Part 6

It is a fact which we shall do well to ponder over, that this legislation intended to stimulate competition has finally had just the opposite effect from that which its makers desired. They did increase the intensity of the competition, and have thereby nearly brought about a permanent end to all competition in railway traffic.

It must now be clear that the railway is essentially a monopoly, not, be it noted, because of any especial wickedness of its managers or owners, but because competition is impossible as regards the greater part of its business, and because wherever competition is possible, its effect, as the managers well know, would be to annihilate all profits from the operation of the road.

Let us consider now some of the evils with which this monopoly is charged. The first of these is discrimination between persons and between places. A favored shipper has been enabled to ruin his competitors because he could obtain special rates, while they, perhaps, were charged an extra amount. The strong monopolies have in this way been able to strengthen their hands for the purpose of throttling their weak competitors. Passenger rates, too, have been low to one class and high to another; and the system of free passes has led to great abuses. Discrimination between towns and cities and States has been hardly less serious; and while the railways were permitted to make high local rates and low through rates, a great stimulus was given to the city at the expense of the country. The second class of evils is that rates in themselves have been too high. The railways have been wastefully built and then capitalized at double their actual cost, and it has been attempted to pay dividends of 6 to 10 per cent. on these securities. In some cases the principle of charging "what the traffic will bear" has been so applied that industries have been ruined through the absorption of their profits by unjust transportation charges. But our space will not permit a comprehensive review of the many abuses of railway management. They are already familiar to the public. We needed only to refer to them sufficiently to carry on our argument by showing that the railroad monopoly is not by any means a harmless monopoly if left to work its own pleasure.

There are two evils of our present railway system, however, which are not chargeable to monopoly, but to the attempt to defeat monopoly, and which are important to our discussion. The first is the waste of competition in railway traffic; the second, the waste of competition by the construction and threatened construction of competing lines where present facilities are ample for the traffic. Of the first it need only be said that in advertising, "drumming," and soliciting patronage the railways spend many millions of dollars every year, which comes out of the pockets of the public. The second is most serious, for it involves a far greater waste. It is a conservative estimate to say that 5 per cent. of the railways of the country were only built to divide the profits of older roads, and that their owners would be delighted to-day to have their money back in their possession and the railroad wiped out. The millions these roads have cost, the millions required every year to maintain and operate them, the millions spent on proposed roads that never reached completion, and the millions squandered in fighting proposed roads by every means short of actual bloodshed,--these are some of the wastes which we have made in our endeavor to create competition in railway transportation. And with all our efforts, and notwithstanding the fact that until within a short time the public sentiment and the railway managers have been united in the belief that free competition was the only mode of regulating railroad rates, we are farther removed from free competition now than ever before.

And now consider in addition to all this the fact that every railway company must first of all secure from the State a right to exercise the sovereign power of Eminent Domain, and that it may and does choose and take every advantage of the favorable locations where its road can be built most cheaply; which natural highways, mountain passes, and the like, are gifts of Nature, the right to whose use equitably belongs to the general public, and not to private parties exclusively. Taking these facts also into consideration, it seems needless to offer further proof of the fact that the business of railway transportation is essentially a monopoly, and that the attempt to regulate it by competition must always prove a failure in the future, as it always has in the past.

Necessarily we have limited our discussion to the most salient points, and have not touched at all many of the complicated details of the railway problem. In a later chapter we can study farther the evils due to railway monopolies, and the proper remedies therefor. At present we have accomplished our purpose in finding out the fact that railways are monopolies, and that they are so by their inherent nature.

Of monopolies in other forms of internal transportation, but little need be said. Our once busy canals and great rivers seem destined, with the constant rapid improvement and cheapening in the carriage of goods by rail, to lose all their former importance. The monopolies small and great that once held sway there have all vanished before their strong rival, the railway.

The use of steam in the vessels that navigate the ocean has had an effect very similar to the replacing of stage-coaches and freight wagons by the locomotive. Where hundreds of sailing vessels plied their slow and uncertain trade, steamer lines now make trips only less regular than the railway itself. The only cause for the existence of a monopoly in ocean traffic by steam is the greatly increased capital required for a rival steamship line as compared with that needed for the old sailing vessels. We find this, the requirement of a large capital, to be a feature of more or less importance in nearly every monopoly of the present day. In this case, however, unless there is an artificial monopoly in the shape of government aid or authorization, the strength of its capital is the only power the monopoly has.

We may reach a clear idea of the essential nature of all the monopolies considered in this chapter by considering an especial class of monopolies of communication, namely, mountain passes, bridges, and ship canals. If a person or a railway corporation could secure sole control of the only pass through a high mountain range separating two wealthy and populous districts producing goods of different sorts, they might exact a princely yearly revenue for its use, equal to the interest on the capital required to secure an equally favorable passage by tunnelling, or the annual cost of sending goods over some longer and more expensive route. But under the law no private person would be allowed to do this; and if the pass were a very important and necessary one, probably no one railway company would be allowed to do so. The law recognizes to some extent, and should recognize much more than it does, the fact that the benefit of this natural pathway is not the property of any one man or set of men, but equitably belongs equally to every person who needs to use it directly or remotely.

A very large and expensive bridge is like an important mountain pass, differing only in that one is the gift of Nature, while the other is wholly the work of man. But because the latter is the work of man, it does not follow that it is not a monopoly. The great bridge across the Mississippi River at St. Louis is owned by a private company which levies tolls for the teams and trains passing over it. These are deemed excessive, as they are sufficient to pay an exorbitant interest on the cost of the bridge. Yet for many years no one has cared to invest money in the erection of a new bridge, for they saw that there was no more traffic than one bridge could readily carry, and they knew that if a new bridge were erected, in the rivalry in tolls which would ensue, the old-established company would probably bankrupt its rival. It is thus plainly seen how an important bridge may become a monopoly, and a most powerful and onerous one.

We have still one important monopoly of communication to describe, the telegraph. Viewed from a narrow standpoint it may be thought that there should be no monopoly in the telegraph. A telegraph line is not expensive to erect and maintain, and it gets no monopoly from taking advantage of the most favorable route through difficult country as a railway does. But the economy effected by combination and the effect of sharp competition in bringing about bankruptcy and then consolidation are exactly similar to the case of the railway, which we have just described. In the early history of telegraph companies, many short competing lines struggled and fought for supremacy. In 1859 the Western Union Telegraph Company was formed with the avowed intention of combining these warring companies and making the telegraph business profitable. It has exceeded the most sanguine dreams of its promoters by swallowing up its rivals until the entire system of telegraph communication of the country is practically in its hands. The effects of this consolidation have been of two sorts. On the one hand we have the telegraph service of the country performed with the least possible work; there is nothing wasted in the maintenance of two or more rival offices in small towns where one is sufficient, nor in operating two lines of wire where a single one would serve as well. All expense of "drumming up" business in various ways is avoided, and also the cost of keeping the complicated books necessary when the receipts of a single message must be divided among several companies. On the other hand it is plain that the public is wholly at the mercy of the monopoly in the matter of rates, and must pay for the use of the telegraph exactly what the corporation asks. There is a weak and foolish argument which is often used in an attempt to show that this particular monopoly is not hurtful. It is that the telegraph is a luxury which only wealthy people use, and hence whether its rates are high or low is of little account. The fallacy of this statement is easily seen. A principal use of the telegraph is to aid the prosecution of business; hence to unduly raise rates is to cause an additional tax on business,--on the carrying on of the processes of production. This tax will certainly have its effect, either in decreased profits, decreased wages, or an increased price for the product. Another large class of telegrams are those which are sent with little thought of the cost, in time of sickness, death, or sudden emergency, yet by people whose purse feels severely the tax.

What to do with this vast monopoly is one of the questions of the day, but we will content ourselves at present with this investigation of its character, reserving its proper treatment for later consideration.

MUNICIPAL MONOPOLIES.

The people who live in cities are far more dependent on monopolies than the resident of the country. The farmer can still, on necessity, return to the custom of primitive times, and supply himself with food, clothing, fuel, and shelter without aid from the outside world; but the city dweller must supply all his wants by purchasing, and is absolutely dependent on his fellow-men for the actual necessaries, as well as the luxuries of life. From the peculiar circumstances of city life, many monopolies arise in production and transportation which occur nowhere else. One of these is the carriage of passengers on street and suburban railways. There is no better instance, perhaps, of the great power which is placed in the hands of railway managers than this matter of suburban passenger traffic. One example must suffice to show this. Let us suppose that the managers of a railway, which has hitherto not been run with a view to the development of suburban traffic, secure control of several choice tracts of land on the line of their road near a growing city, and establish low rates of commutation and frequent and convenient train service. The land which they purchased is sold out in building-lots for many times its cost, and a number of thriving villages become established there, inhabited chiefly by people whose business is in the city and who are obliged to go back and forth on the trains. After a number of years the growth of the towns becomes more sluggish, and the managers find that the commutation traffic is not after all extremely profitable; therefore they lessen their train service and increase the rates of fare. Perhaps they may abolish commutation rates altogether. It is a well known fact that the value of suburban real estate depends almost entirely on the convenience and cheapness of access to the city. By the removal and forced sale, which many of these people will be obliged to make, it may easily happen that they may lose their entire property. It is not stated that such flagrant cases of autocracy on the part of railway managers are common. Indeed, it is a high compliment to the uprightness and probity of these men that such occurrences are so infrequent, and that the temptation, so constantly presented, of enriching one's self at the expense of the owners of the road and the public is yielded to so seldom. But there have been cases where railway managers have secured excellent train service and low rates of fare to benefit places where they held an interest in real estate, while other and competing places were given poor service and high rates. And the entire abolition of long-established commutation rates has happened more than once.

But turning now to the city railways proper, those carrying passengers through the streets, it is evident at first sight that we have another case where competition is a factor of little account. The power of this monopoly for harm is greatly intensified by the fact that its use is largely a necessity. In all our great cities the business sections are far removed from the residence sections, and the great mass of the industrial population is obliged to ride at least twice each day in going to and returning from work. In nine cases out of ten there is one route so much more convenient than any other as to overbalance any slight difference of fare. Thus, even on the supposition that every different line was run in competition with every other line, the amount of really competitive business would be but a trifle. But besides this, as is well known, in a great many cities consolidation has gone on as rapidly among street-railway companies as among the great trunk-line railways. The three lines of New York elevated roads were originally projected by rival companies; but they were not long in coming together under one management. A Philadelphia syndicate has secured control of most of the street railways of that city, and in addition has purchased a number of the lines in Boston, Chicago, Pittsburg, and St. Louis. Although the benefit in economy by consolidation is much less in the case of street railways than in the case of steam roads, yet considerable is gained, and the competition which is killed by the consolidation is, as we have just seen, of no great importance to the public. The so-called street-railway trust, then, is really of no great moment. The monopoly in street-railway traffic arises from the nature of the business rather than from any especial effort of capitalists to kill competition.

But the railway companies are not the only monopolies which have the use of our city streets. Water, gas, and steam pipes beneath the pavements, and wires, either in subways or strung overhead, carrying electricity for street and domestic lighting, telegraph, telephone, and messenger service, are all necessities to our modern civilization.

The absolute necessity of a public water supply, and the practical impossibility in most cases that any competition in the furnishing thereof can be established and maintained, have led, in the case of most of our large cities, to the work of water supply being undertaken by the municipal authorities. But many of our smaller cities have entrusted to private companies the work of furnishing a water supply. While this is a case of real monopoly, yet under the conditions which may be enforced, most of the power for harm is taken away. According to the best plan in vogue, the city sells the franchise for constructing the works to the company who bids to furnish water at the lowest rates under definitely specified conditions, the franchise being sometimes perpetual, but oftener granting to the city at some future date an option for the purchase of the works. It is to be particularly noticed that this is a case in which the administration of an absolute monopoly has been entrusted to private enterprise with excellent results; a fact which may be of use to us in our later investigation.

While the fact was early appreciated that a water supply when once introduced became an absolute necessity, it was not recognized when illuminating gas was first brought into use how important it was to become. Franchises, or more properly permits, for erecting works and laying mains for supplying consumers were given away to hastily formed companies; and even at the present time there are but a few cities (only five in the United States) which own their works and mains for supplying gas. As a matter of course the gas companies saw their advantage. Knowing that gas once introduced was a necessity at almost any price, they made no move toward lowering rates as new and cheaper methods came into vogue and their output and profits increased. The stocks of our gas companies have been swollen by enormous amounts of water, and upon this fictitious capital they have continually paid enormous dividends. At one time there was a great call for competition in the gas business. The public demanded it, and as usual the demand was supplied. Rival companies were organized, and the city authorities made haste to grant them permits for laying their mains in the city streets. A war of rates of course ensued, and lasted till one company gave up the fight and sold out to its rival. The consolidated company promptly increased its stock by at least the amount which had been spent in purchasing and laying this extra and entirely needless set of gas mains. The public has to pay interest on this sum, and suffer besides the damage done to the pavements by tearing up and re-laying.

In at least twenty cities of the United States has this farce been repeated, and in every case with the same result. It is now generally acknowledged that the attempt to regulate the price of gas by competition is unwise and harmful. Prof. E. J. James, of the University of Pennsylvania, in a monograph entitled "The Relation of the Modern Municipality to the Gas Supply," has treated this subject most fully. He describes the experience of cities in England, France, and Germany, where competition has been tried and abandoned, it being found by dear experience that the gas business is necessarily a monopoly. A Congressional Committee, who reported on the application of a rival gas company which proposed to lay mains in the city of Washington, declared that "it is bad policy to permit more than one gas company in the same part of the city." One of the best informed men in the gas business says: "The business is almost outside of the domain of rules governing other enterprises. Competition is so deadly to it that it is impossible for rival companies to occupy the same street without ruin to both, or without consolidation with its attendant double investment, and cheap light is thus rendered an impossibility."

Hon. T. M. Cooley says:

"The supply of public conveniences to a city is usually a monopoly, and the protection of the public against excessive charges is to be found first in the municipal power of control. Except in the very large cities, public policy requires that for supplying light and water there should be but one corporation, because one can perform the service at lower rates than two or more, and in the long run will be sure to do so. In some kinds of business competition will keep corporations within bounds in their charges; in others it will not. When it will not, it may become necessary to legislate upon profits."

Considering it determined, therefore, that the gas industry is a monopoly, let us inquire something of the manner in which this monopoly regulates the prices for its service. According to recent statistics, collected from 683 gas companies in the United States, 148 companies charge $2 per thousand cubic feet, and 145 companies charge $2.50 per thousand. It is thus seen that rates have been fixed to make "even figures," something which does not occur when margins of profit are reduced by competition. The complete table shows this fact more fully as follows:

7 companies charge $1.00 per thousand cubic feet. 32 " " 1.50 " " " " 24 " " 1.75 " " " " 148 " " 2.00 " " " " 57 " " 2.25 " " " " 145 " " 2.50 " " " " 20 companies charge 2.75 per thousand cubic feet. 86 " " 3.00 " " " " 25 " " 3.50 " " " " 19 " " 4.00 " " " " 120 companies charge various other prices per thousand cubic feet.

According to the same authority these companies in 1886 produced 23,050,706,000 cubic feet of gas, for which they received $40,744,673, an average price per M. of $1.76-71/100. According to the statement of good authorities, gas can be manufactured at a cost of 50 to 75 cents per M. in this country. Prof. James, in his work before quoted, says: "In England at the present time gas is manufactured at a net cost of 30 cents per thousand feet; some works in New England now manufacture it for 38 cents per thousand feet to the holder." The President of the American Gas-Light Association is quoted as stating in an address before the Association that the cost of the gas delivered to consumers by the South Metropolitan Company of London in 1883 was 39.65 cents per thousand, and figuring by the relative cost of coal and labor there and here, he stated that gas could be delivered in New York at a cost of 65 cents per thousand. In Germany the price of gas to consumers varies from 61 cents in Cologne to $1.02 in Berlin. Very recent improvements in processes have greatly cheapened the cost of manufacture. Mr. Henry Woodall, the engineer of the Leeds, England, gas-works, states that coal-gas costs in the holder 22 cents per thousand. Of nineteen companies doing business in principal English cities, the average rate charged consumers is 521/2 cents, and the average cost of manufacture is 37-1/3 cents.

The history of the gas monopoly is repeating itself in the matter of electric lighting. The smaller cities of the country, in their haste to "boom," are ready to grant a liberal franchise to the first firm or company which offers to supply an electric-lighting system, trusting to future competition to regulate prices, a resource that must prove of no avail. Nor are the men in power in our larger cities any wiser. The city of New York is taking every means to encourage the operation of rival electric-light companies, and is letting yearly contracts for street-lighting to the lowest bidder. It is true that competition is active just now, but it requires no far-seeing eye to discern the inevitable combination and consolidation among the companies.

Again, not only is competition of this sort sure to fail, but the attempt to establish it is very harmful. To say nothing of the expense and waste of wealth which is involved when rival companies are allowed to stretch their wires and establish their extensive central stations in the same district, it is everywhere acknowledged that the multiplication of wires overhead is a crying evil and danger. Are we to double and treble it, then, by permitting rival companies to place their wires wherever they please? It is evident that the temporary rivalry which we obtain in this way is bought at much too great a cost. What is true of electric street light wires is equally true of the vastly greater multitude of wires which belong to our rapidly growing system of domestic lighting, and the telegraph, telephone, and messenger service. Surely no man knoweth the beginning or the end of the network which is woven over our heads, and which, besides all the useful wires already enumerated, is full of "dead" wires, many of them strung by defunct or irresponsible companies, who would never have been allowed to obstruct the streets if they had not been "competing" for the business. Can there be any doubt that it is the height of folly to continue this work, and that the only rational way of entrusting electric service to incorporated companies is to permit but a single company to operate in a district and control prices by some other means than competition?

We have the beginnings of other monopolies in our city economies which are destined to become much more important, but to which we need only refer.

Steam for supplying heat and power is beginning to be distributed from great central stations, through mains laid underground, to all parts of the surrounding district. The necessity for frequent repairs and stoppage of leaks renders it necessary to break the pavement and dig down to the mains much oftener than is required for any other of our underground furniture. Nothing would seem more evident than that the number of these pipes to be laid should be the fewest consistent with the proper supply of the district, yet it is a fact that for a time two competing steam companies were permitted to run riot in the streets of lower New York, until the weaker one succumbed "to over-pressure." Yet it is scarcely to be doubted, that if another rival company were to ask for a permit to operate in the district now monopolized by the New York Steam Company, public opinion would tend to favor the granting of the permit "because it would give more competition." It is to be hoped that before these great systems for the distribution from central stations of various necessities reach much greater proportions, the public will become educated enough to perceive the folly of attempting to regulate them by competition.