§ 1. Peculiar privileges of railroads. § 2. Public nature of the railroad. § 3. State railroad commissions. § 4. Consolidation and need of national regulation. § 5. The Interstate Commerce Act. § 6. The Commission's powers strengthened. § 7. Fixed rates and declining net earnings. § 8. Federal control of railroads. § 9. Transportation Act of 1920. § 10. Significance of the Transportation Act.

Fig. 1, Main Railroads and Rate Districts of the U. S.

Map reproduced by kind permission of Denoyer-Geppert Co., Chicago, from Map. A 19 (in colors) in the Hart American History Series; to which have been added the outlines of rate districts referred to in decisions of the Interstate Commerce Commission.

§ 1. Peculiar privileges of railroads. The various grants of lands and money to the railroads make them other than mere private enterprises. Those in control of the railroads usually denied this and asserted the right to run "their own business" as they liked. They said that the bargain was a fair one, and was then closed. The public gave because it expected benefit; the corporation fulfilled its agreement by building the road. The terms of the charter, as granted, determined the rights of the public; but no new terms could later be read into it, even though the public came to see the question in a new light. Similar grants, though not so large, have been made to other industries. Sugar factories were given bounties; iron-forges and woolen mills were favored by tariffs; factories have been given, by competing cities, land and exemption from taxation; yet these enterprises have not on that account been treated, thereafter, in any exceptional way. So, it was said, the railroad was still merely a private business.

But the social answer is stronger than this. The privileges of railroads are greater in amount and more important in character than those granted to any ordinary private enterprise. The legislatures recognize constantly the peculiar public functions of the railroads. In other private enterprises investors take all the risk. Legislatures and courts recognize the duty of guarding, where possible, the investment of capital in railroads. Laws have been passed in several states to protect the railroads against ticket-scalping. Whenever the question comes before them, the courts maintain the right of the railroads to earn a fair dividend. Private enterprise has been invited to undertake a public work, yet public interests are paramount. The regulation of railroad rates is not a new condition read into railroad franchises, but is implied in the grant of a franchise to common carriers and is involved in the old English law of common carriers.

§ 2. Public nature of the railroad. As a result of a half-century of bitter experiences with the results of the private property conception of railroads, a growing part of the "public" began to have more definite opinions regarding the nature of the railroad business. That opinion by 1870 had begun to run about as follows. Railroads in our country are owned by private corporations and are managed by private citizens, not, as in some countries, by public officials. They have been built by private enterprise, in the interest of the investors, not as a charity or as a public benefaction. Railroad-building appears thus at first glance to be a case of free competition where public interests are served in the following of private interests. But, looked at more closely, it may be seen to be in many ways different from the ordinary competitive business. Competition would make the building of railroads a matter of bargain with proprietors along the line, and an obdurate farmer could compel a long detour or could block the whole undertaking. But the public says: a public enterprise is of more importance than the interests of a single farmer. By charter or by franchise the railroad is granted the power of eminent domain, whereby the property of private citizens may be taken from them at an appraised valuation. The manufacturer, enjoying no such privilege, can only by ordinary purchase obtain a site urgently needed for his business. Why may the railway exercise the sovereign power of government as against the private property rights of others? Because the railway is peculiarly "affected with a public interest." The primary object is not to favor the railroads, but to benefit the community. These charters and franchises are granted sparingly in most European countries. In this country they have been granted recklessly, often in general laws, by states keen in their rivalry for railroad extension. When thus great public privileges had been granted without reserve to private corporations, it was realized, too late in many cases, that a mistake had been made and that an impossible situation had been created.

If an extremely abstract view is taken, there is danger of losing sight of the real problem, which is that of harmonizing these two interests in thought and in public policy. Yet the extreme advocates of the private control of railroads for a long time resented indignantly any public interference with railroad rates and with railroad management as an infringement of individual liberty. This position often was inconsistently taken by those in whose interests free competition had been violently set aside at the very outset of railroad construction, and for whom governmental interference had made possible great fortunes. It has become generally recognized that the railroads ought not to be allowed to change from a public to a private character, just as it suits their convenience. True, they are private enterprises as regards the character of the investment, but they are public enterprises as to their privileges, functions, and obligations.

If there were none of these special reasons for the public control of railways, there is an all-sufficient general reason in the fact that a railroad is always, in some respects and to some degree, a monopoly. Therefore, the railroad problem may be viewed as but one aspect of the general problem of monopoly.