Reactions to the Hepburn Act Regarding Railroads’ Freight Rates, July-December 1906

As discussed in a prior post, the Hepburn Act, which became law on June 29, 1906, empowered the Interstate Commerce Commission (ICC), upon complaint, to replace a railroad’s increased freight rates if the ICC determined found them to be “unreasonable” with what the ICC decided were “just and reasonable” rates.

This statute presented a new problem for the railroads. How could they justify any such increase in freight rates to the public at large, including major shippers, and thereby deter any complaint and, if challenged, justify the new rates to the ICC?

This post examines the reactions to the new Act in the last half of 1906 and President Roosevelt’s Annual Message to the Congress on December 3, 1906. Subsequent posts will look at developments on the issue of freight rates in 1907 and 1908.

Public Reactions to the Hepburn Act

Melville E. Ingalls
Melville E. Ingalls

On August 16th, Melville E. Ingalls, the Chairman of the Big Four Railway and a Cincinnati bank president, said at a public meeting of bankers that “the greatest menace to American business and banking interests is found in the various trade laws, particularly the Hepburn and the Sherman [Antitrust] acts.”[1]

 

William Jennings Bryan
William Jennings Bryan

Later that same month William Jennings Bryan, the unsuccessful presidential candidate in 1896 and 1900, in a speech to a crowd of 10,000 at New York City’s Madison Square Garden impliedly argued that the Hepburn Act did not go far enough. Bryan said, “I have reached the conclusion that there will be no permanent relief on the railroad question from discrimination between individuals and between places, and from extortionate rates, until the railroads are the property of the Government and operated by the Government in the interests of the people.”[2]

Bryan’s suggestion was rejected the next day in a New York Times editorial saying that the newspaper was “entirely confident that the Interstate Commerce [A]ct, the [Sherman] Anti-Trust [A]ct , . . ., the Elkins Anti-Rebate [A]ct, and the Hepburn [Act] . . . , the enforcement of which measures has been wonderfully facilitated by recent decisions of the Supreme Court, . . . supply adequate remedies . . . [to] protect the people from [railroads’] . . . insolence and their rapacity, and put a stop to unfair [rate] discrimination. . . . Mr. Bryan’s new doctrine of public ownership for the railroads . . . is [a] revolution . . ., and incalculable disaster would attend [such a revolution].” Moreover, the editorial stated the newspaper did “not believe that either the Democratic Party, or any great part of the membership of either party, is ready to accompany [Bryan] upon this perilous adventure in radicalism and centralization.”

Similar negative reactions to the Bryan proposal were expressed by leaders of the Democratic Party and most other newspapers. The New York Evening Post, however, said it thought the public ownership idea “will probably attract more voters, . . . than it will affright.”

James J. Hill
James J. Hill

Another indirect attack on the Hepburn Act from a different perspective was made on November 10, 1906, by James J. Hill, the President of the Great Northern Railway.[3] In what the New York Times called “an indignant outburst” against public agitation against America’s railroads.[4] Hill complained that the railroads were considered “outlaws” and that they had “not been getting justice in this country.” In the 1904 election “the two great political parties [were] preaching the doctrine of the operation of the railroads by the Government . . . . Is that the way to get men to put more money in the country’s railroads?” Hill pleaded for “a halt to this treatment of the railroad.”

Hill also admitted that the entire country was “suffering from want of transportation facilities to move its business without unreasonable delay. The prevailing idea with the public is that the railways are short of cars, while the fact is that the shortage is in tracks and terminals to provide a greater opportunity for the movement of the cars.” He continued, “The traffic of the country is congested beyond imagination. The commerce of the country is paralyzed, which, continued, means slow death.”

To remedy this situation, Hill asserted, “will cost at least [a total of $ 4 billion to $ 5 billion or $1 billion] per year for five years. Why, there is not money enough [or] . . . rails enough in all the world to do this. [It also is impossible to get the labor to do this work.]”

Soon after Mr. Hill’s speech, two separate investigations of railroads in which Mr. Hill had major interests were announced:

  • On November 20th the ICC said it was opening an investigation into the impact on railroad freight rates by Hill’s control of the Great Northern, the Northern Pacific and the Burlington railways.[5]
  • On November 28th, the Minnesota Attorney General said he was considering bringing charges against the Great Northern for alleged duplicate issues of capital stock and, therefore, “watering” of stock in connection with its building new branch lines for a subsidiary.[6]

President Roosevelt’s Annual Message to Congress (December 3, 1906)

Theodore Roosevelt
Theodore Roosevelt

 

On December 3, 1906 President Theodore Roosevelt delivered to the Congress his written Annual Message. It echoed Hill’s sense of railroads being unjustly attacked and impliedly criticized Bryan’s public-ownership proposal. Roosevelt said “the men who seek to excite a violent class hatred against all men of wealth. They seek to turn wise and proper movements for the better control of corporations and for doing away with the abuses connected with wealth into a campaign of hysterical excitement and falsehood in which the aim is to inflame to madness the brutal passions of man kind.” Such men are “sinister demagogues and foolish visionaries.”

The President, however, commended the Congress on taking “long strides in the direction of securing proper supervision and control by the National Government over corporations engaged in interstate business.” In particular, he said, the “passage of the [Hepburn] railway rate bill [was] . . .an important advance.” In the upcoming congressional session, “it may be best to wait until the laws have been in operation for a number of months before endeavoring to increase their scope, because only operation will show with exactness their merits and their shortcomings and thus give opportunity to define what further remedial legislation is needed.”

In addition, Roosevelt said the Hepburn Act “has rather amusingly falsified the predictions, both of those who asserted that it would ruin the railroads and of those who asserted that it did not go far enough and would accomplish nothing. During the last five months the railroads have shown increased earnings and some of them unusual dividends; while during the same period the mere taking effect of the law has produced an unprecedented, a hitherto unheard-of, number of voluntary reductions in freights and fares by the railroads.”

Nevertheless, Roosevelt continued, there will “ultimately be need of enlarging the powers of the [ICC]. . . to give it a larger and more efficient control over the railroads.” Such enhanced control will “prevent the evils of excessive overcapitalization, and will compel the disclosure by each big corporation of its stockholders and of its properties and business, whether owned directly or through subsidiary or affiliated corporations. This will tend to put a stop to the securing of inordinate profits by favored individuals at the expense whether of the general public, the stockholders, or the wage-workers.”

Indeed, said Roosevelt, adoption of such measures is the “best way to avert the very undesirable move for the governmental ownership of railways.

Roosevelt also expressed disagreement with the Supreme Court’s March 1904 interpretation of the Sherman Antitrust Act in the Northern Securities case as barring all combinations of businesses. He said, “It is unfortunate that [the Sherman Act] should forbid all combinations, instead of sharply discriminating between those combinations which do good and those combinations which do evil.” Therefore, he urged Congress to give serious consideration to amending the Sherman Act to do just that.[7]

On other issues affecting the railroads, Roosevelt called for the “passing [of] the bill limiting the number of hours of employment of railroad employees. The measure is a very moderate one, and I can conceive of no serious objection to it.” Another measure he supported was improving the recent “employers liability law” so that it placed “the entire ‘risk of a trade’ upon the employer.”

Conclusion

President Roosevelt’s Annual Message did not end the public (and private) debate about federal regulation of railroads, and especially their freight rates. It merely was a prelude to continued debate in 1907 and 1908 as we will see in future posts.

====================================================

[1] Trade Laws Denounced, N.Y. Times (Aug. 17, 1906).

[2] This discussion of Bryan’s speech and the reactions it provoked is based upon the following: Bryan’s Stand: End the Trusts, N.Y. Times (Aug. 31, 1906); 10,000 Swelter as Bryan Speaks, N.Y. Times (Aug. 31, 1906); Overflow Meeting Had a Small Crowd, N.Y. Times (Aug. 31, 1906); Editorial, Mr. Bryan’s New Party, N.Y. Times (Aug. 31, 1906); Leaders Oppose Bryan’s Public Ownership Plan, N.Y. Times (Sept. 1, 1906); Newspapers Views, N.Y. Times (Sept. 1, 1906); From the New York Evening Post, N.Y. Times (Sept. 1, 1906).

[3] Hill, as previously discussed, was the co-creator of the Northern Securities Company and a co-defendant in the U.S. successful antitrust case against the creation and operation of that company.

[4] Justice for Railways, Demanded by J. J. Hill, N. Y. Times (Nov. 11, 1906).

[5] Hill’s Three Roads To Be Investigated, N.Y. Times (Nov. 21, 1906).

[6] May Attack Hill Stocks, N.Y. Times (Nov. 28, 1906).

[7] A New York Times editorial said this call for changing the Sherman Act Roosevelt’s “wisest counsel” in the Message. (Editorial, President’s “Coherent Plan,” N.Y. Times (Dec. 5, 1906).) As it turned out, there was no need for such an amendment when nearly five years later the Supreme Court ruled that the original Sherman Act only banned “unreasonable” combinations and restraints of trade.

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dwkcommentaries

As a retired lawyer and adjunct law professor, Duane W. Krohnke has developed strong interests in U.S. and international law, politics and history. He also is a Christian and an active member of Minneapolis’ Westminster Presbyterian Church. His blog draws from these and other interests. He delights in the writing freedom of blogging that does not follow a preordained logical structure. The ex post facto logical organization of the posts and comments is set forth in the continually being revised “List of Posts and Comments–Topical” in the Pages section on the right side of the blog.

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