Although busy in 1910 with Pinchot-Ballinger, the New York garment strike, and other matters, Brandeis never forgot the New Haven and his defeat at the hands of Charles Sanger Mellen. Railroads became an important part of his life both as a lawyer and as a reformer during these years, working with the Interstate Commerce Commission in several rate cases. The man who had taken on Morgan and Taft captured even more headlines when he announced that railroads could save a million dollars a day by adopting scientific management.
At the beginning of the twenty-first century we tend to forget the central role that railroads played a hundred years ago in the movement of people and goods. Although packet boats plied the coastal waters and some horse-drawn omnibuses traversed narrow and unpaved roads, if people wanted to go from New York to Chicago, or to send goods from St. Louis to Atlanta, they used the railroads. Today, of course, a person driving a car on one of the nation’s interstate highways will see uncounted tractor-trailers carrying everything from fresh-cut flowers to industrial machinery. In 1910 cars had yet to become the vehicle of choice for the masses; there were no interstate highways, and no federal routes of any sort, only random and often ill-paved state roads; and neither big nor little trucks played any part in moving goods. The idea of flying between New York and Chicago would have marked a person as a hopeless lunatic.
The fate of railroads and their rate structures mattered, since transportation of raw materials and finished products within the United States went almost entirely by rail. Should a railroad go bankrupt, it could leave towns, factories, and farms without the means either to get their goods to market or to bring in supplies. If railroads raised rates, small businesses in one part of the country might be put at a severe competitive disadvantage to competitors nearer to markets. Brandeis knew this from firsthand experience. His family’s wholesale grain business depended upon rail transportation, and increased charges of even a few dollars per hundredweight could make a difference between profit and loss.
“They All Want Mr. Brandeis Now,” Boston Post, 1910
AFTER THE PASSAGE of the Draper Act in June 1909, the New Haven seemed immune from attack. The attorney general of Massachusetts believed the line had violated the law and thus could have its charter revoked, but he was reluctant to take that step; even the mention of it brought protests from the financial community. In Washington the Taft administration, although vigorously pursuing several major antitrust cases, saw no reason to reopen the New Haven files. At the prodding of members allied with Brandeis and the Anti-merger League, the Massachusetts legislature appointed a special body, known as the Validation Commission, to examine the New Haven’s finances, but no one expected that body to turn up damning evidence of wrongdoing.
About this time, however, the New Haven began to suffer financial problems, which were only temporarily relieved when the state made the stock of the Boston Railroad Holding Company—the entity created by the Draper Act and owned by the New Haven that held the Boston & Maine stock—legal investments for savings banks and allowed the Boston & Maine to issue preferred stock. Moreover, when the Validation Commission, as expected, gave the New Haven a clean bill of health, the Boston News Bureau, a firm that put out pro-business releases in the form of news stories, gloated over how wrong Brandeis had been. The Validation Commission had portrayed the New Haven as a picture of “admirable financial and physical integrity,” despite the charges made by Brandeis. His pamphlet on the New Haven “is practically forgotten. Even its author might now blush to read it.”
Indeed, promerger sentiment seemed to be riding high in early 1911, and included not just business executives but men who took a leading role in Massachusetts reform, such as Charles Sumner Bird (who would head the state’s Progressive Party in 1912) and Eugene Foss, who had bolted the Republican Party and as a Democratic governor elected in 1911 oversaw the passage of a number of reform measures. Samuel Bowles, publisher of the Springfield Republican, Joseph Walker, a leader in the assembly, and Edward Filene of the Public Franchise League all supported the merger, and all had been and would continue to be close Brandeis allies in other reforms. Brandeis himself recognized that people of goodwill could differ. “I have no objection to those who take the merger side,” he said. “There is always room for difference of opinion.”
As later historians have noted, the antimerger case had many weaknesses, starting with its attempt to uphold a “status quo” for the Boston & Maine as a Massachusetts-owned railroad. Even before the New Haven had purchased its shares in 1907, the B & M had been controlled by out-of-state investors, especially the American Express Company of New York. By 1908, American Express, for its own reasons, had decided to divest itself of B & M shares and had engaged Lee, Higginson & Company as the broker. State Street bankers could not have been happy at Brandeis’s allegations about financial instability as they tried to underwrite a very large sale of B & M stock.
Although Brandeis had believed that the Boston & Maine had been in good financial condition and had been bled by the New Haven, it turned out that the B & M needed a large infusion of money for improvements and had not been able to raise it. In 1906 it had failed to sell $6 million worth of new stock, leading the Massachusetts assembly to liberalize its laws regarding stock issues by public service companies. By then the B & M had found itself trying to sell new shares at the same time that American Express wanted to sell off its very large holdings of the railroad’s stock.
Perhaps the weakest part of the antimerger argument was that it could not present an alternative policy to those who saw Massachusetts business interests threatened by external developments. Railroad lines linking New York and Philadelphia to the interior, as well as the diversion of foreign and coastal shipping to those ports, could not be controlled by either the Massachusetts government or its business leaders. Mellen held out a plan—consolidate New England transportation and make it more competitive vis-à-vis the other East Coast regions—that on the face of it seemed to respond to the problem.
Finally, New England shippers worried about the growing powers of the Interstate Commerce Commission. The ICC did not get rate-making power from Congress until the Mann-Elkins Act in 1910, but prior to that the ICC had served as an arbitrator in disputes over rate differentials among trunk lines serving the Atlantic ports and had made several decisions unfavorable to Boston and the merchants involved in its maritime and rail commerce. These fears were not unfounded. In 1909, in defiance of an ICC ruling, the New Haven and other railroads had lowered their rates on goods shipped westward. In 1912, armed with its new powers, the ICC forced the roads to increase their rates to a point higher than they had been in a decade, a step that further weakened the financial status of the Boston & Maine and the New Haven.
In the face of these arguments, merger made sense, and as Congressman Samuel W. McCall noted, New England no longer had the influence it once enjoyed. The growth of the country and migration westward had drained Massachusetts and other northeastern states not just of people but of the political authority they used to wield. Creating a strong and unified transportation system in New England to keep the region’s economy strong made very good sense to many people.
Brandeis never really addressed these issues, but rather focused on what he considered unorthodox and illicit financial practices. In the end, as he told Norman Hapgood in late 1911, despite Mellen’s broad view that had captured so many people, the rules of arithmetic could not be ignored. By then a careful reading of the balance sheets had shown that the New Haven could barely afford to pay a 4 percent dividend, even though Mellen told stockholders that Mr. Morgan wanted the “New Haven to be recognized as a permanent 8 per cent stock.” Even if the road did not earn that much in any given quarter, it would pay the 8 percent to avoid hardship on small investors and prevent any “serious distrust” of the management. By 1911, Brandeis had also become an inveterate foe of monopoly, in part because of the depredations he believed resulted from J. P. Morgan’s efforts to control all of New England’s transportation through the New Haven. Then Morgan intervened to protect the New Haven and in doing so unleashed a strong attack on the line.
IN 1910, over the objections of the New Haven, Massachusetts had invited the Canadian Grand Trunk Railway to extend its lines to Boston. Construction had started, and even before a single train could run over these tracks, the New Haven’s financial condition worsened. On 8 November 1912 the newspapers reported that construction on the Grand Trunk had stopped, and almost immediately Gilson Gardner, a journalist with close ties to Brandeis, wrote an article with the headline “KING MORGAN SLIPS INVADERS $4,000,000 TO STAY OUT.” Other newspaper stories followed: Brandeis had gone to Washington to confer with the Pujo Committee, then looking into banking malpractices, to see if the charges against Morgan were true. Attorney General Wickersham had been asked to determine whether the action violated antitrust laws. Brandeis would serve as counsel for a congressional investigation.
In fact, Brandeis had nothing to do with any of these proposals. Sidelined by an eye inflammation for more than a week, he had been confined, as he put it, to dictating interviews for various newspapers on the New Haven, and he felt confident that some of the leading papers in both New York and Boston would this time be with him. He also sent out numerous letters to editors and writers encouraging them to start probing into the New Haven’s wicked ways. He told Robert La Follette and Senator Moses Clapp that in view of the Supreme Court’s recent ruling holding the purchase by the Union Pacific of 46 percent of Southern Pacific stock to be illegal, perhaps it would be a good time to introduce new and stronger antitrust legislation, and he thought the activities of the New Haven certainly justified such a course.
With his eyes better, Brandeis published his first piece on the New Haven in three years, and in it he attacked the line as “an unregulated monopoly.” The article launched a thoroughgoing attack on monopoly that he had clarified in several articles as well as in his role as adviser to Woodrow Wilson in the 1912 presidential race (see chapter 14). Brandeis conceded the necessity of having some local monopolies, especially in public utilities, but those could easily be regulated. Enormous conglomerates like the New Haven, however, could not be. Moreover, like a bloated glutton it suffered from the curse of bigness, which further harmed the public through excessive costs and poor service. To solve the problem, Brandeis demanded that the combination of railroads, steamship lines, and street railways be broken up and competition restored. This could be accomplished either by the federal government instituting a suit under the Sherman Antitrust Act or by Massachusetts exercising its sovereignty to take away the Boston & Maine.
While the actions of Morgan and Mellen could not be excused, the fact is that the simplicity of Brandeis’s solution, while reining in some of the excesses, did not address the larger issues. By 1910 railroads in the United States had been overbuilt, and although the great trunk lines that ran across the country did compete, smaller markets did not generate enough business to justify the service of more than one road. The financial shenanigans of Morgan and Mellen affronted Brandeis’s moral sensibilities, and rightly so, but he failed to understand that even if he could undo all that had been done over the past decade, serious problems remained to which neither he nor anyone else in the antimerger group had any viable solutions to offer. Mellen may have been right in his vision of a unified transportation system, and he had never tried to hide what he and Morgan wanted to do. Had they done so more honestly, trying to get the legislature to amend the law to accommodate their vision, and then kept honest books, Brandeis might have opposed their plans, but he would have viewed the struggle in far different terms. People could agree or disagree about the wisdom or benefits of the merger, but he could not abide the lying and deceit that had accompanied it.
The New Haven’s condition continued to deteriorate so that the end could be delayed but not averted. To continue to pay its regular dividend and service its huge debt—taken on to finance the various acquisitions—the management cut back on critical track and equipment maintenance and reduced its workforce. As a result, the once proud line piled up a horrible record of train wrecks, four in 1911 and seven in 1912, that caused dozens of deaths. Even advocates of the merger began to question the wisdom of Mellen’s grand scheme, and Brandeis’s attacks now received a far more respectful hearing than they had earlier.
Mellen fought back viciously. He subsidized a Boston publication called Truth, edited by George R. Conroy, that attacked Brandeis in an openly anti-Semitic fashion. Brandeis, the publication charged, had for years been an agent of Jacob Schiff of the Jewish banking house of Kuhn, Loeb & Company, which represented the Jewish house of Rothschild in the United States. The Brandeis-Schiff-Rothschild campaign against the New Haven should be seen as part of the “age-long struggle between Jew and Gentile.” Schiff, known among his people as a “prince in Israel,” had given millions to Jewish charities, “keeping in mind always the Yiddish proverb, ‘He who has the money has the authority.’” On 20 December, a week after Brandeis’s article appeared in newspapers around the country, Morgan and Mellen issued a joint statement in which they traced every defamatory statement ever made about the New Haven back to Louis D. Brandeis. The accidents, which had also killed “trusted employees,” had been exploited by Brandeis and his minions to frighten the public and “to demoralize the transportation and traffic of New England.” The public, for its own interest, should call “Halt!” to this irresponsible campaign.
Brandeis, while no doubt appalled by the anti-Semitism of his opponents, chose not to respond. “Mellen continues his fire on me—the root of all offending,” he told Alfred, “& I carefully refrain from attacking Mellen personally or answering personalities. The N.Y. papers have been on the job & there is little need for me to hammer now; but I still have some rods in pickle.” Brandeis probably had little to do with a federal grand jury indictment of Mellen on antitrust charges, but Mellen no doubt blamed him for it. Initially, Mellen waived immunity, hoping to spare J. P. Morgan additional strain, since the banker now had all he could handle in the Pujo investigations. (Later, when granted immunity, Mellen “almost gloried in the vicious squalor, the total absence of business scruples,” and compared railroad competition to “one man cutting the heart out of another.”)
In early 1913, Brandeis kept up his search for information about the New Haven and its finances and did play a hand in getting the new attorney general in the Wilson administration, James C. McReynolds, to begin both civil and criminal investigations into the New Haven. Less than a week after Woodrow Wilson took the oath of office, Brandeis went to the White House to meet with him, and also spoke to McReynolds and other officials “pushing along New Haven matters.” Less than a month later he went back “mainly on New Haven matters. The Co. & its backers are fighting hard—the inevitable and me—with increasing bitterness. But arithmetic must ultimately prevail, even over false accounting.” While in Washington, Brandeis also met with several of the ICC commissioners regarding their plans to investigate the New Haven. After Brandeis had given a speech in early March to the Boston Chamber of Commerce, New Haven stock dropped to a new low, and the company’s defenders quickly blamed Brandeis and his rumormongering for the decline. When a reporter asked him about these comments, Brandeis labeled them “nonsense.” The trouble, he declared, is due not to the critics but to the New Haven itself. “It’s merely a matter of arithmetic, that’s all.”
Then the bottom dropped out for both Mellen and the New Haven. On 31 March 1913, Mellen’s collaborator and greatest defender, J. Pierpont Morgan, died in Rome. In May the Interstate Commerce Commission began hearings on the New Haven, with Brandeis there nominally to represent the Boston Fruit and Produce Exchange, although it quickly became clear that the ICC looked to him as if he were acting as their counsel. (When the New Haven brought pressure on some of the leaders of the exchange, they cut their ties to Brandeis, who then appeared in his capacity as a citizen, one to whom the ICC turned constantly for advice.) With the ICC’s subpoena power and investigatory staff, the charges that Brandeis had made for the last seven years suddenly acquired new life. John Billard had made a profit of $2.7 million on the phony transfer of Boston & Maine stock without risking a penny of his own money. An audit of the New Haven’s books disclosed an unaccounted amount of $514,000 in general expenses, eight times the amount normally carried by Class A railroads. Instead of earning its dividend, the line actually operated at a loss in 1911 and 1912. Two ships carried on the books as worth $900,000 had recently been sold as junk for $44,000. When the New Haven asked that sub sequent hearings be held in private, Commissioner Charles A. Prouty refused. “Sub rosa investigations never achieved anything.”
Mellen tried to fight back in his usual manner, accusing Brandeis of all sorts of improprieties dating back two decades, but this time the ploy failed. The Boston Journal, which had previously supported the merger, declared that Mellen “does not commend himself to the public by his intemperate and twenty-year belated attack on Mr. Brandeis. We hold no brief for Mr. Brandeis but we are frank to say that Mr. Mellen’s twenty-year search for a flaw seems to make a pretty good case for the man he seeks to vilify.”
On 12 June a collision between two trains at the Stamford, Connecticut station killed seven passengers and injured dozens more, the worst accident in the New Haven’s history, and clearly the result of negligence in maintaining the tracks and equipment.
On 9 July the commission issued its report castigating the New Haven for its financial practices, and took care to point out that many of the charges made by critics of the line (they did not mention Brandeis by name, but surely meant him) had been true. The fault lay not in the critics or their charges but in the New Haven management and its practices. “Had the stockholders of the New Haven, instead of vilifying the Road’s critics, given some attention to the charges made, their property would today be of greater value and the problem an easier one.” The ICC also recommended that the New Haven be stripped of its trolley and steamship holdings.
Had the older Morgan still been alive, he would have spewed rage and stuck by Mellen. But a new JP now headed the house of Morgan, and Jack had taken his father’s seat on the New Haven board. On the same day that the ICC released its report, Jack forced Mellen to resign from the Boston & Maine, and a week later ousted him from the New Haven, overriding the wishes of the rest of the board. (“He who has the money has the authority.”) The younger Morgan had no more ideological sympathy with government regulations or bureaucracy than did his father, but he also recognized that the age of the robber barons had passed, and that tactically the house of Morgan had to do something to calm the public uproar generated by the Pujo hearings and the ICC report. The obnoxious Mellen, who by now had few defenders, would be the sacrificial offering.
Brandeis received the news of Mellen’s departure from the Boston & Maine with studied indifference. In a statement to the press he called it “a step in the right direction, but it does not go far enough.” The public would not be satisfied until the New Haven severed its ties to the Boston & Maine. To his brother, he called Mellen’s resignation “interesting,” and even more so the fact that several newspaper that had hitherto condemned him and his attacks now echoed his views. The Boston Herald, for example, without mentioning Brandeis, endorsed the view that the B & M and the New Haven should be under separate management and ownership, for each line had different problems and each would require the full attention of a capable man.
Mellen’s ouster from the New Haven, according to Brandeis, looked “as if the seven year war were drawing to a close.” Much remained to be done, including getting a new board of directors, and he doubted that the new president of the New Haven, Howard Elliott, would be much better. In fact Elliott, the former president of the Northern Pacific line, although eschewing Mellen’s propensities for monopoly, proved almost as irresponsible and utterly incapable of fixing the situation. In September 1913 a wreck outside New Haven killed twenty-one passengers and trapped forty boys returning from summer camp for hours until they could be rescued. That December the debt-ridden New Haven skipped its dividend for the first time in forty years, making a mockery of the Morgan bank’s assertion that the road would always be known as an 8 percent investment. Facing antitrust charges as well as further ICC investigations, the Morgan people, who controlled the New Haven board, finally recognized the depths of their trouble. “Whole situation disgusting,” Henry Davison cabled Jack Morgan, “but must recognize that Brandeis et al. have ear of President and Attorney General just now.” The younger Morgan wanted to resign from the New Haven board, but stayed on because he recognized that such a step would confirm Brandeis’s attacks on banker management.
Although Howard Elliott pleaded for time and cooperation, he got little of either. In July 1914 another ICC report (which Brandeis could have written but did not) detailed the “reckless and profligate” monetary operations of the New Haven. The previous month Attorney General McReynolds had issued an ultimatum to the New Haven—either give up control of the Boston & Maine and divest the trolley and steamship lines or face antitrust proceedings. When the company hesitated, McReynolds, with the full approval of President Wilson, began proceedings under the Sherman Act. On 11 August 1914 the New Haven surrendered, and the seven-year war between Brandeis and the house of Morgan ended, although the tale still had a few sorry chapters to play out. The New Haven would not pay another dividend for fourteen years; it paid $1 per share in 1928 and $5 in 1929 before the Great Depression began, and would never pay another penny to its stock holders. Eventually its passenger services would be incorporated into Amtrak and its freight lines bought out by other roads.
Brandeis believed that the New Haven disaster resulted from immoral business practices. Mellen, despite his great energy and intelligence, could not—nor could any man—take on such enormous and divergent responsibilities as running two railroads and do well by either one. But looming above it all stood the law of arithmetic “by which two and two will always make four, despite reports of presidents and financial advisors who insist on stretching it into five.” Brandeis ultimately placed the greatest blame not on Mellen, who had been blinded by his own vision, but on people like Henry Lee Higginson, “the Pillars of Society,” who should have known better and did nothing to stop the destruction, not only of the money held by small and large investors alike, but ultimately of a once great railroad. As Brandeis told one correspondent, he hoped that the New Haven debacle “may also bring a renewal of New England’s traditional respect for law and for the truth.”
IN JUNE 1910, Congress passed the Mann-Elkins Act, enlarging the rate-making powers of the Interstate Commerce Commission. The new law put the burden of proof for any proposed rate increase on the carrier, which had to show the need for and reasonableness of higher charges. A few weeks later, two groups of railroads filed proposed changes that called for a 10 percent rate increase on freight handled east of the Mississippi River and north of the Potomac and Ohio rivers. If the ICC approved, shippers in this area would have to bear millions of dollars in increased transportation costs, and they organized to fight the proposal. In Boston, David O. Ives, the head of the Transportation Committee of the Boston Chamber of Commerce, who had been an ally of Brandeis’s in the New Haven merger fight, wanted Brandeis to represent the shippers at the ICC hearing. He went out to South Yarmouth, where Brandeis had gone with his family after the talks in the garment workers’ strike had collapsed, and talked him into taking on the shippers as clients.
One week later Brandeis went to New York, where lawyers for both the railroads and the shippers gathered at the Waldorf-Astoria for the preliminary hearings before ICC examiners. Brandeis quickly emerged as the leader of the shippers’ attorneys as they attacked the testimony of the railroad witnesses. The railroads had assumed that there would be no difficulty in securing the rate increase, because they had figures to show how much more they had to pay for labor, coal, materials, and other costs. For the most part, relatively minor officials came armed with memoranda detailing these facts, only to have Brandeis, Clifford Thorne, or one of the other attorneys tear apart their testimony on cross-examination. None of the railroad men had evidently had any role in the preparation of the numbers, and the lawyers easily elicited their admissions that they really did not know what the figures had been based on or how they had been arrived at. There had been a wage increase, as everyone knew, but the railroad men seemed unable to explain exactly how that required higher freight rates.
In late September the preliminary hearings ended and resumed in Washington in mid-October before the entire commission, this time with the full attention of the railroad leaders, as the presidents of the Pennsylvania, the Baltimore & Ohio, the Erie, and others all crowded into the hearing room. They had learned from the failure of their underlings that neither the shippers’ attorneys nor the ICC commissioners would let them get away with generalities, so they now tried to back up their claim with more facts. The wage increases recently given to their employees would cost the railroads $34 million more in 1910 than they had paid in 1909. In addition, there had been other cost increases. Roads had been extended and service improved—often at the request of the shippers. Newer terminals and equipment provided better and faster freight service, all at a cost, and freight revenues had been dwindling. The railroads had already cut expenses almost to the bone, explained James McCrea, the president of the Pennsylvania, and they needed the rate increase not to pad dividends but so they could continue in business. Representatives of the railway brotherhoods as well as an investors’ association also endorsed the rate request.
Brandeis showed no more deference to the presidents and other high officials of the railroads than he had shown to their minions in the preliminary hearings, and gradually a thread emerged in his questioning. He intimated that they really did not need the rate increase, because they had been operating their lines inefficiently. Moreover, the railroad leaders had not yet grasped what the Mann-Elkins Act required; namely, that they justify the need for the rate increase. Brandeis and the other shippers’ attorneys knew that they did not have to make a case against the increase; the law required the railroads to prove the need for it. The situation is akin to a criminal trial. The burden of proof is on the prosecution to show that the defendant did in fact commit the crime; the defense does not have to prove that the client is innocent, but only that the prosecution has not proven the case beyond a reasonable doubt. An exchange with Charles F. Daly of the New York Central illustrated this. Brandeis had gotten Daly to concede that the various rates for different articles had been reached not by any systematic process but more by the arbitrary judgment of the railroads as to what they should be.
Daly: We haven’t anything from you or from your clients, except your statement which is not in our judgment worth any more than mine, and in this particular instance, I don’t think it is worth as much.
Brandeis: I am not undertaking, Mr. Daly, to set up my statement. Fortunately, counsel have only to present the evidence. You understand, of course, that under this new law the burden rests upon you … to show that the change you propose making is reasonable?
Daly: Well, in order for you to disprove my statement you must show to the Commission that what we have done has injured your industry.
Brandeis: I submit that there is no such obligation resting upon me or my clients.
As always, Brandeis had made sure to learn everything he could about the railroads’ financial conditions prior to the hearings, and time and again on cross-examination he confounded the railroad witnesses by displaying a far better understanding of their revenues and payouts than they did. In his cross-examination of James McCrea, for example, Brandeis forced the Pennsylvania Railroad head to concede that he did not fully understand the actual prosperity of his company. Brandeis had certainly raised doubts in the minds of the commission about the carriers’ need for an increase, but he had another weapon that he had been preparing.
All through the hearings Brandeis had been meeting with Frederick W. Taylor, Harrington Emerson, Frank Gilbreth, and other advocates of scientific management. In a line of questions that had lawyers on both sides as well as the commissioners a bit confused, Brandeis kept asking the railroad men about how they managed their business, about how much it cost to repair certain items, about the costs of running certain operations. He had a purpose, however, which he kept to himself, but he had set the stage when he dropped his bombshell in early November.
The railroads did not need a rate increase, he told the commission; instead, they needed to adopt principles of scientific management. He proposed to prove to the commission that if the roads implemented scientific management, they could save $1 million a day in operating expenses, or more than $300 million a year. This estimate, he said, is “by no means extravagant; and you will see as we develop the science and develop its application in varied businesses that the estimate is, if anything, an underestimate instead of an overestimate.” Brandeis then began calling witnesses to testify how scientific management could be applied to railroads. Charles Going, editor of the Engineering Magazine, related how Harrington Emerson had reorganized the work in the repair shops of the Atchison, Topeka & Santa Fe Railroad and saved the company over $1 million a year in locomotive repair costs alone. Then Emerson himself took the stand and, under Brandeis’s guidance, explained to the commission just what he had done. All told, it appeared that the Atchison alone had saved nearly $6 million a year by running its operations more scientifically.
At first the railroads tended to dismiss the claim. William Ellis, a lawyer for the railroads, argued that the ICC had no right telling his clients how they should run their own business, and certainly not on any strange theories cooked up in “the law library in Boston.” Brandeis ignored the sarcasm and won the applause of the audience when he declared that the day had passed when the critics of vested interests could be dismissed as impractical; reformers were nothing if not practical. The new science of management did not come from his law library, but had developed in factories all around the country. The railroads, of course, had not argued that they ran their businesses according to the principles of scientific management, and in fact had admitted they did not. Initially they took a rather bemused view of Brandeis’s witnesses, and their cross-examinations, as one paper reported, began “in a spirit of flippancy and ended in a rather awkward silence.” What had happened, as the railroad heads began to appreciate, is that Brandeis had completely undermined their credibility. They had failed to understand, and one wonders why their lawyers had not explained it to them, that under the new law they could not just claim they needed a rate increase, they had to prove it. In cross-examination, Brandeis, Thorne, and others had consistently shown that the figures offered by the lines did not make sense and often did not even rely on anything other than arbitrary judgments. With the headline-catching phrase of a million dollars a day, Brandeis had done what any good defense lawyer would do—he had raised a reasonable doubt regarding the railroads’ claim. If they could save that much money simply by adopting principles of efficiency, then they certainly did not need a rate increase.
Brandeis did not charge the railroad leaders with incompetence. Rather, there had been a failure “to apply in railroading the new science of management which in a number of competitive businesses has already been applied.” Raising rates would not solve this problem, and at some point the railroads would realize that higher rates would in fact lead to diminishing returns. They needed to look at every aspect of their operation, from the laying of tracks to repairs to the scheduling of trains, and examine whether that particular operation, in conjunction with closely related jobs, was being performed in the most efficient and effective manner.
On 23 November, a group of western railroad presidents attempted to discredit Brandeis by calling what they considered his bluff, not realizing with whom they were dealing. They offered to allow Brandeis to set his own salary if only he would point out how these savings could be effected, and closed with the line: “This proposition is made to you in the same spirit in which you rendered your statement to the [Interstate Commerce] Commission.” They sent their telegram to him care of the commission, and so he did not respond until it had been forwarded to Boston a few days later. He immediately offered to show them exactly how to save the money, and suggested they call a conference, one that would include the presidents of the eastern lines as well, and there, as a public service, he would do as they had requested. As for money,
I must decline to accept any salary or other compensation from the railroads for the same reason I have declined compensation from the shipping organizations whom I represent—namely, that the burden of increased rates, while primarily affecting the Eastern manufacturers and merchants, will ultimately be borne in large part by the consumer through increasing the cost of living, mainly of those least able to bear added burdens. I desire that any aid I can render in preventing such added burdens should be unpaid services. Kindly suggest date and place for conference.
The railroad officials never responded.
By this time Brandeis’s reputation extended far outside Boston or even Massachusetts. He had, after all, argued before the Supreme Court in defense of protective legislation; he had taken on the house of Morgan over the New Haven, and the Taft administration in the Pinchot-Ballinger hearings; and he had helped resolve the New York garment workers’ strike. But none of these brought him the national headlines that accompanied his million-dollar-a-day claim. The Outlook, which carried Theodore Roosevelt’s articles, noted that Brandeis had been well-known in progressive circles, but nothing had made him a national figure so much as his statement before the ICC. “America is rich in idealists,” the editor concluded, “but it is rare to find one whose idealism is, like Mr. Brandeis’s, not only aggressive but practical and efficient.”
RAY STANNARD BAKER, one of the era’s best-known journalists, wrote a firsthand account of Brandeis in these hearings, and it provides a rare portrait of the man physically as well as in action. The hearings had been important, Baker noted, for after all they involved millions of dollars, “but as dull and prosy as ever such a hearing could be.” He continued:
I remember the sudden change in the whole atmosphere, however, the new electricity, when Mr. Brandeis’ tall, spare, rugged, slightly stooping figure arose in the middle of the room to dispute the claim of the railroads. Almost from the first sentence—he speaks in a high, rather harsh voice, but with implicit command—one felt a new sense of breadth of grasp, sureness of understanding, aptness of expression, and above all, above that wearisome tinkering with infinitely minute details and musty precedents, a return to constructive principles and vigorous new remedies for ancient evils….
I remember his whole bearing. His large head with the stubborn black hair streaked with iron-gray (he was then 54 years old)—the striking, dark, strong face, the sensitive hands—he has the hand of a musician—gave one singularly an impression of originality and power. His face, indeed, at certain angles, and especially in repose, recalls almost startlingly one of the portraits of Abraham Lincoln. It is more like Lincoln above in the intellectual equipment perhaps, less broadly and commonly Lincoln below, in the wide mouth and chin. There is the same high and broad forehead, prominent cheekbones, strong nose, deep-set, thoughtful, sometimes visionary eyes. The mouth with sharply cut lines above it is emphatically sensitive, rather than so broadly sympathetic as that of Lincoln. It is one of those rare, and indeed scarcely classifiable faces—although Jewish, not typically Jewish, although American, not typically American, in which the qualities of strength of character, side by side with keenness, sensitiveness, depth of vision, and even, at times a kind of sad mysticism, are extraordinarily mingled. Rising in any gathering, stepping forth on any platform, he would instantly command, even from his bitterest enemies, an acknowledgement of force, originality, personality. Here is a man of power!
WHETHER THE RAILROAD PRESIDENTS appreciated Brandeis as much as Baker did is doubtful, but they had to listen, if for no reason other than the public response to his claim. The New York Tribune summed it up in a headlined article on 4 December, “BOMBSHELL WHICH BRANDEIS HURLED INTO CAMP OF THE RAILROADS WAS LABELLED ‘EFFICIENCY.’” The story, which ran eighty-four column inches and is typical of newspaper reaction around the country, not only detailed Brandeis’s assertions about the potential for savings but carried stories—and details—of shops like the Atchison that had implemented scientific management and how much they had saved.
Ideas of scientific management had, of course, been around for more than a decade, and were well-known in industrial engineering circles, but Brandeis’s argument and his parade of expert witnesses, according to one historian, “lifted the Rate Case from inside the daily papers to the front page. It overflowed into the Sunday supplements and was caught up by the weekly magazines.” The beauty of the argument is that it did not pit labor against management but, in Brandeis’s words, put the interests of the public first, the public that would have to bear the costs of any rate increase. Adopting scientific management would not wound labor, for in a properly run shop good workers would be rewarded. Nor would it harm railroads, whose health everyone understood related closely to the economic well-being of the country.
The Interstate Commerce Commission unanimously rejected the rate request in February 1911, and as Brandeis told Felix Frankfurter, “The Commission did, I think quite as much as they could, and rather more than I thought they would with the efficiency argument. They accepted the fundamental principles that improvements in economy and management were possible, and they must be made before the need [for rate increases] would be recognized.” Having no choice, the railroads began to look at scientific management. Daniel Willard, president of the Baltimore & Ohio, told a reporter, “As I see it, there is only one thing for us to do—to put into effect the Brandeis greater efficiency system.” Before long, many railroad officials became enthusiasts. By 1916 several officials had claimed large aggregate savings, and in 1919 Ivy Lee of the Pennsylvania Railroad praised Brandeis for making his suggestions, declaring that in the preceding decade the net operating income of the Pennsylvania alone had increased approximately $1 million a day.
The following July, Louis went out to Kentucky to visit his brother and joyously reported to Alice how the cream of Louisville society had come out in ninety-five-degree heat to see him. “The heartiest greeting of all was from the railroad men,” he noted. “All the L[ouisville] & N[ashville] chiefs, including W. H. Smith, the President who is over 75, were on hand, & Mr. Egan, the Illinois Central superintendent insisted I must call at his office on my way off this morning. He wanted his ‘boys’ to see me.”
A GREAT DEAL has been written about the relationship of scientific management to the progressive movement, about its potential for elitism and anti-majoritarian rule. It is doubtful if Brandeis gave much thought at the time to the long-term effects or the potential for abuse. He recognized labor’s opposition, but did not understand it. To him, in the shop or factory run on the Taylor method, workers would certainly produce more, but their productivity would be rewarded. Labor considered Taylorism nothing more than a speedup, believing that while a few workers might get an occasional bonus, the majority would simply work harder for the same or reduced wages.
Taylorism never really worked as well as its advocates claimed, in part because labor often sabotaged it. After civilian workers struck at the Watertown Arsenal in 1911 over an alleged speedup, Congress held hearings on the system, and investigators concluded that scientific management did not enhance the welfare of the workers. In 1916, Assistant Secretary of the Navy Franklin Roosevelt banned the Taylor system in government arsenals and navy yards.
Brandeis and other progressives saw scientific management as a way to impose some order on an industrial system that had lost its moral bearings. The wastefulness of modern factories relied upon a vast pool of unskilled labor, and big companies could afford to ignore traditional American values such as thrift, hard work, and willpower because unskilled labor cost them so little. Efficiency, progressives believed, would lead to a more humane management and a greater desire by workers to achieve personal satisfaction through a job well done. Personal efficiency would lead to social efficiency. If one could instill pride and self-discipline in the workplace, those values would translate to the greater society and to the political world.
Scientific management required the cooperation of both employer and employee. If one wanted workers to be more productive, the price of lowering costs would be higher wages to the laborer. The selfishness of both groups would balance out, and both would gain, the owner through higher profits and the worker through higher wages. The lessons of the marketplace, cooperation and efficiency, would lead to better government, as well as to a more moral society. How far Brandeis himself took the lessons of scientific management is hard to say, but it is of a piece with his overall philosophy. There is, of course, a large dose of morality here, as there is in all of his reform work: the belief that scientific management could point the way to a better workplace where older virtues could again prevail. Unfortunately, the idealist here failed to pay attention to the realities.
ALTHOUGH SOME RAILROADS began to experiment with scientific management following the 1911 decision, two years later the lines came back to the Interstate Commerce Commission with a request for a 5 percent rate advance, and cited higher wages and taxes, capital charges, and other burdens to justify the request. Brandeis expected the railroads to file the petition, but told his brother that he had not decided whether to get involved. He thought that the request should probably be denied, and he had “inspired some editorials the country over, demanding efficiency & abolishing interlocking directorates first.” In the spring of 1913, Brandeis certainly did not need the problem of a major investigatory hearing, with the new Wilson administration and progressive members of Congress calling on him almost daily for advice on policy, appointments, and bill drafting. He had also acquired a new interest, and wrote his brother in early June that he had come down to New York to “spend the day on Zionism” (see chapter 17).
Faced with what they knew would be a complex case, however, the commissioners turned to Brandeis for help. They knew him from the Eastern Rate case and knew that he understood railroad finance as well as anyone in the country. In late June he met with the commission secretary, John Hobart Marble, and, while not taking any formal role, agreed to provide informal advice. On 18 July he sent Marble a list detailing what information the commission should begin to gather in preparation for the hearings. One month later he received a letter from Commissioner James S. Harlan inviting him to serve as special counsel in what would be known as the Advance Rate case. Brandeis accepted, but insisted that the hearings not start before October, “as my vacation was delayed this year and I should be unable to do any work in the case before the middle of September.”
In the Eastern Rate hearings, Brandeis, although serving without a fee, had clearly been identified as counsel to the shippers. In the Advance Rate case he played a different role, one unfamiliar to many of those involved, and which led to numerous attacks by shipping interests and their attorneys, claiming that Brandeis had betrayed their trust. Part of the problem grew out of the ambiguity in Harlan’s letter of invitation. Brandeis’s task would be “seeing that all sides and angles of the case are presented of record, without advocating any particular theory for its disposition.” This did not bother Brandeis, because he saw it as asking him to take on a role he had often performed, counsel to the situation. But another line in Harlan’s letter noted, “We are of course aware of the fact that the carriers will not fail fully to present their side of the case and the Commission has felt that every effort should be made in the public interest adequately to present the other side. Would you care to undertake that burden?” On the one hand, Brandeis had been asked to be counsel to the situation, but on the other, the commission apparently wanted him to make sure the shippers’ interests received adequate representation.
This led to confusion in some quarters, and bitterness on the part of people like Clifford Thorne who believed that Brandeis had been retained to represent the shippers as he had in the earlier Eastern Rate investigation. Newspapers also assumed that Brandeis had been brought in to oppose the rate hike, and many painted him as an inveterate opponent of the railroads. The Washington Post, recalling both the Eastern Rate case and the New Haven fight, labeled him “a consistent foe of the railroads,” hiding his prejudices in the “anomalous capacity of ‘citizen’ in anti-railroad litigation.”
The commission, on seeing such comments, tried to make Brandeis’s position clear, and the chair, Edward Clark, issued a statement to the fact that Brandeis had been “employed to assist the Commission…. We see no reason why anyone should assume that his employment can disadvantageously affect any interest.” One of the few people who understood Brandeis’s role, Professor Ernst Freund of the University of Chicago Law School, hoped that Brandeis would be able to establish a precedent in administrative law, then a fledgling subject in the nation’s law schools. A counsel to the commission, as opposed to a counsel for either side, “represents not one side or the other, but purely the public interest, which is the interest of justice to all concerned.” There should not have been any confusion at all whom Brandeis represented. The ICC hired him and paid him nearly $14,000 for his work. Brandeis treated this case as a matter of professional work, with the Interstate Commerce Commission as his client and the public interest his responsibility.
There is no need to go into the details of the hearings. Unlike in the Eastern Rate case, Brandeis dropped no bombshells, no million-dollar-a-day headline grabbers. People expected him to grill the railroad officials closely, but sparks began to fly when he also started asking shipping representatives discomfiting questions such as about the lower rates enjoyed by the larger shippers. The railroads and the shippers focused their attention on whether existing rates yielded adequate revenues for the lines, but Brandeis and the commission also wanted information on what the carriers ought to do to fix the situation if revenue proved insufficient.
Once again, Brandeis moved down to Washington, spent his days at the hearings, and then retired to his rooms at the Hotel Gordon to study the next batch of documents. By then he had also become involved in the affairs of the Wilson administration, which claimed much of his time. He managed to get in his daily walks, usually early in the morning, and about the only other relaxation he had came from a book he had picked up, Alfred Zimmern’s Greek Commonwealth, which, as he told the author a few years later, “has given me more pleasure than any other book read within the last ten years except Gilbert Murray’s Bacchae. During the winter of 1913–1914, when I was absorbed by a Railroad investigation, it was my only recreation. A few pages administered at bedtime provided efficient refreshment.” Zimmern’s ideas would greatly affect Brandeis’s views on the ideal society and his hopes for the type of Zionist commonwealth to be created in Palestine.
Although he initially opposed the rate increase, in the end, and much to the chagrin of the shippers, Brandeis came to the conclusion that in fact some eastern-district rates were too low and should be increased. When the commission issued its report at the end of July 1914, it closely followed Brandeis’s recommendations, rejecting most of the railroad requests but allowing some raises in specified areas. It also reflected Brandeis’s views that the railroads continued to operate inefficiently, and that additional savings could be secured through better management. Many people suspected that Brandeis had himself written the report, but the evidence suggests that the commission relied upon but did not slavishly follow the arguments he made in his closing brief and argument. Clifford Thorne and other shipping representatives not only saw Brandeis’s handwriting in the report but also accused the Boston lawyer of bad faith in backing some of the railroad claims. This returned to haunt Brandeis when nominated to the Court; Thorne was the very first witness against him and one of his most implacable foes during the confirmation hearings.
THERE IS A SHORT POSTSCRIPT to the Advanced Rate case. A few days after the commission announced its decision, war broke out in Europe, and reports of the fighting crowded all other news from the front page. The railroads immediately seized upon the disruptions caused by the war to reopen the matter a little over a month after the commission report. On 9 September heads of six large railroads appealed directly to President Wilson, suggesting an era of good feeling in which the roads would cooperate fully with the government in its response to the crisis, and, of course, the railroads would get the rate increase they needed. The commission opened new hearings in mid-October, over the anguished protests of the shippers, and again asked Brandeis to serve as counsel.
Brandeis reluctantly agreed, but feared that reopening the case so soon after the original decision would give the railroads and their bankers the opportunity to undermine the commission’s authority. The hearings from his point of view went badly. “The RRs & Bankers did not do themselves much credit,” he complained to his brother soon after the hearings reopened. “If they have their way they will utterly break down the Commission & even if they are beaten they will have succeeded in greatly impairing its standing and their own defense against lawlessness and public ownership.”
The facts had not changed since the original hearing, he argued, and while the railroads did need additional revenue, they also had to make their operations more efficient before they could justify a rate increase. The commission for its own sake and authority should stick to its initial decision. He suspected, however, that his reasoning would not prevail. On 16 December the commission voted 5–2 to grant the railroads the 5 percent rate increase they had sought. Brandeis predicted the decision would be a “misfortune to both the RRs and the Comm’n & will do much to hasten government ownership.”
Although the government did take over the railroads during the war, and in fact ran them efficiently under a unified management, at the end of the conflict the lines returned to private ownership. Brandeis’s dire predictions of public anger failed to materialize, at least in part because people understood that the war—even before America’s entry in April 1917—caused disruptions of normal economic relationships. What might have angered many before the war now struck them as perhaps undesirable, but explicable.
All told, Brandeis’s campaign to explain scientific management to the railroads had not been a failure, certainly when compared with his efforts to get labor to accept it. Some of the more enlightened railroad men, such as Daniel Willard of the Baltimore & Ohio, initially accepted it reluctantly, as the only option available to them after the commission decision in the Eastern Rate case. Once the program began to show the results that Brandeis had predicted, railroads embraced the idea more fully, although not in the manner that Taylor, Brandeis, and others had proposed. Scientific management, as a true partnership between employer and employee, never caught on.
With the successful conclusion of the long struggle against the New Haven and the rather more mixed results of the two rate cases, Louis Brandeis could finally turn away from railroad problems and address other and more pressing interests.