§ 5. Eras in the railroad problem. The history of railroads in the United States is closely interwoven with the general economic development, the political ideas, and the public opinion of the nation from 1830 to the present time. Despite the absence of clean-cut unified public convictions on the subject, the entire period divides into fairly well marked eras, as new ideas and policies dominate, not entirely-displacing the old, and already foreshadowing still others. These eras may be designated as follows:

In this period the mileage abandoned on small and non-paying roads partially offset the new mileage constructed. 3 See Vol. I, pp. 437, 438, 443.

(1)   Unregulated private enterprise, beginning 1830.

(2)   Ineffective state regulation, beginning about 1870.

(3)   Ineffective federal regulation, beginning 1888.

(4)   Strong federal regulation, beginning 1906.

This latest era exhibits already two phases, the first being from 1906 to the war in 1917, and the second after that time. The history of these successive eras is instructive to the student of economic institutions in America, as showing how in a democratic society definite truths displace vague and mistaken opinions after long and bitter experiences.

§ 6. Governmental aid to railroads. The growth of railroads in America was more rapid than in any other part of the world, but it did not occur without much help to private capital from governmental agencies. The railroad enterprise was uncertain, the possibilities of its growth could not be foreseen, and private capital would not invest without great inducements. In European countries the railways were built through comparatively densely populated districts, to connect cities already of large size. Yet railroad extension was very slow there, even though the states in many ways aided the enterprises. America was comparatively sparsely populated, and most of the railroads were built in advance of and to attract population, business, and traffic. In many cases railroad-building in America was part of a gigantic real-estate speculation undertaken collectively by the taxpayers of the communities.

American states recklessly abandoned the policy of noninterference, and vied with one another in giving railroad enterprises lands, money, and privileges, in lending bonds, in subscribing for stock and in releasing from taxation. These fostering measures were expected to increase wealth and to diffuse a greater welfare throughout the community. Many states were forced to the point of bankruptcy by their reckless generosity, and some states repudiated the debts thus incurred.

The national government then took up the same policy and granted lands to the states to be used for this purpose. The first case of this kind was the grant to the Illinois Central road, in 1850, of a great strip of land through Illinois from north to south. Grants were made in fourteen states, covering tens of millions of acres of land. Then the national government, between 1863 and 1869, aided the building of the Pacific railroads by granting outright twenty square miles of land for every mile of track, and by lending the credit of the government to the extent of fifty million dollars - a debt that was settled by compromise only after thirty years.

Counties, townships, cities, and villages then entered into keen competition to secure the building of railroads, projected by private enterprise. Bonds, bonuses, tax-exemptions, and many special privileges were granted. To obtain this new Aladdin's lamp, this great wealth-bringer, localities mortgaged their prosperity for years to come. The promoters bargained skilfully for these grants, playing off town against town, cultivating the speculative spirit, punishing the obdurate. Not the civil engineer but the railroad promoter determined the devious lines of many a railroad on the level prairies of America. The effects of these grants were in many cases disastrous, and after 1870 they were forbidden in a number of states by legislation and by constitutional amendments. But, before this era of generosity ended, the railroads in America had received probably more public aid than has ever been given to any other form of industry in private hands.

§ 7. Emergence of the railroad problem. In most charters and laws authorizing the building of railroads, either nothing was specified regarding rates, or maximum rates were fixed which proved to be so high that they were of little, if any, practical effect. But very soon began to appearsome serious evils in the policy of railroads toward the shipping and traveling public in matters of rates and of service.

As the ownership of the wagons, ships, and canal-boats of a country is usually divided, ocean ports and points along the lines of turnpikes and canals enjoy competition between carriers. In the early days of the railroads it was believed that a company or the government would own the rails and charge toll to the different carriers, who would own cars and conduct the traffic, as was done on the canals. Experience soon showed the impracticability of this scheme and the need of unified management. An operating railroad company, therefore, has a monopoly at all points on its line not touched by other carriers. This, like any other monopoly, is limited; for the railroad, to secure traffic, is led to meet competition of whatever kind - that of wagons, canals, rivers, or of other railroads - wherever it occurs. The railroads in private hands early began to "charge what the traffic would bear," high where they could and low where they must, to get the business. Thus developed the various forms of discrimination.

§ 8. Discrimination as to goods. Discrimination as to goods is charging more for transporting one kind of goods than for another, without a corresponding difference in the cost. When reasonably understood, this proposition does not apply to a higher charge for goods of greater bulk, as more per pound for feathers than for iron, the "dead weight" of car being much greater in one case than in the other. It does not apply where there is a difference in risk, as between bricks and powder, or coal and crockery; nor where there is a difference in trouble, as between live stock and wheat. Any difference that can reasonably be explained as due to a difference in cost is not discrimination; on the other hand, a difference in cost without a difference in rate is discrimination. Discrimination as to goods may be by value, as low rates for heavy, cheap goods, and high rates for lighter, valuable ones. Coal always goes at a low rate as compared with dry goods, and sometimes more is charged for coal to be used for gas than for coal to be used for heating purposes.

Railroad discrimination so frequently has resulted in injustice to the shipping public that the term has taken on an evil significance. But it is well to observe that the word discrimination is not derived from crimen (crime), but from discernere (to discern). There are both reasonable and unreasonable forms of discrimination. In general, discrimination as to goods more often appears, under certain conditions and made with due regard to the public interest, to be reasonable; less often to be justified is the form of local discrimination next to be described; and least often of all to be justified is the last-named form of personal discrimination.