We are pleased to present, in installments, a very rare yet significant book written by former Congressman Henry George Jr.
Earlier installments are available at the Progress Report Archive.
conclusion of CHAPTER 3, TYPES OF PRINCES OF PRIVILEGE
And then behold the railroad grants. To the generation now growing up, the prodigality of the grants out of the pubhc domain to what are known as the "land grant railroads " is scarcely credible. Besides a continuous strip of land from one to four hundred feet wide for a right of way, with additional land for sidings, stations, yards and the like, the Federal Government granted all alternate sections (a section is a square mile in United States land measurement), in a belt of land a number of miles in width running on each side of the right of way strip.
The grant to tile Southern Pacific, for instance, consisted of alternate sections of a belt of land 60 miles wide in California, and 100 miles wide in the Territories (some of them now States). The grant to the Northern Pacific consisted of alternate sections in a belt of land 120 miles wide, running from the western boundary of Minnesota to Puget Sound and the Columbia River. (Besides land, the Federal, Statc, and municipal Governments made enormous grants of money and bonds tbr the stimulation of railroad building, mainly in the West. The five Pacific railroads (Northern Pacific, Union Pacific, Atlantic and Pacific, Southern Pacific, anti Texas Pacific) received enough in cash and bonds to build the roads and put large fortunes into the pockets of their managing promoters besides. These five roads received from the Federal Government alone United States bonds amounting to $64,000,000.)
The total railroad land grants have amounted to approximately 200,000,000 acres, or 312,500 square miles.
Can the significance of this be easily realized? This gift of public domain to our Western railroad companies was suffcient to have made 2,000,000 American farms of 100 acres each. It would have made more than 33,000,000 farms such as in Belgium support a family each in happy independence.
Or consider the matter in another way. This land gift to the railroads is equal to the combined areas of the States of Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia and North Carolina. It is nearly as large as the territories of England, Scotland, Ireland, and France, taken together, which support a population of at least 75,000,000.
This is the land ownership aspect of the railroad problem. It will grow more portentous as the years pass and multiplying population intensifies the demand for land. But what is of more pressing concern at present is the highway aspect of the railroads. This is a constant and increasing aggravation. A steam railroad is a steam public highway. In the beginning of railroad building in the United States it was so regarded. But the public rights were soon lost sight of under private possession. The policy of charging the general public "all that the traffic will bear," while secretly discriminating to build up monopolies among favored users, has made it a matter of profound and general wonder how, in the words of the distinguished jurist and railroad authority, Mr. Charles Francis Adams, "the business world sustains itself."
Through high traffic charges and discriminating rates, railroad companies have become organizations for public plundering and monopoly breeding. Supreme Court Justice William J. Gaynor, of New York, in a recent address said:--
A brilliant English observer, the late Duke of Marlborough, fifteen years ago called our railroads "the very life and lungs of trade." He said that the main arteries of these railroad systems are now permanently worked out (Fortnightly Review, April 1891). "It will be practically impossible to make new routes, except at fabulous cost, with approaches to the coast. The strategical positions are seized and occupied, and whoever can possess himself to-day of a controlling interest in a main through route and allied feeders across the great central basin of the Northern States, cannot be deprived of a gigantic monopoly in the present and in the future."
Facing these facts, observe the extent to which the railroads have combined and railroad management has concentrated. Mr. Charles A. Prouty, of the Inter-State Commerce Commission, emphasizes what has been repeatedly shown: that "of the 200,000 miles [of railroad lines] in the United States, approximately 125,000 miles are controlled by a half-dozen individuals." Shall we not say then that our great railroad magnates, the Goulds, the Vanderbilts, the Hills, the Harrimans and the Huntingtons are Princes of Privilege?
If steam railroads are public highways, are not street car lines in the cities, towns and villages of the country in the same sense public highways? Are not all pipe and wire lines through such thoroughfares similarly public highways? Yet in not a single municipality are the street car lines in public hands. Where are the instances in which the telegraph and telephone wires and heat and power pipes are operated by public officials? In all but a very few of the municipalities the electric lighting and power wires are in private hands. In many municipalities the water supply is the business of private, or only quasi-public corporations. Only in the case of sewage piping is there public municipal ownership and operation throughout the country. Hence most of the arterial functions of the body social in our centers of population are in private hands. In a few instances enlightened self-interest swells net receipts by constant improvement in service, but the general policy pursued is to refuse to improve until driven by public pressure. And at all times is practiced with more or less care the art of "getting most feathers with least squawking."
The great value of municipal highway public franchise privileges may be judged from the fact that the annual "earnings" of these rights of way in Greater New York, as distinguished from plants and equipments, are conservatively set down by experts at this time at $40,000,000. The combination, merger and absorption principles are, taking all the important communities together, rapidly bringing the public service corporations into fewer and fewer hands. Hence we have the Whitney, the Widener, the Ryan, the Dolan examples of Princes of Municipal Franchise Privilege.
But it rarely happens that, whatever their source, the great individual fortunes are developed from one source of privilege alone. The amazing Rockefeller fortune, for example, sprang from several kinds of privilege, but mainly from two, -- railroad monopoly and land monopoly.
John D. Rockefeller was born in central New York, in 1839, amid humble circumstances. He early went to Cleveland, Ohio, and his name appeared in the directory of that city in 1858 as a "bookkeeper." For several years life was industrious, his habits were frugal, yet he had but small success as a fortune-maker. He became a member of a struggling produce commission merchant firm -- Clark and Rockefeller. The petroleum resources of Pennsylvania and Ohio were at that time having their sensational development, and Cleveland had become an oil-refining center. This new business opened new chances for money-making. Mr. Rockefeller left the produce business, and formed an oil-refining partnership with an ingenious Englishman named Samuel Andrews, who made a number of improvements in the refining process.
Later Mr. Rockefeller established a second refinery under the name of William A. Rockefeller & Co., and opened an agency in New York. In June, 1870, he merged these and other companies in the Standard Oil Company, with a capital of $1,000,000. The men interested were John D. Rockefeller, Henry M. Flagler, Samuel Andrews, Stephen V. Harkness and William Rockefeller, John's brother.
For a while the Standard Oil Company was unaccountally prosperous. In the face of keen competition its business rapidly grew. Its competitors were astonished and puzzled. At length one of them, Mr. Alexander, of the firm of Alexander, Scofleld & Co., accused one of the railroads of giving the Standard Oil Company better rates.
So far from this being denied, it was agreed that Alexander's firm should share the rate favor. He was to pay the open or regular rate on the oil he shipped from the oil regions to Cleveland, which at that time was forty cents a barrel. At the end of each month he was to send to the railroad vouchers for the amount of oil shipped and paid for at forty cents, and was to get back from the railroa.d in money fifteen cents on each barrel. This concession, however, applied only to oil brought from the wells to Cleveland. Alexander was never able to get a rebate on oil shipped eastward, although the Standard Oil Company did. Protestations to the railroad managers only brought the explanation from them that if he would ship as large quantities as the Standard Oil Company, he could have as good a rate. (Testimony of Mr. Alexander before the Committee on Commerce of the United States House of Representatives, April, 1872. See "History of the Standard Oil Company," by Ida Tarbell, Chaps. II, III.)
That was the secret of the Standard Oil Company's amazing ascension to power and wealth. Mr. Flagler, in 1870, had secretly proposed to General J. H. Devereaux, vice-president of the Lake Shore & Michigan Southern Railroad Company, whose New York connection was the New York Central Railroad, that if the Standard Oil Company could obtain a special through rate it would ship sixty carloads a day. The railroad official acceded. This arrangement, says Miss Tarbell, in her "History of the Standard Oil Company," gave the oil corporation "steady transportation the year round to the seaboard, at a rate cheaper than anybody else could get. It was equivalent to renting a railroad for their private use. Every Cleveland refiner was put out of the race. The refining business was so prosperous at the time the arrangement was made that suspicion was not at first aroused, but in a year's time the effect became apparent. Firms which had been making $10,000 to $20,000 a year, found themselves making little or nothing. But why? That they did not see. The oil business of Cleveland was growing prodigiously. By 1870 the city had become the largest refining center in the United States, taking 2,000,000 barrels of crude oil from the region -- one third of the entire output of the oil regions. Instead of being destroyed by the competition of refineries built close to the wells, it was growing under the competition, but in spite of this growth, only one firm -- the Standard Oil Company -- was making much money."
In other words, the railroad rebates enabled the Standard Oil Company to undersell its refinery competitors. Many of those competitors were ruined, others were absorbed, until Mr. Rockefeller's group obtained a monopoly of the business. Controlling the refining of oil, they had the power to control and then absorb, first the oil wells, then the pipe lines, and lastly to buy into the control of the oil-carrying railroads themselves.
With the wonderful flood of riches that the Standard Oil monopoly thus poured in upon Mr. Rockefeller and his companions, they could and did push out in other directions, procuring by purchase, by special legislation, or by darker ways a variety of other privileges. Some of these privileges were monopolies of nature, such as tracts of standing timber, tracts of iron, coal, silver, copper, salt and other minerals. Other privileges consisted of ownership of or "forcible influence" in public highway monopolies, such as steam and electric railroads, illuminating, telegraph and telephone companies. The great income proceeding from such sources enabled Mr. Rockefeller to buy into the control of tariff-created or tariff-fostered manufacturing combinations like the Steel Trust. Mr. Rockefeller was further enabled to establish a vast chain of banks which can "bull" or "bear" the stock market at will, promote or deter Federal or State legislation, sway politics, and altogether exert ten, twenty, fifty times the malign power that shook political institutions to the center in President Jackson's time, when the United States Bank flourished.
Mr. Rockefeller may or he may not have been fair and honest in his business dealings after he came into possession of these privileges. That we need not discuss. We may be certain, however, that the most unfair and dishonest man, armed with such law-made advantages, could have become just as rich as the famous head man in the Standard Oil group of multi-millionaires. However intelligent, industrious, honest and frugal, he could not have risen from obscurity and poverty to the front rank of the enormously rich men of the world but for the help of certain laws and immunities, which, for short, are embodied in the word "privileges." Indeed, until Mr. Rockefeller obtained such privileges, he remained comparatively poor and obscure. And because he has not had the use of such privileges, many another man just as able as Mr. Rockefeller is slaving away his old age at a bookkeeper's desk, if indeed he has not been supplanted even there by a younger, quicker man, and been reduced to a lower position, or gone to his grave, wrecked in body and mind.
If particular men have been named in this chapter, it is not with personal animus, but only to show how the principle of privilege operates when used -- how it would operate in the hands of anybody who applied it with ordinary intelligence and even a part of the energy that is expended in general commercial and manufacturing pursuits. In brief, it is not the man, but the principle, that is to be kept in mind.
Next week -- further types of Princes of Privilege.