Louis Brandeis, like many of the leading progressives of this era, began his reform career locally, in his case fighting franchise corruption in Boston. He then went on to battles at the state and regional levels before moving onto the national stage. Between 1897 and 1916, Brandeis gradually developed a coherent philosophy about the nature of American society, the relation of an industrial economy to political democracy, and the need to restrain bigness both in the private sector and in the government. Brandeis, however, brought more than ideas and ideals to his reforms.
One thread that runs through all his endeavors is the need to know the facts. Elizabeth Brandeis once told the story of how, at the height of her father’s fame as a reformer, a group of college students came to his office offering to help. They expected to be put to work researching great national issues, or being assigned to some senator or congressman as a liaison, and did not expect the answer they received. “Go down to City Hall,” he told them, “and see what is on the agenda for the next council meeting. Pick one of those issues—garbage collection, water supply, it does not matter which one—then go and learn everything you can about it. Read past reports, talk to people, learn the topic until you know it as well as anyone. Then when you get up to speak, or to make a suggestion for change, your voice will be heard because you are knowledgeable. That is how reform works.” The students did not find garbage collection or water supply on the same par as breaking up monopolies or allocating Alaska’s resources, and so went back to their own studies.
The people we identify as progressives objected to the malevolent effects of industrialization on society, on politics, and on the individual. While they all recognized problems, few of them could think through the issue to propose a workable solution, and in order to do that, Brandeis believed knowledge of “all the facts that surround” to be crucial. Just as one could not argue a case for a client without knowing the details of the business, so one could not attack an evil such as municipal corruption without first learning everything one could know about it. Armed with the facts, one could then think long and hard on devising a practical solution and, with a solid proposal in hand, organize colleagues and the public in order to effect a change. Brandeis once told his daughter to take all the time necessary when figuring out a problem, but once you had all the information and had made a decision, stick to it. While some of Brandeis’s views on the great questions of the early twentieth century, and his proposed solutions, may appear ill founded in hindsight, others continue to ring true a century later.
There is, however, more than a little irony in the scope and success of Brandeis’s activities during this period. In later years he would talk constantly about the “smallness” of man, about the limited abilities of a single individual, and therefore a need for men and women to take on projects or businesses limited in scope and amenable to one person’s judgment and direction. Yet Louis Brandeis was a whirlwind of activity in his reform years, not only involved in major campaigns of his own, but frequently serving as a resource to others in their work. At home he supported and encouraged Alice as she dealt with her health problems and guided Susan and Elizabeth as they turned into young women and then went off to college. He continued to be the lead partner in a major law firm, and after August 1914 began the transformation of the moribund American Zionist movement into a powerful political organization.
He recalled these as the happiest years of his life.
AS BOSTON AND OTHER CITIES grew in the late nineteenth century, public transportation became an increasingly important issue in municipal affairs. Cities grew because newcomers, both from the hinterlands and from overseas, came seeking work in the mills and factories that now dotted the urban landscape. In earlier times laborers lived close to their places of employment and could walk to their jobs. Cabs and horse-drawn omnibuses provided transportation for those who had to travel farther. Boston more than doubled in population between 1870 and 1900, and grew another 20 percent in the next decade. Not just factory hands had to get to work; the banks, insurance companies, and law firms that occupied the new buildings in downtown Boston also wanted transportation for their clerical workers.
Getting into downtown Boston, however, posed a problem. The city was and is relatively narrow, surrounded on three sides by water. On the fourth side stood the upper-middle-class homes of Beacon Hill, as well as the historic Boston Common, the city’s famous park that dated back to the seventeenth century. The West End Street Railway Company claimed that the only way it could get a rail line downtown would be to run it across the Common and sought permission to do so in February 1893. Brandeis, in what he later called “my first important public work,” opposed the plan and spoke eloquently—and successfully—against it in the legislative hearings.
The refusal to allow the West End to lay tracks across the Common reflected the fact that franchises to build and operate trolley lines on public streets had been kept pretty much under public control in Massachusetts, with charters imposing strict limits on use of streets and the amount of the fares. Large investors, however, saw the potential for great profits in these franchises, provided they could obtain charters that did not restrict how they operated, how much they could charge, and how long they could enjoy the monopoly. In 1894, Henry M. Whitney, a shady financier who had scandalized Massachusetts a few years earlier by admitting that he had spent $50,000 to secure the passage of legislation favorable to his interests, created a syndicate that included J. P. Morgan & Company to secure a charter from the state to establish a new corporation, the Boston Elevated Railway Company, which would extend Boston’s public transit system by building elevated tracks into the downtown area. The charter would run for twenty-five years, a not-unusual provision, and that fall the voters of the city approved the proposal in a referendum.
Three years later, in a bill that passed with very little public notice, the legislature authorized the Boston Elevated to lease the West End Railway for ninety-nine years, subject to approval by the state Railroad Commission. The commission, however, refused to approve, and in its investigation came to the conclusion that the West End’s stock had been watered, so that the 8 percent rental that the Elevated would pay to the West End would in fact amount to an 11 or 12 percent dividend on real value. Moreover, the commission declared the ninety-nine-year lease “wholly discordant with public policy,” since it ran for a term of years “quadruple the length of the longest term that the legislature has [previously] consented to sanction.” After agreeing to scale back the rental and the length of the lease to twenty-five years, the Elevated secured the commission’s approval.
Unlike the legislative action, however, the decision of the Railroad Commission could not be kept secret, and the machinations of the Boston Elevated became subject to public scrutiny. Conservatives—and here one must include Louis Brandeis, who strongly believed in fiscal integrity and in a tradition where the public good outweighed private interests—objected to the fact that with the lease of the West End, the Boston Elevated controlled nearly all of the street railway lines in the Boston area. Moreover, investments in the franchise, which sought a long-term charter and guaranteed fares, would be shielded from governmental interference on behalf of the public. Charles Warren, secretary of the Massachusetts Reform Club, said that although he and other members of the club believed in minimal government interference, on occasions such as this government had to step in to protect the public. In addition, the legislature’s approval of a rental to West End stockholders based on watered stock made the assembly appear part of a stock manipulation for greedy speculators. On behalf of the Municipal League, a group of civic-minded business and professional men, Brandeis wrote to the board detailing the over-inflated value that the West End put on its stock, and how a rental based on that figure was unjustified.
Even while the board looked into the West End lease, the Boston Elevated went back to its friends in the legislature and secured a charter extension on its own lines as well as protection against reductions in a five-cent fare. On 30 April, hoping to prevent final passage of the measure, Brandeis wrote a lengthy letter to the Boston Evening Transcript protesting the provisions of House Bill No. 784 as “opposed to the established policy of the Commonwealth, and would, if enacted, sacrifice the interests of the public to that of a single corporation.” In effect, the bill abandoned the oversight function that the Massachusetts legislature had exercised for many years. While streetcar fares all over America had tended to come down in the past few years, the legislature was about to saddle Boston commuters with a five-cent fare for the next thirty years. Worst of all, once this door opened, “every railroad, street railway, gas, electric light or water company might demand like privileges.”
The effort came too late, and as Brandeis recognized, he had no troops to rally. The Elevated’s actions had caught people off guard, and many did not comprehend how expensive the new charter would be to Boston’s residents. Although Brandeis belonged to the Municipal League, and in fact chaired the Transportation Committee, he had written the letter as a private citizen. Nonetheless, the Elevated spread the rumor that the league had hired the high-priced corporate attorney to attack it. Brandeis deeply resented this charge, and he wrote to William A. Bancroft, the Elevated’s president, declaring its falsity. “I have been retained by no person, association or corporation, directly or indirectly in this matter, and I have opposed it solely because I believe that the bill, if passed, would result in great injustice to the people of Massachusetts, and eventually great injustice to the capitalist classes whom you are now representing, and with whom I, as well as you, are in close connection.”
This last sentence was not empty rhetoric. Throughout his life Brandeis believed in a system of private enterprise in which entrepreneurs could wager their talents to build up successful businesses in which investors could put their money in the hope of making more money. But there had to be a level playing field, and all groups—investors, businessmen, and workers—had to recognize that the interest of the public took precedence over their own. Even as he grew more hostile to big business, he did not want to tear down the system, but only ensure that all companies, no matter how big or small, played by the same set of rules and did nothing to harm the public.
Brandeis did not manufacture this philosophy out of whole cloth; rather, he had imbibed what had, until then, been the predominant ethos in Massachusetts. Brandeis and the people he worked with did not, as they saw it at the time, vie for reform; instead, they saw themselves fighting for what had been the traditional view of the proper relationship between the Commonwealth, as the defender of public interests, and private businesses and public service corporations. In this view, the state had the major responsibility for enforcing honest management and true valuation of corporate property. Stock represented a measure of the owner’s interest in the enterprise as well as a guarantee fund for the corporation’s creditors, and therefore strict fiscal accountability worked both for stockholders and for creditors.
By 1900, however, practically no other state in the Union shared this view of governmental responsibility. The “modern view,” propagated not just by Wall Street bankers but by their allies in major financial centers such as Boston and Chicago, saw stock as a commodity that earned money and that an investor purchased at his own risk. They contended that the state had no obligation to supervise corporate management other than to prevent outright fraud, and they defined that as no more than misrepresentation. In this view, investors and not the state had the responsibility for looking after their investments, and corporate managers did whatever they had to do to make the firm profitable. Nowhere, of course, did one find any mention of public interest or financial integrity. As Brandeis began uncovering evidence of the abandonment of fiduciary responsibility and of a “public be damned” attitude, the old-line Brahmins who bought into the modern view resented him, not just for opposing them, but for holding them up to an idealistic standard he believed they should have shared.
THE FIGHT with the Boston Elevated did not end in 1897; in some ways it had just begun. To reach the downtown without crossing the Common, one had to use either Tremont or Washington Street. Because of high real estate values, it was impracticable to widen the old narrow streets, or even to build an elevated rail line above them. The city had several years earlier constructed a subway by tunneling under Tremont Street and then ordered the surface tracks removed. The Tremont line served as a funnel by which a number of outlying lines delivered commuters downtown, and by the mid-1890s traffic had grown congested. So long as the city owned the subway, which it had leased to the Elevated on very restrictive terms, the Elevated could not gain the monopoly it sought over Boston’s street railways. First the Elevated sought authority from the legislature to put back the surface tracks on Tremont Street, thus making the subway superfluous. Although the legislature agreed to the proposal, it did so with a referendum attached, and voters overwhelmingly rejected the plan. Then, in 1900, the Elevated sought the construction of a tunnel under Washington Street, which it would build at its own expense and after a thirty-year period the city would have the option of buying at cost.
This time, however, Brandeis would not stand alone in his opposition to the Elevated, but would be backed by a group of like-minded men organized in the Public Franchise League. Along with Brandeis, the roster included the retailer Edward Filene (one of Brandeis’s clients); Dr. Morton Prince, a prominent physician and ex-mayor of Boston; Robert Treat Paine Jr., like his father an important philanthropist and social reformer; and Edward Warren and George Upham, whose major interest involved preserving the downtown cityscape. In the first few years, however, the driving force behind the league consisted of one man. Brandeis planned the strategy, wrote much of the publicity, marshaled the troops to lobby the legislature, and personally paid at least 20 percent of the league’s operating budget. In 1905, Joseph B. Eastman became executive secretary, and for the first time Brandeis had a lieutenant who understood numbers as well as he did, believed in protecting the public interest, and who could work side by side with Brandeis without having to await instructions. “Joe Eastman,” Brandeis later said, “has more interest in the public service and less in his own career than any man I have ever known.” But even if Brandeis had to power the league, once he pointed the way, competent people like Filene and Prince could be relied on to do their jobs, especially getting the league’s side of the story out to newspapers and members of the legislature.
Edward A. Filene
The league managed to delay approval of the Elevated’s initial bill, so the company came back with another proposal: it would build the Washington Street subway at its own expense, and on its completion the tunnel would be owned by the city, but the Elevated would have the free and sole use of it for fifty years. The proposal appealed to legislators for the simple fact that no public money would have to be expended. The Elevated, however, carried additional clout that the Public Franchise League and its ally the Board of Trade would have to work hard to overcome. The Elevated had become one of the largest employers in the city, and it carefully made sure that local political leaders, especially Democrats, had some say in who got hired. One member of the legislature privately explained that he could not vote against any measure sponsored by the Elevated, because he had three hundred constituents working for the company.
While the Elevated wanted far more than had ever been given to a municipal franchise in Boston, it only sought what its counterparts in other cities had been able to obtain—long-term favorable leases—without significant opposition. Even within Boston, members of that part of the business community associated with banks and investment houses argued for long-term franchises because the uncertainties of short, revocable leases would make it difficult to attract adequate investment capital to finance the projects. Looked at strictly in terms of business models, the fight is less a battle between the “people” and the “interests” than a contest between the newer speculative members of the business community who wanted to exploit modern financial methods and the traditionalists who favored conservative practices and saw the state as the protector of the public interest.
Brandeis in his office
The blitz of letters and petitions to the legislature failed to stop passage, but Brandeis and the league had one more card to play. Together with other organizations that opposed the Elevated’s plan, such as the Board of Trade and the Merchants’ Association, they appealed to Governor Winthrop Crane, whom Brandeis had met a few months earlier in connection with another matter. Brandeis went to Crane and convinced him that signing such a bill amounted to condoning a deliberate violation of the law. Crane mirrored Brandeis’s argument in his veto message. The message elated Brandeis, who told Crane that he not only had defeated a bad measure but “had done it in such a way as to teach the people what to strive for, and what to expect.”
Although the league had defeated the bill, Brandeis and his colleagues understood that there would have to be a tunnel built under Washington Street to accommodate the growing need for public access into the downtown area. Rather than waiting to see what the Elevated would do, Brandeis and the league put forth a proposal in early 1902, providing for a city-owned subway to be leased to the Elevated on strict terms. The Elevated fought back with a bill of its own that in many ways copied the earlier measure that Governor Crane had vetoed, and its use of patronage and the offer to build it without public funds attracted many legislators. By late February, Brandeis had begun to wonder if the league could once again hold off the company. He urged those in the league and in the Board of Trade to step up their publicity efforts, and he personally went to see Mayor Patrick A. Collins, who appeared before a legislative committee to support the league measure.
Then, in one of those occurrences that would later become part of the Brandeis legend, the Elevated, which had appeared almost apathetic in fighting the league bill, came out in full force on the last day of hearings. Albert E. Pillsbury, the Elevated’s counsel, suddenly began tossing out one set of numbers after another to show that the Elevated’s income fell below expenses on many lines because of a too-liberal policy of free transfers. He asked the legislature to table the league bill, since the Elevated, in its depressed financial condition, could ill afford the high rental in the bill. No action should be taken, he urged, until the company could repair its damaged financial condition. Pillsbury deluged the committee with numbers designed to illustrate the company’s poverty.
Pillsbury had deliberately waited not only until the last day of hearings but in fact until the last hour, assuming that it would take days before anyone could go through his figures to contradict him. He had not counted on Louis Brandeis and his passion to know “all the facts that surround.” Brandeis had already studied the Elevated’s financial reports, and even as Pillsbury reeled off his figures, Brandeis mentally analyzed them and then took the floor to rebut Pillsbury. How could the Elevated be in such bad shape when its stock had risen from 104 to 170 in less than four years? How could the situation be so desperate when, in the last year with some lines out of operation, the company still had paid $600,000 in dividends? In fact, Brandeis charged, the company had so much money on its hands that it had raised the dividend rate from 4 to 6 percent. The Elevated had the financial resources to accept the lease on the league’s terms; it just did not want to do so except under arrangements that would harm the public interest. “We are here to see,” he reminded the committee, “that the control rests with the community, that the Elevated Railway Company, or any company that serves us as transporters of passengers, is the servant and not the master of the public.”
The committee, confused by the conflicting testimonies, decided to resume hearings a few days later, and this time Brandeis came armed with a full analysis of the Elevated’s financial condition. He took the transcript of Pillsbury’s statement and went over it line by line. “This statement is incorrect.” “This statement is at least misleading.” “This statement is grossly misleading.” The analysis ran fifteen pages, and Pillsbury, when he rose to speak, could only denounce Brandeis and the league as “impractical and ignorant.” While the Elevated damned Brandeis’s analysis as “sophistries,” the legislature agreed that the company could indeed operate the subway on the terms proposed in the league bill. There would still be some jockeying, and some last-minute attempts by the Elevated to get better terms, but the final bill authorized Boston to build and own the Washington Street subway, and to lease it to the Elevated for twenty-five years at an annual rental of 4.5 percent of the cost, the arrangement to be approved by public referendum. As Brandeis had predicted, the Elevated quickly agreed to the terms.
Brandeis and the league won the battle, and in fact over the next decade won several other skirmishes with the Elevated over the terms for new lines or extensions of existing lines into Cambridge and elsewhere. As late as 1911 the Elevated attempted to get a new long-term lease as preparation for consolidation with the West End Railway. Once again Brandeis utilized his contacts with the governor’s office, then occupied by Eugene Foss, to make sure that the new franchises adhered to the Commonwealth’s traditional pattern.
The Public Franchise League succeeded in its fight against the Boston Elevated and in its work on the gas schedule (see below), in large measure because of the hard work of Brandeis, Joe Eastman, and other members of the league who, if not generals in their own right, knew how to execute orders. In addition, Brandeis won over the support of influential editors and newspapers that supported the league position. They all shared a similar traditionalist philosophy about the relation of the state to private enterprise, the need to protect the public interest, and the moral necessity for fiscal integrity. They distrusted the new financial and corporate strategies, which often seemed to them little more than greedy and corrupt. In some very important ways, the battle with the Boston Elevated, indeed, much of the progressive movement itself, reflected a struggle between tradition and modernism, between older and perhaps more idealistic views of business responsibility and a concern for the public interest, on the one hand, and newer, what some might call Darwinian, ideas of the marketplace as a jungle in which only the strongest survived, with the public interest the first casualty, on the other.
In the end, market forces proved stronger than Brandeis had anticipated. Prior to 1897, investments in public utilities had been seen as practically gold plated. People needed gas, water, and transportation, and even with restrictive franchises and limited fares the stocks of these companies offered a decent and assured return on investment. After 1897, securities offered by the new industrial giants promised greater returns on investment than money put into public utility franchises with limits on the rates they could charge. Even utilities in good financial condition often had difficulty selling new stock issues because the returns could not match those of the large industrial concerns. Over the years cities and states often had to take over public utilities when they lost money and became financially untenable, or had to cut them greater slack and provide incentives to keep them operating. Here, as in many of his future battles, Brandeis spoke for the older traditions, in which morality and an idealistic concern for the public interest played a far greater role than did the realities of modern economic and financial markets.
ONE YEAR AFTER the passage of the Washington Street subway bill, Brandeis went to a conference in New York on urban reform sponsored by the National Municipal League to read a paper on the Boston Elevated fight. He played down his role and that of the Public Franchise League and instead lauded the role of the Massachusetts Board of Railroad Commissioners. In conclusion he advocated municipal ownership of the rights-of-way and a strong oversight commission to police both the conduct of the rail lines and the fares they charged. The audience response surprised him. The participants had a wider range of experience in municipal reform than he had and reflected a diverse gamut of opinions. Professor Frank Parsons in particular criticized Brandeis’s paper as presenting “a too roseate account of the situation,” and argued that neither of the two important commissions, those dealing with railroads and gas, had done a good job in protecting the public interest. The problem, Parsons explained, was that the commissions had very little contact with the citizenry and a great deal with the entities they supposedly regulated. As a result, the commissions soon adopted the corporation view of what constituted adequate returns on investments and the proper way to determine capitalization; in other words, the “commissions come very largely to see things from the standpoint of the corporations and not from the people’s standpoint.” This, of course, has become the standard—and, alas, oftentimes all too true—criticism of regulatory agencies ever since.
Brandeis listened carefully, and even though he would, throughout his life, be an advocate of public regulation of utilities rather than of public ownership, he recognized that he had limited experience in the matter. Never a “one idea man,” a term he used derogatorily for those who thought that one solution would solve all problems, he understood that at different times and in different places, regulatory commissions might not be the people’s protection and in fact might be, as Parsons charged, in collusion with the very interests they had been charged to oversee. This knowledge allowed him to be consistent in his overall philosophy, yet pragmatic in dealing with discrete issues. Unlike when dealing with the one-idea men, people who started out opposed to one of Brandeis’s proposals could talk to him and listen to his arguments, and he in turn would listen to theirs. Just as in his law practice, he saw himself not as an advocate of any particular program but as one who sought a solution that would be fair to all of the parties.
He returned to Boston with plenty of new ideas to mull over but soon found himself confronted by numerous demands on his time. He had to be vigilant as the Boston Elevated continued its efforts to secure long-term franchises. New troubles arose over the administration of city hospitals, and his old friend and client Alice Lincoln again asked for his help. He became involved in efforts to reform the school board and in the Good Government Association, and at one time talk ran rampant over the idea of his running either for mayor or for governor, notions he considered amusing but of no practicality or even of interest to him. And as he told his father, “I occasionally have to attend to law business.”
In the midst of all these activities, Brandeis received a letter from Edward Warren, chairman of the Public Franchise league, complaining that the league had failed to take an active role in combating the newly organized Boston Consolidated Gas Company, and saying that if Brandeis did not have the time or interest, a “new set of men” could be enlisted in the fight, or perhaps even a new organization might be founded.
BRANDEIS MUST HAVE BEEN aware of the problems surrounding the Consolidated, since the gas franchise had been attended by scandals of one sort or another ever since a colorful and unscrupulous financier, J. Edward O’Sullivan Addicks, had moved to Boston in 1884 and proceeded to duplicate the successful if questionable operations he had mounted in Philadelphia and Delaware. His goal, simply put, was to gain control of Boston’s seven small and independent gas companies, consolidate them, water their stock by issuing certificates based on a highly inflated valuation of their assets, and then sell off the stock at a huge profit. He created the Bay State Gas Company that year and let it be known that he intended to lay down gas lines throughout the city parallel to those of the existing seven companies and then, using new technology, produce and sell gas cheaper than they could. (Gas, produced in local plants through a process of coal gasification, had become the chief means of lighting in the United States in the nineteenth century. Although natural gas had been discovered in the Southwest, it would not replace coal-based gas until the great transnational pipelines were laid down after World War I.)
Some of the local companies fought back and secured the establishment of the Board of Gas and Electric Light Commissioners, which had a great deal of power over gas companies, but before it could go into effect, four of the companies sold out to Addicks. Although their combined assets probably did not exceed $5 million, Addicks increased their capitalization to $17 million through a dazzling series of financial maneuvers. The original stockholders, at least on paper, more than doubled the value of their holdings, and Addicks boasted that he had cleared more than $7 million in profit. What makes this all the more amazing is that unlike New York and Philadelphia, Boston had long had a reputation for public financial probity. The state had some of the toughest laws on the books prohibiting stock watering and other forms of corporate fraud. This may have been one of the reasons Addicks got away with his scheme. According to Thomas Lawson, an associate of Addicks’s at the time who later wrote the best-selling muckraking book Frenzied Finance, Boston had become far too trusting. “She had her own rules of business conduct which years of usage had consecrated into all-powerful precedent,” and as a result capitalists and financiers in the city remained suspicious of quick and tricky schemes. They just did not expect someone like Addicks, and fell easily into his snares.
In the next several years other players entered the city, including the Standard Oil Company, which bought one of the remaining independents, the Brookline Company, and then used it to leverage contracts with Boston and some nearby suburbs. Moreover, Brookline sold its gas at $1.00 per thousand cubic feet, considerably less than the $1.25 charged by Bay State. While competition supposedly works to benefit the consumer, the high costs associated with laying down parallel lines as well as the purchase or building of new coal gasification plants did not lead to lower prices. Everyone recognized that the solution lay in the consolidation of all the Boston-area gas companies, the elimination of duplicate lines, and tighter control of the rates and financial practices of this new company by the Gas Commission. At the request of the competing companies, the Boston Board of Gas and Electric Light Commissioners sent a bill to the legislature to consolidate the eight area companies. Stock in the consolidated company would be limited to an amount approved by the commission and equal to the “fair value” of the combined properties. The Public Franchise League opposed the bill, but Brandeis, then occupied with other matters, did not take an active role, and the bill became law in May 1903.
The problem that so upset Edward Warren involved the capitalization of the new conglomerate. Several of the predecessor companies had been incorporated not in Massachusetts but in Delaware, which allowed just about any manipulation of stock one could envision. Under Delaware law, the company could theoretically claim a capitalization of more than $160 million, far in excess of the actual value of its assets, and more than seventeen times the amount necessary, in the opinion of the Gas Commission, to supply the needs of Boston consumers. To Warren and to others the whole issue centered on what capitalization would be established. Under Massachusetts law, publicly regulated utilities could pay a fixed dividend on their capital, and the rates charged to the public would be determined by that figure. A company that paid 7 percent on $160 million would have to charge a far higher rate to consumers than if it had a capitalization of $20 million or even $50 million. When Brandeis responded to Warren’s letter, he agreed that the league should get involved, but he tried to point out that there might be other issues involved than just capitalization. And he pointedly asked, “Who are the new men you have in mind?”
The problem would be in ascertaining what constituted “fair value,” and a week later Brandeis sent Warren a long letter detailing the legal precedents in the Commonwealth over how fair value should be determined. Unlike Warren and some of his colleagues in the Public Franchise League, Brandeis, while looking to protect the consumer from paying unfairly inflated rates, also had concerns about the legitimate interests of the company. Whatever Addicks and others had done, a significant investment existed in gas lines, meters, and plants for which investors should realize a fair return. When the commission began to hold hearings that winter, the Consolidated claimed that its assets had cost over $24 million, and that a fair value should be no less than $20,609,989.99. Warren and the league countered that any figure larger than $15,124,121 would be fraudulent, eventually reducing that even further to $12 million. They demanded that gas be sold at no more than eighty cents a thousand, a 20 percent reduction from the current price of a dollar. Brandeis, although he did not cut his ties with the league, left the battle over capitalization to what he termed the “one idea men,” led by Warren and the league’s new counsel, George W. Anderson, who as a prosecutor had brought suit against the Haverhill Gas Company the year before and secured a ruling for lower rates. Instead, Brandeis appeared as unpaid counsel for the Massachusetts Board of Trade. Both the league and the board wanted a fair value below that proposed by the Consolidated, but the board had more interest in seeing that investors secured a fair return. Brandeis agreed with this, and they allowed him to be, in effect, counsel to the situation, trying to work out a proposal that would be fair to the Consolidated, its stockholders, and the public.
The Consolidated, thanks to its deep pockets and important backers, could expect that the legislature would respond favorably to its request even if the gas commissioners did not, and introduced a bill that would have given it the figures it wanted. As with the Boston Elevated and earlier with the Boston Disinfecting Company, the fight involved far more than an academic discussion of truth and justice. Brandeis recognized the political influence of the company, and while some people then and later tended to glorify him as a fearless independent crusader, he should not be confused with Don Quixote. He utilized facts to analyze a problem and devise a solution, and then he needed political savvy to get that solution implemented. Just because he chose not to run for political office, one should not see him as apolitical. Throughout his reform career, Brandeis played the game of politics extremely well. Lacking the financial resources of his opponents, he developed potent organizations and created public opinion to counter corporate pressure on the legislature, and he utilized his extensive contacts with public officials to affect the outcome of his campaigns. In fact, in the early stages of the gas battle, while Warren and the Public Franchise League traded accusations with the Consolidated over proper capitalization, Brandeis spent his time meeting quietly with Boston’s mayor and corporation counsel. On 9 March 1905, he spoke up publicly for the first time, in testifying before the Committee on Public Lighting of the state House of Representatives.
He began his testimony by stating that the Board of Trade, which he represented, “is not here to attack or defend the action” of any of the predecessor companies to the consolidation. Rather, the board’s sole interest lay in ensuring that “any consolidation which may take place shall be in accordance with the wise and established policy of the Commonwealth prohibiting stock-watering of quasi-public corporations,” as represented in the bill already presented by the board. He then carefully reviewed all that had happened before, the Commonwealth’s historical policies on stock valuation, and the need for the legislature to act cautiously and wisely in enacting the enabling legislation. The 1903 act had provided for a consolidation that, in fact, had not yet actually occurred; that statute, however, had some serious defects that could now be corrected. No special favors should be given in special legislation; such a law would fly in the face of the Commonwealth’s historic and successful traditions.
Unlike Warren’s heated rhetoric (which Brandeis had unsuccessfully tried to calm), Brandeis’s testimony appears cool, temperate, and seriously in search of a solution fair to all involved. There is no mention of capitalization, no tossing around of numbers, no reminders of the past duplicity of Addicks and others. It is as if Brandeis recognized that a new start had to be made, and that to do so, people had to move beyond the old issues and take a fresh approach. He would not, of course, budge on core issues such as stock watering, but that had, as he pointed out, long been the Commonwealth’s policy. Moreover, he undercut the company’s defense of its property rights by identifying the long-standing Massachusetts principle that companies enjoying a public franchise had to be held accountable because they also enjoyed a public trust.
In terms of accounting, Brandeis and Edward Warren differed over what items ought to be legitimately included as part of the Consolidated’s fair value, and the one-idea men sharply attacked Brandeis for agreeing to any of the company’s demands. Moreover, he could never get Warren to understand that the ultimate price of gas would be determined by multiple factors, not by any one of them alone. Even if, for example, capitalization were to be fixed at a low number, what would be the rate of return allowed by the law, an issue that Warren and Anderson apparently never considered? If the legislature allowed a 7 percent return on $15 million (the league’s original figure), that would mean a higher charge for gas than a 5 percent return. How would future expenditures be calculated, and what would happen if new technology became available that could provide for cheaper gas? Brandeis later wrote of Warren that he had been an important member of the league, “not by reason of his ability, but mainly because of his energy and the time which he could and did give to it. He is a man essentially narrow-minded and of few ideas.” Such men, whom he considered fanatics, he had written years earlier, “should be sacrificed when the end is accomplished—like animals which had borne the gods to sacrificial feasts.”
As Brandeis mulled these issues over, his thoughts returned to the paper he had heard in New York two years earlier detailing the experience of the London sliding scale. In the debate between municipal ownership and regulation of private franchises, English reformers had come up with what seemed like an ideal and foolproof system. First the proper capitalization of the company’s assets had to be determined, because that figure would be the basis for both profit and rates. After the company and public officials agreed on capitalization, they would also agree on the standard dividend and a normal price for gas. If, by way of technical improvements, the company could lower the cost of producing and distributing gas, it could then earn more money and increase its dividend. But it could only increase the dividend if it also reduced the price it charged for gas. If, on the other hand, the costs of production rose, the company could raise the price of gas only if it correspondingly reduced the dividend. The plan required very little interference by government other than an annual audit of the books and was, according to its advocates, self-regulating.
It seemed to Brandeis that if the sliding-scale plan could be implemented, it would provide the best means of assuring fairness to all concerned. It would also, as with the liquor lobby a decade earlier, remove the necessity of the gas company or consumer interests running to the legislature every year. He began talking to members of the legislature, the mayor, and other officials, handing out material on the sliding scale, and suggesting that this might be a way out of an otherwise very unpleasant situation. In this effort, he also made clear that he spoke for himself, and not for the Board of Trade. For them he advocated a general measure with anti-stock-watering provisions and no more, a position he made clear but that people like Warren failed to heed. He prepared a memorandum on the subject for the Public Lighting Committee, a copy of which somehow got into the hands of the Boston Evening Transcript and led to a very positive news story on the plan.
Up to this point, Brandeis had carefully avoided attacking the company. In his testimony on 9 March, he had not even mentioned the company or its checkered past, but had focused on the necessity of a bill that ensured fairness to all parties and fell within the Massachusetts tradition. Then the Consolidated ran a series of full-page advertisements across the state attacking the Public Franchise League and its figures, and defending its own proposed valuation. In addition, J. Harvey White, acting on behalf of the Consolidated, had sent a fake “news story” on the controversy to a number of papers. The story should be run, White insisted, “without advertising marks of any sort” and “set as news matter in news type, with a news head at the top of the column.” The “news story,” parading as a disinterested report, predicted that a settlement would soon be reached with all parties in essence agreeing to the Consolidated’s figures. In mid-April, Samuel Bowles, the editor of the Springfield Republican, ran a story, but not the one White wanted. Instead, he printed the letter and charged White and the company with attempting to falsify the news and mislead the public.
The disclosures proved very embarrassing to the Consolidated and its new president, James L. Richards. The son of a farmer, Richards had amassed a fortune before he was forty, and the investment house of Kidder, Peabody & Company had chosen him to head the Consolidated. Richards, who enjoyed a reputation for personal honesty, moved quickly to distance himself from the scandal and declared that he had had nothing to do with the fake story. Moreover, he had read all of Brandeis’s statements and approved of the moderate tone that he had taken in the hearings. Then a copy of the sliding-scale memorandum had come into his hands and intrigued him. Above all, he believed that Brandeis could be trusted. A mutual friend and Brandeis client, Charles Palen Hall, suggested that Richards call Brandeis, which he did on 24 April. Richards apologized for the White advertisements and said that although he had not been involved, as president of the company he would have to bear the onus for them. They then discussed nearly all of the issues outstanding, and while it would be too much to say that they resolved them in the course of the two-hour conversation, the two men recognized that they would be able to work together.
In the next few days, Brandeis met privately with Richards and with Frederick E. Snow, the Consolidated’s attorney, and Snow drew up a bill incorporating their agreement. The new company would be capitalized at $15,124,600—only a few hundred dollars more than the league had originally suggested, although $3 million more than Warren now demanded—and would provide gas at the rate of ninety cents per thousand feet within a year of its implementation. The bill called for the governor to appoint a commission to consider and to report to the legislature whether the sliding scale should be adopted in Boston. The three men probably went even further, confident that they would have a say in whom the governor appointed to the commission, and that the league would support its implementation.
While Snow put the finishing touches on the legislation, Brandeis hurriedly called a meeting of the Public Franchise League and the Board of Trade at the Bellevue Hotel on 3 May, and informed them of what had occurred. Warren bitterly opposed the measure, because Brandeis had not secured the valuation that he and the league wanted, and claimed that the gas rate should have been reduced to eighty cents, not ninety. But, as Warren resentfully noted, Brandeis made such a persuasive speech that a majority of the members voted to endorse the package. The Board of Trade refused to endorse the bill, but apparently not because of the valuation. Dr. Morton Prince, who shared Warren’s anger at the measure, asked whether it would be possible to reopen the question later, and in disgust and anger Brandeis replied, “Don’t cry, baby!” Warren would never forget or forgive Brandeis, and began casting slurs on him for acting on a “low ethical plane.” Warren resigned from the league, became a vociferous opponent of the sliding scale, and in 1916 worked feverishly to prevent Brandeis’s confirmation to the Court.
Brandeis saw the agreement as a compromise, better than the 1903 act, which had serious flaws, and also as part of a larger settlement of the issue. With the backing of the league and of the Consolidated, the legislature passed it a few weeks later, and Governor William Lewis Douglas signed it into law, albeit with reservations. The legislature and the governor named a special commission, consisting of the three gas commissioners; James E. Cotter, recommended by the company; and Charles Palen Hall, a close friend of Brandeis’s. In August two of the gas commissioners and Cotter went to England and Ireland to examine the sliding scale in practice. In their report all three of the gas commissioners attacked the plan (which would have essentially driven them out of business), but Cotter and Hall, with the help of Brandeis, wrote a report urging its adoption.
Opposition to the sliding scale was neither simple ignorance nor blind antagonism to progress. No one, not even Brandeis, knew if it would work. Advocates of public ownership of utilities believed there should never be private profit on gas or any other necessity of life. Although Richards supported the sliding scale, he needed to tread carefully. While the company had responsibilities to the public, it also had to look after the interests of its investors, and a sliding scale, linking dividends to reductions in the rates, must have seemed a harebrained scheme to more than one person. And, of course, the one-idea men like Warren would never admit that the plan had any good features at all. During the fall and winter of 1905–1906, a public debate ensued in Boston about the potential for both good and bad in the proposal, and then it came time to act.
On 20 April 1906, Richards wrote to Brandeis that the Consolidated agreed to a plan including the sliding scale and setting 7 percent as the proper dividend rate, with an increase in dividends of 1 percent for every five-cent reduction in the price of gas. It seemed wiser to him, however, that the bill be introduced by the Public Franchise League, without saying specifically that the Consolidated agreed to its terms. Privately, however, he assured Brandeis that if the bill passed, the company would accept it. By then, Brandeis knew that Richards would keep his word, and it only remained for the legislature to enact the law, which it did in May. Governor Curtis Guild signed it into law on 26 May 1906.
The sliding scale went into effect with gas selling at ninety cents a thousand, the Consolidated capitalized at a little over $15 million, and the dividend rate set at 7 percent. Almost immediately the company reduced the price of gas to eighty-five cents so that it could continue paying its dividend at the old rate of 8 percent. Within a year, good management and the introduction of some new technology allowed the company to reduce the price of gas to eighty cents and to raise its dividend to 9 percent. In the short term at least, boldness and creativity seemed to produce what Brandeis had wanted, a solution fair to all concerned.
TO HIS BROTHER, Brandeis wrote, “I consider this a most important step in public economics and government—an alternative for municipal ownership—which will keep the Gas Co. out of politics.” Brandeis, throughout his life, said that he wanted to keep government out of business, a sentiment that many conservatives shared; but, and perhaps more important, he also wanted to keep business out of government. Following the gas fight he made this observation a number of times. While many people had wanted a fair capitalization and cheaper gas, few of them had looked, as Brandeis did, at the interests of the company and its stockholders. And he alone seemed to understand that only a just solution would allow the company to pursue its business interests without resorting to the legislature to redress real or imagined ills. James Richards also understood this and, like Brandeis, recognized that the demand for municipal ownership could only be averted if the public believed that the utilities treated the consumer honestly.
Brandeis’s victory in procuring the sliding scale drew the attention of a number of newspapers as well as many municipal reformers around the country, who wrote to him asking about details of the scheme. He provided an answer in the November 1907 issue of the American Review of Reviews, and how he started the article is telling: “Shall the public utilities be owned by the public?—is a question pressing for decision in nearly every American city.” While it remained a matter for debate, clearly Brandeis preferred that government not get involved, other than in ensuring that privately owned franchises and utilities obeyed strict laws of financial probity and served the public interest at a reasonable price. He trumpeted the savings that Boston gas consumers had realized in the first two years of the plan, as well as the benefits to the company. “This saving was not attained by a sacrifice of the interests of the stockholder,” who saw not only the dividend rise but also the value of the stock, which went from 441½ to 57½ in that same period and even held firm at 52 during the Panic of 1907.
As usual, Brandeis neglected to mention his own role and gave fulsome credit both to the Public Franchise League (without discussing the deep divisions in that organization) and to James L. Richards, whom he praised as the model of an enlightened business leader. For Brandeis, this combination of public-spirited citizenry and progressive entrepreneurship seemed a far better model for America’s cities than public ownership. “If the demand for municipal ownership in America can be stayed, it will be by such wise legislation as the Public Franchise League has promoted and by such public service as Mr. Richards and his associates are rendering in the management of a private corporation.”
THE TWO MUNICIPAL REFORMS involving street railways and the gas company are interesting less in themselves than in what they teach us about Louis Brandeis and his maturation as a reformer in a relatively short period of time. Neither problem was unique to Boston; throughout the progressive era many cities struggled with regulation of transportation and public utilities. The solution of the Boston Elevated involved no grand theories, but an insistence on traditional Massachusetts values, namely, that corporations serving the public interest had to follow rules laid down by the government. The Consolidated Gas episode started out pretty much the same way, with Brandeis and the Public Franchise League insisting on a fair capitalization in accordance with the Commonwealth’s laws against stock watering.
Both fights taught Brandeis a lot. First, while he might be better informed and better organized than any of his companions, alone he could do little. One man, no matter how cogent his argument, how persuasive his facts, just could not hope to impress legislators who, for reasons both good and bad, had multiple constituencies to look after. After the first part of the Elevated fight, he would never again tackle any issue by himself. Behind him there would always be some organization, and as he went on, these groups tended to be bigger, better organized, and more persuasive.
He probably always understood that in order for reform to succeed, one had to play the political game, and between 1897 and 1916 he became a master political tactician. He made it a point to know the power brokers in state and local government, and later in Washington, so that, at appropriate times, he had access to them. One could write letters to the editor galore, but ten minutes alone with the governor could yield a veto of a bad bill.
He also understood that being too visible would make him a lightning rod for the opposition. Following the signing of the sliding-scale bill, he told his brother, “I succeeded in running this campaign mainly by putting others on the firing line: as your girls would say ‘the man behind.’” Actually, for all that he tried to utilize others in writing editorials, speaking to legislators, and the like, everyone understood where the energy came from for the sliding-scale plan. Despite the split in the Public Franchise League, Brandeis managed to get a fair degree of support from those who rejected Edward Warren’s blinkered approach to the problem. He had access to, and used, the editors of major area newspapers to run editorials opposing the initial valuation and then later supporting his plan. As Brandeis became a more celebrated reformer, he found it harder and harder to stay out of the limelight, no matter how many lieutenants he utilized.
Although Brandeis hoped that the sliding scale would be copied by other cities, that did not happen. Neither Brandeis, Richards, nor anyone else at the time recognized a major flaw in the system. The sliding scale was designed to improve efficiency, and it operated on the assumption that, in order to get a higher dividend rate, the company would work to increase its productivity and that the consumer would then benefit from lower prices. Everyone discounted the idea that prices would go up, because no one could conceive of a situation in which the company would not be able to control its costs. During World War I, however, the price of coal shot up dramatically, and the Consolidated proved neither able to control costs nor willing to slash dividends. The Board of Gas and Electric Light Commissioners recommended, and the legislature approved, an end to the sliding-scale experiment and returned to a system of normal utility regulation.
The sliding scale was not a gimmick, despite its failure to survive inflation and the lack of interest by others in adopting it. Aside from its creativity and its effort to forge a mutually beneficial partnership between the company and its consumers, it is of value in illustrating one aspect of what made Brandeis so successful a reformer: his willingness to look at all sides of a problem. Sometimes, as with the Boston Elevated, simple issues required straightforward solutions. But when he looked at the gas problem, he understood that the consolidation, the valuation, the setting of rates and dividends, and the need to divorce the company from politics made for a complexity that required a novel approach in order to treat all parties fairly. While he hoped that the plan might be copied, he also understood that it had solved Boston’s problem because the solution fit the issues. In other places, other conditions would require different approaches. This open-minded pragmatism, while always adhering to basic traditional principles, is a hallmark of all of Brandeis’s activities, a blend of the idealistic and the pragmatic.
Considering how much Brandeis attempted to protect business interests—after all, he did have a large commercial law practice—it is somewhat ironic that in these battles he began to antagonize and even alienate men who should have been standing with him in upholding the Commonwealth’s traditions. Although Boston lagged behind New York in funding the new industries, the State Street banks and financial houses had become more heavily invested in the new economy. They objected to Brandeis’s reminders of traditional Massachusetts practices not only because they made them uncomfortable but because they now subscribed to a new ethos that emphasized profit and downplayed public interest. Leaders of the city’s financial and professional elite, men who had welcomed Brandeis into their homes and clubs, soon began to shun him. Rumors, sometimes breaking into the open, accused him of unethical or unprofessional behavior. How much of this can be attributed to anti-Semitism is impossible to determine, but whatever the reason a man who considered Boston the center of the universe now found it a much lonelier place than it had been.
FOR HIS WORK on the special committee to investigate the sliding scale, the Commonwealth paid Charles Palen Hall $2,000, and in light of how much Brandeis had helped him, especially in drafting the minority report, he wanted to share that money with him. He called Brandeis up and asked him to take part of the money. Brandeis immediately refused, and later that day wrote to Hall: “I shall take it as a personal affront if you insist upon paying to or for me in any form, shape, or manner discernible by man any part of the $2000…. The very best use that can be made of that fund is for you to keep it yourself, but if it will relieve your mind I shall not object if a small part of it goes to the Public Franchise League. But that is the utmost limit to which you can get my assent.”
As a member of the Public Franchise League, indeed as its driving force, Brandeis clearly could not accept any fee for his services. When he represented a group such as the liquor lobby, he of course charged, but as he became more involved in public service, he developed what for the legal profession at the time many considered not only an aberrational but indeed a subversive habit—he would not accept payment. In his earliest reforms, such as working with Mrs. Lincoln on public institutions, he essentially represented her as her lawyer, and she paid him accordingly. Then he began giving his fees back, or donating them to charities, and then he stopped taking money for public work altogether.
He had said almost from the time he entered law practice that he hoped, at some point in the future, to be able to devote a portion of his time to the public good. By 1905, Brandeis was spending some days almost entirely involved in public causes. When Edward Filene tried to get a bill from Brandeis for some service Brandeis had performed during the traction fight, Brandeis kept putting him off. Finally, in exasperation, Filene went to Devonshire Street and bearded the attorney in his office. He later wrote that Brandeis “told me he never made a charge for public service of this kind; that it was his duty as it was mine to help protect the public rights; and when I remonstrated, saying that he and his family were dependent upon his income, he told me that he had resolved early in life to give at least one hour a day to public service, and later on he hoped to give fully half his time.”
The idea of a lawyer doing work pro bono publico, for the good of the public, is now an accepted part of American legal practice, with nearly all firms paying at least lip service to the concept and many actively encouraging partners and associates to engage in such work. While it might be too much to say that Brandeis invented the practice—for surely others besides him gave of themselves to public service—he certainly focused attention on the concept and, despite the criticism he received from the established bar at the time, won public approbation as well as the title the “People’s Attorney.”
As he grew more famous, reporters interviewing him would ask about this odd practice, and his answer on one occasion gives us a glimpse of the man who valued his privacy and shared little knowledge about himself with the public:
Some men buy diamonds and rare works of art; others delight in automobiles and yachts. My luxury is to invest my surplus effort, beyond that required for the proper support of my family, to the pleasure of taking up a problem and solving, or helping to solve, it for the people without receiving any compensation. Your yachtsman or automobilist would lose much of his enjoyment if he were obliged to do for pay what he is doing for the love of the thing itself. So I should lose much of my satisfaction if I were paid in connection with public services of this kind. I have only one life, and it is short enough. Why waste it on things I don’t want most? I don’t want money or property most. I want to be free.
Initially, Brandeis meant to give a small part of his time, not realizing that his financial success would eventually make it possible to give days, weeks, and sometimes months at a stretch to public service. While he worked to finish up the sliding-scale plan, a new problem emerged that was to require even more of his time and energy, and whose novel solution would result in what he called his most important reform.