The Menace of Privilege, by Henry George Jr.
Installment 37

We are pleased to present, in installments, a very rare yet significant book written by former Congressman Henry George Jr. in 1905.

Earlier installments are available at the Progress Report Archive.


When Caught Breaking the Law, Privilege Is Not Punished

Take other instances of governmental blindness or impotence relative to Privilege. These may be called the Morton pacts.

Mr. Paul Morton, for a time Secretary of the Navy in Mr. Roosevelt's Cabinet, was formerly second vice-president and traffic manager of the Atchison, Topeka and Santa Fe Railway. As such he was drawn into the courts and before the Inter-State Commerce Commission to testify on alleged illegal railroad agreements in restraint of trade and on discriminating rates.

On May 18, 1896, Paul Morton, for the Southern California Railway Company, the western division of the Santa Fe system, and J. C. Stubbs, third vice-president of the Southern Pacific Company, signed a pooling agreement for the two roads for all manner of freight to and from Southern California, which territory the roads divided between them as if it was a conquered province. (What appears to be the full text of this remarkable contract was given in a speech in Congress, on Feb. I, 1905, by Robert Baker of New York. See p.2071, Vol.39, Part 3, Congressional Record.)

Moreover, it developed in what is known as "the Orange Rate Case" that these two railroads, acting in harmony, made rebate contracts with private fruit car lines, the Southern Pacific with the Continental Fruit Express and the Southern California with the Earl Fruit Car line. These contracts gave a practical monopoly of fruit carriage from that section of the country to those two private car companies, which in turn were owned by the Armour Beef Trust combination.

The complaint was made that the two railroads divided traffic: sixty per cent. to the Southern Pacific, forty per cent. to the Santa Fe. In the course of his sworn testimony when this case was brought into the United States Circuit Court at Los Angeles, Mr. Morton said, "We [the Santa Fe road] made several endeavors -- we tried the costly experiment of being honest in this thing -- living up to the law as we understood it and declining to pay rebates; and we lost so much business that we found we had got to do as the Romans did."

That is, that the Santa Fe, in order to get what it deemed to be its share of traffic, entered into secret rebate agreements with the Refrigator Car Trust (Beef Trust) in utter disregard of other shippers, and in conscious violation of the law forbidding such discrimination.

And there were similar rebate rates on the carriage of wheat, salt, coal, iron and other things. On December 29, 1904, testimony proved that the Santa Fe, by contract made in August, 1902, granted a rebate of $1 a ton to the Colorado Fuel and Iron Company, the great Gould-Rockefeller combination lately merged into the still greater Rocky Mountain Coal and Iron Company. (Interstate Commerce Commission re coal and mine supplies rates by the Santa Fe Railway.)

It has been computed that this provision was worth in money to the Colorado Company $400,000. Of the Colorado Company, Mr. Morton had been vice-president before joining the Santa Fe road. In connection with the Colorado contract the railroad had issued a circular headed, "For Information of Employees Only, and Must not be Given to the Public." Inter-State Commerce Commissioner Prouty declared that he "never saw such barefaced disregard of the law as the Santa Fe and the Colorado Coal and Iron Company" manifested in this coal case.

In Kansas the Inter-State Commerce Commission found that the Santa Fe and other roads had been giving rebates to the Kansas Salt Trust in the shape of a proportional on a side track owned by the trust. This proportional operated in favor of the great salt company and against the independent salt producers. (Inter-State Commerce Reports, No.207, re transportation of salt from Hutchinson, Kansas.)

Inquiring into how the grain business was conducted on the Santa Fe road "through the Kansas City (Missouri) gateway and in the grain territory back of it," the Inter-State Commerce Commission was informed by Mr. Morton that it had become the custom with each railroad to have one or two, sometimes three, commission firms to act as grain agents for it. The business of each agent was to get as much grain shipped by its road as possible. To that end the railroads made terms that afforded material encouragement. Richardson and Co. became grain agents for the Santa Fe, which paid the firm one quarter of a cent on every bushel of grain shipped and a cut rate in addition. That is to say, Richardson and Co. obtained a considerable reduction on the published rate and also a quarter of a cent commission. Here is what Mr. Morton stated under oath to the Commission: -

Here, plainly told, was the method by which Mr. Morton broke the law against discriminating rates. And in testifying before the Commission relative to a rebate contract with one of the Beef Trust packers, Mr. Morton said frankly: "Yes, sir; it is an illegal contract. It was illegal when we made it, and we knew that." (Inter-State Commerce Commission re transportation of dressed meats and products, p.148.)

And what followed all these admissions of law breaking - of favoring a few great at the expense of the many weak? Notbing of a punitive nature followed. Nor did these admitted misdeeds seem in the least to cast any shadow upon Mr. Morton's political fortunes. In inviting him into the Cabinet the President took no note of the foregoing testimony. Nor did the House of Representatives, when Mr. Robert Baker of New York offered two resolutions of inquiry, do more than report the resolutions back from the Judiciary Committee and, at the motion of the chairman of the committee, instructed by its Republican majority, adopt by a majority vote a recommendation that the resolutions "do lie on the table" -the "parliamentary method," said Mr. Baker, "of strangulation." But at length public opinion was roused and Mr. Morton was constrained to retire from the Cabinet. He conveniently had a call to adjust the flagrantly inequitable affairs of the Equitable Assurance Society -- at a very large salary.

What brought public opinion to a focus was the resignation of special counsel for the Department of Justice because the President refused to act upon their advice and bring contempt proceedings against Mr. Paul Morton and others who had been officers of the Santa Fe road at the time of its opprobrious contract with the Colorado Fuel Company.

These special counsel were Mr. Judson Harmon and Mr. Frederick Newton Judson, the former an ex-Attorney-General of the United States. But in the lawyer's phrase, Mr. Roosevelt "made a precedent." He drew a delicate line between the railroad corporations and their officials, and in a letter of exoneration to Mr. Morton, which he gave to the newspapers, he said that he would not "dream" of proceeding against the officers individually -- a distinction to be fully appreciated by the trade union leaders when they and not their unions are arrested and punished by the courts if the latter adjudge them to be contempt. Is it not calculated to raise a doubt in their minds of the equality of the law? Nevertheless the President gravely requested the Attorney-General, Mr. Moody, to proceed against the offending railroad corporation, but not against its officers.

This does not signify that the Government at Washington makes a rule of willfully condoning the breaking of laws and taking steps hurtful to the welfare of the people. But it does signify that where the public mind is not alert, the little finger of Privilege is stronger than the loins of the mass of the people. Monopoly influence, however grossly or subtly, makes public officials in control of the administrative and legislative branches of the Government at Washington blind to actions of monopoly-corporations that would awaken them to lively aggressiveness if displayed by unprivileged individuals.

If we had no other, two instances of this purblindness would be furnished in the Government's persistent attitude toward the express companies and its extravagant payment for mail carriage. It gives $16o a ton to the railroads for carrying mail an average haul of 442 miles, while on occasion the private express companies have their matter carried by the railroads the same length of haul for $8 a ton! The Government pays the railroads 8 cents a pound for doing only about half the service for which the Government receives one cent! And as has often been stated, the transportation lines charge the Government every year for the use of the postal cars (besides the 8 cents a pound) more than it would cost to build the cars! The charge upon the Treasury of the United States for inland railroad transportation is now approximately $40,000,000 yearly!

If this is not a scandal of first magnitude, what is it? Yet Congress, or rather a majority in Congress, under tbe railroad spell, will allow no reduction of its annual payment for mail transportation. Year after year the monstrous robbery continues, and all the while various departments of the Government are called to detect petty mail thefts when suspicion is aroused, and to meet with condign punishment any small defalcations in the postal administration or overcharge for supplies. (J. L. Cowles, in "A General Freight and Passenger Post," offers a very thorough analysis of these conditions between the Government and the railroads.)

The express companies of this country, being originally offshoots of the railroads and now working in close harmony with them, for years have by hypnotic suggestion induced Congress to refuse to institute as part of the postal system a parcels delivery service such as even most of the third-rate nations of the world have been enjoying for a generation. The refusal of Congress to do this enables the private express companies to levy highway-robbery charges upon an enormous volume of business which the Post-Office Department could profitably and much more efficiently conduct at a fraction of the present rates.

How do the railroads come to have such extraordinary influence over the Government at Washington? Their sources of influence are manifold. They range from the obvious one of the lobby with its blood money, down through "legal retainers" and Wall Street tips, to railroad passes. A new member of the House of Representatives, Robert Baker of New York, created a stir at the opening of the Fifty-eighth Congress, November, 1903, by returning an annual pass sent to him by the attorney of one of the great railroad systems running through Washington. By the railroad officials Baker was set down as a raw fool; by those pass-takers not too supercilious to care what the public said, he was thought worse than a fool for "giving the snap away."

Yet as a matter of fact the railroad pass is the entering wedge of bribery of the legislator, whether the body be Federal, State or municipal. "In investigating legislative corruption," said Governor Folk of Missouri, after his prosecution of the malodorous legislative baking powder bribery cases, "it has been my experience that the first step a legislator takes toward bribery, as a rule, is the acceptance of a railroad pass." And indeed Thomas Jefferson went even farther than this, saying in a letter to Samuel Hawkins at the close of his long political career in 18o8: "On coming into public office, I laid it down as a law of my conduct, while I should continue in it, to accept no present of any sensible pecuniary value." (Jefferson's ~Vritings, Jefferson Association Edition, Vol. XII, p.203.)

Yet so changed has come to be the order of things with us a century later that not only do the majority of members of all our Federal and State legislative bodies accept valuable annual railroad passes, but President Roosevelt, until deterred by public opinion, accepted private cars and even private trains in which to travel over the broad expanse of the country. "Things of sensible value," wrote Jefferson, "however innocently offered in the first examples, may grow at length into abuse, for which I wish not to furnish a precedent." These nice distinctions have as a rule now become obsolete.

Yet the law is plain and blunt. Chapter 382, Act of Congress, March 2, 1889, reads, "And when any such common carrier shall have established and published its rates, fares and charges in compliance with the provisions of this section, it shall be unlawful for such common carrier to charge, demand or collect, or receive from person or persons, a greater or less compensation for the transportation of persons or property, or for any services in connection therewith, than is speci~ed in such published schedule of rates, fares and charges as may be at the time in force."

The Inter-State Commerce Commission has interpreted it to prohibit the issuance of passes to any one; but then what do the interpretations of that tribunal amount to when the tribunal itself has been reduced and, by railroad influence, has been kept reduced to the business of merely marking time? This is the law, but it is probably as little regarded by most of the Members of Congress as if never put upon the statute books. And, indeed, several of the Presidents have not refused free cars and even free trains. President Roosevelt stopped the practice only toward the end of his first term. The railroad pass has come to be generally regarded among men in legislative offices as a perquisite, a right, of office, and the railroads treat it as part payment for services rendered or favors to come.

Next week -- we turn from national government to the corruption of state and municipal governments.

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