In the midst of the national political debate over railroad freight rates of 1907, the New York Central Railroad and William C. Brown, its Senior Vice President and my great-great uncle, had to confront the tragic human, legal, financial, political and public relations problems presented by the February 16, 1907, crash of one of its trains in the Woodlawn section of the Bronx. The train with one of the new type of engines (electrical) left the tracks, killing 24 people and injuring another 143.[1]
Remember that this occurred during the construction of the Grand Central Terminal in midtown Manhattan, which would require the replacement of steam-powered locomotives with electric-powered ones that previously had not been designed, manufactured and used. [2]
The Central’s Chief Engineer, William J. Wilgus, was in charge of designing the new electric engines, and General Electric Company was manufacturing them. The initial test run in September 1906 had been successful.
If the new engines were outlawed, the Railroad faced financial ruin. If the Railroad were deemed to be negligent in any way, that too presented many problems. For example, an assistant district attorney called for an investigation of the Central’s executives for possible indictment for manslaughter.[3]
Dr. Kurt C. Schlichting’s Hypotheses Regarding the Crash
Some of the documents about the Crash have been analyzed by Dr. Kurt C. Schlichting, the holder of the E. Gerald Corrigan Endowed Chair in the Humanities and Social Sciences and a professor of sociology and anthropology at Fairfield University (Fairfield, CT). Here are his conclusions from that investigation:[4]
In testimony before the New York State Railroad Commission, the Central’s President, William H. Newman, and Senior Vice President, William Carlos Brown, testified that the fault was Wilgus’ design of the engines.
Wilgus, however, proud of his design work and his professional reputation, strenuously disagreed with this assessment. Therefore, Wilgus did his own investigation and concluded that the cause of the wreck was a track defect at the point of the wreck and a widening (or “nosing”) of the track due to the heavier weight of the electric engines. This would make the Central’s Operating Division liable.
Wilgus thought Newman and Brown agreed with him, but Brown in an April 1907 memo told Wilgus that the engine design by Wilgus was flawed and thus the cause of the wreck.
In response Wilgus prepared an April 9th detailed report defending the design and instead arguing that the cause was a spreading of the track (nosing) due to the extra weight of the engine. This was seen as a “time bomb” for the Central and its top executives for liability for putting the new engine into service without adequate testing and for possible perjury in their testimony to the Commission.
On April 12th, the Central’s vice president and chief general counsel, Ira Place, visited Wilgus and explained how his memo would damage the Railroad and that Newman and Brown could go to jail if the report were made public. Therefore, Place instructed Wilgus to burn the report, and Wilgus agreed to do so.
The Central’s lawyer delivered the same message to Newman and Brown, and they obeyed the instruction and destroyed the report.
Under the direction of Brown, the Railroad then proceeded to made significant changes to the design of the engines without Wilgus’ knowledge and consent. Wilgus felt double-crossed and told the Central’s lawyer that he had re-created the report.
Wilgus put a copy of the re-created report in a box of records given to the New York Public Library with instructions that it was not to be opened without his permission until after his death.
This collection of papers also included testimonial letters about Wilgus from J. P. Morgan, William K. Vanderbilt, Ira Place and W.C. Brown. A letter by Brown before the crash, for example, stated, “The great work undertaken and practically completed by you, of changing the power within the so-called electric zone and the reconstruction of Grand Central Station, was the most stupendous work of engineering I have ever known; and it has gone forward practically without a halt, certainly without a failure in any essential feature.”
Wilgus resigned from the Railroad on September 20, 1907.
No criminal charges were ever brought against the Railroad or any of its executives regarding the Woodlawn Wreck.
Reaction to Schlichting’s Analysis
I have not seen or reviewed the documents that Dr. Schlichting has and I am not an engineer. Thus, I am not in a position, as Mr. Brown’s descendant, to refute the above analysis. But I do have the following points:
Wilgus was out to protect his professional reputation as an engineer and thus has an interest in casting blame elsewhere. Moreover, he was never subjected to cross-examination on his criticisms of Mr. Brown and the others.
According to Schlichting, Wilgus went to great pains in designing and testing the new engine. A good argument can be made that this was reasonable care, not negligence.
Yet after the Crash, the railroad at the direction of Mr. Brown and without Wilgus’ participation successfully redesigned the engine and eliminated the problem. (Presumably this involved reducing the weight of the engine.) Thus, Wilgus was not essential to designing the engine, and the redesign suggests that he had not done all that he could have done on the initial design.
Brown and the other railroad officials had not had an opportunity to defend themselves against these charges.
[2] See Grand Central Terminal’s Centennial, dwkcommentaries.com (Feb. 2, 2013); Another Report on Grand Central Terminal’s Centennial, dwkcommentaries.com (April 7, 2014); Sam Roberts, Grand Central: How a Train Station Transformed America at 110 (Grand Central Pub; New York 2013).
[3] In early March 1907 the New York Central was held “culpably negligent” by the Coroner’s jury and the Coroner held the company, its President Newman and its Board of Directors for the grand Jury. (Company Blamed for Bronx Wreck, N.Y. Times ( Mar. 5, 1907). Later that month the New York Central and two lower-level officials were indicted for manslaughter in the second degree by a New York State grand jury. (Central Indicted for Manslaughter, N.Y. Times (March 28, 1907).)
[4] Kurt C. Schlichting, Grand Central Terminal: Railroads, Engineering and Architecture in New York City at 82-106 (Johns Hopkins Univ. Press; Baltimore, MD; 2001); Kurt C. Schlichting, William J. Wilgus and the planning of modern Manhattan at 63-66 (Johns Hopkins Univ. Press; Baltimore, MD; 2012). Dr. Schlichting based his conclusions on documents in Box 7 of the Wilgus Papers at the New York Public Library.
During President Theodore Roosevelt’s second term (March 4, 1905—March 4, 1909) the major developments regarding federal regulation of railroads were congressional enactment of the Hepburn Act in 1906 and proposed increases in such freight rates in 1907-1908.
The main provision of the Hepburn Act empowered the Interstate Commerce Commission to impose “just and reasonable” freight rates while banning rebates and preferential rates.The debate over this legislation and its terms were covered in prior posts.[1]
Now we look at the controversy over proposed increases in such freight rates in 1908.[2]
Following the Financial Panic of late 1907 [3] and the continued economic recession in the first half of 1908, railroads felt pressured by Roosevelt not to cut wages while believing they could raise profits only by raising freight rates. As a result, some roads announced such increases. Roosevelt did not like this, especially in advance of the November 1908 presidential election.
During this new battle over freight rates, President Roosevelt met at the White House with W. C. Brown, now the Senior Vice President of the New York Central Railroad and my great-great uncle, who through letters and speeches had been the most vocal advocate for raising rates. Indeed, Brown provided the President with a collection of Brown’s speeches and other materials, Freight Rates and Railway Conditions. One was the Freight Rate Primer, which in comic-book form argued that an increase in rates would have minimal impact on the common man. Comic Book Propaganda!
Afterwards in an August 6, 1908, letter, Roosevelt told Brown that raising rates just before the election was very unwise, and instead the issue should be addressed later “purely on its merits.”
In Indianapolis, Indiana, on Decoration Day (May 30, 1907), President Theodore Roosevelt gave a major speech to a crowd of 150,000. He began with a short introduction honoring Indiana’s Major-General Henry W. Lawton, who served in the Civil War and the Spanish-American War and whose statue was dedicated that day, as well as the state’s brave soldiers in the Civil War. (Pp. 1-2)
Roosevelt then spent the rest of the speech discussing U.S. railroads and their regulation by the federal government. He thereby responded to the many comments he had received on this subject over the past several months from prominent people and railroad executives, including William C. Brown, the Executive Vice President of the New York Central Railroad (and my maternal great-great uncle).
With approximately 7,000 words in dense, lengthy paragraphs and with Roosevelt’s style of mixing statements and counter-statements, this part of the speech is not easy to read and analyze. I do not see how any one in the audience that day could have engaged in any such analysis. The following is my deconstruction of that part of the speech into introductory remarks, positive and negative comments about the railroads and comments about their federal regulation.[1]
Introductory Remarks
“Great social and industrial problems confront us, and their solution depends on our . . . unfaltering courage, and yet a wise, good-natured self-restraint . . . . Let us try as a people to show the same qualities . . . that Abraham Lincoln showed when with indomitable resolution, but with a kindliness, patience, and common-sense . . . he faced four weary years of open war . . . .” (P. 2)
We must “preserve the rights of property . . . in jeopardy from . . . the predatory man of wealth . . . .The power of the Nation must be exerted to stop crimes of cunning no less than crimes of violence.” (P. 2)
“There can be no halt in . . . the policy of asserting the right of the Nation . . . to supervise and control the business use of wealth, especially in its corporate form . . . . [The] first and most important feature of this task . . . [is] the control of the common carriers doing an interstate business.” (Pp. 2-3)
Positive Comments About the Railroads
The initial development of railroads in the U.S. “demanded men of the utmost daring and resourcefulness; men like that great gallant soldier and real captain of industry, Granville M. Dodge.” (P. 9)
“The man who builds a great railway and those who invest in it render a great public service; for adequate transportation facilities are a vital necessity to the country.” (P. 5) “We favor full and ample return to such men.” (P. 5)
Our “hearty commendation is due those owners and mangers representing . . . the large majority who have year after year worked faithfully, patiently, and honestly in building up our great system of railways, which has knitted together in close commercial and social intercourse widely removed sections of the country and stands second only to the great business of agriculture itself in contribution to national growth and development.” (P. 7)
The “railroad men of the United States . . . are public servants in the highest and fullest sense. . . . [This includes] those who [make] the determination of railroad policies. These men are entitled to great rewards. . . . [There] is sufficient ingenuity and executive genius in the operating officials of the roads greatly to diminish [their operating] troubles.” (Pp. 12-13)
“We favor the railway man who operates his railway on a straightforward and open business basis, from the standpoint of permanent investment, and who has an interest in its future . . . . We favor the railway manager who keeps in close touch with the people along his line . . ., who operates his line with a view to the advantage he can legitimately can get out of his railway as a permanent investment by giving a fair return to stockholders and to the public good service with reasonable rates.” (Pp. 5-6)
The “bulk of our [railroad] business is honestly done.” (P. 11)
Evidence shows that “as a whole the railroad property of the country is worth as much as the securities representing it” and that “the total value of stocks and bonds is greater than their total face value . . . . [The] great mass of railroad securities rest upon safe and solid foundations.” (P. 6) Such “valuation and supervision cannot be retroactive. Existing securities should be tested, by the laws in existence at the time of their issue.” (P. 8)
”The great need of the hour . . . is the need for better transportation facilities, for additional tracks, additional terminals, and improvements in the actual handling of the railroads. . . . . Ample, safe, and rapid transportation facilities are even more important than cheap transportation. The prime need is for the investment of money which will provide better terminal facilities, additional tracks, and a greater number of cars and locomotives, while at the same time securing, if possible, better wages and shorter hours for the employees.” (P.11)
“There must be just and reasonable regulation of rates, but any arbitrary and unthinking movement to cut them down may be equivalent to putting a complete stop to the effort to provide better transportation.” (P. 11)
Our “railway facilities should be so increased as to meet the imperative demands of our internal commerce. This . . . can be met only by private capital, and the vast expenditure necessary for such purpose will not be incurred unless private capital is afforded reasonable incentive and protection. It is therefore a prime necessity to allow investments in railway properties to earn a liberal return, a return sufficiently liberal to cover all risks.” (P. 12)
“We wish to make it in the interest of the investor to put his money into the honest development of the railroads.” (P. 6) It “is necessary to the enduring prosperity and development of the country that railroads shall yield reasonable profits to investors.” (P. 7)
“[A]ll I ask of [the railroads] is a willingness to comply fully with [the laws’] spirit, and a readiness to move along the lines indicated by those who are charged with administering [the law].” (P. 6)
“It is plainly inadvisable for the Government to undertake to direct the physical operation of the railways, save in exceptional cases . . . . “ (P. 12)
Negative Comments About the Railroads
Only “the men more anxious to manipulate [the railroads’] stocks than to make the management of their roads efficient and honest” will oppose the Government’s laws and policies. (P. 4) Similarly opposed will be “the man who cares nothing about the property after his speculative deal in its securities has been closed.” (P. 5)
There are “isolated instances of unconscionable stock-watering” and of “gross and flagrant stock inflation” and “overcapitalization.” (P. 6)
Comments About Federal Regulation of the Railroads
“Every honestly managed railway will gain and not lose by [federal regulation].” (P. 4)
“Every Federal law dealing with corporations or with railroads . . . [enacted in the last six years] has been a step in . . . the right direction. All action taken by the Administration under these and the preexisting laws has been just and proper. Every [lawsuit in these six years] has been . . .not merely warranted, but required.” (P. 3)
The Hepburn Act of 1906 gave the ICC “absolute control over the accounts of railways,” and the ICC has issued an order, effective July 1st that all railroads subject to the ICC “must standardize their accounting methods.” (P. 8)
“There must be progressive legislative and administrative action for the correction of the evils which . . . have existed in railroad management in the past. Such additional legislation as that for which I have asked in the past, . . . [especially] in my message at the opening of the last session of Congress, [2] is not merely in the interest of every honest railway manager and of all the investors or would-be investors in railway securities.” (P. 3)
“There must be vested in the Federal Government a full power of supervision and control over the railways doing interstate business . . . . It must possess the power to exercise supervision over the future issuance of stocks and bonds, . . .[including] the frank publicity of everything which would-be investors and the public have a right to know. The Federal Government will thus be able to prevent all overcapitalization in the future . . . [and it should be a criminal offense for anyone to load a railroad] with obligations and pocketing the money instead of spending it on improvements and in legitimate corporate purposes.” (Pp. 3-4)
This is “the new era of the widest publicity, and of fair dealing on the part of railroads with stockholders, passengers, and shippers.” (P. 4)
The Federal Government must have the “power to exercise a jealous care against the inflation of securities.” (P. 5)
“The business of railroad organization and management should be kept entirely distinct from investment or brokerage business especially of the speculative type, and the credit and property of the corporation should be devoted to the extension and betterment of its railroads, and to the development of the country naturally tributary to the lines.”(P. 4)
“Railroads should not be prohibited from acquiring connecting lines, by acquiring stocks, bonds, or other securities of such lines.” (P. 4) (Emphasis added.)
“[R]ailroads [should be] permitted and encouraged to make traffic agreements when these are in the interest of the general public as well as the [railroads].” (P. 4)
“[T]here should be nothing done under the guise of regulating roads to destroy property without just compensation or without due process of law.” The “rights of innocent investors should not be jeopardized by legislation or executive action,” (P. 5) (Emphasis added.)
“There must be no such rigid laws as will prevent the development of the country, and such development can only be had if investors are offered an ample reward for the risk they take.” (P. 5)
Congress should provide funds to the ICC to employ “a sufficient force of experts, to undertake the physical valuation of each and any road in the country.” (P. 7) Such physical valuation will be “an essential instrument in administrative supervision.” It will be used to help determine the “reasonableness of future capitalization” and “equitable rates.” Such valuation will “help to protect the railroads “against the [ICC’s] making of inadequate and unjust rates.” (P. 7)
This “movement for national supervision and control over railways will [not] be for . . . [the] detriment [of investors].” (P. 9) With federal supervision, people will not be afraid to invest in railroad securities, thereby opening “a new reservoir [of] capital now so much needed for the extension and betterment of the railroads.” (P. 9)
Conclusion
Reading and deconstructing this speech forces one to recognize that the means of communication in 1907 were vastly different from 2014. Presidential speeches were not broadcast on television and radio. There were no personal electronic devices for people in the audience to record the words of the speeches or images of the speaker or others. Nor were there pundits to provide immediate commentary and analysis of what was just said.
I also wonder about Theodore Roosevelt’s famous saying that as President he had the “bully pulpit.” For the reasons just noted, he did have the undivided attention of the immediate audience before him, more so than presidents of our time, and this put Roosevelt in the position to be a “bully” forcing the audience to listen only to him. His use of the word “pulpit” obviously refers to the pulpit used by preachers to preach to their congregations. Was Roosevelt’s style of long, dense paragraphs with statements and counter-statements unique or was it one used by preachers or other politicians of the time? I welcome informed comments on this and any other issue raised in this discussion.
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[1] A subsequent post will examine the public reactions to this speech and further developments regarding railroad regulation.
[2] In his Annual Message to Congress on December 2, 1906, the President said 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.”
As we have seen in a prior post, William C. Brown, the Senior Vice President of the New York Central Railway (and my maternal great-great-uncle), was a major public spokesman for the interests of the railroads in 1907.
Brown also interacted privately with President Theodore Roosevelt over these issues in February 1907 and again in April-May 1907.This post will look at these interactions.
Theodore RooseveltWilliam C. Brown
February 1907
Brown’s January 28th letter to Theodore P. Shonts
Brown’s interaction with the President started with the former’s private letter of January 28th to Theodore P. Shonts, the Roosevelt-appointed Chairman of the Isthmian [Panama] Canal Affairs Commission,[1] who recently had announced his resignation from that position effective March 4th.[2]
This seven-page letter’s going into great detail about the current position of the railroads is very unusual. Presumably Shonts knew all of the railroad problems and issues and by virtue of his government position had opportunities for presidential meetings. It is as if the letter really was written to be read by someone else, namely President Roosevelt. This interpretation, in my opinion, is confirmed by Brown’s immediately making the letter public.[3]
Brown’s letter emphasized the challenges facing the railroads. He said the recent “tremendous increase in the commerce of the country has almost swamped the railroads. Terminal facilities . . . are . . . inadequate; single track lines must be double-tracked; double-track roads must have three or four tracks; grades must be reduced, and the equipment of the roads must be greatly increased.” To remedy these inadequacies will be very expensive. For the New York Central, he said, in 1907 alone this will require capital investment of $130 to $ 140 million.
According to Brown, railroads also were facing increased labor costs for 1907 of 8% to 14% or an increase of $75 million for all railroads. Other costs also had increased, and total costs, including labor, were up 40% from 1897.
On the other hand, said Brown, “there is a continuous, organized and persistent effort on the part of shippers to reduce the [railroads’] revenues” which may lead to requests for the ICC to reduce freight rates. In addition, Congress probably will reduce compensation for the railroads’ carrying the mails.
However, without increased freight rates, said Brown, railroads will be forced to substantially reduce the capital improvements that are so necessary.
As a result, in Brown’s judgment, there is growing opinion in the U.S. and abroad that “the President and both the great political parties are prejudiced against the railroads,” thereby “making it almost impossible to sell any kind of railroad security except at a rate of interest and discount that make it almost prohibitive.” If the railroads are forced to halt their needed capital improvements, “the growth and development of the country will soon be stopped by the inability of the transportation lines to handle the products of mine, factory and field.”
Although Brown favored the past “regulation of the railroads by Federal authority, supplemented by state regulation” and regarded “the legislation thus far enacted . . . necessary and wise,” Brown asserted that President Roosevelt must publicly declare that:
“the railroads are an important and inseparable part of the wealth of the Nation;
“they have contributed more than any other agency in its upbuilding, growth and prosperity;”
“the future growth and prosperity of the country depends on, and will . . . be measured by the growth of the great lines of transportation, both rail and water;”
“disaster cannot come to them without serious injury to every business interest in the Country;” and
the people must give “fair, unprejudiced, and friendly consideration . . . of the interests, the rights, and the welfare of the railroads.”
Shonts’ February 1st letter to Brown.
Seeing Brown’s January 28th letter as really intended for other eyes, in my opinion, is also confirmed by Shonts immediately responding to Brown with a report that Shonts had discussed Brown’s letter with the President and had provided him with a copy of the letter.[4]
According to Shonts, Roosevelt had said he “would have no difficulty in treating with the railroads of the Country if the managing officials were all imbued with the same spirit as [Brown].” In addition, the President had the following specific comments on Brown’s letter:
Roosevelt “entirely agreed” with Brown’s statement, ‘I am not an alarmist, and . . . disposed to take a hopeful view of any situation; but the increase in expense and reduction in rates cannot continue much longer without bringing the lines of cost and compensation too near together as to stop all improvement in present, or the creation of additional, transportation facilities.’
According to Roosevelt, the “movement for increased pay for employees, and shorter hours of labor, carried with it the necessity for the maintenance of remunerative rates.”
The President believed “the public was [not] so much interested in cheaper transportation as in adequate facilities.”
The Government, said Roosevelt, had not contended for reduced rates, but the prevention of “unjust discrimination in rates.”
The President suggested there be a “safe-guard . . . [for] issuance of future securities, by requiring the railroads to specify the use to which the proceeds of such would be put [to enhance the railroad], not to the buying of parallel or competing lines.”
The President also was “heartily in favor of protecting the owners of railroad securities so that purchasers might rely on the security of their investments.”
Brown’s February 3rd letter to Roosevelt’s Secretary.
Responding to this indirect word from the President, Brown on February 3rd sent a letter to Roosevelt’s secretary, William Loeb, Jr.,[5] with enclosed copies of Brown’s previously mentioned January 28th letter to Shonts, a February 1stWall Street Journal editorial about railroads[6] and Brown’s correspondence with the Journal about same.[7]
Brown did so, he said, because he cares “so much for the President’s approval” and because he believes “our views so nearly coincide on almost all the great questions . . . at the present time.”
In addition, Brown thought “the President and every good citizen of the United States, regardless of party, can say ‘Amen’ to the sentiments” in the February 2nd letter to Brown from Sereno S. Pratt, the Editor of the Wall Street Journal,[8] who said the following:
“The movement for corporate reform . . . has accomplished an immense amount of good, and I do not believe that the corporations as a whole will ultimately suffer from it.”
On the other hand, this movement “has awakened a spirit of hostility to all corporations, a spirit of hatred of wealth, so that it is full time for the defenders of individual liberty and the rights of private property to get together . . . for the purpose of impressing upon the country the need for wise discrimination. We certainly do not want to destroy wealth and make honest enterprise impossible.”
The Serano Pratt letter was prompted by Brown’s February 1st letter to Dow, Jones & Company with thanks for the editorial. It was for “most railroad men in the country, a ‘cup of cold water to a thirsty traveler.’ Its “words of kindly commendation are appreciated by . . . the railroad men.” For Brown, “Nothing can be more discouraging and disheartening that the wholesale, indiscriminate censure and criticism . . . to which railroads as a whole have been subjected during the last two years.” After all, railroads “are not, even taken as a whole, entirely without virtue and merit; and, in some cases, 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 through which they run.”[9]
Brown concluded his letter to Roosevelt’s secretary with a reference to these words on Grant’s Tomb: ‘Let us have peace.’ Now, said Brown, “it would be a gracious thing if the President would accept the almost unconditional surrender of the roads, and say to the public and to the thousands of disheartened, discouraged railroad men of the Country, ‘Let us have commercial and industrial tranquility and peace.’”
Another enclosure with the letter to Loeb was Brown’s January 22, 1907, letter to Joseph Nimmo, Jr., a statistician for the Interstate Commerce Commission, responding to a request for Brown’s opinions on various issues regarding railroad regulation. Brown said “no [enacted] legislation . . . will result in injury to the railroads . . . unless the [ICC] shall deplete their revenue by reducing freight rates.” Brown said, the “spirit of hostility against the railroads which seems to be felt by member of both parties, and by the [Roosevelt] administration, whether real or not, is rapidly creating a feeling of distrust, and is discrediting the railroads . . . to such an extent as to make it very difficult at the present time to secure any money for needed improvements and promises to make it almost impossible to do so in the near future.” Brown added that he agreed with Hill’s estimate of $5 billion as the amount of needed capital investment by all the railroads over the next five years.[10]
April-May 1907
As mentioned in a prior post, on April 18th Brown was a featured speaker at a banquet in Buffalo, New York where he talked about the railroads’ difficulties in raising capital for improvements due to public agitation against the railroads and his belief that President Roosevelt would exert his “powerful influence . . . fearlessly and forcefully in protecting the railroads from injustice.”[11]
The New York Times article about Brown’s speech came to the attention of Roosevelt. The next day (April 19th) Roosevelt wrote a letter to Brown saying he “heartedly” agreed with the part he had seen and inviting him to the White House the next week. The President especially wanted to hear Brown’s views on the issue of the valuation of railroads.[12]
That White House meeting took place on April 29th, and the nature of their discussion that day is revealed by their subsequent correspondence.[13]
The next day (April 30th) Brown in a letter to the President discussed his upcoming Decoration Day Address about railroads. Brown said he knew Roosevelt did “not want to do any one an injustice or say anything go unnecessarily increase or prolong a feeling of bitterness, which in the interest of all should be eliminated.” The President, however, had suggested (in their April 29th conversation (or in a draft of the speech shared with Brown?) that railroad owners mistakenly or selfishly had not been “doing all that could be done in . . . furnishing additional facilities” to alleviate public inconvenience. Any such suggestion, said Brown, was “mistaken” and “unjust to the directors, officers, and owners of the railroads.” In fact, the “railroads have done everything possible to meet conditions which the tremendous increase in business has forced upon them.”[14]
Brown’s April 30th letter also said that any announcement of the President’s idea of valuation of railroad properties should “be accompanied by some statement that will reassure timid investors.” Otherwise, such an announcement could leave the calamitous impression that such valuations will be used “to decrease [freight] rates, increase taxation, or both.” Enclosed with the letter was a document with Brown’s thoughts on the valuation issue, but this document was not available from the archives. Brown closed the letter with assurances of his “very high personal regard” for the President.
The President’s May 1st responsive letter said he had deleted the sentence of the speech, to which Brown had objected (railroad owners had mistakenly or selfishly failed to furnish additional facilities??). Roosevelt thought Brown’s ideas on valuation were better than the President’s draft on the subject and that the Director of the Census Bureau had cautioned the President on using its statistics on valuation of railroad securities.[15]
On May 2nd Brown replied to the President. Brown sent a page from a draft of his forthcoming (May 13th) speech in Syracuse, New York that had certain statistics. (This enclosure was not available from the archives.) After consulting with others at the New York Central Railroad, Brown said they all thought that his statistics along with those from the Interstate Commerce Commission “will do much to restore confidence and reassure investors in regard to the safety and stability of railway securities.” Finally, Brown urged the President to call if he can be of service in any way. Again he closed with assurances of his “very high personal regard” for the President.[16]
The next day (May 3rd), Brown again wrote to Roosevelt. He said the enclosure he had sent with his prior letter “should be made a little stronger in its characterization of stock watering jobbery” and include “a commendation of those roads that have not been guilty of this thing.” Again, Brown expressed his “very high personal regard.”[17]
On May 4th, the President responded to these two letters from Brown. He thanked him for the statistics he had provided, but urged Brown to make “full use of them in [his] Syracuse speech” and that if Roosevelt used them in his Decoration Day speech, it would be in a different form.[18]
The next missive from Brown was a handwritten letter of May 8th enclosing a recent letter he had received from General Granville M. Dodge[19] (which is not available from the archives). Brown said that the following Dodge statement “voices the sentiment of the railroads almost without exception: ‘Obey the law. Build up the country.’” Brown closed with “I know the railroads have no stauncher friend than yourself” and assurances of his “high regard.”[20]
The final letter in this exchange came from the President on May 9th. He said he liked the Dodge letter and already had referred to Dodge as “a railroad man who was a type of what a good citizen should be.” Roosevelt also said the final version of his Decoration Day speech will include some of Brown’s suggestions.[21]
Conclusion
These interactions show an amazing collaboration between a president and a private citizen. As a result of this collaboration and of Roosevelt’s discussions with other railroad executives in this time period, the President’s Decoration Day speech, which will covered in a subsequent post, contained many points that helped to alleviate the railroads angst.
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[1] Letter, Brown to “My dear T.P. [Shonts] (Jan. 28, 1907) (Image # 71-0572 through 0578 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org). As noted in a prior post, in 1900 Brown and Shonts and another Midwestern railroad executive (Paul Morton) joined Roosevelt, then Republican vice presidential candidate, on his campaign train from Quincy, Illinois to Chicago.
[2]Shonts Quits Canal; Heads Interborough, N.Y. Times (Jan. 24, 1907); Shonts Quits Canal Work, N.Y. Times (Mar. 5, 1907). In accepting the resignation, Roosevelt said Shonts had shown “energy, administrative capacity, fertility of resource, and judgment in handling men . . . [and] entire devotion to your work.” (President Not Indignant, N. Y. Times (Jan. 24, 1907).)
[3] On February 2nd, Brown released to at least the New York Times a copy of his letter to Shonts, and the next day the Times published an article about the letter. (Says Railroad Whacking Menaces the Country, N.Y. Times (Feb. 3, 1907). The Times said Brown’s letter was believed to be part of an organized campaign by “important business interests” to convince Roosevelt that the “movement against corporations is going beyond bounds” and ”threatens seriously to handicap further development of the country’s industries and transportation systems.”
[4] Letter, Shonts to “My dear W. C.” Brown (Feb. 1, 1907) (Image # 71-0642 & 0643 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org). The Theodore Roosevelt Center at Dickinson State University has advised me that through an unpublished analysis of several sources, including the presidential desk diaries, that on January 29, 1907, the President had a “Canal conference with Theodore Shonts.” This probably was the occasion when Shonts discussed Brown’s letter with the President.
[5] Letter, Brown to “My dear Mr. Loeb” (Feb. 3, 1907)(Image # 71-066 & 067 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org).
[6] Editorial, Railroads Need Encouragement, W.S.J. (Feb. 1, 1907). The editorial said the railroads need “material and moral encouragement.” More specifically they need coal, cars and engines, more trackage, money and mercy. “They have been hammered and hammered by their critics,” but now need “human appreciation of their concern and their predicaments.”
[7] 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, http://www.theodorerooseveltcenter.org); letter, Serano S. Pratt to Brown (Feb. 2, 1907)(Image # 71-0657 & 0658 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org). Brown’s letter to the Journal said the editorial was like a ‘”cup of cold water to a thirsty traveler’” because “[n]othing can be more discouraging and disheartening than the wholesale, indiscriminate censure and criticism . . . to which railroads as a whole have been subjected during the last two years.”
[8] Letter, Sereno S. Pratt to W. C. Brown (Feb. 2, 1907)(Image # 71-0657 & 0658 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org).
[9] 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, http://www.theodorerooseveltcenter.org).
[10] Letter, William C. Brown to Joseph Nimmo (Jan. 22, 1907) (Image # 71-0489 through 0493 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org). I wonder if this letter’s being in the Theodore Roosevelt collection at the Miller Center indicates that the letter somehow was obtained by the White House and reviewed by the President or one of his aides.
[11] 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).
[12] Letter, Roosevelt to Brown (April 19, 1907) (Image # 345-0665 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org).
[13]W.C. Brown at the White House, N.Y. Times (Apr. 30, 1907).
[14] Letter, Brown to Roosevelt (April 30, 1907)(Image #308-0873 & 0874 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org).
[15] Letter, Roosevelt to Brown (May 1, 1907) (Image # 345-0779 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org). Roosevelt apparently was referring to one or all of the following letters to the President from the Director of the Census Bureau, all of which were provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org): letter, North to Roosevelt (April 22, 1907)(Image # 308-0863 through 0867); letter, North to Roosevelt (April 22, 1907)(Image # 73-0348); letter, North to Roosevelt (April 30, 1907)(Image # 308-0875 & 0876).
[16] Letter, Brown to Roosevelt (May 2, 1907)(Image # 308-0777 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org). In fact, Brown did give 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).)
[17] Letter, Brown to Roosevelt (May 3, 1907)(Image # 308-0878 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org).
[18] Letter, Roosevelt to Brown (May 4, 1907)(Image # 345-0822 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org).
[19]Dodge was a Major General for the Union Army in the Civil War (1861-1866), an Iowa Congressman (1867-1869) and an engineer for the Union Pacific Railroad who was a leading figure in the construction of the transcontinental railway. During the 1880s and 1890s, he served as president or chief engineer of dozens of railroad companies.
[20] Letter, Brown to Roosevelt (May 8, 1907) (Image # 308-0884 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org).
[21] Letter, Roosevelt to Brown (May 9, 1907) (Image # 345-0867 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org).
Our last stop on the issues of railroad regulation during President Theodore Roosevelt’s Second Term focused on the June 29, 1906, adoption of the Hepburn Act regarding limits on railroad freight rates and the subsequent reactions that year to this statute. Before we look at the continued controversy over these issues in 1907, we need to review what was happening in 1906 and 1907 in the economy and securities markets and their increasing intertwining with the railroad issues.[1]
1906
In 1906 the economy and securities markets were adversely affected by April’s major San Francisco earthquake destroying two-thirds of the city and leaving over 200,000 residents homeless and by the subsequent increase of interest rates by the Bank of England responding to the outflow of English funds paying earthquake insurance claims. From a peak in January stock market prices had fallen by 18% by July of that year, and after the adoption of the Hepburn Act railroad securities were especially hard hit. By late September stocks generally had recovered about one-half of their losses.
January-February 1907
At the start of 1907, however, the U.S. appeared to be prosperous. Railroads had difficulty finding enough freight cars to meet demand. Banks had a lot of cash. Wages and prices were rising. This redounded to the credit of President Theodore Roosevelt, who had just been awarded the Nobel Peace Prize for ending the Japanese-Russian war.
The U.S. stock market, however, was sending contrary signals. Between September 1906 and March 8, 1907, the stock market slid, losing 7.7% of its capitalization. Indeed, in January John D. Rockefeller predicted that Roosevelt’s policies would result in a depression.
March-May 1907
On March 12th, reacting to the troubled securities markets and to rumors that President Theodore Roosevelt was planning some new measures against the railroads, J.P. Morgan, the major Wall Street financier and New York Central Railroad Director, met with the President to discuss “the present business situation, particularly as affecting railroads.” According to Morgan, he urged Roosevelt to take some action “to allay the public anxiety now threatening to obstruct railroad investments and construction” and advised the President that “the financial interests of the country are greatly alarmed at the attitude of the Administration towards corporations, and particularly the railroads.” Afterwards Morgan told the press that Roosevelt would soon meet with the heads of four leading railroads to see what might be done to “allay public anxiety.”[2]
This news did not calm the securities markets. The next day (March 13th) New York Stock Exchange prices collapsed. And on March 14th, the Dow Jones Industrial Average dropped by another 25%. These two days were sometimes referred to as “the Rich Man’s Panic” since most ordinary people were not stock market investors.
At the markets close that day, the 25 most active stocks on the New York Stock Exchange had a total shrinkage in value since the first of the year of $ 970 million. This was especially true for the following railroad stocks:
Railroad
ShrinkageMillion $
ShrinkagePercentage
A.T. & S.F.
$ 23.5
22.8%
Baltimore & Ohio
$ 30.5
20.0%
Canadian Pacific
$ 34.0
28.1%
Chesapeake & Ohio
$ 11.0
17.5%
M. & St. Paul
$ 21.0
25.3%
Great. Northern. (Pfd.)
$ 87.0
58.2%
Missouri Pacific
$ 21.5
27.8%
N.Y. Central
$ 35.5
19.9%
Norfolk & Western
$ 13.0
19.7%
Northern. Pacific
$113.0
72.9%
Pennsylvania RR
$ 62.5
20.0%
Reading
$ 31.0
44.3%
Southern Pacific
$ 47.0
23.8%
Union Pacific
$117.0
59.9%
After the close of the markets on the 14th, the U.S. Treasury injected $25 million of cash into New York City banks by buying some of their holdings of U.S. bonds, which calmed the markets for the moment.
Reacting to the market developments of the 14th, William C. Brown, Senior Vice President of the New York Central Railroad (and my maternal great-great uncle) issued a public statement that said, “The diminishing net earnings of railroads, while alarming, are overshadowed by the apparent hostility as evinced by recently enacted or introduced Federal and state legislation. The growth and development of the country will soon be at a standstill unless transportation facilities can be tremendously increased. Hundreds of millions of dollars should be expended in this direction as rapidly as material can be assembled and men employed. On account of the above conditions confidence has been so shaken that investments of this character are regarded as so hazardous and unattractive as to make it impossible to sell any kind of railroad security except at such discount and rate of interest as to make it prohibitive; and these improvements, so vital to the prosperity of the country, are being greatly curtailed or entirely dropped.”
Brown concluded this statement with a plea for the railroads and the President to cooperate in stopping evils and abuse. In addition, “the President and the press should co-operate with the railroads and with all food citizens in working for a restoration of public confidence, based upon the widest publicity of corporation affairs and absolute fairness, equality, and stability of rates.”
June-September 1907
Troubles, however, were not over. In June the stock of the Union Pacific Railroad—among the most common stocks used as collateral for bank loans—fell 50 points. That same month an offering of New York City bonds failed. In July the copper market collapsed. In August the Standard Oil Company was fined $29 million for antitrust violations. That same month commodity prices declined, Another negative factor that summer was the Bank of England’s imposing a prohibition of English banks buying U.S. finance bills, thereby closing a major source of refinancing for U.S. debtors. In September industrial production also went down. In the first nine months of 1907, stocks were lower by 24.4%.
October-November 1907 (Financial Panic)
The Financial 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.
In response to this crisis, Roosevelt had the U.S. Treasury deposit $25 million in national banks.
The “savior” of the financial system from the Panic, however, was J. P. Morgan, the wealthy Wall Street financier and a New York Central Director. He and other plutocrats (E.H. Harriman, Henry Clay Frick and John D. Rockefeller, Sr.) pledged large sums of their own money, to shore up the U.S. financial system. These efforts had apparently succeeded by October 24th when the New York Stock Exchange did not have to shut down and stock prices started to rebound.
The next week, however, the panic returned when a major brokerage house threatened to cease operations and the City of New York was on the verge of defaulting on its obligations. J.P. Morgan and his colleagues again came to the rescue with a plan for U.S. Steel to buy the shares of Tennessee Coal and Iron Company then held as collateral by the failing brokerage firm. This plan, however, would go forward only if it had President Roosevelt’s approval. That approval was obtained on November 4th at a White House breakfast meeting with U.S. Steel’s Chairman (Elbert H. Gary) and one of its founders (Henry Clay Frick). News of this approval immediately was released, and stock prices began to rally.
Additional support for the financial system and stock market was supplied in November when Roosevelt authorized the U.S. Treasury to increase its injection of funds into the banks to $69 million and to sell $150 million of U.S. and Panama bonds.
All of this occurred in the midst of an economic contraction that had started in May 1907 and that did not end until June 1908. The interrelated contraction, falling stock market and financial panic resulted in significant economic disruption. Industrial production dropped more than after any previous bank run, while 1907 saw the second-highest volume of bankruptcies to that date. Production fell by 11%, imports by 26%, while unemployment rose to 8% from under 3%.
Analysis of the Financial Panic of 1907
100 years later (September 2007) two distinguished professors at the University of Virginia’s Darden School of Business (Robert F. Bruner and Sean D. Carr) concluded that the Panic of 1907 “resulted from a powerful convergence of [the following] seven overlapping and interrelated forces—a ‘perfect storm’ in the financial markets:”
The financial system’s architecture was “highly fractionalized, localized, and complex” with networks that allowed quick spread of news and rumors while it also was difficult for all actors to be equally well informed.
Strong economic growth in the U.S. had created a massive demand for external finance, which was met with a significant amount of capital borrowed from European sources.
There were inadequate safety buffers for a system with many small and undiversified banks plus new and lightly regulated trust companies holding riskier assets.
Roosevelt was “on the warpath against anticompetitive business practices” as were many state governments.
Real economic shock from the San Francisco earthquake of April 1906 and the summer 1907 curtailment of acceptance of U.S. finance paper by the Bank of England.
Undue fear, greed and other behavioral aberrations causing a sharp and self-reinforcing shift from optimism to pessimism.
Failure of collective action. Yes, J.P. Morgan led a collective effort that helped dampen the worst of the Panic, but it was insufficient in the overall economy and financial system.
Below is a graph comparing the Dow-Jones Industrial Average for January 1906-October 1907 with the same Average for the Financial Panic of 2008:
[2] As we will see in a subsequent post, the proposed meeting between the President and the four leading railroad executives never happened, and instead the President held meetings individually with quite few such executives in March through May 1907.
During President Theodore Roosevelt’s second term in office (03/04/1905—03/04/1909) there were two major developments regarding federal regulation of railroads: congressional enactment of the Hepburn Act regarding railroad freight rates in 1906 and public controversy over proposed increased freight rates in 1907-1908 with the Financial Panic of 1907 in the background.
This post examines the circumstances surrounding the Hepburn Act.[1] Other posts will discuss the Panic of 1907 and the controversy over freight rates.
Background
As discussed in a prior post, in 2003 the Elkins Act was adopted to increase the power of the Interstate Commerce Commission (ICC) to combat rebates on railroad freight rates. By late 1904, however, critics were saying although this Act apparently had substantially reduced rebates, it had facilitated railroads’ establishing collusive pricing. It had not produced lower rates. In short, it had not produced benefits to farmers and other shippers.
The ICC itself expressed similar views in its Nineteenth Annual Report on December 14, 1905. It said, “various devices for evading the [Elkins Act] . . . have [been] brought into use, but the actual payment of rebates as such has been . . . established by convincing proof, on which prosecutions have been commenced and are now pending. More frequently the unjust preference is brought about by methods, which may escape . . . [the Elkins Act], but which plainly operate to defeat the purpose [of the statute]. . . . [T]his type of evil has by no means disappeared and . . . is liable to increase unless effectively restrained.”
Roosevelt’s Advocacy of Additional Railroad Regulation
Theodore Roosevelt
President Roosevelt, recognizing the flaws in the existing set of laws regulating railroads, set about advocating for new laws to enhance such regulation in his second term.
Indeed, he did so in his December 6, 1904, Annual State of the Union Message after he had been re-elected, but before he had been inaugurated for his second term. With respect to the “great corporations,” he stated, “the need for the Government to act directly is far greater than in the case of labor, because great corporations can become such only by engaging in interstate commerce, and interstate commerce is peculiarly the field of the General Government . . . . The National Government alone can deal adequately with these great corporations.” He continued, “Great corporations are necessary, and only men of great and singular mental power can manage such corporations successfully, and such men must have great rewards. But these corporations should be managed with due regard to the interests of the public as a whole. Where this can be done under the present laws it must be done. Where these laws come short others should be enacted to supplement them.”
Later in this Annual Message Roosevelt said, “it is necessary to put a complete stop to all rebates. Whether the shipper or the railroad is to blame makes no difference; the rebate must be stopped, the abuses of the private car and private terminal-track and side-track systems must be stopped, and the [Elkins Act] . . . which declares it to be unlawful for any person or corporation to offer, grant, give, solicit, accept, or receive any rebate, concession, or discrimination in respect of the transportation of any property in interstate or foreign commerce whereby such property shall by any device whatever be transported at a less rate than that named in the tariffs published by the carrier must be enforced.” He added, “the most important legislative act now needed” is to vest the ICC “with the power, where a given rate has been challenged and after full hearing found to be unreasonable, to decide, subject to judicial review, what shall be a reasonable rate to take its place; the ruling of the Commission to take effect immediately, and to obtain unless and until it is reversed by the court of review.”
Nearly 10 months later in a speech in Raleigh, North Carolina Roosevelt said, “The management of the . . . intricate web of railroad lines which cover the country, is a task infinitely more difficult, more delicate, and more important than [the management of the wagon roads]. . . .[The] Government . . . [must] exercise a supervisory and regulatory right over the railroads; for it is vital to the well-being of the public that they should be managed in a spirit of fairness and justice toward all the public. Actual experience has shown that it is not possible to leave the railroads uncontrolled. Such . . . a lack of system is fertile in abuses of every kind, and puts a premium upon unscrupulous and ruthless cunning in railroad management; for there are some big shippers and some railroad managers who are always willing to take unfair advantage of their weaker competitors, and they thereby force other big shippers and big railroad men who would like to do decently into similar acts of wrong and injustice, under penalty of being left behind in the race for success. Government supervision is needed quite as much in the interest of the big shipper and of the railroad man who want to do right as in the interest of the small shipper and the consumer.”
At Raleigh Roosevelt added that the U.S. needs “an administrative body with the power to secure fair and just treatment as among all shippers who use the railroads and all shippers have a right to use them.” There are abuses by the railroads according to Roosevelt. “Rebates are not now often given openly. But they can be given just as effectively in covert form; and private cars, terminal tracks, and the like.” Congress must grant the ICC or another government agency the “power to make its findings effective, and this can be done only by giving it power, when complaint is made of a given rate as being unjust or unreasonable, if it finds the complaint proper, then itself to fix a maximum rate which it regards as just and reasonable, this rate to go into effect practically at once, that is within a reasonable time, and to stay in effect unless reversed by the courts.” Moreover, the ICC needs to have the power “to make a full and exhaustive investigation of the receipts and expenditures of the railroad, so that any violation or evasion of the law may be detected.”
In the December 5, 1905, Annual State of the Union Message Roosevelt returned at length to federal regulation of the railroads. He introduced the topic with these words:
“The first thing to do is to deal with the great corporations engaged in the business of interstate transportation. As I said in my [last Annual] Message . . ., the immediate and most pressing need, so far as legislation is concerned, is the enactment into law of some scheme to secure to the agents of the Government such supervision and regulation of the rates charged by the railroads of the country engaged in interstate traffic as shall summarily and effectively prevent the imposition of unjust or unreasonable rates. It must include putting a complete stop to rebates in every shape and form.”
Roosevelt continued. A “competent administrative body [must have] the power to decide, upon the case being brought before it, whether a given rate prescribed by a railroad is reasonable and just, and if it is found to be unreasonable and unjust, then, after full investigation of the complaint, to prescribe the limit of rate beyond which it shall not be lawful to go the maximum reasonable rate, . . . this decision to go into effect within a reasonable time and to obtain from thence onward, subject to review by the courts. It sometimes happens at present, not that a rate is too high but that a favored shipper is given too low a rate. In such case the Commission would have the right to fix this already established minimum rate as the maximum; and it would need only one or two such decisions by the Commission to cure railroad companies of the practice of giving improper minimum rates.”
This “proposal is not to give the Commission power to initiate or originate rates generally, but to regulate a rate already fixed or originated by the roads, upon complaint and after investigation. A heavy penalty should be exacted from any corporation which fails to respect an order of the Commission. I regard this power to establish a maximum rate as being essential to any scheme of real reform in the matter of railway regulation.”
“The law should make it clear so that nobody can fail to understand that any kind of commission paid on freight shipments, whether in . . . [the form of an immediate reduction of the rate] or in the form of fictitious damages, or of a concession, a free pass, reduced passenger rate, or payment of brokerage, is illegal.”
Roosevelt also cautioned “that these recommendations are not made in any spirit of hostility to the railroads. On ethical grounds, on grounds of right, such hostility would be intolerable ; and on grounds of mere national self-interest we must remember that such hostility would tell against the welfare not merely of some few rich men, but of a multitude of small investors, a multitude of railway employees, wage-workers ; and most severely against the interest of the public as a whole.”
Moreover, according to Roosevelt, “on the whole our railroads have done well and not ill; but the railroad men who wish to do well should not be exposed to competition with those who have no such desire, and the only way to secure this end is to give to some Government tribunal the power to see that justice is done by the unwilling exactly as
it is gladly done by the willing.” In addition, a government determination of “reasonable” rates would aid railroads against “irrational clamor” and unfounded claims.
The Hepburn Act
Jonathan P. Dolliver
To carry forward this top priority of the President’s agenda, Roosevelt in early 2006 chose a junior Senator, Jonathan Prentiss Dolliver of Iowa, [2] to draft the legislation. However, Senator Elkins, who had sponsored the prior bill on such rates in 1903, was not supportive of the President’s proposal and also was upset that the President had chosen Senator Dolliver of Iowa to draft the legislation.
On January 27th Senator Dolliver, apparently recognizing considerable resistance to the bill in the Senate, took the unusual step of sending his bill to the House before Senate action. The House Committee on Interstate and Foreign Commerce quickly and favorably reported the bill to the full House, which on February 8th passed it with only seven negative votes. The bill would authorize the ICC to set reasonable rates whenever the actual rates were justifiably challenged and give railroads 30 days to appeal such decisions to the courts; it also would require the railroads to adopt a uniform and public form of bookkeeping.
Obtaining Senate approval of the bill, however, was more difficult. Conservative Senators opposed the legislation and, acting on behalf of the railroad industry, proposed amending the proposed legislation to give federal courts the power to review and reverse any ICC determination of rates. Roosevelt, however, resisted and took his case to the people and succeeded in pressuring the Senate to approve the legislation without this judicial review feature.
The fight in the Senate was not yet over. In order to obtain sufficient votes for passage of the bill, Roosevelt (a Republican) for five weeks secretly had backed an amendment proposed by Democratic Senators Joseph Weldon Bailey Sr. (Mississippi) and Benjamin Ryan Tillman, Jr. (South Carolina) that would limit judicial review of ICC orders on unreasonable rates to questions involving the ICC’s authority and the constitutional rights of the railroads. On May 4th, however, when it was apparent that the Tillman-Bailey Amendment did not have the necessary votes, Roosevelt, without notice to Bailey and Tillman and much to their consternation, announced at a hastily called press conference that the President supported a “broad” judicial review amendment proposed by Republican Senator William Boyd Allison (Iowa); this amendment had no limits on the scope of such judicial review, leaving it to the courts to decide the scope of review.
Thereafter, on May 18th the Senate approved the Hepburn bill, with the Allison amendment, with only three negative votes. A subsequent conference committee reconciled the two versions of the bill with the approval of the two houses of Congress.
On June 29, 1906, Roosevelt signed the Hepburn Act (“An Act to amend an Act entitled ‘An Act to regulate commerce,’ approved February fourth, eighteen hundred and eighty-seven, and all Acts amendatory thereof, and to enlarge the powers of the Interstate Commerce Commission”), 34 Stat. 584 (1906). The following are the significant provisions of the Hepburn Act:
The ICC was empowered to replace existing rates with “just-and-reasonable” maximum rates with the ICC to define what was “just and reasonable.”
The ICC orders were made binding upon issuance unless and until a federal court overturned them.
Anti-rebate provisions were toughened.
Free passes were outlawed.
The penalties for violation were increased.
The ICC was granted the power to prescribe a uniform system of railroad accounting, to require standardized reports and to inspect railroad accounts.
William P. Hepburn
The Act is known as the Hepburn Act because the Chairman of the House Committee that first approved the bill was Congressman William Peters Hepburn, Republican from Clarinda, Iowa.[3]
Interestingly the town of Clarinda was the home of some of the in-laws of my maternal great-great-uncle, William C. Brown, who owned a home and a farm there as well. It would be interesting to know whether Hepburn and Brown had any social or political interactions in Clarinda or in Washington, D.C.
Reactions to the Hepburn Act
Scholars consider the Hepburn Act the most important piece of legislation regarding railroads in the first half of the 20th century.
W. C. Brown
William C. Brown, then a Vice President of the New York Central Railway, shared this opinion. He said in February 1908, “The Hepburn law has released the railroads from a helpless condition of rebates and preferential rates, and its value can hardly be overestimated, both to the railroads and to the great majority of the public which did not participate in, nor profit by such practices.”[4]
More generally he said on that occasion, “The principle of the control and regulation of railroads by the nation and the several States has been accepted in good faith by the railroads, and they have entered upon the task of adjusting their operations to the changed conditions resultant upon laws recently enacted.” His only caveat was railroads’ needing “a fair and impartial hearing and the . . . right to appeal to the courts to prevent injury or to secure redress of injustice.”
Similar comments were made by Brown in an April 18, 1907, speech at the Buffalo, New York Chamber of Commerce: “I am firmly and unalterably in favor of regulation of railroads by the Nation and States.”[5] This comment was after Brown in his speech had stated that “the railroads were being operated intelligently, skillfully, vigorously to the last limit of capacity. Yet almost any other business has offered higher and more certain returns than railroads, and it will be impossible for railroads to raise needed capital unless such investment will be reasonably attractive and secure resulting from assurance of reasonable cooperation and protection. This will be difficult in light of extreme hostility and indiscriminate agitation that has resulted in unjust and harmful legislation in many states.”
In the New York Central’s annual report for 1909, Brown said, “Governmental regulation of railroads, within proper limitations, is of benefit to the public, to the railroads, and to those who hold their securities.”[6]
Therefore, it was not surprising for Brown to say in a September 24, 1910, letter to “My dear Col. Roosevelt,” after Roosevelt was out of office, “During your term as President, as you know, I steadfastly supported your ideas in regard to Corporations.”[7]
Even though there was not major public controversy over the details of the Hepburn Act after its passage, there was considerable public and private debate over whether this Act would allow the railroads to increase their freight rates as we will see in subsequent posts.
[1] This post is based upon the cited sources plus Edmund Morris, Theodore Rex at 375-77, 417-34, 422-24, 426-28, 433-35, 438-39, 442-44, 446-48, 506 (New York; Random House; 2001); Blum, Theodore Roosevelt and the Hepburn Act: Toward an Orderly System of Control in Morison (ed.) The Letters of Theodore Roosevelt (Cambridge, Mass.; Harvard Univ. Press; 1952); Miller Center, President Theodore Roosevelt: Domestic Affairs; Hoogenboom & Hoogenboom, A History of the Interstate Commerce Commission—From Panacea to Palliative at 38-40, 47-57 (1976); Hoogenboom, Hepburn Act, in Bryant (ed.), Railroads in the Age of Regulation, 1900-1980 at 198 (New York; Bruccoli Clark; 1988); Kolko, Railroads and Regulation, 1877-1916 at 107-48 (Princeton; Princeton Univ. Press; 1965); Wikipedia, Hepburn Act; Tillman Discloses Roosevelt Secret, N.Y. Times (May 13, 1906); Allison Amendment in Bill, N.Y. Times (May 13, 1906).
[2]Dolliver was a lawyer in Fort Dodge, Iowa before election as a progressive Republican to the U.S. House of Representatives in 1888, where he served until 1900. He then was appointed to fill a vacant seat in the U.S. Senate, where he served until his death in 1910. Dolliver gained national attention for his prowess as an orator. One example of this skill was his explanation of Iowa’s traditional allegiance with the Republican Party: “Iowa will go Democratic when Hell goes Methodist.”
[3] During the Civil War, Hepburn had helped organize a company of the Iowa Volunteer Cavalry, which elected him as captain. He advanced to the ranks of major and eventually lieutenant colonel and gained recognition for his valiant service in the War. After the War he moved to the small southwestern Iowa town of Clarinda, where he was the editor and part owner of the local newspaper and practiced law, including representation of the Burlington Railroad. Hepburn served in Congress, 1881-1887 and 1893-1909, and became a national leader of progressive Republicans. The Hepburn Act was the culmination of his legislative work on transportation issues and his most prominent accomplishment in the House. In addition, he co-sponsored the Pure Food and Drug Act and supported the annexation of Hawaii, the construction of the Panama Canal and reducing the power of the Speaker of the House.
[4]Praises Rebate Law, N. Y. Times (Feb. 2, 1908).
[5] William C. Brown, Remarks at Chamber of Commerce, Buffalo, New York, April 18, 1907).
[6]Regulations Help Railroads Along, N. Y. Times Mar. 13, 1910).
[7] Letter, William C. Brown to Theodore Roosevelt (Sept. 24, 1910) (image # 93-059 provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, www.theodorerooseveltcenter.org ).
During President Theodore Roosevelt’s terms in office (09/14/1901—03/04/1909), a prominent national political issue was whether and how the federal government should regulate corporations acting in interstate commerce, especially the railroads.
Prior posts reviewed this issue during Roosevelt’s “first” term (1901-1905) with respect to the Northern Securities antitrust case and the enactment of the Elkins Act regarding railroad freight rebates.
The major developments on this issue in the second term (1905-1909) were congressional enactment in 1906 of the Hepburn Act regarding railroad freight rates and continued public debate over such regulation with the Financial Panic of 1907 in the background. These topics will be discussed in subsequent posts. A major participant in this debate was William Carlos Brown, then Senior Vice President of the New York Central Railway and my maternal great-great uncle.
As previously noted, Theodore Roosevelt and William Carlos Brown (my maternal great-great-uncle) were together on one of Roosevelt’s campaign journeys in the election of 1900. Thereafter during Roosevelt’s first (09/14/1901—03/04/1905) and second (03/04/1905—03/04/1909) presidential terms, these two men also had periodic contacts on railroad issues while Brown was Vice President and Senior Vice President of the New York Central Railroad, one of the most important railroads in the country (02/01/1902 —01/31/1909).
During those eight years, railroads were the first major U.S. industry and made possible the growth of other major industries, including coal, steel, flour milling and commercial farming. They also established major cities like Chicago and with telegraphy transformed communications. (Albro Martin, Railroads Triumphant:The Growth, Rejection and Rebirth of a Vital American Force (1992).)
The importance of the railroads to the U.S. economy affected everyone and prompted much popular dissatisfaction with perceived abuses by the railroads. Roosevelt entered this social and political milieu with a belief that the government should use its resources to help achieve economic and social justice.
He acted on this belief in the fall of 1902 when a miners’ strike threatened a coal shortage in the upcoming winter. Roosevelt called both the mine owners and the labor representatives together at the White House. When management refused to negotiate, Roosevelt told them if the two sides did not talk, he would use troops to seize the mines and run them as a federal operation. Faced with this threat, the owners and labor unions agreed to submit their dispute to a commission and abide by its recommendations. The resulting settlement, Roosevelt said, was a “square deal” or one fair to both sides, and this label soon became synonymous with Roosevelt’s overall domestic program.
As part of this “Square Deal” program or approach Roosevelt advocated increased federal government regulation of corporations acting in interstate commerce, especially the railroads, in both of his presidential terms.
There were two principal developments on this issue in Roosevelt’s first term. The first was his Administration’s commencement in 1902 of an antitrust lawsuit against the Northern Securities Company, which combined the stocks of two competing railroads from the Great Lakes and the Mississippi River to Puget Sound on the Pacific Coast. The second was the Administration’s pressing the Congress in 1903 to enact the Elkins Act to enhance the powers of the Interstate Commerce Commission over railroad freight rates.
These developments will be discussed in subsequent posts while others will investigate this subject during Roosevelt’s second term as President.
While W C. Brown (my great-great-uncle) was an important top executive of the powerful New York Central Railroad in New York City, 1902-1913, he still demonstrated loyalty to the state of Iowa, where he grew up, and to his parents (and my maternal great-great-grandparents), Rev. Charles E. Brown and Frances Lyon Brown.
W. C. BrownFrances Lyon Brown & Charles E. Brown
After Rev. Charles E. Brown, died in 1901, W.C. paid for an imposing monument for his parents in the Pleasant Hill Cemetery” in Lime Springs in northeastern Iowa, for the establishment of the “Brown Park in the town and for a beautiful stained-glass window in honor of his father at the First Baptist Church of nearby Cresco, Iowa. W.C. also financed the private publication of his father’s memoirs, Personal Recollections 1813-1893 of Rev. Charles E. Brown with Sketches of His Wife and Children and Extracts from an Autobiography of Rev. Phillip Perry Brown 1790-1862 with Sketches of His Children and the Family Record 1767-1907.[1]
Brown Park, LIme Springs, IABaptist Church, Cresco, IA
W.C. owned a home in Lime Springs (Howard County) for himself and his family as well as a farm in the neighboring countryside. In addition, W.C. owned a farm and home near the southwestern Iowa town of Clarinda (Page County) where a brother-in-law (Charles P. Hewitt) and a sister-in-law (Hattie Hewitt Galloway) lived. In that town W.C. also owned an interest in a small bank and manufacturer. Brown usually returned in the summers to visit these towns and farms during his New York City years.
Howard County IowaPage County Iowa
His summer sojourns to Lime Springs were in W. C.’s private railroad car, which sat on a siding while he and his family (but not always his daughters) stayed in their home in the town. The African-American cook and chauffeur stayed in another house across the street from the Brown house.
Back in the City, W. C. served as the president of the Iowa Society of New York. At its annual dinner in 1910, he spoke with pride of Iowa’s hatred of slavery and its first railroad, the underground railroad, whose “builder and maker were God.” One of its passengers was John Brown, who in 1859 stayed with Josiah B. Grinnell, after whom Grinnell College (my alma mater) was named. W.C. also commended Iowa’s “unconditional, sleepless opposition to the saloon,” which was a cause dear to his father’s heart.
At the Iowa Society’s dinner two years later, in March 1912, W. C. said “I love Iowa and her people, and when I go back to Iowa, as I hope to very soon, . . . I look forward to . . . returning to New York . . . and telling you of their sensible citizenship, a citizenship that has always saved her from the sophistries of the designing demagogue.”[2]
After Brown retired from the New York Central at the end of 1913, he and his wife usually returned to their Iowa homes in the summer after spending the winter months at their retirement home in Pasadena, California.
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[1] W. C. also donated the organ to the Methodist Church of Lime Springs in honor of his wife and made large financial contributions for the construction of the Church’s building and for the endowment of the town’s Pleasant Hill Cemetery.
[2] Also in attendance at the dinner that night was the Iowa Congressman from Clarinda, William P. Hepburn, about whom we hear in a later post about federal regulation of railroad freight rates.
After his successful 19th century career with railroads in the Midwest, in 1902 my great-great-uncle, William Carlos (or W.C.) Brown, became the Vice President in charge of the transportation, engineering, mechanical and purchasing departments of the New York Central Railroad, which as described in a prior post was one of the most powerful corporations in the country.
Brown’s joining the Central in 1902 prompted a letter writer to the New York Times to state that W.C. “has made a careful study of [railroad] safety appliances, and he is in large part responsible for the adoption of the operating rules now in force on [U.S. railroads]. He was a member of the first Committee on Safety Appliances and Train Rules of the American Railway Association.” In addition, according to this writer, Brown had a “strong and vigorous personality and he has a faculty of making friends with all of his employees.”
Brown was a Vice President until 1906, when he was promoted to the position of the Senior Vice President. He held this position until 1909 when he was appointed to be the Central’s President, Director and member of its Executive Committee. Effective December 31, 1913, he retired from the Central.
When Brown assumed the Central’s presidency in 1909, a trade journal said W.C. was “a studious man, clear-headed, with retentive memory” and “an accurate judge of men and subjects.”
The New York Times added that Brown was “one of the most popular railroad officials” in the U.S. and had “an extraordinary forcefulness and energy. He has a faculty of disposing of things in the shortest possible span of time, and an equally strong one for analyzing propositions down to the backbone. He talks quickly, energetically, and very clearly. Among his subordinates and associates he is immensely popular, and the joy over his promotion is heartfelt and unaffected.” He also was described as “courteous and modest . . . [a] moderate disciplinarian . . . kind-hearted and considerate . . . [and] not as uncompromising as many of his contemporaries [toward labor unions].”
Another journalist in 1909 said Brown “knows what the duty is of every one of his 150,000 men in the system.” The National Cyclopedia of American Biography in its 1910 edition stated that Brown was then “probably one of the best posted and most able and efficient railroad men in the [U.S.] He is firm and determined . . . . His career affords a splendid example of accomplishments due to untiring industry, perseverance, and fidelity to one’s duties.”
Brown himself was quoted in the New York Times at the time of his promotion to President of the Central. He said, “ In the United States, it is the workingman who, even though he starts at the bottom, ends in the important posts at the top of our railroads and our great industrial enterprises. The day of favoritism and family has departed. I believe that plain sticking to it is a good rule for every workingman who is earnest in his ambition. I believe, too, it may not be for his best welfare for any worker to set for himself . . . a definite goal.”
For another publication, Brown continued on this theme. He said the most important factor his advancement was, “Just sticking to it and making a business of my business, filling every job I got as well as I knew how. . . . [I]t is more or less a mistake to preach to young men that they should fix for themselves a specific goal, and strive toward it . . . . If a fellow sets out with that idea, he is apt to become an office politician, and he wastes more time figuring out how he is going to get the step over somebody else than he expends in attending to the business in hand. The thing he has to do is bend every energy . . . to doing today, as well as it can be done, what he has to do. The man who does that does not need to worry about promotion . . . . Promotion will look for him.”
Here are some of the significant events at the Railroad in which he was involved during his 12 years at the Central and which have been or will be covered in other posts:
the demolition of the old Grand Central Terminal and the construction of the new Terminal at 42nd Street and Park Avenue in Manhattan;[1]
the related electrification of the trains coming into and going out of that Terminal;
the Woodlawn Crash, February 16, 1907, when a Central train with a new electric engine flew off the tracks, instantly killing 20 people and injuring more than 150, some seriously;
the financial panic of 1907;
the national political issue of whether and how the federal government should regulate railroads, especially their freight rates; and
other public issues, including promotion of agriculture.
In these and other issues over those 12 years, Brown, of course, was not a sole actor. Just look at the members of the Railroad’s Board of Directors, 1909-1913, whom we reviewed in an earlier post and with whom Brown worked.
During this time at the Central, Brown and his family lived in Manhattan at 135 Central Park West overlooking Central Park. But every summer he and his family returned to Iowa to visit his parents and friends and his farms. These visits along with other ways he honored his parents will be discussed in a subsequent post.
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[1] A prior post discussed the Terminal on its centennial in 2013 with other details provided in another post.
