been above that point repeatedly, and it was down at one time to 9. It has always been a speculative stock, the sales amounting in a year to several times the total amount outstanding. But, for the sake of getting an estimate of the profits made by the builders of the Union Pacific, even though that estimate be admittedly unreliable, the valuation given above may be taken. At 30, the $36,762,300 of stock would be worth $11,028,690. Adding this to the cash profit as stated above, the total profit appears to be $16,710,432.82, or slightly above 27 per cent of the cost of the road. Considering the character of the undertaking and the time when it was carried through, this does not seem an immoderate profit.

V

THE SOUTHERN RAILWAY & STEAMSHIP

ASSOCIATION 1

A TYPICAL POOL

ABOUT the year 1860, after the railroads from the East

had been pushed through to Chicago, and the short independent roads began to be united in interest and in management, the sharp competition that has become such a marked feature in modern railroad operations first came into prominent notice. Up to that time, each road had used only its own cars, the freight and passengers being transferred at the terminus. As it became necessary for connecting roads to work together, and make through lines requiring no transfers, each road began to work for the whole line of which it formed a part as against other similar lines or combinations.

The development in the South was much slower; and combination and competition, though inevitable, came more tardily. It was not till the Southern country had been laid waste by the contending armies, and its business brought to a standstill, that really sharp competition became the rule. Then the country was found to be supplied with more roads than were needed. According to Mr. Powers, afterwards Commissioner of the Southern Railway & Steamship Association, "there was not as much business as all could do. Indeed, any one of these lines, with a comparatively small output for rolling stock, can do all the business to any, indeed to all, competitive points named in our circulars."2 With such a condition of affairs, it

1 From the Quarterly Journal of Economics, Vol. V, 1891, pp. 70-94. Circular Letters of the Southern Railway Steamship Association are simply referred to hereafter as Circular Letters. The number preceding the title indicates the volume. Pooling and combination in general are discussed in Ripley's Railroads: Finance and Organization. 23 Circular Letters, 991.

was inevitable that each road should try to get all the business possible. This was done by means of rebates or open cutting of rates, which soon brought them to a ruinously low range. At this stage of events, agreements to restore and maintain rates were not infrequently made; but, as Mr. Fink subsequently remarked in one of his reports to the Association, these agreements were generally made by the managers "with the purpose merely of practising deception upon each other. Starting from a higher scale of rates, they secured, for a short period at least, some remuneration for the work performed, until the low rates were reached again." Mr. Fink estimated that by means of these rate wars the gross earnings of the Southern railroads were reduced about forty-two per cent below what regular rates would have yielded.2 This forty-two per cent was in many cases equal to the whole net earnings which could have been derived from the competitive business at the regular rates, showing that the business was really unprofitable. The roads in the South were, in consequence, practically worthless to their owners. The following language was used in 1876 by a committee of the stockholders of the Central Railroad & Banking Company of Georgia: "It is conceded that the property of your stockholders is on the brink of being sunk forever; and the bankruptcy of a number of your roads is imminent, if not even now a fact." This was the condition of affairs which led to the formation of the Southern Railway & Steamship Association.

Several isolated attempts were made to bring about a division of business before the final comprehensive scheme was adopted. Thus, in 1873, the roads running out of Atlanta, the Central, the Georgia, the Western & Atlantic, and the Atlanta & Charlotte Air Line, agreed upon divisions of the cotton business.1 The accounts were kept by the superintendent of the Western & Atlantic, and were settled after some delay and dispute. This agreement covered only the cotton season of 1873.

On December 21, 1874, a meeting of the Southern roads was held at Macon, Georgia, to devise some permanent means of

11 Circular Letters, 277.

21 Ibid., 278.

3 2 Ibid., 338. 4 22 Ibid., 1619 (Report of the General Commissioner).

settling the difficulties that were constantly arising between them. Adjourned meetings were held in January, 1875, when an agreement was drawn up and a provisional division of business agreed upon for the principal competitive points. Several meetings for perfecting the agreement were held during 1875; and on October 13 of that year Mr. Albert Fink was elected General Commissioner.1 This was in itself a favorable omen for the experiment; for Mr. Fink had been General Superintendent of the Louisville & Nashville Road, and was familiar with the railroad business of the South. Furthermore, it was largely on a plan laid down by him in a letter to the president of the convention that the Association was formed. He accepted office only for the purpose of organizing the pool and setting it in motion, and served but six months. Notwithstanding his short term of office, it is to Mr. Fink that the Association owes much of its success. The Southern Association was his first experiment in arranging railroad pools and agreements, and was, in fact, with one exception, the first practical pooling arrangement in this country.2

The Association, as its name implies, was intended to include all of the Southern transportation companies. Any road south of the Ohio and Potomac Rivers and east of the Mississippi could become a member. Any steamship company connecting these roads with Boston, Providence, New York, Philadelphia, or Baltimore was eligible. Its main object was to remedy the evil of excessive competition, which was working the destruction of all Southern roads, by maintaining rates and securing a fair distribution of business. To accomplish these ends, an annual convention was held, to which each road sent a representative. This convention elected the President, a permanent General Commissioner, a Secretary and Auditor, a Board of Arbitration, and an Executive Committee. It voted on the admission of new members, and adjusted all matters that could not be determined by the General Commissioner, a two-thirds vote being necessary for any action.

11 Circular Letters, 18.

2 The exception was the so-called "Omaha Pool," first formed in 1870 between the Burlington, Rock Island, and North-Western Roads.

The Commissioner had general charge of the business of the Association, but referred to the convention, or to the managers of the roads interested, whatever delicate matters he did not feel able himself to deal with. His decisions, orders, recommendations, statistics, together with the minutes of the conventions and committee meetings, were communicated to the various roads by means of circular letters. These have been collected, and the twenty-four volumes in which they are preserved form the chief source of information regarding the history of the Association.

The practice of referring details to the convention, adopted in the first agreement, proved cumbersome and impracticable. Accordingly, there were occasional informal meetings of the various managers; and in 18831 an Executive Committee was appointed, consisting of the manager or executive officer of each of the principal lines in the Association. This Executive Committee was given jurisdiction over all matters relating to the joint traffic, but could act only by unanimous consent. It could delegate to subcommittees jurisdiction over matters espe cially committed to their charge. Such a subcommittee was the Rate Committee; though a Rate Committee, with powers derived from a different source (the convention), had existed for several years before this. Having charge, in the first instance at least, of rates and classifications, this subcommittee became one of the most important branches of the organization. It consisted of the general freight agents of each of the lines in the Association. The Rate Committee, like the Executive Committee, could act only by a unanimous vote; and any member could demand that a question be referred to the Executive Committee.2 This condition of a unanimous vote was probably meant to prevent any combination or clique of lines from bettering themselves at the expense of the others. But the result, as might be expected, was that it was often impossible to reach a decision, even on comparatively unimportant matters. The question would then go to the Executive Committee, where a similar state of affairs was likely to be met, and finally to the Board of Arbitration.

1 22 Circular Letters, 352.

2 See the Agreement, Articles 7 and 10.