing freight between San Francisco and New York, including the privilege of quoting a through rate. ”

“ A characteristic feature of the transcontinental rate system is that the rates to towns and cities in the vicinity of terminals are determined by the absence of water competition. Inasmuch as a shipper located at an inland point is obliged to send his goods to the seaboard before he can avail himself of the advantage of a water haul, it becomes possible to charge him a rate equal to the sum of the terminal rate and the local rate which he will have to pay without causing a diversion of his freight from the rail to the water lines. ”

“ While the Union and the Central Pacific roads both owed their existence to the same federal legislation, and while they had been close business associates for over thirty years by virtue of geographical necessity, both had uncompromisingly maintained their independence. Neither Jay Gould, who was long influential in Union Pacific affairs, nor Huntington himself, were men who cared to form part of organizations which they could not control. ”

“ Have you not dictated the government of Oakland for the past twenty-five years? Until last election had you not continuous control of Alameda County’s government?... [327]
When one desires to test the accuracy of accusations like those of Casserly and of Bassett, one has first to remember that they are in accord with the substantially uncontradicted declarations of men of all degrees of prominence in California over a period of fifty years. Political campaigns have been waged on the question of the railroad versus the people. ”

“ The data which have been presented show that, while the system of local rates in California was based originally upon distance, it soon became profoundly modified by conditions of cost, and still more by the presence of competition at strategic points, and by the occasional necessity of reducing rates in order to stimulate the movement of freight. The charges for short hauls in the interior valleys where the Southern or Central Pacific possessed a monopoly were made high, because traffic was scant and because the railroad was able to exact a monopoly return. ”

“ I contend, therefore, that the people of Tulare County are now actually paying, in addition to the loss or inconvenience resulting from isolation from market, the sum of $77,780 per annum, for the privilege of being without a railroad.
There was little that was novel in this sort of argument, or in the further contention that the increase of the tax roll of the counties, due to railroad construction, would yield a revenue more than sufficient to cover the taxes incident to the granting of a subsidy. Better transportation meant wider markets, denser population, higher values. ”

“ There are various ways of estimating the earnings which a new railroad is likely to secure—yet all of them may give curious results when applied to territory which has never enjoyed the benefits of any rail transportation at all, as was substantially the case with California before the Civil War. In general, engineers in California had to reckon with the facts that the population of the state was small; that it had only three cities of importance—San Francisco, Sacramento, and Stockton ”

“ There were at least two good reasons why an attempt should have been made to handle business from New York over the Southern Pacific rather than over the Central Pacific. The first reason was that it was more profitable for the Southern Pacific to take freight from New York by a route which it entirely controlled, than to divide the earnings on such business with the direct lines between New York and Ogden. The second reason was that the Southern Pacific could offer better [359] service on the Sunset route than over the Central Pacific because of the indifference of the lines east of Omaha. ”

“ The Central Pacific did not dare stop [171] work for fear that the federal government might be persuaded to subsidize another transcontinental road, and so deprive it of the monopoly which it was so anxious to retain; but it built as slowly as it could, and endeavored to make up by retrenching in other directions. Had the associates been able to sell securities in New York, the slowness with which the earning power of their system developed would not have been so serious a handicap. The territory was after all a rich one, and given time was sure to yield substantial profits. ”