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.
Andrew Carnegie (November 25, 1835 – August 11, 1919) was a Scottish-American industrialist who led the enormous expansion of the American steel industry in the late 19th century.[1] He also was one of the highest profile philanthropist of his era who had given away almost 90 percent of his large fortune to charities and foundations by the time of his death.[2]
Carnegie also was a pacifist at heart, and starting in 1903 devoted significant time and money to promoting peaceful resolution of international disputes, especially by arbitration pursuant to treaties.
Hague Peace Palace
He helped to create the Palace of Peace at the Hague in the Netherlands with his 1903 formation of a Dutch foundation and his funding of the Palace’s construction that was completed in 1913. It initially was the site for the Permanent Court of Arbitration, which was established in 1899 and which now is an intergovernmental organization with 115 member states that provides dispute-resolution services for various combinations of states, state entities, intergovernmental organizations, and private parties.[3] From 1922 to 1946 it also was the site for the Permanent Court of International Justice of the League of Nations and since 1946 the International Court of Justice, the principal judicial organ of the United Nations.
In 1910 he funded the establishment of the Carnegie Endowment for International Peace, whose trustees were charged to use the fund to “hasten the abolition of international war, the foulest blot upon our civilization.” The Endowment is still operating today with its headquarters in Washington, D.C. Now it describes itself as “a unique global network of policy research centers in Russia, China, Europe, the Middle East, and the [U.S.]. Our mission . . . is to advance the cause of peace through analysis and development of fresh policy ideas and direct engagement and collaboration with decision makers in government, business, and civil society. Working together, our centers bring the inestimable benefit of multiple national viewpoints to bilateral, regional, and global issues.”
Carnegie Hall
Another activity Carnegie organized to promote peace was the April 1907 National Arbitration and Peace Congress at Carnegie Hall in New York City. The Hall, as its name suggests, was another Carnegie-financed project that opened in 1891 in Midtown Manhattan.[4]
The Congress with over 1,200 registered delegates was described as the “greatest gathering ever held in advocacy for the abolition of war as a means of settling national disputes.”
Carnegie himself, of course, gave a major speech at the Congress that in retrospect can be seen as an outline of the United Nations created after World War II. Carnegie said, “[W]e are met to urge the speedy removal of the foulest stain that remains to disgrace humanity, since slavery was abolished—the killing of man by man in battle as a mode of settling international disputes.” He also expressed his support for “the League of Peace idea—the formation of an International Police, never for aggression, always for protection to the peace of the civilized world. . . . “ States should agree “that no nation shall be permitted to disturb the peace.” Before use of the international police, there should be a proclamation of “non-intercourse [“sanctions” in our parlance] with the offending nation.”
President Theodore Roosevelt did not attend the Congress, but sent a letter that embraced its purpose. It said, “[I]t is our bounden duty to work for peace, yet it is even more our duty to work for righteousness and justice.” Moreover, the President stated,“[T]here can be at this time a very large increase in the classes of cases which [could ] . . .be arbitrated, and . . .provision can be made for greater facility and certainty of arbitration. I hope to see adopted a general arbitration treaty.” Roosevelt added that the Hague court [of Arbitration] should be greatly increased in power and permanency.”
On the other hand, Roosevelt cautioned the delegates to not insist “upon the impossible [and thereby] put off the day when the possible can be accomplished.” “[G]eneral disarmament would do harm and not good if it left the civilized and peace-loving peoples . . . unable to check the other peoples who have no such standards.” Indeed, according to the President, “[T]here are few more mischievous things than the custom of uttering or applauding sentiments which represent mere oratory, and which are not, and cannot be, and have not been, translated from words into deeds.”
The Congress adopted resolutions endorsing international peace and international law; calling for permanency for the Hague Court of Arbitration open to all nations; the adoption of a general international arbitration treaty; the creation of a committee to investigate international disputes and attempt to mediate them before the parties resort to war; the establishment of the neutrality of personal property at sea; and limitations on armaments. [5]
Baron de Constant de Rebecque & Andrew Carnegie
At the end of the Congress Carnegie was presented with the French Cross of the Legion of Honor by France’s Baron de Constant de Rebecque (nee Paul Henri Benjamin Balluet), a member of the Permanent Court of Arbitration and the 1909 winner of the Nobel Peace Prize. The Baron praised Carnegie for “his interest and energy in behalf of the peace movement” and for being “a good citizen of the whole world.”
According to the New York Times, Europeans were not interested in, or impressed by, this Congress. First, they did not have “a large number of peace propagandists.” Instead their prevailing view was that “universal, permanent peace is a long way off” and that the major issue was the practical one of adopting an agreement on the manner in which wars should be conducted. Second, many Europeans believe that U.S. policies regarding the Western Hemisphere threaten world peace, especially with respect to Germany’s interests in that part of the world. Indeed, The Times of London called Carnegie “an ardent but ill-informed amateur” and had “rushed in where sagacious statesmen fear to tread.” Another European critic said Carnegie should “endow a chair of contemporary history for his own instruction.”
Carnegie Mansion
Preceding the Congress, Carnegie hosted a large dinner at his beautiful mansion at Fifth Avenue and 91st Street in New York City to celebrate industrial peace in the U.S. and the upcoming Congress. In attendance were 100 “sons of toil” or workers’ representatives; prominent merchants; manufacturers’ executives; bankers; leaders of universities and other educational institutions; church leaders; publishers and editors; lawyers; and railroad executives, including William C. Brown, then Senior Vice President of the New York Central Railroad (and my maternal great-great uncle).[6]
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[1] This post is based in substantial part on Chapter XXIII (“The Quest for Peace, 1901-1910”) in Joseph F. Wall’s Andrew Carnegie (Oxford Univ. Press 1970), which won the 1971 Bancroft Prize for best book about history of the Americas (or diplomacy). Professor Wall was a revered History Professor at my alma mater, Grinnell College, and I was fortunate to have known him and learned from him.
[2] One of Carnegie’s philanthropic endeavors was funding the establishment of public libraries throughout the U.S. and other countries. My mother was the Librarian at the Carnegie Library in Perry, Iowa, and I studied at Grinnell College’s Carnegie Library during my first two student years.
[3] I have had two “contacts” with the Permanent Court of Arbitration. First, a Minnesota company had suggested arbitration of its claim against my client, an Asian manufacturer, under the UNCITRAL Arbitration Rules. Because my client and I did not believe that there was a valid arbitration clause and the claimant had not appointed the first arbitrator, we did not appoint a second arbitrator and then were surprised to receive a letter from the Permanent Court designating an appointing authority to appoint a second arbitrator. There eventually was a three-person arbitration panel that issued an award in favor of my client. Second, I have researched the life and career of Edward Burnham Burling, a fellow Grinnell alumnus (Class of 1890), whose gift funded the College’s library (the Burling Library) that replaced its Carnegie Library. Burling was the co-founder of the eminent Washington, D.C. law firm of Covington & Burling and represented the Kingdom of Norway against the U.S. over expropriation of shipping contracts during World War I with the Permanent Court of Arbitration in 1922 issuing an award in favor of Norway. Writing blog posts about Burling and the Norway case are on my list of future posts.
[4] This account of the Congress is based upon Andrew Carnegie’s Plea for Peace, N. Y. Times (April 7, 1907); Stead Recommends a Peace Pilgrimage, N. Y. Times (April 8, 1907); Frenchmen Arrive for Peace Congress, N. Y. Times (April 9, 1907); Prelude to Peace Congress To-Night, N. Y. Times (April 14, 1907); Women’s Part in Peace, N. Y. Times (April 14, 1907); War Talk Opens Peace Congress, N. Y. Times (April 15, 1907); The Afternoon Session, N. Y. times (April 16, 1907); Editorial, Peace on Earth, N. Y. Times (April 16, 1907); Peace Conference Not All Harmony, N. Y. Times (April 17, 1907); Honor Carnegie Friend of Peace, N. Y. Times (April 17, 1907); Editorial, Peace Congress Resolutions, N. Y. Times (April 18, 1907); Editorial, Peace Congress Sequels, N. Y. Times (April 21, 1907); Europe Is Amused at Peace Congress, N. Y. Times (April 21, 1907); Proceedings of the National Arbitration and Peace Congress, New York, April 14th to 17th, 1907 (1907).
[5] Roosevelt became a hero for Carnegie, but Roosevelt never liked Carnegie.
[6]Unique Party Carnegie Host, N. Y. Times (April 6, 1907). About one week before this special dinner, Carnegie, after a luncheon meeting with President Roosevelt at the White House, made a statement supporting the President’s policies regarding the railroads. The Carnegie Mansion now is the home for the Cooper Hewitt, Smithsonian Design Museum.
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).
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
Frederick A. Delano
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]
James J. Hill
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]
William C. Brown
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]
Andrew Carnegie
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).
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 discussed in a prior post, a major issue for President Theodore Roosevelt in his first term was whether and how to enhance federal regulation of railroads and other companies engaged in interstate commerce.
Two accomplishments on that issue stand out: conducting a successful federal antitrust case against the Northern Securities Company, as covered in another earlier post, and pressing for the enactment of a new statute (the Elkins Act) to increase the power of the Interstate Commerce Commission (ICC) over railroad freight rates.
Now we examine the circumstances relating to the enactment of that statute.
Legal Background
In 1887 the Interstate Commerce Act was enacted in response to rising public concern over the growing power and wealth of corporations, particularly railroads. Railroads had become the principal form of transportation for both people and goods, and the prices they charged and the practices they adopted greatly influenced individuals and businesses. In some cases, the railroads were perceived to have abused their power as a result of too little competition. Railroads also had banded together to form pools and trusts that fixed rates at higher levels than they could otherwise command.
This statute created the Interstate Commerce Commission (ICC) and required that railroad rates be “reasonable and just,” but did not empower the ICC to fix specific rates. It also required that railroads publicize shipping rates and prohibited short-haul or long-haul fare discrimination, a form of price discrimination against smaller markets, particularly farmers.
By 1901, however, it was apparent that large shippers were able to obtain discounts or rebates and that the ICC was not effective, and the ICC had notified the administration about abuses within the railroad industry. In addition, a large segment of the population supported efforts to regulate the railroads because so many people and businesses were dependent on them.
Roosevelt vs. The Railroads
President Roosevelt then began advocating for new statutes to remedy these weaknesses:
State of the Union (Annual) Message (December 3, 1901). In his first Annual Message, Roosevelt recommended that the ICC’s 1887 statute be amended to ensure that railroad “rates should be just to, and open to, all shippers alike” and that the ICC had “a speedy, inexpensive, and effective remedy to that end.” Even though the “cardinal provisions of [the 1877 statute] were that railway rates should be just and reasonable and that all shippers, localities, and commodities should be accorded equal treatment,” there are allegations “that established rates are not maintained; that rebates and similar devices are habitually resorted to; that these preferences are usually in favor of the large shipper; that they drive out of business the smaller competitor; that while many rates are too low, many others are excessive; and that gross preferences are made, affecting both localities and commodities.” On the other hand, “the railways assert that the law by its very terms tends to produce many of these illegal practices by depriving carriers of [the] . . . right of concerted action which they claim is necessary to establish and maintain non-discriminating rates.”
Speech in Providence, Rhode Island (August 23, 1902). On August 23, 1902, before a crowd of over 20,000, Roosevelt in a speech said, “The great corporations . . . [or trusts] are the creatures of the State, and the State not only has the right to control them, but it is in duty bound to control them wherever need of such control is shown. . . . The immediate necessity in dealing with trusts is to place them under the real, not nominal, control of some sovereign to which, as its creatures, the trusts shall owe allegiance, and in whose courts the sovereign’s orders may be enforced. In my opinion, this sovereign must be the National Government.”
State of the Union (Annual) Message (December 2, 1902. In his second Annual Message to the Congress, Roosevelt said that “the experience of the past year has emphasized . . . the desirability of the steps” regarding regulation of [interstate] trusts that he discussed in his first state of the union message. In short, “Corporations, and especially combinations of corporations, should be managed under public regulation [by the federal government].”
In early 1903 the U.S. Department of Justice prepared a bill to remedy the perceived deficiencies in the ICC and submitted it to the Congress. By February of that year Senator Stephen B. Elkins, Republican of West Virginia and a member of the Senate Committee on Interstate Commerce, predicted that Congress would adopt a railroad anti-rebate bill that would satisfy the Administration as well as fair-minded railroad executives. Elkins and his wife, by the way, owned coal mines and a coal railroad, the latter of which in 1902 had been sold, and were friends of railroad interests.
That month (February 1903) what became known as the Elkins Act unanimously was passed by the Senate and approved by the House by a vote of 250 to 6. On February 19th Roosevelt signed the Elkins Act (An Act to further regulate commerce with foreign nations and among the States, 32 Stat. 847, ch. 708 (1903).) Although it was called the Elkins Act, it really was drafted by the President of the Pennsylvania Railroad, which resented being pressured by shippers to grant rebates. Other railroads supported the measure for the same reason with an estimated 10% of all railroad revenues being paid out in rebates.
The Elkins Act made it a misdemeanor for a railroad and its directors, officers and agents willfully to fail to file with the ICC and publish its freight rates or failure “strictly to observe” those rates. It also was a misdemeanor “to offer, grant, or give or to solicit, accept, or receive any rebate, concession, or discrimination” in such rates. All such misdemeanors were punishable by a fine between $1,000 and $20,000. The ICC alone was not empowered to make these determinations; instead the ICC had to petition a federal circuit court to do so and to enjoin any such violations.
Immediate Reaction to the Elkins Act
President Roosevelt in his Annual State of the Union Message on December 7, 1903, applauded the progress over the last year in the “exercise of supervision over the great [interstate] corporations and combinations of corporations.” This included congressional approval of the Elkins Act that has “secured equal treatment to all producers in the transportation of their goods, thus taking a long stride forward in making effective the work of the [ICC].”
The ICC itself in its Annual Report of December 15, 1903, emphasized that the Act was targeted “to prevent or more effectually reach those infractions of law, like the payment of rebates and kindred practices.” The Act also simplified the method of proving discrimination or rebates by making the violation the charging of a rate less than the published rate. In short, the Act is a “wise and salutary” statute correcting “serious defects in the original [Interstate Commerce Act of 1890] and greatly aided the attainment of some of [its] purposes.” However, the ICC noted that it had “no power to determine what rate is reasonable, and such orders as it can make [about rates] have no binding effect.”
Others criticized the Elkins Act’s failure to grant the ICC power to determine reasonable freight rates and the Act’s elimination of imprisonment for violations whereas the supporters of the measure thought that elimination would encourage firms to testify against each other and thereby encourage compliance with the law. Many merchants started agitating for new legislation granting the ICC power to suspend freight rates on complaint.
I have not found any commentary about the Elkins Act by W. C. Brown, my maternal great-great-uncle and then a Vice President of the New York Central Railway.
However, in an April 18, 1907, speech at the Buffalo, New York Chamber of Commerce, he said, “I am firmly and unalterably in favor of regulation of railroads by the Nation and States.”[2] This comment came after he 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.”
Brown returned to this theme in February 1908, when he said, “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.” [3]
In the New York Central’s annual report for 2009, 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.” [4]
Therefore, it was not surprising for Brown to say in a September 26, 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.”[5]
[1] This discussion is based upon the Elkins Act; Edmund Morris, Theodore Rex at 206, 429 (Random House; New York; 2001); Kolko, Railroads and Regulation, 1877-1916, at 90-92, 94-102 (Princeton Univ. Press; Princeton; 1965); ICC, Seventeenth Annual Report (Dec. 15, 1903); Theodore Roosevelt Center, The Elkins Act.
[2] William C. Brown, Remarks at Chamber of Commerce, Buffalo, New York, April 18, 1907.
[3]Praises Rebate Law, N. Y. Times (Feb. 2, 1908).
[4]Regulations Help Railroads Along, N. Y. Times (Mar. 13, 1910).
[5] This letter (Image (# 93-0659) was provided courtesy of the Library of Congress Prints and Photographs Divisions and Theodore Roosevelt Center at Dickinson State University, http://www.theodorerooseveltcenter.org.The letter’s salutation of “Col. Roosevelt” was a reference to his having served as a Colonel in the U.S. Army’s Rough Rider Regiment in the Spanish-American War, where he was hailed as a hero for leading a charge up San Juan and Kettle Hills in Cuba, and to Roosevelt’s preference to be called “Colonel” by those close to him. Why did he prefer to be called “Colonel” instead of “Mr. President”? I suspect it was his desire to emphasize his personal physical bravery in armed combat.
As mentioned in an earlier post, one of President Theodore Roosevelt’s major efforts to enhance federal regulation of railroads in his first term was his Administration’s commencement of an antitrust lawsuit under the Sherman Act 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.
These two roads were the Great Northern Railway running from St. Paul, Minnesota to Seattle, Washington while the Northern Pacific Railway ran from St. Paul (and separately from Ashland, Wisconsin and Duluth, Minnesota) to Seattle and Tacoma, Washington and Portland, Oregon. In addition, the two of them jointly owned the Chicago, Burlington & Quincy Railroad, which connected St. Paul with Chicago. [1]
Great Northern RailwayNorthern Pacific Railway
The Legal Background
The late 19th century was an era of “trusts” and of “combinations” of businesses and of capital organized and directed to control of the market by suppression of competition in the marketing of goods and services, the monopolistic tendency of which had become a matter of public concern.
To meet this problem, the U.S. in 1890 enacted “An act to protect trade and commerce against unlawful restraints and monopolies,” 26 Stat. 209, ch. 647 (1890). The statute is commonly referred to as the Sherman Act in recognition of its principal author or sponsor, Senator John Sherman, Republican of Ohio. The statute provided, in part, as follows:
“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states . . . is hereby declared to be illegal. Every person who shall make any such contract, or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor . . . .” (Section 1)
“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states . . . shall be deemed guilty of a misdemeanor . . . . ” (Section 2)
The prescribed penalty for such misdemeanors was a fine up to $5,000 or imprisonment not exceeding one year or both. In addition, the circuit courts (n/k/a district courts) were “invested with jurisdiction to prevent and restrain violations” of the statute (Section 4), and persons injured in their business or property by any violations could sue the perpetrators for treble damages and attorneys’ fees (Section 7).
The goal of the Sherman Act was to prevent restraints of free competition in business and commercial transactions that tended to restrict production, raise prices, or otherwise control the market to the detriment of purchasers or consumers of goods and services.
The Formation of Northern Securities
On November 13, 1901 (only two months after Roosevelt became President), J. P. Morgan, who controlled 21 railroads, including the Northern Pacific, and James J. Hill of the Great Northern [2] announced the formation of the Northern Securities Company to be a holding company for the common stock of the two competing railroads, This new combination was the second largest company in the world with annual revenues of $100 million and covering commerce from Chicago to Seattle and extending to China over Mr. Hill’s shipping lines.
A New York newspaper saw the new company as another step toward universal monopoly.
The Commencement of the Lawsuit
On February 19, 1902 (only three months after the formation of the Northern Securities Company), the Roosevelt Administration announced plans to commence the antitrust case alleging that the formation and operation of Northern Securities constituted a restraint of interstate commerce in violation of the Sherman Antitrust Act. In addition to the two railroads, the U.S. planned to sue James J. Hill of the Great Northern and seven directors of the Northern Pacific, including J. P. Morgan and George F. Baker. [3]
James J. HillJ. P. MorganGeorge F. Baker
The U.S. stock market immediately registered significant declines with similar reactions in London, Paris and Berlin markets. In response, J. P. Morgan starting buying stocks in great quantities and helped to stop a panic.
The next evening Morgan and 12 other wealthy men met with Roosevelt at the White House without discussing the lawsuit, i.e., the elephant in the room. The next morning, however, the subject was broached when Morgan returned alone to the White House for a meeting with Roosevelt and the Attorney General, Philander Chase Knox. Morgan asked why the Government had not just called and asked him to correct any irregularities with the charter of Northern Securities, but Knox merely said the Government wanted to stop the company, not to fix it up. Afterwards Roosevelt said, “Mr. Morgan could not help regarding me as a big rival operator who either intended to ruin all his interests or could be induced to come to an agreement to ruin none.”
Theodore RooseveltPhilander Chase Knox
The Case in the Circuit Court
The bill in equity (or “complaint” in today’s terminology) thereafter was filed with the U.S. Circuit Court for the District of Minnesota.[4] The complaint charged that the Northern Securities was an illegal “combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states” (Sherman Act § 1).
The next April 9th (1903), the Circuit Court’s four Circuit Judges unanimously upheld the validity of the Government’s complaint (United States v. Northern Securities Co., 120 Fed. 721 (Cir. Ct., Dist. Minn. 1903)) . The court in an opinion by Judge Thayer first entered the following findings of fact as established by the pleadings and evidence:
The Great Northern and Northern Pacific owned railroad lines from Minnesota to Puget Sound that are parallel and competing lines.
These two railroads in 1901 jointly acquired 98% of the capital stock of the Chicago, Burlington & Quincy Railway.
Thereafter in 1901 James J. Hill, J. P. Morgan and six other men, all of whom were defendants in the case and collectively had practical control of the two principal railroads, arranged to place a large majority of the stock of the two railroads in a holding company, Northern Securities, and that was done.
As a result, the control of these two railroads was put into a single person and thereby “destroyed every motive for competition” between them.
Those “who conceived and executed this plan . . . intended . . . to accomplish these objects.”
The court then concluded that the Congress “deliberately employed words of such general import [in section 1 of the Sherman Act] as, in its opinion, would comprehend every scheme that might be devised to accomplish that end.” In addition, the U.S. Supreme Court had held that the Act “applies to interstate carriers of freight and passengers . . .; that [the Act does] not mean in unreasonable or partial restraint of trade or commerce, but any direct restraint thereof; that an agreement between competing railroads . . . [to fix their rates is] a contract in direct restraint of commerce . . .; and [that the Act is constitutional].”
Therefore, the court entered a decree that the defendants had violated section 1 of The Sherman Act and that Northern Securities was enjoined from acquiring additional stock of the two railroads, from voting its holdings of those shares and from exercising or attempting to exercise any control or direction over the two railroads. Northern Securities, however, was permitted to rescind its acquisitions of the stock of the two railroads.
The Case in the Supreme Court
The case then went directly to the U.S. Supreme Court, [4] which on December 14, 1903, heard arguments. Attorney General Knox appeared for the Government and made what many thought was a brilliant argument without any questions from the Justices.
In March 1904, the U.S. Supreme Court, 5 to 4, affirmed the Eighth Circuit and ordered the company dismantled. (Northern Securities Co. v. United States, 193 U.S. 197 (1904).) The Court’s plurality opinion by Mr. Justice John Marshall Harlan and supported by only three of the other Justices concluded that “the evidence . . . shows a violation of the . . . [Sherman Act, which] declares illegal every combination or conspiracy in restraint of commerce among the several states . . . and forbids attempts to monopolize such commerce or any part of it.”
In so concluding, the Harlan opinion emphasized that the Court’s prior decisions had established that “every contract, combination, or conspiracy in whatever form, of whatever nature, and whoever may be parties to it, [that] directly or necessarily operates in restraint of [interstate] . . . commerce” is illegal. Those prior decisions, said the Harlan opinion, also determined that the statute is not limited to unreasonable restraints of trade; that railroads operating in interstate trade are covered by the statute; and that every contract, combination or conspiracy that would extinguish such competition is illegal. (Emphasis added.)
Mr. Justice David Josiah Brewer concurred in the judgment affirming the lower court’s conclusion of antitrust violations, but disagreed with the rationale of the Harlan opinion because of fear that it “might tend to unsettle legitimate business enterprises, stifle or retard wholesome business activities, encourage improper disregard of reasonable contracts, and invite unnecessary litigation.” Instead, said Justice Brewer, the statute only covered “contracts which were in direct restraint of trade, unreasonable, and against public policy.” (Emphasis added.)
A dissenting opinion was filed by Mr. Justice Edward Douglas White and joined by Chief Justice Melville Fuller and Justices Rufus Wheeler Peckham and Oliver Wendell Holmes. This opinion concluded that the constitutional power of the federal government over interstate commerce did not extend to cover Northern Securities Company’s acquisition of the common stock of the two railroads.
Holmes also filed a separate dissenting opinion that was joined by the other three dissenters. Holmes asserted that the antitrust statute only outlawed combinations in restraint of trade, not of competition and that he saw no evidence of an attempt to monopolize some portion of U.S. trade or commerce. He also expressed relief that “only a minority of my brethren [the four Justices who subscribed to the opinion of Mr. Justice Harlan] adopt an interpretation of the [statute] . . . which . . . would make eternal the bellum omnium contra omnes [the war of all against all], and disintegrate society so far as it could into individual atoms . . . . [Such an interpretation] would be an attempt to reorganize society . . . . I believe Congress was not entrusted by the Constitution with the power to make . . . [such a law], and I am deeply persuaded that it has not tried.”
The high court’s action was a major victory for the administration and put the business community on notice that although this was a Republican administration, it would not give business free rein to operate without regard for the public welfare.
W. C. Brown’s Reaction to the Supreme Court’s Decision
W. C. Brown
Soon thereafter (May 24, 1904), W.C. Brown, my maternal great-great-uncle, in a speech to the Illinois Manufacturers Association that was covered by the New York Times commented on the Supreme Court’s decision. He said, “Propositions looking to the betterment of [railroad] service, having no other object, and impossible of any other result, have been misunderstood and have been fought inch by inch with a perseverance and zeal worthy a better cause.” As a result, Brown continued, it was “not impossible that the language of the majority of the Supreme Court [in the Northern Securities case] may . . . seem to reflect the clamor of the public, rather than the calm, judicial review of a great question.” [5]
Brown added that by “amendment or by judicial interpretation the question of reasonable restraint of commerce, as against any restraint whatever, must become part of the Sherman . . . [Act], and must be considered in its enforcement, or obstacles to commercial and industrial progress are likely to be interposed the gravity of which no one can foresee.” (Emphasis added.)
This commentary was preceded by Brown’s proclaiming that “[e]xcept for the birth of Christ, no event has meant so much to humanity as the U.S. Declaration of Independence;” that the recent U.S. war with Spain was “as holy, as high and unselfish in purpose as ever inspired a people;” and that the U.S. had the “satisfaction of having borne its share of the burden of carrying Christianity, civilization and education to those who sit in the darkness of ignorance and superstition.”
Brown also issued a stern warning that apparently emerged from his growing up in thinly populated Iowa and Illinois and that ignored his presumably elegant life in New York City (and earlier in Chicago). Brown said, “The most serious menace that clouds our national horizon today, ominous now and increasing in size and anger and portent, is the rapid growth of our cities . . . . No man can regard the growth of the great centers of population, with their sinister, dangerous, preponderantly influence in the politics of the State and Nation, without alarm.” He added, “The remedy for this evil and the safety of the Nation was building up, encouraging, and increasing our agricultural population.”
It should also be noted that at the time of this speech, Brown was a Vice President of the New York Central Railway, two of whose directors were defendants in the case: J. P. Morgan, a principal architect and beneficiary of the formation of the Northern Securities Company, and George F. Baker.
Subsequent Supreme Court’s Interpretations of the Sherman Act
Seven years later, in 1911, the approach to interpreting the Sherman act advocated by Justice Brewer and W. C. Brown was in fact adopted by the U.S. Supreme Court. In Standard Oil Co. v. United States, 221 U.S. 1 (1911), the Court, 8 to 1, stated that only combinations and contracts unreasonably restraining interstate or foreign commerce were illegal under the Sherman Act. Justice John Marshall Harlan, the lone dissenter in this case and the author of the Court’s opinion in Northern Securities, said the Rule of Reason was a departure from previous Sherman Act case law, which purportedly had interpreted the language of the Sherman Act to hold that all contracts restraining trade were prohibited, regardless of whether the restraint actually produced ill effects.
Thereafter the Court unanimously reaffirmed the Rule of Reason in two cases: United States v. American Tobacco Co., 221 U.S. 106 (1911) (section 2 of the Sherman Act did not ban the mere possession of a monopoly but only the unreasonable acquisition and/or maintenance of monopoly); Chicago Board of Trade v. United States, 246 U.S. 231 (1918) (agreement between rivals limiting rivalry on price after an exchange was closed was reasonable and thus legal).
Subsequent Supreme Court cases established the concept of per se violations of Section 1 of the Sherman Act. These are “agreements, conspiracies or trusts in restraint of trade” that have been found to have a “pernicious effect on competition” or “lack any redeeming virtue” and include competitors’ agreements to fix their prices or divide markets between them and concerted refusals to deal.
For other alleged violations of section 1 of the Sherman Act, the courts engage in a “rule of reason” analysis to evaluate the intent and purpose of the conduct, the facts peculiar to the business and industry, the history of the conduct and its effect on competition. If the result of this judicial analysis is the conduct unreasonably restrains trade, it is a violation of section 1.
[1] This post is based upon Edmund Morris, Theodore Rex at 59-65, 87-95, 219, 304-05, 313-16 (Random House; New York; 2001); MIller Center, Theodore Roosevelt: Domestic Affairs; and the other sources cited below.
[2] The James J. Hill House is a St. Paul mansion now open to the public and operated by the Minnesota Historical Society.
[4] As of 1903 nine U.S. circuit courts had jurisdiction over trials of all civil suits initiated by the U. S. Government in different parts of the country, and the circuit court that covered the State of Minnesota (the Eighth Circuit) had four Circuit Judges (Henry C. Caldwell, Walter H. Sanborn, Amos M. Thayer and Willis Van Devanter). As of January 1, 1912, these courts were abolished, and the previously established U. S. district courts assumed jurisdiction over all civil and criminal cases in the federal courts.
[5] W.C. Brown, Address before the Meeting of the Illinois Manufacturers Association, Chicago, Illinois (May 23, 1904); Supreme Court Influenced, N.Y. Times (May 24, 1904).
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.
