Introduction
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? In addition, various state laws imposed other restraints on the railroads.
A prior post examined the reactions to the new Hepburn Act in the last half of 1906 and President Roosevelt’s Annual Message to the Congress on December 3, 1906 while another post reviewed the general economic and securities markets conditions in 1906-1907. Now we look at additional public debate on this issue and the broader issue of federal and state regulation of the railroads in the first five months of 1907 before President Theodore Roosevelt made a major speech on railroad regulation in Indianapolis on Decoration Day (May 30, 1907).
Discussion
In a January 6, 1907, article, Frederick A. Delano, the President of the Wabash Railroad, said that railroad business “has been very good” and promises to continue to do so, but their costs are increasing along with demands for many improvements. But where will the railroads get the money? Investors are finding more remunerative returns than railroads. “Reducing passenger fares and freight rates will not help” the railroads raise the necessary capital.[1]
A week later, James J. Hill, the President of the Great Northern Railway, reentered the public debate with a January 14, 1907, letter to the Governor of the State of Minnesota, John A. Johnson that was covered by the press.[2] The letter reiterated the main points of his previously discussed November 10, 1906, speech. Hill complained about the inadequacy of railroad trackage and terminals and said railroads needed to spend $5 billion over five years for such equipment, but that they had difficulty raising the necessary capital because investors decline “to put [their] money into enterprises under bias of unpopularity, and even threatened by individuals and political parties with confiscation or transfer to the State. This feeling must be removed and greater confidence be mutually established if any considerable portion of the vast sum necessary is to be available.”
On February 1, 1907, a Wall Street Journal editorial came to the aid of the railroads. It said they need “material and moral encouragement.” They need coal. They need cars and engines. They need more trackage. They need money. They need mercy. “They have been hammered and hammered by their critics from all directions and for so long that the time [has come for a] . . . sense of human appreciation . . . . Criticism . . . should not be carried to the point of abuse. The morale of the railroad service can be maintained at a high level only by the feeling that it is receiving and deserving a reasonable measure of public encouragement.”[3]
The next day (February 2nd) William C. Brown, the Senior Vice President of the New York Central Railroad (and my maternal great-great uncle), after privately supporting the Wall Street Journal editorial,[4] made public a letter he had sent to a friend in Washington, D.C. about these issues.[5] Brown asserted that no prudent investor would invest in railroads, “against which every man’s hand, from the President down, seems to be raised, and in the defense of which few men hoping for political preferment dare raise their hand.” Indeed, said Brown, “the spirit of hostility against the railroads which seems to be felt by members of both parties and by the Administration . . . is rapidly creating a feeling of distrust, and is discrediting the railroads of this country . . . as to make it very difficult . . . to secure any money for needed improvements and promises to make it almost impossible to do so in the near future. The President [must make] . . . an appeal for fair and reasonable treatment for [the railroads in order to] restore confidence.”[6]
By February 6th it had become apparent that at least the railroads headquartered in New York City agreed with James J. Hill of the Great Northern that an increase in freight rates would soon be necessary. W.C. Brown made it emphatic in a New York Times article: an increase in freight rates “will have to come.”[7]
As mentioned in a prior post, on March 12th after a meeting with President Roosevelt, J. P. Morgan told reporters that the President had agreed to meet with four leading railroad executives to discuss these issues. This supposed meeting between Roosevelt and the four railroad presidents, however, never happened. Instead, Roosevelt met separately with railroad presidents: B. F. Yoakum of the Rock Island Railroad; E. H. Harriman of the Union Pacific; A.B. Stickney of the Chicago Great Western Railroad, who opined that the unrest in the financial world was not due to Roosevelt’s policies, but rather to hostile state legislation; Charles S. Mellen of the New York, New Haven & Hartford; Marvin Hughitt of the Chicago & Northwestern; and Edward R. Bacon of the Baltimore & Ohio Southwestern. Other prominent individuals and representatives of shipping interests were also consulted in this time period on railroad issues by Roosevelt.[8]
After a White House luncheon meeting on March 27th, Andrew Carnegie said, “The President is the best friend the railroads have. . . . [T]he President’s railroad measures are moderate, and that if the railroads do not accept them they may be confronted by some other President very much more radical . . . . I indorse the President’s position on the railroad question without reservation. His influence on that subject I regard as entirely wholesome and conservative.”
Apparently the railroad men were urging Roosevelt to make a statement about his position regarding the railroads while Roosevelt was learning all he could about the railroads and a possible federal requirement for appraisals of the value of their physical assets in preparing a speech about railroad issues that he in fact delivered in Indianapolis, Indiana on Decoration Day, May 30th and that will be covered in a subsequent post. In late March the White House let it be known that the President did not intend to have any appraisal of railroad assets would not affect previously issued securities.
One idea that received a lot of coverage was put forward in late March by Jacob H. Schiff, the head of banking-house Kuhn, Loeb & Co. Responding to financial markets turmoil, he said steps must be taken “to allay the anxiety which exists among all classes of investors and business interests over the agitation against railroads.” Therefore, he proposed (1) the Interstate Commerce Commission host a conference with representatives of the railroads; (2) such a conference to review all legislative proposals affecting railroads and recommend some for new federal laws making further state laws unnecessary. ICC commissioners and J.P. Morgan liked the idea.[9]
On April 18th William C. Brown reentered the public arena as a featured speaker at a banquet held for 1,000 guests by the Buffalo, New York Chamber of Commerce. Brown said “Money for the great improvement and extension of our transportation facilities . . . must be provided . . . by private capital; and, in order to secure the vast amount of money required, the investment must be made reasonably attractive and secure. . . . But unless assurances can be had . . . of friendly co-operation, of protection, and aid, in every fair and legitimate manner against oppression and injustice; of such guarantee as the government can give of protection against [unjust] legislation . . . it is going to be impossible for the railroads to obtain the money necessary for such improvements.”[10]
Brown added, “the great business interests of the country should unite with the railroads in an appeal for a cessation of agitation looking to the enactment of further restrictive legislation.” Nevertheless, Brown said, President Roosevelt has exerted his “powerful influence . . . fearlessly and forcefully in correcting abuses by the railroads and I believe it will be exerted just as fearlessly and effectively in protecting the railroads from injustice.” Moreover, Brown admitted he was “firmly and unalterably in favor of the regulation of railroads and all other corporations by the Nation and by the States. . . . I would not, if I could, materially change the laws thus far enacted by the Congress.”
The New York Times article about Brown’s speech came to the attention of Roosevelt, and on April 29th, Brown had an extended meeting with the President about the railroad situation.[11]
The debate about railroad regulation continued that May with the President meeting with the general counsels of two railroads and the revelation that the President would be seeking legislation authorizing the federal government to undertake appraisals of railroads’ assets.[12]
On May 29th, the day before the President’s Indianapolis speech on railroad issues, the stock market prices were up, and a journalist opined that this strength was due “to the belief and in fact to the knowledge prevalent in the Street that Mr. Roosevelt’s Indianapolis address to-day will be at least so evenly balanced in its treatment of the railroad question that no harm to stocks will result from it.”[13]
Conclusion
From documents available from the Roosevelt archives, details about Brown’s meeting with Roosevelt and their 1907 correspondence on these issues have been obtained for discussion in a subsequent post. Another post will then examine the President’s May 30th speech in Indianapolis on railroad issues.
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[1] Delano, The Solution for Problems, N.Y. Times (Jan. 6, 1907).
[2] Must Spend Billions for Tracks, Says Hill, N. Y. Times (Jan. 15, 1907). Hill repeated these contentions the next day at a meeting in Minneapolis and added, “The railroads today are blamed for everything, practically that is wrong.” (Slow Paralysis, Says Hill, N.Y. Times (Jan. 16, 1907).)
[3] Editorial, Railroads Need Encouragement, W.S.J. (Feb. 1, 1907).
[4] Brown expressed his appreciation for this editorial in a letter to the newspaper. Brown said, “these words of kindly commendation are appreciated by all railroad men. . . . [Railroads] are not, even taken as a whole, entirely without virtue and merit” and “some roads are entitled to a very great deal of credit for the manner in which they have been operated, and their contribution to the growth and prosperity of the country. . . . Nothing can be more discouraging and disheartening than the wholesale, indiscriminate censure and criticism (which, in many instances, as you say, may almost be characterized as abuse) to which railroads as a whole have been subjected during the last two years.” (Letter, Brown to Dow, Jones & Co. (Feb. 1, 1907) (Image # 71-0626 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org.). As we will see in a subsequent post, Brown privately provided President Roosevelt with copies of this correspondence with the Wall Street Journal.
[5] Says Railway Whacking Menaces the Country, N.Y. Times (Feb. 3, 1907). As we will see in a subsequent post, a copy of this letter from Brown to a friend (T.P. Schonts) was privately made available to President Roosevelt.
[6] Brown on February 7th reiterated that “the agitation which is going on all over the country makes it impossible to raise money [for necessary railroad improvements] by the sale of bonds.” (Billions Needed for Roads, N. Y. Times (Feb. 8, 1907).) As discussed in a prior post, on March 14th, in reaction to the huge declines in the securities markets the prior day, W.C. Brown issued a public statement that talked about the problems railroads had in selling new issues of stock or debt.
[7] Railways in Dilemma Over Rate Problems, N.Y. Times (Feb. 7, 1907); Freight Rates going Up? N.Y. Times (Feb. 5, 1907) (Hill said, “{W]ith the present advances in cost the railroads will soon be forced to consider an advance in rates instead of a reduction” ).
[8] Yoakum Favors Federal Control, N.Y. Times (Mar. 12, 1907); Mr. Harriman in the Times, N.Y. Times (Mar. 13, 1907); Roosevelt Refuge of Railroad Men, N.Y. Times (Mar. 13, 1907); Stickney Fears a Panic, N. Y. Times (Mar. 13, 1907); Speyer Hastily Sees Roosevelt, N.Y. Times (Mar. 14, 1907); Railroad Heads Meet in New York, N.Y. Times (Mar. 15, 1907); Plan Meeting of Governors, N. Y. Times (Mar. 15, 1907); Did Not Invite Presidents, N. Y. Times (Mar. 15, 1907); [Mellen Announcement], N.Y. Times (Mar. 15, 1907); Washington’s View of It, N.Y. Times (Mar. 16, 1907); Roosevelt To Ask Hughes To Confer, N.Y. Times (Mar. 17, 1907); Mellen Going alone To See Roosevelt, N.Y. Times (Mar. 17, 1907); Yoakum To See Roosevelt, N.Y. Times (Mar. 18, 1907); Mellen Confers Just 25 Minutes, N.Y. Times (Mar. 20, 1907); President Is Receptive, N.Y. Times (Mar. 27, 1907); Roosevelt Confers on Railway Speech, N.Y. Times (Mar. 28, 1907); President May Modify Plans, N.Y. Times (Mar. 30, 1907);
[9] Get Together Says Schiff, N.Y. Times (Mar. 26, 1907); President Is Receptive, N.Y. Times (Mar. 27, 1907); Morgan Cables Roosevelt, N.Y. Times (Mar. 27, 1907); “Schiff’s Flag of Truce,” N.Y. Times (Mar. 30, 1907).
[10] William C. Brown, Address to the Buffalo Chamber of Commerce (April 18, 1907); Hughes Tells of Republic’s Foes, N.Y. Times (April 19, 1907). Brown also gave a speech on May 13, 1907, to the Syracuse, New York Chamber of Commerce that made many of the same points as the Buffalo speech. He again supported federal and state regulation of railroads so long as it was “undertaken in a spirit of the most liberal conservatism; the radical, the agitator, the reactionist on both sides should be suppressed.” (For Government Control, N. Y. Times (May 15, 1907).)
[11] W.C. Brown at the White House, N.Y. Times (Apr. 30, 1907).
[12] Roosevelt Favors Appraisals of Roads, N.Y. Times (May 17, 1907); Putting Value on Country’s Roads, N.Y. Times (May 20, 1907).
[13] Financial Markets, N.Y. Times (May 30, 1907).
ancial Panic of 1907 started on October 9th with the failure of two speculators to take over the United Copper Company and the resulting bankruptcies of two brokerage houses, another mining company and a bank. On October 15th stocks started to tumble, and on October 21st and 22nd a run started on New York City’s third largest and supposedly solid trust, the Knickerbocker Trust Company, causing its bankruptcy.This in turn created fear throughout the U.S. and numerous bankruptcies of state and local banks and other businesses. On October 23rd money was almost unobtainable on Wall Street, call-loan rates had spiked to 125% and the entire U.S. financial system was nearing collapse. To the left is a photo of a crowd of people in front of Manhattan’s Federal Hall, at the corner of Wall and Broad Streets; the New York Stock Exchange is outside the photo to the left.