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Railroad Rate Regulation in Utah, 1896–1923
Railroad Rate Regulation in Utah, 1896–1923
BY ROD DECKER
In 1908 Salt Lake City jobbers, or wholesalers, met in hard times. The national economy was prospering, but railroads were charging more to ship goods from the East to Salt Lake City than they charged to ship the same goods through Salt Lake City and on to San Francisco. Because of those freight rates, Salt Lake jobbers could not meet San Francisco competition even in parts of Utah. While most other states had taken sides with their citizens against high railroad charges, Utah state government, under Republican control, had become an ally of the railroads in hopes of luring investment and rail expansion. “Our state has needed the railroads too badly to do anything they would object to,” said Samuel Weitz, a leading member of the Salt Lake Commercial Club. 1 This article recounts early conflicts over railroad regulation and tells two separate but intertwined stories: first, how Utahns complained of “despotic” railroad charges, and Salt Lake jobbers used federal regulation to win lower rates; and second, how state government, led by Republicans, relied on free markets, while Democrats came to advocate state regulation and eventually to enact a public utilities commission, thus bringing Utah into line with other states and the federal government. Railroads presented the first instance of an enduring Utah question: how to attract needed investment while preventing exploitation by big out-of-state corporations.
Unjust rail rates “crippled and killed struggling industry in Utah,” Governor Heber Wells told Utah’s First State Legislature in 1896. He asked for a public utilities commission to regulate the roads. 2 Three commission bills were quickly introduced. Debate focused on how railroads both owned coal mines and controlled the price of coal. Since the 1870s, Utahns had complained of the “rapacity of the railroad monopolists” and the “outrageous prices” they charged. 3 The Salt Lake Commercial Club, which later became the Chamber of Commerce, supported a utilities commission. But stronger than Utahns’ anger at railroads was their desire for more of them. Utah required “unrestricted assistance of capital,” resolved the Logan Chamber of Commerce, and Ogden businessmen opposed any bill that might “prevent railroad building in the state.” 4 Railroad Age, a national industry magazine, said if Utah left its market free, rails would expand as much as fivefold in the state. But “outside investors will not put their money into railroad building . . . to be subject to such a commission.” 5 Both Deseret News and Salt Lake Tribune editorials agreed with Railroad Age. In a final vote, thirty-four representatives voted against a commission in 1896, with only six in favor. 6
The complaints of Utahns joined a long national outcry. Railroads were America’s first big business, and their jarring new power oppressed and offended people. Journalists and reformers depicted railroad-owning robber barons, who wielded monopoly to slake their greed. State and federal governments responded with regulation. By the time Governor Wells asked for state regulation, twenty-five of forty-five states had enacted railroad commissions. 7 Congress had also responded to national complaint, and in 1887 created the Interstate Commerce Commission (ICC) to tame the railroads.
No place needed rails more than Utah. Before railroads came in 1869, goods had to be hauled 1,500 miles by wagon. A teamster could make just one trip to Independence, Missouri, and back to Salt Lake City each summer. When railroads arrived, they cut prices by half. For pioneers eking out a subsistence, life changed. “No more prohibitive tariffs on the necessaries of life with luxuries restricted to the very few,” S. A. Kenner, an early reporter for the Deseret News, later remembered. He said one could not understand the difference rails made without having been there. “The change was so sudden and so complete, that it seemed like waking from a dream.” He added that the new railroad benefits soon became normal and unremarked upon. 8 In addition to making life affordable, the rails boosted prosperity. Before them, no Utah mine had succeeded. After trains could haul equipment to the mines and ore to the smelters, mining boomed.
But big benefits also brought dependence and vulnerability. For example, city dwellers needed coal. Before the rails, pioneers had worked mines at Coalville, hauled coal fifty miles to Salt Lake City by wagon, and charged up to forty dollars a ton. 9 The Union Pacific Railroad acquired mines near Rock Springs, Wyoming, and brought coal by the carload for about a ton. Brigham Young and his advisers noted coal cost two dollars at the Coalville mine. The Church of Jesus Christ of Latter-day Saints led efforts to lay track from Coalville five miles to the Union Pacific station at Echo, intending to bring coal to Salt Lake City more cheaply. But the Union Pacific doubled charges for hauling Utah coal, restricted trains serving Utah mines, and finally bought up and destroyed church rails. The Union Pacific protected its coal monopoly and charged monopoly prices. “The poor suffered severely last winter on account of the high price of fuel, which they could only obtain in small quantities, if at all,” said Edward Hunter, presiding bishop of the Church of Jesus Christ of Latter-day Saints, in June 1880. 10
Utahns cheered when the Denver and Rio Grande Railroad (D&RG) arrived in 1883. The D&RG acquired coal mines and rails in Carbon County and broke the Union Pacific monopoly. 11 In the following years, coal sometimes sold below five dollars a ton, but Utahns complained the price was still too high. 12 Like the Union Pacific, the D&RG used its transportation power to stifle coal competition. At a hearing in 1896, Frank R. Kimball, part owner of Kimball Brothers Coal Mine in Carbon County, testified that when he asked D&RG to transport his coal, the railroad quoted him a price 50 percent higher than the published rate. Coalmen asserted the D&RG intended the rate to be “prohibitive.” That is, D&RG did not charge high rates to make money hauling coal; the rate was high to keep Kimball Brothers from getting coal to cities and competing with D&RG mines. The Kimball mine was all but closed. 13 Over the next few years, the D&RG gradually agreed to transport coal from “independents.” Often, however, the railroad did not have enough cars to serve all mines, and then the D&RG served its own mines first and delayed rival shipments.
Simon Bamberger, a future governor of Utah who owned both coal and a railroad, said the roads collaborated, divided traffic, and fixed coal prices. Others claimed that if any coal retailer charged less than the price fixed by the railroads, they would refuse to deliver to him and drive him out of business. 14 Worse than high prices were “coal famines.” In the winters of 1873, 1907, and 1917, for example, coal was scarce at any price. Famines came because coal dealers refused to keep large stockpiles, for fear of fire. Both dealers and officials urged householders to stock their own supplies, but many did not, so in cold winters, demand temporarily outran supply. Railroads were the bottleneck, unable to get coal from the mine to the dealer fast enough. Coal famines—with the specter of shivering children and oldsters—seized the public’s attention, and most people blamed the railroads, who responded that they did not have enough cars to haul the needed coal.
Although Governor Wells had led the 1896 push for regulation, he had changed his mind by the time the legislature met in 1897. Instead of rate control, Wells urged help for railroads recovering from bankruptcy. His immediate focus was the Oregon Short Line (OSL), once a part of the Union Pacific system that Union Pacific had lost when it went bankrupt in the depression of 1893. 15 The OSL had also defaulted and was now reorganizing. 16 That gave the OSL bargaining leverage with respect, for example, to the location of its new headquarters. “It is extremely desirable from every standpoint that the company have its main office and headquarters in Utah,” wrote Wells, who advocated for a bill to help recovering railroads. 17 Not only the governor but also the Democrats, who controlled the 1897 and 1899 legislatures, saw the need to accommodate the railroads. “Formation of Railroad Corporations” was the first new law they passed, granting to new management “all the powers, rights, privileges, and franchises that were vested in the corporation last owning the property.” 18 After the bill passed, the OSL duly opened headquarters in Salt Lake City, and later that year the Union Pacific also reorganized as a Utah corporation under the same new law, although its headquarters remained in Omaha. Under the normal formula based on financial size, Union Pacific would have paid $34,000 to incorporate in Utah, but the legislators had capped the fee, so the big railroad paid only $2,500.
The state continued to accommodate the roads. Ever greater powers were granted to railroads in the first laws passed in each of the next two sessions. Utah railroads “shall have power to purchase or otherwise lawfully acquire the capital stock . . . of any other railroad corporation” legislators provided in 1899. 19 And companies could sell bonds or stock “on such terms as the directors may deem expedient,” they added in 1901. 20 The last provision was backdated in its effect to 1897. Nor did the new powers lie dormant. Soon after the 1901 bill passed, the Union Pacific sold $100 million in bonds and converted the bonds to stock. Horace G. Burt, the president of Union Pacific, and other railroad moguls traveled to Salt Lake City by private car to formalize the deal. The glamour of high finance dazzled Utahns. The “stupendous transaction” raised the total value of Union Pacific stock to nearly $300 million, more than any other corporation in the world, the Salt Lake Tribune reported. 21 The Herald marveled at how the magnates acted “as though the business involved nothing more than the purchase of half a dozen cigars.” 22 With its new cash, the Union Pacific bought a dominant share of Southern Pacific Railroad stock, so it controlled the whole of the original transcontinental line and could carry freight to San Francisco on its own rails. 23
Although the state government allied with the railroads, Utah’s consumers continued to grumble about coal prices, and they took their complaints before the ICC. In 1906 Charles Prouty, an ICC commissioner, held hearings in Salt Lake City on railroads that owned coal mines, a combination rousing suspicion and complaint across the nation. 24 At the hearing, railroads denied they conspired to set the price for coal. But Utah mining engineer Mark Hopkins testified that both the Union Pacific and D&RG charged $5.25 a ton retail for coal from their own mines, hauled on their own trains. Furthermore, he estimated the actual mining costs at $1 a ton and freight costs at $0.34. Salt Lakers had suspected as much. “We have known for some time we were being robbed,” said city councilman T. R. Black of Hopkins’s testimony, and Salt Lake City mayor Ezra Thompson added, “One of the greatest drawbacks to the development of Salt Lake City has been the high price of fuel.” 25 Spurred by the publicity generated from the ICC hearings, Utah legislators considered a public utilities commission again and voted it down again. 26
Though lawmakers would not act, members of the Salt Lake Commercial Club sought help from the ICC. Some of them were jobbers hurt by changes in national law. Jobbers brought goods from the East to Salt Lake warehouses and then distributed them in Utah and neighboring states. Each jobber had a territory, assigned by the company whose goods he sold, and territories were determined by which rail center could deliver goods most cheaply. San Francisco’s low rates enabled jobbers there to bring goods from the East, then ship them back eastward and extend their territory through Nevada, even into parts of Utah. Railroads had granted rebates to enable inland jobbers to compete, but in 1906 Congress passed the Hepburn Act, which ended rebates, so Utah jobbers lost territory to San Francisco. 27 But the Hepburn Act also enlarged ICC powers to bring rate relief. 28 In many American cities, commercial clubs or city governments formed traffic bureaus to plead for lower rates before the ICC. The Salt Lake Commercial Club followed those cities and formed its own traffic bureau to challenge rates. Stephen H. Love, the traffic manager for ZCMI, Utah’s largest department store, led the bureau. At ZCMI, Love supervised a traffic department of four or five rate clerks, who spent their days finding the cheapest way to ship. 29 Railroads published thick books of rate tables in fine print, and all big shippers had traffic departments. Rate clerks may have been the largest class of white-collar workers outside retail. They mastered the lore and knew one another, forming “something between a lodge and a religion.” 30 Love estimated that freight costs averaged 30 percent of the price of every item sold by ZCMI. 31
All interstate rates could be challenged before the ICC as unjust or unreasonable. While the meaning of those terms was never entirely clear, the commission published many volumes explaining past decisions, where a studious expert could find plausible grounds to challenge rates. As their expert, the commercial club hired S. A. Babcock, the former traffic manager for the D&RG. He had an office in the Kearns Building, two assistants and a secretary—an expense of about $10,000 a year to the commercial club, with additional costs to fight big cases. 32 The Traffic Bureau continued into the 1950s, led by career rate experts including Love, Babcock, Hal W. Prickett, and William S. McCarthy.
Babcock asked his former employer—the D&RG—to reduce rates on coal. After it refused, he published the correspondence, including his comparison of coal rates per ton over similar distances in five states (see table 1).
In four states, said Babcock, rates were set by a state commission, but in Utah, they were set by the railroad. The D&RG replied that it had already cut rates from two dollars, and the rate was as low as it could go and still show profit. Moreover, the railroads said the Utah haul was over mountains, while the hauls Babcock picked for comparison were flat. Babcock retorted that the loaded part of the Utah haul was mostly downhill and denounced the rate as “extortionate.” 33
Babcock also asked national roads to reduce rates, but none did. Utah suffered “unjust, grossly discriminatory and despotic rates,” he said. 34 Babcock and the commercial club gathered 3,500 signatures in protest, and in 1909 Utah congressmen and senators delivered the petition to President William Howard Taft. Taft sympathized and forwarded the petition to his attorney general, who in turn advised action before the ICC. (Love and Babcock surely knew the ICC was the proper forum, and it’s not clear why they went to the president.)
The complaint included all interstate freight and passenger rates but focused on freight coming into the city from the East. As part of his complaint, Babcock compared rates from Chicago to Ogden and Salt Lake City with rates on the same items shipped through Ogden and Salt Lake City and then eight hundred miles farther to San Francisco (see table 2). 35 On most items, the railroads charged more—sometimes five or six times as much—to haul goods to Utah than they charged to haul the same goods through Utah to San Francisco.
Two ICC commissioners traveled to Salt Lake City in September 1909 for a seven-day hearing. The case was called “Commercial Club, Traffic Bureau, of Salt Lake City v. Atchison, Topeka and Santa Fe Railroad Company and Others.” “Others” were fourteen named national railroads that sometimes hauled freight in Utah. The Atchison, Topeka and Santa Fe was named because it came first alphabetically, but the case most affected Union Pacific and D&RG, and they conducted the defense. Nineteen lawyers came to the federal court house, sixteen of them representing railroads, one for Salt Lake City, and a lawyer each for the Kansas City and Omaha commercial clubs. 36 Julius Kruttschnitt, the Union Pacific director of operations, arrived with two staffers and a secretary in Guadalupe, his private railroad car. His staffers provided local papers with a
Table 1. Coal Rates per Ton, 1909*
Table 2. Westbound Shipping Rates*
At the ICC, Babcock accused the railroads of “discrimination.” He said they charged more to ship goods to or from Utah than other places. photograph of Kruttschnitt in heroic profile— coiffed, mustachioed, and double-chinned. 37 Banner headlines reported the proceedings.
Union Pacific officials conceded that they charged more to ship many items from Chicago to Salt Lake City than on to San Francisco. In San Francisco, they explained, they faced “water competition”: shippers could move freight by boat, and railroads had to meet those shipping prices or lose business. Implicitly, railroad men acknowledged that they met competition where they had to and then charged more to captive shippers, such as those in Salt Lake City. But as things stood, they said, goods moved freely, and railroads made only reasonable profits. Union Pacific paid dividends of 10 percent; D&RG paid 5 percent. If the commission forced reductions for Salt Lake City, then other inland cities could demand similar rates, and the ability of the railroads to raise capital and provide service might be compromised, the railroad lawyers argued. 38
In June 1910 the ICC released its decision. “There is nothing to justify the maintenance of abnormal rates,” wrote Commissioner Charles Prouty as he decided for Salt Lake City. 39 Attached to the short decision was a new schedule, many pages long, of lower maximum rates for inbound and outbound freight both east and west (see table 3). 40
In a later case settling details, Prouty explained the Salt Lake decision and recounted its history in full. 41 The Utah case had been one of three decided at the same time: one from Spokane against the Northern Pacific Railroad, one from Reno against the Southern Pacific, and a third from Salt Lake City against the Union Pacific, a latecomer case in the geographical middle. 42 The decisions were handed down ten days before President Taft signed the Mann Elkins Act into law, so the ICC acted in anticipation, but waited until things were completed to explain. The fourth section of the Interstate Commerce Act of 1887 said no carrier could “charge more for the shorter than for the longer haul, the lesser being included within the longer,” exactly the practice of which Spokane, Salt Lake City, and Reno complained. 43 All three were charged more by three different railroads for a shorter haul than was charged for a longer haul—on the same line, in the same direction—through them and onto the coast.
Decades earlier, midwestern farmers had fought the railroads, organizing the Grange and other groups to “raise less corn and more hell”—agitation that resulted in the passage of the Interstate Commerce Act. 44 About no abuse had more hell been raised than charging more for the shorter than the longer haul. “All the evangelical enthusiasm and bitterness of the Granger legislation found focus in this [fourth] section,” wrote former ICC Commissioner Clyde Aitchison. 45 But the act also stated that the shorter-haul rule applied “under substantially similar circumstances and conditions.” Railroads claimed that water competition at one stop made circumstances different from a stop with no competition, so the shorter-haul rule did not apply. The ICC rejected that argument and mandated lower rates for landlocked stops, but the railroads appealed to the courts, and, in 1897, the Supreme Court ruled for the railroads, which meant “the fourth section was for practical purposes a nullity.” 46 Rate discrimination against Salt Lake City and other inland stops became legal and commonplace. But then, with the Mann Elkins Act of 1910, an alliance of Progressive Republicans and Democrats prevailed in Congress and took the words about similar circumstances out of the law, thus resuscitating the short-haul-long-haul rule. 47 The ICC had cases waiting and applied the new rule even before it was signed into law. Railroads appealed, hoping that once again the courts would overrule the ICC and preserve their rate-making power. This time, however, the Supreme Court read the new law and decided for the ICC. 48 Salt Lake City had caught a favorable wave of national regulatory change.
Table 3. Lower Maximum Rates*
Utah rejoiced. “A yoke has been lifted from the neck of the people,” proclaimed the Herald Republican. 49 A front-page editorial cartoon in the Tribune showed Salt Lake City as a woman receiving a bouquet from a man labelled ICC. 50 In golden letters on their wall, the Commercial Club inscribed under “Accomplishments”: “organized the traffic bureau, which secured a sweeping reduction in freight rates in Utah.” A triumphal banquet filled the Commercial Club dining room. Railroad men were invited but none came. Still, the band played “Hail, Hail, the Gang’s All Here,” and Governor William Spry said the victory assured Utah’s splendid future. Even so, the club must fight on: “Salt Lake pays more for the ordinary commodities than any other city,” the governor said. Stephen Love of ZCMI estimated the decision overall would save Utah 18 percent on freight rates, about $1,250,000 annually. 51 The Deseret News wondered whether savings would pass through to customers.
Denver, Grand Junction, and other cities pointed to Salt Lake City and demanded similar rates. The commission cited its Salt Lake City opinion and ordered reductions. 52 The commission also pointed to the case when it ordered lower rates for wool shipped from the West to eastern processing plants. 53 The secretary of the Utah Woolgrowers Association said it was perhaps “the most important decision the commission has ever decided” and guessed that Utah Sheepmen would save $75,000 to $100,000 a year. 54 The railroad lawyers proved right, however, when they said big Utah reductions would not fit into a national system. After cutting Salt Lake City rates, the commission in 1915 raised some of them again. In the adjustment, Denver jobbers secured two-thirds of the territory between them and Salt Lake City. 55
Utahns’ jubilation at their rate-war victories turned to discord. In 1914 William McCarthy, vice president of the Traffic Bureau, sent a letter to Spry asking the state to stop a special $80 million dividend declared by Union Pacific. Almost a decade after Union Pacific had purchased Southern Pacific stock, federal lawyers brought an antitrust lawsuit, and the Supreme Court had ruled the acquisition illegal. 56 Union
Pacific sold the stock for $80 million and declared the proceeds a bonus for stockholders. McCarthy noted that the money to buy the Southern Pacific stock came originally from selling bonds, and interest on debt had to be covered by ratepayers. He predicted the “distribution of this extra dividend will furnish an excuse for the imposition of an unjust burden upon the people of this state in the form of freight charges.” McCarthy had first written to Washington explaining the problem and soliciting federal action. Politicians there denounced the dividend; Charles S. Thomas, a Democratic senator from Colorado, called it “the most infamous scheme of exploitation ever devised.” 57 But Thomas and other national officials said Union Pacific was a Utah corporation, so it was up to Utah to stop the “melon cutting.” Mc- Carthy then wrote to Spry, who sought advice from Albert Barnes, the state attorney general. Barnes also received a long telegram from R. S. Lovett, chairman of Union Pacific, who called it “sheer nonsense” to suggest that the dividend would cause a rate hike. 58 Barnes noted that McCarthy had not specified any law the dividend would break and concluded, “the state could not be successful in an action brought to enjoin or restrain such a dividend.” 59 Governor Spry took that advice and said Utah would do nothing.
But McCarthy had alarmed the state’s richest men. Before Barnes and Spry had decided they would not act, seventeen magnates, led by Daniel Cowan Jackling, president of Kennecott Copper, met together and sent a letter to Governor Spry. They wrote that the “unwarranted attempt” to attack Union Pacific could damage the “confident belief by organized capital in the conservative disposition of the people of Utah,” and damaged confidence might retard investment. 60 Former senator Thomas Kearns, who owned a silver mine in Park City, said the railroad could easily move its incorporation to another state. “Do we want them to leave?” he asked. 61 Unless the Commercial Club repudiated McCarthy’s letter, each of the seventeen tycoons said he would resign his membership. 62
Commercial Club members filled their dining room in an anxious meeting. “The consensus was the very life of the club hung on the issue,” reported the Salt Lake Telegram. 63 The Chamber of Commerce had died once before and had to be founded again. Finances were precarious. Members struggled to meet payments on their mortgaged six-story clubhouse, modeled after New York City’s Athletic Club. 64 They hosted elegant banquets, advertised to recruit new firms to the city, sued railroads, and spent $12,000 a year more than their income. Now the wealthiest members, top business leaders, a former senator, and former governor John C. Cutler threatened to denounce club policy and leave in protest. The board of governors withdrew into secret meeting, then issued a statement saying that although the Traffic Bureau had been organized by and named after the Commercial Club, it was in fact an independent organization over which the club had no control. That was legally true, but the club supplied the Traffic Bureau’s $10,000 annual budget, and thirty members had raised the $25,000 needed to prosecute Utah’s big 1910 rate victory. 65
If the Commercial Club withdrew its support, the Traffic Bureau would perish. But if the club members repudiated the letter, McCarthy and others might leave and aggressive litigation to cut rail rates might end. The club’s statement did not meet the rich men’s demand, but its members said they would meet again for further consideration. The Salt Lake Tribune, Deseret News, and Salt Lake Herald all editorialized against McCarthy. 66 When the members met again, news reports speculated that they might see the magnates’ point and rebuke the Traffic Bureau after all. But the bureau was not mentioned. Instead, Charles W. Nibley, presiding bishop of the Church of Jesus Christ of Latter-day Saints, proposed that three hundred members should each agree to pay dues of ten dollars a month for three years, instead of the required $3.50, and a number of men volunteered to pay higher dues. 67 In effect, members backed the Traffic Bureau and signaled to the rich men that the club might get by without them.
In the 1916 election, Utah Democrats won both the legislature and the governorship for the first time, and their platform promised a state public utilities commission. Commission bills had been introduced and voted down by Republican legislatures in every session for the past ten years. But the new Democratic governor, Simon Bamberger, owned a local rail line and had advocated for regulation for twenty years. 68 He called for a commission in his address to legislators. 69 When the bill came before the Senate Judiciary Committee, Chairman Culbert L. Olson began by saying, “The Democratic Party was given a mandate by the people of the state to pass a public utility bill, and we are here to do that.” 70 Railroad executives had traveled to Salt Lake City to testify, but Olson said he would take no testimony on whether a commission was needed. Railroad men should limit their comments to the specifics of the bill. And when George H. Smith, vice president of the Oregon Short Line, strayed onto whether a commission should be formed, the chair interrupted to remind him of the rules. 71
Even as lawmakers met, the winter of 1917 was cold and coal was scarce. The Ogden Standard bemoaned the fuel famine, reported the progress from Wyoming toward Ogden of each coal train, and wailed when a train left the mines and turned toward Nebraska instead of Utah. Things were worse elsewhere. A city official from Butte, Montana, traveled to Ogden to beg a trainload of coal for his freezing town, and one was duly dispatched. Baker, Oregon, also sent a special plea. 72
Although a public utilities commission would also regulate electricity, telephones, irrigation companies, busses, and other utilities, the legislative debate was all about railroads and coal. Legislators formed a special committee to investigate the coal shortage under the chairmanship of Senator—and future governor—George H. Dern. In the weeks of debate on a commission bill, the investigative committee generated headlines noting that railroads had failed to deliver. In an editorial against the commission bill, the Salt Lake Tribune said the Democrats falsely implied that a commission might solve the coal shortage. The Tribune noted coal shortages afflicted states with commissions, as well as those without, and said a commission could change rates but could not conjure railroad cars. “Only by giving our railroads a chance to prosper can our fertile areas obtain the necessary transportation facilities,” the Tribune said, repeating the argument that had prevailed for twenty years. 73 The Deseret News joined in repeating that contention. 74 Despite the editorial opposition, Democratic legislators agreed there should be a public utilities commission, but they disagreed over details: Should a commission limit the size of coal trains? Should commissioners be paid $4,000 or $5,000? Should the commission set rates? But after drafting, debating, and amending until nearly the end of their session, legislators passed a public utilities bill, and Governor Bamberger signed it into law. Bamberger appointed three new commissioners, including future governor Henry Blood. Even before the commissioners officially met, the railroads petitioned for higher rates and soon combined to ask for a rate hike of 15 percent statewide. At hearings, the commissioners made clear their disinclination toward higher rates, and the request was withdrawn. 75 “The greatest triumph ever scored on behalf of the people of Utah,” exulted the Salt Lake Telegram. “The railroad octopus has been defeated.” 76
In April 1917, just as the Utah commission was getting organized, America entered World War I, and in December, President Woodrow Wilson seized the nation’s railroads. The government raised all shipping rates by 25 percent and raised railroad workers’ salaries too. 77 Utah’s Traffic Bureau saw opportunity as well as costs in the national takeover and petitioned for rates based on distance, as was already the rule in the East. Back in 1911, Stephen Love had estimated 70 percent of rates from Chicago to Salt Lake City were the same as Chicago to San Francisco; 26 percent were lower, and 4 percent higher. 78 But the San Francisco haul was 800 miles longer, and Utahns said the rate difference in their favor should be greater. The new United States Railroad Administration held hearings on the Utah petition, agreed in part, and created a new Mountain Pacific rate zone. But instead of cutting Utah rates, the administration raised coastal rates by 15 percent: a victory, nonetheless, claimed H. W. Prickett of the Traffic Bureau. The change would still help Utah jobbers. 79
In 1920, after the war was over, Congress passed a transportation act that gave owners back their railroads—adding that they should make a return of 5.5 percent on capital, the first time the government had guaranteed a return. The railroads petitioned the ICC for higher rates to reach the legal profit, and the ICC raised rates 40 percent in the East but only 25 percent in Utah and the new Mountain Pacific zone. 80 Not to be left out, intrastate roads asked for rate hikes, receiving big increases in most states but a much smaller one from the Utah Public Utilities Commission. 81 Prickett said the smaller Utah raise saved shippers $4 million when compared to the larger hikes elsewhere. 82
Ratemaking became routine, with several cases always pending before both the ICC and the Utah Public Utilities Commission. The big 1910 Salt Lake victory had mostly affected rates on goods coming into the state, but in later instances, Utahns often sought lower rates on products they exported in order to be more competitive in outside markets. They protested shipping rates for exports (sugar beets, wheat, barley, and hay) and imports (gasoline, farm equipment, pipe, and junk) alike. Regulation became more bureaucratic. ICC decisions from 1893 to 1898 fill only three volumes. The commission decisions from 1922 alone filled seven volumes; sixteen volumes were filled in 1926. In 1910 commissioners themselves had traveled to Utah for a hearing, but by 1920 a corps of hearing examiners traveled, heard cases, and submitted records and recommendations to commissioners who stayed in Washington, busy making final decisions. The work of regulation and the number of officials needed to perform the work had clearly grown.
Democrats had enacted the state Public Utilities Commission and its future became uncertain when Republicans won the election of 1920, controlled the legislature, and introduced a bill to make public utility commissioners serve at the pleasure of the governor; this would allow Republican Governor Charles Mabey to fire the Democrats and replace them with Republicans, the Salt Lake Telegram said. But Mabey said he did not want that power, and the bill died. 83 In 1923 majority Republicans tried to repeal the commission but failed in both the House and the Senate. 84 With Republican acceptance, Utah had committed for the long term to state regulation of railroads and utilities.
Utahns saw that railroads brought prosperity, but they also complained that railroad practices retarded their progress, and they tried to lure rails and at the same time gain some voice in their policies. For a time, railroads charged inland cities more than they charged coastal stops, and Utah suffered rate discrimination. Congress passed laws against that practice, and the Interstate Commerce Commission granted imperfect relief. But before and after relief, Utahns claimed unique mistreatment. Their petition to President Taft asserted that Utah labored under “the most striking example of transportation rate-making despotism existing anywhere in the country.” 85 Evidence for unfair treatment in comparison to coastal markets is clear (see table 2), but evidence for discrimination in comparison to other inland cities is hard to find. Railroads had cause to treat Salt Lake City differently from San Francisco but not from Spokane, Reno, or Denver. Moreover, Utahns exaggerated the effects of unfair rates, saying that railroad discrimination stunted their growth. Utah Steel’s H. G. Parcell argued, for instance, that “if just rates are imposed, Utah stands a chance of becoming the greatest iron and steel center in the world.” 86 “Relief granted will mean more factories, greater payrolls, and larger cities,” said the Salt Lake Telegram. 87 Utah did suffer from unequal rates, but it was neither especially picked on nor especially damaged—the claims and complaints of boosters notwithstanding.
In litigation before the ICC, Utahns were skillful, tenacious, and successful. H. W. Prickett claimed in 1922 that Salt Lake City shippers saved $9 million a year because of state and federal regulatory decisions, more than any other city. 88 Further, the first big Traffic Bureau victory helped bring lower rates to other cities. Salt Lake ratemen led multistate rate-fighting campaigns. 89 In 1922 Reno, Nevada, organized a traffic bureau and asked J. David Larson of the Salt Lake Traffic Bureau to visit Reno as an expert and help them begin. 90
In contrast to its forwardness in rate litigation, Utah was among the last states to enact state regulation. In 1917 Utah and Delaware were the only two states without a public utilities commission. 91 Instead of regulating railroads, Utah policy accommodated them. At first that policy was bipartisan, adopted by Republican governor Heber Wells (an erstwhile advocate of regulation who changed his mind), together with the Democratic legislatures of 1897 and 1899 and the Republican legislature of 1901. But Democrats soon switched and advocated for regulation, while Republicans—who held power from 1901 to 1917—continued to believe a free market and state cooperation would promote rail investment. Arguably, their strategy worked. Pro-railroad laws helped draw both the Oregon Short Line headquarters and the Union Pacific incorporation to the state. The economic historian Leonard Arrington notes Utah’s success: “With the Southern Pacific line to San Francisco, the Short Line to Portland, the Salt Lake route to Los Angeles, a Western Pacific Route to San Francisco, and the transcontinental routes to Chicago, Minneapolis, and St. Paul, Salt Lake was well on its way to becoming a leading center of trade and transportation in the West.” By 1910 railroads were the state’s leading non-agricultural employer, with 8,199 workers. 92 But it is unclear to what extent that success came from Republican policy. For instance, an economic study of the Midwest—where similar arguments were waged over regulation and development—found that states that adopted commissions received just as much railroad investment as states that did not. 93 Had Utah enacted regulation sooner, railroad investment might have come anyway.
Utah did not create a commission until it had a Democratic governor and Democratic control of both legislative houses. Utah’s first three Democratic governors, Bamberger, Dern, and Blood, all made early political reputations on railroad-regulation issues. Republicans courted rails; Democrats regulated them. Regulation was the dominant national trend and policy, and belatedly, Democrats led Utah into conformity. Once in operation, the Public Utilities Commission held down rates and saved Utahns money. But note, the coming of the railroad reduced coal prices from $40.00 to $10.00; the advent of competition cut prices from $10.00 to $5.00. From the beginning of the Public Utilities Commission in 1917 to 1922, coal prices rose from $5.75 to $10.00, although they would have gone higher without the commission. Railroads and competition brought big, enduring price reductions. Regulation slowed price increases.
Railroads were a technological advance that arrived as a monopoly and seemed to require regulation. As technology changed in the twentieth century, the monopoly power attenuated, and regulation became less useful. Most Utah homes now heat and cook with gas or electricity, and householders no longer complain of railroads and high coal prices. Freight costs declined as rails improved, for example, using diesel engines to haul bigger loads on faster tracks with smaller crews. Trucks now compete with rails almost everywhere and keep rates down, as water competition used to restrain rates in port cities. 94 Neither Utah nor Washington now regulates railroad rates.
Although transportation problems have changed, Utah still faces the general dilemma that confronted the First Legislature: the state needs outside capital and fears that regulations, or other policies designed for state interests, might repulse needed investment. The state currently offers special tax breaks to companies that bring jobs, exempting them from their normal share of government costs, and Utah does not require as much air pollution abatement as it might, enabling polluting companies to build the economy. 95 Like the First Legislature, Utah’s leaders must still balance the need to attract investment with state interests served by regulation, taxes, and other burdens. Railroads posed the question of that balance first, and there is still no formula to answer it.
Web Extra
At history.utah.gov, we continue the conversation.
Notes
1 “To Head Off an Advance in Freight Rates,” Salt Lake Herald, May 15, 1908.
2 House Journal of the Special and First Session of the Legislature of the State of Utah (Salt Lake City: Deseret News Company, 1896), 52–53.
3 Salt Lake Tribune, November 26, 1872, cited in Michael Guy Bishop, “The Coal Conflict: Utah’s Fight with the Union Pacific Railroad” (master’s thesis, Utah State University, 1976), digitalcommons.usu.edu.
4 “That Railroad Bill,” Salt Lake Herald, February 14, 1896, 3.
5 Quoted in “Anti-Railroad Legislation,” Salt Lake Herald, March 5, 1896.
6 Edward Leo Lyman, “Heber M. Wells and the Beginnings of Utah’s Statehood” (master’s thesis, University of Utah, 1967), 53–57.
7 Gabriel Kolko, Railroads and Regulation, 1877–1916 (Princeton: Princeton University Press, 1965), 16.
8 S. A. Kenner, Utah As It Is (Salt Lake City: Deseret News, 1904), 217.
9 Thomas G. Alexander, “From Dearth to Deluge: Utah’s Coal Industry,” Utah Historical Quarterly 31, no. 3 (Summer 1963): 235.
10 Leonard J. Arrington, “Utah’s Coal Road in the Age of Unregulated Competition,” Utah Historical Quarterly 23, no. 1 (1955): 49. The story is worse and more complicated than related here.
11 Robert G. Athearn, “Utah and the Coming of the Denver and Rio Grande Railroad,” Utah Historical Quarterly 27, no. 2 (April 1959): 129–44. Nancy J. Taniguchi, Necessary Fraud: Progressive Reform and Utah Coal (Norman: University of Oklahoma Press, 1996) is a good account of early coal development in Carbon County.
12 “Utah Coal Product,” Salt Lake Tribune, January 1, 1896, 23, lists the price for lump at $4.75.
13 F. W. Sears to Heber Wells, February 1, 1896, reel 1, Governor Wells Correspondence, Series 235, Utah State Archives and Records Service, Salt Lake City, Utah (hereafter USARS).
14 “The Railroad Bill,” Salt Lake Herald, February 7, 1896, 3.
15 Robert G. Athearn, Union Pacific Country (Lincoln: University of Nebraska Press, 1971), 355–75.
16 Thomas Warner Mitchell, “The Growth of the Union Pacific and its Financial Operations,” Quarterly Journal of Economics 21, no. 4 (August 1907): 569–612, discusses how the Union Pacific system was dismembered in bankruptcy and reassembled after reorganization.
17 Typescript draft of governor’s message to the legislature, reel 5, Wells Correspondence. In the speech as delivered, the governor cut out the draft paragraph and said only: “The Oregon Short Line, now reorganizing in the city, promises increased advantage to the state.” Senate Journal. Second Session of the Legislature of the State of Utah, 1897 (Salt Lake City: Tribune Job Printing, 1897), 35. I take it the governor planned to appeal for legislation to entice the OSL, but by the time the speech was delivered, a deal had been struck: the bill would pass, and the OSL would locate its headquarters in Utah. Probably, Union Pacific was also part of the deal; note the fee-cap discussed below.
18 “Formation of Railroad Corporations,” Laws of the State of Utah, 1897 (Salt Lake City: Star Printing, 1897), 13–15.
19 “Railroad Corporations,” Laws of the State of Utah, 1899, 17.
20 “Railroad Corporations” and “Railroads,” Laws of the State of Utah, 1901, 1–3, 20–25.
21 “Biggest in the World,” Salt Lake Tribune, March 24, 1901.
22 “Four Officials Vote Two Hundred Millions,” Salt Lake Herald, March 24, 1901.
23 Stuart Daggett, “The Decision on the Union Pacific Merger,” Quarterly Journal of Economics 27, no. 2 (February 1913): 295–328.
24 “Coal Investigation Begun by Commissioner Prouty,” Salt Lake Herald, September 25, 1906; “Commissioner Clark in Ogden,” Salt Lake Herald, November 26, 1906.
25 “Coal Trust Extortion Arouses Salt Lake People,” Salt Lake Evening Telegram, September 26, 1906.
26 “Resume of the Seventh Legislature’s Work,” Inter- Mountain Republican (Salt Lake City, UT), March 24, 1907.
27 “Traffic Man Says Region States to Win Biggest Boon,” Deseret News, April 19, 1922.
28 William Z. Ripley, Railroads, Rates and Regulation (New York: Longmans, Green, 1923), 496–521.
29 “Rate Case Becomes Battle of Figures,” Salt Lake Herald-Republican, September 24, 1909.
30 Morris H. Taylor and Forrest Baker Jr., Implementing Change in Freight Rate Structure with Emphasis on Utah’s Agribusiness (Logan: Utah State University and U.S. Department of Transportation, 1974), 53.
31 “Rate Case Becomes Battle of Figures.”
32 “Manager of Traffic Bureau Commands Respect of Railroads,” Salt Lake Herald, January 31, 1909.
33 “D&RG Denies In-State Mines Relief,” Salt Lake Herald-Republican, May 8, 1910, 1.
34 Petition from the Commercial Club Traffic Bureau of Salt Lake City to the Presidents . . . PAM 17156, Utah State Historical Society, Salt Lake City, Utah (hereafter USHS).
35 “Interstate Commerce Commission filing 1909, Commercial Club Traffic Bureau v. 15 named railroads,” in possession of Salt Lake Chamber of Commerce, Salt Lake City, Utah. A copy of the document was put in a time capsule, which was opened in 2018.
36 “No. 2662, Commercial Club, Traffic Bureau, of Salt Lake City, Utah, v. Atchison, Topeka and Santa Fe Railway Company et al.,” Decisions of the Interstate Commerce Commission of the United States (Washington, D.C.: Government Printing Office, 1888), 19:218–19 (hereafter Decisions of the ICC).
37 “Big Harriman Man Is Here,” Salt Lake Herald-Republican, September 23, 1909.
38 “Utah Shippers Begin Their Case for Square Treatment from Railways,” Salt Lake Herald-Republican, September 23, 1909.
39 Salt Lake City v. Atchison, Decisions of the ICC, 19:223.
40 “Freight Rate Reductions Give Utah Her Chance,” Goodwin’s Weekly, July 29, 1911.
41 “Applications for Relief under the Fourth Section, Nos. 205, 342, 343, 344, 349, 350, and 352,” Decisions of the ICC, 21:400.
42 “No. 879, City of Spokane, Washington, et al. v. Northern Pacific Railway Company et al.” and “No. 1665, Railroad Commission of Nevada v. Southern Pacific Company et al.,” Decisions of the ICC, 19:162, 238.
43 An Act to Regulate Commerce, Pub. L. No. 49–104, 24 Stat. 379 (1887).
44 Ripley, Railroads, 441–55.
45 Clyde B. Aitchison, “The Evolution of the Interstate Commerce Act: 1887–1937,” George Washington Law Review 5, no. 3 (March 1937): 308.
46 “Applications for Relief,” Decisions of the ICC, 21:409 (qtn.); ICC v. Alabama Midland Railway Co., 168 U.S. 144 (1897); reinforced by ETV&G Railway Co. v. ICC, 181 U.S. 1.
47 Ripley, Railroads, 557–79.
48 U.S. Reports: Intermountain Rate Cases, 234 U.S. 476 (1914).
49 Salt Lake Herald-Republican, June 30, 1910.
50 Salt Lake Tribune, June 30, 1910.
51 “Greet New Rates at Big Banquet,” Salt Lake Herald- Republican, November 16, 1911.
52 “No. 4079, Grand Junction Chamber of Commerce v. Denver and Rio Grande Railroad Company et al.,” Decisions of the ICC, 23:115.
53 “No. 3939, National Wool Growers’ Association v. Oregon Short Line Railroad Company et al.,” Decisions of the ICC, 23:162.
54 “Means Big Savings,” Salt Lake Tribune, May 18, 1912.
55 “Class and Commodity Rates to Salt Lake City, Utah, and Other Points,” Decisions of the ICC, 32:551. The ICC’s reinstatement of the higher rates was done so that the national rail system would be consistent with each included shorter haul costing less than each longer haul.
56 United States v. Union Pacific Railroad Company, 226 U.S. 61 (1912).
57 W. S. McCarthy to William Spry, June 2, 1914, “Commercial Club Traffic Bureau, Sept. 3–Jun 5, 1914,” reel 17, box 8, fd. 27, Governor Spry Correspondence, Series 226, USARS. McCarthy quotes Senator Thomas, Spry Correspondence.
58 R. S. Lovett, telegram, June 5, 1914, Spry Correspondence.
59 Alfred R. Barnes to William Spry, June 24, 1914, Spry Correspondence.
60 Daniel C. Jackling et al. to William Spry, June 6, 1914, Spry Correspondence.
61 “Kearns Believes Traffic Bureau Was Unwise,” Salt Lake Telegram, June 8, 1914.
62 “Fight on UP Dividend Raises Storm of Protest,” Salt Lake Telegram, June 8, 1914. The rich men included William McCornick, John Cutler, David Keith, Ernst Bamberger, and W. W. Armstrong, among others.
63 “Commercial Club Discusses Stand It Is to Assume,” Salt Lake Telegram, June 8, 1914.
64 Don C. Woodward and Joel F. Campbell, Common Ground: 100 Years of the Salt Lake Chamber (Montgomery, AL: Community Communications, 2002), 57–58.
65 Goodwin’s Weekly, July 29, 1911.
66 “The Traffic Bureau Side of the Controversy,” Salt Lake Telegram, June 8, 1914.
67 “No Attack Yet Made upon Traffic Bureau,” Salt Lake Telegram, June 25, 1914.
68 “That Railroad Bill,” Salt Lake Herald, February 14, 1896, 3.
69 Senate Journal, Twelfth Session of the Legislature of the State of Utah, 1917 (Salt Lake City: Century Printing, 1917), 25–26.
70 Salt Lake Herald-Republican, February 7, 1917.
71 “Olson’s Invitation,” Salt Lake Tribune, February 8, 1917.
72 “Coal Shortage,” Ogden Standard, January 26, 1917.
73 “False Pretenses,” Salt Lake Tribune, February 14, 1917.
74 Editorial, Deseret Evening News, February 17, 1917.
75 “In the Matter of the Application of the Various Railroads Operating in the State of Utah for Permission to Increase Freight Rates Horizontally, Fifteen Percent,” Report of the Public Utilities Commission of Utah, for the Period April 3, 1917, to December 31, 1917, Inclusive (Salt Lake City: F. W. Gardiner, [1917]), 24, accessed May 17, 2019, pscdocs.utah.gov/AnnualReports/.
76 E. J. David, “Rate Grab Fight Abandoned by Railroad,” Salt Lake Telegram, July 10, 1917.
77 “Sweeping Rail Rate Increase Ordered,” Salt Lake Telegram, May 27, 1918.
78 Goodwin’s Weekly, July 29, 1911.
79 “Intermountain Shippers Win in Rate Case,” Salt Lake Tribune, January 31, 1918.
80 “Ex Parte 74. In the Matter of the Application of Carriers in Official, Southern, and Western Classification Territories for Authority to Increase Rates,” Decisions of the ICC, 58:220.
81 “In the Matter of the Application for Increases in Revenues of the Railroads of Utah,” Report of the Public Utilities Commission of Utah, for the Year Ended November 30, 1920 (Kaysville, UT: Inland Printing, [1920]), 367, accessed May 17, 2019, pscdocs.utah.gov/Annual Reports/.
82 “Opinions Clash on Value of Utilities Law,” Salt Lake Tribune, January 26, 1923.
83 “Commendable Action,” Salt Lake Telegram, March 6, 1921.
84 “Utilities Board Abolition Bill Defeated,” Salt Lake Telegram, February 8, 1923.
85 Petition from the Commercial Club Traffic Bureau.
86 “Early Action on Export Rates Is Assured,” Salt Lake Telegram, May 8, 1919.
87 “Demand Is Renewed for Fair Rates for Utah,” Salt Lake Telegram, May 14, 1920.
88 H. W. Prickett, What Has the Traffic Department of the Chamber of Commerce and Commercial Club of Salt Lake City Accomplished, Salt Lake City, December 30, 1922, PAM 5457, USHS. The pamphlet was promotional, and Prickett documented neither the $9 million estimate nor the claim that Salt Lake City benefitted most.
89 “To Carry Freight Rate Fight to Congress,” Deseret News, June 14, 1921.
90 “Reno in Arms to Get Rate Justice for Shippers,” Salt Lake Telegram, June 28, 1919.
91 Senate Journal, 1917, 26.
92 Leonard J. Arrington, “The Commercialization of Utah’s Economy: Trends and Developments from Statehood to 1910,” in A Dependent Commonwealth: Utah’s Economy from Statehood to the Great Depression, ed. Leonard J. Arrington, Dean L. May, and Thomas G. Alexander (Provo: Brigham Young University, 1974), 14, 33.
93 Mark T. Kanazawa and Roger G. Noll, “The Origins of State Railroad Regulation: The Illinois Constitution of 1870,” in The Regulated Economy: A Historical Approach to Political Economy, ed. Claudia Goldin and Gary D. Libecap (Chicago: University of Chicago Press, 1994).
94 Robert E. Gallamore and John Robert Meyer, American Railroads: Decline and Renaissance in the Twentieth Century (Cambridge, MA: Harvard University Press, 2014).
95 See, for instance, “Corporate Recruitment,” Governor’s Office of Economic Development, accessed May 22, 2019, business.utah.gov/programs/corporate-recruitment/.
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