THE railroad was the first of the great monopolies to need regulation. The settler coming into a new, raw country was absolutely dependent upon transportation facilities; it was natural that he should treat the railroad like a spoiled child, and it was likewise natural that the railroad should take advantage of him. Human selfishness unless checked will always take such advantage. It must be remembered too that the securing of capital to bring a railroad into new territory was no easy task and the man who did it was entitled to a large reward. Abuse, however, was inherent in the system.
The farmer had one great Necessity--transportation. Transportation was in the hands of a monopoly--the railroad. The farmer was obliged to send his grain to market; the railroad, having Advantage on its side, demanded its price. The farmer answered that he could not pay it and have any profit. He appealed for justice and was told that there was common law governing public carriers which would relieve him from extortion. With confidence in our constitution and the judiciary, he went before the courts, calling for justice, and demanded his "day in court." He got it, but there were too many days in court. He appealed, and he fought and went from court to court, single handed, always impeded by increasing Necessity. Wiser and sadder, but deeply perplexed, he learned that the vaunted common law was strong in name but a shambling thing in action. He gave up stubbornly; he had been told of the glories of our constitution, and yet he could not but believe that there was something wrong, but resented as unpatriotic any such thought. It took a long time for him to learn that if he would live, he must accept the terms of the all-powerful one who could either make or break him; he learned to do the political bidding of the one who had Advantage. He became a cynic and distrusted the "agitators," of whom he was warned by the agents of the powerful one.
Turn back through the pages of history, study them well and read the results of this advantage in contract in the old days, as depicted by A. B. Stickney, a railroad president:--
"The managing officers were now potentates,--'railroad magnates,' 'railroad kings.' They travelled in state, surrounded by their personal staff, the heads of the different departments, who were almost as important personages as their chiefs. When they visited a town on their lines, the principal business men rushed to greet them. The fat of the land was at their disposal. Merchants sent baskets of champagne to the heads of the traffic departments and sealskin jackets to their wives, while on the other hand, special rates were liberally bestowed upon their favorites. Special clerks were required to be wholly employed in issuing free passes. Judges and juries seemed to have a perceptible bias in their favor, the brightest attorneys were retained, and minor officials were glad to grant them favors. The country press was subsidized with passes for editors, their families and their friends."
A distinguished Englishman, the author of "The American Commonwealth," describing the palmy days of the dynasties, says:--
"These railway kings are among the greatest men, perhaps I may say are the greatest men, in America. They have wealth, else they could not hold the position. They have fame, for every one has heard of their achievements; every newspaper chronicles their movements. They have power, more power--that is, more opportunity of making their personal will prevail--than perhaps any one in political life, except the President and the Speaker, who, after all, hold theirs only for four years and two years, while the railroad monarch may keep his for life. When the master of one of the greatest Western lines travels towards the Pacific on his palace car, his journey is like a royal progress. Governors of states and territories bow before him; legislatures receive him in solemn session; cities and towns seek to propitiate him, for has he not the means of making or marring a City's fortunes?
"Such was the beginning of the dynasties of absolution in the management of Western railways (under the conditions of modern civilization the public highways of the land), which have since afflicted the business of the country, and are now, by both a reflex and direct influence, crushing the business of the railway companies as well, and gradually reducing these noble properties to the verge of bankruptcy. Conceived in the womb of usurpation, nurtured by the power of might, these dynasties take no note of the progress of the world of thought or of changed conditions, but, like their Bourbon prototypes, they neither move forward nor backward, they neither learn nor forget."
Quotation credited to the author of The American Commonwealth, beginning "Such was the beginning of the dynasties of absolution" etc., should have been credited to A. B. Stickney.
How could an individual contend against a force like that? In the words of Chief Justice Ryan, in the first great railroad case in Wisconsin,
"Their influence is so large, their capacity for resistance so formidable, their powers of oppression so various, that few private persons could litigate with them, still fewer persons would litigate with them for the little rights or the little wrongs which go so far to make up the measure of the average prosperity of life."
But a few kept on with the fight, and notwithstanding the power of the railroads, the "Granger movement" suddenly took form. Someway or somehow it was realized that the state--the whole body of citizens as a unit--could collectively accomplish what one man, single handed, could not, i.e. equalize the conditions of contract by placing force against force. This is why the "Potter law" for the control of railroads was enacted in Wisconsin in the early seventies. That law was a crude attempt; it was full of long schedules of rates made in a haphazard manner by the legislative committees. It did, however, lay down the precedent that when a force is so great that no one individual can meet it and receive fair treatment, justice must be given to that individual by the aid of the state.
A weak organization of straw, called by courtesy a railroad commission--an elected commission--was next established as a sop to public opinion. This did not relieve the situation, but left the complainant still bearing the burden of litigation.
It was many years before there appeared to again arouse public opinion a far-seeing and persistent fighting man, A. R. Hall, to whose memory there is a bronze tablet in the new capitol in Madison. Public sentiment had become so deadened, the railroads had become so powerful in the affairs of business, and the manufacturers and business men of the state were so fearful that "capital would be driven out of the state" by any restrictive legislation, that A. R. Hall was literally jeered at and laughed down as a crank when he persistently introduced his railroad bills into the legislature. His work, however, was not without results. A stronger movement, led by Robert M. La Follette, now United States Senator, soon awakened the people, swept the state and made La Follette governor. Hall had persistently advocated the ad valorem taxation of railroads. This was made an important issue and was finally passed. In this case, what Walt Whitman once said proved true,
"It is provided in the essence of things that from any fruition of success, no matter what, shall come forth something to make a greater struggle necessary."
What was to prevent the railroad from raising the rates in order to provide for the increased taxes? Some protection was necessary, so in 1903 a bill was introduced based upon the Iowa plan, whereby the commission made a schedule of rates for the railroads to follow. This bill was the cause of a severe battle in the legislature, but was finally defeated. The railroad question was made the issue of the next campaign, and the leaders determined to make the most perfect law possible. The Iowa plan was abandoned and the country was scoured for advice; the regulative law of all the different states and of foreign countries was closely scrutinized. No more patient study was ever given to any one bill in the history of the state. The leader in all this research was Senator W. H. Hatton, a man of large business interests and great ability. He introduced a new principle and laid down the thesis that it was as much the duty of the state to furnish transportation facilities as it ever had been to make roads or build bridges, and that if the function was delegated to any one, it was the duty of the state to regulate it so that the agent should be required to furnish adequate service, at reasonable rates without discrimination. When the legislature opened Mr. Hatton was appointed chairman of the senate committee on railroads and began his long and patient struggle for the passage of the bill in spite of practically a hostile majority. During this entire contest, he was aided by a keen lawyer and able debater, Senator George B. Hudnall, whose vigorous work on this committee is worthy of comment. Draft after draft of the bill was submitted to the railroad attorneys, university professors and to all the experts available whose arguments and criticisms were duly considered. Months went by. Seeing the railroad attorneys constantly around the committee, the more radical and impatient of the legislative leaders began to assert that they were being betrayed. In due season Mr. Hatton presented the bill, which was so strong and fair that no real attack could be made upon it.
This act is of great importance, for it laid the foundation for a series of laws, many of them following its exact language, and it has been considered in detail not only because of its importance, but also to show how patiently and thoroughly Wisconsin acts are prepared. The legislature is seldom impatient; it has recently adopted the expedient of drafting tentative bills, giving hearings and redrafting bills through investigating committees, a long while before the opening of the legislative session. The procedure by which the legislature passed the railroad commission act is now practically a settled policy. A committee is granted plenty of time and expert help if it will produce results, and the legislature is apparently willing to prolong the session to any length in order that it may do its work thoroughly and well.
The act covers complete regulation, both as to rates and service, not only of railroads but of all correlated organizations, such as refrigerator lines, sleeping cars, transportation and despatch companies of all kinds, as well as equipment, regulation of passes, mileage books, sidings, switching and terminals; in short, the whole railroad business. The simplicity of its procedure is worthy of note. Senator W. H. Hatton said before a committee at the time of its formulation, "I want this procedure so simple that a man can write his complaint on the back of a postal card, and if it is a just one, the state will take it up for him."
After all, for what purpose was the whole thing constructed but that there might be plain justice? Reversals, demurrers, rules, appeals, errors--the whole troop which had clouded the reason of judges and added to the squabbles and fees of lawyers--were excluded:--
Said Senator Hatton: "At a hearing before the commission both the complainant and the corporation shall be given full opportunity to offer testimony of every kind relating to the matter at issue.
"After any such hearing, if the commission shall find the rate complained of to be unreasonable, immediate relief shall be given and the commission shall fix a reasonable rate to be substituted for the rate found to be unreasonable. The new rate must be submitted to and observed until passed on by the courts and thereafter unless it shall be declared by the court to be unlawful, as the rate made by the corporation was submitted to and observed until it was declared by the commission to be unreasonable.
"It would be an injustice to the complainant as well as others who are required to pay the unreasonable rate to allow the matter to be taken to the courts upon appeal to be tried de novo and allow the old rate, which has been declared to be unreasonable, to remain in force, pending the judicial determination.
"To try the case anew in the courts, the old rate remaining in force meanwhile, and keep the complaint entangled in litigation, would not only be unjust to him, but would delay the equitable adjustment of rates by deterring others from making complaint, for the majority will submit to wrongs rather than engage in lengthy litigation with wealthy corporations.
"The complainant having won his case before the commission, should be relieved from further litigation and thereafter the state must defend the acts of the commission, for it is a matter of public concern. Therefore, let any party in interest who is dissatisfied with any order of the commission bring an action in any court of competent jurisdiction against the commission as defendant to set aside any order made by it, fixing any rate, on the ground that the rate made by the commission is unlawful.
"In trials before the courts, if there is offered any new material evidence or any different evidence than that offered at the hearing before the commission, the court shall stay its proceedings for fifteen days and remand the case to the commission for rehearing. This procedure prevents the withholding of material evidence at the hearing before the commission for the purpose of introducing it at the court trial, thereby securing a reversal of the order and thus discrediting the commission, and it compels the submission of all testimony to the commission for consideration before its final action. At the hearing before the commission the question passed on is the rate made by the utility corporation, and the burden of proof is then upon the complainant, he being the plaintiff, to show by preponderance of evidence that the rate complained of is unreasonable; if he succeeds in so doing, then in a court trial, in an action brought by the utility corporation, the question will be on the rate made by the commission and the burden of proof will then rest upon the utility corporation, it being the plaintiff, to show by a preponderance of evidence that the rate made by the commission is unlawful."
The following is that section of the law relating to complaints:--
"Complaints and investigations. Sec. 1797-12. Upon complaint of any person, firm, corporation or association, or of any mercantile, agricultural, or manufacturing society, or of any body politic or municipal organization, that any of the rates, fares, charges, or classifications, or any joint rate or rates are in any respect unreasonable or unjustly discriminatory, or that any regulation or practice whatsoever affecting the transportation of persons or property, or any service in connection therewith, are in any respect unreasonable or unjustly discriminatory, or that any service is inadequate, the commission may notify the railroad complained of that complaint has been made, and ten days after such notice has been given, the commission may proceed to investigate the same as hereinafter provided. Before proceeding to make such investigation, the commission shall give the railroad and the complainant ten days' notice of the time and place when and where such matters will be considered and determined, and said parties shall be entitled to be heard and shall have process to enforce the attendance of witnesses. If upon such investigation the rate or rates, fares, charges or classifications, or any joint rate or rates, or any regulation, practice or service complained of, shall be found to be unreasonable or unjustly discriminatory, or the service shall be found to be inadequate, the commission shall have power to fix and order substituted therefor, such rate or rates, fares, charges or classification, as it shall have determined to be just and reasonable and which shall be charged, imposed, and followed in the future, and shall also have power to make such orders, respecting such regulation, practice or service as it shall have determined to be reasonable and which shall be observed and followed in the future.
"a. The commission may, when complaint is made of more than one rate or charge, order separate hearings thereon, and may consider and determine the several matters complained of separately, and at such times as it may prescribe. No complaint shall at any time be dismissed because of the absence of damage to the complainant."
The following is the simple language in which the great power to fix rates is couched:--
"Commission to fix rates and regulations: procedure. Sec. 1797-14 Whenever, upon an investigation made under the provisions of this act, the commission shall find any existing rate or rates, fares, charges, or classifications, or any joint rate or rates, or any regulation or practice whatsoever affecting the transportation of persons or property, or any service in connection therewith, are unreasonable or unjustly discriminatory, or any service is inadequate, it shall determine and by order fix a reasonable rate, fare, charge, classification or joint rate to be imposed, observed, and followed in the future in lieu of that found to be unreasonable or unjustly discriminatory, and it shall determine and by order fix a reasonable regulation, practice, or service, to be imposed, observed, and followed in the future, in lieu of that found to be unreasonable or unjustly discriminatory, or inadequate, as the case may be, and it shall cause a certified copy of each such order to be delivered to an officer or station agent of the railroad affected thereby, which order shall of its own force take effect and become operative twenty days after the service thereof."
The authors of the bill were exceedingly careful to stay within the bounds which hedge about the delegation of legislation. All Wisconsin legislation of this kind is based upon the simple and yet effective device which may be paraphrased as follows:--
1. Rates shall be reasonable.
2. Our servant, the commission, shall ascertain whether they are or are not. If they are not, they shall be made so.
In other words, the plan carefully allows the legislature to make the law; the commission does nothing but administer the wish of the masters,--the legislature. The commission does not attempt in any way to legislate.
An understanding of certain expedients and devices used in this law will lead to a clearer view of the principles underlying the greater part perhaps of the legislation described in what follows.
Like the railroad commission all commissions are practically appointive. In dealing with complex economic subjects the legislature lays down general principles--determines the general policy and turns over to appointive commissioners the responsibility for the administration of these principles. The appointive method is used because it has been felt that it is just as ridiculous to elect a railroad commission as it would be to elect, on a state-wide ballot, a professor of comparative philology at the university.
The other device that is used, when it is found necessary to control an economic factor affected by a public interest, is public bookkeeping. This may take the form of accounting, valuation, etc., but the assumption is that if the state is a partner, it must know all the facts.
The third great expedient is reliance on the trained expert or, at least, the proper recognition of the fact that the work should be carried on by men who have acquired ability either by training or by experience.
The fourth expedient is little understood, and yet is one of the most powerful factors, i.e. the continuing appropriation. The commissions can all be controlled by the majority of the legislature, but are not at the mercy of every whim of the minority.
Running all the way through the regulative legislation is the same idea--the welfare of the state is the welfare of the individual. Real rights, not theoretical ones, must be guaranteed the individual. The position of the strong and the weak must be equalized by a powerful state intervention, if necessary to the attainment of quick and certain justice.
The state is always an interested party. It means merely that when a man is weak he has a big brother to whom he may turn, who judges his case and says to the strong one, "I am here not only as a judge, but also to protect the weak against the strong. The burden of proof is upon you to show that my rulings are unjust. This man cannot make any progress toward real justice in the face of all the difficulties which beset him." And it is not always a single individual who is too weak.
As Professor Ely says:
"How helpless against a combination of railways is the city of twenty-five thousand inhabitants when struggling to do such a seemingly small and entirely right thing as to provide gates at grade railway crossings. The writer has one case in mind. The very modest efforts of the city were met with the threat that the railway shops would be removed to a village some thirty miles distant and in an adjoining state. Even the city of Chicago has had a mighty struggle, continuing for years, in its efforts to protect life at railway crossings. At one time it was proposed by the railways to leave Chicago and build another city in adjacent territory to escape what was regarded by the railways as oppression on the part of the city."
The following diagram will illustrate the one great central device which has been used over and over again. In Diagram I is shown g, h, i, j, k, l, m--small shippers. Each man has to take up individually his particular case against "A"--the railroad, a corporation composed of b, c, d, e and f,--that is, a coöperative, collective agency--an organized body. The small shippers are obviously, from an economic standpoint, at a disadvantage against this organization. They also have great difficulty in trying to prove their case before the courts when they have not even publicity as to the facts to help them.
Diagram II shows the establishment of "Z"--the commission. Here we have a coöperative, organized body to deal with the coöperative body "A." After all, the device is similar to that used by labor unions in this country and by the great coöperative farmers' movements in Europe and Australia.
Now let us consider Diagram III. If it is right that g, h, i, j, k, l and m should have somebody to go to, if it is right that "M," who as a shipper having a case relating to a few bales of hay, should have some means of getting speedy justice, what will we say about "N" and "O," who have had limbs cut off through the carelessness of "A"? If we have given a remedy to "M" for his hay or potatoes, should we not give some certain compensation for "N" and "O" for their limbs? If the principle applies in one case, does it not apply in the other? Here we have the principle of the workmen's compensation act, but suppose there are others--p, q, and r. "P" is a competitor who has a clear case of unfair discrimination in interstate trade against the steel trust. "Q" is a man who has a patent upon which there has been an infringement by the Standard oil company. "R" is represented in one of the following cases, which have been taken from a report on the investigation of certain insurance companies. They may be found in the Proceedings of the National convention of insurance commissioners held in Milwaukee, August 22, 1911, pages 20-21, 24, 47--48.
"Claim 31,805. FRANK HARMAN; liability $300.
"Insured was killed Dec. 5, 1908. He had had a policy in the Columbus Mutual Benefit, which expired Dec. 7th. A Phoenix Preferred policy was issued and paid for on Nov. 28th, it being understood between the insured and the agent that the Columbus Mutual Benefit policy would be dropped. At the time of the insured's death, the Phoenix Preferred's agent had possession of both policies. On Dec. 9th--four days after such death--such agent wrote to his company, asking it to send him an indorsement to the effect that the policy was not in force until the Columbus Mutual Benefit's policy expired. The company replied, asking the agent to forward the policy to the home office. The company then apparently put an indorsement on the policy in accordance with the suggestion of the agent. The company was sued and defended as per such indorsement--and won.
"In the opinion of the committee this was not only fraud but forgery, and those responsible therefor should be presented to the criminal authorities for indictment."
"Claim 31,958. WILLIAM LINK; liability $300.
"Policy concededly issued and paid for. Insured killed in grain elevator, while performing his duties. His widow, who had possession of the policy, delivered it, within two days after the accident, to the company's district manager. The latter then forwarded the policy to the company with a brief memorandum on a slip of paper, saying:--
" 'Will write you to-morrow in regard to this. I don't want to keep it in this office.'
"The next day the company replied:--
" 'You were wise in not retaining anything in your office.'
"And, later reprimands its manager for sending in a preliminary proof, suggesting that 'it may cause us trouble.'
"A month later, when written to by the attorney for the claimant, the company states that it is unable to find such a claim and imagines that the widow has made a mistake in the name of the company and repeatedly thereafter denies that there is any record of such a policy. As a result of this flagrant larceny of the claimant's evidence, the company forces a compromise of $150, though informed that the claimant is a woman in destitute circumstances, with two small children, one of them but four months old."
"Policy 89,248. MIKE KORAN; liability $300.
"Insured died from fracture of the skull, March 29, 1907. The company, using first one excuse and then another, delayed in every possible way settlement of claim, though its agent writes, on April 18, 1907, that there is not a shred of evidence that the policy was delinquent. The beneficiary--who could not speak English--was thus forced to engage an attorney. So far as the records show, these dilatory tactics were successful--and no payment was made."
"Claim 354,219. ANTON LUND, liability $5000.
"Policy covered double indemnity. Insured held a traveller's ticket policy and was killed in a railroad wreck. Company had no defence, save late notice, it seems to have been asserted because administrator--who was prevented from securing possession of the ticket policy by the coroner who took charge of the insured's body--did not make timely proof. As soon as administrator secured such policy he made proof. Beneficiary later sued company. Company then adopted dilatory tactics in the courts, its legal department writing the local attorney, as follows:--
" 'As I have repeatedly advised you, the company does not desire that this case should ever come to trial, and our only intent is to adopt dilatory tactics, file demurrers, etc., and thus force an equitable settlement.'
" 'If you find that you cannot dispose of the suit within this limit ($2,500.00) I think we had better stand pat awhile longer, putting the trial off as long as we possibly can, and adopting all possible dilatory tactics.... To be absolutely frank, rather than let this suit go to trial, I would advise the company to pay on the eve of the trial considerable more than the maximum mentioned.'
"The local attorney finally succeeded in making a compromise settlement for $2500, the face of the policy, thus evading the double indemnity."
The horrible thing about all this is that it is so universal. How can we make good citizens out of the fellow-workers of Anton Lund and Mike Koran with such an example before them? Is it any wonder that the "Boss" is triumphant in American politics? Why, the Boss is absolutely needed in a system of this kind! The Boss can get justice; he has power and sympathy and can strengthen his hold with every appeal for his aid.
Read the following from an article in Everybody's Magazine--true, every word of it.
" 'Somebody's got to get hurt, and that's all there is to it. But there is one thing that makes the boys mad.' The speaker was a lean, quiet, shrewd-looking Scotchman of middle age, proprietor of a tiny lunch room where dinner is served for a quarter. He leaned over the desk, on his right elbow.
" 'Who ought to pay the damage?' With his thumb he pointed to the limp sleeve that hung in place of his left arm. 'There is a law for damages,' he went on, 'and there's plenty of lawyers around the docks who know just how to handle it. These lawyers are employed by the Ship Company, or by some insurance firm that backs the Company, I don't know exactly which. All I do know is that for a good many years while I was at work as a docker I watched how they did it. And havin' a feeling, as my good old mither in Scotland would put it, that I was foreordained to get smashed--I began to kind of study this damage law by myself, and decided just about what I'd do if the time ever came.
" 'It did. One afternoon in the bottom of a ship my arm got hit from behind by the end of a big mahogany log.' He paused for a moment, then he added slowly, 'When I come to, down on the dock, I jest kept my eyes shut and shouted, "I won't sign anything!" Being somewhat frivolous-minded from the arm, which was pounding inside like twenty pile-drivers, I made the same remark to the ambulance man, and again to the hospital nurse when I come out of the ether that night. Then I got almighty sick. But when the lawyer arrived the next day, my legal mind was ready.
" 'How much for my arm?' I asked. That started him talking and showing his long lawyer paper. At last he pulled out fifty dollars, and said they were mine if I'd sign and 'have no more trouble at all.'
" ' "No more trouble at all," I said, speaking sad, "with a family, and no arm to work with, and fifty dollars to live on?"
" 'Then, as he looked down on me in the bed, his face got lighted by hope, faith, and charity; he told me how sorry he was. But he said I'd been careless--in the eye of the law.
" ' "This eye of the law," I remarked, "is a just eye--for me and the Ship Trust alike."
" ' "Tries to be," he said.
" ' "It's a kind eye for my wife and kids," I remarked.
" ' "Tries to be," he said, looking sorry.
" ' "And if I don't sign, and sue you in court for five thousand, it'll be a slow eye."
" ' "Tries to be," he began,--but he grinned. "Your case wouldn't even be called for a year," he said, looking sorry.
" 'I sat half up on my elbow.
" ' "And if I go to court with every Tammany chief of the district--still a slow eye," I remarked.
" 'The lawyer jumped, and his face got queer. He took the addresses I gave him, and went to see my friends. He came back the next day, and grinned kind of sheepish, and offered a thousand. I signed.'
"Talk with hundreds of men on the docks, and you will find that the Scotchman's opinion, rightly or wrongly, is the opinion of all. But few are as shrewd as he. Nine out of ten get nothing at all, or else settle at once for some beggarly sum. And so, having grown hopeless of this ' just eye,' they long ago started a scheme of their own."
Good soil for the anarchist and the firebrand, is it not, Mr. Reader?
Legal aid bureaus have been established in cities, but on the whole comparatively feeble attempts have been made in Wisconsin or any other place to carry out any definite plan to right some of these wrongs. Does it show that we need some other sort of machinery to-day to meet economic conditions? Does it show a breakdown of common justice? Does it show that we should have some coöperation on the part of the judges in clearing up the procedure and the chicanery which has surrounded law? Is it not a serious matter that these crude devices above pictured have had to be used because justice could not be obtained and that, because wealth and strength did have in fact such a place in our courts, such legislative devices were necessary in order to carry out in these modern days that justice which was guaranteed in our constitution?
It may suggest to the reader that not only is our legislative machinery, which has been so widely criticised in the past at fault, but that there may be other deep-seated faults which are not being corrected as rapidly as those committed by the legislature, and that the remedy in America does not merely consist of a few laws restricting corporations but that it must go deep down in the education of our lawyers, in the education of our people as to their rights, and in the changes in the forms of our government which will actually meet the economic stress of to-day.
It is a common thing in the legislative halls for some hoary head, learned in the law, to recite the old phrase "you cannot make men good by law." That may be true, but you can make men comparatively better--at least good enough to respect other men's rights. The device shown in the diagrams is as old as history. The state itself is based upon it. Without it civilization could never have existed. To illustrate, imagine a group of savages sitting in a circle feasting; the gaiety is suddenly interrupted by a huge savage who rushes into the circle, seizes the food and runs away with it. We can imagine our savages sitting in a circle, hungry and mourning over the loss of the food. One appeals to the other to rescue the food. One braver than the rest strives to wrest it from the thief--and is killed. This occurs perhaps many times until some genius appeals to the desperate crowd, "Let's all go." They do go and pound the marauder over the head. Then it is that the law is made; that the rights of the weak begin to be respected by the powerful; that what an individual cannot do the collective strength of many can do--and incidentally in the future the chief offenders will be better men.
But, says the doubter, will not the time of this commission be monopolized with these cases? Will not Tom, Dick and Harry, every crank who has some imaginary injury, crowd this tribunal until it will be unable to do quick justice? This is not true, because when there is power enough, certainty enough and punishment enough the offending party will be glad to reach a settlement of some sort. If he has done wrong, the publicity given to that wrong will excite public opinion and the great corporations do not care for more of this excitement than is necessary. Crank cases are easily disposed of, and the case of the really injured is generally settled before it reaches the commission. If courts are complaining of being overburdened, they should take "judicial notice" of the above results of strong, clear, quick action. It is or should be one of the purposes of all law to diminish litigation and to increase the number of cases settled amicably out of court by arbitration or by other peaceful adjustment. If the strong did not see so many loopholes in justice to-day, so many chances to wear out the weak by lengthy litigation, so many opportunities for appeals, reversals and all the long list of legal barriers built up against the "Man who has not," there would not be so many cases of this kind in court, the calendars would not be crowded--and incidentally, there would be more confidence in justice and the servants of the law, and perhaps less anarchy.
The public utility act was the second important law based upon the principles established in the railroad commission act.
It was a general law, chapter 499, laws of 1907, regulating heat, light and water works and telephone companies. The street railway law, chapter 578 of the laws of 1907, provided for indeterminate permits, while street railways and telegraph companies were placed under the supervision of the railroad commission by chapter 582, laws of 1907.
The public utilities are now completely governed in Wisconsin by the railroad commission, an appointive board of three with practically unlimited power to hire experts. Chapter 593 of the laws of 1911 provided for further regulation of stocks and bonds, while physical connection of telephones was required under chapter 546 of the laws of 1911. The same policy pursued in the railroad commission law is carried out in the public utility act. Physical valuation is the foundation of it. It will be seen at once that if we have physical valuation we are getting at the basis of all regulation. The intangible assets can be separated and the same reasons which justify its use by the railroad commission justify its application to all public utilities. There is no feature in this bill more questioned than the manner of arriving at the valuation, for if the rates are to be based on value, what are its elements? Makers of the law had no greater difficulty than in trying to solve this question. "Going value," "Property used and useful," "Cost of the service" are technical and difficult to define. It will be a long time before all the points in this matter can be worked out satisfactorily to the accountants and the public. How fair the commission have tried to be is seen by the following excerpt from an address by Chairman John H. Roemer:--
"There is a tendency on the part of some to regard the reproductive cost less depreciation as the only proper basis of capitalization upon which returns should be computed. This, in most instances, would be so unfair that it could probably not be sustained if assailed upon constitutional grounds. Old enterprises, which have yielded large profits for many years, could not justly complain if their returns should be based upon the present fair value of their physical structure, but when the losses incurred in the developing period of the business of any public utility have not been requited, it would be doing grave injustice to the investors in such concern to so limit the returns upon the capital actually and prudently sunk in the enterprise under economical administration. We have taken the position, in certain cases, that the losses necessarily incurred in building up the business during its formative period are a legitimate charge against the public and should in such instances be considered in fixing rates. It is my personal opinion that unearned depreciation, unearned interest on the investment, and any operating charges that have not been paid out of operating revenues, from the inception of the enterprise until it reaches the point where the operating revenues are sufficient to pay fair returns on the legitimate investment, are generally as much a part of the value of the active property as interest, taxes, insurance, and other fixed charges incurred during the period of construction. The former may often be computed accurately from the records available and constitute the cost of establishing the business on a profitable basis. It is, in fact, the cost incurred in converting the property from a static state to a dynamic state, and forms the monetary measure of going value. Whether the full amount of such losses should be allowed in any given case, depends upon all the facts and circumstances surrounding the same."
The law provides for a system of uniform accounting, especially for construction and depreciation accounts. It is generally thought by the men who drafted this bill that these as well as publicity features were necessary protections to the public against the commission. Then, again, the municipalities indirectly will have technical help given to them, which otherwise they could not afford. A permanent staff of experts is thus provided so that the municipality can tell upon what basis the commission places its rates. The law also provides for schemes which will be stimulants to corporations, such as sliding scales and other devices of this kind, merely, however, allowing the commission to pass upon these scales. The depreciation accounting was received with open arms by the managers of the companies. The greedy stockholders in a company would press the managers for a higher rate of dividend, who were thus often between the devil and the deep sea. In many cases if they gave this higher dividend they would have to do so from the depreciation fund of the property, whereas, if they did not give it, they were often threatened with dismissal. In this manner both the avaricious stockholder and the crooked politician who would make the same demands of municipal enterprises have been regulated by this law. The commission has just demanded that the city of Milwaukee set aside $35,000 for a depreciation fund for its municipally owned water works.
One of the most debatable parts of the law is the indeterminate permit. The men in favor of this bill had a hard struggle to include this feature. The fixed period had become so popular and there had been so many battles over it that it was very hard to convince the legislature that, if the stocks and bonds were terminated at a certain point, the consumers would lose in the end by the term franchise, as the consumers would have to provide for an amortization fund. Under the Wisconsin law corporations were permitted to surrender their franchises and receive an indeterminate permit. It was felt by the authors of this program that with entire publicity and power to fix the service conditions, this was a safe basis upon which to go and would be the cheapest in the long run.
Judge Marshall of the Wisconsin supreme court in a case involving the validity of this part of the act says:--
"The confusion created during the years preceding the public utility law of 1907 by granting franchises in several different ways,--some directly by the state, some by cities as state agencies, some by the state in the main but with power to the various municipalities as state agencies to add supplementary features, fitting particular situations, some by the state without regard to local police regulations, and some likewise having such regard, either expressly or by necessary implication, some having contractual features creating doubt in regard to their constitutional status, and some having such features but without doubtful character, many of such matters being, in the ultimate, more or less detrimental to consumers, whether public or private, and proprietors as well,--in the whole, created a perplexing situation in respect to harmonious administration. The legislature sought to deal efficiently with this mixed situation, the growth of years, by taking over existing franchises with the consent of owners, compensating them for cooperating to that end by conferring in each case of surrender a new franchise to do the things privileged under the old one with conditions referable only to the law itself, and so providing that subsequent original franchises conferred in whole or in part through state agencies would be likewise referable. The traffic thus sanctioned and invited as to existing franchises has been considerable and, as said before, with definite mutual ideas as to the status resulting from the exchange. The property interests involved have doubtless been very great, the persons directly and indirectly interested large, and the transactions numerous as well. Obviously, any construction of the law running counter to the general view entertained in such transactions should be avoided if practicable.
"If we concede, for the case, that, in a reasonable view, the public utility law is ambiguous, looking only at its words, we cannot well so say in the light of the situation the legislature dealt with, as indicated, and the new condition which was evidently desired. It is evident the aim was to displace existing public utility franchises of the nature of those mentioned in the act, so far as that could justly be accomplished, by new direct grants from the state of a uniform character, free from the peculiarities of old franchises, prejudicial to the dominant end in view; the best service practicable at reasonable cost to consumers in all cases and as near a uniform rate for service as varying circumstances and conditions would permit; a condition as near the ideal probably as could be attained.
"It is useless to extend this opinion further for the purpose of picturing the situation dealt with by the legislature. The magnitude of the task was great. Few, if any, greater have been dealt with in our legislative history. The result stands significant as a monument to legislative wisdom. That such a complicated situation has been met by written law in such a way as to avoid successful attack up to this time on the validity of the law or any part of it, and avoid attack at all either upon the law or its administration, except in a very few instances, and secure optional submission by many owners of old franchises to a displacement of their privileges,--is quite a marvel; reflecting credit upon the lawmaking power and the body charged with the onerous duty of administering the statute, and challenging judicial attention to the importance of not, by construction, reading out of the enactment any meaning not clearly found there,--even to avoid a seemingly unlooked-for disturbing consequence in a particular instance now and then,--which would tend to defeat the object of the law. The words of the enactment, dealing as it does with vast private and public interests, should, if practicable, be given a meaning so definite and comprehensive as to prevent any attempt to restrict it or extend it so as to continue or renew or promote the detrimental consequences it was aimed to abolish and prevent."
The corporations did not at once avail themselves of the privilege of exchanging their franchises for the indeterminate permits, but by a law of 1911 they are compelled to do so. Says Chairman John R. Roemer in a recent address:--
"This apparent reluctance to make the change, although contrary to the anticipation of the legislature which passed the law, was not due to any apprehension on the part of the managements that the indeterminate permits were less valuable to the corporations than their secondary franchises, but rather to a doubt as to the power of the corporations to surrender privileges which had been hypothecated to secure outstanding bond issues. Thus, most of the surrenders were made by corporations who were able to secure the consent of the bondholders or who were able to retire or refund their bond issues. It was very evident that many years would be required to carry out the purpose of the law respecting uniformity of franchises throughout the state, and, hence, the recent legislature, acting under the power reserved in the constitution to alter or repeal corporate franchises, and under the police power, amended every franchise, making it an indeterminate permit. So at present, assuming the validity of the act converting all franchises into indeterminate permits, there is uniformity in franchises throughout the state, and, in consequence, all public utilities are subject to all the provisions of the Utilities Law."
The Wisconsin law comes out boldly on the point that unnecessary competition costs excessively in the long run and should be eliminated, if possible, especially if other incentives resulting in the betterment of service can be maintained. In fact, the whole idea of this kind of legislation is a frank recognition of monopoly. By chapter 454, laws of 1907, no railroad corporation, which includes street railways, may begin the construction of any line without receiving a certificate of convenience and necessity. Right in line with the same policy are laws to provide for the common use, at a reasonable compensation, of facilities such as poles, conduits, etc.
The municipal ownership law too has been strengthened. By using the threat of municipal ownership as a club, municipalities may buy the plants of the companies at a price fixed by the commission. As a general thing, it was felt by the men responsible for this regulation that service was the first thing to be sought and if proper service could be attained with a fair return to the corporation, that was all that was necessary. They depended upon publicity and valuation as clubs to achieve this service under these conditions; there is no doubt but that municipalities have a hard time convincing people that they should purchase plants, but the law is so arranged that besides the regulation pursued by the commission, there is constantly hanging over public service corporations the purchase clubs used in connection with the indeterminate permit. It will be remembered that municipally owned plants and private plants are under practically the same terms of control.
Nothing in this law has excited greater interest nor greater antagonism than this very question of home rule and the relations in general to municipalities. When the public utility act was first proposed there is no doubt but that the public utilities of the state thought they would gain by placing in the hands of some kind of a weak commission, a power which would protect them from the localities. They were constantly in fear of the encroachments of municipal ownership and the concerns which were granted spurious franchises in so-called competition. The outcry was great from the localities but the law was sustained by public sentiment. The friends of the bill answered that the small cities had neither the administrative machinery nor the technical means necessary to discover the conditions and that the centralizing of technical skill which could be of use to all was the only safety for the community--at least for the present.
It is well to note here that the municipality retained the right to compel reasonable extension and good service and to provide ordinances for that purpose, subject to an appeal to the commission as to their unreasonableness.
The peculiarly defenceless position of the ordinary small municipality and the relation of the public utility commission to the whole question of the control of public utilities is illustrated by Diagram IV.
Let A be a large gas syndicate having an accounting system that shows every item of the cost of the business. It has scientific experts, technical engineers and a general concentration of intelligence and ability and scientific knowledge; it has a central administrative office. It has also in its employ experts on the legal side of the question, men who are accustomed to investigating the law in all matters relating to this work.
Let "B" be a small town which has a gas plant. "B" complains that the gas is of poor quality or too costly. What chance has "B" in fighting this great combination of science and legal ability? Why, "B" would not even know how to obtain the first expert; it would have neither offices nor organized force to conduct the fight; it could not examine the books of "A"; it would be woefully handicapped in its struggle.
Let the Wisconsin railroad commission be illustrated by "H." The little town "B" can go to "H" and ask for its help. "H" is the state seeing to it that one of its minor branches has fair play. It has a permanent office, a permanent staff of experts, it has the accounting and the legal help to withstand the attacks of "A," and until "B" acquires strength enough to maintain the same staff of accountants and expert help, legal and otherwise, as "H," the theory is that it is far better for "B" to have "H's" help than to remain in this fight alone.
In discussing this matter Senator Hatton has the following to say:--
"While the state has the power to absolutely control all public service corporations, it is well to bear in mind that local municipal government, in so far as practicable, is the true policy to pursue and wise state supervision, when dealing with public utilities situated within the corporate limits of cities, will emphasize this principle rather than ignore or override it. The initiative in all local public utility matters should remain with the local authorities. The right to review and regulate should be assumed and exercised by the state.
"There is an intermediate field between absolute control and dictation by the state and absolute municipal control and dictation by the city council. This intermediate field is the proper sphere for the activities of the state commission in regulating the public service utilities situated wholly within the limits of cities. The commission will then occupy the position of a disinterested tribunal rendering expert service, doing that which is not practicable for the local authorities to do, such as valuation of plant, uniform accounting, reviewing and acting as arbitrators in matters of rates and in all other disputed matters arising between the municipalities and the public service corporations.
"Thus the commission becomes an efficient aid to local control. It enlists active public interest through publicity, thus bringing to bear upon the subject the powerful controlling influence of intelligent public opinion. It renders assistance to local authorities by furnishing reliable data for use in dealing with the utility corporations direct, or in legal contest with it in the courts."
Professor John H. Gray, a recognized authority on such subjects, has said:--
"We cannot discuss, for want of suitable data, the economic problems connected with gas supply. We lack completely data for a discussion of the question now talked about so much, namely, public ownership."
Professor Frank J. Goodnow of Columbia university says:--
"The development of any science of municipal administration is rendered practically impossible because of the absence of all reliable data."
Despite the forebodings of those who believed that the law would keep localities from establishing municipal plants or buying those already in existence, that it is still possible to take over municipal enterprises is shown by the fact that three water companies have been acquired by municipalities and a gas and electric light company is just about to be taken over, while two other cities have applied for permission to purchase water works and will doubtless do so in the near future. If municipal enterprises can be bought in this manner in spite of the tremendous debt limit of cities, it shows that the municipal ownership is somewhat of a club outside of any regulation by the commission.
The simple, clean-cut procedure existing in the railroad commission act was copied in this law almost without change.
The stock and bond law is not as great a necessity in Wisconsin as it would be if there was not physical valuation. With physical valuation and a rate based upon it and other elements accompanying it, if a company is greatly overstocked it will have to suffer. As far as the consumer is concerned a stock watering law would be of little concern. Of course that is not true regarding the stock and bond holder. However, the new stock and bond law which applies to every public service corporation has the same elements in it which are in evidence throughout this legislation, that is, using the device of reasonableness as a standard enforceable by the commission. The following sections from that law will illustrate this:--
"Issue not to exceed amount reasonably necessary. Section 1753-4. No public service corporation shall hereafter issue for any purposes connected with or relating to any part of its business, any stocks, certificates of stock, bonds, notes, or other evidences of indebtedness, to an amount exceeding that which may from time to time be reasonably necessary for the purpose for which such issue of stock, certificates of stock, bonds, notes, or other evidences of indebtedness may be authorized.
"Issues for money only; commission's certificate. Section 1753-9. 3. If the commission shall determine that such proposed issue complies with the provisions of this act such authority shall thereupon be granted, and it shall issue to the corporation a certificate of authority, stating: (a) the amount of such stocks, certificates of stock, bonds, notes, or other evidences of indebtedness reasonably necessary for the purposes for which they are to be issued, and the character of the same; (b) the purposes for which they are to be issued, and (c) the terms upon which they are to be issued. Such corporation shall not apply the proceeds of such stock, bonds, notes, or other evidences of indebtedness as aforesaid, to any purposes not specified in such certificate, nor issue such stock, bonds, notes, or other evidences of indebtedness, on any terms not specified in such certificate.
"Consolidations; commission's valuation first required. Section 1753-11. 2. No public service corporation shall purchase, directly or indirectly, or in any way acquire the property of any other public service corporation or of any person furnishing service to the public, for the purpose of effecting a consolidation, except that the property of such corporation or person shall first be valued as provided in subsection 5 of section 1753-9 of the statutes, and then only at a sum not to exceed the value found and determined by the commission and stated in the certificate of authority issued to such corporation for the issuance of stocks, certificates of stock, bonds, notes, or other evidences of indebtedness."
The commission is given the authority to determine in a scientific way whether certain issues are or are not reasonable, and is also given full power of supervision. It was a difficult law to draft and it may be said to be largely experimental. The court decisions throughout the country have involved the stock watering situation to such a degree that it is very hard to delegate power to a commission, and it is very probable that this stock and bond law goes as far in this matter as the decisions of the courts will permit. The fixing of rates within the state is an easy thing compared with the complex problem of trying to place a valuation upon the assets and expansion and absorbing power of a corporation existing in several states.
The development of insurance legislation under the able management of Herman L. Ekern, the present insurance commissioner, has been remarkable. It will be observed that the same principles run through insurance legislation, i.e. that the contract conditions must be made plain, the accounting given the proper publicity, the business made public and the cost as cheap as possible, involving as little litigation as possible. No attempt has been made to develop this department to the point reached by the railroad commission act, but the foundation evidently has been laid for a thorough control of the company and the protection of the individual which is assured under the other act. With the introduction of industrial accident insurance, the department bids fair to develop into as great an institution as the railroad commission. Certainly as time goes on, it will have to assume some position similar to that of the German department if the kind of legislation which is now being undertaken continues to be enacted. It is the intention of the legislators to make the office of the insurance commissioner as important as any in the state. It has been gradually recognized that the problem of poverty and its prevention must centre to a large degree around the question of insurance.
The advance in insurance legislation cannot be better described than in the words of the commissioner himself. Says Mr. Ekern:--
"The idea underlying the insurance legislation of Wisconsin is that the policy-holder is entitled to have placed before him in intelligible form the exact facts with regard to his insurance, and to insist that the companies shall, in every respect, live up to the true spirit and intent of their policy contracts, and that insurance should not be permitted where the expenses exceed a legitimate proportion of the insurance benefits furnished.
"The Wisconsin laws limit the amount which may be added to the premiums of life insurance companies for expenses, and limit the expenses to the amount so collected. The effect of the first requirement has been to lower insurance premiums in this state in some instances as much as $5.54 per $1000 of insurance per year; and the effect of the latter has been to reduce the expenses generally of insurance companies doing business in the state, so as to enormously benefit, not alone new policy-holders, but old policy-holders, in both their annual and deferred dividends. The money which companies heretofore took from the savings of old policy-holders to pay extravagant commissions and other expenses are now being returned to the policy-holders to whom they belonged.
"The Wisconsin law requires that every stock company annually relicensed in the state, which purports to transact a participating business, shall file a statement setting forth the share of the policy-holders and the stockholders in the accumulated surplus. It was this requirement which was responsible for the withdrawal of the Union Central Insurance Company of Ohio from Wisconsin. It was fully justified by the subsequent action of the company in apportioning to its stockholders almost half a million dollars of surplus which the courts of Ohio finally held they had no power to prevent.
"This law was also, in part at least, responsible for the withdrawal of the Equitable Life Assurance Society of New York, which, notwithstanding it has in its charter a provision that dividends shall be paid above 7 per cent still finds its one hundred thousand dollars of stock valued in the millions.
"The new law further provides that a statement shall be given to every annual dividend policy-holder every year telling him of the gains and savings of the company during the year from death claims, interest and expenses, and the proportion and amount of each returned to him in dividends in dollars and cents in a manner which he can understand. The interests of deferred dividend policy-holders are safeguarded by requiring an apportionment of the accumulations to any individual policy-holder, and that on request he shall be informed of the amount so apportioned to his credit.
"Provision is also made for a system of electing the directors and officers in mutual companies of the state, which assures the control to the policy-holders, whenever occasion arises for a change of control. The salaries of officers in mutual life insurance companies is limited to $25,000, unless the policy-holders vote a larger amount. Statements are required as to all legislative expenditures and political contributions prohibited. The sale of stock in life insurance companies is prohibited, unless the contract informs the purchaser of the amount of his money to be expended for the promotion of the company. The law now makes possible the organization of new life insurance companies on a sound and legitimate basis, and later amendments permit the organization of mutual companies for the insurance of employers against their liability for the injury or death of employees and for the insurance of deposits by banks.
"One mutual employer's liability insurance company is already doing business and others are about to be organized. A committee of the State Bankers' Association is at work formulating a plan for the organization of a bankers' mutual insurance company for the protection of depositors. Provision has been made for the granting of life insurance and annuities by the state in the state life fund on an absolutely safe plan of collecting a sufficient advance premium and returning the savings. The same idea has been extended to fraternal insurance by providing for helping the fraternal societies to find out where they stand and to get this information out to their members in the most intelligible form and to bring about as much as possible a more general knowledge of the real principles upon which insurance is based. In all this legislation there are no arbitrary requirements, save only in prohibiting the collection of expense money in excess of a definite proportion of the insurance benefit to be furnished. In other respects, the idea is merely to insist that the policy-holder shall understand his contract and the principles on which it is based and the conditions under which it is made, and that the company shall live up to the contract."
More interesting because more experimental, is the state insurance fund passed as chapter 577, laws of 1911. The following outline of this law, taken from an address delivered before the National convention of insurance commissioners at Milwaukee, Wisconsin, August 23, 1911, by Mr. Ekern, commissioner of insurance, gives an insight into the state life fund.
"The Wisconsin Legislature of 1911 established a 'Life Fund' for the purpose of granting life insurance and annuities to persons who are within the state or residents thereof. This is to be administered by the state without liability beyond the fund. The state treasurer is charged with the care of the assets. All other matters relating to such funds are under the supervision of the commissioner of insurance.
"Policies may be issued to persons between the ages of twenty and fifty years. Life insurance may be granted in sums of $500 or multiples not exceeding $1000 until the number of insurants exceeds one thousand, and not exceeding $2000 until the number of insurants exceeds three thousand and not in any event exceeding $3000. Annuities may be granted to begin at the age of sixty years or over in sums of $100, $200 or $300. The same policy may combine both a life insurance and an annuity.
"The statute fixes the premium which for life insurance must be based upon the American experience table of mortality, with additions for extra hazards, and with interest at three per cent, and with an addition for expenses and contingencies amounting to two dollars per year per thousand dollars of insurance and one-sixth of the value of the insurance distributed equally through the premium payments.
"The basis for annuity premiums is the British offices annuity tables, with interest at three per cent, with a like one-sixth addition for expenses.
"There must be a medical examination on every application for life insurance. The medical examiner receives a fee of two dollars paid from a deposit made by the applicant. No commissions or fees are paid to any person, except that the person transmitting an application, whether the insured or any other, is entitled to deduct a fee of twenty-five cents from the initial premium payment and any person transmitting any premium may also deduct a fee of one per cent of the premium. These deductions are made by the insured when he transmits his own premium. Every application must be accompanied by a premium for at least three months. The state board of health and the commissioner of insurance pass upon the applications for insurance. If the application is rejected, the deposit is returned less the fees. If accepted, the premium is paid to the state treasurer and a policy issued signed by the commissioner of insurance and the state treasurer.
"Loans may be made to an amount which with interest does not exceed the reserve. On the nonpayment of a premium the sum is charged as a loan so long as the reserve is sufficient. The whole or any part of any loan may be repaid at any time. The policy may be surrendered for cash on any anniversary, after six months' notice in writing. Losses and other payments are passed upon by a board consisting of the state treasurer, attorney general and commissioner of insurance and audited by the secretary of state.
"Provision is made for a surplus to be made up from fifty per cent of the savings and earnings during the first year of all policies issued and from a contribution reduced by 5 per cent each subsequent year until the ninth year, and thereafter the contribution to the surplus is 10 per cent. All the remaining surplus is distributed annually to the policy-holders, beginning the first year and continuing every year while the insurance is in force.
"The accounts are kept by the commissioner of insurance and audited as the accounts of other state officers. Valuations and reports are required the same as from life insurance companies. The bonds of the state treasurer, the commissioner of insurance, of all county, city, village, and town treasurers, and of every state depository, must include a liability for all premiums and other money received for the life fund. Investments may only be made as provided for life insurance companies. The commissioner is given two years to put the act into effect."
Another decided advance toward state insurance was taken when a state insurance fund to provide for fire loss on state property was created. The provisions of this act were extended by chapter 603, laws of 1911, to cover the property and buildings owned by counties.
Directly in line with the general principle that appointive experts should administer the law and correlated with the short ballot propaganda is chapter 484 laws of 1911, making the insurance commission appointive for a four-year term instead of elective. That the legislature took care to restrict the political activity of any commissioner may be seen by the following excerpt from the law:--
"Section 1966y. 2. The person so appointed as such commissioner shall be known to possess a knowledge of the subject of insurance, and skill in matters pertaining thereto. No person appointed as such commissioner shall hold any other office under the laws of this or of any other state or of the United States. Such commissioner shall devote his entire time to the duties of the office, and shall not hold any position of trust or profit, engage in any occupation or business interfering with or inconsistent with his duties, or serve on or under any political committee or as manager of any political campaign for any candidate or party."
At the present time there is a committee of the legislature investigating the question of fire insurance. The contracts and conditions of fire insurance need examination, and it is not improbable that legislation will be recommended by this committee along the same general lines as prevail through the whole regulative plan. The private board of fire insurance companies fixes a certain rate for fire insurance. If one thinks that rate extortionate, or therefore wrong, what appeal has he? It is simply a question of contract, and he can accept the insurance or not, as he chooses. This seems to be the argument of the legislature. It is quite probable that fire insurance will also be recognized by legislation as a business affected with a public interest to a greater extent than it has been formerly.
The tax commission was the earliest of the great commissions to be formulated in Wisconsin, being created by chapter 206, laws of 1899. It consists of three appointive members and has a joint arrangement with the railroad commission for the use of experts in the rating of property. Gradually all the great corporations have been placed upon an ad valorem basis, so that here, too, physical valuation, with all of its advantages, is basic.
As has been pointed out before, the fact that the ad valorem system of taxation was applied to railroads precipitated the railroad rate fight in 1903. If railroads were taxed without being regulated as to rates, it was felt that the burden would be shifted to the public.
The commission has great powers, through which a centralized and uniform state-wide system of taxation has been built up. Local assessors are checked by county supervisors of assessment, who in turn are carefully instructed by the commission. The money collected is retained by the state or apportioned to the localities on a percentage basis. The whole work is based upon actual valuation, and a large corps of engineers and experts is employed for this purpose. The law and its methods have been copied by many states.
The tax commission makes an annual assessment of all property of railroad companies within the state on the basis of cost of reproduction (new) minus depreciation. The definition of property includes all franchises, rights of way, road bed, tracks, terminals, rolling stock, equipment and all other real and personal property of a company used in conducting the business, but excludes real estate not adjoining the tracks, stations or terminals; grain elevators and coal docks, ore docks, and merchandise docks, and real estate not necessarily used in operating the railroad are excepted, and shall be subject to taxation like the property of individuals. The true cash value of the railroad property is found by the tax commission (chapter 315, laws of 1903). When the value of railroad property has been ascertained, the statute provides that the returns from all the taxes of the state for state, county and local purposes, except special assessments on local improvements, shall be aggregated by the tax commission. From the aggregate of the true cash value of the general property of the state as found by the tax commission, and the aggregate amount of taxes, the board computes the average rate of taxation, which rate so arrived at, constitutes the rate of taxation of all railroad property. The rate is applied to all railroad companies and is to be paid to the state treasurer at stated intervals, and become a part of the general fund for the use of the state.
On the same basis telegraph companies, express companies, sleeping car, freight line and equipment companies are assessed by the commission on the actual value of the property in the state, subject to assessment with such change as the character of the property requires. All money so collected is part of the general fund of the state.
Chapter 493, laws of 1905, provides for the taxation of the property of street railways, and electric light, heating and power companies, operated in connection with street railways according to the valuation in substantially the manner as in the act for the ad valorem valuation of steam railroads. All other public service companies not so operated come under the general assessment laws, and taxes therefrom are turned over to the localities. The entire tax from this source is paid to the state treasurer, and 85 per cent is audited and paid back to municipalities. Fifteen per cent (15 %) of the tax is retained by the state and 85 per cent is distributed to the localities through which the lines are operated in proportion to property located and business transacted within the several towns, villages and cities, through which the lines run. Street railways are also taxed at the same rate of taxation as railroad property.
Under its administration have been placed the new income tax law as well as the graduated inheritance tax law. Both of these acts have special expert men for the sole purpose of enforcing them. The income tax deserves some slight mention.
This law (chapter 658, laws of 1911) is now exciting much discussion in the state, and public opinion is quite evenly divided as to its wisdom, but seems to be slowly becoming friendly--perhaps as quickly as can be expected for an act of this kind in an American community. It is an honest attempt to supplant the personal property tax in an equitable manner. A pamphlet issued by the tax commission prints this section with the following comment:--
"Personal property tax receipts may be offset against income tax when
"Section 1087m-26. Any person who shall have paid a tax upon his personal property during any year shall be permitted to present the receipt therefor to, and have the same accepted by, the tax collector to its full amount in the payment of taxes due upon the income of such person during said year. Any bank which has paid taxes during any year upon its shares assessed to the individual stockholders thereof shall be entitled, under the provisions of this section, to present the receipt therefor, and have the same accepted by the tax collector to its full amount in the payment of taxes due upon the income of such bank during said year.
"This section is construed to mean that if a person or corporation has paid a personal property tax, say for the year 1912, the receipt for such tax may be presented to the tax collector in payment of income taxes which have become due in said year. The 'taxes due upon the income of such person during said year' are taxes which are based upon, and the amount of which is determined by, the income of the preceding year. It would therefore follow that the year referred to is not the year in which the income is received, but the year in which the income tax becomes due. In view of the fact that the exemption of intangible personal property provided for by this law does not take effect until 1912, it is believed that the intention of the legislature was to limit the operation of this section to personal property taxes of 1912 and thereafter. This view is strengthened by the next section, which provides that all taxes assessed in 1911 shall remain unaffected by this law.
"The general character of the law and the circumstances attending its adoption leave no doubt that the income tax was intended to be very largely a substitute for the tax on personal property; and in pursuance of this policy, stocks, bonds, money and other important classes of personally are exempted from taxation after 1911. This exemption was in exchange for or in consideration of the imposition of an income tax; and until the income tax becomes operative the exemption has no force. Accordingly a tax on personal property assessed and levied in 1911, but paid, say on January 10, 1912, cannot be used to offset an income tax assessed in 1912 and paid, say on December 30, 1912. In other words, the two assessments must be of the same year. To hold otherwise it is believed would amount practically to making the exemption of stocks, bonds, moneys, etc., take effect one year earlier than the date specifically set by the legislature.
"For analogous reasons taxes paid on personal property in other states cannot be used to offset the income tax of this state. A tax paid on personally in one assessment district, however, may be used to offset an income tax in another district."
The rates are low, the exemptions reasonable and 70 per cent of the revenue will go into the local treasury. The wording of the administrative portion is very strong with centralization in the tax commission. The assessors will be selected under civil service and no pains have been spared to make the act enforceable and equitable to a high degree. Perhaps no other state in the Union could attempt to install machinery of this sort without political wire pulling or favoritism. This part of the law reads;--
"Assessors of income--how appointed.
"Section 1087m-8. 2. Not less than thirty days prior to the first of March, 1912, there shall be selected and appointed by the state tax commission an assessor of incomes for each assessment district in the state, who shall hold office for a term of three years unless sooner removed as hereinafter provided. Such assessor shall be a citizen and an elector of this state, but need not be a resident of the district in which he is appointed to serve; provided, however, that so far as practicable, preference shall be given in making such appointments to residents of the districts."
Moneys, debts due and to become due, all stocks and bonds not otherwise specially provided for, are exempt from taxation. The law was declared constitutional on January 9, 1912, by the Wisconsin supreme court. Its advocates do not claim perfection for it; they admit that it is experimental but fundamentally right.
For common school purposes there is a 7/10 mill tax levied on general property of the state as determined by the tax commission, exclusive of the property of corporations which pay fees or are assessed by the state board.
For the support of the university there is a tax of 3/8 of a mill upon each dollar of assessed valuation of general property of the state, as determined by the commission (chapter 631, laws of 1911). Under the same law there is annually levied and collected for the normal school fund income, 1/6 of one mill for each dollar of assessed valuation of taxable, general property of the state as fixed by the tax commission.
The state has a strong banking code developed with great care. It gives general satisfaction, provides for the utmost publicity and care in its control and in line with all Wisconsin legislation, it recognizes banking as a business affected by a public interest. It does not permit private banking which has proved so pernicious in other states. All banks must be public under this act. The result has been that not a citizen of the state has lost a dollar through the state banks since it was enacted into law.