marked eras, as new ideas and policies dominate, not entirely displacing the old, and already foreshadowing still others. These eras may be designated as follows: (1) Unregulated private enterprise, beginning 1830.
(2) Ineffective state regulation, beginning about 1870.
(3) Ineffective federal regulation, beginning 1888.
(4) Strong federal regulation, beginning 1906.
This latest era exhibits already two phases, the first being from 1906 to the war in 1917, and the second after that time. The history of these successive eras is instructive to the student of economic institutions in America, as showing how in a democratic society definite truths displace vague and mistaken opinions after long and bitter experiences.
§ 6. Governmental aid to railroads. The growth of rail roads in America was more rapid than in any other part of the world, but it did not occur without much help to private capital from governmental agencies. The railroad enter prise was uncertain, the possibilities of its growth could not be foreseen, and private capital would not invest without great inducements. In European countries the railways were built through comparatively densely populated districts, to connect cities already of large size. Yet railroad exten sion was very slow there, even though the states in many ways aided the enterprises. America was comparatively sparsely populated, and most of the railroads were built in advance of and to attract population, business, and traffic. In many cases railroad-building in America was part of a gigantic real-estate speculation undertaken collectively by the tax payers of the communities.
American states recklessly abandoned the policy of non interference, and vied with one another in giving railroad enterprises lands, money, and privileges, in lending bonds, in subscribing for stock, and in releasing from taxation. These fostering measures were expected to increase wealth and to diffuse a greater welfare throughout the community. Many states were forced to the point of bankruptcy by their reck less generosity, and some states repudiated the debts thus incurred.
The national government then took up the same policy and granted lands to the states to be used for this purpose. The first case of this kind was the grant to the Illinois Central road, in 1850, of a great strip of land through Illinois from north to south. Grants were made in fourteen states, cover ing tens of millions of acres of land. Then the national gov ernment, between 1863 and 1869, aided the building of the Pacific railroads by granting outright twenty square miles of land for every mile of track, and by lending the credit of the government to the extent of fifty million dollars—a debt that was settled by compromise only after thirty years.
Counties, townships, cities, and villages then entered into keen competition to secure the building of railroads, pro jected by private enterprise. Bonds, bonuses, tax-exemp tions, and many special privileges were granted. To obtain this new. Aladdin's lamp, this great wealth-bringer, localities mortgaged their prosperity for years to come. The promoters bargained skilfully for these grants, playing off town against town, cultivating the speculative spirit, punishing the ob durate. Not the civil engineer but the railroad promoter determined the devious lines of many a railroad on the level prairies of America. The effects of these grants were in many cases disastrous, and after 1870 they were forbidden in a number of states by legislation and by constitutional amend ments. But, before this era of generosity ended, the rail roads in America had received probably more public aid than has ever been given to any other form of industry in private hands.
§ 7. Emergence of the railroad problem. In most char ters and laws authorizing the building of railroads, either nothing was specified regarding rates, or maximum rates were fixed which proved to be so high that they were of little, if any, practical effect. But very soon began to appear some serious evils in the policy of railroads toward the ship ping and traveling public in matters of rates and of service.
As the ownership of the wagons, ships, and canal-boats of a country is usually divided, ocean ports and points along the lines of turnpikes and canals enjoy competition between carriers. In the early days of the railroads it was believed that a company or the government would own the rails and charge toll to the different carriers, who would own cars and conduct the traffic, as was done on the canals. Experience soon showed the impracticability of this scheme and the need of unified management. An operating railroad company, therefore, has a monopoly at all points on its line not touched by other carriers. This, like any other monopoly, is limited; for the railroad, to secure traffic, is led to meet competition of whatever kind—that of wagons, canals, rivers, or of other railroads—wherever it occurs. The railroads in private hands early began to "charge what the traffic would bear," high where they could and low where they must, to get the business. Thus developed the various forms of discrimina tion.