A Policy of Free Exchange: An Argument Against Socialism and Socialistic Legislation
By Thomas Mackay
Thomas Mackay (1849-1912) was a successful English wine merchant who retired early from business so he could devote himself entirely to the study of economic issues such as the Poor Laws, growing state intervention in the economy, and the rise of socialism. Mackay was asked by the individualist and laissez-faire lobby group, the Liberty and Property Defense League (founded in 1882 by the Earl of Wemyss), to put together a collection of essays by leading classical liberals to rebut the socialist ideas contained in
Fabian Essays in Socialism edited by George Bernard Shaw in 1889. The result was a volume of essays called
A Plea for Liberty: An Argument against Socialism and Socialistic Legislation which appeared in 1891, and another volume of essays
A Policy of Free Exchange: Essays by Various Writers on the Economical and Social Aspects of Free Exchange and Kindred Subjects, which appeared in 1894.Two of the guiding intellectual lights of the Liberty and Property Defense League were Herbert Spencer (1820-1903), whose
The Man versus the State had appeared in 1884, and Auberon Herbert (1838-1906), whose
The Right and Wrong of Compulsion by the State had appeared in 1885. Both Spencer and Herbert were troubled by the direction in which the British Liberal Party was heading, away from strict adherence to policies of individual liberty and non-intervention in the economy and towards a “New Liberalism” which laid the intellectual foundations for the modern welfare state. The aim of Mackay and the members of the Liberty and Property Defense League was to use the occasion of the publication of a major defense of state interventionism in the economy, the
Fabian Essays, as an opportunity to oppose all advocates of these policies whether from the “right” (the Liberal Party) or the “left” the Fabian socialists and the Labour Party. The result were the two volumes mentioned above. The strategy adopted was to argue against both the morality and the practically of socialism. The latter resulted in many essays showing how specific examples of state intervention or control, such as electrical distribution or public housing, led to unintended, harmful consequences.The ideas expressed in the two volumes,
A Plea for Liberty and
A Policy of Free Exchange, are still timely even after the passage of some 110 years. In spite of the fall of communism and the discrediting of the idea of a centrally planned economy, myriad government interventions in the operation of the economy are still with us, seemingly entrenched and impossible to remove. It is thus interesting to see the response to socialism by free market people who were present at its birth.Dr. David M. Hart
Library of Economics and Liberty
December, 2002Recommended ReadingEric Mack,
“Foreword” to Herbert Spencer,
The Man versus the State, with Six Essays on Government, Society, and Freedom (Indianapolis: LibertyClassics, 1981).Eric Mack, “Introduction” to Auberon Herbert,
The Right and Wrong of Compulsion by the State, and Other Essays (Indianapolis: LibertyClassics, 1978).Jeffrey Paul, “Foreword” to
A Plea for Liberty: An Argument against Socialism and Socialistic Legislation, consisting of an Introduction by Herbert Spencer and Essays by Various Writers, edited by Thomas Mackay (1891) (Indianapolis: Liberty Fund, 1981).Edward Bristow, “The Liberty and Property Defence League and Individualism,”
The Historical Journal, 1975, vol. XVIII, no. 4, pp. 761-789.N. Soldon, ”
Laissez-Faire as Dogma: The Liberty and Property Defence League, 1882-1914″, in
Essays in Anti-Labour History: Responses to the Rise of Labour in Britain, ed. Kenneth D. Brown (Macmillan, 1974), pp. 208-233.J. W. Mason, “Thomas Mackay: The Anti-Socialist Philosophy of the Charity Organisation Society,” in
Essays in Anti-Labour History: Responses to the Rise of Labour in Britain, ed. Kenneth D. Brown (Macmillan, 1974), pp. 290-316.J. W. Mason, “Political Economy and the Response to Socialism in Britain, 1870-1914,”
The Historical Journal, 1980, vol. XXIII, no. 3, pp. 565-587.
Thomas Mackay, ed.
First Pub. Date
New York: D. Appleton and Co.
Collected essays, various authors.
The text of this edition is in the public domain.
- Preface, by Thomas Mackay
- The Science of Economics and its relation to Free Exchange and Socialism, by Henry Dunning Mac Leod
- The Coming Industrial Struggle, by William Maitland
- National Workshops, by St. Loe Strachey
- State Socialism and the Collapse in Australia, by the Hon. J. W. Fortescue
- The Influence of State Borrowing on Commercial Crises, by Wynnard Hooper
- The State in Relation to Railways, by W. M. Acworth
- The Interest of the Working Class in Free Exchange, by Thomas Mackay
- The Principle of Progression in Taxation, by Bernard Mallet
- The Law of Trade Combinations, by the Hon. Alfred Lyttelton
by W. M. Acworth
The State in Relation to Railways
THE writers of this volume I understand to be in agreement on this main principle—that individual initiative, or where that is from the nature of the case impossible, the initiative of bodies spontaneously organized on a voluntary basis to meet each new necessity of civilization as it arises, is, unless in exceptional circumstances, and then for due cause shown, to be preferred to State management. It falls to me to apply this general principle to the particular case of railways.
The relation of the State to the railways in any given country may take one of five forms.
1. The State may both own and work.
2. It may own and not work, but lease.
3. It may work without owning.
4. It may neither own nor work, but merely control.
5. It may let the railways alone altogether.
Of these various forms No. 3, working without ownership, practically only arises in countries where the State, already owning and working some lines, agrees for convenience’ sake to work certain other lines which it does not care to purchase. No. 5, which may be described as
laisser faire pure and simple, has practically never existed except in the United States; even there it is now obsolete. In fact, a state of things in which a stockbroker and two of his clerks could register themselves as a company desiring to build a line from New York to Buffalo, and thereupon
ipso facto obtain powers to take compulsory possession of any house that might happen to be in the way in the course of a 400 miles
progress across country, with further powers, if and when they opened the line, to run what trains they pleased, over bridges as shaky as they might see fit to build, charging such rates and fares as they thought proper—such a state of affairs could evidently only exist in a new and unsettled country where the great object was to get railroads—proper railroads, and in a proper manner if possible, but by all means to get railroads.
The second alternative, that the State should own the railways and lease them to operating companies, is out of fashion at the present time in this country, not being a sufficiently root and branch reform for our modern State Socialists. But it enjoyed at one time considerable popularity, and was, indeed, recommended by no less a person than Sir Rowland Hill in his minority report as a member of the Royal Commission of 1865. Moreover, it was the principle adopted after the most exhaustive inquiry by the Italian Government as recently as the year 1885. Still more recently the same policy has been systematized in Holland. Indeed, it might be said to be the French policy also, for French law regards the soil on which the French lines are laid as part of the public domain, and the railway companies as only the occupants on a terminable lease. And France is a type of not a few other continental countries. But we need not concern ourselves with the political problems of our neighbours; we have quite enough to do to solve our own; and may therefore pass by the question of the State owning and leasing. There remain therefore for consideration but two possible methods; and for us the alternative is between Government railways pure and simple, such as those of Prussia or Victoria, and railways as we have them now, owned and worked by private companies and subject to a State control of more or less stringency. We have, therefore, in the first place to consider the arguments for and against Government railways; and if these lead us, as I think they will, to conclude against them, to go on further and discuss the principles on which State control of private lines should be based, the end at which it should aim, and, in broad outline
of course and not in detail, the methods which it should adopt.
It is impossible within the strict limits of an essay such as this to do more than touch the fringe of the subject of State ownership. A very recent writer has indeed published a tolerably bulky book on the subject, and yet found no space in it to come to the actual point at all
*5. An adequate treatment of the question would evidently imply, in the first place, an exhaustive consideration of the proper functions of the Executive Government as a general principle, and of such modifications of that principle as the varied forms of the Government (despotic, aristocratic or democratic, as the case might be), and the different genius and quality of the nation concerned might seem naturally to suggest. Secondly, it would imply an equally exhaustive consideration of the nature of railways and railway transportation. Such questions as, for instance, whether railways should compete with or only supplement water carriage; whether the cost of the railroad itself, as distinguished from the expenses of carriage along it, should be charged against the individual users as on the old turnpikes, or paid for out of general taxation, as being public necessities like any other highways; whether rates and fares ought to be fixed on what may be called the postal principle, ignoring distance altogether, or on the opposite principle of charging so much for each mile travelled, or again, on the merely commercial principle of ‘charging what the traffic will bear’—in other words, endeavouring to lay on the consumer of each kind of railway service the least possible burden consistent with the raising from the traffic as a whole the revenue necessary to pay working expenses and interest on capital—questions such as these must evidently be faced and solved at the outset, for on the solution arrived at will largely depend whether we finally decide for State or private ownership of railways.
Nor could any treatise on this subject be complete which failed to supplement these two heads of more or less abstract inquiry by a history tracing the experience of the civilized
world in the last half-century, showing the progress of railway development in the different countries, and indicating which of the failures of the one or of the successes of the other might fairly be ascribed to the management of that system by the State or private enterprise, as the case might be. To write such a book would be the work of a lifetime, and when written its author would probably be the only person to feel bound by its conclusions. For the facts under each of the suggested heads of inquiry are so multifarious and so obscure that no writer, however capable and conscientious, could ever count on getting them all in front of him, still less on appraising each of them at its precise value. We must be satisfied here with presenting the outline of the abstract arguments upon the question, and sketching in as few words as possible the history of State-owned lines in other countries.
It is equally impossible to deal here with the general question of State Socialism. The delegates, for instance, who at the Trade Union Congress of 1893 voted, after five minutes’ discussion, for the nationalization of all the means of production at one gulp, will evidently not be deterred by a mere mouthful such as the thousand millions of capital represented by our English railway system. We must confine ourselves here to arguments that apply to railways more particularly. Now there is no reason to praise the existing system too highly. It gives us unquestionably in some instances what it is common to describe as the waste of competition. That waste, however, is by no means so large as is believed by the public unfamiliar with practical railway accounts. To take the stock instance of the London and Dover expresses. Whenever either of the competing trains is carrying as many as four first class passengers—and it is difficult to believe that they often run with less—it is earning a net profit. Further, we cannot ignore the question whether two simultaneous trains, both run under the stimulus of competition, may not carry twice as many passengers as one train run without this stimulus. If
X be the gross revenue and
Y the cost of earning it, 3
X – 2
Y is greater than
Y, whatever values be assigned
Y. Still we must acknowledge after all that the waste of competition has a real existence.
Another argument is to the effect that commercial companies may, in spite of extravagance of management, earn bloated dividends by what is practically a tax upon trade. This too no doubt is theoretically true. I can, however, recall but one instance—that of the Taff Vale Company—in modern English railway history; and here commercial competition has already done its work, and the Barry Company has taught its elder rival to modernize both the rates and the methods of working. Then, again, it may fairly be said that the natural tendency of a company bound to return to its shareholders twice a year a dividend at least not less than that for the preceding half-year, is to fight shy of bold and radical concessions. For instance, it is quite arguable that third class fares at a half-penny a mile might in the long run pay the company; undoubtedly they would be an enormous benefit to the community; but no railway company dare try such an experiment. Again, the objection is not without weight. Once more, however, it is more theoretical than practical; for, in fact, experience shows that State railways do not venture the reductions which theoretically they might be expected to make. Far and away the most sweeping reductions the world has seen have been those made by the highly competitive railways of the United States. The latest exploit of the commissioners of the State railways in Victoria is a proposal for the universal increase of the rate of charge. Similarly, the tendency of a State railway system ought to be in the direction of regarding the general good, and giving the blessings of adequate communication to all the parts of the country alike. Commercially-minded companies, on the other hand, must surely hesitate to extend their systems into poor and profitless districts; content with the splendid profits of the main trunk lines, they will naturally—so one would reason
a priori—decline to water their dividends by investing capital in new lines which can never pay more than a very moderate rate of interest. Again, the facts are the other way. That England led the world in railway extension sixty years
back is notorious; that the Cape and Australia lag behind even Argentina, much more behind the Western States of America at this moment, is equally obvious now.
Once again. Commercial companies will act from commercial considerations, and every merchant knows that the bigger the buyer the larger discount he will demand as his right. Translated into railway language this means the concession of cheap special rates for wholesale traffic between great centres, and the maintenance of a high standard of charge for the transaction of the general retail business of the country. Of course, the natural tendency of this is to make the great greater, and thereby the small smaller. And it is a common and, I think, a reasonable belief, that this tendency, if not indeed wholly mischievous, is at least of questionable advantage to the community. But once more it may, I think, be answered that the tendency is too strong to be resisted by any Government department. The Prussian State makes special rates just as freely as the North-Western Railway; the English War Office and Admiralty do not venture to place on their list of contractors the names of any except the leading and most powerful firms in their respective branches of industry. Moreover, whether the preference of one trade or trader, of one town or district over another, be justifiable or unjustifiable—be or be not, to adopt the legal phraseology, an undue and unreasonable preference—is a matter involving careful and detailed consideration of all the circumstances of the individual case. As such it is eminently suitable for judicial decision. Now a court of justice can much more easily curb the action of a private corporation, however powerful, than it can that of a department of the Executive Government with a majority of the House of Commons behind it.
One more objection, and perhaps the most serious, has been kept to the last. Where a body of shareholders are so blind to their own interests as to leave the management of their railway in the hands of an incompetent and effete body of directors and officials, the public lacks definite and positively legal right of interference to prevent the service of the line becoming quite disgracefully bad. It is, I think,
undeniable that such cases have occurred and do still occur in England; and, further, that a Government department would not dare to treat any large section of the electorate with neglect as gross as that from which some parts of the country suffer at the present moment. But, after all, we must regard the interest of the country as a whole rather than any individual section of it. It would need a great deal of levelling up in services which only concern, perhaps, 5 per cent. of the community to counterbalance even a small amount of levelling down in the services given to the remaining 95 per cent. And experience goes, I believe, to show that the tendency of State management is towards uniformity indeed, but towards uniformity on a lower level than the average of private management. There is another point: ‘The price of liberty is eternal vigilance!’ and if the inhabitants of
A, B and
C—there is no need to mention names, they will rise instinctively before the mind of every reader—are suffering—and some of them do suffer grievously—from the badness of their railway service in this free country, where, after all, public opinion is in the long run supreme and irresistible, they have mainly their own supineness to thank for it.
I have endeavoured to sketch the objections commonly made to private railway management, and to outline the answer which can be given to each. Let us now see, in the same general fashion, what are the main arguments advanced as justifying State ownership. It may be noticed in passing that,
pro tanto, according to the extent and minuteness of the system adopted, some of these arguments apply to State control also. It is said in the first place that railways are a monopoly, and a monopoly of an article of public necessity; but this is a point I should wish to reserve for consideration at a later stage. Again, it is claimed that, if the credit of the State were behind the railways, the portion of the rates and fares which represents interest on capital could be largely reduced. The facts, however, do not bear out the statement. It is true that railway capital at this moment receives on an average within a fraction of 4 per cent., and that the State
can borrow money at something like 2¾ per cent. But the great railway companies can borrow practically as much as they please at almost the same rate
*6. It is not a question of the price at which the company could raise the money to-day, but of the price which they had to pay when their lines were built originally. And when we remember that, even as lately as the Crimean War, the State issued consols at about 85, we can hardly admit that through lack of credit the companies have on the whole paid very dear for their money. At 2¾ per cent. the Exchequer must make up any possible deficiency of railway earnings; purchasers of ordinary railway stock can at present prices get in normal times about 3½ per cent. for their money; but then they take the risk of a coal strike at any moment annihilating a half-year’s dividend altogether. Economy of interest would then, I think, be something quite trifling.
There is the question also of economy in working expenses. I have already said that the economy secured by the abolition of competitive services would be very much smaller than the public seems commonly to suppose. I may add that the economies resulting from unity of management would also, I believe, be comparatively insignificant. In Ireland, with its fifty or sixty separate companies, each with its own board of directors, they would no doubt be proportionally great; but the whole working expenses of all the Irish railways put together are a mere bagatelle. In Great Britain the undertakings are already big enough to give every man as much as he can do, and for my own part I fail to see how the reorganization of the service would enable a single official to be reduced. On the other hand, everybody who has had experience of methods of business of public departments and private undertakings knows well that the former are more complicated and therefore more expensive. Nor is it generally believed that the State gets more work out of its servants than the private employer. Similarly, I think one might go through all the branches of railway expenditure and show that
in none of them, except possibly in that much magnified molehill, Parliamentary and legal expenses, could any reduction worth speaking of be effected.
Again, it is said that at present our railways are worked in the interests of the shareholders; the State would adopt a different principle, and work them for the benefit of the community at large. This sounds, of course, very nice and pretty. When we ask for particulars, however, of the improvement, we are generally informed that the Government department would improve the revenues by a series of judicious reductions in rates. Stated thus broadly, the claim would appear to be that, because certain reductions in rates, made deliberately by the skilled managers of existing lines, have proved to be profitable, all other reductions of rates, which those same skilled managers have
ex hypothesi rejected as likely to be unprofitable, would in the future increase the net revenue of the State railways. The fallacy is obvious, and comes back really to the theory of the Irish apple woman who could afford to sell her apples at a loss because she sold so many of them. And it will not be forgotten that, while at the present time the railways shareholder pays the piper for unprofitable experiments, under a State
régime the cost would fall on the taxpayer at large.
There is another point worth notice. If we can persuade our would-be reformers to descend from the general to the particular, we do not always find them agreed as to the principles on which the reform should be based. Liverpool, for instance, is the nearest port for the manufacturing towns of Lancashire. Accordingly, we find the mayor of Manchester telling a House of Commons’ Committee that railways ought not to be permitted to ‘deprive a town of the advantage of its geographical situation.’ In other words, the distance carried is to be the governing factor in the rate. Other places—say, for example, Southampton and Plymouth—have behind them only thinly-populated agricultural districts. Their representatives, therefore, are equally persuaded that the true principle on which judicious reductions will be based is to be found in an approximation to the postal principle of one
uniform rate—that the great duty of a railway is to annihilate distance. Evidently, till all the inhabitants of Liverpool and Plymouth respectively are agreed to the principle on which the judicious reductions which they both equally desiderate are to be based, it will not be very easy for the State officials of the future to set about making them.
But, after all, the question of State purchase of the railways in this country will never be decided on
a priori considerations. In so complicated a subject practical men will be guided by the sum of practical experience. For railway experience of course we must go outside England itself. But we may fairly call in our own experience of the Government undertakings most nearly comparable—the Post Office and the Telegraphs—to supplement it. A lengthened experience of State railway management, even as railways count length, is only to be found in Belgium and in the smaller states of Germany. As for Würtemberg, Bavaria and Saxony, it may safely be said that, as far as speed goes, their railway services are among the very worst in the world. Those of Baden are distinctly better; but Baden has from the beginning had the benefit of being on an international route, and taking part in keen competition for international traffic. It is true that rates and fares are low in these small German states, but it is difficult to call them low considering the quality of service that is given in return. Moreover, they are not low according to the general money standard of the country. The difference between a Bavarian and an English railway fare is nothing at all so great as the difference between a Bavarian and an English hotel bill, or between the wages of an English and a Bavarian artisan or day labourer. Belgium undoubtedly affords a more favourable instance of the result of State control. Taking into consideration both the rates charged and the service given, the Belgian railways can fairly hold their own with any continental country. But then we must remember that the Belgian State railway system is a small affair; the whole of it not as important as our own Midland Railway. It is very much as though the State here were to
buy up the Midland Railway, remaining exposed not only to the competition by water on all sides, but to that of the North-Western on the one side and of the Great Northern on the other.
Further, it cannot be said that Belgium has developed any special principles broadly differentiating State railways from those of private commercial companies. ‘In Belgium,’ says Professor Hadley, ‘State railroads were simply roads owned by the State, but managed on the same principles and with the same abuses as competing private roads.’ ‘At one time,’ the quotation is again from the same authority, ‘the Government railroads themselves granted special rates to prevent people from using the Government’s own canals… they abandoned schedule rates, and had recourse to personal discriminations and to special contracts of every kind. It is probable that in these respects the State was a worse offender than the private companies themselves…. Charges have been made in official form by one of the best authorities in Belgium, Le Hardy de Beaulieu, that the connexion between railroads and politics has produced distinctly bad results; that there has been a multiplication of forms and offices of no use in actual business, and that there has been serious manipulation of accounts to make an unduly favourable showing for the Government.’ Still, on the whole, it would I think be fair to admit that there is no evidence that a private company would have managed the Belgian railways better than the State has done. Those who are satisfied to put forward the example of Huddersfield, where the Corporation works the tramways so far at but small cost to the rates, as the main argument to prove that the County Council should work the tramways of London, which carry a number of passengers equal to the entire population of Huddersfield once every two hours, will doubtless be likewise ready to generalize for the railways of England from the experience of Belgium.
If from Belgium they pass to Prussia they will certainly not find much to strengthen their case. Even had the State management of railways in Prussia been proved a triumphant success, it would be inadmissible to argue that England was
capable of doing likewise. No one doubts, for instance, that Prussia can organize and administer an army: it would be rash to found on this fact a belief that England can do the same. Says Mr. Charles Francis Adams, with the statesman-like wisdom hereditary in his family: ‘In applying results drawn from the experience of one country to problems which present themselves in another, the difference of social and political habit and education should ever be borne in mind. Because in the countries of Continental Europe the State can and does hold close relations, amounting even to ownership, with the railroads, it does not follow that the same course could be successfully pursued in England or in America. The former nations are by political habit administrative, the latter are parliamentary; in other words, France and Germany are essentially executive in their’ governmental systems, while England and America are legislative. Now the executive may design, construct, or operate a railroad; the legislative never can. A country, therefore, with a weak or unstable executive, or a crude and imperfect civil service, should accept with caution results achieved under a government of bureaus.’
But in fact there is no need to enter any such
caveat. The Prussian Government did indeed, when it was urging the purchase of the railways upon the Prussian Parliament, point out that private companies were actuated only by greed of gain and care for their dividend, and steadily opposed to any reduction in rates; that the State alone was in a position to work the railways in the public interest; that the Government ownership would secure more judicious and equitable employment of the railway capital, as well as more rational and economical methods of working; further, that the State, freed from the obligation to consider particular interests, would regard the railways as the instrument of the general prosperity, and would devote itself constantly, as far as financial prudence permitted, to the development of the entire railway system, to improvements of service and reduction of rates.
But the facts have belied these high-flown assertions. The railways have been worked mainly as instruments of
taxation. They have been managed on precisely the same commercial principles that were denounced when put in practice by the companies. The development of the system, the improvements of service are not yet visible; when traders cry out for trucks to keep their works going, they are calmly told that they ought to have laid in a supply of coal or raw material during the slack months of the summer; when passengers petition, not of course for English and American speeds, but for expresses at say 35 to 40 miles an hour, they are assured by the official apologists that the physical condition of the lines would render such speeds unsafe. As for reduction of rates, they have been made, of course, here and there, but there has been no general reduction, no simplification in tariffs, nothing but partial concessions, made from time to time to particular interests and particular localities, concessions absolutely insignificant in amount by the side of those granted in the same period by the competitive systems of the United States.
There is, no doubt, in Prussia an elaborate machinery of district and national councils, whereby the public can express opinions as to changes of tariff which they consider desirable. But such expressions of opinion remain opinion only, for the State has carefully retained all actual authority on the subject in the hands of its own employés. It is true that in the years of good trade the State railways have paid over large surpluses in reduction of general taxation; but, now that the good years have come to an end and the lean years have followed, the railway revenues have fallen off in an alarming manner and, spite of new taxation, there is a threatened deficit of four millions in the Prussian Budget. Of course it is easy to produce witnesses on either side to testify for or against the existing system. Professor Cohn, whose authority I should be the last to question, has recently placed it on record that no one outside of the Radical opposition wishes to go back to the former state of things. But certainly the said Radical opposition have recently uttered very caustic criticisms in the Prussian Parliament. I shall not, I think, go beyond the fact if I say that, even without any discount for the undeniably
superior efficiency of the executive organization of the Prussian Government, the success of the Prussian State system has not been so striking as to constrain us to imitate it.
The country whose experience of State management should really be of direct example to us is Australia. With the Australian evidence I have recently dealt at some length elsewhere
*7, and I need only mention it here in the merest outline. Australia may fairly be compared with the Western States of America. These latter States have of course now a population many-fold that of Australia, but they had none till the railways went there. They would have had but little now, had the railways charged the rates which are apparently found necessary on the Government lines in Australia. This, however, is not the only, hardly even the chief, difficulty. The railways of the different colonies have all passed through a stage of direct management by a minister immediately responsible to Parliament. That such method of management meant jobbery, extravagance, and inefficiency, is admitted on all hands. One after another the colonies found themselves compelled to interpose a buffer, in the shape of a non-political and largely irresponsible Commissioner, between the railways and the political minister. The system is as yet on its trial. Sir Robert Hamilton, ex-Governor of Tasmania, whose competence as an observer can as little be questioned as his democratic sympathies, has publicly expressed the opinion that the experiment cannot permanently succeed
*8. ‘I believe,’ he writes, ‘that any guard upon our parliamentary representatives, in the shape of permanent commissions appointed by them to exercise their powers, must, as experience appears to be already showing, break down.’ The Victorian experiment has indeed already broken down. How far, during its short life, it availed to protect the public from jobbery, may be judged from the one fact that the
Melbourne Age recently published a list, occupying 11½ closely-printed columns, of free passes over the State railways granted to the wives and
families and dependants of members of Parliament. In New Zealand, too, the non-political Commissioners will probably by the time these pages are published have been reduced to a condition of subserviency to the Ministry of the day. In New South Wales, thanks to the exceptional personality of the Chief Commissioner, they have so far held their own, but after a life and death struggle. In Queensland and South Australia their position has not, as far as I know, been challenged. But in face of the fact that direct State management in Australia has confessedly meant in the past, and would again mean, extravagance and inefficiency, and that no substitute for that system has yet been found which can offer any reasonable pledge of permanency, he would, I think, be a bold man who should claim the experience of Australia as in favour of direct Government management.
Such then is in outline the case against the State management of railways. It cannot be better summarized than it was by the famous Italian Commission of Inquiry, which sat for three years, from 1878 to 1881, collected six quarto volumes of evidence both oral and written, and finally embodied the experience of the civilized world in these conclusions
‘1. Most of the pleas for State management are based upon the idea that the State would perform many services much cheaper than they are performed by private companies. This is a mistake. The tendency is decidedly the other way. Private companies can do for their patrons many things which the State cannot; but it is doubtful whether the State would be justified in doing anything of the sort which private companies cannot. The State is much more likely to attempt to tax industry than to foster it. And when it attempts to tax industry, it is more omnipotent and less responsible than a private corporation.
‘2. State management is more costly than private management. Such at least was the conclusion of the commission, on comparing the results of the two systems. The differences which they bring out are quite marked, though it is fairly
open to question just how much they prove. Comparing State and private railroads in different countries, they find that the ratio of operating expenses to gross earnings is always greater on State railroads—averaging eleven per cent. more in all the countries compared. In their more detailed comparisons, the commission take carefully into account the various elements which involve cost of handling; but unfortunately they do not take up the question whether the rates charged on the State railroads considered may not be lower than on the private railroads—a thing which would make the percentage look unfavourable, and yet be rather a credit to the management than otherwise. We cannot, therefore, accept this point without reserve.
‘3. The political dangers would be very great. Politics would corrupt the railroad management, and the railroad management would corrupt politics. These effects have already been seen in actual working. Changes of rates are made for the sake of influencing elections. A questionable experiment was recently made in Belgium in the matter of railroad tariffs; it had been adopted by the Government as a means of currying popular favour—a kind of bribery to which there is great temptation. It would not be hard to find similar instances in other countries on both sides of the Atlantic.’
So much for the foreign experience. It is worth while to supplement it with a few words as to our English experience of the nearest analogous business in the hands of our Government—the Post Office. For a century and a half, from the time when ‘an enterprizing citizen of London, William Dockwra, set up at great expense a penny post which delivered letters and parcels six or eight times a day, in the busy and crowded streets near the Exchange, and… as soon as it became clear that the speculation would be lucrative, the Duke of York complained of it as infraction of his monopoly, and the Courts of Law decided in his favour
*10,’ the Post Office has been constantly worked as primarily an engine of taxation. ‘The State has shown itself much
more inclined to tax industry than to foster it
*11.’ The modern history of the Post Office might be given in a sentence. Half a century back an outsider of energy and genius, Rowland Hill, converted the nation to a belief in the possibility of
penny postage. The State organization fought tooth and nail against the innovation. Public opinion, however, was strong enough to thrust Rowland Hill inside the office; there he carried out his reform; and the Post Office has lived on his reputation ever since. The claims put forward in the annual report of the Postmaster-General, that the Post Office is a progressive and business-like department, are not a little amusing in their stolid self-complacency. For indeed letter-distribution is one of the simplest businesses to manage in the world. It is fenced round by a statutory monopoly; it is transacted exclusively on a cash basis; and no complicated commercial questions are involved. The standing difficulty which confronts a railway company is the question of differential rates. The inexorable laws of supply and demand compel a railway company to sell its services for what they will fetch. But it is only human nature that
A should object to a fifty per cent. profit being made out of him while
B‘s business is done on a margin of five per cent. The Post Office is spared the whole of this difficulty by the relative insignificance of the amount of its charge. If the sum were worth fussing about, depend upon it we should soon have a league in existence to protest against the iniquity of charging one man a penny for a sheet of paper from Lombard Street to the Temple and another a halfpenny for two ounces of paper from London to San Francisco.
One might admit therefore to the full that the Post Office does its present work well—and compared with the average English Government Department no doubt this admission ought to be made—and yet be very far indeed from admitting that this proves its capacity for managing the infinitely more difficult business of a railway. But let us examine the Post Office record a little more closely. Let us see first how it has used its statutory monopoly. Take, for example, the telephones. Tens of thousands of pounds were spent in litigation to prove that the wording of an Act of Parliament, passed before telephones were born or thought of, might be strained to include a monopoly of all forms of electric communication. In the result London is ten years behind Stockholm or Rotter
dam in telephone communication. Take again the more recent instance of the Boy Messengers Companies. There was no need, thought the Post Office, of an express messenger service, but no sooner does a private company make the attempt at its own risk to afford the public a new convenience, than the Post Office starts a rival service of its own, judiciously handicapping its more nimble rivals with the weight of a heavy royalty for the infringement of a statutory monopoly. Of course, the plea for these royalties is to be found in the alleged interests of the public revenue. It is, however, difficult to understand why a tax on communications becomes economically justifiable because its effect is to spare State officials the exertion of using their brains to cope with the competition of private enterprise.
Not that one would wish to deny for an instant the wisdom of the Post Office from its own point of view in insisting on this taxation. For, where it has no monopoly behind it, it is usually beaten out of the field. Take for example the annuity business, in which the Post Office, with the credit of the Government at its back, does about as much business in a decade as a single private company gets through in a week. How long, one wonders, would the inconceivably clumsy money orders and the scarcely less inconvenient postal orders hold their own, if it were not for the stamp duty of one penny on cheques even of the smallest amount. Or take again the carriage of newspapers. Sixty years back the Post Office had a monopoly, not legal this time but only practical, of the carriage of all the newspapers out of London. To-day the Post Office has retained the unprofitable part only; the single paper carried in a separate parcel to remote country districts. Out of the wholesale business one firm alone of newsagents has built up a fortune of over two millions for its head.
The State, we are told, will operate the railways, not actuated by greed of gain but in the interest of the public as a whole. As a salient example of this spirit, we may point to the Post Office, which runs a wire with alacrity into the betting ring of every gate-money race meeting, while it turns a deaf ear to all demands for the extension of its lines to
lighthouses, to fishing harbours, or to agricultural villages. Or again, who can fail to appreciate statesmanlike economy which refuses to recognize the unity of the British Empire by the establishment of a uniform rate of postage when a revenue of no less than £70,000 a year might be jeopardized by the innovation. Take another instance: For forty years past express legislation has made it impossible for private railway companies to contract themselves out of liability for the negligence or misconduct of their own servants. For this interference with freedom of contract public interest was undoubtedly the motive. Yet the Postmaster-General can and does repudiate all legal liability for the deliberate theft or injury by his own servants of property entrusted to him, even in cases where extra fees have been paid as an insurance premium. A union of continental railways led by the commercial companies of Switzerland has recently procured the enactment of international regulations, facilitating the recovery of claims against railway companies. A man whose property is lost on a railway in Holland can settle the matter after his arrival at destination with the railway company in Italy. The State Postal Union, on the other hand, devotes its energy to barring out the claims of individuals altogether. Here is, for example, one regulation. ‘Under no circumstances is the charge for an unrepeated telegram which has been inaccurately transmitted refunded.’ In other words, if the sender, after having paid five shillings for the despatch of a certain message, declines to pay
*12 additional to discover whether the message which the Post Office has sent is really the message which he handed in, not only will he have no claim for any damage which may result to him from Post Office carelessness, but actually he may find himself compelled to pay for a service which has never been rendered him at all. Conceive a railway company which loses a man’s portmanteau and delivers him instead a sack of damaged potatoes. Not only does it refuse to pay compensation for the loss of the
portmanteau, but it insists on being paid for the carriage of the valueless potatoes.
But indeed the comparison between railway and Post Office methods is fruitful of results. Imagine a railway company placarding its station with a notice ‘The booking clerk is not required to give change or authorized to demand it,’ or with another notice requiring passengers personally to paste the labels on their portmanteaus. Or again, what would the public say, if the railway companies issued notices at Christmas and at Easter calling upon them to travel in the early days of the week, in order to make the work as easy as possible for the companies’ servants? And yet an extra passenger needs more accommodation than an extra letter. One instance more. When a railway company puts on a new train or opens a new station it makes up its mind to face an almost certain initial loss. The Post Office refuses to open a new telegraph office, however great its indirect advantages to the locality may be, unless the actual cost is guaranteed from the outset. Heads the department wins, tails the guarantors lose.
And yet, for all its penny wisdom, the Post Office can be at times extravagant enough. The rate, for example, for press telegrams—100 words for one shilling—is, we are officially told, a rate which not only does not pay, but never could pay. But the rate continues, for the Press is powerful, and the profits of a handful of millionnaire newspaper proprietors must not be lightly interfered with. On the whole, it is not too much to say that, before anyone can call the management of the Post Office successful, consciously or unconsciously he must have determined that a private enterprise is to be judged by one standard and a Government department by another and a much lower one.
If then we admit State management of railways to be undesirable, we have next to consider what are to be the objects, the extent, and the methods of State control. Now the control of railways falls under two main heads. There is first what may be called the police control of working in the
interest of the public safety, and secondly control from the commercial side of the tariffs and services. The division is for practical purposes a fairly accurate one, though some subjects, as, for instance, new construction and train punctuality, are on the border line. In the early days of railways the police control was much the most important. In those days every town was a centre of demand and supply, and enjoyed, not of right but of necessity, ‘the advantage of its geographical situation.’ People bought the food grown within a few miles of them. If it did not grow they starved, or, always supposing the roads to be passable, they migrated to another district. The idea, I will not say of New Zealand and Texas, but of Devon and Aberdeen competing in the London Meat Market, had not yet dawned. It was a question not of relative but of absolute tariffs, and railways were—always considering the accommodation they gave—so immeasurably cheaper than any other mode of conveyance that no one grumbled. Nowadays the absolute
quantum of a rate is unimportant. It is all a question of relation and proportion. The farmers of Devonshire may find themselves competing at a disadvantage in the London Market, in spite of a reduction of five shillings a ton in the railway rate, because a reduction of ten shillings has been made in the rate from Aberdeen. Naturally, therefore, with an ever-widening area of supply, tariff questions have constantly increased in intricacy and importance.
As far as police control is concerned there would seem to be no special principles affecting railroads, nor is it necessary to discuss the theoretic justification for such control. No one, practically speaking, argues against marine inspection, boiler inspection, building act regulations, notification of infectious diseases, and so forth. The practical justification of any or all of these is of course a matter for discussion on the facts of the individual case; but in theory they all seem comprised within the four corners of the old legal maxim,
sic utere tuo ut alienum non laedas. In more modern phrase the community coerces certain individuals so far as may be necessary to secure that the freedom of all
other members of the community shall be at the maximum. So far as our present subject is concerned, it would seem to be absolutely a matter of detail whether certain injuries, to which railway passengers are liable, and from which they are not strong enough individually to protect themselves, shall be dealt with by the co-operative machinery of the State, or by the machinery of a voluntary co-operative Railway Passengers’ Protection Association. As for the kind of interference which has been shown by experience to produce the best results, there will be a word or two to be said later on.
Meanwhile let us notice some individual points in which State interference is obviously justifiable. First and foremost comes the construction of new lines. A railway cannot be made unless it has the power compulsorily to take the land required for the purpose. The only justification for the concession of this power is the public interest, and in this the existence of a tribunal to decide whether the public interest is really involved is at once implied. Carrying this a stage further, we may say that a railway can only be useful to those whom it accommodates. A line, for example, made without intermediate stations to serve the express traffic between London and Brighton, is evidently no convenience to the districts it passes through. Control therefore of the construction of the line implies control of the arrangements for dealing with traffic along it. On this point it may well be thought that the State—represented in this case by Parliamentary committees—has with us hitherto interfered too little. Running one’s mind, for instance, down the line of a single company, the Great Western, it is evident that the public interest would have been better served had public authority prevented the construction of a second independent station, and insisted on the new company’s admission to the old station at Reading, Oxford, and Swindon respectively. These, of course, are only given as examples. Any one who takes an interest in such questions could no doubt supply from his own local knowledge scores of instances in which slight modifications of promoters’ plans would have resulted in greatly increased convenience to the
public. Of course there is a
per contra in all such matters. One man may lead a horse to the water, but nine men may not be able to make him drink; and so a public department may lay obligations on a body of promoters, with the result possibly of stopping the construction of the line altogether, or at least, in less extreme instances, of discouraging the promotion of similar schemes. No doubt there is need for a large allowance of common sense and elasticity at the back of such interference; still, given the possibility of finding such qualities in a government department, I am constrained to think that State interference with the construction of new lines might with advantage be carried somewhat further than it has been hitherto.
Again, the State may naturally be expected, before permitting owners and occupiers to be compulsorily dispossessed of their lands, to satisfy itself that the new company will really carry out the undertaking which it projects. Obviously, half-finished embankments and semi-pierced tunnels can afford no convenience to the public at large; they may, however, as was found in practice after the mania of 1847, remain as a standing nuisance to landowners, and an eyesore to every passer-by for many years to come. It is, therefore, only right and proper that security should be taken that the promoters are persons who may be expected really to complete and open the line for which powers are given; and further to be able to work it when opened in a reasonably efficient manner. Parliamentary committees and the authorities of the two Houses have in practice striven for half a century past to attain this end, but the scant measure of success to which they have attained is one more proof of the inherent difficulties of railway control. For in fact the Parliamentary control has protected neither the landowner on the one hand, nor the promoter on the other. Hundreds upon hundreds of Bills have been passed whose powers have subsequently lapsed, either wholly or partially unexercised, for want of funds, while a hundred millions sterling is a moderate estimate of the money that has gone in railway construction without yielding any dividend whatever. Indeed it may be questioned
whether on the whole railways, though incorporated under special Acts of Parliament, have been one whit safer investments than banks and insurance and steamship companies incorporated in the ordinary fashion under the Companies Acts. After all, the best security the public can have for the success of a new scheme is the character of the persons associated with it as promoters and directors. And as long as Parliament satisfies itself that the promotion of a new scheme is bona fide and responsible, I am not clear that it can do better than accept this fact as sufficient.
But there is another closely analogous function which can, I think, be exercised by the Government with every prospect of more useful result, namely, the supervision of the accounts and statistics not merely of new but of established companies. So long as companies are considered entitled to obtain, if they can, a dividend at the current rate on the money they have invested, the public has a right to know whether the nominal amount of the capital does or does not correspond to the sum spent on the construction and equipment of the lines. Where payments aggregating nearly a hundred millions per annum, more than five per cent. of the gross national income, are concerned, the public is entitled to have access to figures showing what services the companies render and at what price, and what is to them the out-of-pocket cost of doing the business. But no information on these points is attainable at present. The railway returns published year by year under the authority of our Board of Trade have been for years past a byword among railway economists in every other civilized country. The State would, in my judgement, not only be acting within its undoubted right, but be taking a step of the utmost practical importance, if it called on the companies to submit their accounts to State inspection, and to furnish statistics showing in an adequate manner their general course of business.
In the next place, a public authority will naturally exercise control over the arrangements which involve the safety of the public, level crossings, height of platforms, methods of signalling and interlocking, methods of train-working, and so
forth. It seems to me impossible to deny the justification for such control, but equally impossible to doubt that its practical working in England is far from satisfactory. A State department is almost bound to establish rigid codes of rules; it dare not lay itself open to charges of partiality and favouritism by varying its regulations to suit the infinitely various circumstances of practical everyday life. Regulations, therefore, have to be laid down more or less by a method of average; but an average can only be drawn too low for the top and too high for the bottom. We find accordingly, on the one hand, important stations left without safety appliances that in their case might fairly be called necessary, and directors and managers sheltering themselves under the plea that the Board of Trade does not prescribe their use as obligatory; while, on the other hand, petty railways in poor districts may be crushed by the burden laid upon them of providing even the average standard of safety appliances. Further, the Government officials are not responsible for commercial results, and cannot be expected to regard the shareholders’ dividends, while they do incur a serious personal responsibility if they permit poor railways to forego the use of safety appliances merely on the ground of cost. Naturally, therefore, the average of demand will be fixed too high rather than too low. Theoretically, the result may be merely to reduce dividends, and what is money, says the common opinion, compared to human life. Practically, however, the result is to prevent the making and working of railways in poor districts altogether; in other words, to deprive the public of the almost perfect safety of even the most primitive railway, and to leave them face to face with the comparatively appalling risk of transit in stage coaches and carriers’ carts
We come, lastly, to the crucial point in railway administration, the control of tariffs, meaning thereby, be it observed, not only the rates and fares charged, but the services rendered in return therefor. That the State must interfere here may, I think, be taken for granted. Our own Government from the very earliest days of canal legislation has always fixed schedules of maximum tolls. In the United States too the States which began to interfere earliest have been precisely those which have found the question of the measure and methods of interference least insoluble. At the same time, we must recognize also that the problem is one of the most difficult in the whole range of economic legislation. To quote from a report adopted by a Convention of the State Railroad Commissioners held at Washington in April, 1893: ‘To fix a standard for reasonable rates is a duty that demands the gravest and most serious consideration and the most thorough independence… The law of the carrier requires him to perform the service for a reasonable rate. The railway freight agent, the shipper (trader), the granger, the politician, and the legislator, all agree that rates should be reasonable. This is all they seek and all they ask. When they attempt to arrive at what is reasonable their views are widely different. Who then shall determine? Usually the party who feels aggrieved calls upon the State that has chartered these corporations to fix a standard. What the standard shall be, or how prescribe some rule, some law, or some formula by which rates may be measured, has been a problem that has puzzled the wisest and most thoughtful minds. Our belief is that this invariable standard cannot be found.’
It is usually admitted that the State can only successfully perform services which are of a routine and non-speculative character. All experience shows that the railways which have had the most flexible and most commercial—one might almost say, most speculative-tariffs, have been those which have done most for the development of the country
Government interference must naturally make for inflexibility and routine; yet Government interference we cannot away with. All we can do is to see that the interference shall go on right lines and approach the subject from the proper point of view. What that point of view should be, it therefore becomes necessary for us to inquire.
Control of railway charges is commonly justified on the ground that railways have a monopoly, or at least a practical monopoly. The argument will not hold water when we come to examine it. For what is a monopoly? It is defined in the dictionaries as ‘an exclusive right of selling.’ This no English railway ever has had. Not only has competition by water and by road always remained open, but Parliament has never hesitated—at least for a generation past—to sanction competition by a rival railway. To take the most recent instance—the North Western and the Midland and the Great Northern asserted, and with perfect truth, that they were ready and anxious to carry every ton of traffic that presented itself between London on the one hand and Manchester, Sheffield, Nottingham, and Rugby, on the other. Yet, after full consideration, Parliament deliberately sanctioned a new competing route. Where then is the exclusive right of the existing railways? But the monopoly, though not legal, is, we are told, ‘practical,’ ‘virtual.’ In this sense there are few undertakings that are not monopolies. ‘An apple stand,’ says an American writer, ‘is a monopoly up to the point when it begins to pay.’ The existing railways have undoubtedly secured the best location; they have also the advantage of a long-established connexion. But is this practical monopoly? Have Bond Street shopkeepers a monopoly because the number of Bond Street shops is limited? Have
London bankers a monopoly because there is no room for newcomers in the Bankers’ Clearing House? Or, again, is a newspaper a virtual monopoly? A newly established journal which should fill twenty columns
per diem with the proceedings of the House of Commons would bankrupt its proprietor, were he a Rothschild or an Astor, in a twelvemonth. The
Times can do it because it is the
Times. Is the
Times, therefore, a practical monopoly?
Again, it is said that the fact that the Company has been suffered to take land compulsorily is a justification not only for State interference, but for exceptional taxation. This argument will hold water even less than the last. The power to take land by compulsion was not a present made to the railway. It is a function inherent in the State itself, exercised indeed through the agency of the Company, but exercised by the direct action of the State itself, as a consequence of the deliberate decision of the legislature that such compulsory expropriation in the particular case is for the benefit of the public at large. So fully indeed is the fact recognized, that public interest is the only justification for compulsory powers of purchase, that the Standing Orders of the House of Lords in terms provide for striking out compulsory powers from any Bill whose ‘direct object is to serve private interests in any lands, mines, manufactories, or other properties.’ The privilege conferred on the railway proprietors, so far at least as pecuniary benefit is concerned, may be said to be permission to pay every landowner along the route a sum of at least ten per cent. more than the maximum value of his property. There might be some justification for regarding this as a reason for laying exceptional taxation on the dispossessed landowner, but on the expropriating railway hardly.
Once more, it is said, the special Act of Parliament authorizing the construction of a line should be regarded as a bargain made by Parliament, acting on behalf of the public at large, with the Railway Company. Be it so, but unfortunately the bargain secures for the public nothing worth having. We have had schedules of maximum rates imposed with this object for two generations past. Except in a very
few instances and under quite special circumstances they were of no use to anybody. The Companies habitually charged far below them. And, though useless, it cannot be said that they were innocuous, for it is, I think, unquestionable that the tendency of holding up before the railway managers the schedule of rates fixed by Parliament as reasonable for them to charge has been to keep rates higher than they would naturally have been, had each Company been left free to experiment for itself. It is impossible to doubt that in some instances managers, had they been free to charge what they liked, would have established ridiculously prohibitive tariffs. That no doubt, from one point of view, would have been hard on the district, but at least the district would have been no worse off than it was before the railway was made, and the reduction of rates which self-interest must shortly have compelled would not only have afforded a valuable object lesson to neighbouring lines, but would very possibly have gone much further than if, owing to Parliamentary compulsion, a less unreasonable scale of rates had prevailed at the outset.
It will, of course, be understood that I am not arguing against the abstract justice of statutory maximum rates. Theoretically there is nothing to say against them; practically, however, the policy has proved a failure. ‘Every careful student of the question,’ writes Professor Hadley, ‘from Morrison in 1836 down to the Committees of 1872 and 1882 has come to the conclusion that fixed maxima are of next to no use in preventing extortion.’ Unfortunately, the British public and the British House of Commons has a sovereign contempt for careful students, and prefers to trust to the rule-of-thumb guidance of the practical man. Its recent experiments in the revision of maxima have, however, now, I hope, finally convinced even that most impractical of mortals, the practical man, that a schedule of maximum rates is a double-edged weapon. The fixing of maximum rates is not likely, perhaps, to come back into fashion as a panacea for railway grievances till a new generation has arisen both of politicians and traders. ‘Maximum rates,’ said Sir Albert Rollit, in his address as president of the
Associated Chambers of Commerce at Plymouth last September,—’maximum rates are dangerous delusions, and they afford little, if any, practical protection to the trader.’ The same may be said of various other forms of control that have from time to time been suggested or attempted. Limitation of dividend, sliding scales, periodic revision of rates,—all may be excellent in theory; only, unfortunately, they are quite unworkable in practice.
But State interference may be based on a different principle altogether. Without regarding railway companies as grantees of a monopoly, and as such subjecting them to exceptional burdens, the State is surely entitled to say that their position is such that real free contract between a railway company and an ordinary private citizen, in reference to each individual passenger journey or consignment of goods, is out of the question. Neither cabmen nor pilots have, in any ordinary sense, a monopoly, nor have they ever been regarded as fit subjects for exceptional taxation
*15; yet the civilized world agrees that cabmen and pilots must be licensed and their charges regulated by outside authority. So too I believe that the State should interfere in order to secure that the charges of railway companies shall be equal and fair to all their customers alike. In other words, the State must abandon the attempt to deal with railway charges as excessive and concern itself, not with their total amount, but only with their relative proportion. The principle is simple enough; the application of it is, it must be confessed, of extraordinary difficulty. To take a well-known instance of Mr. Grierson’s, the Great Western rate for coke from South Wales to Wiltshire may give the Westbury Iron Company an undue preference over
its competitors at Coalbrookdale in Shropshire; or, going yet further afield, the rate for American meat from Liverpool to London may be unfair to the cattle dealers in Yorkshire or Norfolk.
We have admitted it to be the duty of the State to prevent undue preference. Before, therefore, going further, it is desirable to see clearly what undue preference is. The phrase is often used to cover two widely different things.
B are, let us say, rival tradesmen in London sending goods to Cambridge. If each of them sends a hundredweight of sugar of the same kind, packed in the same way, and the one is charged 1
s. and the other 1
d., that is one kind of undue preference. But suppose that they are both charged by the North-Western Company 1
s. to Cambridge and 1
d. to Oxford, though the distance carried in the former case is fourteen miles more than in the latter, this may be called undue preference of Cambridge over Oxford
*16. But it is undue preference, if it be undue, of a very different kind. The first case is practically non-existent in England. It happened largely in the early days of railways, and it has been continued, more or less, down to the present time in the United States. It is in conformity with the ordinary principles of business life.
A is perhaps a large customer whom it is desirable to conciliate; B’s custom may not be worth consideration. Or, again,
A may be a keen man of business who always drives the best bargain he can;
B a happy-go-lucky individual who pays what is demanded and asks no question. In ordinary commercial life
A would undoubtedly get better terms than
B. No merchant sees anything disgraceful in allowing a friend to purchase from him retail quantities at the wholesale rate; no merchant would deny that he shades off his prices sooner than allow his customer to go away without doing business at all.
Prima facie, there is nothing immoral in such transactions. But from very early times it was seen that when one party to the bargain was a railway company, doing business on such a scale that it could afford to forego a profit, or even to incur a loss, on individual transactions, or sets of transactions, for an indefinite time without feeling the consequences, such liberty must lead to serious abuses. A company would be able to wreck the business of any merchant or manufacturer against whom it had a grudge, or even, it might be, out of mere caprice, or in order to favour a rival firm. Such a state of things was obviously intolerable. As long ago, therefore, as 1845, public legislation—Private Acts of a much earlier date contained the same provision—required that all charges should at all times be equal under like circumstances, and that no reduction or advance should be made, either directly or indirectly, in favour of or against any particular company or person using the railway. The Traffic Act of 1854 carried the matter a stage further; and subsequent Acts have laid it down that all rates shall be public, so that every one can see for himself what the company professes to be charging for the carriage of each article. The upshot of this legislation, coupled with the very determined action of the courts of justice under it, has been that for a generation past undue preferences in the first sense—they call them ‘personal discriminations’ across the Atlantic—have been a thing unheard of. ‘It is remarkable,’ says the Report of the House of Commons’ Committee of 1882, after an exhaustive investigation, ‘that no witnesses have appeared to complain of preferences given to individuals by railway companies as acts of private favour or partiality, such as were more or less frequent during the years immediately preceding the Act of 1854.’
The other class of preferences exist by the million, and are given by every government railway in the world; whether they be due or undue is a question of extreme difficulty—a question on which, when the cases get near the dividing line, two equally competent and equally impartial judges may hold diametrically opposed opinions. Preferences of this kind may be roughly classified into preference of one
locality, whether of origin or destination, over another, and of one method of consignment (including therein volume, method of packing, responsibility for loss or damage, and so on) over another. Undue preferences, then, in the first sense, ‘acts of private favour or partiality,’ are, like St. John’s famous fox, to be knocked on the head, wherever they are found, with every weapon the State may have at its disposal. It remains for us to consider by what machinery the State shall exercise its control to prevent preferences of the second class, which must of necessity exist, from becoming undue.
In the first place, of course, it can act by legislation; but, practically speaking, such legislation must simply confine itself to generalities. Some American State legislatures have indeed attempted to embody detailed railway rates and regulations in statutes, but their success has not been such as to encourage others to emulate their example. Other States have entrusted a power of fixing rates to the almost unfettered discretion of one or more commissioners appointed for this purpose. This experiment too has practically been abandoned as a conspicuous failure. In some States, however, it lasted long enough to prove that the equitable adjustment of the conflicting claims of rival localities was not made easier by the fact that the person entrusted with the task happened to be a State official. Even where the legislature has confined itself to generalities its incompetence to deal with questions of this character is only too apparent. Take, for example, the twenty-seventh section of our most recent general Act—the Railway and Canal Traffic Act 1888: ‘The Court may take into consideration whether such difference in treatment is necessary for the purpose of securing in the interests of the public the traffic.’ What public? And who is to represent the interests of this indefinite public before the court? a lawyer asks, in respectful bewilderment. Or, again: ‘No railway company shall make, nor shall the court or the commissioners sanction, any difference in the tolls, rates or charges made for or any difference in the treatment of home and foreign merchandise in respect of the same or similar services.’ No doubt the noble lord who was responsible
for the insertion of this proviso, and the two Houses of Parliament who passed it into law, did so with the best intentions. The railway companies were so determined to ‘favour the foreigner’—from whom at best they could only get a mere fraction of their traffic—even at the risk of bleeding to death his English rival, on whom they were bound to rely for ninety-five per cent. of their livelihood, that it was no doubt necessary to stop them at all hazards. But really this proviso does not help much. What are ‘similar services’? Is the service of carrying a ton of Texas beef, part of a consignment of a hundred tons, the one-twenty-fifth part of its journey which lies on English soil, the same as the service of carrying the four quarters of an English bullock the whole way from the pastures in Cheshire to the Smithfield Meat Market? Or is it totally dissimilar? The Act of Parliament sounds very patriotic, even though its patriotism seem not wholly in conformity with the teachings of the Cobden Club, but it fails to guide us as to the principles to be kept in view in the solution of the practical question.
If, then, legislative regulation be impossible, the task must be left in the hands either of the Executive or of the courts of justice. The leading example of Executive control is furnished by France. In France no railway rate can be altered either up or down; none of the conditions of carriage can be modified in the slightest degree, without the formal assent and consent of a minister of State. The initiative rests with the companies; but before any alteration suggested by them comes into practical operation it is submitted to a whole hierarchy of State officials for report, and finally to the exhaustive consideration of a council of over fifty persons, one-half of them highly placed Civil servants, and the other half representatives of mercantile, agricultural and manufacturing interests. Having regard to the constant financial support given by the Government to the French railway companies, such a system may be possible in France, and yet not be capable of transplantation here, where the companies have built their lines at their own sole cost and risk.
But even in France its disadvantages are tolerably obvious.
For one thing the cost is enormous. To say that the company must first of all propose a change, and that, secondly, the Government must investigate and decide whether to approve or no, means in plain English that the whole work of management must be done twice over. The French control staff numbers over 1,000 persons. It costs about £160,000 per annum, and the complaints are constant that both staff and salaries are insufficient. Further, a duplicate system, especially when one-half is in Government hands, naturally implies very considerable delay; and such delay, though none too acceptable in France, in the main a self-contained country, would be quite intolerable here, where we have to face the competition of the world at large. Tenders, for instance, are invited for the construction of a bridge over the Danube at Pesth. At Derby there is a famous firm of bridge-builders who would like to put in. Before doing so, however, they must know whether for a consignment of 10,000 tons of steel, the Midland is prepared to give them a special rate to Hull or to Liverpool or to the London Docks. The matter can be settled at present by a call at the goods manager’s office, followed by an interchange of telegrams with the North-Western and the Great Northern. An answer is given next morning at the furthest. But it takes an English Government department as a rule ten days to acknowledge the receipt of a letter, and certainly two months to investigate the simplest cases.
But there is yet another objection of principle. It is a fatal blot on any system that it divorces power from responsibility. In France the Government guarantees the railway dividends; having, therefore, the power, it has also the responsibility. But with us? A new special rate might develop trade, and so add, not only to the dividend of the company, but to the wealth of the country at large. But it is certain to rouse the jealousy of a host of neighbours to whom it is not extended. Why should any Government department sanction such a rate and risk the asking of a dozen inconvenient questions in the House of Commons? It is always so easy to utter platitudes about the obligation of preferring the general welfare to the interest
of one particular applicant. On the other hand, the general manager of the railway cannot fairly be held responsible if he is not permitted to manage it; and, further, it takes the heart out of a man’s work if you keep him in leading strings at every step
*17. The following generalization is not, I believe, too wide. The whole tendency of modern commerce is to concentrate business into great aggregations, and the concession of special railway rates is only one exemplification of this tendency. In its working it undoubtedly inflicts some hardship on individuals, but this is more than counterbalanced by the benefit to society at large. Any interference by an outside authority with the free play of commercial forces may be expected to be in the interest of the tangible individual who complains rather than in that of the public at large, which has no opportunity of making its voice heard, even if, indeed, it were conscious of its interest in the matter. Such interference, therefore, is, in the public interest, to be deprecated and to be kept down to the irreducible minimum.
For that there is such a minimum has been admitted from the outset. The free play of commercial forces is all very well in its way; but when the scales are pulled by the North-Western Railway on the one side and by the local shopkeeper on the other, the interests of the latter are likely to kick the beam. Still, as it seems to me, the shopkeeper should be sufficiently protected by an appeal being given him to a properly constituted court of justice. Such a court, of course, can interfere only after the event; and prevention is usually regarded as better than cure. Still, if prevention is only possible at the price of a bodyguard of physicians in constant attendance, one may buy one’s immunity from
disease too dear. Moreover, a court of justice, by a series of decisions, gradually builds up a code of law on the subject; and in this way the cure of one case really constitutes the prevention of fresh outbreaks of the same complaint.
Obviously such a court is no patent remedy for all railway diseases; but experience shows it to be the best attainable in this imperfect world. The difficulty is, however, to get it. Such a court must consist of several members, for the bearings of these railway cases are so wide that no one mind can be expected to grasp the whole of them. Then the questions involved are not merely legal. The ideal judge should be not simply a lawyer, but a trained economist, with a practical knowledge of railway management and business methods as well. So far from a judge being thrown away on such matters, as more than one Member of Parliament has stated of late, what we want is something more than an ordinary judge. And we shall only get such men when the public realize that this question of railway control has come to stay, and is not to be settled off-hand by haphazard resolutions of chambers of commerce, or even by the passage of unworkable statutes. There is another point. Having got your court, you must make it possible for a complainant who is not a millionaire to go there. The railway companies have already expressed their readiness to accept the idea that as a general rule each side, whatever be the results, should pay its own costs. I believe that substantial justice would be done by going even further and providing that, while the railway company was left, if successful, to pay, except in extreme instances, its own costs, the commission should be empowered to give, under ordinary circumstances, to a successful applicant costs against the company.
But, even when we have got an ideal court for the decision of these questions, there will still remain important functions to be discharged by the Executive Government. It is as true in the moral as in the material world, that corrupt matter is rapidly oxygenated and rendered harmless by the action of light and air. It should be the business of the Executive to investigate alleged abuses, and, where they are proved to
exist, to publish the fact. Abuses brought to light will mainly right themselves. There is nothing more remarkable than the sensitiveness of great corporations to public opinion. Not but that such sensitiveness is natural enough. A great corporation offers so big a mark to shoot at that it is bound to be hit if once it provokes the public to take to their weapons. And the men who manage our great companies are well aware of this. Or, if any one amongst them should be for a moment foolish enough to forget it, his colleagues may be trusted to remind him by the exercise of some such corporate discipline as is exercised, almost as a matter of course, in the old-established professions. Of this sensitiveness to public opinion this very year has furnished a most striking instance. Parliament, after an exhaustive investigation of the subject lasting for over eleven years, solemnly enacted that from the first of January the railway companies should be entitled to make certain charges. Unadvisedly, as their own official representatives have since admitted, and without explanation or apology, the railway companies proceeded to exercise in full the rights which Parliament had most deliberately given them. Public opinion strongly disapproved of their action. An unopposed resolution of the House of Commons condemned it, and within three months the companies had been constrained to abandon the attempt to exercise their unquestionable legal right. In the face of this experience it would seem evident that public opinion does not, at any rate, lack force. The object of the interference of the Executive Government should be to supply it with the facts and, where necessary, with the commentary required for its correct guidance.
It may seem almost an insult to the Executive to propose to confine it to the humble function of purveying information. And yet we cannot be too often reminded that the action of the State—however large be the capitals in which we write the word—means only the action of the handful of fallible, perhaps arbitrary, possibly not wholly disinterested individuals, who on any particular occasion are its instruments. Now we may fairly expect that these individuals will investigate
more carefully and weigh their decisions more deliberately when they have to make them prevail by their own inherent rightfulness than when they are empowered to give a peremptory order and let their will avouch the deed. And in matters such as these, where, to borrow from a recent judgement of Mr. Justice Wills, a wrong decision would ‘check competition, hamper enterprise, and enhance the price of many articles of primary necessity,… ruin many individuals, and amount to an economic revolution in much of the business of the country,’ we must be satisfied to move but slowly, so only that we move in the right direction.
Experience of our own railway history, still more of the railway history of the United States, is available to confirm these
a priori reasonings. For twenty years the inspecting officers of our Board of Trade had practically no powers except to investigate and report. But by the constant employment of these powers, and with the force of public opinion behind them, they made English railway travelling incomparably the safest in the world. In an evil hour Parliament passed the Railway Regulation Act, 1889. The Board of Trade could order where before it could only advise, and rejoicing, one must suppose, in its new-won authority, it proceeded forthwith to strike a general average for the railways of the United Kingdom, and to prescribe for the railways of Caithness and Cardigan requirements well enough adapted for the latitude of London. Last session we heard more than once of public bodies in remote localities imploring in vain that the Board of Trade would suffer passengers to run the risk of travelling in company with goods waggons rather than be deprived of a train service altogether. But the Board was inexorable. It had formed its ideal of what a passenger service ought to be, and the railway companies must be compelled to give that or nothing. So in fact they will give nothing, and the Board of Trade will no doubt be satisfied.
To take another instance, fortunately of a more satisfactory character. In America the control of railways was down to 1887 exclusively, and is still mainly, in the hands of the
separate State governments, and the experience of these forty different bodies is a perfect mine of instruction for those who wish to appreciate at once the difficulties and the possibilities of government control
*18. Broadly speaking, the States of the American Union have divided themselves on this question into two opposite camps. Those of the East and North, led by Massachusetts, have acted on one principle; those of the South and West, led by Illinois, have adopted quite another. Both groups of States have appointed commissions to control the railways; but while the Illinois Commission possesses large powers, the powers entrusted to the Massachusetts Commission—so says Mr. C. F. Adams, who for ten years was its chairman—’hardly deserved the name… The only appeal provided was to publicity… The Commissioners had to listen, and they might investigate and report—they could do little more.’ To quote Mr. Adams again, the Massachusetts type of commission means only publicity, the Illinois type means the constable.
And now to summarize, equally broadly, the results. The commissions of the Illinois type have been in perpetual hot water from the day of their birth. Their powers have been increased and then again diminished, or even withdrawn entirely at a stroke. They have reduced railway companies by the score to bankruptcy. But the more they have oppressed the companies the less the public at large have appeared to be satisfied. Finally, in despair, they have thrown the reins on the neck of the steed, and left the companies to take their own course almost unchecked. At the present time there is hardly one of the State Commissions of the compulsory type which attempts to exercise the powers which are nominally vested in it. Meanwhile, the Massachusetts Commission has constantly increased both its authority over
the railways and its hold over public opinion. Whenever a question arises, the Massachusetts Commission investigates and publishes its conclusions. If it concludes against the view taken by the railways, the company concerned finds itself constrained to submit; if, on the other hand, its report endorses the action of the company, the public acquiesces and the agitation dies down. In a word, the corner-stone on which the Massachusetts railway legislation rests—and it is the true foundation for the legislation of a free people—is, to quote Mr. Adams yet again, ‘the one great social feature which distinguishes modern civilization from any other of which we have a record, the eventual supremacy of an enlightened public opinion.’
It might be argued that Massachusetts is not England. ‘The men of Massachusetts,’ says Lord Macaulay, ‘could work any constitution.’ Be it so, but we are not without precisely similar experience in this country. The Railway and Canal Traffic Act of 1888, by a clause avowedly based on the Massachusetts precedent, gave to the Board of Trade in the matter of goods rates alleged to be oppressive these very powers of investigation and publication. The clause has only been in operation four years, and during almost the whole of that time the goods rates of the different companies were in the melting pot, and till they finally emerged, in their new shape, it was scarcely worth any one’s while to raise fresh issues. Even so the Board of Trade has thrice reported that the effect of the Conciliation Clause, as it is termed, has been markedly beneficial. The railway companies have almost without exception adopted the recommendations of the Board of Trade, and as a rule their differences with their customers have been amicably settled. But four years have not been long enough to eradicate all trace of original sin even from the three hundred and fifty thousand railway officials and servants, still less has a method been found to make any concession satisfactory to claimants who urge simultaneously claims diametrically opposed the one to the other. So we are now told that publicity has failed; that the constable’s truncheon must be thrust into the reluctant
hand of the Board of Trade. It is not safe to prophesy unless one knows. But no one who has studied these matters can have the smallest doubt that if any government passes an Act giving, either to a Court of Law—the Railway Commission—or to a government department—the Board of Trade—or even to the
tertium quid suggested by some leading authorities—a ‘cheap and expeditious tribunal’ composed of gentlemen neither lawyers nor railways experts and with no experience of administration—a power to arbitrate between railway companies and their customers and to force both sides to accept as final its decision whether a rate is reasonable or unreasonable—if any government does pass such an Act as this—and strong pressure in this direction is being brought to bear by traders’ associations at the present time—that government will, before many months are out, have bitter reason to regret its action, and may quite possibly find itself in the humiliating position of being forced publicly to avow its mistake and retrace its steps.
But enough. No attempt has been here made, nor is indeed possible within the limits of this paper, to discuss questions of detail. How far railway companies should be free to amalgamate, or to enter into agreements to abandon competition and divide traffic with each other; whether they shall be confined strictly to railway business, or allowed to embark in subsidiary undertakings as dock and steamship owners, or warehousemen, as hotel keepers, or cartage agents—these and a score more questions of a like nature need the most careful and deliberate consideration, but they cannot be touched on here. Again, it is a question of principle of most vital moment, how the railways of a country can best be made subservient to its general prosperity. On the answer to that question, which at any given time commends itself to the minds of the controlling agents, must depend the opinions they express and the judgements they pronounce on the facts of the concrete cases as they are brought before them
this question, though its importance cannot be overrated, is also foreign to our present scope. We must confine ourselves here strictly to the question of the measure and method of State interference. And on this question we may now formulate our conclusions as follows:—
State ownership is undesirable, but State control is unavoidable. So far as that control has to do with matters of police, with the security of the public, the proper treatment of employés, and so forth, it is on all fours with inspection in numerous other departments of daily life, and will naturally be carried out by officials appointed by the Executive Government. To the control of railways as commercial undertakings, on the other hand, a different set of considerations apply. Here the broad principle seems to be that the private investor, paying the piper, must be allowed to call the tune, subject only to this proviso—that no one customer of the railway shall be allowed to obtain an unfair advantage over the rest. Whether any particular advantage be in a given case fair or unfair is a matter best left to the judicial decision of a technically as well as legally qualified court. Where there is no general agreement even as to the most elementary principles of tarification—I make no apology for importing across the Channel an absolutely necessary word—we are less likely to go wrong if we confine ourselves to
ex post facto judgements on concrete facts which have arisen in actual practice, and refuse to construct in advance symmetrical
edifices of theory. But there is also scope for useful action on the part of the Executive Government, whose officers can investigate and report, both generally and when their attention is specifically directed to alleged abuses. In this manner the public will gradually be educated to form an intelligent judgement, and the railway companies will be kept on their good behaviour.
Such is the railway creed which I would put forward as suitable for adoption, not
semper, ubique, ab omnibus, but by Englishmen in England at the present day. If it be objected that it is mainly negative, that it amounts to little more than dotting the ‘i’s and crossing the ‘t’s of the existing system, I venture to reply that therein lies its greatest recommendation. In the dark it behoves us to feel our way cautiously; and our legislators, with all respect be it said, are really very much in the dark as to the economics of transportation. To begin to run, as some distinguished persons are urging at this moment, when we are not certain that we have started in the right direction, and have no idea what obstacles there may be across the road, may be human nature, but is certainly not philosophic. Besides, simple publicity is an instrument whose value cannot be exaggerated, and it is a weapon which has hitherto been used, where used at all, only in the most hesitating and half-hearted manner. Given the right men as Government inspectors, with full access to facts and documents, and the power to publish the conclusions which they draw from them, powers of compulsion will be not merely superfluous but actually a hindrance. For, in England as in Massachusetts, ‘the eventual supremacy of an enlightened public opinion’ is matter of certainty. In our present temper, however, ‘eventual supremacy’ is not enough for us; we are all for reaching immediate supremacy by the short cut of compulsion. In the words of a distinguished railway authority, Professor H. C. Adams, of the Interstate Commerce Commission, ‘there is danger lest the quietness with which the principle of publicity works should deprive it of the confidence which it deserves.’ The more reason, therefore, to press home the point that the nearest approach to success in
the very difficult task of controlling without fettering the commercial management of railways has been attained by a system which, refusing altogether the assistance of the constable, relies on the support of public opinion for its sole sanction.
Economic Journal, December, 1892.
Nineteenth Century, August, 1892.
History of England, Chapter III.
History of the Post Office (London, Bentley, 1893). As Mr. Joyce is a trusted and high-placed officer of the Department, we may fairly assume that his indictment is at least not overdrawn. ‘Let us compare for a moment the beginning of the nineteenth with the end of the seventeenth century. In 1695 the postage from London to Liverpool, or to York, or to Plymouth, was, for a single letter, 3
d.; in 1813 it was 11
d. In 1695, wherever letters were being carried clandestinely, the policy was to supplant; in 1813 the policy was to repress. In 1695 the King would not consent to a single prosecution, even for the sake of example; in 1813, when the Post Office revenue had passed from the King to the people, prosecutions were being conducted wholesale. In 1695 a circuitous post would be converted into a direct one, even though the shorter distance carried less postage; in 1813 a direct post, in place of a circuitous one, was being constantly refused on the plea that a loss of postage would result. In 1695 London enjoyed the advantage of a penny post, and this post carried up to one pound in weight; in 1813 the penny post had been replaced by a two-penny and three-penny one, and, except in the case of a packet passing through the general post, the weight was limited to four ounces. In 1813, moreover, the complications were bewildering. In some places there were fifth-clause posts, and in others penny posts; and the charge by these posts was in addition to the charge by the general post. Some towns, over and above all other charges, paid an additional 1
d. on each letter for the privilege of the mail-coach passing through them. Of two adjoining houses one might receive its letters free of any charge for delivery and not the other. This difference was to be found in towns where building was going on—as, for instance, at Brighton—old houses being considered within, and new houses without, what was called the usage of delivery. In London itself, the complications, if possible, were more bewildering still. The three-penny post began where the two-penny post ended. Thus far the practice was simple enough. But the general post limits did not coincide with the limits of the two-penny post; and the limits of both the two-penny post and the general post differed from those of the foreign post. Indeed, it is probably not too much to say that in 1813 there was not a single town in the kingdom at the Post Office of which absolutely certain information could have been obtained as to the charge to which a letter addressed to any other town would be subject. More than ten years later, Post Office experts, examined before a Committee of the House of Commons, were unable to state what, even on letters delivered in London, would in certain cases be the proper postage.’
x shillings because, after exhausting perambulations through the mazes of the
Post Office Guide, I am quite unable to understand what the additional charge actually is.
Railroad Transportation, C. T. Adams’
Railway Problem, and Clark’s
State Railroad Commissions. I have myself attempted, in evidence before the House of Commons Committee of last session on Railway Rates, to make the outlines of the story accessible—if anything in a Blue Book ever is accessible—to English readers.
Essay VII, Mackay