debtedness; in short, this article is similar in aim to the preceding, although, having been drafted with less success, it is in places somewhat obscure. It is to be hoped that amendments to the law will soon remedy these defects.

5. In Article Five the act comes to an end with the abolition of the former Railroad, Gas and Electricity, and New York City Rapid Transit Commissions, and the state inspectors of gas meters; followed by the necessary provisions for the transfer of records, the continuance of pending actions and proceedings, and the necessary appropriations.

But there has not been mentioned the most vital and far-reaching clause of the bill. In Section 55 occurs the following: "The Commission shall have no power to authorize the capitalization of any franchise or the right to own, operate or enjoy any franchise whatever in excess of the amount (exclusive of any tax or annual charge) actually paid to the State or to a political subdivision thereof as the consideration for the grant of such franchise or right." In other words, the law decrees that hereafter the grant given by state or municipality shall not be treated as a private asset of the corporation and its value represented in stock, but that the value of the franchise and the increment thereof shall remain forever the property of the state.

To call this law a piece of radical legislation is to speak mildly; it seems to mark an epoch in the history of New York State; for the corporations affected by the stringent provisions of the law are among those upon which the whole structure of our present business system rests. Without the railroads modern commerce would be impossible; without the street railroads our cities could not spread their vast populations out into their ever-growing suburbs, and social conditions would be completely altered; gas and electricity are not merely essential to our comfort, they are necessary to the existing order -- all of these public utilities are vital elements in the

lives of every one of us, and a law which compels such a complete readjustment of their relations to the state on the one side and the public on the other is not merely radical, it is revolutionary.

III

To many people the bare suggestion that state or municipality shall undertake to regulate any business hitherto in private hands is at once denounced as "socialism." I must confess to having only the vaguest notion of what "socialism is, but judging from the current use of the term it means anything you want the state to do that I do not want it to do. It has been urged against the Public Service Commissions Law that it is "socialism." Perhaps it is; but people are not going to be frightened by a mere word. Before we begin to tremble suppose we look the facts squarely in the face and see what this law is intended to accomplish; and recall why it seemed necessary for such a law to be passed. And it might be well for us to disabuse our minds of preconceived notions and prejudices for things as they are, and think rather of things as they ought to be.

The English race, including ourselves as at least a political branch thereof, has certainly never shown any great liking for monopolies. When such were fostered by government and bestowed by royal prerogative they were the objects of popular hatred and the causes of rebellion; and the feeling against them to-day is less strong only because we have felt ourselves to so large an extent free of them. Some of us, to be sure, have seen in the iniquities of our tariff some of the worst features of monopolies; but we have never as yet succeeded in impressing these views very deeply upon the mass of our fellow citizens. The general public, feeling that it owned and could control the government, has been singularly careless and thoughtless in the matter until of late; for it felt that in any event the remedy

was close at hand. The old cure for monopolies was a simple one- abolish government protection and let competition have its way. And in most cases where a monopoly seeks to control the output of some ordinary article of trade or manufacture, this remedy has been successful; and the belief that "competition is the life of trade" has been until lately one of the articles of commercial orthodoxy.

When our great modern public utilities first came into being, they were not recognized as infant monopolies. When a man wished to build a railroad he was regarded only as a daring adventurer who was about to start a new and superior line of coaches on a strange private highway, merely a new element of competition. It was the same with a gas company, gas being at first only a newfangled light trying to prove its doubtful superiority over lamps and candles. Electricity was in its turn only a competitor of gas; a street-car line a competitor of the more expensive cab company; an interurban trolley a competitor of the railway. All these were merely new and comparative conveniences which science was putting within our reach, which we could trust private ownership to develop and which competition would regulate. The ordinary American merchant or manufacturer, intent upon his own business and satisfied if he was making it pay, was also satisfied if he was getting from railroad, express company. telegraph, or telephone the service that his own particular business required; and he was little inclined to question the right of investors, who were bringing to him the business advantage of a very useful public service, to do what he himself was doing make as much money as possible on the investment. And while merchants and manufacturers were thus absorbed and the general public indifferent, what was originally a mere competitive public convenience was fast becoming a public utility; and then, before we realized it, it had become an absolute public

necessity. We suddenly woke to find the business world struggling to readjust itself to new and strange conditions — to the pressure of brutal bigness: enormous railway systems, gigantic mergers, worldwide trusts, accumulators of fabulous millions; the vast scale of the operations seemed in itself terrifying.

The old theory was that railroad or gas company, trolley or power company, under a minimum of public supervision, should be managed like private business corporations, - primarily, if not exclusively, for the financial benefit of the investors. To be sure, under the fostering care of the older generation of railroad manipulators, that theory received some rather severe shocks, and we realized that the investors frequently failed to get their share of the profits; nevertheless, whatever the practice, the theory was still held to be sound. But under the new order, our ideas have changed, as we have seen these great railroad systems utilized by commercial monopolies to fasten their hold upon the public and crush out competition with remorseless vigor; as we have seen valuable franchises secured for favored individuals, all too frequently by methods utterly abhorrent both in law and morals; as we have come to realize the power which lies in the hands of an irresponsible board of directors to stimulate artificially one community while it may destroy another; as the knowledge has been slowly burned into our consciousness that public-service corporations were after all managed by men very human in their weaknesses, greedy for power and wealth, and no more successful in resisting temptation than the rest of mankind. Studying these corporations more closely, we have seen the newer companies railroads, interurban electric roads, and lighting companies - being managed primarily if not exclusively for the benefit, not of the investors, but of those who could induce investors to invest. A new form of human pest has thus made its appearance the pro

moter; and a new science of commerce and banking has made its appearance, which I think has not been named yet. "New" did I say? To some of us these new friends look most uncommonly like our old acquaintances Dick Turpin and Jack Sheppard in a fresh disguise; and the new commerce and banking have a most unseemly resemblance to an old amusement known as highway robbery. Wordsworth's Rob Roy was not the first to invent that

Good old rule . . . the simple plan

That they should take who have the power And they should keep who can.

Nor has he been the last.

the

In this latest variation of the old game the interests of the investor and the interests of the public alike have been overlooked; but it is all a very logical outcome of the original mistake theory that a public utility is a mere matter of private business. We should not therefore expend our rhetoric against the corporations, - they were often more sinned against than sinning, for had it not been for our own blindness they would never have been left to pursue their objects too frequently in what now seems to us a highly predatory

manner.

If it has taken us a long time to realize that public-service corporations are in their nature monopolistic, it is also taking us a long time to get over the idea that the safeguard of the public is competition. Therefore, legislatures have chartered rival railroads, and common councils have granted franchises to rival trolley, gas, and electric companies; only to find that almost inevitably, after a brief period of cut-throat competition, with threatened failure to both companies, there was a consolidation, overcapitalization, and relatively, if not actually, higher charges; and thus for the poor consumer the last state was worse than the first.

In New York we seem at last to have waked up to the fact that in these public utilities there not only never has been any

The policy of state interference in any business is not one that we naturally take kindly to in this country; and we have certainly not been hasty in trying it in New York State. So long ago as 1879, the Hepburn Committee investigation pointed out some of the evils of rebates and other railway practices as clearly as has ever been done; yet it was 1906 before the legislature took any effective action in regard to the matter; and our municipalities as well as the state have been very slow to exert their powers. Of course, opinions will continue to differ as to the advisability of state interference; but in the judgment of those who read best the trend of the public mind, the time has gone by when there can be much dispute over the main contention; the only question is how far the state shall go. For the exact point where private action may best end, and the community itself should take hold, has certainly not been discovered yet; nor is it likely ever to be settled, for social conditions shift quite as rapidly as social experiments are made; and where can we draw the dividing line?

Some lawyers will tell us that there is no dividing line in this particular matter, that there is no essential difference between a public-service corporation and any other, and that it is simply a question of public policy as to what business the state shall undertake to regulate, and what it shall leave without interference. Others will say that however hard it is to draw a dividing line, yet there is certain territory which is quite obviously on one side of the line, wherever the line may be, and certain territory quite as obviously on the other.

business

may

Also it seems to be true that a certain stand on one side of the line in one generation and occupy the other side in the next. For many centuries it was public policy to subject the innkeeper to stringent regulation in the public interest; but with the growth of modern conditions it has ceased to be necessary, and a modern hotel company can hardly be classed as a public-service corporation. On the other hand, when a virtual monopoly in the supply of some necessity of life has come into existence, that business certainly is drifting over the line into territory where some sort of public regulation seems inevitable.

All the businesses which are placed under the jurisdiction and supervision of the New York Public Service Commissions are, more or less, monopolies depending upon some form of public grant or franchise. Not only are our railways great state highways, but the companies that own them own also the means of traversing them and of transporting goods along them. Our street railways occupy the public thoroughfares under exclusive grants from municipal ities. The gas companies must get permission from the city to dig up the public streets, and electric-light companies to erect their poles. Express, freight-line, and sleeping-car companies only supplement the work of the railway. Not one would be able to exist except for the public grant which is its foundation; it is therefore to the state that we must now turn for relief against the power of the monopolies which have been allowed to rise upon that foundation.

When we come to a consideration of these franchises the first thing we find is, that, although in most cases the corporation had paid nothing to the state or municipality for the franchise, yet no sooner has the franchise been secured than it has been capitalized, often at an enormously inflated valuation, and the resulting securities have been marketed in the same way as those for which good solid cash has been paid.

-

Now, as a matter of fact, the value of a franchise is very fluctuating a thing impossible to fix. The franchise of a non-existent railroad is of no inherent value; on the other hand the value of the same franchise, after fifty years' development of the road and growth of the communities about it, may almost exceed imagination; but since the state has claimed the right to regulate rates, thus demolishing the theory that the railroad conducts a private business, the value of every railroad franchise in the state as a basis for an issue of securities is very materially diminished if not obliterated. If the franchise is something of value, the state should certainly not give it away; if it is of no value, then the corporation should not capitalize it; but to secure it for nothing and then capitalize it, is "special privilege" with a vengeance. The worst of the matter however is this, that when the corporation proceeded to capitalize the franchise, upon the theory that it represented an asset upon which returns in the shape of dividends should be paid, the same as if it were money invested in the enterprise, — the corporation was on the one hand receiving from the state a gift of more or less value, and on the other forcing the state to pay perpetual tribute upon the very thing it had given away to the tune of many times its actual value when the promoters were clever enough to "discount the fut

ure

" in their issues of stock. When you come to dissect the matter and look it over coolly it does seem as if this were on the whole the most skillful confidence game which has ever been worked on the public; for the experienced financier, after capitalizing his franchise, could unload the watered securities on the "widow and orphan," and place the resulting cash in "gilt-edged" investments far removed from inquisitive legislators and public-service commissions.

corporations; that the development of public utilities has not been of immense value to the community; nor that they have not often been conducted with the highest motives of philanthropic enterprise. But it is an assertion that the theory underlying the treatment of the franchise was wrong and the system built upon it was bad; and that the time has now come to open our eyes and look facts squarely in the face. When we do so, we find that the right of the legislature of state or city to give away a franchise in perpetuity cannot be successfully defended.

The legislature is the agent of the existing population, and its members, as our accredited representatives, may barter away present rights — yours or mine of to-day; but they may not dispose of rights which belong to our children and our children's children as much as to us, for the future is not ours to give. They may allow private development and management of public utilities for the sake of immediate public advantage, and any such investment should be protected from unjust and unreasonable competition, and should be held sacred for the investors; but the franchise itself is something which may not be given away because it is not within the province of the legislature to give away that which does not belong to the existing community. A franchise granted by the legislature of fifty years ago, for instance, belonged then to us of to-day quite as much if not more than to our grandfathers who handed it over to some railroad in perpetuity; it belongs to us now as it will belong to our grandchildren in their turn. The action of the legislature of two generations ago in giving away our birthright is not morally a binding contract upon us to-day, when it comes in conflict with present or future public interest; and the vested rights of the private inheritors of that franchise will not finally stand when they come in conflict with the vested rights of the state.

Some people will tell you that the state is nothing more than the sum of its in

habitants; and that when you speak of the state as more than that, you are using the term of a sentimental abstraction which does not exist. Yet any man who can feel the thrill of patriotism knows that this is not so. The state is the future; it is the sum of its inhabitants not only of to-day, but of to-morrow, the day after, and so on to the end of time. And it is exactly the rights of the state of the future that have been forgotten in our dealing with the public-service corporations.

There are therefore three parties in interest; the Public, the community of today, demanding fair treatment for every individual, large manufacturer or small, rich and poor alike; the Public-Service Corporation, demanding just and liberal treatment for those who are willing to invest their capital in developing a public utility; and the State, standing for the whole community in its continuing capacity from generation to generation, — from now into the far distant future, and demanding that these great questions shall not be considered as of to-day, but that the decision in all matters of public policy shall take the road which leads often away from immediate results toward the best results for the time to come. And of these interests the last is by no means the least important. "Conscience and the present constitution of things are not corresponding terms. It is conscience and the issue of things which go together." It is because of its endeavor to restore a proper balance to these three interests that the Public Service Commissions Law marks so great a step in advance.

IV

A few words in closing as to the practical operation of the law in New York. The Commissions have been in existence only nine months and that is a short time for a revolution to be consum1 Davison: quoted by Matthew Arnold in Literature and Dogma.