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Mr. ADAMS. Our railroad system is founded on the principle of competition. Tbe men who are managing it are men of very great ability, and they know thoroughly wbat they are about. They are engaged in a inost destructive war of competition. Logically, they are carrying out the system on which our railroads were built to a tinal result with an energy which is most noticeable. It is inseparable from that system (in cari ying it out in this way) that it should work great injustice; and the two difficulties connected with railroad management which the country is now suffering under and which lead to complaints (laying aside corruption in management, which will cure itself) are difficulties which this competition leads to. One is the discrimination against local custoniers. That is, if you take one point that is called a railroad center and anotber point that is not a railroad center, you will find that the railroad center bas an enormous advautage over the other. The second ditticulty arises from the violent tinetuations incident to these wars of competitiou. What is needed to cure tbese two evils is a refornied railroad system which will allow the movement of persons and property to go on freely and at reasonable rates, under a tariff of settled charges which will afford The customers of the railroads perfect freedom as to markets with all the facilities for carriage that they can reasonably ask for. That is what the competitive system does not now supply and never will perfec:ly supply. It is this that we are all puzzling over. The only course which I can suggest as likely to effect a solution is, to follow carefully the experience of other countries; this certainly will not lead us in the direction of remedial legislation (into what we call bele granger laws, laws regulating rates and fares, &c.), but in the contrary will, I think, lead us in the direction of the government iutertering in the least degree possible with the actual management and operation of tbe railroads, while yet it will supervise tbew, so to speak, continually and carefully, so that when abuses arise the causes of those abusos shall be thoroughly investigated and the full light of publicity tbrowu upon them. As the result of that publicity and careful investigation the necessary remedial laws will at last be framed. The difficulty witb 18 hitherto has been that in all our remedial legislation we have persistentlr put The cart before the horse. We bave tried to introduce our remedy before we had thorongbly studied the disease. Now we wever will hit upon the true remedy until we make the study of the difficulty-the disease-ube condition precedent to it, and then gradually (and I think very rapidly) the necessary machinery and legislation will be evolverl. The railroad problem is, to my mind, a simple problem enough if people will only approach it in the right way ave not try all sorts of quack remedies 10 produce results which can only be produced through previous study and by long and public discussion. I think that is all that I have to say on that subject.

The CHAIRMAN. The railroads may be said to be the creatures of State legislation. Do you think that Federal supervision (such as you have been indicating as taking place in other conntries) can be invoked here with advautage ?

Mr. ADAMS. I believe in crossing the stream when you conje to it, and I doubt whether ve bave yet got to that point. That we will ultimately get there I have no question in my own inind.

The CHAIRMAN. Have we pot arrived at the stream,' when we find railroads running through various States connecting with each other, making discriminating rates, so that people on oue route can not get their productions transported to New York and Boston as cheaply as they can on the other route? No State is able to apply the reinedy, because the railroads are in different States. That difficulty has been brought very prominently to the notice of Congress, especially in connection with the Pacitie railroads. Have not got to the stream Is not the point reached where Federal legislation must step in and do something !

Mr. Adams. I suppose that if the question is put in that way it would be impossible for me to deny tbat we have got there, for it is apparent of course. The commerce between the States, as detined by the Constitution, is, ou parts of it, carried on by the railroad, and if the railroad does the compierce between States, I should suppose that it Congress is going to do auything to regulate the comuierce between States, it ought to bave something to say about the railroad business.

The CHAIRMAN. Now, in England, as I wderstand it, Parliament has been compelled to interfere and to regulate that very kind of business. For instance, the law of Eng. land prohibits discrimination, so that whatever is done for one citizen must be done for every citizen, and, as I understand it, nu secret contracts are allowed. Do you think that we cau begiu a similar kind of legislation in this country:

Mr. ADAMS. I see no reason wbatever why it should not be begun and began to very great advantag., provided we can begiu gradually and not all at once. The English experience is immensely instructive to this country, and it is a great pity that it is pot better understood here. It is like this whole discussiou in regard to the currency tbat we bave bad going on here. In England they have been thoroughly through the trial of the granger-law legislation. All the experiences that bave been tried here; all the laws that have been passed, and everything that has been done to settle this question biere, has been tried in Eugland; and, five years ago, they were all formally abatidoned. A very able conimittee, which sat for a long time, and which included in ite

number the present Marquis of Salisbury, the Earl of Derby, Mr. Fortescue, and a pamber of other most prominent members of Pitrliament, considered the question, and their report was one of the most instructive documents that has ever appeared on the railroad subject. They abandoned the whole system of English legislation in the mass. All the experiments of the past were reviewed; all the atteinpts made to hinder the consolidation of competing railroads, all the futile efforts to regulate fares and profits, were examined and thrown overboard. They said that such attempts never had accomplished any result that was sought to be accounplished, or prevented anything that was sought to be hindered. They then adopted a system, very quietly and silently, which is now in use in England, and I think that it will be the system upon which we will at last settle down to in this country.

The CHAIRMAN. Please to describe it.

Mr. ADAMS. It is simply this: “Hands off ; let the railroads develop in their own way. If consolidation is the law of their growth, let them consolidate ; let hem pursue whatever system of growth or whatever system of operations they naturally see fit to adopt in the course of their business The only thing that we insist upon is this, that there shall be the largest amount of publicity in operatious, so that abuses shali *not be slightly passed over." A board was established in Euglaud, known as the general railway commission, consisting of three very able men, who constitute a sort of tribunal before which every case of complaint against railroails is brought and thoroughly heard. The process is very cheap. Then legislation is left to shape itself in the resnlt of the discussions of and before that board.

The CHAIRMAN. Did not the Engiish law contain a provision against discrimination , as between individuals ? Mr. ADAMS. Yes.

The CHAIRMAN. In other words, every man in England is equal before the railroad commissioners and before the courts?

Mr. ADAMS. Exacus. Now, we have in Massachusetts (perhaps it is natural that I should give undue weight to our experience in Massachusetts, as I have had something to do with it) a system simpler than that of England, and I thiok (I say it with hesitation) that it has worked well. It is very simple indeed. The Massachusetts system is one that depends on little besides public discussiou. If a letter, or even a postal card, is sent in to us from any man stating that he has a canse of grievance against a railroad company, we give just as much attention to it is if it had come from a city government. We investigate the matter: we see the railroad officials informally, and it is very rarely that we fail in securing a measure of relief'; and the fewness of the complaints that come before us is, I think, a strong testimony to the fact that, as a whole, the railroad system is operated remarkably well.

The CHAIRMAN. Take this one grievance, and state how you meet it in Massachusetts and how it is inet in England. Take a town situated ten miles from a railroad teriuinus, where it is intersected by another railway a hundred miles loug. That point of intersection is a competition point. If freight is carried over the hundred miles of railroad for a dollar a ton, and if the inhabitants of the town teu miles from the railroari terminus are charged another dollar a ton, have you any provision iu which a town so situated can get relief i

Mr. Adams. Yes, if such a discrimination was made, I do not think that, either under our system or under the English law, there would be any trouble about it.

The CHAIRMAN. Is there any provision of law in either country which secures to the people a direct relief from such an imposition 1 Mr. ADAMS. No, sir; and there cannot be one framed.

The CHAIRMAX. As I understand the English law, all railroads are regarded as one, and the rates must be made from every one point in England to every other point in England uniform; and the rates must not be made differential rates, but the short distance and the long distance are counted as one, and the railway companies divide the protits. That system does not prevail in this neighborbood. I do not know wbether it does in Massachusetts.

Mr. ADAMS. Yes, sir; we have it in Massachusetts. We bave had it for years. We lave liad laws in Massachusetts, one establisbing the rates as between railroads-that tbey shall be reasonable, that is all--and the other establishing generally the principle of a compulsory interchange of business between roads; the right of roads to enter upon and use each other. Practically we deal with such cases in this way: a concrete case arises and is brought before us, as several such cases have been brought, and there tlioroughly and publicly discussel. As a result of this viscussion we make what is called a recommendation to the railroad corpuration concerned. That is the full limit of our power. It may be said, and frequently has been, that this amounts to nothing; that the railroad corporations would pay no attention to the recommendations of a tribunal not clothed with power to enforce them. Practically we have not found that to be the cas. The railroad corporations, the moment that public discission is brought in and the question thoroughly and understandingly discussed, stand in very great dread of public opinion. The larger railroads grow, the inore amenable to public

opinion they become. My belief is that we shall at last reach a practical copelnsion on this question through which we will get justice done; and we will reach it just so soon as we get full publicity and intelligent discussion.

The CHAIRMAN. The case that I put to you was a local one; but of course such cases are really applicable to the whole United States, and you see what a trenjepdous question it opens up. Mr. Rice lives in Worcester, where there is a wire-mill. There is also a wire-mill at Trenton, N. J. These two mills complete for the business of Chicago, the distance between the two points and Chicago being about equal. Now it turns out that the rate for freight from one place is sometimes one-half the rate from the other place. Sometimes it is cheaper from Worcester and sometimes it is cheaper from Trenton. This is a great hardship; first to the one manufacturer and then to the other. One of them finds himself driven ont of the Chicago market without any fault of his own and withont any earthly power on his part to remedy it. I put that case to you becanse it is one absolutely within my personal knowledge. Mr. ADAMS. That is the result of competition.

The CHAIRMAN. Wbat we want to know is, whether the Federal Government can intervene in a case of that kind by a railroad supervision so that tbis thing shall not happen, and that neither the wire-mill at Trenton nor the wire-mill at Worcester shall be ruined by differential rates.

Mr. ADAMS. No, sir; I think it is impossible. The CHAIRMAN. You think that a law cannot be brought to bear on that subject. Mr. ADAMS. At any rate it is a thing for the future. It cannot be done without destroying the whole system of competition on which the railroad system now rests.

The CHAIRMAN. And yet you see that that leaves it in the power of a particular railroad corporation to make a particular mill profitable or to ruin a particular mill.

Mr. ADAMS. Undoubtedly; but you cannot have the benefit of railroad competition without some of its hardships. The way it will work itself out is probably already lieginning to appear. There is a "pooling” discussion now going on at Saratoga. These grand combinations all tend to working out that problem by making even rates. The danger that people apprehend from these combinations is that they will also create a monopoly. That is very true, and the way in which you must meet the monopoly must be by government supervision, so that whatever the monopoly does will be done in the full light of day.

The CHAIRMAN. Take this case: You know that the stocks of certain railroad companies have been largely watered. Some people allege that there was value for the increased stock, and some allege that there was not. At any rate, the stocks have been very largely watered in the case of some of the great lines to the West that are competing witb each other. The stock of some has been more watered than that of others. The competition is so great tbat none of them can make money; and, therefore, they pool upon a basis that enables all of them to make money- the watered stock as well as the unwatered stock. Do you think tbat any legislation can be brought to bear to prevent the railroad companies from paying dividends on stock that has never had any real representative of value ?

Mr. ADAMS. That goes back to another question in regard to railroad construction. The whole talk about watered stock is full of fallacies. Among other things, it seenus to be currently supposed in the minds of a large number of persons that all railroads earn dividends upon their capital. Now, railroads have been a form of investment in which there have been a few large prizes, a number of moderate prizes, and a great mariy blanks. In the building of railroads in this country (as every one knows who has had anything to do with them, and you, Mr. Chairman, bave had some very sharp experience in that line), there have been a good many blanks to each prize. Within the last few years at least $100,000,000 in vested in railroads has been wiped out. The process of stock watering, so called, has been simply a rude averaging process by which the successes were made to off-set the failures--the prizes to balance the blanks. As a result, this country, through the process under wbich our railroads have been built, has its railroad system at a lower percentage of interest on its actual cost than it could possibly have been obtained for out of any expenditure of the public money. That is, allowing all the stock that has been watered on the one hand, and allowing on the other hand all the capital that has been lost by bad investment in railroads, the country is paying on the cost of its railroad system an interest not to exceed at the outside five per cent. If the roads had been built on government bonds, they could not have been built as cheaply as they have been built under private management. You say that if the stock of the New York Central had not been watered the company could afford to carry freight cheaper than it does, because then it wonld pot have to pay dividends on the watered stock. You leave ont of sight, bowever, the fact that, if the company was prohibited from getting the advantage of the development of its road, the road would never have been developed, because the company would lose the whole incentive to gain. I have seen, in my own experience, lines that were earning the full legal dividends on their capital stock which seemed to lose all desire to earn anything more. Now, if you are going to have railroads operated by

the government, they can be operated on that principle; but if you are going to have railroads operated by private persons, you may depend upon it that those persons will not feel any incentive to development if you do not let them have all the inoney they earn by development. If you limit their profits, they will earn just up to tbai limit and stop. Unless, therefore, you are going to give up the whole system of conipetitive private management and turn over the railroads to the government, I am utterly upable to see how you can take away with advantage this incentive of private gain.

The CHAIRMAN. If the New York Central Railroad Company had not developed itself rapidly enough to do the business, another line would have been built.

Mr. ADAMS. And you would have had to pay the interest on the capital invested in that line.

The CHAIRMAN. But the result would be that the New York Central Railroad would cease to be protitable.

Mr. Adams. No; I think it would still bave earned enough to pay the legal dividends on its capital stock.

The CHAIRMAN. But we would have two lines coming in competition with each other and doing the business at the lowest possible rate, whereas the New York Central now secures rates that enable it to pay dividends on its watered stock. Mr. ADAMS. You have the Erie Railroad running right alongside of it.'

The CHAIRMAN. O, no; not alongside of it. There is no great ditference; but the Erie has many high grades, whereas the Central bas but few grades, and those not of any great magnitude. The business people in the city of New York think that they have a right to complain in this matter. They want all the advautages of their position, and they want the city to grow by those advatages. They say that, owing to the fact that the New York Central Railroad Company has watered its stock and is paying dividends on that watered stock, they have not had the benefit of the development of business, but that it has been made a source of profit to private capitalists.

Mr. ADAMS. I think that the argument is based upon a fallacy.

The CHAIRMAN. Suppose that, owing to the great natural advantages of this city, freight can be carried here at half the cost that it is carried to Baltimore, would not that be an advantage to the men carrying on business in New York ? Mr. ADAMS. Undonbtedly.

The CHAIRMAN. That is the fact alleged, that if it had not been for the necessity of making rates that would produce a dividend of 8 per cent. on the whole watered stock of the New York Central, the advantages would have gone to the city of New York ; we would have bad freights cheaper, and New York would be doing more business, and thing the laboring people would all have employment.

Mr. ADAMS. I agree to that if you substitute the word “could” for “would," and if you say it could be so. But I maintain that the tbing that makes the New York Central carry freight at half a mill a ton per mile is the fact that whatever the company gets in the development of its business belongs to its stockholders. If you are going to upset all this, and do business not for gain but out of public spirit, depend upon it you must go a great way further and make the State the owner of the railroad.

The CHAIRMAN. Is it not a fact that the railroad companies, having exercised the right of public domain, and having had sovereigu frauchises conferred upou them, are, to a certain extent, trustees for the State as well as for the private owners ?

Mr. ADAMS. That is true in theory. What I mean is this: that the great incentive to the development of the New York Central is the fact that the company knows that the development is to be to its own profit. If you say to Mr. Vanderbilt, “ It is your duty to benefit the city of New York by developing your railroad," I think you will find that that is one thing. But if you say to Mr. Vanderbilt that in benefiting the city of New York he benefits himself and his company, I think you will find that practically that is another thing. I have no objection whatever (if people wish to try it) to State management of the railroads; but, if you are to bave private management, I do not think it is practicable, unless the gain of the management shall belong to the men who mapage.

The CHAIRMAN. The allegation on the one side is, that when Mr. Vanderbilt came into possession of that property he said to himself, I can develop this business and make it double.” He issued certificates of additional stock to the amount of $22,000,000, and as he could make the road pay dividends on that twenty-two millions of dollars, he made twenty-two millions of actual wealth for himself. Now, the allegation on the other side is, that Mr. Vanderbilt was holding a franchise from the State of New York, and that, as the holder of such franchise, he was a trustee, and that he was bound, instead of watering the stock, to reduce the rates of transportation and to give the public the benefit of the business, because he was already getting an adequate remuneration for his capital (because the charter limited the rates of dividend on the various brancbes of the road to a certain amount), and that, therefore, in evading that provision of the law and watering the stock, he was violating his duty to the State. These are the allegations.

Mr. ADAMS. They are all theoretically true.

The CHAIRMAN. Then, if they are all true, has not the community a right to step in and restore it to the condition in which it would have been placed if the duties of the trustee had been properly performed ?

Mr. ADAMS. They have a right if they can accomplish that result. But the question in my mind is purely a practical question. It is this: Will Mr. Vanderbilt or any other man carry more freight at low rates if there is no advantage to come to himself by so doing? The result of all the stock-watering has not been to increase rates. It has, on the contrary, made them lower. My answer, therefore, would be that as a practical result, the development, through which that money is earned by the New York Central, would not have been made unless there was an incentive for making it. Mr. Vanderbilt wonld not have built fow tracks if he had been confined simply to his profit on the old two. He would say, “ The road is a good property now. It earns all that the law allows us the privilege of dividing. We will let well enough alone. We will not develop, we will not increase our business. We will go on doing a comfortable business."

The CHAIRMAN. Has not the State the right, by intelligent supervision, to say to Mr. Vanderbilt, " The time has come when you ought to lay down more tracks and to do more business. Here is the great city of New York, with a population one-third of that of the entire State, at the end of your road. It needs this business, and you must do it.” If there had been three commissioners, for example, such as yon have in Massachusetts, to examine the thing, and to say that it must be done, could Mr. Vanderbilt bave resisted public opinion ?

Mr. ADAMS. I think that Mr. Vanderbilt would have said in answer to that that he differed in opinion with the commissioners; that he did not think it could be done; that he was a trustee for the stockholders; that be held the property for them; that be thought the development demanded was simply wild; that it would bankrupt his company; that the road was doing extremely well now; and that his duty as trustee would prevent his going into such a wild scheme. The tendency of my mind is practical. I think tbat the conniunity gets its beneficial results from the fact that Mr. Vanderbilt laid down the new tracks, and he laid them down because he thought he saw bis way to getting money out of them. If you bad said to Mr. Vanderbilt, “Lay down your two extra tracks and you will have the consciousness of having deserved well of the republic," I think he would say, "I prefer my dividend which I am now able to earn; and the development proposed is a dangerous thing." But, if you say to him, “Lay down your two extra tracks; and instead of getting a dividend of 10 per cent. you will be able to earn a dividend of 20 per cent.," Mr. Vanderbilt would be very apt to say, I think, that he would lay down the two extra tracks. It is very much the same, Mr. Chairman, as in the case of your iron works. You will develop them if you think you can make profit by doing so, and not otherwise.

The CHAIRMAN. There is a difference in this sense. I am not a trustee for the pulslic in any way ; but these railway corporations are, to a certain extent, agents of the public, and they are amenable to tho supervision of the public. Now, the question is, how far can that supervision be brought to bear upon them to advantage, so that they will not get excessive protits ?

Mr. Adams. The whole railroad system of the country is a sort of rougb system of equalization. And if you said to Mr. Vanderbilt that his capital represented $22,000,000 of stock which never went into the railroad, he wonld say, Here are $40,000,000 of capital that did go into railroad building, and that has not paid anything. Now, is the country paying anything more for its railroad system than a fair price? Undoubtedly it is not.”

The Charman. But the city of New York does pot see that. It sees that if it could have the business done at a rate which would allow Mr. Vanderbilt 8 per cent. on the actual capital invested in the railroad, on the actual cost of the property, it conid have its business done at ope-half tbe present rate of trausportation, and it would have twice the amount of business, and there would be no empty houses and no unemployed laborers in the city.

Mr. ADAMS. The answer is that if you depended upon that public spirit to have this development made, it never would have been made. It was the incentive to gain that Jead to the development.

The CHAIRMAx. And you think that tbe city of New York is better off than if it had undertaken to make it an offense to water the stock !

Mr. Adams. I think that if there bad pot been any means of convering the increased earning from that road into the pockets of its private owners tbere never would have been any increased earnings. I decline to be put into the position in which yong question would put me. I do not think that the property of the New York Central Railroad Company would have been developed as it has been developed except under the incentive of private gain, wbich is the most powerful incentive that can be applied to human beings.

The CHAIRMAN. To come back to Federal super vision, I understood you to say that

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