if 
 
1243 
 
 V. 
 
 ir ^Jo 
 
 CORNELL 
 
 UNIVERSITY 
 
 LIBRARY 
 
 FROM 
 
CORNELL UNIVERSITY LIBRARY 
 
 924 092 563 935 
 
h Cornell University 
 J Library 
 
 The original of tiiis bool< is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924092563935 
 
H. T. NEWCOMB, 
 
 LAWYER 
 -BOND -eUli-DING, WASHINGTON, - ».«. 
 
REGULATION OF RAILWAY RATES. 
 
 
 Q^i" BEFORE THE 
 
 COMMITTEE U INTERSTATE COMMERCE, 
 
 UliflTED STATES SEI^fATE, 
 
 IN SPECIAL SESSION, 
 
 PURSUANT TO SENATE RESOLUTION No. 288, 
 
 FIFTY-EIGHTH CONGRESS, THIRD SESSION. 
 
 APRIL. 17, 1906. 
 
 WASHINGTON: 
 
 GOVERNMENT PRINTING OFFICE. 
 
 1905. 
 
 I IJfUKY 
 
INTERSTATE COMMERCE COMMITTEE. 
 
 SEIfATE OF THE UiaTED STATES. 
 
 STEPHEN B. ELKINS, of West Virginia. 
 
 SHELBY M. CULLOM, of Illinois. 
 
 NELSON W. ALDRICH, of Rhode Island. 
 
 JOHN KEAN, of New Jersey. 
 
 JONATH.\N P. DOLLIVER, of Iowa. 
 
 JOSEPH B. FORAKER, of Ohio. 
 
 MOSES E. CLAPP, of Minnesota. 
 
 JOSEPH H. MILLARD, of Nebraska. 
 
 BENJ.iMIN R. TILLMAN, of South Carolina. 
 /ANSELM J. McLAURIN, of Mississippi. 
 
 EDWARD W. CARM.4.CK, of Tennessee. 
 j^VRPnY J. POSTER, of Louisiana. 
 
 FRANCIS G. NEWLANDS, of Nevada. ^ 
 
 Colin H. Livingstone, V 
 
 Cleric to Committee. 
 
 2 
 
 
REGULATION OF RAILWAY RATES. 
 
 The committee met at 3 o'clock p. m., Monday, April 17, 1905, pur- 
 suant to the call of the chairman. 
 
 Present: The chairman (Hon. S. B. Elkins), Senator CuUom, 
 Senator Kean, Senator Dolliver, Senator Foraker, Senator Clapp, 
 Senator Carmack, and Senator Newlands. 
 
 The chairman read the resolution, pursuant to which this investi- 
 gation is made, as follows : 
 
 [Senate Resolution No. 288, Fifty-eighth Congress, third session.] 
 
 Resolved, That the Committee on Interstate Commerce, or any subcommittee 
 thereof, is instructed to sit during the recess of the Senate, at such times and 
 places as may suit the convenience of said committee or subcommittee, to con- 
 sider the question of additional legislation to regulate interstate commerce and 
 lo authorize the Interstate Commerce Commissloji to fix rates of freights and 
 fares, and to acquire further information as to interstate commerce, including 
 violations or evasions of the antirebate law and the device-3 and methods by 
 which such evasions are accomplished, and including refrigerator and other 
 private car systems, industrial railway tracks, switching charges, and the like, 
 and also to consider what legislation should be enacted in relation to the liability 
 of railroad companies engaged in interstate traffic, or operating lines in any ter- 
 ritory of the United States, for injuries received by their employees when in the 
 discharge of duty; said committee or subcommittee is authorized to employ 
 experts, administer oaths, take testimony, send for persons and papers, employ 
 a stenographer to report its hearings and to have them printed, which hearings 
 shall be sent, as soon as printed, to each member of the Senate. Said committee 
 shall make a full report of its proceedings hereunder by bill or otherwise within 
 ten days after the meeting of the next Congress. 
 
 And all necessary expenses to caiTy out the provisions of this resolution shall 
 be paid from the contingent fund of the Senate. 
 
 March 2, 1905. 
 
 Senator CuUom read the following letter : 
 
 [Bureau of Car Performances and Statistics, 602 Gaff Building, 234 La Salle street.] 
 
 Chicago, Ajnil 10, 1903. 
 Hon. Shelby M. CtTLLOM, 
 
 Oniied fitates Senator, Washington, D. C. 
 
 Mv Dear Senator: Referring to the subject-matter of our interview in Chi- 
 cago last Thursday. 
 
 On reflection, I have concluded to comply with your request to assist the 
 Senate Committee on Interstate Commerce in the performance of the duty 
 which has been devolved upon tAat body. Owing to impaired vision and the 
 difficulty experienced In gettingjaround I will ask you to kindly arrange to 
 have the date of my appearance before the said committee postponed for a few 
 weeks. Possibly the committee will expect to take testimony in the West, in 
 which event my convenience could be consulted. I am undergoing daily treat- 
 ments which it is hoped will benefit me, and as the retention of that which 
 remains is vital we wish to avoid interruption at present. 
 
 You asked me regarding the number of private cars. From the best infor- 
 mation at our command, we made up a statement last December, and I inclose 
 herewith a copy of the same. It is approximately correct. You may recall 
 
4 REGULATION OF RAILWAY RATES. 
 
 tHat I said there were about 50,000 refrigerator cars. The total number, yoii 
 will observe, is 49,807, but 15,000 are controUed by railroad companies, leaving 
 in the neighborhood of 35,000 as the number of refrigerator cars owned or 
 operated by lines or individuals. 
 
 Yours, respectfully, J. W. Midgley. 
 
 List of private cars. 
 
 Refrigerator cars o 49,807 
 
 Tank cars 14,792 
 
 Stock cars 11, 357 
 
 Poultry cars 325 
 
 Box ears and coke racks 20,964 
 
 Coal ears and gondolas 17,085 
 
 Flat cars 861 
 
 Furniture ear.s, vehicle cars, etc --- 1. 621 
 
 Unclassified cars 10,519 
 
 Total 127, 331 
 
 THE NATIONAL INCORPORATION, REGULATION, AND TAXATION OF 
 
 RAILROADS. 
 
 Senator Newlands. ]\Ir. Chairman, the committee has given me 
 the opportunity of placing in the record of these hearings an explana- 
 tion of the resolution introduced by me during the last session, which 
 is as follows : 
 
 [Fifty-eighth Congress, third session, Senate Resolution No. 86.] 
 
 JOINT RESOLUTION creating a (■ommlssion to frame a National Incorporation Act for 
 railroads engaged in i)itorslate c-onimerce. 
 
 Resoh-cil. etc., That a commission consisting of fourteen members, one of whom 
 shall lie experienced in railroad traflic management, to be appointed by the 
 President of the United States, one of whom shall be an attornev at law, to be 
 appointed by the Attorney-General, one of whom shall be an expert in transpor- 
 tation, to be appointed by the Secretary of Commerce and Labor, one of whom 
 shall be an expert in transportation law, to be appointed by the Interstate Com- 
 merce Commission, five of whom shall be Senators, to be appointed by the Pres- 
 ident pro tempore of the Senate, and five of whom shall be Members of the 
 House of Representatives reelected to the Fifty-ninth Congress, to be selected 
 by the Speaker of the House, shall frame and report to the Congress of the 
 United States a national incorporation act for railroads engaged in interstate 
 connnerce, providing, among other things, as follows : 
 
 First. For the construction of interstate railroads throughout the United 
 States, the amount of the bonds and stock to be issued by such corporations to 
 be determined by the Interstate Commerce Commission, and not to exceed In 
 any event the actual cost of such railroads ; 
 
 Second. For the consolidation of railroads now enraged in interstate com- 
 merce, the amount of stock and bonds issued for such consolidation to be 
 approved by the Interstate Commerce Conuuission, and not to exceed in anv 
 event the actual value of the railroads consolidated, such value to be determined 
 by the Interstate Commerce Commission ; 
 
 Third. For the increase of the issues of bonds or stock by such cornorations 
 for the purchase of connecting or intersecting lines, for new construction or for 
 betterinent of the roads, the amount of such issue of stock and bonds to be 
 determmed by the Interstate Commerce Commission, and not to exceed in nnv 
 event the cost of such new construction, the betterments, or the Value of the 
 intersectmg or connecting lines acquired ; 
 
 Fourth. For the classification by such railroad corporations of all articles of 
 freight into such general and special classes as may be necessary and t\-nertient 
 and also the fixing of transporation rates for freight and passengers by such 
 
 «0f the above number of refrigerator cars, 34,538 are owned bv «triPtir 
 private parties, and 15,260 operated by lines owned by railroads .jf.nhi^ 
 JI. D. T., A. R. T., S. F. D., etc. ^'"Jroaas, such as 
 
REGULATION OF RAILWAY RATES. 5 
 
 railroads, such classification and rates to be subject to revision and amendment 
 by the Interstate Commerce Commission upon complaint of shippers and 
 localities ; 
 
 Fifth. For the reasonable and just exercise of such power in classifying and 
 regulating such rates of freight and fare by providing that such power shall be 
 exercised by the Interstate Commerce Commission in such a way as to yield 
 each railroad corporation a fair return of not less than 4 per cent per annum 
 upon the value of it's road and property, such value to be ascertained by the 
 Interstate Conmierce Commission ; 
 
 Sixth. For the hearing by such commission of complaints made either by such 
 railroad corporations or other party at interest regarding the decision of any 
 rate, classification, order, or regulation adopted by such commission, and for 
 decision thereon ; 
 
 Seventh. For summary proceedings in the courts on the complaint of any 
 railroad compan.v or other party at interest concerning the decision of any rate, 
 classification, order, or regulation adopted by such commission ; 
 
 Eighth. For the imposition of a percentage tax upon the gross receipts of all 
 such corporations in lieu of all taxes upon the property of such railroad corpora- 
 tions and its stock and bonds, and in lieu of all taxes upon the bonds and stock 
 of such railroad companies in the hands of stockholders, the property of such 
 railroads and their bonds and stock to be entirely exempt from State, county, 
 or municipal taxation, and for a just plan of distributing such taxes by the Fed- 
 eral Government among the States in which such railroads operate according to 
 trackage or volume of business, or such other fair method as may be deemed 
 advisable, such percentage to be so adjusted as to yield in the aggregate an 
 amount equal to the taxes now paid by such railroads, and to be increased 
 gradually through a period of ten years, until it reaches an aggregate of 5 per 
 cent upon the gross receipts of such corporations. 
 
 Ninth. For the correction of existing abuses, and for the prevention of rebates, 
 preferences, and discrimination, whether relating to communities or individuals ; 
 
 Tenth. For the creation of a pension fund for railroad employees disqualified 
 either by injury or by age for active service, by setting aside a percentage of the 
 gross receipts of the railroads in a fund in the Treasury, to be invested according 
 to rules and regulations hiade by the Interstate Commerce Commission, such 
 pension sjstem to be devised, changed, and modified from time to time by the 
 Interstate Commerce Commission ; 
 
 Eleventh. For the arbitration of all disputes between such railroad corpora- 
 tions and their employees as to compensation, hours of labor, and protection to 
 life and limb. 
 
 Sec. 2. That the sum of $5,000 is hereby appropriated for the expenses of such 
 commission. 
 
 This joint resolution was iiitrodnced by me on the 4th of January 
 of this-year. It is the result of a hearing before the Interstate Com- 
 merce Committee of the Senate on the 16th day of December, just 
 prior to the holidays, at which Mr. Bacon, chairman of the Interstate 
 Commerce Law Com'ention, apiDcared and urged the passage of the 
 Quarles-Cooper bill for the enlargement of the powers of the Inter- 
 state Commerce Commission. During that inquiry I questioned Mr. 
 Bacon regarding a plan, which I have had under consideration for 
 some time, as to the simplification and unification, under one national 
 taxing power and one national rate-regulating power, of the railroad 
 systems of the country. After these inquiries were made and the 
 questions answered there was some discussion among the Senators 
 present as to the principles of this proposed national incorporation 
 act, and it w as suggested that I should bring the matter up for dis- 
 cussion in the Senat^^. 
 
 I therefore endeavored to frame a national incorporation act, but I 
 found that in doing so I would be obliged to enter into a great many 
 matters of detail not essential to the elucidation of the principles for 
 which I contended, and feared that if I should frame an elaborate 
 bill more attention would be given to the details than to the principles. 
 
6 REGULATION OF RAILWAY KATES. 
 
 Therefore I concluded to draw a joint resolution providing for the 
 appointment of a commission, consisting of foxir experts in transpor- 
 tation and transportation law^ five Senators, and five Representatives, 
 and instructing them to frame and report to Congress a national 
 incorporation act, prepared upon certain principles declared in the 
 joint resolution. 
 
 As no action was taken by this committee at the last Congress upon 
 any of the measures relating to the regulation of interstate commerce, 
 it was agreed that these matters should be taken up at the hearings 
 of the committee during the recess, and this resolution was referred 
 by the committee to the Interstate Commerce Commission and the 
 Bureau of Corporations to make report as to the plan outlined, with 
 such suggestions as might be deemed advisable. 
 
 It is my purpose during these hearings to ascertain the views of the 
 witnesses appearing before the committee on the questions of national 
 incorporation, taxation, and regulation of railroads, as well as of 
 insurance or pension and arbitration covered by this resolution, with 
 a view to shaping a comprehensive bill that will unify and simplify 
 the railway systems of the country under national charter, increase 
 the security of railway investments, inaugurate a simple and just 
 system of taxation, protect the shippers against unjust or discrim- 
 inating rates, provide for an insurance or pension fund for employees, 
 and for arbitration of disputes between the railroads and their 
 employees. 
 
 OBJECT or )?ES0LUTI0N. 
 
 The object of my resolution is to unify and simplify the railroad 
 administration of the country : to recognize the evolution in railroad- 
 ing, under which the operation and management of almost the entire 
 railroad mileage has come under the control of about six well-lmown 
 groups or systems ; to place such systems under national incorporation 
 and control; to make the taxes of the railroads fixed and certain, 
 and to provide for fixed dividends, so that hereafter any increase of 
 business will tend mathematically either to a betterment of the roads, 
 to an increase in wages, or to a diminution in rates. These purposes 
 I would accomplish by the following methods : 
 
 1. The requirement that all railroads engaging in interstate com- 
 merce shall incorporate under a national law in accordance with cer- 
 tain conditions not only permitting, but favoring the consolidation 
 of railroads. 
 
 2. The valuation of all such railroads by the Interstate Commerce 
 Commission, a capitalization not exceeding such valuation, and the 
 approval of all bond and stock issues by such Commission. 
 
 3. The revision by the Interstate Commerce Commission of all 
 rates, so applied as' to yield an annual return of not less than 4 per 
 cent on such valuation. 
 
 4. The exemption of railroad property, including stocks and bonds, 
 from all taxes except a tax on gross receipts, such tax to begin at 3 per 
 cent and increase at the rate of one-fifth of 1 per cent each year until 
 it reaches the maximum of 5 per cent. This tax to be collected by 
 the Government, then distributed among the States and Territories 
 on some equitable basis. 
 
 5. The creation of a pension fund for employees disqualified, either 
 
BEGULA.TION OF HAILWAY BATES. 7 
 
 by injury or bj' age, from active service, by setting aside in the treas- 
 ury a percentage of the gross receipts of the raih-oads. 
 
 6, The arbitration of all disputes between such railroad corpora- 
 tions and their emplojrees as to compensation, hours of labor, and pro- 
 tection to life and limb. 
 
 PRESENT CONDITIONS. 
 
 In the United States there are 200,000 miles of railroad, owned by 
 about 2,000 corporations and controlled by about 600 operating com- 
 panies. But these operating companies have gradually come imder 
 the management of six great groups of ownership, each group domi- 
 nated by a single individual or by a few individuals. These groups 
 are popularly known as the " Hill-Morgan," the " Gould-Eockefel- 
 ler," the " Harriman,'" the " Vanderbilt," the " Pennsylvania," and 
 the " Moore " groups. 
 
 With two or three exceptions these 2,000 corporations are organized 
 under State laAvs, though under the existing groups and systems they 
 are operated regardless of State lines, three- fourths of the transporta- 
 tion business of the country being interstate. Corporations organ- 
 ized in one State can operate in other States only by the comity of the 
 latter. The general policy of both the State and National Govern- 
 ments has been against pooling or consolidation of any kind, on the 
 theory that competition is desirable as a means of preventing exces- 
 sive rates and securing imj)roved service. Nevertheless practical con- 
 solidation has been effected and competition largely eliminated 
 through various methods of leasing, trackage arrangements, holding 
 companies, and community of interest. As a rule these methods have 
 not been tested in the courts, but in the case of the Northern Securi- 
 ties Company the method was tested and adjudged invalid. 
 
 The fact is that the railroad, whether in the hands of the Govern- 
 ment or of a private corpor^ition, is a natural monopoly. The steady 
 trend of consolidation is the outcome of economic forces which can 
 not be controlled or appreciably impeded by legislation. The pres- 
 ent system is complicated and expensive, involving the maintenance 
 of many unnecessary corporations, the bond and stock issues of which 
 constitute a mass of perplexity confusing alike to the investor, to 
 the tax assessor, and to the rate-regulating Commission. 
 
 UNITY or OWNERSHIP. 
 
 It is clear that there should be unity of ownership, recognized by 
 the law, of such railroads as are now linked together in interstate 
 commerce regardless of State lines. As State legislation can not 
 accomplish this, the railroad corporations should be national — the 
 creation of the Government, whose jurisdiction is as broad as inter- 
 state commerce itself, and whose sovereignty rests on every foot of 
 American soil. The power to create such corporations can not be 
 questioned. It was exercised in the case of the Union Pacific and 
 Northern Pacific companies. The constitutional powers of the Fed- 
 eral Government relating to post-roads, military defense, and the 
 regulation of interstate commerce involve the creation or ail the 
 instrumentalities necessary to carry out such powers. 
 
 I would require all railroads engaged in interstate commerce to 
 
8 EEGULATION OF BAILWAY RATES. 
 
 incorporate under a national law, and thus remove every barrier in 
 the way of complete consolidation. I would provide that the 
 amount of stocks and bonds issued for such consolidation should be 
 approved by the Interstate Commerce Commission and that they 
 should not exceed the actual value of the railroads consolidated, such 
 value to be determined by the Commission. T would provide that 
 the Commission should approve the amount of bonds and stock to 
 be issued for the purchase of connecting or intersecting lines, for the 
 betterment of existing roads and the construction of new ones; and 
 I would make a rigid requirement to the effect that these securities 
 should not exceed the value of the property acquired or the actual 
 cost of the work constructed. This method would .effectually pre- 
 vent future overcapitalization. 
 
 Neither of our political parties should object to this plan of 
 national incorporation on the ground that it favors centralization ol 
 power. The Republican party, strongly nationalist as it is, could 
 not, while the Democratic party should not. It is quite as Demo- 
 cratic to insist upon the full exercise of powers plainly given to the 
 National Government as it is to insist upon the reserved rights of the- 
 States. 
 
 VALUATION AND INTEREST KETtJRN. 
 
 I think there would be no serious difficulty in arriving at a true 
 valuation of railroad property. The basis should be the market 
 value of their securities, though other factors may be taken into 
 consideration. We can afford to be liberal with the present investors 
 if we can secure for all time a valuation based on present conditions 
 and prevent the enormous valuation of the future which increased 
 business and profit will give. Nor should there be much difficulty in 
 determining the rate of interest to be allowed on this valuation. ' In 
 my resolution I suggest " not less than 4 per cent," leaving the maxi- 
 mum to the determination of the Commission. But if we are to have 
 an absolutely scientific adjustment of the matter, the dividends should 
 be definitely fixed on a permanent basis, so as to yield an honest return 
 upon an honest investment. 
 
 TAXATION. 
 
 The advantage of this plan is also apparent in the matter of taxes. 
 Railroads are now taxed under 45 different systems, embraced in 
 the laws of as many States. In some they are taxed upon gross 
 receipts; in others upon a valuation of traclc and real and personal 
 property; in others franchises are included, and in some States a 
 rapid movement is being made toward assessing them upon the 
 market value of the stocks and bonds issued, the contention beinw 
 that taxes should be imposed upon the same value as that on which 
 rates are collected. The laws of many States also permit taxation 
 of bonds and stock in the hands of holders — a form of double taxa- 
 tion. There is no uniformity, no permanency. Thousands of local 
 officials are engaged in making the valuation and fixing the tax rates. 
 Since thelamount of taxes paid is one of the vital factors in determin- 
 ing the net earnings of the property, there can be no scientific basis 
 for fixing dividends while this crude and chaotic system prevails. 
 
EEGULATION OF EAILWAY BATES. 9 
 
 I would exempt all railroad property, including bonds and stocks, 
 from all taxation, except a tax on gross receipts, to be collected by the 
 national authorities and distributed among the States in proportion 
 to mileage or volume of business. Under this method stockholders 
 and bondholders would be relieved of that double taxation of which 
 they justly complain, and we would secure absolute uniformity in rail- 
 road taxation throughout the land. The total taxes of all the roads 
 during the past year amounted to about $58,000,000, equal to about 3 
 per cent upon the gross receipts. I would take this as a starting 
 point, but provide that taxes should be gradually increased at the rate 
 of one-fifth of 1 per cent per annum until they reached a maximum 
 of 5 per cent on gross receipts. With the present earnings this would 
 yield about $80,000,000 per annum, but earnings are rapidly increas- 
 ing. The States should not complain of this arrangement, since they 
 would receive from the first all of the revenue they now enjoy from 
 this source, and without the expense of collecting it. Ultimately 
 they would receive much more than their present revenue. 
 
 The question will naturally arise. Has Congress the constitutional 
 power to exempt national railroads from taxation by the States? I 
 think it has. Under a national incorporation act the railroads would 
 be the instrumentalities of the National Government for the purpose 
 of carrying out its constitutional function of regulating interstate 
 commerce. As such instrumentalities the act should exempt them 
 from' all State and local taxation, because " the power to tax is the 
 power to destroy," and the nation can not permit the destruction or 
 impairment of its chosen instrumentalities. 
 
 BATE MAKING. 
 
 The same argument applies to the rate-making feature of this plan. 
 It would be desirable to exempt such national railroads from State 
 regulation as to local rates. It is confusing to have the National 
 Conmiission and forty-five different State commissions at the same 
 time act in judgment upon the same subject. And just as there 
 should" be but one taxing power so also should there be but one rate- 
 regulating power — ^this m the interest of simplicity, convenience, and 
 certainty. It might be possible for a national incorporation act to 
 exempt national railroads from State regulation of local rates upon 
 the assumption that the power to fix rates, like the power to tax, 
 involves the power to destroy. But, if it should not be thought ad- 
 visable to attempt this, doubtless some method of amicable coopera- 
 tion between the Interstate. Commerce Commission and the State 
 commissions could be effected which would materially increase the 
 certainty of the calculations. 
 
 OUT OF POL [TICS. 
 
 There is another advantage which would surely arise from the 
 adoption of this policy and which is of consequence equal to, if not 
 greater than, the advantages which would follow fixed taxes and 
 dividends and permanent peace for the railroad industry. This is 
 the fact that the railroad would go out of politics. The railroad is 
 in politics to-day because its vast property, amounting to more than 
 ten billions, is between the upper and the nether millstone— the upper 
 
10 EEGULATION OF RAILWAY BATES. 
 
 millstone of the rate-regulating power, the nether millstone of the 
 taxing power. Between the two, save for the protection of the 
 courts, these properties can be ground to destruction. _ The uncer- 
 tainty and insecuritj' of their situation compels the railroads to _go 
 into politics. Hence they take part in the election of everj^ official 
 whose duty is likely to trench in any degree upon the taxing and 
 rate-regTilating power. Doing everything systematically, their par- 
 ticipation in politics means the organization of a machine in every 
 State of the Union, and since they pursue the lines of least resistance 
 this often means alliance with the corrupt element of every commu- 
 nity. It is expensive for the railroads, and it is a grave menace to 
 the institutions of the Eepublic. 
 
 Eailroad monopoly has come in the course of natural evolution. 
 We have learned that monopoly is inherent in our modern method of 
 transportation. Let it be no longer outlawed, but frankly recognized, 
 welcomed, and made legal. The way to do this is by means of 
 national incorporation. 
 
 Vast capital is required to create and maintain transportation 
 facilities adequate to the needs of our growing country. This capital 
 is justly entitled to its fair reward, yet can not be permitted to fix 
 its own profits; for it is not in human nature, and certainly not in 
 the nature of corporations, to consider profits from an unselfish 
 standpoint. Xot only is this true, but the railroad is so intimately 
 related to e^'ery other industry, and to the daily life of all our people, 
 as to make it desirable that the best service should be rendered at the 
 lowest cost. How shall we realize the best service at the lowest cost? 
 Clearly, by giving the railroad investment the largest measure of 
 security and the greatest certainty of earning power. Consolidation 
 under national incorporation is the sure road to this result. It 
 means increased efficiency. 
 
 LIMITATION OF DIVIDENDS. 
 
 There is a feature of all railroad regulation which seems to have 
 escaped the attention of those -who have framed bills on the subject. 
 Rate regulation means, unquestionably, the limitation of dividends 
 upon the investment. This is, in a sense, an invasion of the property 
 rights, and demands the concession of compensating advantages. 
 When the public limits the dividends upon a given investment, the 
 public ought to secure them. Virtually, the nation would guarantee 
 a certain low rate of interest upon the investment. 
 
 Under this plan the vast increase of transportation business in the 
 future will tend to the reduction of rates and the advantage of the 
 people. The appreciation of values which has occurred up to the 
 time this act goes 'into effect rightfully belongs to the owners of 
 railroad property. They invested in a speculative undertaking, took 
 their chances, and created a property valuable to themselves and 
 indispensable to the public. But now it is proposed to eliminate the 
 speculative element and to create conditions which will make rail- 
 road securities almost as good as Government bonds. In return foi' 
 this great advantage, capital should be content with a reasonable 
 dividend upon present valuation. The increase in business which 
 will inevitably arise in the future with the gi'owth of the country 
 will then inure to the benefit of the people in three forms: Fii-st 
 
REGULATION OF EATLWAY RATES. 11 
 
 they will get it in the form of betterments, extensions, and constantly 
 improving service. They will get it in the form of better conditions 
 of employment — ^higher wages and shorter hours for the 1,300,000 
 men actually engaged in the railroad industry, and a pension fund 
 to secure them in sickness or old age. Finally, this increase will be 
 transmuted into public benefits, in the form of constantly lowering 
 rates of freight and passenger traffic. 
 
 The evils of overcapitalization, of stock speculation, and of corpo- 
 rate control of political affairs are not touched by the measure passed 
 by the House of Representatives. Under this plan, the first would be 
 completely done away with, the second would be greatly modified, 
 and the third would be eliminated in so far as it arises from the regu- 
 lation of taxes and rates. 
 
 While this joint resolution does not pretend to be a perfected 
 piece of legislation, I believe it contains the germ of a railroad policy 
 which will do equal and exact justice to all parties concerned. To 
 capital, it will give security and assured dividends ; to labor, it will 
 give an impartial tribunal for the arbitration of disputes as to wages, 
 hours, and safety appliances ; to the public, the lowest rates consistent 
 with the investment and that high degree of efficiency which is born 
 of modern methods. And to capital invested, labor employed, and 
 the public served,*it will, through the action of an impartial tribunal 
 of high character and dignity, charged with the duty of settling all 
 disputes, bring peace and immunity from constant agitation, and put 
 an end to the continuous warfare which has heretofore existed 
 between the railroad and its employees and the railroad and the 
 public. 
 
 It is plain enough that the people are restive imder existing condi- 
 tions. They are alarmed by the evidence that railroad rates are 
 likely to fall under the absolute control of a few men, and that indi- 
 viduals will be subject to the absolute sway of these few men in 
 matters vitally affecting their interests. The railroads are public 
 highways. The service is a public service, and the conviction is 
 gradually growing in favor of Government ownership. 
 
 NATIONAL OWNliRSHIP. 
 
 Unless the railroad system is unified and simplified the complexity 
 of the situation will drive the country to Government ownership as 
 a solution of the difficulty. The argument in favor of it is simple. 
 It is urged that the Post-Office Department is already engaged in 
 transportation which is conducted to the entire satisfaction of the 
 people ; that its work now involves expenditures equal to about one- 
 seventh of the operating expenses of all the railroads; that an 
 enlargement of its operations could be secured by organizing a Divi- 
 sion of Transportation in this Department, putting at its head a 
 capable man trained and experienced in railroading; authorizing 
 suit for condemnation against all railroads, the Government entering 
 into immediate possession and retaining the present force of em- 
 ployees and officials, eliminating such of the latter as may be unnec- 
 essary under unified conditions; the condemnation to cover simply 
 the interest of the stockholders, the market value of which is now 
 about $4,000,000,000, leaving existing bonds aggregating about 
 $6,000,000,000 as a lien upon the property, to be retired as they 
 
12 BEGULATIOir OF RAILWAY BATES. 
 
 mature with Government bonds at 2^ per cent ; the stock to be paid 
 for by a present issue of Government bonds at the same rate. 
 
 The railroads are now capitalized at about $12,000,000,000, one- 
 half in bonds and one-half in stocks. The market value of the whole 
 issue is now about $10,000,000,000. The gross revenue of all the rail- 
 roads for the past \^iiv was about $1,950,000,000, an increase over the 
 preceding vear of 'about $175,000,000. The operating expenses now 
 aggregate about $1,260,000,000, leaving about $090,000,000 as the 
 net income. It is urged that under Government ownership the Gov- 
 ernment would have to pay out of this net income the present interest 
 on existing bonds, amounting to about $270,000,000, and 2i per cent 
 on the $4,000,000,000 of the Government bonds issued m lieu of 
 existing stock, about $100,000,000, or $370,000,000 in all, leaving 
 $320,000,000 for betterments, extensions, and sinking fund for the 
 redemption of the bonds. This latter sum can be increased by the 
 irradual reduction of the interest on the railroad bonds from an aver- 
 age of U to 2* per cent, a saving of $120,000,000 annually. It is 
 contended that a sinking fund could thus be provided which would 
 extinguish t}i.e entire debt in less than fifty years and leave the 
 operating expenses alone as a charge upon the commerce of the 
 country. 
 
 Such is the attractive side of Government ownership; but it 
 ignores, of course, the possible evils of bureaucracy, unbusinesslike 
 methods, political patronage, etc. 
 
 The plan of Government ownership has the attractiveness of sim- 
 plicity and directness. National ownership can, in my judgment, be 
 met successfully only by a policy of national incorporation and con- 
 trol, which has the advantage of almost equal simplicity and direct- 
 ness. I believe this policy I am advocating would give the country 
 nearlj' all the benefits of Government ownership, with none of its 
 dangers. It would abolish the evils arising from unrestricted mo- 
 nopoly, prevent the entrance of over a million men into the political 
 patronage, eliminate the present corporate interference with and con- 
 trol of our politics, and retain in the transportation service the 
 initiative, the enterprise, and administrative capacity of the brilliant 
 men whose genius created our present magnificent system of trans- 
 portation out of the crude conditions which prevailed a generation 
 ago. 
 
 Senator Fokaker. I desire to ask the Senator some questions now, 
 so that they may appear in the record iimnediately following his 
 paper, to which I listened with great interest, for, as the Senator 
 from Illinois says, it is a well-prepared paper and makes a number of 
 very valuable suggestions. My questions will not pertain to the 
 policy that is involved, but only to the legal and practical questions 
 which, as I listened, occurred to my mind as likely to arise if we 
 undertake to adopt such legislation as he suggests. 
 
 1. In the first place, the constitutional power conferred on Con- 
 gress as to interstate commerce is to regulate it, not to engage in it. 
 Congress has no purpose, as I understand, to authorize the Govern- 
 ment to engage m interstate commerce. AAHiatever we are to do, 
 therefore, is to be in the nature of regulating interstate commerce. 
 
 If that be the power we are to exercise in legislation, it does not 
 seem to me that the railroads could be regarded as agencies of the 
 Government. If they are not agencies of the Government, there is 
 
REGULATION OF RAILWAY RATES. 13 
 
 no power that I know of to exempt them from taxation by the 
 States — certainly no more than there would be to exempt the prop- 
 erty of the national banks from taxation by the States. 
 
 That is the first question to which I cj.11 the Senator's attention, 
 and to it I do not want an answer now. He can answer later. 
 
 The next question is one of a practical character, and that is: 
 
 2. If we were to undertake to carry out such a scheme or plan as 
 the Senator recommends, could we compel the roads already in exist- 
 ence to incorporate under act of Congress ? And if they were willing 
 to do that by reason of the inducements the Senator suggests we 
 might hold out to them, could they get rid of their outstanding 
 stocks and bonds ? 
 
 I can understand how it would be easy enough to organize a new 
 corporation, under an act of Congress, to construct a road and how 
 it could issue the bonds and stocks necessary to carry out that pur- 
 pose; but some of these great companies have already millions, and 
 some of them hundreds of millions, of outstanding stocks and bonds, 
 and I do not understand how those could be called ill in order that 
 other stocks and bonds might be substituted. It seems to me that 
 that would be an insurmountable difficulty. 
 
 3. Then the third question is. How would the Senator deal with 
 transportation confined wholly within a State; that is, originating 
 and ending in the State, but which was conducted by these interstate 
 lines? _I imagine they could not take away purely State business 
 from such a road. 
 
 These are only a few of manj' questions that, it seems to me, would 
 arise, but these are right at the beginning of the whole matter, and I 
 put them in the record here so that the Senator may, when we get 
 further along in this investigation, give us some answer. 
 
 Senator Newlands. You do not desire an answer now ? 
 
 Senator Foeaker. No ; not now. 
 
 Senator Newlands. I am ready to answer now. 
 
 Senator Dollivee. Why not now ? 
 
 Senator Forakek. Because I have one other question — a question 
 suggested by the Senator from Tennessee [Mr. Caemack] — and that 
 is this : 
 
 4. As to the constitutional power of Congress to levy a tax on gross 
 receipts under such a plan as the Senator from Nevada has suggested. 
 
 Senator Newlands. I will answer that now. 
 
 Senator Caemack. I suggest that the Senator take time to answer 
 thoroughly. 
 
 Senator Newlands. Can I write the answers and put them in the 
 record ? 
 
 Senator Foeaker. Yes. 
 
 Senator Dollivee. I do not think we should make this the chief 
 subject of our investigation here. 
 
 Senator Clapp. There are several questions I should like to ask 
 after seeing the printed record. 
 
 Senator Kean. I propose to ask some questions also. 
 
 The Chaieman. Write them out, though it seems to me that this is 
 not really germane to this investigation. 
 
 Senator Newlands. I think it is. I will say this now: That a 
 franchise tax as such is clearly an indirect tax, not a direct tax ; and 
 so is a tax on gross receipts. 
 
14 REGULATION OF RAILWAY RATES. 
 
 In this connection I want to submit some queries that I propose to 
 ask the gentlemen who will appear before us. These questions can 
 be sent to them in advance so that they may be prepared to answer 
 them. 
 
 Senator Dollivee. Eead them, please, and let us see what they are, 
 though I do not think we ought to go into an investigation of matters 
 not really in the public mind and not included in the resolution under 
 which we are proceeding. 
 
 Senator Newlands. I do it to simplify the investigation, because if 
 the questions are submitted now the witnesses will be the better pre- 
 pared to answer. 
 
 Tt is my purpose to ask the witnesses who appear before the com- 
 mittee the following questions, with a view to ascertaining the appli- 
 cability of a national system of incorporation to the existing systems 
 <j)r groups : 
 
 1. Do you represent a single railroacl, or do you represent a system or group 
 of railways, and if so, what is the popular name of such system or group and 
 what is the relations of the railroads constituting such system or group? Ex- 
 plain the nature of the arrangement, whether through consolidation in one 
 corporation or through trackage arrangements, or holding companies, or of 
 community of interest. 
 
 2. Would it simplify the operation of the group or system with which you are 
 connected if the railroads constituting it were consolidated in one corporation? 
 
 3. Would it be preferable to have such consolidation under a national or State 
 charter, and why? 
 
 4. How would you capitalize the group or system with which you are con- 
 nected, in stock and bonds, with a view of having the capitalization represent 
 a fair valuation, and how would you have the valuation ascertained? 
 
 5. What, in your judgment, would be a fair capitalization of a national incor- 
 poration formed for the purpose of consolidating all the railroads now consti- 
 tuting a part of the group or system with which you are connected, and your 
 reasons for the same? 
 
 6. What, in your judgment, would be a fair limitation of dividends upon such 
 capitalization? 
 
 7. What, in your judgment, would be a fair limitation upon the power of rate 
 regulation so as to insure fair dividends upon the stock of such consolidated 
 corporation ? 
 
 8. What, in your judgment, would be a fair method of taxation for such 
 national corporation, with a view of substituting a national tax easily and 
 mathematically ascertained to be distributed among the States by some fair rule 
 in place of the various forms of taxation now in vogue in the various States? 
 
 9. What, in your judgment, would be a fair provision out of the gross income 
 for an insurance or a pension fund intended to secure operatives against the 
 dangers of their occupation? 
 
 10. What, in your judgment, would be a fair method of arbitration or deter- 
 mination as to the disputes regarding rates between shippers or communities 
 ^nd railroad corporations? 
 
 11. What, in your judgment, would be a fair method of arbitration of disputes 
 between railroad companies and their employees as to the compensation, hours 
 of labor, and measures for the protection of life and limb? 
 
 The following letter from Senator Morgan was ordered by the com- 
 mittee to go into the record : 
 
 Washington, D. C, April U, 1905. 
 Hon. S. B. Elkins, 
 
 United, States Senator. 
 Deab Senator : I will give you my views, in reply to the question asked me In 
 your letter of the 7th instant, in a form somewhat different from that used in 
 the inquiry, but covering the same ground. 
 
 The real question now before the country, as to which your committee Is pre- 
 paring a line of action for the consideration of Congress is whether Congress 
 has the power to estaWsh rates of transportation for railroads that are puhlic 
 
BEGULATION OP BAIL WAY BATES. 15 
 
 carriers, for hire, on routes that traverse State boundaries. This power, if it 
 exists, draws to it several other powers that are necessarily incidental to it. 
 
 The exercise of any of these powers involves questions of public policy that 
 are not necessarily included in the scope of the Inquiry which you do me the 
 honor of submitting to me, and I will not intrude my opinions upon your atten- 
 tion as to what course is demanded by a wise and just public policy. 
 
 The real question, as I have stated it above, does not depend for its correct 
 solution upon the power of Congress " to regulate commerce among the States 
 and with the Indian tribes; " nor is it necessarily connected with such riowers, 
 or with the power of taxation, although they are conveniently and intimately 
 associated. 
 
 When the exclusive jurisdiction of Congress to enact laws is undisputed, as 
 in the case of the District of Columbia, and in all territorial possessions within 
 the national limits, the power to legislate for the regulation and control of public 
 carriers is plenary. 
 
 It is of the same nature and scope with the power of the States to enact such 
 laws within their own limits for the regulation of public carriers. This power 
 of legislation exists in all cases and in respect of many vocations and pursuits 
 that are conducted for hire in the service of the public. When such public 
 service is offered by a common carrier and is accepted by any shipper, they 
 both come voluntarily within reach of the legislative power of the State to regu- 
 late their respective rights, duties, and obligations, and to control their conduct 
 in respect of such shipment or its consignment. 
 
 It matters not that the common law or any law of cu.stom and usage may 
 supply every needed rule for the proper regulation and control of common car- 
 riers, the power to change or to add to or abolish such laws remains with the 
 legislature as a part of the sovereignty of the State; for all the decisions that 
 comprise what we call the common law are but expressions of the sovereign will 
 through the agency of the courts. They do not invest common carriers with any 
 rights in respect of their vocation that are beyond legislative control. 
 
 I confine my remarks to common carriers, without undertaking to apply the 
 principles I assert to other assimilated business pursuits. The common law 
 and the civil law furnish the general rules of ethics that should guard the 
 legislatures in dealing with the subject of controlling common carriers ; but 
 they do not provide lor conditions that are new and that involve important 
 questions of public policy, such as are now presented to the people and Congress 
 of the tjnited States. 
 
 I now proceed to consider such conditions, but in doing so I do not in the least 
 change or abandon the proposition that the right to legislate for the regulation 
 and control of common carriers is a sovereign right of government, and does not 
 depend upon the nature or character of the things that may be transported, 
 whether they are things that enter into commerce or things that are not the 
 subject of commerce or traffic or trade in any sense whatever — things that are 
 mere articles for transportation, to suit the convenience of the shipper or 
 the consignee. 
 
 The duties of the common carrier are the same in respect of all articles trans- 
 ported by him, according to their nature, without regard to their commercial 
 character. And Congress in legislating to regulate and control common car- 
 riers as to any matter connected with their public vocation is not limited to such 
 shipments as in common usage are designated as articles of commerce. Con- 
 gress and the States, within their respective limits of jurisdiction, act upon pre- 
 cisely the same principles and powers, and "commerce," as such, does not define 
 or limit the powers of either. 
 
 Acting on this sovereign power of Congress to legislate in all matters within 
 the limits of its exclusive jurisdiction as fully as the States can legislate within 
 their limits, there can be no question as to the power of Congress to establish 
 rates of charges for common carriers within the District of Columbia or the Ter- 
 ritories and all other places over whit-h this power extends. This right is clear, 
 and it is equally without assistance or limitation derived from the power to 
 regulate commerce. 
 
 Such legislation operates in personam upon the common carrier and his busi- 
 ness, and not in rem upon the commodities or persons he is engaged in trans- 
 porting. 
 
 The railroad company engaged in the business of transportation, for hire, as 
 a common carrier, is always a corporation that derives its rights as such from a 
 State government. It owns the right of way, the track, and all machinery used 
 
16 REGULATION OF EAILWAY BATES. 
 
 in its business, wliich is that of a common carrier, and it owns the exclusive 
 right of transportation over its road, and controls all the employees engagea in 
 that business. All of these rights, powers, and privileges are granted by laws 
 enacted by States, and are not derived from any other different source. While 
 these railroad companies remain under the jurisdiction of the States that crer 
 ated them the right to regulate and control their business as common carriers 
 is exclusively in those States. 
 
 Each State can, however, grant to" these companies the right to unite with 
 companies in other States in conducting their business as common carriers, or 
 even in consolidating their stock and property and their management with such 
 railroads. And when such consent is given and the necessary agreements are 
 made a joint ownership or a limited partnership is created that reaches beyond 
 the jurisdiction of the States consenting thereto. By consenting to such joint 
 control of several connecting roads the States abandon the right to regulate and 
 control their conduct and their charges as common carriers. 
 
 The question then arises as to whether this power is lost, or whether It is 
 relegated to the State that charters the holding or controlling company, or 
 whether it inures to the United States. 
 
 The power to control these common carriers, whose business is thus legalized 
 and kept alive by the charter powers of their several corporations and united 
 under one controlling head, belongs to the only National Legislature in the 
 Union, whenever it chooses to accept and act upon this dedication of such com- 
 mon carrier to the use and service of the people at large. 
 
 Congress, in such a case, does not get control of the property of the common 
 carrier by any principle of escheat, or forfeiture. The property remains sub- 
 ject to the State laws for all purposes except for transportation and its inci- 
 dents, but its use, for that purpose having been merged in or set over to foreign 
 ooporations with the consent of the States concerned, it becomes national in its 
 character at the election of Congress so to accept and consider it. 
 
 There is n supremacy of the general welfare which requires Congress to pro- 
 vide for it when no other tribunal can, or will, exercise that power. This is 
 illustrated in the duty of providing for the improvement of rivers and harbors, 
 as to which there is no express grant of power to Congress in the Constitution, 
 and in the control and construction of telegraph and cable lines as instru- 
 mentalities of government, in establishing military camps within the States, in 
 fixing rates for carrying mails, and in many other instances. 
 
 Congress has the power to regulate commerce, and navigation being an element 
 of commercial interchange, the control of navigation belongs to Congress as a 
 paramount right, although the States own the soil beneath all navigable waters 
 within their limits. The States may improve rivers and harbors, but they can 
 not prevent Congress from assuming the paramount right to direct and control 
 all such improvements at the expense of the United States. 
 
 The question whether a water course is navigable is the one upon which the 
 right of Congress depends to exert this supreme control. That is a question of 
 iaw and fact that is settled by the concurrent action of the State and of the 
 United States. If a State declares that a water course is navigable and the 
 United States accepts it as such and proceeds to improve it, the joint declaration 
 makes it a navigable water course, although many miles of obstructions may 
 prevent any commercial vessel from navigating it. This is the case at The Dalles 
 on the Columbia River and at the Mussel Shoals on the Tennessee River. 
 
 The States dedicate these rivers, by their sovereign act, to the right of navi- 
 gation by all people of the United States, and Congress, by accepting the dedica- 
 tion, rightfully asserts its power to control the navigation, and the power of the 
 State in that behalf ceases. Congress has the unquestionable right, in such a 
 case, to regulate and control the rights and duties of common carriers on a 
 river thus transferred to national jurisdiction. 
 
 The rights of quarantine furnish another conclusive example of the power of 
 Congress to provide for the general welfare when there is no other power that 
 can and will provide for it. 
 
 The power to provide pensions is not given in the Constitution either to Cou- 
 gres or the States. It has no other basis than the general welfare and the ri^ht 
 of Congress to provide for it. " 
 
 The case of Houston v. Moore (12 Wharton, 419) seems to be conclusive that 
 this is a recognized power. But as I am stating my views rather than discuss- 
 ing them, I will not attempt a review of the decisions that support them. 
 
 I venture to assert that railroad corporations that seek to become common 
 
EEGHLATION OF RAILWAY BATES. li 
 
 carriers in a national sense can not escape the control of their rates of charges 
 for a public service or their conduct as common carriers by getting themselves 
 released from the control of the States from which their charters are derived 
 and from the control of all other governments while they continue business in 
 combination with other corporations and claim and exercise the exclusive right 
 of transportation over lines of roadway which extend through many States 
 for great distances. 
 
 Such free-lance servitors of the public must be controlled by some legislative 
 power for the public security, and when they offer their services as common 
 carriers for the people of many States Congress, that is in charge of the general 
 welfare, has the duty of controlling them. This duty becomes clearer, but not 
 more imperative, when Congress may, at its option, declare that these railroads 
 are post-roads and use them as such, or may declare them as highways of com- 
 merce among the States and regulate and control the transportation over them 
 in accordance with public duty and the interests of the people. 
 
 These powers are merely cumulative and ancillary to the higher and broader 
 power to legislate for the control of transportation by all common carriers 
 that are within the jurisdiction of Congress. 
 
 When the Constitution was ordained, railroads and telegraph lines were 
 not in contemplation. Intelligence was transmitted by mail, over post-roads, 
 and commerce was conducted over public highways. Now, great corporations 
 own lines of telegraph and railroad routes that are the most iuiportant factors 
 in all transportation of commerce, and of people and things that are not 
 connected with commerce. The owners of these routes of transportation are 
 the leading and controlling common carriers of this country and of the world. 
 
 It is the ownership of the routes of transportation that has created the new 
 conditions that are now required to be regulated and controlled by law. The 
 country is not seeking to interfere with this ownership, but to enforce against 
 the common carrier a trust that is both expressed and implied in the fact that 
 such increased powers and advantages are granted to a corporation by statute, 
 to enable it to carry on the business of transportation for the Cbnvenience of 
 the public. 
 
 It is idle to' say that the States can create such trusts for the public benefit, 
 and can not control them for the protection of the public. And it is equally 
 idle to say that the States, by consenting to abandon such control, can leave 
 the common carrier free from responsibilities to all legislative authority, and 
 yet secure it in the exclusive enjoyment of all the properties and privileges 
 granted to it by legislation. Legislation creates corporations and all their 
 powers cease when that support is lost. 
 
 When a State that creates this new scheme of ownership of the highway by 
 the chartered common carrier consents to abandon its control over it by legaliz- 
 ing the union or consolidation of its business of transportation with other cor- 
 porations and other States, where it can not have the right of legislative 
 control, the trust is not destroyed thereby. It is separated from the property 
 so far as such State is concerned and is left in abeyance, to be enforced by the 
 courts or by some other legislative authority. 
 
 No State and no number of States can confer upon one of their number, by 
 compact or otherwise, the exclusive power to control such a disassociated trust 
 by its legislation. Such agreements and compacts are forbidden by section 10 
 of Article I of the Constitution without the consent of Congress. 
 
 Such a tacit agi'eement or compact is necessarily implied in every case where 
 two or more States consent that a company chartered by one of them shall con- 
 trol the transportation on railroads within the limits of all of them. But it 
 can not be valid without the consent of Congress. And where such consent is 
 given Congress can accept and enforce the agreement by attaching to it the con- 
 ditions that all charges for transijortation and all the incidents thereof shall be 
 regulated by Congressional legislation. This is a matter of the greatest 
 importance. 
 
 I claim that this is a true definition of the power of Congress in the regula- 
 tion and control of railroad companies in their business as common carriers, 
 when the States that created them have agreed with other States to abandon 
 or transfer such control, and that it is a correct definition of the origin and 
 limitation of the powers of Congress in such cases. 
 
 It is not the power of Congress to regulate commerce among the States ; that 
 is the actual basis of Its jurisdiction to regulate and control common carriers 
 
 R R R— 05 M 3 
 
18 REGULATION OF RAILWAY BATES. 
 
 in their business of transportation, which includes vast numbers of things 
 that are not in any sense the subject-matters of commerce. j, -a t- 
 
 I thinl£ I need not discuss a proposition that is so obviously self-evident. 
 
 When two or more States have agreed to the consolidation or the "°'°'^.'^"™ 
 of the business of transporting by railroads chartered by them, '"^^P®'^'-' j®''!' 
 so as to form continuous lines of transportation irrespective of fetate imes, 
 Congress has the power to regulate and control the business of the common _ 
 carrier to whom such privileges are extended, but in no other cases can con- 
 gress exercise such powers over railroads within the States. 
 
 If I am right as to the origin and limitations of the powers of Congress over 
 interstate railroads, those powers must be exercised by legislation, and legis- 
 lation alone can supply the authority needed for such regulation and control. The 
 courts can not provide rules for such new conditions, that are manifestly sub- 
 ject to the national policy that Congress alone can declare. When such a policy 
 controls the relations of the States to each other in matters that involve post- 
 roads, commercial highways, and all the vast interests and intercourse that are 
 connected with transportation by common carriers. Congress must declare it as 
 a political department of the Government. It is not a law until it is so declared, 
 and the courts must follow Congress, because tliey can not make laws. 
 
 The view I take of this subject is confined to the regulation and control of 
 common carriers, and does not concern the power of the States to tax railroads 
 or to declare the forfeiture of their charters, or in any other respect. 
 
 I only insist that, in the cases I have mentioned, Congress has as full power to 
 regulate and control the business of such conuiion carriers as any State could 
 have controlled them if it had never parted with the right to do so. 
 
 The mpthod of legislation that Congress should adopt, as to the freight and 
 passenger rates, should be predicated on the classification of the things trans- 
 ported, with a rate per mile per ton for each classification, graduated by the 
 length of the haul. 
 
 It is possible to authorize a commission to change the articles to be trans- 
 ported from one rate to another by changing the classification. I refer to this 
 only as an incident where better results can be reached by administration with- 
 out changing the law, and to show that a statute can be made flexible in its 
 application without interference with Its integrity or its conclusive effect. 1 
 think that much more than this can be lawfully done by a commission. 
 
 The scope of Congressional legislation, as I believe it is correctly defined in 
 what I have said, is really confined in its practical administration to the regu- 
 lation of five or six great controlling corporations that transport about 70 per 
 cent of all railroad freights in the United States and the Territories, and this 
 fact narrows the problem to limits that are less starling in their magnitude. 
 
 A factor in competition of great importance as to the rates between the 
 Atlantic and Pacific oceans is about to become efficient in the control of the 
 railroad at Panama by the Government. It is beyond question that the reduc- 
 tion of rates on that railroad will lower them on all the transcontinental 
 railroads. 
 
 If it was possible to conduct the transportation by sailing vessels through the 
 canal at Panama, that, with the railroad there, could be safely relied upon to 
 secure just and reasonable rates on all the transcontinental railroads without 
 any special legislation. So good and complete a regulator could not be deviseil 
 by legislative wisdom, and its blessings to the people concerned can scarcely be 
 overestimated. 
 
 The Mississippi River and the Atlantic and Gulf waters are also, in a large 
 degree, regulators of the railroad fares in the region between the Rocky Moun- 
 tains and the Atlantic seaboard. With these great factors to assist in con- 
 trolling the monopolistic tendency of all railroad corporations in the direction of 
 suppressing competition, the country will gradually but certainly find relief 
 and security from the conditions that, at present, are calling for Congressional 
 interposition. 
 
 The States can do very much to relieve these diflJculties by exercising their 
 legislative authority in all cases where they have not surrendered it. 
 
 If Congress will consider the complaints that are made against the Teat 
 leading railroads, and enact just laws for their remedy, it seems that no "very 
 extended or complex code of railway rates can be needed to meet the present 
 emergency. Adequate personal punishment for all offenses by the men who 
 control these common carriers, such as discriminations and rebates, would pre- 
 vent such wrong. 
 
 Any remedy as to freight rates of a general and indiscriminate character is 
 
REGULATION OF RAILWAY BATES. 19 
 
 exceedingly difficult to formulate and is likely 'to operate unjustly in many cases 
 to all concerned. I doubt if the practical experience of any member of Con- 
 gress would justify him in the effort to write ." just schedule of rates for all 
 or any one of the several interstate railroads (is to commerce carried by rail or 
 by water. Such a task would require an extensive and close study of the actual 
 work of several of the largest carriers, and the conclusion, when reached, would 
 probably be much the same that the railroads have already put into execution, 
 it will require a very able and experienced board to revise and correct these rates. 
 
 There can be no fixed standard or principle that will apply justly to every 
 carrier or to shippers at various localities. If the standard Is to be a fair 
 remuneration to the carrier for his outlay in preparing his railroad, that would 
 vary in every case by the cost of construction, maintenance, and operation. If 
 the standard is to be that of a fair percentage of the value of the article 
 shipped or its market value, that would change with every season as to crops 
 and would be almost impossible of just computation. 
 
 Why would it not be fair and just to take the rate schedule of each great 
 carrier at a past period of average prosperity and adopt that as a basis of 
 rates? Then, if the carrier should lower that rate at any time in favor of every 
 shipper, let him be afterwards confined to the lower rate and forbid him from 
 raising any rate above that fixed in its schedule, as adopted by the Commission, 
 under any circumstances. 
 
 This is only a suggestion of a plan that seems just to all, and is not likely 
 to be unjust to any. 
 
 But who is to do this work? That Congress can ever do it is almost beyond 
 contemplation, and that it will do such worl^ with entire satisfaction is quite 
 beyond hope. 
 
 Congress can confer jurisdiction upon the Interstate Commerce Commission, 
 or any other governing body, to legislate as to rates or any other matter that 
 concerns the relations of common carriers to the public In all cases where such 
 carriers are within the exclusive jurisdiction of Congress. 
 
 In the cases I have stated, of the abandonment by the States of their rights 
 of legislative control over common carriers in the conduct of their business, 
 this exclusive jurisdiction obtains, and it is only necessary to name the railroad 
 in the statute to define competely its area and scope. 
 
 As to this subject and as to this class of common carriers there is no more 
 difficulty in the exercise of governing power within a State than there is in 
 the enactment and enforcement of laws to regulate the production and sale of 
 alcoholic liquors. The Territories, and especially our so-called outlying posses- 
 sions and the zone and railroad at Panama, are all governed under the same 
 authority to which I now refer. The governors and legislative councils and 
 judiciai-y of the Territories were in the beginning of this plan of government 
 all appointed by the President. The only restrictions imposed upon their legis- 
 lative power has been to confine them to certain subjects of legislation and to 
 reserve to Congress the right to repeal or modify their enactments. 
 
 These reservations follow the line of distinction between delegated legislative 
 powers and the de facto exercise of such powers for reasons of public policy or 
 necessity, subject to be set aside or modified by the sovereign powers of the 
 State, and they are quite legitimate. 
 
 I see no difficulty in empowering the Interstate Commerce Commission to 
 enact regulations for the control of the dealings of railroad corporations with 
 the public, in their capacity as common carriers, when the States that created 
 them have surrendered such right of control and Congress chooses to accept 
 that duty. 
 
 I would, however, be understood as confining my remarks strictly to matters 
 relating to transportation by those railroads that are public common carriers 
 among the States and have become such with the express or implied assent of 
 the States from which their charters are derived. 
 
 With great respect, John T. Morgan. 
 
 Ordered, 1. That these hearings be printed by the Public Printer 
 iind delivered at the committee room by 11 o'clock of the morning 
 following the hearing. 
 
 2. That, until otherwise ordered, the committee will sit daily 
 (Sundays and legal holidays excepted) from 11 o'clock a. m. till 1 
 p. m. and from 2 p. m. to 5 p. m. 
 
 The committee adjourned. 
 
20 REGULATION OF RAILWAY RATES. 
 
 Tuesday, April 18, 1905. 
 
 The committee met pursuant to adjournment. 
 
 Present: The Chairman; Senators Cullom, Kean, DoUiver, ior- 
 aker, Clapp, Millard, Carmack, and IV^ewlands. 
 
 The ChairiMAN. I wish to state to the committee, that I omitted 
 yesterday to inform the committee — although I do not see why — ^that 
 I had addressed a letter to various railroad presidents and persons 
 owning railroads and to some of the distinguished lawyers of the 
 countrj^ That letter reads as follows : 
 
 Se-Nate of thf United States, 
 
 Committee on Inteestate Commerce, 
 
 Washington, April 1, 1905. 
 E. D. Kenna, Esq., 
 
 Railroad Building, Chicago, III. 
 Dear JIr. Kenna : The Interstate Commerce Committee will begin hearings 
 on the ITth instant at the Senate, auu will be glad if you will appear before the 
 committee and argue the questioiis raised in the inclosed memorandum, and 
 make any statement on the sub.iect of rate legislation that you may see fit. 
 
 S. B. Elkins, Chairman. 
 
 Similar letters were addressed to Victor Morawetz, Mills Building, 
 New York City; '\ Talker D. Hines, Louisville and Nashville Kail- 
 road, Louisville, Kj'. ; Hugh L. Bond, Baltimore and Ohio Railroad, 
 Baltimore, Md., and IVinsloAV Pierce, 120 BroadA\'ay, New York City. 
 
 And the memorandum therein referred to is as follows: 
 
 Can the Congress delegate to a subordinate tribunal, like the Interstate Com- 
 merce Commission, the legislative power to fix railroad rates? 
 
 If so, could that tribunal, in the e.vercise of its delegated authority, allow or 
 require difCereutial rates to or from different ports similar to those now main- 
 tained by many railroads, or any differentials at all? Or would the tribunal be 
 bound to adopt a uniform rule which would operate to abolish existing differ- 
 entials and prevent the adjustment of rates on a differential basis? 
 
 In other words, would the authority of the tribunal in this regard be con- 
 trolled or limited In any degree by the provision in clause 5, section 9, Article I, 
 of the Constitution, that " no preference shall be given by any regulation of 
 commerce or revenue to the ports of one State over those of another " ? 
 
 The committee will now be glad to hear from Mr. Morawetz. 
 
 STATEMENT OF MR. VICTOR MORAWETZ. 
 
 Mr. MoEAWETZ. Mr. Chairman and Senators, I believe that I owe 
 the invitation to appear here and express my views .to the committee to 
 the fact that I am chairman of the executive committee of the board 
 of directors and general counsel of the Atchison, Topeka and Santa 
 Fe Railway Company. 
 
 At the beginning of the present fiscal year, on July 1, 1904 the 
 Atchison system consisted of 8,300 miles of road, and, in addition 
 thereto, 968 miles of auxiliary lines, controlled through ownership of 
 their stocks and bonds. This makes an aggregate mileage of about 
 9,268 miles. The outstanding securities of the company amounted 
 to $216,000,000 of preferred and common stock and about $237,000 000 
 of bonds of all kinds. ' 
 
 There are about 13,000 individual registered holders of preferred 
 stock and about 5,000 individual registered holders of common stock" 
 but as some of the stockholders hold both classes of stock, the actual 
 
EEGULATION OF RAILWAY KATES. 21 
 
 number of individual registered stockholders is about 15,500. The 
 average amount of stock held by each stockholder is about 139 shares. 
 Of the aggregate stock a little less than one-fourth is held in Europe 
 by 1,242 registered holders. As a matter of fact, the number of indi- 
 vidual owners of stock is considerably larger than these figures indi- 
 cate, because, in many instances banking firms and brokers have reg- 
 istered in their names blocks of stock belonging to a large number of 
 customers. This is especially true of the stock held in Europe, where 
 it is customary to keep American stocks registered in the names of 
 banking houses or administration offices, who hold the stock in trust 
 for the actual owners. I think it a low estimate to say that there are 
 20,000 individual owners of stock in the Atchison Company. 
 
 It is difficiilt to state the number of bondholders, as most of the 
 bonds are coupon bonds and are not registered; but the comptroller 
 estimates that there are at least 30,000 individual bondholders. This 
 AA'buld make an aggregate of 50,000 stockholders and bondholders, 
 and if each one or these represents a family of five there would bo 
 250,000 persons directly interested in the stocks and bonds of the 
 company. The number of employees of the company is about 43,000. 
 If each employee represents a family of five, there would be over 
 200,000 additional persons interested. The aggregate number of per- 
 sons thus directly interested in the prosperity of the company would 
 be over 450,000. 
 
 In the eight years beginning January 1, 1896, and ending June 30, 
 1904, the amount of cash actually expended for construction of new 
 lines, the purchase of additional equipment, and for additions, better- 
 ments, and improvements amounted to about $70,000,000. This is 
 exclusive of the sums expended in the purchase of previously com- 
 pleted lines. The company has just raised $32,000,000 of additional 
 cash for new construction and for equipment, additions, and improve- 
 ments. Of course the company is obliged to pay interest on every 
 dollar which it borrows, and if it can not earn a profit over and above 
 the interest on the money borrowed it will have to stop all construc- 
 tion and improvement work. No company will borrow money for the 
 purpose of making extensions and improvements, and run the risks 
 of bad times, unless reasonably aasured of a substantial profit over 
 and above the interest on the money borrowed. Therefore, if any 
 legislation should be passed which would so reduce the earnings of the 
 company as to render it imcertain whether it would earn a profit over 
 and above the interest on its present capital and on all new capital 
 raised, this Avould put an end to further extensions, improvements, 
 and additions. This applies equally to all the railway companies in 
 the United States. 
 
 The entire tonnage carried 1 mile by the railways of the United 
 States has almost doubled in seven years. In 1897 it was about 
 95,000,000,000 tons, and in 1904 over 170,000,000,000 tons. At the 
 same rate of increase the tonnage at the end of the next seven years 
 would be about 300,000,000,000 tons. To provide for this increase of 
 tonnage it will be necessary to increase enormously the carrying 
 capacity of the railways in the United States. It will be necessary 
 to construct many additional tracks, to acquire greatly enlarged 
 terminal facilities, and to purchase a vast amount of additional equip- 
 ment of all kinds. The question deserves earnest consideration on the 
 part of those who propose legislation that would cut down the net 
 
22 EEGULATION OF RAILWAY RATES. 
 
 earnings and impair the credit of the railway compa,nies. Who will 
 furnish these transportation facilities that are essential to the luture 
 development and commercial prosperity of the country if the railway 
 companies themselves should be financially crippled by this proposed 
 legislation or should be prevented from incurring the enormous 
 expense which the furnishing of these transportation facilities would 
 involve? 
 
 We are now in a period of unparalleled prosperity. We have a 
 large amount of ■free capital in this country, and 1 think no one 
 claims that the people of the ITuited States are overconservative. I 
 think it fair to assume — in fact, it is only a reasonable assumption — 
 that, if left to themselves, the capitalists of this country will invest 
 all the money in railway construction that, in their judgnient, will 
 pay a reasonable return year in and year out. So that it is fair to 
 assume that if there is no interference we shall have all the railway 
 construction in this country that can be profitably undertaken. The 
 average of railway net earnings will automatically adjust itself if 
 only left alone. 
 
 In this connection there is one feature which ought not to be left 
 out of consideration. If the proposal is to adjust railway rates in 
 times of great prosperity so that the railways will earn only what is 
 considered a fair net return upon their properties, what is going to 
 happen in bad times? Furthermore, what is going to happen if the 
 cost of labor and materials very largely increases? 
 
 I believe the ablest economists of the present day are of the opinion 
 that the increase in the prices of material and labor, amounting 
 during the last few years to somewhere between 10 and 40 per cent, 
 has been due to a great extent — not wholly — to the increased pro- 
 duction of gold of the world. They are of opinion also that this 
 rise in prices is to continue and be made more accentuated ; in other 
 Avords, as the supply of gold is very largely increased throughout 
 the world, the purchasing poAver of gold will diminish, and, accord- 
 ingly, the prices of everything that gold buys — ^labor and materials 
 of all kinds — will .go up. Now, nobody, no railway man, imagines 
 that the railway rates are going to increase; but the railway compa- 
 nies will have to pay very much more for everything that they 
 require in the operation of their properties. The average expenses 
 amount to about 6-5 per cent — on an average. If this rise in prices 
 is going to continue, then operating expenses are bound to go up. 
 Gross receipts will not be increased, except so far as increase may 
 result from the development of the country generally. 
 
 It seems, therefore, that the net earnings of the railway companies 
 and the railway rates relatively to other things are going down 
 automatically, will be reduced automatically, without any le<nsla- 
 tion to that effect. 
 
 The proposal to vest in the Interstate Commerce Commission 
 power to control and fix railway rates in the United States is based 
 upon the claim that this power is necessarj'^ to correct certain evils 
 existing in the management of the railways. The evils that are 
 charged are: (1) The imposition of excessive rates by the railway 
 companies; (2) unjust discrimination by the railway companies 
 among individual shippers by direct or indirect rebates from the 
 published tariffs, and (3) discrimination by the railway companies 
 among localities. 
 
REGULATION OF RAILWAY RATES. 23 
 
 It is sometimes also charged that there is unjust discrimination in 
 the kinds of traflSc, but of course that is not of itself objectionable; 
 discrimination in the kinds of traffic is objectionable only in case it 
 operates as a discrimination among individuals or among localities, 
 and it is really, therefore, not an additional charge against the rail- 
 way companies ; it is included in the others which I have mentioned. 
 
 Before the hearings of this committee are closed it will be shown 
 to a demonstration that the railway rates of the country are not 
 excessive. The Interstate Commerce Commission has repeatedly ad- 
 mitted this in its published reports. I shall not take up these sta- 
 tistical questions, but should like to address myself principally to 
 some of the constitutional and legal questions which are involved in 
 any such legislation as has been suggested. 
 
 There are certain legal propositions which I think are established 
 or can be deduced from the decisions of the Supreme Court of the 
 United States. I should like to state some of these consecutively : 
 
 1. The first proposition, which is perfectly well settled, is that 
 under the common law a public carrier is prohibited from making 
 any unreasonably high charge for the services rendered. This com- 
 mon-law prohibition was reenforced by the interstate-commerce act. 
 It has been held by the Supreme Court of the United States that the 
 prohibition in the interstate-commerce act against unreasonable rates 
 was designed to declare and reeiiforce common-Liw prohibition to the 
 same effect. 
 
 Congress has also by several acts prohibited any unjust discrimi- 
 nations. There is no doubt that these acts, or any acts which would 
 accomplish similar results, are constitutional. 
 
 2. My second point, which is well settled, is that Congress has no 
 constitutional power to reduce the charges of a carrier so far as to 
 deprive the carrier of a reasonable return upon his property. Under 
 the fifth amendment to the Constitution any act of Congress or any 
 order of a commission established by Congress limiting or fixing the 
 rates of a railway company would be unconstitutional if the enforce- 
 ment of that act of Congress or order of a commission would in effect 
 deprive the carrier of a reasonable return upon the property used for 
 the purpose of furnishing the service to the public. 
 
 3. The third point which I wish to make is this : • There is a wide 
 range between a rate that is unreasonably high, and therefore illegal 
 as against the shipper, and a rate that is so low as to be confiscatory 
 as against the carrier. For example : Assuming that a railway com- 
 pany may charge 40 cents a hundred pounds for carrying a given arti- 
 cle between two points without making the rate unreasonably high 
 and therefore illegal, it is quite possible that this rate might be 
 reduced by legislative action to, say, 30 cents a hundred pounds with- 
 out violating any constitutional right of the carrier. In this case the 
 maximum rate which would be reasonable and which could be im- 
 posed by the carrier upon the shipper would be 40 cents a hundred 
 pounds, and the minimum rate which could be imposed by the legis- 
 lature on the railway company would be 30 cents a hundred pounds. 
 The adjustment of the rate between these two extremes would depend 
 upon considerations of business policy and would not be governed by 
 the application of any legal principles or definite rules. The charges 
 of carriers, like the charges in any other business, are fixed largely by 
 considerations of business policy — such as the desirability of encour- 
 aging certain industries, or of developing incidentally other sources 
 
24 EEGULATION OF RAILWAY BATES. 
 
 of traffic. Many other elements must be considered besides the cost of 
 doing the business, such as competition by land and water, the volume 
 of the business, the character of the business, the length of the haul, the 
 rates which can be paid in competition with producers of similar arti- 
 cles at other places, the existence of return loads, etc. It is rarely, ii 
 ever, true that there is but one just and reasonable rate for the trans- 
 portation of a given article between two points. In nearly every 
 instance there is a wide range within which any rate would be ]ust and 
 reasonable, and it is wholly a question of business policy at what point 
 the rate shall be fixed within that range. 
 
 I desire to call special attention to this point, because, in my opin- 
 ion, it has not always been borne in mind in construing the decisions 
 of the Supreme Court and it has been very largely overlooked in 
 drafting the various bills introduced during the last session of Con- 
 gress. The expressions '■ reasonable rates " and " unreasonable rates " 
 are often used in very diiferent senses. Thus, when it is said that a 
 rate shall be reasonable, this may mean (1) that the rate shall not be 
 unreasonably high and illegal under the common law and the inter- 
 state-commerce act, or (2) that the rate shall not be unreasonably 
 low in the sense of being confiscatory, or (3) that the rate shall be 
 the particular rate which, in the opinion of a commission or of some 
 particular jaerson, ought to be established between these two extremes. 
 When it is said that a rate is unreasonable, this may mean (1) that 
 it is unreasonably high and therefore illegal, or (2) that it is unrea- 
 sonably low, or (3) that the rate is different from the rate which, in 
 the opinion of a commission, or of some particular person, ought to 
 be established between these two extremes. 
 
 To illustrate my meaning, I call the attention of the committee to 
 the language of the Townsend bill. 
 
 Senator Dolliver. Do j'ou refer now to the bill which passed the 
 House at the last session ? 
 
 Mr. MoRAWETZ. Yes, sir. That bill provides that whenever, upon 
 complaint duly made, the Interstate Commerce Commission shall, 
 after full hearing, make any finding or ruling declaring any existing 
 rate to be unreasonable, the Commission shall have power, and it 
 shall be its duty, to declare what shall be a just and reasonable rate. 
 
 The question *is immediately presented, Wha,t does that mean? 
 What do the words " unreasonable " and " reasonable " mean, as used 
 in this act? Does it mean that a new rate may be fixed whenever the 
 Commisison shall find the rate prescribed by the carrier to be in excess 
 of the maximum rate which, under the provisions of the interstate- 
 commerce act, could be unlawfully imposed by the shipper ? Or does 
 it mean that the Commission may prescribe a new rate whene\ er in its 
 absolute and uncontrolled discretion, the Commission deems the exist- 
 ing rate to be unreasonable, without regard to the question Avhether it 
 is in violation of prohibitions of the interstate-commerce act ? Two 
 very different things. 
 
 Does it mean that if the Commission, in its business judgment 
 thinks a rate is unreasonable, then it may prescribe any other rate 
 which it thinks may be Avise or desirable? Or does it mean that it 
 shall merely cut down the existing rate to the point where it shall 
 cease to be excessive and illegal under the interstate-commerce act? 
 Two very different things. 
 
 The act goes on to provide that any person directly affected may 
 appeal from an order of the Commission to obtain a' review of the 
 
EEGITLATION OF BAIL WAT BATES. 25 
 
 lawfulness, justness, or reasonableness of the order of the Commission. 
 The question arises, "Wliat is the criterion for determining the law- 
 fulness, justness, or reasonableness of such an order of the Commis- 
 sion? Does it mean that if the original rates which the Commission 
 found to be unreasonable prove to have been not excessive, not in vio- 
 lation of the interstate-commerce act, then everything done by the 
 Commission falls ? Is that to be jurisdictional or not ? Does it mean 
 that if the new rate fixed by the Commission was less than such a rate 
 as could have been charged by the carrier without violating the inter- 
 state-commerce act then the courts shall reverse the order of the Com- 
 mission ? Or does it merely mean that if the order of the Commission 
 fixing a new rate was confiscatory — that is, in violation of the Consti- 
 tution — then the carrier shall have redress? 
 
 I merely suggest these points, because it seems to me that unless 
 we are to have a great deal of litigation, a great deal of uncertainty, 
 any act of this character should be drawn with reference to the dis- 
 tinction which I have pointed out. 
 
 4. The fourth point I wish to make is: To fix the rates to be 
 charged by a carrier is a legislative act and not a judicial act. This 
 has repeatedly been held by the Supreme Court of the United States. 
 
 In Texas and Pacific Railway Company v. Interstate Commerce 
 Commission (162 U. S., 197) it was pointed out that the adjustment 
 of the rates of a railwaj^ company involves many practical business 
 considerations, and the Supreme Court said (p. 234) : 
 
 It may be said that it would be impossible for the Commission to frame a 
 general order if it were necessary to enter upon so wide a field of investigation 
 and if all interests that are liable to be affected were to be considered. This 
 criticism, if well founded, would go to show that such orders are instances of 
 general legislation, requiring an exercise of the law-making power, and that the 
 general orders made by the Commission in March, 1889, and January, 1891, in- 
 stead of being regulations calculated to promote commerce and enforce the 
 express provisions of the act, are themselves laws of wide import, destroying 
 some branches of commerce that have long existed and undertaking to change 
 the laws and customs of transportation in the promotion of what is supposed to 
 be public policy. 
 
 In the Maximum Eate Case (167 U. S.,.479) the Supreme Court 
 used the following language : 
 
 It is one thing to inquire whether the rates which have been charged and col- 
 lected are reasonable — that is a judicial act ; but an entirely different thing to 
 prescribe rates which shall be charged in the future — that is a legislative act 
 (p. 499). 
 
 The power to prescribe a tariff of rates for carriage by a common carrier is a 
 legislative and not an administrative or judicial function, and, having respect to 
 the large amount of property invested in railroads, the various companies 
 engaged therein, the thousands of miles of road, and the millions of tons of 
 freight carried, the varying and diverse conditions attaching to such carriage, 
 is a power of supreme delicacy and importance (p. 505). 
 
 Senator Carmack. You said that fixing rates is a legislative act? 
 Mr. MoRAWETZ. Yes. 
 
 Senator Carmack. Your point is that Congress can not delegate? 
 Mr. MoRAWETZ. No, sir. I am coming to that now. 
 
 5. The fifth point I wish to make is. Congress probably can delegate 
 to a commission power to fix, subject to review by the courts, the max- 
 imum rates that would not be unreasonably high and illegal as against 
 shippers. 
 
 Section 1 of Article I of the Constitution provides that " all legis- 
 
26 REGULATION OP EAILWAY BATES. 
 
 lative powers herein granted shall be vested in a Congress oi the 
 United States," and the general rule is well settled that Congress 
 can not delegate its legislative powers to any other body. 
 
 One of the settled maxims in constitutional law is that the power conferred 
 upon the legislature to make laws can not be delegated by that department to 
 any other body or authority. Where the sovereign power of the State has 
 located the authority, there it must remain; and by the constitutional agency 
 alone the laws must be made until the Constitution itself is changed, ihe 
 power to whose judgment, wisdom, and patriotism this high prerogative has 
 been intrusted can not relieve itself of the responsibility by choosing other 
 agencies upon which the power shall be devolved, nor can it substitute the 
 judgment, wisdom, and patriotism of any other body for those to which alone 
 the people have seen fit to confide this sovereign trust. (Cooley's Constitutional 
 Limitations, 7tb ed., p. 1G3; see also Field v. Clark, 143 U. S., 649.) 
 
 It has never been decided that Congress can delegate to a commis- 
 sion the power of prescribing future railway rates, because Congress 
 has never passed any law purporting to do this. In a number of the 
 States, however, such laws, delegating to railway commissioners the 
 power of fixing rates, have been passed, and the constitutionality of 
 such laAvs has been sustained. (Georcria R. R. Co. v. Smith, 70 Ga.. 
 694; Tilley v. Railwav Co., 4 Woods, C. Ct., 427; McWhirter v. 
 Pensacola Rwy. Co., 24 Fla., 417, 471 ; Express Co. v. R. R. Co., Ill 
 N. C, 463, 472; Chicago, etc., Rwy. Co. v. Dey, 35 Fed. Rep., 866.) 
 
 These cases are based upon the doctrine that while a legislature 
 may not delegate its strictly legislative powers, yet it may delegate 
 authority to perform certain functions of the legislature which are of 
 a quasi-administrative character and which, in the nature of things, 
 could not be performed by the legislature itself. According to these 
 cases, while the power of fixing rates is a function of the legislature, 
 it is a quasi-administrative function which may be delegated by the 
 legislature to a commission. In upholding the railroad-commission 
 law of Georgia, Circuit Judge "Woods used the following language : 
 
 The true distinction, therefore, is bet\veen the delegation of power to make 
 the law, which necessarily involves a discretion as to what it shall be, and con- 
 ferring an authority or discretion as to its execution to be exercised under and 
 in pursuance of the law. The first can not be done ; to the latter no objection 
 can be made (4 Woods, 427, 446). 
 
 No doubt Congress can by law prescribe general rules for the regu- 
 lation of the charges of railway companies. For example, Congress 
 can (as it did in the interstate commerce act) prohibit railway com- 
 panies from charging unreasonably high or extortionate rates and can 
 prohibit them from discriminating in their charges; and CongTess 
 probably can establish a commission or other administrative body 
 with power to carry into effect such general rules, including power to 
 make orders determining prima facie what rates are unreasonably 
 high or discriminatory, and therefore illegal under the statute. 
 Under such a law the function of a commission would be merely 
 administrative in carrying out the declared legislative will of Con- 
 gress to prohibit excessive rates or unjustly discriminatory rates and 
 the commission itself would not be vested with the legislative power 
 of determining according to its own arbitrary will or ideas of policy 
 what rates shall be charged in the future. Under such a law the 
 action of the commission, although prima facie valid, could be 
 reviewed and set aside by the courts, and the carrier could not be 
 deprived by the commission of the right to charge any rate it saw fit 
 provided it be not imreasonably high or unjustly discriminatory ' 
 
K^EGULATION OP EAILWAY RATES. 27 
 
 It would be going a step further to hold that Congress can pass an 
 act giving to a commission general discretionary power to fix future 
 rates at any point between the maximum rates that would be reason- 
 able and the minimum rates that would be unconstitutional. As will 
 be pointed out hereafter, the exercise of the discretion of the Commis- 
 sion in such a case would not be subject to re\dew by the courts. Such 
 a delegation of power would, in truth, be a delegation of legislative 
 power ; it would be a delegation to the Commission of the entire dis- 
 cretion of Congress in fixing rates. 
 
 Senator Clapp. I. understood you to say that you intend to point 
 out that the Commission could not be given discretion; that the 
 power could not be vested in the Commission. Was not that your 
 language a moment ago ? 
 
 Mr. MoEAWETz. No. The substance of my fifth point is this 
 
 Senator Clapp. No ; I understood you to say that you were going 
 to point that out. T do not know that I understood you correctly. 
 
 Mr. Morawetz. No. I am going to point out in a moment that 
 Congress can not require the courts to do that. 
 
 As to the power of Congress to delegate to a commission the power 
 of fixing rates, I think the law is as follows : Congress can give to a 
 conmiission power to determine prima facie, subject to review by the 
 courts, what the maximum rates are that can be imposed by a rail- 
 way company without violating the interstate-commerce act. It can 
 give to a commission only the power to make orders that are valid 
 prima facie until set aside by the courts. 
 
 "Whether Congress caia go beyond that and give to a conunission 
 power to fix rates, within the discretion of the Commission, anywhere 
 between the maximum rate that could be imposed without extortion 
 and the minimum rate that could be imposed by the Commission 
 without confiscation is a very doubtful question, in my judgment. 
 In some States such laws have been sustained. But such a law would 
 apparently not be sustained by the Supreme Court of the United 
 States, which has held, in the cases to which I have referred, that the 
 making of an order fixing rates in this way would be an enactment 
 of — and I quote the language of the Supreme Court — 
 
 Laws of wirte import, destroying some brandies of commerce that have long 
 existed, and undertaking to change the laws and customs of transportation in 
 the promotion of what is supposed to be public policy. 
 
 And in another case the Supreme Court said that it would be the 
 exercise of a legislative power " of supreme delica,cy and importance." 
 
 Now, no man can say with entire confidence what the Supreme 
 Court will decide when this question arises. But I am bound to say 
 that the views expressed by the court in these cases would seem to 
 preclude the possibility of passing a constitutional act of Congress 
 giving to the Interstate Commerce Commission, or to any adminis- 
 trative body, the absolutely discretionary power of fixing rates, 
 guided by no principles or rule established by Congress itself. 
 
 Senator Clapp. In the two cases you quote from, is the question 
 there involved of conferring discretionary power? You referred to 
 them in coimection with your suggestion as to a doubt of that power 
 being conferred. 
 
 Mr. Moeawetz. In the maximum rate case the main question was 
 
28 EEGULATION OF RAILWAY EATES. 
 
 whether the interstate-commerce act conferred on the ^°™"^^^^^^ 
 any power whatever to fix future rates, and the Supreme Court neia 
 that it did not— that it was never the intention to confer such a 
 power upon the Commission. , 
 
 Senator Dollivbb. Did they make any intimation in that case that 
 the existence of that power in Congress was doubtful? I mean the 
 power to confer that jurisdiction on the Commission. _ 
 
 Mr. MoRAWETz. No, sir. I think there are dicta in decisions of 
 the Supreme Court to the effect that Congress can confer upon the 
 Commission a certain measure of rate-making power for the future. 
 I believe within certain limits such a delegation of power would be 
 sustained. As I have said, I do not think that an act of Congress 
 giving to the Interstate Commerce Commission a general discretion- 
 ary power to fix rates, without any rule prescribed by Congress 
 itself, could be sustained without departing from the principles laid 
 down by the courts in other cases. 
 
 Senator Cullom. Mr. Chairman, I do not know whether it is in 
 order for me to ask a question or not. May I make an inquiry? 
 
 The Chairman. Yes. 
 
 Senator Cullom. Mr. Morawetz, suppose a commission fixes a rate, 
 where it is disputed, and the Commission goes to some point where it 
 is alleged that the rate from that point to some other particular point 
 is too high, and they determine that it is so, and then fix a rate that 
 they regard as reasonable, can the courts interfere with that rate 
 unless they do it on the ground it becomes confiscatory ? 
 
 Mr. MoBAWETZ. That sir, would depend altogether upon the lan- 
 guage of the act of Congress. 1 was endeavoring to show that the 
 only questions that can constitutionally be subjected to review by the 
 courts are, first, whether the action of the Commission is confiscatory, 
 and, second, whether the rate is extortionate or in excess of the maxi- 
 mum rate wliich would be reasonable. 
 
 Senator Carmack. A'VTiat is the language of the House bill on that 
 point — " unreasonable ? " 
 
 ]\Ir. MoEAWBTZ. " Unreasonable." 
 
 Senator Carmack. The word " unreasonable " is in that bill, I 
 know. 
 
 Mr. Morawetz. Yes. 
 
 Senator Cullom. Wiere the act uses that expression, that it must 
 be a reasonable rate, and they have no right to charge an unreason- 
 able rate, and the Commission puts the rate down so low that it is 
 not unreasonably high, certainly the courts could not interfere with 
 it, could they, except upon the ground that it is unreasonably low and 
 confiscatory in its effect? 
 
 Mr. Morawetz. That, I think, would be the effect of the passage 
 of such a bill unless the meaning of the act is that the Commission 
 shall only have authority to fix a maximum rate at the point where 
 it ceases to be excessive. 
 
 Senator Cullom. So that it would depend upon the statute? 
 
 Mr. Morawetz. It depends upon the language of the statute in 
 every case. 
 
 Senator Cullom. And upon the general constitutional authority 
 of the court ? 
 
 Mr. Morawetz. Yes. 
 
 6. The sixth point I wish to make is, that Congress can not confer 
 
EEGULATION OP EAUiWAY EATES. 29 
 
 ujDon the Interstate Commerce Commission judicial powers. Under 
 the Constitution, Congress can confer judicial powers only upon 
 courts established in the manner prescribed by the Constitution and 
 constituting part of the judiciary of the United States. The judges 
 of such courts must be appointed to hold office during good behavior, 
 and must receive for their services a compensation which shall not 
 be diminished during their continuance in office. As will be pointed 
 out hereafter, a judge so appointed can only be required to perform 
 strictly judicial services. A judge or court can not be vested with 
 any executive or legislative or quasi-legislative powers such as are 
 exercised by railwaj' commissions. Therefore no act can be drawn 
 giving to a commission constituted like the Interstate Commerce Com- 
 mission power to adjudicate the rights of parties. No decision of the 
 Commission in a controversy between parties before it can be given 
 Ijinding effect. Congress can not give to the Commission power to 
 adjudicate the lawfulness of a rate charged by the railway companies. 
 
 7. My seventh point is that Congress can not vest in the courts 
 power to fix future rates or to consider and pass upon the wisdom or 
 policy of the Commission in prescribing a particular rate which is 
 neither confiscatory nor unreasonably high. It is well settled that 
 Congress can not constitutionally require the courts of the United 
 States to perform any duties that are not of a judicial character. 
 Congress can not require the courts, directly or indirectly, to perform 
 duties of an administrative or of a quasi-legislative character. (Opin- 
 ions of the judges of the Supreme Court in the notes to Ilaybum's 
 Case, 2 DalL, 409 ; United States v. Todd, 13 How., U. S., 52 ; Gordon 
 V. United States, 2 Wall., 561 ; Ee Sanborn, 148 U. S., 222 ; Interstate 
 Commerce Commission v. Brimson, 154 U. S., 447, 484; Norwalk 
 Street Railway Company's Appeal, 69 Conn., 597.) 
 
 It follows, therefore, that Congress has no constitutional power to 
 require the courts to exercise the legislative or quasi-legislative action 
 of a commission in fixing the rates to be charged by railway compa- 
 nies in the future. 
 
 Senator Dollivee. Does that exclude the notion of their being able 
 to find whether the rate fixed by the Interstate Commerce Commis- 
 sion is reasonable or not ? 
 
 Mr. MoEAWETZ. I shall endeavor to show in a minute that it all 
 depends upon what you mean by the word " reasonable." Congress 
 can require the courts to pass upon the question whether a rate fixed 
 by a commission is confiscatory. It can also require the courts to 
 determine whether a rate fixed by a commission or by a railway 
 company is excessive — illegally high. But Congress can not require 
 the courts to pass upon the mere business policy of fixing a rate any- 
 where between those two extremes. Congress, of course, has never 
 attempted to confer any such power 
 
 Senator Newlands. I understood you to say a few moments ago, 
 Mr. Morawetz, that Congress could not impose upon the courts any 
 executive functions. 
 
 Mr. Morawetz. Or quasi legislative functions. 
 
 Senator Newlands. And you also stated that it could not impose 
 upon the Commission any judicial function. 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. Well, the Constitution gives Congress the 
 power to create inferior courts. If Congress should give the Inter- 
 
30 REGULATION OF EAILWAY BATES. 
 
 state Commerce Commission certain judicial powers, would it not be, 
 to that extent, creating an inferior court with judicial powers' 
 Could not the Commission in that way exercise both legislative and 
 judicial powers? 
 
 Mr. MoEAWETZ. No, sir; Congress could not do that, for several 
 reasons. One is that Congress can only create courts such as are 
 authorized by the Constitution. The judges of a court created by 
 Congress must hold office for life, during good behavior, and their 
 compensation may not be changed. Now, the Interstate Commerce 
 Commission is not a body of that kind. 
 
 The second reason is that when Congress does create a court it can 
 not confer upon that court any functions or powers except functions 
 or powers of a judicial character. 
 
 Senator Cullom. Nor can it compel them to do anything else? 
 
 Mr. MoEAAVETz. No, sir. It must be a court pure and simple. 
 The Interstate Commerce Commission has many functions which are 
 not of a judicial character. In fact, all of its functions to-day are of 
 a nonjudicial character. 
 
 Senator Newlands. You think that in the exercise of that power 
 of creating inferior courts Congress must confine the duties of that 
 tribunal entirely to judicial functions? 
 
 Mr. MoRAWETZ. Absolutely. There is no question in my mind in 
 regard to that. 
 
 Senator Foeaker. It must be a constitutional court, contradistin- 
 guished from Territorial courts, sucli as Congress creates in Territo- 
 ries, where the tenure is for a fixed term. 
 
 Mr. J\^oRA^^'ETz. Yes; precisely. This precise question has never 
 been decided or considered by the Supreme Court, because it never 
 arose. Congress never attempted to do such a thing. But a similar 
 question has arisen under State legislation purporting to vest the 
 rate-making power in the courts, and this legislation has been con- 
 demned as unconstitutional. 
 
 In State /'. Johnson (61 Kans., 803) the supreme court of Kansas 
 decided that the act of the legislature of that State creating a court 
 called the " court of visitation " was unconstitutional, for the reason 
 that it conferred upon this court the power of prescribing the future 
 rates of railway companies, that being a legislative and not a judi- 
 cial function. The same conclusion was reached when the validity 
 of this Kansas law was considered by the circuit court of the UniteS 
 States in Western Union Telegraph Company v. Myatt (98 Fed. 
 Rep., 335). (See also Nebraska Telegraph Co. v. State, 55 Nebr., 
 627.) 
 
 Under the law of Kansas there was an attempt to confer the rate- 
 making power upon a court in the first ins'tance, not through an 
 appeal from the action of the Commission or other body. It is clear, 
 however, that if Congress can not give to the courts original power 
 to prescribe what rates the railway carriers shall charge, Congress 
 can not require the courts to do this indirectly by requiring them to 
 reconsider the wisdom arid policy of the Commission in fixing a rate. 
 In other words. Congress can not make the court in effect an appellate 
 railway commission to sit in review of the actions of the Interstate 
 Commerce Commission, to hear de novo the questions passed upon by 
 the Interstate Commerce Commission and to substitute the ideas of 
 the court as to the wisdom and policy of a particular rate for the 
 
EEGULATION OF KAILWAY BATES. '61 
 
 ideas of the Interstate Commerce Commission. Any statute author- 
 izing a commission in the first instance to exercise purely discretion- 
 ary power in fixing rates and requiring the courts to review this 
 discretion of the Conunission would be unconstitutional, because the 
 discretion to be reviewed by the courts would be a legislative dis- 
 cretion and not a legal discretion. It is obvious that such a statute 
 would indirectly make the courts the rate makers for all the rail- 
 ways 'in the United States, because the decision of the Commission 
 or the action of the Commission in fixing a rate would in no case be 
 final. Either party could ask the court to reconsider the whole ques- 
 tion as it was considered by the Commission and substitute its ideas 
 of the wisdom and policy for the ideas of the Commission. 
 
 The courts undoubtedly can be required to pass upon the question 
 whether a rate prescribed by a commission is unreasonably high, and 
 therefore unlawful. The courts have been required under the exist- 
 ing laws to pass upon the question whether the rate charged by a car- 
 rier is unreasonably high and in violatiqn of the provisions of the 
 interstate-commerce act. The courts also can be required to pass 
 upon the question whether the act of a carrier in fixing a rate is in 
 v^iolation of any legal order of the Commission. But they can not 
 be required to substitute their ideas as to the wisdom or policy of fix- 
 ing a rate between the two extremes of legality which I have men- 
 tioned — that is, a rate wliich is unreasonably high and the rate which 
 is confiscatory. 
 
 Senator Dollivee. Could they be required to state what their idea 
 is, without undertaking themselves to put it into effect ? 
 
 Mr. MoEAWETZ. No, sir ; I think not. 
 
 Senator Cullom. They can not decide one rate to be unreasonable 
 and then fix a reasonable rate themselves. Do I understand that to 
 be your position ? 
 
 Mr. MoEA-WTSTZ. I think, sir, the courts could be required to pass 
 upon the question whether a rate is unreasonably high, in the sense 
 of being extortionate because in violation of the interstate-commerce 
 act, and the courts could be required, in my judgment, also, to find 
 what the maximum rate is that could be lawfully imposed under the 
 interstate- commerce act. 
 
 Senator Dollivee. Without undertaking to put it into effect at all ? 
 
 Mr. MoEAWETZ. Yes, sir. 
 
 Senator Foeakeb. In other words, if they find that the rate which 
 had been fixed by the Commission was between the two extremes, 
 they would simply find that there was no case — nothing for the 
 court to act upon? 
 
 Mr. MoEAWETZ. Nothing for the court to act upon. Let me put 
 a specific case. Suppose the rate charged is 50 cents per hundred 
 pounds. If the court should find that the rate of 50 cents per hun- 
 dred pounds was an unreasonably high rate, and therefore in viola- 
 tion of the interstate-commerce act, the court may so find. The court 
 also, in my judgment, could be required to find what the maximum 
 rate is that could have been lawfully imposed — say 40 cents per hun- 
 dred pounds. 
 
 Senator Cullom. I had not supposed they had any right to deter- 
 mine what the maximum rate should be. 
 
 Mr. MoEAWETz. I said " could have been lawfully imposed ; " I 
 
32 BEGULATION OF RAILWAY BATES. 
 
 nsed the past tense. I do not think the court could prescribe a rat« 
 for the future. 
 
 Senator Dolliver. Could the law itself prescribe that thereupon 
 that rate should go into effect? ,_• i, t u n 
 
 Mr. MoRAWETZ. I think it could. In the suggestions which i shall 
 make at the close of my address I shall point out that Congress could 
 do that very thing. But the point I was making was that Congress 
 could not require the courts to substitute their own ideas of the wis- 
 dom and policy of fixing a rate between the two limits of legality 
 which I have mentioned. 
 
 Senator Forakek. Then it comes back to the question I asked, 
 simply because there would be no case for the court upon which to 
 grant relief. 
 
 Mr. Moeawetz. Because it would not be a judicial question. 
 
 Senator Foraker. That is to say, there would be nothing for the 
 court to take hold of. 
 
 Mr. Moeawetz. Yes. 
 
 Senator Foraker. It is between the two extremes. 
 
 Senator Carmaciv. Is it not a question of policy? 
 
 Mr. MoRAWETz. Not a question of policy. The question in such a 
 case would be neither one of fact nor one of law. The adjustment of 
 rates of a carrier between those two extremes presents merely a ques- 
 tion of business policy, largely dependent upon individual opinion 
 and preference. The carrier can pass upon the question, and Con- 
 gress, in the exercise of its legislative functions, can pass upon it — 
 that is. Congress itself can fix a rate at any point it sees fit between 
 the two extremes. 
 
 Senator Ctxllom. It can determine a minimum rate and a maxi- 
 mum rate as well. 
 
 Mr. Moeawetz. Congress itself can. Possibly a commission ap- 
 pointed by Congress can be empowered to pass upon such a question. 
 But the courts of the United States can not be required to determine 
 such questions and, in effect, become the traffic managers of all the 
 railways in the United States. 
 
 Senator Cullom. The rate makers. 
 
 Mr. MoRAWETZ. The rate makers of the universe. 
 
 I would like to read, in this connection, some remarks made by Mr. 
 Justice Brewer in the case of Reagan v. Farmers' Loan and Trust 
 Company : 
 
 It is doubtless true, as a general proposition, that tlie formation of a tariff of 
 charges for the transportation by a common carrier of persons or property is a 
 legislative or administrative rather than a judicial function. Yet It has always 
 been recognized that, if a carrier attempted to charge a shipper an unreasonable 
 sum, the courts had jurisdiction to inquire into that matter and to award to the 
 shipper any amount exacted from him in excess of a reasonable rate, and also 
 in a reverse case to render judgment in favor of the carrier for the amount 
 found to be a reasonable charge. The province of the courts is not changed 
 nor the limit of judicial inquiry altered because the legislature instead of the 
 carrier prescribes the rates. The courts are not authorized to revise or change the 
 body of rates imposed by a legislature or by a commission ; they do not deter- 
 raine whether one rate is preferable to another, or what, under all circumstances, 
 would be fair and reasonable as between the carriers and the shippers ; they 
 do not engage in any mere administrative work ; but still there can be no doubt 
 of their power and duty to inquire whether a body of rates prescribed by a legis- 
 lature or a commission is unjust and unreasonable, and such as to work a prac- 
 tical destruction to rights of property, and if found so to be, to restrain its 
 operation. (154 U. S., 362, 397.) 
 
EEGXJLATION OF RAILWAY KATES. 33 
 
 Senator Xe-vvlands. Do I understand that opinion to go so far as 
 to sajf that proceedings may be instituted in court against an entire 
 tariff upon the ground that it was destructive of the rights of prop- 
 erty? 
 
 Mr. MoRAWETz. You mean a proceeding by a carrier to restrain the 
 action of a commission fixing an entire tariff? 
 
 Senator Newlands. Yes. 
 
 Mr. MoRAWETZ. Certainly. 
 
 Senator Xewi..4nds. Under that principle, then, could the shippers 
 seek to restrain the enforcement of an entire tariff upon the ground 
 that it was unreasonable and oppressive of them ? 
 
 Mr. MoRAWETz. I think not. You see the complaint of the shipper 
 would be based upon the ground that the particular charge imposed 
 by the carrier — the charge of the railway company — was unreason- 
 ably high. The complaint of the railway company would be on the 
 ground that the order of the Commission was unconstitutional. 
 
 Senator Newlands. Yes; but coiild we not shape this whole mat- 
 ter in some way so as to make that correlative? If the railway has 
 the clear right to go into court and restrain the enforcement of an 
 order, the enforcement of which would be destructive of the rail- 
 road's rights of property and that prescribes confiscatory rates, why 
 should not the shippers have the correlative right of preventing the 
 enforcement of a tariff' which would be unreasonably oppressive to 
 them? It is just as destructive of the rights of property in one case 
 as in the other. . There has never been a case of that kind, has there, 
 where it has been sought to procure the protection of the courts upon 
 the part of the shippers against a tariff' which they claimed to be 
 unreasonably high? 
 
 Mr. Morawetz. I know of no such case, and I do not very well se.e 
 how it could arise, because the shipper could merely complain of the 
 particular rate which would worli oppressively to him. 
 
 Senator Newlands. Could you suggest any method by which this 
 right could be enforced in some speedy and determinative way, both 
 for the shippers on the one hand and the railroads on the other? 
 
 Senator Foraker. We undertook to provide a remedy in that case 
 by the Elkins law. 
 
 The Chairman. Senator Newlands, would it not be better for you 
 to wait and ask these questions at the end of the witness's statement? 
 Of course you have the right to ask a question in order to make clear 
 some statement made by the witness, but it seems to me that general 
 questions had better be left to come in at the 'end of the witness's 
 statement. 
 
 Senator Newlands. Yes; I accept the suggestion of the Chair. 
 
 The Chairman. Proceed, Mr. Morawetz. 
 
 Mr. Morawetz. The precise point I was making has been decided 
 in Minnesota. The act of Minnesota giving to the railroad and ware- 
 house commission of that State power to fix rates made provision for 
 an appeal to the district court from an order of the commission, and 
 the act contained the following provision : 
 
 Upon such appeal, and upon the hearing of any application * * * for the 
 enforcement of any such order made by the commission, the district court shall 
 have jurisdiction to, and it shall, examine the whole matter in controversy, 
 Including matters of fact as well as questions of law, and to affirm, modify, 
 or reverse suOh order in whole or in part as justice may require; and in case 
 
 R R R— 05 M 3 
 
34 EEGULATION OF RAILWAY BATES. 
 
 of any order being modified, as aforesaid, such modified order sliall, for all the 
 purposes contemplated by this act, stand in place of the original order so modi- 
 fied and have the same force and effect throughout the State as the orders or said 
 commission. 
 
 The supreme court of Minnesota held that — 
 
 If by this the legislature Intended to provide that the court should put itself 
 in the place of the commission, try the matter de novo, and determine what are 
 reasonable rates, without regard to the findings of the commission, such intent 
 can not be caried out, as a statute which so provided would be unconstitutional. 
 The fixing of rates is a legislative or administrative act, not a judicial one. 
 And the performance of such duties can nut under our constitution be imposed 
 on the judiciary. 
 
 The Chairman. That is the case you cited from the supreme court? 
 
 Mr. MoRAWETz. From the Minnesota supreme court. 
 
 The Chairman. It is not from one of the United States circuit 
 courts or district courts ? 
 
 Mr. MoEAWETZ. No, sir. 
 
 Senator Dollivee. Has that case ever been disturbed? 
 
 Senator Cdxi-om. I believe you stated that that decision was under 
 the constitution of the State of Minnesota, and that is in harmony 
 with the Constitution of the United States. 
 
 Mr. MoEAWETz. Yes, sir. I do not think there is anything in any 
 State constitution which separates so sharply the powers of the three 
 branches of the Government as does the Constitution of the United 
 States. 
 
 I desire to impress upon the committee particularly that no con- 
 stitutional statute can be drawn that will give to the courts power to 
 hear the controversy de novo, as in case of an appeal of a cause in 
 equity, and to reconsider the wisdom and policy of the Commission 
 in fixing any particular rate between the two extremes of legality 
 above referred to. 
 
 Senator Cut.lom. We can not make a statute requiring a case to 
 be sent up on the testimony taken by the Commission only ; the courts 
 have the right to enlarge their scope of inquiry. Is that what I 
 understand ? 
 
 Mr. MoEAWETZ. That is true also, but that is not the point. I am 
 trying to make the point, and to impress it upon the committee, that 
 no statute can be drawn which will require the courts to reconsider the 
 entire case before the Commission in fixing rates to hear the case de 
 novo, and to substitute the ideas of the court as to what is a wise or 
 desirable rat« for the ideas of the Commission. 
 
 Senator Clapp. In order that there may be no misunderstanding 
 as to what you mean, you would not be understood as saying that 
 the court might not make this inquiry as broad as the inquiry of the 
 Commission within the limits of either sustaining or reversing the 
 Conmiission, would you? 
 
 Mr. MoEAWETZ. The court could hear any testimony which it saw 
 fit bearing upon the question before it. The point is,"What question 
 can the court be authorized to pass upon ? 
 
 Senator Clapp. The way you stated it I think would have been 
 a little misleading, perhaps. 
 
 Mr. Morawetz. The point I wish now to make is that the courts can 
 be authorized and required to pass upon the question whether the rate 
 made by the Commission is confiscatory. It can also be authorized 
 
REGULATION OF RAILWAY RATES. 35 
 
 and directed to pass upon the question whether a rate is unreasonably- 
 high. But the court can not be authorized to consider the mere wis- 
 dom and policy of a particular rate which does not reach either one 
 of these two extremes. 
 
 The Chairman. The court could say whether it was discriminatory 
 or not. 
 
 Mr. MoRAWETz. Certainly. 
 
 Senator Clapp. A lawyer has called my attention to a decision of 
 the supreme court of Massachusetts made while Mr. Justice Holmes 
 was on the bench of that State. Has your attention been called to 
 that? 
 
 Mr. MoRAWETz. I do not laiow just what case you refer to. 
 
 Senator Clapp. Where the court was authorized in the initiative 
 to fix water rates. 
 
 Mr. MoRAWETZ. I do not recall that. 
 
 Senator Foraker. Can you cite the case, Senator ? 
 
 Mr. MoRAWETZ. Do you recall the case? 
 
 Senator Clapp. No; I do not, except that it was a case before 
 Judge Holmes before he came on our Supreme Bench here. 
 
 Mr. MoRAWETZ. The importance of the point which I am making is 
 this : Any act of Congress, if I am right in this, vesting in a commis- 
 sion purely discretionary power to fix rates would in effect confer 
 upon the Commission autocratic and uncontrolled powpr to prescribe 
 the rates of the railway companies throughout the United States and 
 to make or unmake the prosperity of different sections of the country 
 so far as that depends upon the rates of transportation. Any proAa- 
 sion for a further judicial scrutiny of the action of this Commission 
 would be entirely illusory. 
 
 Under the bills that have been introduced in Congress, the only 
 question that Qould be considered upon an appeal by a railway com- 
 pany would be whether the rate prescribed by the Commission was 
 confiscatory, and the only question that could be considered upon an 
 appeal by a shipper would be whether the rate prescribed by the Com- 
 mission was extortionate or discriminatory. If a locality should be 
 aggrieved by the action of the Commission, I do not believe that it 
 would have any redress whatsoever. 
 
 The Commission has clearly expressed this understanding of the 
 matter : 
 
 If the Commission establisties a rate, that is tantamount to an act of the legis- 
 lature. (Annual Report for 1897, p. 37.) 
 
 As one of the Commission expressed it to a committee of the Senate 
 in 1898 : 
 
 One doctrine is now settled- — that whereas the investigation of the question 
 whether an existing rate is a reasonable and lawful one or not is a judicial 
 question, the determination of what the rate shall be in the future is a legisla- 
 tive or administrative question with which the courts can have nothing to do. 
 
 Another Commissioner said to the same committee in 1900 : 
 
 The prescribing of a rate is, under the decisions of the Supreme Court, a legis- 
 lative, not a judicial, function, and for that reason, the courts could not, even If 
 Congress so elect, be invested with that authority. 
 
 Senator Newlands. What case is that ? 
 
 Mr. MoRAWETZ. I read from the testimonv of one of the members 
 
36 REGULATION OF KAILWAY RATES. 
 
 of the Interstate Commerce Commission given before the committee 
 in 1900. 
 
 8. I come now to the question of discriminations among localities. 
 One of the grounds assigned for the proposed legislation to regulate 
 railway rates is that such legislation is desirable to prevent dis- 
 crimination by the railway companies among different localities by 
 favoring certain localities as against others. A grant of discre- 
 tionarv power to fix railway rates within the limits of legality, as 
 heretoJfore defined, would necessarily include power, through an 
 adjustment of rates, to affect the relative rates of different localities 
 and to aid one locality in the country at the expense of other localities 
 by establishing a differential. The Hepburn bill and the Quarles- 
 Cooper bill provide in express terms that the Commission shall have 
 power to prescribe " the just relation of rates to or from common 
 points." But I do not think that it is at all necessary to use those 
 words or to give that power, if the general discretionary power of 
 fixing rates fs given to the Commission, because the Comniission 
 under that general discretionary power could adjust rates as it saw 
 fit. ' . . 
 
 Senator Cullom. Taking into account differenti&,ls. 
 
 Mr. MoEAAVETZ. And everything else; yes. It would have the 
 power to establish differentials and to fix what, in the eyes of the 
 Commission, would be the just relation of rates to and from common 
 points. 
 
 Senator Cullom. What objection have you to that? 
 
 Mr. MoRAWETz. The objection, you mean, to fixing the just rela- 
 tion of rates ? 
 
 Senator Cullom. I withdraw the question at present, at the sug- 
 gestion of the chairman. 
 
 The Chairma^^ Let it come in at the end, when you finish your 
 argument. 
 
 Mr. MoEAWETZ. I am quite willing to answer it now. 
 
 The grant of such a power would vest in the Commission prac- 
 tically autocratic power over the policy of the railways of the United 
 States, and autocratic power to make or unmake the prosperity of 
 different sections of the country so far as this would depend upon 
 the rates of transportation. It would place in the practical control 
 of the Commission property of a value of about $15,000,000.000 — 
 the most important single property interest in the United States. 
 It would create a form of bureaucratic government more absolute 
 than any existing in any other country in the world. It would cer- 
 tainly be contrary to the American system of government and to 
 American ideas of what 8 free government should be. 
 
 The practical objections to giving such power to any five men seem 
 to me hardly to require explanation. 
 
 But the political objections seem also to me to be very serious. 
 The interstate-commerce act itself recognizes that the interstate 
 Commerce Commission is subject to politics. The act provides that 
 not more than three of the Commissioners shall belong to the same 
 political party. The act itself recognizes the fact that one or the 
 other of the political parties will control the Interstate Commerce 
 Commission. Now, is it desirable that the rates to and from differ- 
 ent sections of this country should be fixed bv politics or that ther 
 should be made a political question? At this" moment the Commis- 
 
REGULATION OF RAILWAY BATES. 37 
 
 sion has under advisement the matter of the differentials to the differ- 
 ent seaports on grain intended for shipment abroad. If this is made 
 a political question, why would not the North be arrayed against the 
 South? Why not Boston, New York, Philadelphia, "^and Baltimore 
 against New Orleans, Galveston, a'nd the other southern ports ? 
 
 I did not intend to take up the practical aspect of this question, 
 because I know it will be very fully dealt with by others who will 
 follow me. My principal point was to consider the legal and consti- 
 tutional questions in framing any legislation of this kind, and if the 
 committee approves I will go on with that aspect of the question. 
 
 Senator Caemack. T should like very much to hear you or some one 
 upon the question just suggested, as to this conflict of interest between 
 sections. 
 
 Mr. MoRAWETZ. I shall have a few more words to say about that, 
 for the reason that the provision of the Constitution against acts of 
 Congress giving preference to the ports of one State as against those 
 of another 
 
 Senator Ctjllom. 1 only want to say, before you leave that point, 
 that I did not know that that provision was in the bill that passed the 
 House. 
 
 Mr. MoEAWETZ. It was not, but it is involved. 
 
 Senator Cullom. It is involved in the question I asked a while ago, 
 and which I withdrew. I only wanted to hear what you had to say 
 at the moment upon the general question, but I think you have an- 
 swered it very fully already, without intending it, perhaps. 
 
 Mr. MoEAWETz. The Townsend bill does not, in so many words, give 
 the power to fix the just relation of rates, but it implies that that 
 power is conferred by the grant of discretionary power to fix a rate, 
 as it undoubtedly is. It was quite unnecessary to insert that provi- 
 sion in the Townsend bill, because, it was implied from the gxant of 
 discretionary power to fix rates. 
 
 The Constitution provides that — ■ 
 
 No preference shall be given by any regulation of commerce or revenue to the 
 ports of one State over those of another. 
 
 This provision of the Constitution has rarely been considered by 
 the Supreme Court of the United States. In the case of Munn v. 
 Illinois it was urged that a State law fixing the maximum charges of 
 public elevators was in violation of this clause, but the Supreme 
 Court, said : 
 
 The remaining objection — to wit, that the statute in its present form is repug- 
 nant to section 9, Article I, of the Constil-utiori of the United States, because it 
 gives preference to the ports of one State over those of another — may be dis- 
 posed of by the single remark that this i)rovision operates only as a limitation 
 upon the powers of Congress, and in no respect affects the States in the regula- 
 tion of their domestic affairs. (04 U. S., 77.) ' 
 
 In the case of Pennsylvania v. Wheeling Bridge Company (18 
 How., 421) it was claimed that an act of Congress authorizing the 
 construction of a bridge across the Ohio River at Wheeling, Va., 
 was in violation of the constitutional provision that no preference 
 should be given by any regulation of Congress to the ports of one 
 State over those of another, because the construction of this bridge 
 would cause delay and expense in the operation of steamboats upon 
 the Ohio Kiver bound to or from the port of PittsVjurg, and would 
 virtually give a preference to the port of Wheeling. A majority of 
 
38 REGULATION OF EAILWAY BATES. 
 
 Supreme Court, however, held that the act of Congress was a legiti- 
 mate exercise of the. power to regulate commerce, although it migfit 
 sive an advantage to the ports of one State which would incidentally 
 operate to the prejudice of the ports of a neighboring State, ana mat 
 the constitutional prohibition only prevented Congress from giving 
 a direct preference to the ports of one State over the ports ot another 
 State. Mr. Justice Nelson also expressed the view that what was tor- 
 bidden was not discrimination between the ports of diflerent btates, 
 but discrimination between States, and that in order to bring the 
 case within the prohibition it was necessary to show not merely dis- 
 crimination between Pittsburg and Wheeling, but discrimination 
 between the ports of Virginia and those of Pennsylvania. 
 
 It seems clear that an act of Congress regulating interstate com- 
 jnerce is not in violation of the prohibition of the ninth section of 
 Article I of the Constitution merely because the regulation would 
 incidentally, and not directly, give some advantage to the ports of one 
 State over the ports of another State. The constitutional prohibition 
 would only prohibit a regulation of commerce directly and neces- 
 sarily giving a preference to the ports of one State over those of 
 another. The question, therefore, is : Can an act of Congress fixing 
 the rates of railway companies within the United States operate as a 
 direct preference to the ports of one State over those of another? 
 Of course the fact that railways were not Ifnown at the time of the 
 adoption of the Constitution has no bearing upon the question. If a 
 law prescribing the rates of raihvay companies is a regulation of 
 commerce under section 8 of Article I, it must also be a regulation of 
 commerce under section 9 of this article. 
 
 The Chairman. Is it or not, in your judgment? 
 
 Mr. Moram-etz. I say that it can be in fact a direct preference; 
 that is, an act of Congress fixing railway rates may constitute in fact 
 a direct preference to the ports of one State as against those of 
 another. 
 
 The Chairman. Do you think that is unconstitutional ? 
 
 Mr. MoEAWETz. I think so. For example, if Congress or the Com- 
 mission, which is the same thing, in fixing railway rates, should 
 fix the rates of transportation of grain from Chicago to Liverpool via 
 the northern ports, giving an arbitrary preference over the southern 
 ports, so that all grain necessarily would have to go via the northern 
 ports and not through the southern ports, that would be a direct pref- 
 erence to the northern ports, precisely as if Congress had passed a 
 lavs' saying in so many words that any shipper via the northern ports 
 shall be given a bountj- and a shipper by southern ports shall not. 
 The result Avould be the same, without question, and it is difficult to 
 see how, upon any fair construction of the constitutional prohibition, 
 the conclusion could be avoided that such legislation would be giving 
 a preference to the ports of certain States against those of others. 
 
 The Chairman. A regulation of commerce that would be uncon- 
 stitutional ? 
 
 Mr. Morawetz. A regulation of commerce which, under section 9, 
 would be prohibited. Of course, the word " ports " to-day includes 
 a great many places which at the time the Constitution was formed 
 were not designated as ports. 
 
 (A recess was here taken by the committee from 1 to 2 o'clock p. m.) 
 
EEGTJLATIOX OF BAIL WAY KATES. 39 
 
 AFTEE RECESS. 
 
 STATEMENT OF VICTOE MORAWETZ, Esq.— Continued. 
 
 Mr. MoRAWETZ. Shall I proceed? 
 
 The Chairman. Yes; proceed. 
 
 Mr. MoEAAVETZ. Before drafting any bill giving additional powers 
 to the Interstate Commerce Commission it is of course essential to 
 determine precisely what the object of the proposed legislation is. 
 If the object and result to be accomplished is merely to prevent 
 railway companies from charging excessively high rates and to pre- 
 vent railway companies from discriminating in their rates, I believe 
 that a bill could be drawn which would accomplish that result, and 
 which would do no harm to any vested interests, and would be wel- 
 comed by the' railway companies as well as by the public. I should 
 like to suggest to the committee the lines upon which I think a bill 
 could be drawn which would accomplish these results. 
 
 In the first place, I do not agree with those who think that the 
 Interstate Commerce Commission is of no use whatever. I believe 
 the Interstate Commerce Commission has been a very useful body. 
 I think that if we had not had the interstate-commerce act of 1887 
 the condition of the transportation problem in this country would be 
 very bad, indeed. I do believe, however, that the Interstate Com- 
 merce Commission might have been a very much more useful body 
 than it has been in fact. The trouble arises from the fact that the 
 Interstate Commerce Conunission has misdirected its energy. If the 
 activities of that Commission had been directed into somewhat dif- 
 ferent channels from those in which they were directed a great deal 
 of good would have been accomplished which has been left undone. 
 
 Of course no statute is self-executing. The interstate-commerce 
 act prohibited unreasonable rates — I niean unreasonably high rates — 
 and it prohibited discrimination of all kinds. That, of course, was 
 not enough. You have got to hAve machinery to carry out a statute. 
 In this city there is a code of criminal laws prohibiting all sorts of 
 crimes and misdemeanors, but if there were no police to arrest those 
 who break the law, and no department of justice, no district attor- 
 ney's office, to prosecute those who violate the law very few crimes 
 and misdemeanors would be punished and a reign of lawlessness 
 would very soon result. 
 
 The reason why the prohibitions of the interstate-commerce act 
 against unreasonably high charges and against discriminations were 
 not enforced is that no adequate police of interstate commerce was 
 provided. The interstate-commerce act itself does contain a provi- 
 sion requiring the Interstate Commerce Commission to see to the 
 enforcement of the law. I have an extract here which I would like 
 to read. 
 
 Section 12, as amended in 1889 and 1891, provides : 
 
 That the Commission hereby created shall have authority to inquire into the 
 management of the business of all common carriers subject to the provisions of 
 this act, and shall keep itself informed as to the manner and method in which 
 the same is conducted, and shall have the right to obtain from such common 
 carriers full and complete information necessary to enable the Commission to 
 perform the duties and carry out the objects for which it was created : and the 
 Commission is hereby authorized and required to execute and enforce the provi- 
 sions of this act ; and upon the request of the Commission it shall be the duty 
 
40 REGULATION OF RAILWAY RATES. 
 
 Of any district attorney of the United States to whom the Comniission may 
 apply to institute in the proper court and to prosecute, under the direction ot 
 the Attorney -General of the United States, all necessary proceedings tor the 
 enforcement of the provisions of this act and for the punishment of all viola- 
 tions thereof. 
 
 Now, unfortunately the Interstate Commerce Commission did not 
 devote its time and effort to the performance of its duties under this 
 section, but has devoted a great part of its time, and, I might say, 
 almost all its real effort, in holding elaborate hearings and m writing 
 elaborate decisions, which, as the Commission itself has said, and as 
 the Supreme Court has decided, bind nobody and go for nothing. 
 
 If the Commission would stop hearing complaints before it and 
 would really devote itself to the performance of the duty imposed 
 upon it by the twelfth section of the act, I believe that there would 
 be but very little ground for complaint on account of the violation 
 of the provisions of this act. 
 
 Senator Dolliver. But the duty of holding these hearings is also 
 imposed by law. 
 
 Mr. MoEAWETz. Yes, sir. I was going on to say_ that I think it 
 would greatly increase the usefulness of the Commission if sections 
 13, 14, and 15 of the act were amended so as to put an end to the 
 hearings before the Interstate Commerce Commission. Those hear- 
 ings go for nothing, as the Commission itself .has said and as has 
 been decided. They bind nobody. They are useless and. a sheer 
 waste of time. 
 
 The Interstate Commerce Commission should be made the effective 
 police of interstate commerce in the United States. They should be 
 required effectively to prosecute violations of the law whenever they 
 occur. They have never tried to do it in the past. Occasionally, in 
 sporadic cases, the Interstate Commerce Commission -s^'ill file a com- 
 plaint; but, as a rule, although they may know of a violation of the 
 law, they do not think it worth while to act. They consider them- 
 selves more in the nature of a court or tribunal to deal with great 
 questions than to attend to the useful but less brilliant function of 
 prosecuting the violations of the law. 
 
 Senator Ctjllom. You would not take aAvay from them the power 
 to settle ordinary little disagreements between corporations or com- 
 panies and individuals? 
 
 Mr. MoEAWETZ. Not at all, sir. I think about 90 per cent of the 
 complaints brought before that Commission are settled by the Com- 
 mission to the satisfaction of all parties concerned; and I certainly 
 would continue them in the performance of that function. No legis- 
 lation is required for that. The Commission now has the power of 
 acting as police of interstate commerce, but they will not do it 
 because they say they are also there to hear controversies; and these 
 controversies sometimes last for months and months. They sit there 
 and hear complaints, take depositions all over the country, and abso- 
 lutely nothing is accomplished by it. A court of justice would dis- 
 pose of the case more quickly, and some good would be done bv such a 
 decision. 
 
 My recommendation, therefore, is that the Commission should, 
 whenever it thinks that any provision of the law is being violated, 
 either by charging excessive rates or by discrimination or bv dis- 
 regarding any of the interstate-commerce acts, immediatelv "insti- 
 tute a proceeding in a suitable court for the proper relief. 
 
EEGULATION OF BAIL WAY RATES. 41 
 
 Senator Dolliver. We have that provision already made in a sec- 
 tion of the act of the last Congress known as " the Elkins law." 
 
 Mr. MoEAWETz. Yes, sir. 
 
 Senator Doluvee. It seems like a very effective provision. 
 
 Mr. MoEAWETz. Well, it would be very effective if it were vigor- 
 ously enforced. 
 
 Senator Foeakee. There has not been a single complaint filed under 
 those sections. 
 
 Mr. MoEAWETz. No, sir ; they do not do it. 
 
 You hear of a good many cases of indirect discrimination in rates — 
 terminal tracks, private car lines, and things of that kind indirectly 
 operating as a discrimination as to rates. Why do they not sue under 
 the Elkins Act? 
 
 Senator Dolliver. I think they are now contemplating a suit of 
 that sort against the Atchison. [Laughter.] 
 
 Mr. MoEAWETz. I wish they would bring it. If the Atchison has 
 been guilty of any discrimination, any rebates, the Atchison ought 
 to be punished. I do not know of any such case myself. However, 
 I have seen some statements of that kind in the newspapers.* I may 
 say that if any member of the committee desires to have any infor- 
 mation as to any of* the newspaper reports concerning the Atchison 
 I should be very glad to give such information to the best of my 
 ability. 
 
 Senator Dolliver. Well, I should like to ask some questions about 
 those matters after you have concluded your general statement. 
 
 Mr. MoRawetz. All right, sir. 
 
 Now, as I have stated, the first step is to establish an effective 
 police of interstate commerce, a competent body of men, like the 
 Interstate Commerce Commission (I think this Commission would 
 be quite competent to do it), which would really see to the enforce- 
 ment of the law, and whenever there is a violation of the law to put 
 the courts in motion. There should be courts which would hear these 
 complaints promptly and decide them without delay. That is the 
 next step, of course. 
 
 A law could be framed — constitutionalh'^, I mean — providing in 
 effect that whenever a proceeding is brought by the Interstate Com- 
 merce Commission to restrain a carrier from imposing a particular 
 rate or regulation on the ground that this rate or regulation is exces- 
 sive, unreasonably high, or discriminatory, the court shall decide to 
 what extent or in what respect the rate or regulation is excessive or 
 discriminatory. The court could not be required under the Consti- 
 tution to determine what shall be the rate to be charged for the 
 future. It can not prescribe a future rate, because that would be 
 legislative action, but in the particular case before the court the 
 court can say not merely that the rate is illegal because too high or 
 discriminatory, but it can find what the maximum rate Would be 
 which lawfully could be imposed by the carrier and to what extent 
 the regulation must be changed in order that it shall cease to be 
 discriminatorj^. 
 
 Senator Clapp. Do you know of any place to-day in the judicial 
 procedure of this country, or any other, where a court is called upon 
 to perform, or would perform, a duty of that kind? 
 
 Mr. MoRAWETZ. Why, yes. In fact, I do not see how a court to- 
 day can determine that a rate is excessively high without also deter- 
 
42 REGULATION OF RAILWAY BATES. 
 
 mining where the line shall be drawn — that is, in what respect it is 
 too high. The court can not saj-- that 50 cents a hundred pounds is 
 too high without reaching a conclusion as to what the maximum 
 rate would be. Under the common law long before railroads existed 
 it was the duty of the courts when called upon by a shipper to deter- 
 mine what was the maximum rate that could be charged 
 
 Senator Clapp. As to freight to be transported in the future? 
 
 Mr. MoEAWETZ. Not as to the future. 
 
 Senator Clapp. Oh ! 
 
 Mr. Moeawetz. No, no ; in the specific case before the court. But 
 Congress might pass a law providing that whenever a court, in hear- 
 ing a particular case in controversy before it, shall determine what 
 would be the maximum rate which might have been charged in that 
 case, then, as to that carrier, the maximum rate which may be charged 
 in the future, under substantially similar conditions, shall be the rate 
 adjudged in that case before the court to be the maximum rate. 
 
 Senator Clapp. For the future ? 
 
 Senator Caemack. Congress can say that. 
 
 Mr. Moeawetz. Congress could provide that whenever, in a suit 
 brought by the Commission against a carrier, it shall be found what 
 would be the maximum rate which might have been charged in that 
 particular case 
 
 Senator Dollivee. Lawfully. 
 
 Mr. Moeawetz. Yes ; might have been lawfully charged, then that 
 shall be the maximum rate in the future, under substantially similar 
 conditions. Under those circumstances the rate for the future would 
 not take effect by virtue of the decision of a court,, but it would'take 
 effect bj^ virtue of the act of Congress, although it would be based 
 upon the decision of the court. I hope I make my meaning plain. 
 
 Senator Dollivee. Somewhat as the reciprocity proclamations 
 gave effect to a state of facts found by the President? 
 
 Mr. Moeawetz. Yes; somewhat on those lines. 
 
 Senator Caemack. And that fact was whether the tariff duty was 
 unjust? 
 
 Senator Dollivee. No. 
 
 Senator Caemack. Unequal or unjust — reciprocally unequal or 
 unjust. 
 
 Senator Dollivee. No; whether certain reciprocal arrangements 
 had been made by the other countries that would make it just. 
 
 Senator Clapp. Have you the statement of that proposition in your 
 brief there, Mr. Morawetz ? 
 
 Mr. Moeawetz. Yes,, sir. 
 
 Senator Clapp. Would you kindly indicate the page? I do not 
 want to interrupt the proceeding now, but later I may wish to go 
 into it. 
 
 Mr. Moeaavetz. It is on pages 24 and 25. 
 
 Now all agree that it is desirable to have prompt and efficacious 
 remedies for any violation of the interstate- commerce acts. These 
 remedies, as I have pointed out, must be obtained through the courts. 
 The Commission can not be made a court. 
 
 Section 16 of the act provides for summary proceedings in the 
 courts for any refusal or neglect of a carrier to obey or perform any 
 
REGULATION OF EAILWAT BATES. 43 
 
 lawful orders of the Commission not fojmded upon a controversy 
 requiring a trial by jury imder the Constitution. That provision 
 might advantageously be amended so as to give these same summary 
 remedies for any violation of the act, and not merely for a violation 
 of an order of the Commission under the act. As it reads to-day, the 
 summary remedies are only given for the enforcement of orders of the- 
 Commission. 
 
 Senator Dollfvee. Under the Elkins law they are also given for the 
 prosecution of violations of the act. 
 
 Mr. MoRAWETZ. Yes, sir ; under the Elkins Act. 
 
 Senator Newlands. For the prosecution of violations of that act. 
 
 Senator Dollivee. No, sir ; of the whole interstate-commerce code. 
 
 Senator Kewlands. Yes ; that would cover them. 
 
 Senator Foeakee. Any kind of discriminations. 
 
 Senator Newlands. Would that cover your suggestion, Mr. Mora- 
 wetz? 
 
 Senator Foeakee. Page 40, section 3, of the Elkins Act. It is not 
 as broad as we might make it. 
 
 Mr. Moeawetz. No ; it is not quite as broad as it might be made. 
 
 Senator Foeakee. But it is broad enough to apply to every kind 
 of discrimination. 
 
 Mr. Moeawetz. Oh, there is no question about that. 
 
 Senator Foeakee. And to apply to everything that has been com- 
 plained of. 
 
 Mr. Moeawetz. Yes. The Elkins Act provides that " whenever 
 the Interstate Commerce Commission shall have reasonable ground 
 for belief that any common carrier is engaged in the carriage of 
 passengers or freight traffic between given points at less than the pub- 
 lished rates on file, or is committing any discriminations forbidden 
 by law, a petition may be presented alleging such facts to the circuit 
 court of the United, States having jurisdiction, etc. 
 
 Senator Doluver. I think that makes it applicable to the whole 
 interstate-commerce code, and especially to the provisions of the 
 original interstate-commerce act. 
 
 Senator Fokakee. And this is supplementary to the other acts? 
 
 Mr. MoRAi\'ETZ. Yes, sir. 
 
 Senator Xewlands. You would apply the provisions of section 16 
 of the original act, as to summary proceedings, not only to a violation 
 of the orders of the Commission, but also to violations in any way of 
 the law itself? 
 
 Mr. Moeawetz. Yes, yes. I'hen, of course, there is the act of 
 February ] 1, 1903. 
 
 Senator Forakek. Mr. Chairman, may I interrupt the witness to 
 ask another question there? Have you anj' doul)t as to the right of 
 Congreps to require courts to proceed summarily with any class of 
 cases — for instance, such cases as would arise under this act — post- 
 poning the ordinary business of the court until a complaint of this 
 kind can be heard ? 
 
 Mr. ^loEAA^'ETZ. I do not know of any reason why Congress can 
 not do that. 
 
 Senator Dollivek. This law seems to enable it to proceed without 
 the ciistomarj' pleadings. 
 
44 REGXJLii-TION OF RAILWAY RATES. 
 
 Mr. MoRA'\\'ETz. Of course there must be an opportunity to the par- 
 ties to be heard. Congress can not so order the proceedings as to pre- 
 vent that. , 
 
 Senator Foraker. The point to which I wish to call your atten- 
 tion—I do not wish to make any point about it, although I have my 
 ■ own view about it, to be expressed at the proper time — is the question 
 of whether or not Congress has the right to control the action of a 
 ]udge as to the order in which he shall take up the business of his 
 court. 
 
 Mr. MoEAWETZ. I think so. The power is always exercised of 
 preferring criminal causes and Government causes to the causes 
 between private individuals, and on the' ground that these cases, by 
 the United States or by the Interstate Commerce Commission, for 
 the enforcement of the acts to regulate interstate commerce, are of 
 public importance, I think Congress could gi^'e them preference. 
 
 Senator Cui^lom. The Supreme Court itself is continually exer- 
 cising that sort of authority. 
 
 Mr. MoEAWETZ. Yes. 
 
 Senator Foraker. But not because it is required by Congress to 
 do so. 
 
 Senator Caemack. There is a difference between the court's doing 
 it of its own motion and doing it because Congress required it to 
 do so. 
 
 Senator Foeakee. I think we have a right to do it. It is a different 
 proposition, of course, and there is some claim to the contrary. 
 
 Mr. Morawetz. These various acts already on the statute books for 
 the expedition of hearings of cases under these acts seem to cover the 
 ground pretty fully. It has been proposed to create a special court 
 to hear all these cases. There are some good reasons to be urged in 
 favor of that course, and there are some very grave objections. It 
 certainly would be a bad precedent to establish a certain court to deal 
 with a certain class of litigants. It does not appeal to one's sense of 
 fairness as being fair. Then, special courts, I think, always are dis- 
 posed to degenerate. They are disposed to magnify the importance 
 of the particular branch of the law turned over to tliem, and soon get 
 out of harmony with the rest of the judiciary. Furthermore, the 
 judicial system in this country is already excessively complicated, 
 and it is getting more difficult to deal with every day, and I think 
 Congress ought to hesitate before increasing this complication by 
 the creation of some entirely new form, of court. 
 
 Senator Dollivee. Have you any suggestion about the crowded con- 
 dition of most of the Federal courts, and the difficulty of getting a 
 speedy determination of these cases ? 
 
 Mr. Morawetz. Wherever the courts are crowded you can only 
 cure that by having more judges. The act of February 11, 1903, 
 seems to me (that is the act to expedite the hearing of" causes) to 
 indicate the course which ought to be pursued if it is desired to bring 
 about the hearing of these cases with greater expedition and to obtain 
 prompter decisions. It might be provided, first, that additional 
 circuit judges shall be appointed, assuming that the present supply 
 of judges is inadequate. 
 
 Senator Foeakee. If, by experience, you find that is necessary. 
 
 Mr. Morawetz. Yes; whenever nece^ssary appoint additional cir- 
 cuit judges. Then it might be provided that this act of 1903, which 
 
REGULATION OF RAILWAY RATES. 45 
 
 now applies onlj- to suits brought by the United States Government, 
 shall also apply to suits brought by the Interstate Commerce Com- 
 mission for the enforcement of the interstate-commerce acts. If it 
 is desirable — and it may be; I think there is a gre^t deal to be said 
 for it — to have a court sitting in Washington to hear causes brought 
 either in the name of the United States by the Attorney-General or 
 by the Interstate Commerce Commission for the enforcement of the 
 provisions of these various acts, then that court should consist merely 
 of circuit judges assigned to hear such causes in a manner similar to 
 that provided for in the act of 1903. The thing to avoid is the 
 creation of a court the judges of which will have nothing to do except 
 to hear cases under these acts, and who would thus soon become 
 specialists. The important thing is to have the judges sitting in this 
 court to hear these complaints from time to time and go back to their 
 circuits and get in harmony, or remain in harmony, with the rest of 
 the judicial department. 
 
 Senator Dolliver. Could there be legally— ? — 
 
 The Chairinian. Do you not think we had better conform to our 
 rule and put these questions at the end? 
 
 Senator Dolliver. Except that everybody will have forgotten the 
 points about which it was desired to inquire by that time. 
 
 The Chairman. It breaks up the line of argument to have these 
 interruptions, and all of us will have an opportunity to ask questions 
 when Mr. Morawetz gets through with his argument". If the ques- 
 tion serves to illustrate a point it might be asked to advantage. 
 
 Senator Dollivee. I want to know whether we could have a method 
 of stopping appeals — to stop the thing somewhere. 
 
 Mr. Morawetz. Yes, sir. 
 
 The Chairman. That could come in at the end of the argument. T 
 think it would be better not to ask questions until the conclusion of 
 the argument unless they serve to illustrate a point, as was done a 
 few minutes ago by a question asked by Senator Foraker. That 
 would be a proper question, under our rules. 
 
 Senator Dolliver. I have disposed of my matter now, and you are 
 wasting time, Mr. Chairman. [Laughter.] 
 
 The Chairman. Proceed, Mr. Morawetz. 
 
 Mr. Morawetz. I want to say one thing more on this subject of 
 courts. I think that the jurisdiction of any special court, or quasi- 
 special court created in this way should be concurrent with that of 
 the existing courts, and should not be exclusive, as is proposed under 
 the Town send bill. The existing courts should not be deprived of 
 jui:isdiction in the cases which now would come before them. The 
 United States Government or the Interstate Commerce Commission 
 should not be deprived of the right of availing themselves of the 
 jurisdiction of the existing courts, if they see fit to do so. I think it 
 would be very harmful if a bill were passed which would compel the 
 Government — the Interstate Commerce Commission — to bring all its 
 suits in the same particular court. 
 
 A good many laws have been passed prohibiting discriminations 
 among shippers, and I do not think any valid objection could be 
 raised to any legislation which would still further strengthen these 
 laws.' There are some, particulars in which, possibly, the, law could 
 be strengthened. One of the difficulties has been to obtain the evi- 
 dence required to convict offenders of any \iolation under the Elkins 
 
46 EEOULATION OF RAILWAY KATES. 
 
 Act. If Congress should provide that the Interstate Commerce Com- 
 mission should have the right to cause the books, records, and vouch- 
 ers of every carrier and every shipper engaged in interstate commerce 
 to be examined by an expert accountant, I think it would be made 
 very easy, very much easier than it is to-day, to discover violations of 
 the law in the form of rebates and discriminations of every kind; and 
 I do not think there will be any really valid objection to the passage 
 of an act of that kind. 
 
 One of the most potent causes of rebates and discriminations among 
 railway carriers or in railway rates has been the power of a shipper 
 to route his business over any connecting line he sees fit. The road 
 upon which the traffic originates may be very anxious to adhere 
 strictly to the tariff rates, but it is powerless to preserve the rates 
 unless it can control the routing of shipments, because any connecting 
 line can go to a shipper and say : " You route your business over my 
 line and I will give your wife a present," or pay some rebate in some 
 form, and there are a thousand indirect ways of accomplishing these 
 results, of course. It should be provided by law, in effect, that if a 
 shipper directs a carrier to route a shipment over some particular 
 connecting line, the carrier, nevertheless, may route this shipment 
 over any other connecting line, provided that the rate payable by the 
 shipper may not be increased, and provided further that the ship- 
 ment shall be carried to destination safely and as promptly as if 
 carried over the route selected by the shipper. Under such a law 
 this payment of rebates by arrangement between the shippers and the 
 various connecting lines would be absolutely stopped. They would not 
 do it. I am very sure that no honest shipper in the United States 
 would object to such an act, and I think all the principal railway 
 companies would welcome it also. 
 
 The Chairman. Eight there. Is it not the custom for shippers to 
 pay clerks in the traffic department of railroads a certain sum to 
 route the shipment as they may desire — for instance, to give $5 or 
 $10 for that purpose? Is not that a practice, now, that is grow- 
 ing up ? 
 
 .Mr. MoEAWETZ. I believe it is. It is a practice. They do it in 
 every form. 
 
 The Chairman. That is one of the forms ? 
 
 Mr. MoEAWETZ. It is done in the way of giving theater parties, or a 
 present to wives and daughters, etc. 
 
 The Chairman. They pay routing clerks, for instance. 
 
 Mr. MoEAWETZ. As I say, all the principal railroad companies 
 would not object. There may be some railway companies which do 
 not originate traffic, but which are living by demoralizing traffic, pay- 
 ing rebates in this way, who would object; but I do not think any 
 honest man or any honest company would object. 
 
 The Elkins Act prohibits rebates and discriminations by any device 
 whatsoever, and some question has arisen as to whether the indirect 
 preference given through terminal tracks and through private car 
 lines can be reached under this act. I believe they can, if the Com- 
 mission would do its duty in enforcing the act. I do not doubt it 
 could be done. But if there is existing any question on the part of 
 anyone, then it might be advisable to specifically provide in the act 
 
BEGTJXiATION OF RAILWAY BATES. 47 
 
 that any preference giv^en to any shipper through arbitraries allowed 
 to terminal tracks or through the mileage allowed on private cars 
 should be deemed a preference under the Elkins Act. 
 
 Senator Ctjlloji. Is it your purpose to discuss the question of 
 whether the private cans should not be all owned by the railroads, or 
 some other parties than those that,*are owning them now and ship- 
 ping in them every day ? 
 
 Mr. MoEAWETZ.' I did not intend to do that. So far as the Atchi- 
 son Company goes, we do not depend on private cars. We own our 
 own fruit cars and stock cars. We have been bujdng very heavily. 
 Occasionally we may use them, but in the main we use our own cars. 
 
 Senator Cx;llo:m. So I have understood. 
 
 Mr. MoEAWETz. It ought to be so. It is a much better thing to have 
 all the railway companies own their own cars, I think. 
 
 Senator Cxji.loji. It is charged that there are all sorts of discrim- 
 inations, etc., to-day as the result of the private ownership of cars. 
 
 Mr. MoRAWETZ. To some extent, yes, sir ; but I thinli all that could 
 be reached, if there were a body zealous and energetic in the enforce- 
 ment of the law — the Elkins Act. 
 
 Senator Cullom. Of the law as it is? 
 
 Mr. MoEAAVETZ. Yes, sir. It should be provided clearly, I think, 
 that all fast-freight lines, all priA^ate car lines, and all water lines 
 engaged in interstate commerce shall be subject to the provisions of 
 the various acts. 
 
 The Chairman. Water lines exclusively ? Do you mean that ? 
 
 Mr. MoRAWETZ. Water lines exclusively. 
 
 The Chairman. Within the jurisdiction of the United States? 
 
 Mr. MoRAAVETZ. Within the jurisdiction of the United States. 
 Under the act as it stands to-day, water lines used in conjunction 
 with railway lines are subject to the act. But, as a practical matter, 
 I do not think the act has ever been applied to them. It has never 
 been enforced against the water lines. Water lines upon rivers and 
 upon the ocean, not operated in conjunction with waterways, I under- 
 stand, are not subject to the provisions of the act. 
 
 The Chairman. They never have been. . 
 
 Mr. MoRAMTETZ. And, of course, until they are subject to the acts 
 discrimination or differences in rates are bound to exist. You may 
 prevent discriminations upon the railways, but if a water line next 
 door to the railway can discriminate or fix rates the evil which you 
 are trying to cure will continue. 
 
 The Chairman. I understand, then, that you would recommend 
 that this bill being framed should take jurisdiction over water lines, 
 distinctly, on the Lakes and on the waters within the jurisdiction 
 of the United States. That is your judgment ? 
 
 Mr. MoRAWETz. Yes, sir. I say that the same policy which applies 
 to the railroads certainly applies to the water lines, and if it is right 
 to regulate the traffic on the railways in the United States it is right 
 also to regulate the same traffic when carried by water. 
 
 Senator Dollivee. And why not on the connecting ocean lines 
 where the rate is a through rate ? 
 
 Mr. MoRAWETz. You mean not coast lines ? 
 
 Senator Dolliver. Not coast lines. 
 
 Mr. MoRAAVETz. I can see a practical difficulty there in reaching 
 those lines. 
 
48 REGULATION OF EAILWAY HATES. 
 
 Senator Dolliver. A gentleman at East Liverpool, Ohio, told me 
 the other day that goods were shipped from Liverpool to Denver by 
 New Orleans at a rate very much less than they can be shipped from 
 East Liverpool, Ohio, to Denver; and he accounted for it by cut 
 ocean rates, operated in connection with the railway lines. 
 
 Mr. MoKAWETZ. It may be so. The problem is so big that I should 
 not like to express myself on it to-day. I do not feel prepared to do 
 so. I do not know enough about it. 
 
 Senator Cullom. These water lines are pretty good things to regu- 
 late the railroads. [Laughter.] 
 
 The Chairman. Proceed with your argument, Mr. Morawetz. We 
 will have the committee involved in an argument among themselves 
 presently. [Laughter.] 
 
 Senator Foraker. I would like to ask one question there: "What 
 would you expect to accomplish by subjecting water lines to the inter- 
 state-commerce act ? I have never heard of their being charged with 
 making extortionate rates. The trouble is that their rates are so 
 much below the railroad rates that they compel reductions by the rail- 
 roads to points that are so low that the other lines are at a great 
 disadvantage. 
 
 Mr. Morawetz. Discrimination in rebates. 
 
 Senator Foeaker. Yes ; there would be one, I suppose. But do the 
 Avater lines give rebates '(■ I never heard of their being charged 
 with it. 
 
 Mr. Morawetz. Oh, yes. 
 
 Senator Foraker. They give a low rate. 
 
 Mr. Morawetz. As a matter of fact, the water lines seldom have 
 any tariff of freight whatever. A very common thing is, when a 
 steamship comes in, to get all the traffic they can, at what they con- 
 sider a fair rate, and then they fill up the ship at any rate they can 
 get. 
 
 Senator Dolliver. Is it not necessary, when the ship has got to sail 
 at a given time, whether it is full or not ? 
 
 Mr. Moraavetz. Well, that would 
 
 .The Chairman. The water lines do not get any permission from the 
 public to navigate the ocean. They do not get the right of way ; and 
 they do not condemn. 
 
 Mr. Morawetz. The railways do not get any permission from the 
 United States Government, either. 
 
 The Chairman. They do from the States — from some author- 
 ity . 
 
 Mr. Morawetz. Yes. 
 
 The Chairman (continuing). To build a railroad. 
 
 Mr. Morawetz. Yes ; but not from Congress. 
 
 The Chairman. No. 
 
 Senator Foraker. The coastwise lines get important privileges 
 from the General Government. 
 
 Mr. Morawetz. Yes. 
 
 Senator Foraker. They have exclusive rights. 
 
 Senator Cullom. "UTienever you take charge of the water lines of 
 the country you put rates up. Old Fink testified years ao-o before 
 this same committee that the Mississippi River was a oxeat regulator 
 of railroad rates throughout the whole breadth of the country and 
 
 it IS. J J " 
 
EEGULATION OF RAILWAY BATES. 49 
 
 The Chairman. Proceed, Mr. Morawetz. We will ask these ques- 
 tions at the end of your statement. 
 
 Senator Fobaker. Can you think of any other evil than rebates 
 that could be removed if we were to subject the water lines to the 
 interstate-commerce act provisions ? 
 
 Mr. Morawetz. No ; it is particularly rebates that I had in mind. 
 
 Senator Forakee. I never heard rebates complained of as to water 
 lines. I did not siippose that was an objection. 
 
 Mr. Morawetz. I think I know of particular cases 
 
 Senator Forakee. I have no doubt of that, since you suggested it. 
 
 Mr. Morawetz (continuing). In connection with some of the lines 
 entering a certain southern port. 
 
 A point which I would like to bring before this committee is that 
 the carriers should be permitted to arrange among themselves for 
 the making and for the preservation of reasonable rates. I do not 
 wish to make a proposition that pooling should be allowed, because T 
 do not think that any such thing would ever be considered as a prac- 
 tical matter. I do not want, "either, to propose that the carrier shall 
 be allowed to make any binding agreement to fix rates or to maintain 
 rates. All I wish to suggest is that the carriers should be permitted 
 to haA'e meetings and to discuss what would be a proper rate and to 
 put the same rate in force without subjecting themselves to possible 
 prosecution under the Sherman Act— the antitrust act. It is abso- 
 lutely impossible to establish schedules of rates in this country unless 
 the carriers do get together and talk the matter over and reach some 
 understanding. 
 
 Senator Dolli^tie. How do they manage that now ? 
 
 Mr. MoEAWETZ. Thej do it. 
 
 Senator Doi.livee. Notwithstanding the Sherman Act? 
 
 Mr. Morawetz. Yes, sir; they can not help doing it. It would 
 be impossiblie to work under the interstate-commerce acts unless the 
 carriers get together from time to tirtie and discuss the subject of rates, 
 and fix schedules of rates, to be put in force by all the parties who are 
 interested. 
 
 Senator Dollivee. Have not the courts enjoined that sort of thing 
 once or twice? 
 
 Mr. Morawetz. No, no. There is no agreement on the part of the 
 carriers as to these yates. There is simply an interchange of ideas. 
 
 Senator Dolliver. Landing upon a common proposition. [Laugh- 
 ter.] 
 
 Mr. Morawetz. Landing upon a common proposition. 
 
 Senator Clapp. The law does not prohibit that. 
 
 Senator Forakee. They come to an understanding. 
 
 Mr. Morawetz. An understanding ; yes. It may be said that while 
 it is not a contract it is a combination. 
 
 The Chairman. That is prohibited, too, by law. 
 
 Mr. Morawetz. Yes, sir ; that is prohibited by law. 
 
 The Chaieman. I take it that they violate the law every day. 
 
 Mr. Morawetz. If that is violating the law, then it would be 
 impossible to observe the law without producing chaos. It would 
 be absolutely impossible to make schedules of rates and have any sort 
 of uniformity of action in this coimtry if the representatives of the 
 carriers can not get together and talk the matter over. 
 
 R K R— 05 M 4 
 
50 REGULATION OF BAJ^LWAY BATES, 
 
 S,ena^^or IS[3SWla]s;d^, I would like to ask you a question there. Do 
 you refer simply to the continuous ra,tes for transportation irom one 
 point to another where th^ freight is carried by a number or lines, 
 or do you refer to rales between lines regarded as competing lines' 
 
 Mr. MoKAWETZ. Yes ; I do. ' 
 
 Senaitor ISJeavlands, You refer to the latter ? 
 
 Mr. ]!i([0KAWETZ. Yes; because all the rates from all the different 
 points depend one upon the other. You can not change the rate 
 between any two points in the West without affecting a great many 
 other rates. 
 
 Senator CARMACiy. Why is it necessary that competing lines should 
 have an -understanding in regard to rates? 
 
 Mr. MojsiAWETz. Because there can not be two different rates in 
 force a^t the same time between two points. 
 
 Senator Dolliver. When both are published? 
 
 Mr. MoRAWETz. And both are published. 
 
 Sen^toy Newlands. The lowest rate will command the business? 
 
 Mr. MoRAWETz. The lowest rate will take all the business. 
 
 Sena,tar Cdllom. Some lines, I should say, on account of the diffi- 
 culties of the track, and all that, necessarily have to charge more thajj 
 another line between the same points. Is not that so ? 
 
 Mr. MoKAWETZ. No, sir; I think not. All lines between the same 
 points must make the same charge for the same business. 
 
 Senatoir Cullom. They agi'ee to that ? 
 
 Mr. MoRAWETZ. They do it to-day. They are bound to do it. 
 
 •Senator Ctxllom. But they remedy it by giving that line that is a 
 little harder to run a division of the business, do they not ? 
 
 Mr. MoRAWETZ. Oh, no, sir. There is no division. I do not know 
 of a single instance to-day of a pooling of the business. 
 
 Senator N;ewlands. That would be pooling. 
 
 Mjr- Morawetz. That would be pooling. That is not done. All 
 tlyit is tljOne, a,nd all that really is, necessary, is that the different 
 capias ^^i rea,ch an understanding as to wha,t ra,te shall be put in 
 force by all between two points. 
 
 Th,at is ^11 I ha,ve to, s^y, Mr. CIji;jaij;'mai;i, unless, the meinb^s of 
 the committee desire to ask me some questions. 
 
 Tlp,e C^iiAiEMAN. Yoii have some time left, and) while you ha,v6 bpen 
 disfiijisspig the^^ va^rious ma-tters, my a^ention ha,s been drawn to oije 
 oic two, mattjers tJtia,t I would fife to, inquire about : In view of the 
 decision of the Supreme Court, would you change section 4 of tii^ 
 interstate-commerce act, tl>e OJi-i^ina,! ^ct — the lopg, and short haul 
 clause? The reason 1 asjf th,ai is Ijliis: That under the decision of 
 the Supreme Court I Ipjlij^ve railroads avPe chairging more fo;: a sliprt 
 t\^n, tljiey d;o, for. a Iqi^g haul, iu some, ca^es. 
 
 Mr. Morawetz. I would not change \i, for this reason 
 
 The Chairman. Yotji l^^fioM'. wh^t I have reference to — the decision 
 of the Supreme Court, iiji, regard to 
 
 Mr. Morawetz. ^es, sir; I undei,'sta,nd. 
 
 The CiiAiRa^^A^- Would you (jhange it to, make it effective? 
 
 Mr. IMoram'Etz. I tbinj.?; it is effective, according to its purppse 
 to-day. This section to-day prohibits the making of a greater 
 charge t(ir a lojjg than for a shorl; haul under substantially similar 
 circumstances and cojiditions. 
 
REGULATION OF BAILWAY BATES. 51 
 
 Senator Neavlaxds. You mean a lesser charge ? 
 
 Mr. MoKAWETz. A lesser charge ; yes. That is true. I understand 
 the question to ine^n whether this should be changed so as to pro- 
 hibit absolutely and unconliitionally the railwaj' companies from 
 charging less for a long haul th^n for a short haul. 
 
 The Chaiejiau. Yes; you Jcnow the decision I refer to, in which 
 it is allowed now, and on the ground of competitive lines 
 
 Mr. MoEAAVETZ. Yes. 
 
 The Chairjv;.^!* (continuing). And charge for the shorter haul 
 more than for the long haul. Should this law be so amended — J 
 mean the old act — as to prohibit it absolutely under any conditions ? 
 
 Mp. i^oiifAVfiiTz,. It would revolutionize railro^-ding in this country 
 to do so. It may be that it would be good policy. I should doubt it. 
 Certainly, l^o^y^ver, it would be revolutionary in its effect. 
 
 The Chairman. It hardly looks fair, on thp face of it, that the 
 short haul should be charged more than the long haul. 
 
 Mr. MoRAWETZ. Let us see what the effect would be of making the 
 change. 
 
 TJ'h.e CiiAiKMAif. I^he Supreme Court, und^r that decision, has 
 almost made this section 4 a nullity. 
 
 Mr. Moi^w^iz, The Supreme Court has construed the words 
 " under substa,ntially similar circumstances and conditions " in such 
 a way as to allow the rate to be adjusted natirrally according to cir- 
 CTflnstapces, 
 
 The Chairsian. Yes. 
 
 Mr. MoEAWETz. Now, Ayhat would be the effect, of striking, out those 
 words which limit the prohibition,? It ■vyould, be, in most cases, to 
 compel the raijlway comp3,nies to give up entirely the long-haul 
 bj^^ne^. 
 
 Senator DoLLivEE. AUo|theffi? 
 
 Mr. MoRAWETz. Most of them ; yes. Take, for insta,nce, the Cali- 
 f9;fliia b,ustii^e^«. If the railys^ay companies can not charge riiore for 
 carrying business of a certain class to inland stations than to the, 
 coast, why, they would give up the busihesp to the coast, vhich pays 
 ver^ little. 
 
 Sfina,tor Pqllivee. Suppose we omit the element of water from the 
 iggue, and cpnfine it to the competition of the railways aijaong them- 
 selves, 
 
 Mr. MoRAWETz. Well, if ■vre are not, forced to compete among our- 
 selves, it may be t)^3,ii — r- 
 
 Senator Dollivee. I have, a, case h^e, that strikes me as illustrating 
 the point, and it is^t^e gr0j\ijid of mpst of ijhe complaints among the , 
 co^ntry people an^i people in smaller towns of the country. 
 
 The ChaiebJtA.]^. I axafixa,r^i\g this to you. Senator Dolliver. You 
 can get my permission, if I yield the floor; but I did not yield. This. 
 is in jpiy time. [^jaiUghter.], 
 
 Senator Doj;jl],vee. Very well. [Laughter.] 
 
 The CuAiEMAN. We will come to you presently. 
 
 I then understand that that is your a,nswer to that proposition, the 
 one you have mad^, and we will allow it to rest there. 
 
 Now, Mr. IVtorawetz, one other qpestiop : If a section of this coun- 
 try, n large portj,on of i,^;, should fall under the coijitrol pf one rail- 
 i^oad or combination of ra,ilroads, so that thei^e would be no competi- 
 tion a,s between railrp^ds, but only one con;imon carrier from tha,t 
 
52 REGULATION OF RAILWAY KATES. 
 
 section, and this combination would make a rate too high, or an 
 excessive rate, should not the power be vested in some tribunal to 
 say that rate is too high, and possibly to fix the rate ? 
 
 Mr. MoRAWETz. I think so; and I see no objection to providing 
 that in the way that I have suggested. 
 
 Ihe Chair:hax. Very well; you see no objection to that. That 
 would give the rate-making power, under those conditions, you under- 
 stand, to the Government? 
 
 Mr. MoRAWETz. Well, I should remedy such a case by giving to the 
 Interstate Commerce Commission the power to bring a complaint in 
 a suitable court alleging the rate charged hj this carrier to be excess- 
 ive, and I should require the court, in any litigated case of that kind 
 immediately before it, to determine what the maximum rate is that 
 could have been charged bj^ the carrier without violating the provision 
 of the interstate-commerce act, and if deemed advisable — though I 
 think it is unnecessary — it could be added to the act that, whenever 
 in a litigated case the court shall determine what would have been a 
 reasonable rate that might be charged by a carrier, then that shall be 
 the maximum rate for the future under substantially similar condi- 
 tions. 
 
 The Chairman. Would not that be a very long proceeding, neces- 
 sarily consuming a great deal of time, and operate against that propo- 
 sition of yours that there should be no delay ? 
 
 Mr. Morawetz. No, sir; I think you would get a decision that 
 way more quickly than you can to-day through a hearing before the 
 Interstate Commerce Commission. I think the delays now are in 
 the Interstate Commerce Commission. 
 
 The Chairman. Yes. Now, one other question. You referred to 
 the books of railroads being opened from time to time — ^booksy 
 accounts, vouchers, and everything — ^to some one — to the Commis- 
 sion, did you say ? 
 
 Mr. Morawetz. I suggested that, for the purpose of obtaining evi- 
 dence 
 
 The Chairman. Publicity? 
 
 Mr. Morawetz. Yes ; for the detection of discriminations, through 
 rebates or otherwise, the Interstate Commerce Commission should be 
 given power to cause the books, records, and vouchers of the carriers, 
 the interstate carriers, and also of the shippers engaged in interstate 
 business, to be examined by expert accountants. 
 
 The Chairman. The shippers as well as the railroads ? 
 
 Mr. Morawetz. I see no reason why not. 
 
 The Chairman. The shipper is not a corporation. 
 
 Mr. Morawetz. It may be. Besides, the control of railways en- 
 gaged in interstate commerce is in no sense 'based upon the ground 
 that they are incorporated. 
 
 The Chairman. Another question : Then would you favor, or not, 
 a Government examiner, similar to the national bank examiners? 
 We have, you know, under the national banking act, which is a pri- 
 vate concern, almost. Government examiners; they call them bank 
 examiners. Now, would you provide in this bill, following up your 
 idea* that these books should be opened at all times to examination 
 as a preventive of rebates and frauds and abuses, and that examiners 
 appointed by the Government (I mean for interstate railroads) should- 
 act imder the Commission and make examinations of all accounts and 
 books ? 
 
BEGTJLATION OF BAIL WAY BATES. 53 
 
 Mr. MoEAAVETZ. That is substantially the suggestion I made. 
 
 The Chaikman. You think, then, that it should go this far ? 
 
 Mr. MoEAWETZ. I see no objection to it. 
 
 The Chairman. Could you in any way suggest how to break up the 
 practice of freight solicitors ? They are the source of great evils and 
 abuses, in soliciting freight between the various roads and making 
 concessions, directly and indirectly. I think the ElMns Act could 
 reach them, but have you any suggestion on that subject ? 
 
 Mr. MoEAWETz. The one suggestion I made to give each railway 
 company the undoubted power to route its business over connecting 
 lines would go a great way toward breaking up that sort of business. 
 
 The Chairman. Yes. 1 have been thinmng that if some amend- 
 ment could go far enough to reach these solicitors it would be well. 
 
 Mr. Morawetz. They could not get it under such an amendment. 
 
 The Chairman. But there are many abuses from that. 
 
 Mr. Morawetz. Well, there are violations of every statute that is 
 passed. I think the rebates and discriminations have very largely 
 stopped, and if the Interstate Commerce Commission should prose- 
 cute vigorously any violations of the law I think they could be 
 almost wholly stopped. 
 
 The Chairman. You have said you thought the water lines ought 
 to be subjected to the law of common carriers, under the interstate- 
 commerce law. What have you to say on the subject of foreign lines, 
 both in Mexico and in Canada — through rates? You know what 
 I mean. We have no jurisdiction over foreign lines exclusively, 
 but we can make regulations very quickly that will reach a foreign 
 line. 
 
 Mr. Mora-wetz. Yes, sir. I put that down in my notes, but I did 
 . not go into it as one of the points which should be covered by this 
 legislation, that suitable provision should be made for the protection 
 of the railroads in this country. 
 
 The Chairman. You did not mention it, and that is the reason I 
 am asking about it. 
 
 Mr. Morawetz (continuing). And for the protection of shippers 
 against abuses on the part of carriers outside of the United States 
 who participate in interstate traffic. 
 
 The Chairman. You did not mention it, and that is the reason I 
 asked the question. It is your idea that it should be subjected to the 
 jurisdiction of the interstate-commerce law ? 
 
 Mr. Morawetz. Yes, sir. 
 
 The Chairman. I am requested to ask what you would suggest as a 
 method of detail in the matter. 
 
 Mr. Morawetz. Well, it would be rather difficult to work it out, 
 though I think it could be done. The carrier in the United States 
 should be made responsible for the acts of his connection in Canada. 
 
 The Chairman. And if they did not do what we wanted, could we 
 not break bulk and cause the business to be stopped ? 
 
 Mr. Morawetz. Yes ; as you do now. 
 
 The Chairman. I think we can get at it very jquickly, and I think 
 we will, too. Under the act of 1903 — ^the Elkins Act — there is a 
 provision that I think has operated very much against the enforce- 
 ment of the law, to the effect that " it shall be the duty of the several 
 district attorneys of the T^nited States, whenever the Attorney^ 
 
54 EiEGTJLATroij' OF KAIL WAY KATfeS. 
 
 General shall direct, either of his own motion or upon the request 
 of the Interstate Commerce Commission, to institute and prosecute 
 such proceedings, and the proceedings provided for by this act shall 
 riot," etc. You uhdetfstan'd what I mean ? 
 
 Mr. MoRAWETZ. Yes, sir. 
 
 The Chaieman. Would it not be better to say that the district 
 attorneys of the United States, in their respective districts, shall 
 enforce this law, without coming to "Washington for direction oi- in- 
 struction? They are s^^'orn officers of the (Tovernment. and would 
 not the law be more efficiently executed and enforced if the district 
 •a,ttorneys, on their own inotion, found a railroad violating the law, 
 should take action themselves, without a,ny instruction or direction? 
 This law has bten constrtied to ni^an thkt the district attorneys must 
 get p'ermission from the Attorney-General. The first draft of the 
 Elkins bill, passed bv this committee unanimously, was in the language 
 I have quoted : " The various district attorneys, in their respective 
 districts, shall enforce the law ;" but in the House it was amended, 
 because it looked like a reflection, it was said, upon the Attorney- 
 General. Would there not be a better enforcement of the law if this 
 was changed? I mean to say, that the district a,ttomeys could call 
 on the Attorney-General for aid and assistance if they wanted to, but 
 would it not be better for the enforceihent of the law to let tlie initi'a- 
 tiVe be tafeen by the district attqrhe;^S? What is your judgment? 
 
 fe. iVioKAW^ETZ. I certainly think that the initiative should ndt M 
 cbhfined to the Attorney-General. I think that all those proceedings 
 should be subordinate to' the control of the Attom6y-Gerieral, if "m 
 chooses to exercise his power as the head of the judicial department. 
 
 The Chaieman. Yes. 
 
 Senator CiiApp. You claim that this prevents the district attome|;^ 
 ftom bringing suit if he has the evidence ? 
 
 Senator C^kmack. As a matter of fact, they will not do it. 
 
 Senator Clap!?. He has to db it, when the Attorney-General tells 
 him he must do it. 
 
 The CHAiR]^AN. Perhaps I can explain it. We had a witn^s here 
 before the committee, an able lawyer, and I asked him why tih'e 
 district attorney difi not, in the shipments of cattle, enforce the law; 
 and he Very projierly said that " We understand that these cases "wait 
 ■f6r instructions frdto Washington." The members of the coinmit- 
 tee will remember that. Senator 'Carniack remembers it, I suppose. 
 
 Senator Newlands. And the claim of the interstate Commerce 
 Commission is that they make thie presentation of their case to the 
 Attorney-General, and that frequently the cases are there pi^edii- 
 holed and nothing whatever is done, and no attention is paid to them. 
 
 The Chairman. I wa,nt a categorical answer to thkt. 
 
 Senator Newlands. That is their answer to the charge that they 
 have neglected their duty. 
 
 Mr. MoRAWETz. T hardly think it Avould be desirable or practical 
 t,o make the Attorney-General of the United States enforce the laws 
 throughout the TJnitfed States. 
 
 The CHAiRkAN. in framing a bill, I wanted your views on this 
 point. Now, another question : You think it is of doubtfiil advisa- 
 bility to create an interstate-commerce court having exclusive juris- 
 diction over all these questions, for the reasons you state ? 
 
HEGTJLATlbiJ CfP EiiILWA.Y BATES. 55 
 
 Mr. MoEAAVETz. I think it would be unwise. 
 
 The Chairman. You would prefer increasing the number of cir- 
 cuit judges of the United States, and have them assigned from time 
 to time to the hearing of these cases ; is that your idea ? 
 ' Mr. MoeaX\'etz. Yes, sir. 
 
 The CHAiEMAif. One other question: Would it be wise or best to 
 confer upon the Commission or a subordinate tribunal the power to 
 determine, subject to review by a court, that the rate in a given 
 in^knce, on complaint, is too high, excessive, and declare so by order, 
 and that in the future that rate should not obtain, and leave it, then, 
 to the railroads, who know more about fixing rates tbkn anybody 
 else, ^Videtotly and neceissa'riiy, to fix ■Another rate? Would that be 
 a wise thing to do, or not, in framing a law to get rid of the question 
 of a commiSsidn of the Government fixing rates and yet put a limita- 
 tidn iipon the railroads that. they shall not charge an excessive or 
 extortionate rate? I wanted to have your mind directed to that. 
 
 Mr. MoKAWETZ. If I understand the question, it is Whether it Would 
 be desirable to give to tHb Interstate ComniSrce Coininissio'n ipfower iYi 
 cases of any complaint of a rate to find what would be the 'itaaximuih 
 rate that would be reksOnable and lawful Under the interstaite-coih- 
 merce act? 
 
 Senator Clat'p. To find what is a pirohibitory rate. 
 
 The Chairman. Yes ; that this rate that th6 railroads are charging 
 is tdo hi^h, and to declare that it is too h%b, and that it Bhall cease 
 to be effective. Ilifen it goes back to the railroads— to make my 
 meaning clear— to fix another rate. They 'are 'the people, kll things 
 being feqnal, to fix the rat«. Let the railroads fix 'another raOe. 
 
 Mr. MdRAWETZ. If I understand correctly, that Would be practi- 
 cally the condition in which we are now. 
 
 The Chairman. No ; I do not think it fe. Th^y have not 'declarefd 
 that the fate is too high, 'and ^u't their oifder into e'fftet. The 'Com- 
 mission dbfes not do that now. 
 
 Senator Dolliver. Y^s. It is exactly What they do ; and thfey say 
 it is iheffective because the Voad inakes kn inappreciable and inconse- 
 quential reduction. That is what they say. 
 
 Senator Kean. They cah not enfofde 'th^ir edict. 
 
 The Chairman. I do not believe any road in this couritry would 
 Mfle with a great subject, and the finding of a cbmmfssion like that. 
 I think they would make a reasonable rate. I have neVSr ferfoW^ 
 them to take off a rate, s,ay of ten, and make it nine and nine-tenths. 
 I do not thint they Would do that. I want your judgment on that 
 pfoitft, Mr. MbraWetz. 
 
 Mr, 5!Eor'aWe¥z. Well, the *p6iht is a practical questi6n, in which I 
 shoMd thiiik the stafeS'men pi'egfent might form a better jtfdgmefiQt 
 llheth I, because %bfe ^Hiestion i%'ally is wha% would suit the p'efdplfe of 
 the tJhited Stafes. 
 
 The Chairman. You have got to satisfy them. That is what Con- 
 fess is here for. [TjaughteJr.l 
 
 Mr. MoRAAVETz. I believe that what is wanted is some rtiethod of 
 obtaining a quick determination as to what constitutes thte maxiiiium 
 rate Which can lawfully be changed by a railway co'mipfarfy upon a 
 given traffic between two points. I do not think tha;t the people of 
 
56 EEGXTLATION OF BAIL WAT BATES. 
 
 the United States want to prohibit the railway companies from charg- 
 ing less than the maximum rate so found. I do not thmk they want to 
 stop competition among the railway companies in the United fcitates. 
 
 In order to obtain a quick, final" determination as to what consti- 
 tutes the maximum rate that would be lawful between two given 
 points, I know of no course of procedure except through the courts. 
 Therefore I should require, wheneA'er there is a controversy as to a 
 rate, that the Commission should proceed immediately m a suitable 
 court to determine the question as to what should constitute the maxi^ 
 mum rate chargeable by the railway company in that instance. I 
 believe that whenever a court shall determine what constitutes the 
 maximum lawful rate between two points- the carriers would give 
 implicit' obedienee to that order. Thev never would attempt to .dis- 
 regard it in the future, although it would not be binding in the future, 
 and would only determine the rate in the particular case before the 
 court. 
 
 Senator Ci^Apr. Not to draw on a discussion, but to understand 
 what you mean about this, if I may ask the question. I understood 
 a while ago that your idea was that Congress could pass a law upon 
 which a decision of the court should take effect to fix a rate for the 
 future ? 
 
 Mr. MoEAWETz. T did not intend to convey precisely that. What 
 I intended to express was substantiallj^ this: Congress could provide 
 that in case the Commission should file a bill against a railway com- 
 pany, setting forth that a rate charged by the railway company 
 between two points was excessive and illegal, Congress could require 
 the court to pass upon that question as to whether the rate was, in 
 fact, in the case controverted before the court, excessive and illegal ; 
 and, if so, in what respect it was excessive and illegal. In other 
 words, require the court to determine what was the maximum rate 
 which could have been charged by the railway company in that 
 particular case which was litigated before it. I think that would be 
 enough, because I do not think the carrier would ever disregard, in 
 the future, the finding of the court in that litigated case, although it 
 would not be binding as to the future. 
 
 Senator CiiAPP. Then I understand you do not contend that it 
 would be binding upon them ? 
 
 Mr. MoEAWETZ. I think the decisions hold clearly that it would not 
 be binding. 
 
 Senator Clapp. That was my view. 
 
 Mr. MoRAWETZ. But, sir, I think that Congress could make this 
 provision : That if in a suit brought by the tJovernment — the Inter- 
 state Commerce Commission — against a railway company it should be 
 determined by the court what constituted the maximum lawful rate, 
 then the carrier should not be |)ermitted to charge more than that in 
 the future under substantially similar conditions. The future rate in 
 that case would not take effect by virtue of the decree of the court, 
 but it would take effect by virtue of the language of the statute, 
 although- it T\'ould be based upon the conclusion of the court in aii 
 actually litigated case. 
 
 Senator Clapp. Then you would ultimately fix a rate to take 
 effect in the future, through the medium of a court ? 
 
 Senator Kean. No; through the medium of Congress. 
 
KJfiUUljATiUJN UJJ- JSAlLWAY RATES. 57 
 
 Senator Clapi'. Congress would pass the law, but the court would 
 have to make the decision to find the facts. 
 
 Mr. MoRAWETz. I am inclined to think that that could be done. 
 
 Senator ^Clai'P. Yes. 
 
 Mr. Moeawetz. Though T think it is very unnecessary, and there 
 is one practical objection to it. It would result in petrifying our rates, 
 because if a rate were once fixed in that way, how would you ever 
 change it? You would have to go to Congress probably to get it 
 changed. Furthermore, the question would always be a subject for 
 litigation as to what constitutes " substantially similar conditions." 
 I should think, as a practical question, it would be much wiser not to 
 make such a provision, but to let it rest upon the common sense and 
 sense of propriety of the carriers, that they would not disregard the 
 decision of a competent court. 
 
 The Chairman. As a method or means of correcting abuses and 
 prohibiting by law discriminations and evils of all kinds, would you 
 think it wise to have the traffic manager of the raUroad, the auditor, 
 and perhaps the president, report every three months all existing 
 traffic contracts and all made within the last three months, and that 
 there had been no violations of the laws, no abuses, so far as they 
 knew, and that they had made diligent inquiry to. ascertain if there 
 had been ? You would not think that wise ? [Laughter.] 
 
 Mr. MoRAWETz. I do not. 
 
 The Chairman. If you want to explain your answer, do so. If 
 there had been no abuses, as an officer of the Atchison you would not 
 object to saying that there had been none and that you had exerted 
 yourself to find out ? 
 
 Mr. MoRAWETZ. But I am chairman of the executive committee, 
 and I have absolutely nothing to do with traffic matters. 
 
 The Chairman. But your vice-president, your traffic manager, 
 would have. 
 
 Mr. MoRAWETZ. Some presidents know nothing about the pracr 
 tical management of the traffic of their roads. Others, again, prac- 
 tically manage the traffic. 
 
 The Chairman. But the question arises that the president should 
 be diligent to find out if there has been any violation, or if there 
 have been any abuses. For instance, we do know that the presidents 
 of railroads and managers shut their eyes to subordinates violating 
 the law, and giving advantages and preferences. Now, would it 
 help or strengthen the administration of the law to require this sworn 
 statement ? 
 
 Mr. MoRAWETZ. No, sir; it would not. The effect of such a law 
 would be that some men would perjure themselves. Some men who 
 were afraid of perjuring themselves — who were thoroughly honest — 
 would simply not take the office. You can not keep people straight 
 by requiring them to take an oath every three months. I think the 
 effect of such legislation would be to keep honest men, or timid 
 men 
 
 Senator Dollivee. The same thing. [Laughter.] 
 
 Mr. MoRAWETZ (continuing). From taking the office. 
 
 The Chaie3iax. 1 do not think if the salary was $25,000 or $50,000 
 a year that that would act as a deterrent. 
 
 Mr. MoRAAVETZ. I tell you you could get around it, sir, by having 
 a nominal president of each company at a low salary. 
 
58 EEGT^LATioisr OF RAILWAY BATES. 
 
 The Chairman. Now Senator Cullom is entitled to ask the wit- 
 ness some questions. . , 
 
 Senator CuLtoM. I am not going to detain the witness more man 
 a verv few minutes, because there are many Senators here who have 
 not had a chance to ask any questions. My friend from Iowa [oen- 
 ator Dollivet] has beeti trying to get some questions m tor some 
 time. [Laughter.] 
 
 Senator DoixnER. I am going to stay here all summer, i± neces- 
 sary. [Laughter.] 
 
 Senator Ctjixom. Mr. Morawetz, as I understand you, you do not 
 think that the present law is very deficient in providing for the pro- 
 tection of the people as against the wrongdoing of railroads? Did I 
 understand you to say that, substantially? 
 
 Mr. MoKAWETz. I'thinJi the present law is not far from being 
 sufficient. 
 
 Senator Cullom. The main complaint, as I understand you, is that 
 the Comniission, in a degi'ce, misconstrues its avocation, and that it 
 has tymed itself into a court, in your judgment, instead of ia police 
 force ? 
 
 Mr. MoRA-ivrT^T^. Right. 
 
 Senator Cullom (continuing) . To find out what is the matter witii 
 the railroads ahd corfeict the eVils if there were any ? 
 
 Mr. Morawetz. Yes; yes. 
 
 Senator Cullom. What would you think of the appointment by 
 the Government of an accounting officer, or whoever the officer is that 
 takes chafge of the books that give an account of all the money 
 received by the railroads, all the transactions that are conducted by 
 it, and let that officer be selected by the railroads, if you please, but 
 sworn as an official to make a report to the Government of the United 
 States once k niontih of all the transactions that have come into his 
 hands and of which it has to take notice, which would result, as I 
 understand it, iii showing eveiything that was doiie by the railroad 
 in the waiy oi rebates or anythiiig of that sort ? What would ydil 
 think of that sort of an officer, occupying that relation, sworn as a 
 Government official, notwithstanding that he was appointed by the 
 railroad ? 
 
 Mr. Morawetz. I see no Objection to that. Of course, it Wottld 
 be unwise to require this officer to furnish a transcript of a very large 
 part of the railway coinpaliy's accouilts. I think that it would M 
 better to liierfely limit the examination to such matters as the Govern- 
 ment takes an interest in. 
 
 Senator CuT-.L05i. And the Governirient ought to take an interest in 
 fair dealing with the people, and if there are rebates going on Or 
 anything of th^t sort it bu^t to be diScoyered? 
 
 Mr. Morawetz. That otrght to be discovered. I think it would 'bfe 
 a very good plan. 
 
 Senator Cullom. I asked this question because a irailroad miin 
 told me that if some such officer as I have described were appointed 
 and sworn to report to the Govem'ment all those things — the mOney 
 received and all that — that he would not know how to get around it 
 to pay rebates or do any wrong thing undei^ the law. 
 
 Mr. Morawetz. Well, that was one of the suggestions — in fact, the 
 first suggestion that 1 made as to the strengthening of the provisions 
 against discriminations — to give the Interstate COmiaerce Commis- 
 
REGULATION OF BArLWAY RATES. 59 
 
 sion power to cause the accounts, records, and vouchers of the inter- 
 state carrier or the interstate shipper to be examined whenever 
 deemed advisable. 
 
 Senator CtrLLOM. Now, let me ask you only two or three questions, 
 and then I will let these other gentlemen take charge of you. The 
 Interstate Commerce Comniission, when it was first appointed, sup- 
 posed it had the 'po'ivSr, under the law, to make rates in cases of 
 complaints ffbin Wcalities or individuals— especially localities — ^to 
 fix the rates, and not only determine Whether the rate was reasonable 
 as it stoiod, but if the^ deterihinfed that it was not, tha,t they should 
 make the rate — determine what should be regarded as reasonable. 
 Th'at power has been decided not to belong to the Commission. Xow, 
 jiist what would you do iii the Vay of amending this law, leaving the 
 Commission to stand as a Commission, but in place of giving it this 
 power giving it some authority to determine the rates ? 
 
 Mr. MoEAWETz. In the first place. I would lik6 to say a word up6n 
 the statement which ydu have made that the Commission'thaught it 
 had the power to fix futui-e rates. As a matter of fact. Judge Cooley, 
 k mbst eminent irieiitibBr of that Commission, held that they did not 
 Ijtave that power. Colotiel Walker, of Veririont, likewise held that 
 thej7 had not that power. 
 
 SenBjtor CiiLLOii.. At the same time they exercised it to a degree. 
 
 Mr. MoRAWETZ. They did sometimes and sometimes they did not. 
 However, there never was a tiriie when the railway CQmpanies ob- 
 served the so-called, orders of the Comniission unless they thought 
 they were right and thought it was expedient tb do so. I am in- 
 fonried that as early as 1890, shortly &,fter the Cbmihission was 
 organized-, the Comhiii^iOn made a sweeping order tespebtihg grain 
 rates, and this order was entirely disregarded by the tailway Com- 
 panies and went for nothing. 
 
 Senator Cullom. Was tMt the jfebraska rates? 
 
 Mr. MoEAWETZ. No, sir ; before that. In 1891, in the suit of Cox 
 against the Lehigh Valley Company, an answer was filed in the cir- 
 cuit court of the United States expressly denying the existence of 
 that power in the Commission. Tnfe Skffle 'pomt Was made in the 
 Maximum Rate Cases. And when those cAses finally reached the 
 SiiprCihfe Ctfurt of tlie Vhkeid St&,tes it was held ffiat the view of the 
 railroad compaiiies was correct. As I say, however, there never was 
 a titile wheh the railway cdiii^hi'es observed the^b 'oMers of the 
 Commission or during which it "was conceded that the Commission 
 had this, power. 
 
 Senator Cull'om. Well, waiving all that, will you state now, in 
 very brief terrtis, just What authority you would give that Commip- 
 sion in dealing with rates, and what other poW6t y6ti Would asso- 
 ciate With it ? 
 
 Mr. MoEAWETz. I would take aWay from the Commission all the 
 power to fix rates, or to determine and pai^s upon the legality or 
 reasdnableniess of rates, past or future. I would, howeVer, give the 
 Commission full authority, and make it its duty to act as what I call 
 the police of interstate coniiherce, and to prosecute any violations of 
 the iiiterstate-commerce act, whether the violations consisted of the 
 i'liiposition of excessive rates or discriminatioris. In other Words, 
 I would split the judicial powers from the administrative and exec- 
 utive pbwefs of the Commission. I think it is all wrong that the 
 
60 REGULATION OF RAILWAY RATES. 
 
 same body should be invested with all these powers of a different 
 kind, frequently conflicting in nature. The judicial powers should 
 be vested in the courts— if not the present courts, then some newly 
 organized courts — but the commission should be confined to the duty 
 of enforcing the law, under the twelfth section of the mterstate- 
 commerce act. o -rr- u 
 
 Senator Newlands. May I ask a question in that line? Would 
 you give the Commission the power to employ their own counsel for 
 the purpose, to have their own force of counsel, or would you require 
 them to resort to the Attorney-General and the district attorneys? 
 
 Mr. MoEAWETZ. As a purely practical matter, I should think that 
 the Commission should be required to act through the district 
 attorneys, unless they should obtain special counsel, with the consent 
 of the Attorney-General. I do not think the Commission should 
 have power, of its own motion, and without consultation or authority 
 from some other body, to engage all the counsel they see fit. 
 
 Senator>NEWiiANDS. The complaint of the Commission now is that 
 they present their cases upon which to base prosecutions to the 
 Attorney-General — ^that has been the case for a great many years ; I 
 do not speak of the present Attorney-General-^and that these pre- 
 sentmente which they make are simply pigeonholed, and that a clerk 
 or subordinate there has the practical disposition of the case. 
 
 Mr. MoRAWETz. Well, that involves the question of whether the 
 Attorney-General of the Unit«d States 
 
 Senator Foraker. Does his duty ? 
 
 Mr. Mora WETz (continuing). Is to be the advisor of the Presi- 
 dent and Cabinet and Congress, whenever called upon, or is, in 
 addition to all that, to attend to the detail of prosecuting suits aU 
 over the country. 
 
 The Chairman. Is this in your time? [Laughter.] 
 
 Senator Newlands. No, sir. [Laughter.] 
 
 Senator Cullom. I will not pursue this matter any further. I 
 think we will hardly get around to-night at this rate. I have no 
 further questions. 
 
 The Chairman. Senator Kean. 
 
 Senator Kean. I will yield to Senator Foraker. 
 
 Senator Foraker. I have only two or three questions. The ones 
 that I have indicated here by my memorandum have been very largely 
 answered by the answers given to the questions asked by the chair- 
 man and others. There are two or three questions, however, that I 
 will ask. 
 
 Have you said all you wanted to about differentials? I thought 
 when we took a recess that you Ay ere about to say something further 
 on that subject, which the recess interrupted. 
 
 Mr. Mora WETZ. I was discussing the question as to what consti- 
 tutes a port, I think, within the prohibition of the Constitution. 
 
 Senator Foraker. If you will allow me to remind you, you were 
 telling us just when we took the recess that it did not necessarily fol- 
 low, if the Interstate Commerce Commission or Congress should 
 undertake to fix rates, that preferentials would have to be disregarded 
 in order to avoid conflict with the constitutional provision against 
 giving preference to the ports of one State over those of another; 
 and I was hoping you were about to tell us, in that connection, on 
 what groujid the preferentials, for illustration, that are allowed to 
 
EEGTJLATION OF RAILWAY RATES. 61 
 
 Philadelphia and Baltimore as against New York are based, and what 
 would be the effect of Congress undertaking to exercise this power to 
 regulate commerce ? The railroads now, acting on their own motion, 
 have a right to make any arrangements they see fit. But when we 
 undertake to exercise the constitutional power Ave must exercise it 
 subject to the constitutional restrictions that may be applicable ; and 
 would we be allowed, if we were to undertake to establish by an act 
 of Congress or through a commission on which we were to confer 
 that power, railroad rates for the transportation of freight; would 
 we be allowed to continue these differentials that have been estab- 
 lished; and could we, for instance, give a differential in favor of 
 Philadelphia — what is it, 2 cents per hundredweight? 
 
 Mr. MoRAWETz. I believe not. * 
 
 Senator Forakee. And 3 cents iji favor of Baltimore. Could we 
 give those preferentials without making a preference in favor of 
 those ports as against the port of New York ? 
 
 Mr. MoEAWETz. I do not see how Congress could, or the Commis- 
 sion, which is the same thing for the purposes of this question. The 
 constitutional prohibition is that no preferences shall be given by any 
 regulation of commerce. 
 
 Senator Dolliver. But is it a preference to give Philadelphia and 
 Baltimore a less rate when, in point of fact, there is a very much 
 shorter distance involved? 
 
 Mr. MoRAWETZ. If it is based on distance, yes; but the adjustment 
 of these preferentials must be based on the theory that Congress can 
 equalize the natural advantages of different ports or different places ; 
 that if one place has a natural advantage over another place. Con- 
 gress, by an adjustment of rates, can deprive it of that natural advan- 
 tage and put it on the same basis as some other place which has no 
 natural advantage. Now, it seems to me that the moment that posi- 
 tion is taken the benefit of the constitutional provision is destroyed, 
 because the very theory upon which Congress would give a differen- 
 tial in this case is that Congress gives a preference, through the pref- 
 erential, to some place which has no natural advantage, in order to 
 put it on the same footing with a place which has a natural 
 advantage. 
 
 Senator Forakee. That is the ground, is it not, upon which all these 
 differentials are supposed to be established ? 
 
 Mr. MoRAWETZ. It is. 
 
 Senator Forakee. The reason I am asking these questions is that 
 you were stating to us, when we took a recess, that where these pref- 
 erences arose incidentally to the exercise of this power, not the direct 
 purpose or act of Congress, they would not be in conflict with that 
 restriction of the Constitution. 
 
 Mr. MoRAWETZ. I think clearly so. That was the decision in this 
 Wheeling Bridge case, and would be quite in accord with other de- 
 cisions. 
 
 Senator Foraker. I wanted you to apply what you were saying in 
 connection with the Bridge Case to these cases to which I refer ; and 
 I specify these only for purposes of illustration. There may be 
 many other cases where differentials are established that would illus- 
 trate better ; but if Congi-ess were to undertake to fix these rates, and 
 to create these differentials in an indirect way, would it not be a 
 
62. REGULATION OF RAILWAY RATES. 
 
 direct result, and therefore not come "within the, exception that you 
 atta,ch to the statement tha,t you made before the recess ? 
 
 Mr. MoRAAVETZ. I think the question is whether the gra,nting o;^ 
 <;hese di^erentials would be a direct- — 
 
 Senator Foeakbr. T^iOiether it would be direct or incidental i 
 
 Mr. MoRAWETZ. "\Yh.^ther it would be a, direct preference or an inci- 
 dental one? 
 
 Senator Forakee. Yes, . . 
 
 Mr. MoRAAVETz. Well, that is largely a question of definition. I d(» 
 not, myself, see the difference between gra,nting preferences by a 
 differential, and a law directly requiring a shipper to ship via, one 
 port and pay something which is not required of a shipper tjirough 
 another port. 
 
 Senator Foraker. To get at, in a little different way, what I have 
 in mind : Why is it that a difference of 2 cents is allowed in the case 
 of Baltimore' or Philadelphia? What is that supposed to be the 
 iiiea,sure of? 
 
 Mr. Moraaatrtz. Well, I think it is largely based on the ground that 
 New York has paore shipping than Philadelphia, and tha,t unless the 
 differential be given to Philadelphia, people will ship via New York 
 and not via, Philadelphia. 
 
 Senator Foraker. That is one purpose, to diffuse the business ? 
 
 Mr. MoRAAVTiTZ. Yes. 
 
 Senator Foraker. And the expectations of retvirn freight, I sup- 
 pose, coming through the ports, these respective cities, would have 
 Something to do with it ? 
 
 lyir. Moeawetz. Yes, sir. Now, it is a power which undoubtedly. 
 <!an be exercised for the good of the country, but it is also a power, 
 which cajti be exercised to the great harm of the country by prpducing. 
 sectional strife and by arraying one part of the co\mtry aga,ins£ 
 apother. 
 
 Senator Foraker. Dp you know how all that could be ay,oj,d^d if 
 we were to undertake to legislate pn this subject either dxreptily op 
 througli the agency of the Cpmmission, except only by fixing an arbi,-, 
 trary rate of sp much per ton per mile, whether we crossed over th^ 
 top of the Allegheny Mountains or went down the J^fisgissippi 
 Valley? 
 
 Mr. MoR.\AVETZ. I think that Cpngress^ppa^ legislation limiting the 
 charges of railway companies to reasonable charges, such as ar& on 
 the books to-day, could not be construed a,s a granting of, preference 
 tp the ports of any State aga,inst thpse of another, but I thinly tha,t a, 
 grant to ^ commission of the arbitrary power of fixing definite ra,t<^' 
 and the exercise by the commission of that arbitrary power should be 
 construed as a granting of preference to the ports of one State against 
 anpthar- 
 
 Senator Foraker. Well, now, you speak of maximun;i rates. Do 
 you recommend the fixing of maximum rates as good policy? As- 
 suming that you do, let me a-sk you this question 
 
 Mr. MoRAWETZ, Fixing them in advance ? 
 
 Senator Foraker. I say, assuming that you do, for the moment, 
 let me ask you a,nother questipn. I suppose the rate on grain from 
 the Northwest to the Atlantic seaports is fixed with some reference 
 to the expected and anticipate^ vpli^me pf it, and, the amount of pther 
 kinds of business to be done, is it not ? 
 
KBGUIiATIUIl^ OJ? HAl^WAY RATES. 63 
 
 It^r. MoBAWETz. Yes. 
 
 Senator Fokaker. Suppose th.e. wheat crop, for msta,nce, this year 
 sj[;ijOul4 fall off, by reason of some c^Jagiity overtaking it, so that there 
 womjd not be one-half to be exporteil t;hat the roads expected there 
 would be wl^ien the ra^s were fixed. Wnat, in tha,t cas§, would you 
 djo if ypu ha^ a, maximum rate beyoiid which you coiilcj not go? 
 Would it not be necessary to increa,se the rate on wheat, or mal^e H up 
 in some other wa,jr, by increasing the rates on other cop;imodities,? 
 
 Mr. MoRAWETZ. I do not, myself, think that it woul,d be really wise 
 and fo;r 1;h,e. benefit of the railway companies and of the country to 
 prescribe maximum rates by statute or by order of the ConunissiQn. 
 I think that any coj-irse Ayhich fixes definitely the rates, which may not 
 be exceeded— unless the limit is so far off tha,t it is of no use what- 
 ever — is harmful. I think that the wise course, would be to leave it 
 to the courts to decide, upon the suit of the Commission in any ca,se, 
 whether the rate was unreasonably high or not ; but to provide for a 
 quick decision of that point. 
 
 Senator Foeakee.' And is it or not true that quick decisions as to 
 changes in rates are necessary in the ordinary condixct of transporta- 
 tion business? 
 
 Mr. MoRAWETz. Absoluteh', in order to meet the requirements of 
 business. 
 
 Senator Forakee. The requirements of business come and go 
 quickly ? 
 
 Mr. MoRAWETZ. Yes, sir. There is no doubt about it. 
 
 Senator Foraker. Now, one or two other questions I wanted to ask 
 you. How would you proceed to cpj-rect a charge of discrimination 
 between localities when they were reached from a common point by 
 differept lines? I will .give you, for illustration, Chicago, Minne- 
 apolis, and Milwaukee — a case we have heard something about here. 
 I believe Milwaukee and Minneapolis are reached from Chicago by 
 different lines, are they not ? 
 
 Mr. MoRAWETz. Yes. 
 
 Senator Forakee. And we have had complaints here to the effecl; 
 that Milwaukee is discriminated against by the line that reaches 
 Milwaukee from Chicago, as compared with Miip,eapplis, which is 
 reached by another line. How would you remedy that ? It is a prac- 
 tical question that we are confronted with. 
 
 Mr. MoRAvraTZ. I am very sure that you never coijld satisfy every- 
 body. Whatever is done, the people of one section, or people in one 
 section, will feel tbat they ha-ye be^n dam,ag?d a,t the expense oi 
 those of another. The only question is, on the whole, how is it best 
 to deal with this problem ? Shall the power of fixing the rates from 
 the di,fferent. sections and determining the cpmmercial prosperity of 
 tlie different sections be vested in a Grovernment bures^u, subject to 
 no control by anybody, because yoii can not give the power to control 
 that function to any court, or shall it be left to adjust itself by the 
 laws of trade — ^the laws of nature ? 
 
 Senator Foeakee. In the case I put, to correct any a.lleged dis- 
 crimination you would have to either lower the rates on one road or 
 else raise them on the other, would you not ? 
 
 Mr. MopAWETZ. You would. 
 
 Senator Forakee. As a matter of necessity ? 
 
 Mr. MoRAWETZ. Yes. 
 
64 REGULATION OF RAILWAY BATES. 
 
 Senator Foeakee. Now yon have told us Avhat I think everybody 
 agrees with, that there is a difference between the maximum i-ate and 
 a minimum rate, to go below which would be confiscatory ; and m the 
 illustration you gave us you put thirty points for the one and forty 
 for the other. Now, suppose the rates of both these railroads were 
 between thirty and forty, using your illustration ; how, in that case, 
 could you reach it at all, by either the legislative or the judicial 
 power," except only as the legislative power might be prevailed on to 
 make a change in the one or the other f 
 
 Mr. MoRA^VETZ. I do not think the courts could deal with that mat- 
 ter at all. As I attempted to point out, that legislation giving the 
 Commission poWer to fix the rates between those two extremes would 
 be giving it autocratic power, subject to no control. 
 
 Senator FoRAKEE. There would be no control at all' in the case I 
 put, would there ? 
 
 Mr. MoEAWETz. No control. 
 
 Senator I'oeakee. Now, what do you recommend as a remedy for 
 these alleged abuses of the private car lines and refrigerator cars 
 and terminal switching charges and elevator charges, etc. ? 
 
 Mr. Moeawetz. Well, wherever there is a direct or indirect dis- 
 crimination I think the Elkins Act to-day would apply. Wherever 
 j-ou could show that, through private car lines or through terminal 
 tracks or any other • 
 
 Senator Foeakee. Device? 
 
 Mr. Moeawetz. Yes ; the word " device " is used in the act. 
 "V\Tierever you could show that through those methods, or through 
 any other device, there was discrimination among shippers you 
 could obtain an adequate remedy under the existing law. 
 
 Senator Foeakee. And if not, I understood you to say that we 
 could make that law adequate by making it more specific? 
 
 Mr. Moeawetz. I think so. 
 
 Senator Foe.4kee. By amending it so that it wou^ld expressly, pro- 
 vide that these discriminations should include the use of all these 
 devices ? 
 
 Mr. Moeawetz. Yes, sir. 
 
 Senator Foeakee. Private cars, etc. ? 
 
 Mr. Moeawetz. Yes. Of course in some instances it would be 
 rather easier than others to carry it out. In the case of terminal 
 tracks T think it would be more difficult. 
 
 Senator Foeakee. Can you tell us how there could be devised any 
 swifter remedy than would be afforded by an appeal to the court, if 
 the court were required to immediately take the case up and dispose 
 of it? 
 
 Mr. Moeawetz. I think that the decision could be obtained very 
 much more quickly by a duly constituted court, in which the rules of 
 evidence governed, than by such proceedings as we have been accus- 
 tomed to before the Interstate Commerce Commission, Avhere no rules 
 of evidence seem to prevail. I think you could get a final decision 
 in a duly constituted court more quickly than you can to-day get one 
 of these preliminary orders, which bind nobody and go for nothing, 
 through the Interstate Commerce Commission. 
 
 Senator Foeakee. But I am assuming that we would so change the 
 law that the Interstate Commerce Commission would have authority 
 not only to investigate, but also to make an order fixing what it 
 
REGULATION OF RAILWAY KATES. 65 
 
 would require as a reasonable rate to be substituted for the unrea- 
 sonable rate. I am asking whether or not that could be done any 
 more expeditiously before the Interstate Commerce Commission than 
 it could be done before a judge of the United States circuit court? 
 
 Mr. MoKAWETZ. Not if the Interstate Commerce Commission was 
 to grant a hearing and to proceed fairly. 
 
 Senator Foeakee. That is, if parties were to be heard at all, a hear- 
 ing Avould have to be had before either tribunal ? 
 
 Mr. MoBAWETZ. Before either tribunal. 
 
 Senator Foeakee. Have you prepared any bill ^ 
 
 ^Ir. MoEAWETZ. I have not. 
 
 Senator Foeakee. I wanted to ask one other question. You told 
 us this morning that during the last seven years, as I recollect it, the 
 tonnage of the country has pretty nearly doubled? 
 
 Mr. 3Ioeaa\^etz. Yes, sir. 
 
 Senator Foeakee. That it has increased from — what were tlie 
 figures ? 
 
 ^Mr. MoEAWETz. About 95,000,000,000 ton miles in 1897 to 170,000,- 
 000,000 in 1903. The precise figures for 1904 are not out. 
 
 Senator Foei^kee. I understood you to say that the operating ex- 
 penses on this increased tonnage were about 65 per cent ot the 
 earnings ? 
 
 Mr. 3roEA^\'ETz. I should thinic the operating expenses averaged 
 about 05 per cent. 
 
 Senator Foeakee. Then I understood you to say that at the same 
 rate of increase we would have a tonnage of not less than three hun- 
 dred billions 
 
 !Mr. Moeawetz (interrupting). Seven years hence. 
 
 Senator Foeakee. Seven years hence, yes. Now, you made a state- 
 )nent in this connection which prompts this question: Do you want 
 us to understand that these operating expenses would continue in 
 that same proportion to the gross receipts upon this increased ton- 
 nage? You are assuming that the prosperity of the country would 
 continue as it is now ? 
 
 Mr. Moeawetz. Yes. 
 
 Senator Foeakee. According to' the statement you made this 
 morning ? 
 
 IMr. Moeawetz. Yes, sir. 
 
 Senator Foeakee. In 'other words, would not the percentage of 
 gross earnings be considerably less on this large increase — doubled 
 tonnage ? 
 
 Mr. Moeawetz. That would depend upon circumstances. Of 
 course, as a rule when the volume or business, the density of traffic, 
 increases, the cost of doing the business diminishes. That is not the 
 case without exception. I know from my own experience that when 
 the traffic reaches a certain density the cost of doing the business is 
 increased because of the delays — ^the greater difficulty in actually 
 handling the traffic. 
 
 I made those statements for the purpose of bringing out two points. 
 One was that the development and future prosperity of this country 
 requires that there shall be spent during the next seven years an enor- 
 mous amount of money in providing a(Mitional railway facilities. 
 
 Senator Foeakee. Yes ; I understood that. 
 
 e e b — 05 M 5 
 
66 
 
 REGULATION OF RAILWAY RATES. 
 
 Mr. MoRAWETz. Now. in order to raise this money it is very impor- 
 tant that the credit of the railroad comi^anie.s be not crippled by 
 legislation. 
 
 Senator Foraker. Is it true or not that during these last seven 
 years that have been so prosperous the surplus earnings of the roads, 
 beyond what was necessary to pay fixed charges and dividends, have 
 been employed in the betterment of the property more than during 
 any other like period in the history of the railroads of the country? 
 
 ^Ir. MoEAWETz. Well, during this period the roads have "plowed 
 in," or spent, for the betterment of their property, whatever they did 
 not divide among their stockholders ; and in that way, of course ■ 
 
 Senator Foeakee. That is, this money has been spent in double- 
 tracking, reducing grades, straightening curves, enlarging tunnels, 
 making stronger bridges, and getting a better equipment and heavier 
 motive power? 
 
 Mr. MoRAWETZ. Yes. But I wish to say here that I doubt if on the 
 average the railway companies of the United States have kept up 
 their properties solely out of the sums charged to operating expenses. 
 According to the method of distributing charges, a great many things 
 are charged to capital account, as a betterment and improvement, 
 which really do not increase the earning cajjacity of the road a bit. 
 I think that the net earnings of the railway companies of the United 
 States, the true net earnings — that is, the divisible net earnings — ^have 
 been overstated rather than understated. The railway companies can 
 not live unless they raise a lot of money every year and put it into the 
 property, over and above the net earnnigs which they are supposed to 
 earn, and which they " plow in." 
 
 Senator Dolliver. What do you mean by that " plow in?" 
 
 Mr. MoEAWETZ. Plow into the property. 
 
 Senator Dot.liver. That is an agricultural phrase that I had never 
 heard applied to trunk lines before. [Laughter.] 
 
 Senator Foraker. However that may oe, the surplus earnings, 
 in so far as you have had any, have gone, as a rule, into the better- 
 ment of the property, as I understand it? 
 
 Mr. Moeawetz. Entirely. 
 
 Senator FoRAiiER. And on fop of that the improvement has been 
 so great that you have had to issue securities? 
 
 Mr. MoRAWETz. And borrow vast sums of money ; 3^es, sir. 
 
 Mr. Caejiac'k. You mean that jouv road- is losing money ? 
 
 Mr. Morawbtz. I do not; but I mean that a railroad nowadays has 
 got to be adding new things, better cars, more facilities of all Idnds; 
 has got to be adding those constantly, and a great part of those things 
 do not really add to the earnings of the property. You have got to 
 improve your property in order to keep going. 
 
 Senator Cullom. Do reports show that you have put all you have 
 earned into the betterment of the roads ? 
 
 Mr. Moeawetz. Oh, yes ; and more. too. 
 
 Senator Carmack. That is what I would call losing monev. 
 
 Senator Foraker. While much of this maj"^ not increase the earn- 
 ing power, it does increase the safety of travel, I suppose, does it not? 
 
 Mr. Morawetz. Yes; and the convenience of travel. 
 
 Senator Foraker. And it cheapens the operation of the road I 
 should think? 
 
 Mr. Morawetz. Not always. 
 
KEGHLATION OF RAILWAY RATES. 67 
 
 Senator Forakek. Xot always, perhaps, but the general result is a 
 cheapening, is it not, where you enlarge cars and your motive power, 
 and double track, and cut out grades ? 
 
 Mr. MoRAWETZ. Yes; but building $15,000,000 stations does not 
 earn any more money, and putting in expensively fitted up chair cars 
 does not earn any more money. 
 
 Senator Foraker. That is all I wanted to ask. 
 
 The Chairman. Let me make a suggestion. Mr. Morawetz has 
 been here now nearly five hours, and I think it is a pretty hard iinder- 
 taking for him to continue indefinitely. He will have to be here 
 another day, evidently, and I would suggest to the committee that 
 we adjourn until to-morrow, so that Mr. Morawetz can have an 
 opportunity to rest. There are a good many qviestions, I take it, 
 to be asked all around the table. 
 
 Senator Carmack. How many witnesses have we ready for to- 
 morrow ? 
 
 The Chairman. I do not know. There are enough to go on. We 
 will not run out of witnesses. 
 
 Senator Carmack. Wbo else have we ? 
 
 The Chairman. Mr. Hines is here, and Mr. Tuttle is to be here, 
 from Boston ; and there are others, also. I am willing to stop right 
 here, and Mr. Morawetz has been at this steadily ever since 11 o'clock. 
 I do not know how he feels about this. 
 
 Mr. Morawetz. I am ready to do whatever the committee desires. 
 
 Senator Newlands. I move an adjournment of the committee until 
 to-morrow morning. 
 
 (The committee then, at 4.15 o'clock p. m., adjourned until to- 
 morrow, Wednesday, April 19, 1905, at 11 o'clock a. m.) 
 
 Wednesday, April 19, 1905. 
 
 The committee met pursuant to adjournment. 
 
 Present: The chairman and Senators CuUom, Kean, DoUiver, For- 
 aker, Clapp, Millard, Carmack, and Newlands.' 
 
 Senator Kean. Mr. Chairman, before Mr. Morawetz proceeds I 
 want to make a little statement. 
 
 On page 27 of the hearings before the House Committee on Inter- 
 state and Foreign Commerce, for the last session of Congress, is found 
 a list of cases decided prior to the Supreme Court decision in the max- 
 irmun-rate case. May 24, 1897 (167 U. S., 479), in which the Commis- 
 sion ordered changes to be made in rates found to be unjust or unrea- 
 sonable. On page 28 of the same volume is foimd a list of cases 
 decided subsequent to the maximum-rate decision of the Supreme 
 Court, May 24, 1897 (167 U. S., 479) , in which the Commission found 
 rates complained of to be unjust or unreasonable and ordered them to 
 be discontinued. 
 
 T asked the Interstate Commerce Conunission to furnish me a table 
 showing the cases in which the Commission found rates complained 
 of to be unreasonable and ordered them to be discontinued, and where 
 the result of the Commission's suits in the courts to enforce the orders 
 of the Commission was that its orders were not complied with. I 
 have received from the Commission a list of these cases, and ask that 
 
68 
 
 REGULATION OF EAILWAY BATES. 
 
 at some time it be inserted in the record as showing the results down 
 to the present day. 
 
 Tlie Chairman. It will be put in the record, if no objection is 
 heard. No objection is heard. 
 
 The statement referred to is as follows: 
 
 Table shoiving cases in which the Commission found rates complained of to he 
 unreasonable and ordered them to be discontinued, and the result of the Com- 
 mission's suits in the courts to enforce orders not complied witli, as contained 
 in the list on jiages s-r and S8 of the hearings before the House Committee ore 
 Interstate and Foreign Commerce. 
 
 Title of case. 
 
 t Date of deci- 
 I sion. 
 
 /Evans v, O. R. and N 
 
 -^Keed r. O. R. and N 
 
 /Parrar v. B. T., V. and G 
 
 .-Pyle & Sons v. E. T., V. and G . 
 
 K Hurlburt r. Pa. R 
 
 /Hnrlburtti. L. S. and M. S 
 
 Parkhurst & Co. r. Pa. R 
 
 Nicolai v. Pa. R 
 
 •TST. O. Cot. Exoh. r. C, N.O.andT.P. 
 •'James ■& Abbott v. E. T., V. and G-. 
 
 -N. O. Cot. Exch. V. 111. Cent 
 
 '^ Ee Ajlleged Prt. Rates on Pood 
 Products. 
 
 /Harvard Co. v. Pa. Co. 
 
 Coxe Bros. v. L. V. 
 
 ^ Bost. F. and P. Exch. v. N. Y. and 
 N.E. 
 Del. St. Grange !■. N. Y., P. and N. .. 
 
 James and M. B. Co. v. C, N. O. and 
 
 T. P. 
 Fla. R. Comm. i'. S. F. and W.. 
 
 Lehmann, H., & Co. r. T.and P. 
 
 Rising-!). S. P. and W 
 
 Perry v. P., G. andP 
 
 - Murphy, Wasey & Co. v. Wab. 
 
 Mercb. tin. of Spokane v. N,P 
 
 Ind. Ref. Asso. v.W. N.Y. andP 
 
 Troy Bd. Trade 1). Ala. Mid.. 
 
 - Duncan D. A., T. andS. P 
 
 -Duncan v. So. Pac 
 
 ■ Morrell v. Un. Pao 
 
 * Newland v. No. Pac. 
 Page V. D., L. and W. 
 
 Cin. Prt. Bu. v. C, N. O. and T. P. 
 
 Chic. Prt. Bu. v. L., N. A. and C. -- 
 Charleston T. P. Asso. v. N. E 
 
 J Hill & Bro. V. N. C. and St. L. 
 — Cordele M. Shop v. L. and N - 
 
 Colo. P. and I. Co. v. So, Pao. 
 
 ^ Evans V. Un. Pac -. 
 
 "May-!). McNeil, Receiver 
 
 — Jerome Hill C. Co. v. M., K. and T .. 
 
 I Mo. E. Comm. v. E. S. E. Co 
 
 , Milk Prod. P. Asso. v. D., L. and W. 
 ' Suffern, Hunt & Co. v. I., D. and ''"' 
 •'Gary u. E. S. R. Co 
 
 Deo. 3,1887 
 
 do 
 
 Feb. 15,1888 
 
 do 
 
 July 20,1888 
 
 do.- 
 
 July 23,1888 
 
 ....tdo 
 
 Nov. 26, 1888 
 Sept. 25, 1889 
 Apr. 11,1890 
 July 19,1890 
 
 Disposition. 
 
 Oct. 
 Mar. 
 
 83,1890 
 13, 1891 
 
 Mar. 19,1891 
 Apr. 18,1891 
 June 29, 1891 
 Oct. 29,1891 
 Nov. 30,1891 
 Jan. 28,1892 
 do 
 
 Jan. 30,1892 
 Nov. 28,1892 
 
 Nov. 14,1892 
 
 Aug. 15,1893 
 
 Nov. 3,1893 
 
 do 
 
 Dec. 22,1893 
 Jan. 31,1894 
 Mar. 23,1894 
 
 May 29,1894 
 
 do 
 
 Apr. 6,1895 
 
 Oct. 19,1 95 
 do 
 
 Nov. 25,1895 
 
 Feb. 8,1896 
 
 do 
 
 May 20,1896 
 
 Feb. 26,1897 
 Mar. "" 
 
 Order complied with. 
 Do. 
 Do. 
 Do. 
 Do. 
 Do. 
 Order not complied with; suit for damages 
 adverse to complainant. 
 Do. 
 Order complied with. 
 Do. 
 Do. 
 Oi'der partially complied with; no suit 
 I brought in court. 
 Order complied with. 
 
 Order not complied with; circuit court re- 
 fused to enforce order. 
 Order partially complied with; no suit 
 
 brought in court. 
 Order not complied with; circuit court re- 
 fused to enforce order. 
 Order not complied with; Supreme Court 
 
 enforced part of order. 
 Order not complied with; Supreme Court 
 
 refused to enforce order. 
 Order partially complied with; no suit 
 
 brought in court. 
 Order not complied with; no request for en- 
 forcement of order. 
 Order partially complied with; no suit 
 brought in court. 
 Do. 
 Order not complied with; circuit court re- 
 fused to enforce order. 
 Order not complied with; case pending in 
 
 circuit court. 
 Order not complied with; Supreme Court 
 
 refused to enforce order. 
 Order partially complied with; no suit 
 brought in court. 
 Do. 
 Do. 
 Do. 
 Order not complied with; circuit court re- 
 fused to enforce order. Amended order 
 granted, which was not complied with 
 and upon which no suit was brought. 
 Order not complied with; Supreme Court 
 refused to enforce order. 
 Do. 
 Order not complied with; C. C. and C. C. A. 
 
 refused to enforce order. 
 Order complied with. 
 Order partially complied with; no suit 
 
 brought in court. 
 Order first complied with, then compliance 
 withdrawn; C. C. A. refused to enforce 
 order. 
 Order complied with. 
 
 Do. 
 Order partially complied with; no suit 
 
 brought in court. 
 Order complied with. 
 Do., 
 Do. 
 Do. 
 
KEGULATrON OF^TISILWAY BATES. 
 
 69 
 
 Table showing cases in which the Commission found ratts complained of to he 
 unreasonable and ordered them to be discontinued, etc. — Continued. 
 
 Title of case. 
 
 Callaway v. L. and N _. 
 
 Milw. Ch. Com. v. C, M. and St. P .. 
 
 Cattle Raisers' Asso. t'. F. W. and 
 D. C. 
 
 Phillips, B., & Co. V. L. and N 
 
 Grain 8. Asso., &c., v. 111. Cent 
 
 Savannah Bu., &c., u. L. and N 
 
 Hampton Bd. Ti-ade i. N. C. and 
 St.L. 
 
 Warren-Ehret Co. v. C. of N. J 
 
 McGrewi!. Mo. Pae 
 
 Hilton Lbr. Co. v. W. and W 
 
 Natl. W. L. D. Asso. v. N. and W . . . 
 Wilm. T. Asso. v. C. P. and V 
 
 Johnson v. C, St. P., M. and O 
 
 Ke Proposed Advances in Freight 
 
 Bates. 
 Mayor, &c., of Wichita v. A., T- and 
 
 S. P. 
 
 Marten V. L. & N 
 
 Oa. Peach G. Asso. v. A. C. L 
 
 . Aberdeen, &c., Asso. v. M. and O 
 
 N. O. Live Stock Exch. v. T. and P. - 
 Be Transportation Fruit by P. M . . . 
 
 Date of deci- 
 sion. 
 
 Dec. 31,1897 
 
 Jan. 19,1898 
 
 Jan. 20,1898 
 
 Oct. 29,1B98 
 June 22, 1899 
 
 Jan. 8,1900 
 
 Mar. 10,1900 
 
 Dec. 22, 1900 
 Feb. 8, 1901 
 Apr. 10, 1901 
 Dec. 11, 1901 
 Dec. 17, 1901 
 
 May 7, 1902 
 Apr.l, 1903 
 
 Oct. 24, 1903 
 
 Nov. 21, 1903 
 June 4, 1«04 
 
 June 25, 1904 
 
 do 
 
 July 07, 1904 
 
 Disposition. 
 
 Order not coniplie& with; Supreme Court 
 refused to enforce order. 
 
 Order partially complied with; no suit - 
 brought in eoui't. 
 
 Order not complied with; Supreme Court 
 refused to enforce order. y 
 
 Order complied with. "^ 
 
 No order issued, but caiTiers recommended )< 
 to readjust rates; no suit. 
 
 Order not complied with; circuit court or- 
 dered compliance; no appeal. 
 
 Order not complied with; C. C. A. refused 
 to enforce order. 
 
 Order complied with. i^ 
 
 Do. ^ 
 
 Do. 1/ 
 
 Do. y 
 
 Order not complied with; circuit coui't re- 
 fused to enforce order. 
 
 Order complied with. "^ 
 
 No order issued, but suggestions of Com- y 
 mission partly complied with; no suit. ^ 
 
 Order complied with. ' 
 
 Do. 
 Order partially complied with; no suit - 
 
 brought in court. 
 Order not complied with; petition for suit 
 
 in preparation. 
 Order complied with. ^ 
 
 Action withheM to allow readjustment of , 
 
 charges. / 
 
 The Ch-iirman. You may proceed, 
 statement, if you are read}^ 
 
 Mr. Morawetz, with your 
 
 STATEMENT OF MR. VICTOR MORAWETZ— Continued. 
 
 Mr. Morawetz. Mr. Chairman, it was my understanding that I 
 was to be here to-day to answer questions. 
 
 The Chairman. Yes. You have concluded your main statement? 
 
 Mr. Mor.4"wetz. I have conchided my main statement. 
 
 The Chairman. Senator Dolliver, do you desire to propound any 
 questions or make any suggestions to the witness ? 
 
 Senator Doi.uver. Mr. Morawetz, in the course of your testimony, 
 speaking of the prevention of rebates and secret discriminations, you 
 suggasted that the grant of the exchisive power to route the shipments 
 to the carrier on whose line they originated would be an effective 
 remedy, at least in part, for the abuse of rebates. I should like to 
 ask you how a regulation of that sort put into the law would operate 
 in-respect to the independent railways outside of the community of 
 interest represented by the initial carrier? 
 
 Mr. Morawetz. I should like to remark, in the first instance, that 
 there is a question whether, under tiie law as it stands to-day, the 
 initial carrier has this right of choosing its connections in routing 
 traffic. In a recent case it has been held that the carrier can not 
 refuse to follow the directions of the shipper in routing the traffic. 
 But I understand that has never been so decided by the Supreme 
 Court, and the very common belief on the part of the carriers, and 
 the position which manj' of them take to-day, is that they can choose 
 
70 REGULATION OF RAILWAY RATES. 
 
 their connections in routing traffic, notwithstanding the directions 
 given by the shipper. . ' 
 
 Senator Dot.liver. How would that operate in a place like Omaha, 
 Nebr., where many railroads run to the east and only a few into 
 Omaha from the west ? 
 
 Mr. MoEAWETZ. The result, I should take it, would be that the 
 initial carrier from the coast would be at liberty to choose its connec- 
 tions on all east-bound business. 
 
 Senator Dollivee. Referring again to the subject of rebates, what 
 would you sav to a proposition such as was made not long ago by the 
 New York Board of Trade and Transportation, to give the Interstate 
 Commerce Commission the power, upon the discovery of a secret 
 rate, to put the entire business of the road, by an order of the Com- 
 mission, upon the basis of that secret rebate or discrimination? 
 
 Mr. MoEAWETz. I presume you mean the entire business which is 
 affected by that rate '? 
 
 Senator Dolliver. Yes. 
 
 Mr. MoEAWETZ. V^ell, the question would be whether the punish- 
 ment fits the crime. 
 
 Senator I>ollivek. You have already stated that the crime is very 
 great. 
 
 Mr. MoKAWETz. Yes. But it is to be borne in mind, sir, that the ' 
 owners of railways, the directors of railway companies, and the presi- 
 dents of rail^nay companies rarely are responsible for these secret 
 charges. 
 
 Senator Dolliver. "Who are responsible ? 
 
 Mr. MoRAAVETz. The traffic agents, Avho, in an excess of zeal, fre- 
 quently acting on their own responsibility, do what nobody would 
 have authorized and what their superior officers would not have 
 approved of if the matter had been brought before them. You will 
 understand that the board of directors of a railway company, who 
 are immediately responsible to the shareholders, have nothing to do 
 with the traffic management of the company. It is absolutely impos- 
 sible for any board of directors or any executive committee to super- 
 vise the action of the traffic department. That is a matter wholly in 
 the hands of the executive officers of the company. In the case of a 
 large company even the president can give very little attention to the 
 details of the management of tlie traffic departinent. 
 
 Senator Dolliver. You are chairman of an executive committee ? 
 
 Mr. MoEAWETz. I am. 
 
 Senator Dolliver. What authority does a committee like that have 
 over the traffic management of the Santa Fe Railroad, for instance? 
 
 Mr. Moraavetz. It has the power of directing the superior officers 
 of the company. But, under the rules, the Avhole management of the 
 traffic is delegated to the executive officers, who are in the West. The 
 executive committee never Imows anything of the details of the traf- 
 fic management of the company. It is the understanding and the 
 instruction of the board and of the executiA^e committee that the traffic 
 shall be managed in accordance Avith the requirements of law. No 
 rebate or discrimination, I am sure, has ever occurred to their ImoAvl- 
 edge. 
 
 Senator Dolliver. Have you any mechanism in your organization 
 to determine Avhat the traffic manager is actually doing or to bring 
 him to any responsibility for what he is doing ? 
 
REGULATION OF RAILWAY RATES. 71 
 
 Mr. MoKAWETz. The board and executive committee of a railway 
 company give all their directions through the president of the com- 
 pany, and the president, in his turn, gives his directions to the various 
 heads of departments. The executive committee never goes into the 
 details of the management of the traffic department unless special 
 instances come before it or are brought before it by the president. 
 
 Senator Dollivee. So you think, when one of these traffic man- 
 agers, in violation of law, gives to one shipper a lower rate than he 
 fives to the rest of them, that it would be unjust for the Government, 
 iscovering that fact, to subject the whole traffic interested to the 
 same rate that the traffic manager had given to the favored shipper? 
 Would not that have a tendency to curb his zeal a little ? 
 
 Mr. MoEAWETZ. I think in many instances it might be just, and in 
 a great manj' other instances it might be very wrong, because the 
 action of the traffic officer who gave this rebate might be accidental — 
 that is, it might not be an intentional act-^and it would be very 
 unjust in many instances to punish the stockholders of a company 
 in a very drastic way for the wrongdoing of some inferior officer who 
 committed a wrong, perhaps of a minor character, perhaps acci- 
 dentally, and which could be righted without the iinposition of any 
 such drastic remedy as is suggested. 
 
 Senator Dollivee. Are you familiar with the methods of railway 
 bookkeeping and accounting? 
 
 Mr. MoEAWETz. Yes ; I think I am, in a general waj^ 
 
 Senator Dollweb. Will you be good enough to state what facility 
 the books or railway accounts, if accessible to officers of the Govern- 
 ment, would give in determining whether rebates and secret rates 
 had been allowed and collected ? 
 
 Mr. MoEAWETz. "When I said I am familiar with the methods of 
 accounting, I should limit that. I am not familiar with the way in 
 which the books of original entry and records and vouchers are kept. 
 I am accustomed to deal only with extracts from the accounts which 
 are forwarded from the West to the East. I should say, however, 
 while I do not speak of my own knowledge, that it is my under- 
 standing that an examination of the vouchers, which are now on 
 file, showing M'hat are called overcharges and showing the details of 
 the various dealings between the railway company and the shipper 
 in respect of whom it is suspected that a rebate is being paid, would 
 disclose the facts if they were examined. 
 
 Senator Dollivee. You suggest a system of Government inspection ? 
 
 ^fr. MoEAWETZ. Yes. 
 
 Senfitor Dollivee. Do you mean to apply that only to the specific 
 cases where a suspected rate is in existence, or would you have such 
 a system of inspection as is conducted by the- national-bank examin- 
 er>^. who examine the books and vouchers of banks, so that the Gov- 
 ernment would be in continual touch with the whole system of railway 
 accounting ? 
 
 'Sir. ]MoRAWETZ. I see no objection to that course. "Whichever 
 course is deemed best. It occurs to me that it would be unnecessary 
 and undesirable, perhaps, to impose upon the Government the vast 
 amount of labor which would be necessary in order to make these 
 periodical examinations. 
 
 Senator Dolliver. But the trouble is that these suspicions are some- 
 what general, and no specific case of a suspected rebate is ever brought 
 
72 EEGULATTON OF EAILWAY KATES. 
 
 to anybody's attention, except by a discovery of the fact, and in that 
 case the inspection would be superfluous. 
 
 Mr. MoEA^'ETZ. I should think if the Interstate Commerce Com- 
 miasion, from time to time, at unexpected times, should cause the 
 books, records, and vouchers to be examined, it would be a good 
 practice, because the examination of vouchers is the important 
 feature. 
 
 Senator Dolliver. I take it that every item of expenditure and 
 receipt goes down in some book somewhere in a railway office. 
 
 Mr. MoEAWETz. Yes, absolutely. 
 
 Senator Dolliver. Unless there might be a system of " double 
 life." 
 
 Mr. MoRAA^ETz. I do not doubt that the full facts could be dug out 
 of the books of any company. 
 
 Senator Dolliver. Have you ever meditated upon the grievance 
 evei'y village or interior community in the United States has 
 against all the railways, apparently, on account of discriminations 
 against them in favor of what appear to be the large centers of trade 
 and industry ? 
 
 Mr. MoRAWETZ. I presume that the point to which you refer is 
 that conamonly lower rates are made by the railway companies from 
 competitive jDoints than are made from local points which have no 
 competition. 
 
 Senator Dolliver. "What do you mean by competition — a compe- 
 tition among the roads for business, resulting in cutting of rates? 
 
 Mr. MoRAWETZ. I mean competition of every kind among the car- 
 riers, among the different railroads, which are competing for traiRc 
 at a particular point openly, not by secret rates, and also competition 
 by the water lines, which are not subject to the interstate-commerce 
 act. 
 
 Senator DoLLl^'ER. I understood you to say yesterday that at com- 
 petitive points it is the custom, notwithstanding the apparent pro- 
 visions of the act of 1890, of the railways to agree among themselves 
 upon the rates to be charged. 
 
 Mr. MoRAWETZ. No, sir; I did not intend to say that. I said 
 that it is essential that the various railway companies should from 
 time to time meet and have some understanding as to what each is 
 going to charge, as to the various rates in which they are jointly 
 interested or which are competitive. 
 
 Senator Dolliver. Now, let me illustrate 
 
 Mr. MoEA-\\rETZ. There is no agreement, I want to say ; there is no 
 contract, no binding agreement. 
 
 Senator Dolliver. We Avill not dispute about words. At Council 
 Bluffs, Iowa, there are many railways running to Chicago. T under- 
 stand you to say that it is the custom for all of them to come to an 
 understanding as to what the rates shall be fi-om the Missouri River 
 to Chicago? 
 
 Mr. MoRAA\ETz. Yes. 
 
 Senator Dolliver. Is that rate fixed at a point that is reo-arded as 
 remunerative to the roads for the hauling of the traffic? 
 
 Mr. MoRAWBTZ. I think so; undoubtedly. 
 
 Senator Dolliver. Then, how w-ould it be explained supposino- it 
 
 to b^ so — that interior points on these various lines between Council 
 
REGULATION OF RAILWAY RATES. 73 
 
 Bluffs and Chicago are charged a rate in excess of the rates from 
 Council Bluffs to Chicago for the same kind of business? 
 
 Mr. MoRAWETz. If that is the fact, the explanation is this: That 
 each railway company would rather get the business to Council 
 Bluffs at a little profit than not to get it at all. 
 
 Senator Dolliver. Yes; there is no reason why there should be any 
 doubt of them getting it; that if they all charge the same rates they 
 will get whatever business there is, if there is an agreement as to the 
 rates. 
 
 ilr. MoRAWETZ. They can not make a binding agreement. 
 
 Senator Dolliver. They might have a kind of mute understanding. 
 
 Mr. MoRAWETZ. All they can do is to get together and have a talk, 
 have an understanding, as to what rate is going to be put in force. 
 
 Senator Dolliver. Let me illustrate 
 
 Mr. MoEAWETZ. Of course, there can not be two different rates 
 between the same points. 
 
 Senator Dolliver. Let me illustrate a situation which I may say is 
 common — ^not such a situation as exists in Iowa, as I have described 
 it ; but I have had my attention called to a case of traffic between St. 
 Paul and Duluth, with which my colleague is probably more familiar 
 than I am. There are four railroads leading from St. Paul to 
 Duluth, and they agreed upon a grain rate of 7 cents per hundred; 
 but a city like St. Cloud, situated upon the line of one of these roads 
 between the two cities of St. Paul and Duluth, is charged 14 cents per 
 hundred, which is entirely destroying the milling ousiness of St. 
 Cloud, for the millers there can only get a price 7 cents below that of 
 the other cities at the terminals. That is necessarily a matter of 
 grave complaint on the part of the people living there. Whj is it a 
 proper thing for these roads to have the power of making the rates 
 between St. Paul and Duluth so low that they have to rob the inter- 
 mediate communities in order to make up? 
 
 Mr. MoRAWETz. I would not undertake to explain the particular 
 case which you put, because I do not know the facts. I think you 
 can depend upon it that the railway companies have a good reason 
 for doing that and that they do not do it willfully. 
 
 Senator Dolliver. Can you suggest what- reason there might be 
 for that? 
 
 Senator Cullom. That is a purely State transaction, is it not, 
 Senator — that distance between St. Paul and Duluth is all in the 
 State of Minnesota ? 
 
 Senator Dolliver. Yes; it is all in the State of Minnesota. 
 
 Senator Cullom. And subject to State regulation. 
 
 Senator Dolliver. I can give one case that is not entirely within the 
 State of Minnesota. I will give the case of Cannon Falls, Minn., 
 which enjoys the rate of 14 cents per hundred to Chicago, as against 
 the Minneapolis rate of 7 cents, although Cannon Falls is right on 
 the line of the very road that makes the 7-cent rate from St. Paul to 
 Chicago. 
 
 Mr. MoRAMTiTZ. Again I say that I am not familiar with the facts 
 in the case. 
 
 Senator Doli-iver. Are you familiar with the complaint of the 
 public about that condition of things? 
 
 Mr. MoRAWETz. Yes. 
 
74 EEGTJLATION OF EAILWAX RATES. 
 
 Senator Dollivee. ^^'Tiat remedy have you in your mind for this 
 obvious burden upon the commimity ? 
 
 Mr. MoEAWETz. There is no remedy, in many of those cases, short 
 of the railway companies giving up entirely the less profitable branch 
 of the business. 
 
 Senator Dolliver. Why should the railway companies present 
 themselves to a large city as being willing to do business at an insig- 
 nificant profit and recoup that loss or failure of profit by an exces- 
 sive charge upon the intermediate stations? Does not a system of 
 railroading like that tend to build up great cities and to destroy the 
 vitality and commercial and industrial life of the smaller communi- 
 ties? 
 
 Mr. MoHAWETZ. T think that the obvious answer to that is that the 
 railway companies, by reason of the laAvs of trade and laws of compe- 
 tition, are unable to charge more for the transportation to the big 
 city. If they could they would. 
 
 Senator Dollwee. But the railways, according to your own state- 
 ment, have taken two very effective means to obviate this terrific 
 law of comiDetition — first, by uniting their interests so that competi- 
 tion is modified and moUiified, and, again, by this traffic understanding 
 at these terminals. If you are going to have an understanding, why 
 not put it upon a basis to enable you in some way to do justice to the 
 intermediate communities ? 
 
 Mr. MoEA'vvETZ. If the railway companies could form pools or make 
 binding and effective contracts as to competitive business, I have no 
 doubt that this difference in the rate of charges could, in a great 
 measure or in some measure, be obviated. 
 
 Senator Dollivee. You are of course familiar with the universal 
 hostility of the public toAvard the railway pooling sj^stem ? 
 
 Mr. MoEAWETz. Yes. As long as the railway companies are com- 
 pelled by law to compete for business the results of competition can 
 not be avoided, and that is the reduction of rates upon the competitive 
 business to a minimum. 
 
 Senator Dollivee. Suppose Congress should authorize, not pools, 
 but a legal agreement as to a schedule of rates between competitive 
 points, requiring that agreement to be submitted for the approval of 
 the Interstate Commerce Commission. "What would you say of that 
 as a remedy ? 
 
 Mr. MoEAWETZ. I think it would in some measure remedy the situa- 
 tion of which you complain — not altogether, because the water car- 
 riers would still be competing. 
 
 Senator Dollivee. Is it not true that in many instances the railway 
 companies control the water carriers ? 
 
 Mr. MoEAWETz. I do not know ; I presume in some instances they 
 do ; I knoAv some cases. 
 
 Senator Dollivee. I am told that there is very close touch betAveen 
 
 the coast carriers and the land carriers in New England that they 
 
 are practically under the same ownership. 
 
 Mr. MoEAWETz. I know nothing about that. I wish to sav here 
 that it is better for the shippers at local points that the railwav com- 
 panies should take this competitiAo business at low rates than not to 
 take it at all, because AAhatever profit there is in it to the railwav 
 companies will enable them to that extent to ligliten the rates to the 
 
REGULATION OF RAILWAY RATES. ( 5 
 
 intermediate points. If, for instance, the railway companies were 
 not permitted to take this competitive business at all, except at the 
 same rate as the local business on which they now get a larger profit, 
 they would have to give up this competitive business entirely ; their 
 net earnings, as well as their gross earnings, would be to some extent 
 reduced, and they would frequently be compelled, in order to live, to 
 increase the charges to the local points. Therefore it is really an 
 advantage to the local points to have the railway companies do this 
 competitive long-haul business at a minimum profit rather than not 
 to do it at all. 
 
 Senator Dollivek. Mr. Morawetz, you spoke yesterday as to the 
 impotence and apparent inability of the Interstate Commerce Com- 
 mission to enforce the existing laws against rebates and secret dis- 
 criminations in rates. What is the reason, in your judgment, of the 
 failure of these laws ? 
 
 Mr. MoEAAVETZ. In my judgment, the reason why these laws have 
 not proved very much more effective than they have proved in fact 
 is that the Interstate Commerce Commission has not seen fit to make 
 am' earnest endeavor to enforce them. 
 
 Senator DoiiLivEK. What could they have done? These agreements 
 are secret. 
 
 ^Ir. MoRA^VETZ. Many are not secret. 
 
 Senator Dolljvek. They are so secret that, according to their own 
 testimony, the high officials of the roads do not know them and would 
 be horrified if they discovered them. 
 
 Mr. Morawetz. A great many of the most objectionable proceed- 
 ings are not secret. 
 
 Senator DolijIver. Will j'ou illustrate what you mean by that ? 
 
 Mr. Morawetz. I mention, as an example, the practice of giving 
 undue arbitraries to the so-called terminal roads, and the practice 
 of giving undue mileage allowances to private car lines. 
 
 Senator Dollivee. Now, alluding to the undue arbitraries to the 
 fake terminals, I have seen in the newspapers that the Atchison, 
 Toijeka and Santa Fe Eailroad was accused of that in connection 
 with the Colorado Iron and Fuel Company's coal business. I do 
 not want to be put in the attitude of trying to make an inquisition 
 into that case, but, as you have mentioned it, I think it would be of 
 some service to the committee if you would explain that matter. 
 
 Mr. Morawetz. T shall be very glad to state to the committee all 
 I know about it; but the Committee will understand that I have no 
 original knowledge of these traffic transactions and can speak only 
 from information. "When the present management took charge of the 
 Atchison System we found that there were included in the system 
 various coal companies, the stocks of which were owned by the parent 
 company — the principal company. These coal companies supplied 
 the Atchison Company with the coal for its operations, and inci- 
 dentally did a commercial coal business. 
 
 Senator NE^^•LAXDS. What compan}- was that — the Atchison, 
 Topeka and Santa Fe ? 
 
 Mr. Morawetz. Yes. It owned the stocks of various coal com- 
 panies which supplied the parent company with coal, and incidentally 
 did a commercial business. This we decided was not right, and so 
 concluded that we must go out of the commercial coal business 
 entirely, notwithstanding the fact that a great many of the western 
 
76 EEGTJLATION OF KAILWAY BATES. 
 
 railways do now deal in coal in this indirect way through companies 
 which they control. The Atchison management therefore leased all 
 the coal mines in the system — those in Kansas to the Devlin Coal and 
 Coke Company; some of those in Colorado to the Colorado Fuel and 
 Iron Company ; and the remaining one, in which the Atchison Com- 
 pany owned a half interest, the Blossburg mine, was leased to the 
 owners of the other half interest. Under this lease it was provided 
 that the Atchison Company should receive its engine coal at moderate 
 rates, but it had no interest in the commercial coal which the lessees 
 sold in the market just as any other coal dealer would sell. The object 
 was to avoid the possibility of complaint on the ground that the 
 Atchison Company was discriminating in its coal business against 
 other shippers, which of course could nofbe avoided so long as the 
 company was in the coal business. I mention this merely to show the 
 attitude taken by the management at the outset. 
 
 In 1901 a three-cornered arrangement was made in the city of New 
 York between the Colorado Fuel and Iron Company, the Atchison, 
 Topeka and Santa Fe Eailway Company, and the firm of Phelps, 
 Dodge & Co., which operated very large copper mines at Bisbee, and a 
 smelter at Douglass, and I think another one, and also controlled the 
 El Paso and Southwestern Railway, which operated a line of railway 
 from the mines and smelters in southern Arizona to a connection with 
 the Atchison lines at Deming and at El Paso. Under the terms of 
 this three-cornered arrangement, the Colorado Fuel and Iron Com- 
 pany was to furnish the coal required by the smelters at $1.1.5 a ton. 
 The Atchison Company was to haul it from the mines at Trinidad to 
 El Paso or Deming, and there turn it over to the El Paso and South- 
 western Railway, and to charge for the haul $2.90 a ton. Further- 
 more, as was the custom in that part of the country, the Atchison 
 Company was to collect the price of the coal, as well as its own rate, 
 and pay over the $1.15 a ton representing the price of the coal to the 
 Colorado Fuel and Iron Company. That arrangement was to last 
 five years. 
 
 In 1902 injxmctions were granted by the United States circuit court 
 in Chicago restraining the various railway companies from making 
 discriminations among shippers. I think those injunctions were ob- 
 tained largely upon the evidence of one of our officials — that is, one 
 of the Atchison officials. At that time instructions were sent out 
 from the Chicago office of the Atchison Company to the agents along 
 the line that, in substance, that they should put their house in order, 
 and if there were any violations of law thej' should correct them. 
 
 In 1903 the Elkins Act was passed, ajid similar instructions were 
 again given to the agents along the line to see that the law was 
 strictly complied with. As a matter of fact, however, the law ap- 
 pears not to have been strictly complied with in the matter of these 
 particular transactions, on the following grounds: There was filed 
 in the office of the Interstate Commerce Commission a tariff covering 
 these coal shipments to which I have referred, in which it was stated 
 that the proportionate rate of the Atchison in respect of these ship- 
 ments was $4.05 a ton, which was the rate of $2.90 plus $1.15, repre- 
 senting the cost of the coal. The tariff filed did not include the 
 statement that " this includes the price of the coal." That was the 
 mistake that was made. The Atchison Company, as a matter of fact, 
 paid to the Colorado Fuel and Iron Company the exact price which 
 
EEGULATION OF RAILWAY BATES. 7 t 
 
 thej' charged for the coal and which was originally agreed upon, 
 never a cent more nor less. Furthermore, there was no other shipper 
 who v.'ns in any wise affected, and there was no intention on the part 
 of the Atchison Company or any of its oiRcials to create any discrimi- 
 nation, because there was no competition possible. 
 
 Senator Dollivee. But there was some complaint. 
 
 'Sir. MoEA■^^'l^■z. I .im getting to that. Phelps, Dodge & Co. in 
 their operations could only use a high class of coal — coking coal — and 
 all the Colorado coal on the Atchison lines at that time was controlled 
 by the Colorado Fuel and Iron Company. There was no other ship- 
 per from -i^hom they could have bought coal if they had wanted to. 
 There was no other competing shipper in the field. 
 
 As tending to show that there was no attempt to discriminate, I 
 may mention that at that A^ery time — or, to be accurate, in 1903 — it 
 turned out that coal was shipped from Trinidad to El Paso to other 
 persons by the Kock Island and Colorado Southern at a substantially 
 lower rate than the Atchison was charging at the time for similar 
 shipments to the same points under this agreement. In other words, 
 the Atchison not charging less than others; it was charging more 
 than others. 
 
 And, furthermore, the arrangement was well known to competi- 
 tors. There was no attempt to make a secret of it. The complaint 
 before the Interstate Commerce Commission was due to a coal com- 
 pany which operated certain mines at Gallup, in New Mexico, some- 
 thing over 400 miles distant from Trinidad, where this coal and the coke 
 were shipped from. The Gallup coal is not a coking coal at all ; it is a 
 lignite coal, and I was informed directly by one of the partners of this 
 firm which bought this Trinidad coal that they could not have used the 
 Gallup, coal in their operations. The Atchison company had been 
 in litigation and dispute with this concern at Gallup for some years 
 prior to this transaction on account of matters which had no bearing 
 upon the shipments of this coal from Trinidad. I presume that they 
 instituted this proceeding as a matter of spite. 
 
 When this matter became public the Atchison corrected its rate 
 sheet, of course, and has done business under it since, charging ex- 
 actly what it previously charged, $2.90 a ton, and the business has 
 proceeded just as it did before. 
 
 Senator Foeakee. The $1.15 was paid, not as a rebate, but as the 
 price of the coal, as I understand. 
 
 Mr. MoEAWETz. The absolute price of the coal, which was settled 
 by contract with the smelters, and the Atchison simply acted as col- 
 lecting agents to turn it over. 
 
 Senator Dollivee. How did this confusion arise in filing the sched- 
 ule of rates with the Interstate Commerce Commission by which the 
 price of the coal was confused with the cost of transporting it ? 
 
 Mr. MoEAWETz. That I do not know, sir. This was done in 1901, 
 before the injunctions were issued and before the Elkins Act was 
 passed, at a time when the railway companies, I presume, were not so 
 careful as they are now: and, unfortunate^, through an oversight 
 on the part of the officials out there, the matter was not corrected. 
 The point which I desire to make is that no harm was done to any 
 shipper, and there was no rebate made. The Atchison simply col- 
 lected the price of the coal and turned it over to the seller. 
 
78 REGULATION OF EAILWAY EATBS. 
 
 Senator Doi.livee. Was that the uniform price of coal at the mines? 
 
 Mr. MoRAWETz. I understand that it was somewhat less than the 
 ordinary price of coal, because the purchasers were very large con- 
 sumers of coal and got a minimum iDrice. i -, j ■ 
 
 Senator Dollivek. You say the railway company had disposed of 
 its interest in the mines? 
 
 Mr. MoEAWETz. Had leased them; yes. They had no mterest 
 whatever in these sales of coal. 
 
 Senator Dollivbe. Did any of the officers of the road or of the 
 traffic department retain any interest, direct or indirect, m these min- 
 ing properties ? 
 
 Mr. MoRAWETz. I have caused careful inquiry to be made upon that 
 point, and I am informed that there was absolutely nobody connected 
 with our system who had any interest whatever in the Colorado Fuel 
 and Iron Company, or in any of the coal mines, or in the sale of coal, 
 directly or indirectly. It is one of the rules of the system, which is 
 enforced strictly, that no officer of the company shall have any inter- 
 est in any industry or along the line which might in any wise conflict 
 with his duties as an officer of the railway company. I want to say 
 that one of our officers, before entering the service of the Atchison 
 System, was an officer of the Colorado Fuel and Iron Company, but 
 he resigned that office, having sold out every interest whatever that 
 he had in that company, or in any of its auxiliaries, before he took 
 service with us, and that was one of the conditions. 
 
 Senator Dolliver. Recurring to the subject of these rebates, I call 
 your attention to the fact that the newspapers have very generally 
 contained statements to the effect that the officials of the Atchison, 
 Topeka and Santa Fe Companj^, giving testimony before the courts 
 or the Interstate Commerce Commission in Kansas Avithin the few 
 weeks last past, have admitted that within a few years — I am not 
 sure but within the past year — your company has paid in rebates to 
 the Standard Oil Company in Kansas upward" of $1,000,000. I would 
 like to inquire into that. 
 
 Mr. MoRAAVETz. I saw some statement of that kind in one of the 
 newspapers; I think it was three or four weeks ago. I wrote out 
 West to find out what there was about it, and I was advised by our 
 general solicitor that no such evidence had been given; that it was 
 an absolute untruth ; and that the statement was a garbled statement 
 which was given to the newspapers by an attorney in a suit against us. 
 
 Senator Dolliver. So you feel at liberty to deny the truth of it? 
 
 Mr. MoRAWETZ. I deny the truth of that. 
 
 Senator Carjiack. You deny that anj'' such testimony as that was 
 given, but what have you to say in regard to the fact ? 
 
 Mr. MoEA'Vi'ETz. I am perfectly satisfied myself that there is no 
 truth whatever in the statement that we made any rebates, as charged. 
 
 Senator Dolliver. I do not desire to ask any more questions. Air. 
 Chairman. 
 
 Senator Clapp. Mr. Morawetz, yesterday you started in by refer- 
 ring to a rate that might be fixed between the two extremes of the 
 maximum and minimum rate. You, as a lawyer, would not contend 
 that Congress could delegate the authority to fix a rate of that land, 
 would you ? 
 
 Mr. MoEAWETZ. T think the courts ought to hold that Congress 
 
BECaXIATION OF RAILWAY BATES. 79 
 
 can not delegate that purely discretioRarv power to a commission. 
 But I am very much afraid that the courts might take a different 
 view from mine on that point. 
 
 Senator Ci.app. Reduced to its last analysis, while you use the 
 word " delegate," does not the authority to fix a rate rest upon the 
 fact that Congress must declare, either affirmatively or by prohibiting 
 . an unreasonable rate, that the rate must be a reasonable rate and then 
 authorize the Commission to ascertain the facts ? Is not that really 
 the principle upon which the power to fix a rate vested in the Com- 
 mission would have to rest ? Do I make that clear ? 
 
 ]Mr. ^If.RA^\'STZ. I think I appreciate the point which you have in 
 your mind. I believe Congress can delegate to a commission the 
 power to fix. prima facie, v.'hat constitutes a maximum rate which 
 would be reasonable to be charged in a given instance. The question 
 whether Congress can give to a commission the arbitrary power, in 
 its discretion, to fix any rate it pleases b^ween a rate which would be 
 unreasonably high and a rate Ai-hich would be confiscatory I think is 
 more doubtful. Under the State constitutions it has been held in 
 substance that such power could be delegated to a commission. 
 
 Senator Clapp. Will yoxi state what States ? 
 
 Mr. MoRAWETZ. I think Florida and Georgia. 
 
 Senator Clapp. I do not know whether Ave understand each other. 
 I think there is a very plain proposition here if we can once get it in 
 plain terms. Do you contend that a commission could be authorized 
 by general terms to fix railroad rates without the law, either by a 
 direct requirement that rates should be reasonable or by a prohibition 
 of unreasonable rates, laying down the rule which the Commission 
 mvist follow in fixing the rates ? 
 
 Mr. MoR-vwETz. I. do not think that it should be held that such an 
 act would be constitutional. 
 
 Senator Clapp. In other Avords, then, the power which is vested in 
 the Commission, if vested at all, rests upon the theory that Congress, 
 the law-making body, declares what rate shall be charged — namely, 
 a reasonable rate — or prohibits an unreasonable rate, and then while 
 Ave call it delegating its authority, it is really the ascertaining and 
 determining of a fact that is vested in the power of the Commission. 
 
 Mr. MoKAAVETZ. I think that before answering that question it is 
 necessary to understand precisely Avhat is meant by the phrase " rea- 
 sonable rate." T endea\'ored in my statement yesterday to point out 
 that the expression " reasonable rate " may mean a number of differ- 
 ent things. It may mean a, rate which is not so high as to be unrea- 
 sonable and in Adolation of the common-law rule which is expressed 
 in the interstate-commerce act, or it may mean any rate which the 
 Commission or Congress thinks is the proper rate between this maxi- 
 mum rate and a rate Avhich Avould be confiscatorj''. If a statute were 
 passed proAdding that the railway company shall not charge excessive 
 rates and then providing that a commission shall determine prima 
 facie what constitutes the limit to which rates may be put by the 
 railway companies, I think such a statute would be sustained. 
 
 Senator Clapp. Have you any doubt of it ? 
 
 Mr. MoRAAVETZ. I have not. 
 
 Senator Ci-app. Noav, in your general touch with railroad inter- 
 ests, and especially with the lawyers of the countrj', do you under- 
 
80 REGULATION OF RAILWAY RATES. 
 
 Stand that there exists in tHe minds of the lawyers of this country 
 any doubt of that — I mean to any appreciable extent? 
 
 Mr. MoEAWETz. I do know of "able counsel who doubt it— who can 
 not see how you can reconcile such delegation of power to a, com- 
 mission with the doctrine laid down by the Supreme Court of the 
 United States in a number of cases, that the fixing of rates is a legis- 
 lative act, and it being -n-ell settled that Congress can not delegate its 
 legislative powers. 
 
 Senator Clapp. Well, Mr. Morawetz, to make it still plainer, have 
 you any doubt but that Congress could make a law j)roviding that 
 no railroad should charge a rate which would yield to exceed — so as 
 to put all constitutional questions out of the wav, we will say— -7 per 
 cent interest on the investment and then leave it to a commission to 
 ascertain the fact, if it were a fact, whether the rate which a com- 
 pany was charging yielded more than 7 per cent, and if so, what rate 
 would yield 7 per cent? AVould that be a delegation of legislative 
 authority ? 
 
 Mr. Morawetz. I think under such a statute several questions 
 would arise. Iji the first place, I do not think that Congress could 
 say arbitrarily that the earnings of a railwaj^ company shall be lim- 
 ited to 7 per cent or any arbitrary fixed sum. It is possible that a 
 railway company would be entitled to earn more than 7 per cent 
 without charging unreasonable rates to anybody. 
 
 Senntor Clapp. That would be a question for the courts, would it 
 not? 
 
 Mr. MoR\^vETz. Yes. But if Congress should pass a statute arbi- 
 trarily saying that a railway corapan3^ shall earn only a certain per- 
 centage on its property, I do not think that the statute should be sus- 
 tained. 
 
 Senator (yLAPP. Could Congress directly pass a law fixing a sched- 
 ule of rates on interstate commerce? 
 
 Mr. Morawetz. I think it could. 
 
 Senator Clapp. Now, we have that for a start. You have not any 
 doubt of it, have you? 
 
 Mr. MuRAWETz. I have not, under the decisions. 
 
 Senator Cl^^pp. Uo you think there is any well-defined doubt in 
 the minds of the bar of the country as to the power of Congress to do 
 that? 
 
 Mr. MoRAAVETZ. I think not. 
 
 Senator Clapp. Now, bearing in mind, of course, the right of the 
 courts to review — which we need not insert each time in each ques- 
 tion — the declaration by Congress that all rates on interstate com- 
 merce shall be reasonable, and the authorizing of a commission to 
 determine the fact as to whether a rate was reasonable, would that 
 be a delegation of legislative authority? 
 
 Mr. Morawetz. I should prefer to answer the question as to what 
 I understand to be 
 
 Senator Clapp. Answer it your own way. of course. 
 
 Mr. Morawetz. Yes ; I would say this :' That I am satisfied, first, 
 that the courts would hold that if Congress should direct a commis- 
 sion to determine what maximum rates may be charged by railway 
 companies, that would be sustained; secondly, I think it more ques'- 
 tionable whether an act giving to a commission the absolute arbitrary 
 
REGULATION OP RAILWAY KATES. 81 
 
 Eower to fix rates at any figure it sees fit, provided they be not con- 
 scatory, of course, would be held to be constitutional. 
 
 Senator Clapp. To state it broadly, the Commission can declare a 
 rate unreasonable, can it hot, and order that it be discontinued? 
 
 ]Mr. MoRAWETz. Do you mean under the present act ? 
 
 Senator Clapp. Yes. 
 
 Mr. MoRAAVETZ. Yes. But it does not amount to anything. 
 
 Senator Clapp. Of course it does not amount to anything, because 
 they can not go further. Has that authority ever been questioned by 
 the bar of the countt-y? 
 
 ISlv. ]MoRA\VETz. Authority to make a declaration which binds no- 
 body has not been questioned. 
 
 Senate r Cl^pp. It binds no one because the Commission can not 
 say what shall be placed in lieu of that; is not that the reason it 
 binds no one ? 
 
 Mr. SIoKAWETz. No, sir; no order of the Commission is binding 
 until it has been enforced through the courts. 
 
 Senator Clapp. Certainly; I understand that. But that order, 
 prima facie, is a valid order, is it not, if it simply relates to the dis- 
 continuance of an existing rate? 
 
 Mr. MoEAWETZ. Yes. 
 
 Senator Clapp. Now, has the authority to confer that power on 
 the Commission ever been seriously questioned? 
 
 Mr. MoR\wETz. I do not know of any case. 
 
 Senator Clapp. Then, if Congress can do that, does it not follow 
 that it could also go a step further and, by defining that rates should 
 be reasonable, confer upon the Commission the power to ascertain 
 what is a reasonable rate? 
 
 Mr. MoEAWETz. I again come back to the point that the expres- 
 sion " reasonable rate " may mean different things, and it is neces- 
 sary to. understand in what sense the term is used. There may be a 
 great many different rates for the transportation of a particular 
 article between two particular points, each of which would be reason- 
 able. It is very rare that there is only one rate that can be said to 
 be a reasonable rate for the transportation of an article between two 
 points. 
 
 Senator Clapp. In drafting a law the expression " reasonable rate " 
 would be a proper term, would it not ? 
 
 Mr. MoEAWETZ. In drafting a law the expression " reasonable 
 rate " would be a proper term if by it is meant a rate which is not 
 excessively high, and therefore in violation of the first section of the 
 interstate-commerce act. 
 
 Senator Clapp. That question would really arise when it came to 
 working out the administration of such a law, would it not? 
 
 Mr. MoRAWETz. Yes; and if the only power given to the Conunis- 
 sion is to determine prima facie whether a rate is in violation of the 
 first section of the interstate-commerce act, undoubtedly that would 
 be constitutional, in my opinion. 
 
 Senator Clapp. The books are full of statements that the power 
 to fix rates is a legislative power, yet neither department of the 
 Government can, in the exercise of its functions, avoid somewhat 
 the invasion of the functions of the other departments. Ls not that 
 a correct statement ? 
 
 E R R— 05 M 6 
 
82 KEGULATION OP RAILWAY EATES. 
 
 Mr. MoRAWETZ. I shoLild say not, sir. The courts would stop it 
 when they got a chance. 
 
 Senator Clapp. Are there not acts within the discharge o± the 
 functions of the executive which involve' primarily that which we 
 ordinarily would call judicial? 
 
 Mr. MoRAA\ETz. It niav be difficult at times to draw the Ime, but 
 there is a dividing line "which always can be drawn and must be 
 drawn in a proper case before the; courts. 
 
 Senator Clapp. Unquestionably, when Ave come to the broad dis- 
 tinction between the three departments of the Government; but take 
 the case of this committee as one of the Senate committees, the act of 
 sitting here and taking the testimony of witnesses, and then deciding 
 what the judgment of the committee is; that would not in itself be a 
 legislative act, would it ? 
 
 Mr. MoKA-tt'ETZ. No, sir. 
 
 Senator Clapp. Coming to the question of the courts, you were 
 asked yesterday a question by the chairman, which I will read : 
 
 If n. section of tliis c;ouut!-y, n large portion of it, sliould fall under the control 
 of one railroad or combination of railroads, so that there would be no competi- 
 tion as between railroads, but only one common carrier from that section, anfl 
 this combination would nialce a rate too high, or an excessive rate, sliould not the 
 power be vested in some tribunal to say tliat rate is too high, vnA possibly to 
 fix the rate? 
 
 To that you answered : 
 
 I think so ; and I see no objection to providing that in the way that I have 
 suggested. 
 
 Then followed a discussion of the Commission bringing an action 
 before the court and authorizing the court, if in that proceeding 
 it found the rate therein charged was excessive, to not only declare 
 that fact but also to state what, in its opinion, maximum rate would 
 have been sustained had it been the subject of that particular contro- 
 versy. Now that must rest upon the theory that the railroads would 
 observe that suggestion, does it not? 
 
 Mr. MoRAWETZ. Yes, sir. 
 
 Senator Clapp. And you firmly believe that they would observe it? 
 
 Mr. MoRAWETZ. I believe absolutely. 
 
 Senator Clapp. Without believing that, of course you would not 
 suggest it, would you ? 
 
 Mr. MoEAWETZ. I would not. 
 
 Senator Clapp. I asked you some time before that yesterday 
 whether you knew of any instance in our present system where a court 
 was called upon to decide a matter of that kind. You do not Imow of 
 any or recall any, do you ? 
 
 Mr. MoEAWETZ. I do not. 
 
 Senator Clapp. Do you think that the courts on their part would 
 proceed to the point, not of expressing in a general way, as they some- 
 times do, how their decision might have been had the facts of the case 
 been different, but would go to the extent of stating specifically what 
 as of course they would know, under this first view of this plan, that 
 it rested entirely in the good will of the railroads to comply with that 
 suggestion ? Do you think the courts would do that ? 
 
 Mr. MoRAWETz. I do not see how they can avoid it if they are 
 required to do it. If a suit were brought in a court by a shipper or 
 
EEGULA.TION OF RAILWAY RATES. 83 
 
 by the Interstate Commerce Commission, claiming that a rate charged 
 by a railroad company to this shipper was excessive and in violation 
 of the first section of the interstate-commerce act, I do not see how 
 the court could determine the question at all Avith out determining 
 what the railroad company could have charged in that case. 
 
 Senator Clapp. Mr. Morawetz, does that follow? If the fact is 
 ascertained that a certain rate is excessive, whatever the legal or 
 mental process may have been by which that conclusion is reached, 
 what is involved is that at some point necessarily this would, have 
 been the correct way. I know you made that statement yesterday. 
 
 ]Mr. MoKAWETZ. Not necessarily so, though it might be made so. 
 For instance, if the act should provide that in a suit brought against 
 a railway company by a shipper to recover threefold damages, we 
 will say, on account of the imposition of an excessive rate, the court 
 would then have to ascertain what rate could be charged in order to 
 determine what the damage was. For instance, if the rate were 50 
 •cents a hundred pounds and the shipper was entitled to have his ship- 
 ment carried at 40 cents a hundred pounds, the court, would have to 
 determine that fact in order to ascertain- what damage the shipper 
 suffered. 
 
 Senator Clapp. That would be'true; but supposing that the law 
 did not provide a penalty, would it not come right down to this: 
 That the law would have to prescribe a penalty in order to place the 
 court in a position where it would be obliged to ftnd what would be 
 a reasonable rate? 
 
 Mr. MoRAWETZ. I should not say that absolutely. There is no 
 doubt that from time immemorial it has been one of the functions of 
 the court ^o determine what is a reasonable rate — I mean what is not 
 an unreasonable rate — to be charged by a railway. 
 
 Senator Clapp. Unquestionably. 
 
 Mr. MoRAWETz. It has also been held that that is a judicial func- 
 tion. 
 
 Senator Clapp. Yes. 
 
 Mr. Morawetz. I do not see why Congress could not require the 
 courts to determine that question in any case affecting railway rates. 
 
 Senator Clapp. Then you would have the courts, upon the com- 
 plaint of the Commission that a rate was unreasonable, not only to 
 find that that rate was unreasonable, but you would have the court 
 then to say what should be a reasonable rate ? 
 
 Mr. Morawetz. You say a reasonable rate? 
 
 Senator Clapp. Well, for the sake of brevity I Ihinlf we can call it 
 a reasonable rate. 
 
 Mr. MoR'iWETZ. Yes. 
 
 Senator Clapp. How long, in your opinion, would a rate thus es- 
 tablished remain in force? In other words, to be more explicit, if 
 the railroads observed tbat rate at all, they ought to observe it until 
 the court itself should change it, ought they not ? 
 
 Mr. Morawetz. As long as conditions remain similar, yes. 
 
 Senator Clapp. So that it would be contrary to your plan for a 
 railroad to continue in force for a time such a rate and then abandon 
 it, unless there were such circumstances as would warrant the court 
 practically in the first instance in fixing the rate which they take on 
 the abandonment of the first rate? Do I make that plain? 
 
84 REGULATION OF RAILWAY RATES. 
 
 Mr. MoiiAA\'ETz. I think so ; yes. 
 
 Senator Clapp. Now, if you are correct in regard to this plan we 
 are discussing, could not the courts be authorized, on appeal from 
 an order made by the Commission, with the proper language con- 
 ferring the authority, to sav what should be a reasonable rate; or, 
 to put it as you put it yesterday, might thev not, on appeal from the 
 Commission, be authorized to sav that in their opinion a maximum 
 rate was that which had already been established either by the Com- 
 mission or that which had been fixed by the road without the inter- 
 position of the Commission ? Do I make that plain ? 
 
 Mr. MoEAWETZ. I think so. In the first place, when you speak of 
 an appeal from the Commission to the court it should be understood 
 that no appeal, in the legal sense, would be possible in such a case, 
 because the Commission is not a court, and you can not appeal, in the 
 proper sense of the term. 
 
 Senator Clapp. T understand that, Mr. Morawetz, but to take a 
 case from the Commission to the court, broadly stated, we would use 
 the word " appeal," would, we not? 
 
 •Mr. MoEAWETz. Yes. I mention this because in the bills which 
 have been drawn the word " appeals " is incorporated, and that is 
 technically wrong. 
 
 Senator Clapp. Unquestionably, as a great many of them are 
 wrong. But we use the word in the broad and general sense, and it 
 is in that sense that I use the word " appeal " now. 
 
 Mr. MoEAWETZ. I should say, in answer to your question, that if 
 the action of the Commission in fixing the rate should be brought 
 before the court through a proper process, then the court, I think, 
 could be required to pass upon the question as to what the maximum 
 rate was which could have been imposed by the carrier in that case. 
 
 Senator Clapp. In other words, the same principle would apply 
 in that case, whether you got there b}" a complaint before that court 
 or by proper proceedings removing the case from the Commission 
 into that court? 
 
 Mr. MoRAi\'ETZ. Yes. The reason Avhy I think that course of pro- 
 cedure would be undesirable is that it would result in a gxeat deal of 
 delay in obtaining any decision. The proceedings before the Com- 
 mission would, judging by past experience, take a great deal longer 
 than the proceedings instituted in the first instance in the court. 
 
 Senator Clapp. That would be another question. AATiat we are 
 really seeking here more directly now is the principle which limits 
 the authority of the court in this proceeding. Yesterday I under- 
 stood you to say that while you favored a law which would authorize 
 the court not only to decide that a given rate might be unreasonable, 
 but also what might be sustained had it been a maximum rate, in 
 its inception — that you did not favor making that binding. Of 
 course you Avill concede — you did yesterday, I think — that Congress 
 might so frame a law that when the court found what in its judgment 
 was a reasonable rate (as we are using that term for the sake of 
 brevity instead of the expression you used yesterday) that finding 
 might then attach and have the force of law. 
 
 Mr. Morawetz. As to the future ? 
 
 Senator Clapp. Yes. I understood you to say you thouo-ht that 
 could be done. ' "^ 
 
KEGULATION OF RAILWAY BATES. 85 
 
 Mr. Moeaa\t:tz. I think probably it could be done, but I think it 
 would be undesirable. 
 
 Senator Clapp. I know some of the members of the committee were 
 very much interested in your view yesterday in regard to that ques- 
 tion. You think that could be done ? 
 
 Mr. MoEAWETZ. I think so. 
 
 Senator Clapp. That would involve, would it not, the same legal 
 principle under which Congress, either by terms or by the provisions 
 as to conditions, might prescribe a rate and then leave it to some 
 independent body to ascertain the fact under which, in view of that 
 law, a given rate becomes effective? In other words, do you not by 
 that process reach the same conclusion as to what we improperly 
 call the delegation of authority in the hands of the court that you do 
 in the hands of the Commission ? 
 
 Mr. Moeaavetz. I think I stated that I did not doubt that Congress 
 could delegate to a commission the power to determine prima facie 
 what constitutes the maximum legal rate which can be imposed. 
 Under the operation of such a law as has been suggested the result 
 would be obtained that you would get a decision of the court as to 
 what constitutes a maximum legal rate under the act of Congress, 
 which then, by force of the act, would be binding as to the future. 
 
 Senator Cl/.pp. In other words, we start in with Congress as the 
 legislative power vested with the authority to make a law, and yet 
 through this plan you get through the court finally the definite rate ? 
 
 Mr. Morawetz. I think that Avould be the substantial result. 
 
 Senator Clapp. Now, without intending at all to combat that, but 
 for the benefit of at least myself, and I think of other members of the 
 committee who are interested in that question, how do you reconcile 
 that result with the so often broadly stated proposition in the books 
 that the rate-making power is a legislative power which can not be 
 delegated? In other words, is there an irreconcilable difference 
 between that expression so often iised and this plan Avhich you have 
 developed here? 
 
 Mr. Morawetz. I think it has always been held that the legislature, 
 could delegate to some nonlegislative body the power to fix a maxi- 
 mum reasonable rate under a statute prohibiting the carrier from 
 charging unreasonably high rates. There is another legal point to 
 be considered in this connection. I do not think the question is 
 whether that power I have stated can be conferred upon a commis- 
 sion. The more important question is whether Congress can require 
 the courts to fix a rate for the future. The objection is not so much 
 on the ground that there is a delegation of legislative power as it is 
 that there is an attempt to require the courts to perform a duty which 
 is not a judicial duty. 
 
 Senator Clapp. Well, Mr. Morawetz, if j^ou could frame a la^^' 
 under the first plan under which the court would state what, in its 
 opinion, might have been the rate, clearly if there were a statute 
 which made that statement a part of the law and fixed the rate there 
 could be no question of the duty of the court to pass upon that ques- 
 tion, could there ? 
 
 Mr. Morawetz. I think not ; it being understood, of course, that the 
 •court could not be required to consider in any way the question of the 
 future rate. The statute would have to be so drawn as to limit the 
 
86 REGULATION OF RAILWAY RATES. 
 
 functions of the court to consider and pass upon only the concrete 
 case actually in litigation and brought before it. 
 
 Senator Clapp. Certainly ; and there would be the line of demar- 
 cation as between the so often repeated statement that we can not con- 
 fer this power upon the court and the actual fixing of the rate through 
 the court ? 
 
 Mr. MoRAWETz. Yes. 
 
 Senator Ci.app. Now, turning for a moment to the practical differ- 
 ence between the two plans, you stated yesterday, I think, that one 
 objection to the law providing that the decision should have the effect 
 of law by virtue of the provisions of the statute was that it would 
 destroy flexibility. 
 
 Mr. MoEvwETz. Yes; that it would petrifv- rates — prevent the rail- 
 way companies from meeting the changing conditions of business. 
 
 Senator Clapp. Tf you are going to leave it where it is, subject, 
 upon change, to another trial by the court, why does it not possess 
 the same want of elasticitj' that it does if it were a decree in the first 
 instance to be changed by another proceeding? In either case, if 
 you are going to give to this suggestion of the court the force of law, 
 why i's there any more flexibility under that than under the plan 
 whereby the judgm.ent of the court would become operative by virtue 
 of law ? 
 
 Mr. MoEAA\'ETz. I am not sure that I understand your question 
 precisely. Senator ; but T should state that there are only two courses 
 which can be adopted. One is to require the court merely to find the 
 maximum rate that would be'reasonable and stop at that, depending 
 upon the good faith and the policy of the carrier in adhering to that 
 finding and obeying it in all future cases under similar conditions; 
 the other course, and the only other course, would be by statute to 
 make the rate for the future in all cases exactlj' similar to that before 
 the court the same rate as that foiuid by the court. 
 
 Senator Clai'p. Why do you use the word '' exactly " in the one 
 pase and the word '" substantially " in the other ? 
 
 Mr. MoRAWETZ. T did not wish to make any difference. 
 
 Senator Clapp. I did not suppose you did, of course. 
 
 Mr. MoEAWETZ. The latter course would, in mj^ judgment, be un- 
 wise, because it would take away the flexibility in making rates which 
 is essential for the advantageous transaction of business. 
 
 Senator CijAPP. Where do you find your flexibility under the first 
 of these plans after a rate has once been established ? 
 
 Mr. Morawetz. Under the first plan the railway companies would 
 change the rate whenever they felt that there was good and sufficient 
 reason for doing so. 
 
 Senator CijApp. Exactly ; but they would not change it unless those 
 conditions existed to such an extent that the" court itself, if called 
 upon for the first time, should fix the rate which they sought to fix? 
 
 Mr. Morawetz. I think that is so. 
 
 Senator Clapp. Does not that destroy the flexibility just as much 
 as the plan whereby the decision coupled Avith the law makes the rate 
 subject to be changed again -when the conditions change? 
 
 Mr. MoRAWjjiTZ. r think that is true ; yes. If the law made the rate 
 to continue only so long as substantially similar conditions exist, the 
 railway companies could change the rates whenever conditions 
 changed. 
 
KEGULATION OF RAILWAY BATES. 87 
 
 Senator Clapp. Certainly. Then practically there would be no 
 difference. If the railroads are really going to obey this statute, 
 there would be no reason why it ought not to be in the form of a law. 
 
 ]\Ir. MoRAWETZ. T thinli there would be no objection to it, provided 
 that clause as to substantially similar conditions were inserted. 
 ^ Senator Clapp. Of course, that would have to be in in some form. 
 Xow, getting to that point where we see the necessity of lodging this 
 power somewhere, and conceding that it is in the court, you state that 
 in your opinion the remedy thus outlined would be more expeditious 
 than would be the first one, through the Commission ? 
 
 Mr. MoR,\wETZ. Very much so. 
 
 Senator Ci.app. Is there any other reason why, in your opinion, it 
 should be primarily in the court instead of in the Commission ? 
 
 Mr. Mokawetz. No, sir; I have no other reason than to get a final 
 decision, a binding decision, quickly. 
 
 Senat(T Xewi.ands. AHll the Senator allow me a question right 
 there ? 
 
 Senator Clai'p. Certainly. 
 
 Senator Newlani>s. Would it not be necessary for the Commission 
 to have some preliminary hearings? 
 
 Mr. MoKAAVETz. 1 think the right should exist to make such pre- 
 liminary investigation as it pleased, but in my judgment it should 
 not bo required to grant elaborate hearings to both sides, and then to 
 consider the matter as if it were a court, which it is not, and then to 
 write a long opinion which goes for nothing. 
 
 Senator Xewlands. You would have a summary proceeding on the 
 part of the Commission? 
 
 ilr. MoRAWETz. Yes. 
 
 Senator Ci.app. If the law Mere framed as we are now contem- 
 plating, that opinion would have the same value, at least the same 
 force, as a judgment. T'iie expression of views might not be of much 
 value, but the judgment would be valid, if it were clothed with power 
 to fix rates ? 
 
 Mr. MoRAAVETZ. Yes. 
 
 Senator Clapp. So that objection would fall. 
 
 Air. MoEvwETz. Yes ; of course, if j'ou clothe it Avith power. 
 
 Senator Clapp. Suppose the law were so changed as to relieve the 
 Commission of the threefold duty, first, of making inquisition; then 
 as an advocate, and then as a judge. 
 
 JNIr. MoRAAVETz. You mean to relieve them of the latter duty ? 
 
 Senator Clapp. No ; I was going to say relieve them of this three- 
 fold duty by putting the duty of investigation somewhere else, the 
 duty somewhere else of preparing and trying the cases, and leaving 
 the Commission nothing to do but to decide these cases. Would not 
 that largely obviate your objection to leaving this power in the first 
 instance with the Commission ? 
 
 Mr. MoEAAVETz. 1 think it would be a long stej) in the right direc- 
 tion; yes. 
 
 Senator Clapp. While all laAvyers, I think, will deprecate the neces- 
 sity, if they see it as a necessity,, of creating a new special coulrt, 
 should Ave not get the benefit of a tribunal especially well calculated 
 by the experience of the members of the tribunal to deal with these 
 problems in the first instance Avithout the misfortune of an additional 
 and special court? Should we not segregate the duties of the Com- 
 
88 REGULATION OF RAILWAY RATES. 
 
 mission, and put the duty of inquisition and trial of cases in some 
 other body, thus leaving the Commission nothing to do but to deter- 
 mine these questions, and then provide for an appeal to the courts? 
 Would that not compensate for what delay there might be m usmg 
 the Commission in the first instance? Do I make that plain? 
 
 Mr. MoEAWETZ. Yes. I understand perfectly what you mean. I 
 do not see how you could avoid a great deal of delay, because in such 
 a case, if I understand your plan, the decision of the Commission 
 would always be subject to review by the courts. 
 
 Senator Clapp. Unquestionably. 
 
 Mr. MoEAWETZ. And if I understand the question, you would give 
 to this Commission only the power to determine the niaximum rea- 
 sonable rate which could be imposed. You would not give them gen- 
 eral discretionary power to fix the particular rate anywhere it saw 
 fit between the limits of legalitj'? 
 
 Senator Clapp. You have used the word " maximum " all the way 
 through here. Of course that leads up to another subject. Assume 
 that power is given to the Commission, not only that which it has now, 
 but to declare a given rate unreasonable, and in that case to declare 
 what shall be a reasonable rate in lieu thereof, subject to review by 
 the courts. It would take no longer to try that case before the Com- 
 mission than it would before the court. 
 
 Mr. Morawetz. That may be. 
 
 Senator Clapp. The chief delay would be in the time which the 
 Commission first took to decide and the time consumed in the appeal. 
 
 Mr. MoEAWRTz. Yes. 
 
 Senator Clapp. And you would get by that process the first service 
 of a body of men whose experience would be chiefly along this one 
 line of inquiry, without bringing into our judicial system a court 
 created specially for the .trial of one class of cases, which you con- 
 sider undesirable, of course. 
 
 Mr. Morawetz. Yes; but under your plan, as I understand it, you 
 would be creating a court not only confined to one class of cases, but 
 knowing no law. 
 
 Senator Clapp. That might depend on the character of the men 
 who were appointed, might it not ? 
 
 Mr. Morawetz. Certainly. You could appoint to this Commission 
 competent lawyers or persons entirely fitted to perform judicial fimc- 
 tions; but all the objections would exist in such a case, if they were 
 competent men, to the creation of a special court. This Commission 
 would be confined to dealing with this class of cases and would nat- 
 urally be disposed to, magnify its importance, and I should think 
 would, like all special tribunals, be liable to degenerate from a judi- 
 cial body to a body having a special mission to perform. 
 
 The committee took its usual recess. 
 
 after recess. 
 
 STATEMENT OF VICTOR MORAWETZ— Continued. 
 
 The Chairjian. The committee A^ill come to order. Senator Clapp 
 was asking some questions at the time we took a recess. 
 
 Senator Clapp. I think I have finished the line of my inquiry. 
 The Chairman. Senator Carmack is next in order, then. 
 
REGULATION OF RAILWAY BATES. 89 
 
 Senator Carmack. I hare very few questions to ask, Mr. Chairman. 
 Most of the questions of which I have a memorandum here have been 
 covered by the questions of other members of the committee. 
 
 Mr. Morawetz, 1 understand you to say that Congress can only 
 authorize the courts to pass upon the question of whether a rate is 
 confiscatory or extortionate; that they can not pass upon the mere 
 reasonableness of the rate. I wanted to ask you what practical or 
 legal distinction there is between a confiscatory rate and a rate unrea- 
 sonably low, or an extortionate rate and a rate unreasonably high. Is 
 not any rate that is higher than it ought to be pro tanto extortionate, 
 and anv rate fixed so low that it does not yield a fair return to the 
 railroads pro tanto confiscatory? Is it not simply a question of de- 
 grees of extortion and confiscation ? 
 
 Mr. Morawetz. It is very diiScult to determine precisely where the 
 line should be drawn, but the courts have always undertaken to draw 
 the line. 
 
 Senator Carmack. In regard to delegations of the power. The 
 tariff act of 1890 and the reciprocity laws authorized the President 
 to pass upon the question of whether or not foreign tariff duties were 
 reciprocally unreasonable or unequal, and if he found them to be so, 
 upon proclamation of that fact a ceriain schedule of tariff duties for 
 this country was to go into effect upon articles of foreign import. 
 The Supreme Court decided that that was not a delegation of legisla- 
 tive power, but that it. simply authorized the President to ascertain 
 a fact. 
 
 Mr. Morawetz. Yes, sir. 
 
 Senator CARaiAcic. The fact to be the reasonableness or unreason- 
 ableness of the foreign tariff duties. Whj' might it not be said that 
 the determination by the Conunission of the reasonableness or unrea- 
 -sonableness of certain rates of duty was simply the ascertainment of a 
 fact, and upon the ascertainment of that fact rates were to go into 
 effect by virtue of an act of Congress ? 
 
 Mr. Morawetz. As I stated yesterday, if Congress should prescribe 
 the rules by which the Commission can ascertain what is a reasonable 
 rate or an unreasonable rate, 1 think Congress could leave to the Com- 
 mission the ascertainment of facts which would bring the rate within 
 the purview of the act of Congress. 
 
 Senator Carmack. In the case I speak of, the Executive was just 
 given the particular authority to determine whether or not a tariff 
 rate was unreasonable reciprocally, or unreasonable and unequal, 
 taking into consideration the state of our own tariff law as compared 
 with the tariff duties of other countries. 
 
 Mi:. Morawetz. As I understood that decision of the Supreme 
 Court — which, by the way, was far from unanimous 
 
 Senator Carmack. Yes; that is true; and I do not think correct. 
 
 Mr. Morawetz. The majority of the court decided that case on the 
 following grounds (I read from 143 U. S. Reports, 692, 693) : 
 
 Congress itself prescribed in advance the duties to be levied, collected, and 
 paid on sugar, molasses, and coffee, tea, or hides produced by or exported from 
 such designated country while the suspension lasted. Nothing involving the 
 expediency or the just operation of such legislation ^yas left to the determination 
 of the President. * * * jjg i,ad no discretion in the premises except in 
 respect to the duration of the suspension so ordered. But that related only to 
 the enforcement of the policy established by Congress. As the suspension was 
 
90 KEGULATION OF RAILWAY KATES. 
 
 absolutely reqiured when the Pi-esiaeiit ascertiiined the existence of .1 particular 
 fact, it can not be said that in ascertaining that fact and in issuing this procla- 
 mation In obedience to the legislativs \Yill be exercised the function of making 
 laws. Legislative power \^-as exercised ^vhen Congress declared that the sus- 
 pension should take effect upon a named contingency. What the President was 
 required to do was simply in execution of the act of Congress. It \\as not the 
 miaking of law. 
 
 The majority of the court appear to have reached the conclusion 
 that there was'nothing left to the pure discretion of the President in 
 that case, but that he could, by the application of more or less arith- 
 metical processes, ascertain whether or not the duty of a particular 
 country was reciprocally fair or not. 
 
 Senator GAEMACii. No, there was no question of computation in it 
 at all. The language of the act was " which he shall deem to be 
 reciprocally unequal and unreasonable," and the question was really 
 left to his judgment and opinion, in view of the fact that the act of 
 1890 admitted sugar and certain other articles free of duty, and 
 the question was left to the President's judgment as to whether the 
 tariff duties of foreign countries upon our agricultural products and 
 other products were unreasonably high, in virtue of that fact. There 
 was no means prescribed for arriving at the judgment at all. It 
 was left entirely to the President's judgment, in view of all the facts. 
 
 Mr. MoRAWETZ. I think, however, that the opinion of the majority 
 of the court in that case was based on the ground that the question 
 to be passed on by the President was not a question of pure discretion 
 and policy. It was a question of fact, \\'liich could be ascertained 
 with definiteness. 
 
 Senator Carmack. How could facts be any more definitely ascer- 
 tained than in the case of freight charges ? 
 
 Mr. MoRAWETZ. I have stated that in the case of freight charges 
 the Commission could, or a court could, determine what is the maxi- • 
 mum reasonable rate. That is a question of fact which always 
 could be determined by the courts. , Also, it is a question of fact and 
 law as to what is a confiscatory rate. But between those two ex- 
 tremes there may be any one of a dozen rates, the imposition of which 
 would be purely a matter of business policy, or business preference, 
 in many cases. 
 
 Senator Carmack. Upon this subject of differentials, and the 
 constitutional question raised as to giving preference to ports of one 
 State over those of another, I want to see if I correctly understand 
 you. I understand you to say that if a rate fixed be, under all the 
 circumstances, a reasonable rate, it would not be unconstitutional, 
 even though it incidentally gives preference to the ports of one State 
 over those of another. 
 
 Mr. MoRAWETZ. I did not wish to con\ey precisely that idea. I 
 think that it would undoubtedly be held, under the ninth section of 
 Article I, against any regulation of commerce giving a preference 
 to the ports of one State over the ports of another State, that any 
 such regulation -^^ould be prohibited only if a direct violation of that 
 constitutional prohibition. A law of Congress might incidentally 
 and indirectly benefit the ports of one State without violating this 
 clause. Let me explain. If Congress, for instance, should pass a 
 law making very valuable improvements in the port of New York, 
 widening the channel, or something of that kind, it might greatly 
 
REGULATION OF RAILWAY KATES. 91 
 
 benefit the port of Nbav York and make an inducement for shippin^^ 
 to go to New York rather than to go to Boston or New Orleans ; but 
 that would not be in violation of the constitutional prohibition. 
 
 The Chair5ian. That would not be a regulation of commerce, 
 would it ? It would be an improvement of the port. 
 
 Mr. MoRAWETZ. It Avould not be a regulation. 
 
 Senator Cui^loji. It would be contributing to the facilities and 
 usefulness of the port. 
 
 The Chairman. And not a regulation of commerce. 
 
 Mr. MoRAWETZ. But it might be done, under the power of regulat- 
 ing commerce. 
 
 Senator Carmack. Here is what I want to get at: Suppose there 
 are natural reasons why from one given point to two other points 
 which are equidistant freight rates should be higher to the one point 
 than to the other; that the cost of constructing the road and the 
 operation of the road might be much higher in the one case than in 
 the othecr, as one might be over a level country and the other over 
 mountains, and so on. In that case one port would have a natural 
 advantage over the other, and you would not say that it would be 
 necessary to make a flat rate per ton per mile in order to avoid 
 violating that prbvision of the Constitution, would you ? 
 
 Mr. MoRAWETZ. It seems to me that any action of Congress, 
 whether for good cause or bad cause, arbitrarily giving an advan- 
 tage — a law-made advantage — to the ports of one State over the 
 ports of another State, would be in violation of the constitutional 
 prohibition. Under the Constitution the railway companies or 
 individuals may make any arrangement they please as to prefer- 
 ences, as to preferring the ports of one State over those of another. 
 There is no prohibition against any action on the part of the indi- 
 viduals or companies. They can arrange these differentials to suit 
 themselves. But Congress is prohibited by the Constitution from 
 giving any advantage by law. If one place has a natural advantage 
 over another place Congress, in my judgment, would have no right 
 to take away that natural advantage by taw. 
 
 Senator Cakmack. But might it not recognize existing facts and 
 give a difference of rates which would be justified by those facts? 
 As, for instance, in the condition that I stated, where one road has a 
 natural advantage over the other, where the cost of production of one 
 road is much greater than the other, and the cost of the operation of 
 one road is much greater than the other, then the other road has a 
 natural advantage over it, and the port as the terminus of the other 
 road has a natural advantage over that port. "Would it be violating 
 the Constitution simply to recognize those facts in the law and give 
 to the one port an advantage which it naturally has in the way of 
 rates ? 
 
 Mr. MoRAWETZ. It seems to me that the moment 
 
 Senator Cakmack. To equalize the rates in one case, would not that 
 be taking away from one port the natural advantages which it pos- 
 sesses over the other ? 
 
 Mr. MoRAWETZ. It seems to me it would ; yes. 
 
 Senator Carmack. Well, then, would not the spirit of that consti- 
 tutional provision require that you should recognize these differences 
 and make a difference in rates ? 
 
92 REGULATION OF RAILWAY RATES. 
 
 Mr. MoEAWETZ. I do not think that follows at all. It is quite clear 
 to my mind that if Congress can impose an arbitrary rule, either es- 
 tablishing the natural advantages or equalizing the natural advan- 
 tages of different ports you utterly destroy the value of the consti- 
 tutional prohibition. 
 
 Senator Caemack. I think you misunderstand me. That is not 
 what I said. I said that in one case one port has a natural advantage 
 over the other 
 
 Mr. MoEAAVETZ. Yes. 
 
 Senator Caemack. In that the cost of production of the road to 
 that port is smaller and the difficulties of transportaion are less. 
 Now, in that case naturally the cost of transportation to that port 
 over that road would be less than over the other. 
 
 Mr. MoEAWETZ. Yes. 
 
 Senator Caemack. Now, I say would it be violating that provision 
 of the Constitution simply to recognize that fact ? 
 
 Mr. MoEAWETz. And to prohibit the railroads from carrying out 
 an equal rate over a more difficult line to another port ? 
 
 Senator Cakmac:k. Yes. 
 
 Mr. Moeawetz. It seems to me it would. Why should not the peo- 
 ple who want to build up i 
 
 Senator Caemack. No; I do not mean prohibit the railroad from 
 carrying at a higher rate, but to permit them to do it 
 
 Mr. Moeawetz. At a lower rate? 
 
 Senator Caesiack. To permit them to carry at a lower rate over 
 the cheaper road and the better road and at a higher rate over the 
 other road. 
 
 Mr. Moeawetz. Well, in order to fix a differential of this kind, it 
 is absolutely necessary that you should fix not merely the maximum 
 rate, but the minimum rate also. The moment you allow the road 
 leading to the port which you want to give the differential to to cut 
 its rates down the differential is destroj'ed. 
 
 Senator Caeimack. Well, A\ould you hold that under that provision 
 of the Constitution a mountainous road and a road very costly in its 
 operation would have to carry freight at the same rate per ton per 
 mile to one port as another road leading through a level, valley 
 country would? 
 
 Mr. Moeawetz. Not at all. My point is that the managers of both 
 roads can fi.x any rate they see fit provided it is not exorbitant. 
 They can cut their rates down as low as they please; but in order 
 to give these differentials Congress or the Commission has got to 
 step in and say : '' No, you can not cut down your rates, because if 
 you do you are giving a differential to one port as against the other 
 port." In order to establish these differentials the Commission has 
 got to have the right to fix absolute rates, so that the carrier not only 
 can not go above them, but also can not go below them. 
 
 Senator Caeifaok. Well, Senator Foraker, in his question yester- 
 day to you, assumed, as I understood him, that that provision of the 
 Constitution would require the same rate per ton per mile in all 
 cases — that is, if the Commission undertook to fix a rate. 
 
 Senator Foeakee. If you Avill allow mo to correct you, I did not 
 assume that, but simplj' asked the witness to state whether or not he 
 knew of any other -o'ay by which rates could be fixed by Congress 
 
REGULATION OF RAILWAY RATES. 93 
 
 or this Commission so as to avoid that restriction under the Con- 
 stitution. 
 
 Mr. MoEA-H'ETZ. My answer is that this constitutional restriction, 
 according to mj' view, will prevent Congress from giving to a com- 
 mission the power to fix absolute or minimum rates. You can give 
 to a commission— or Congress itself can fix the maximum rates that 
 may reasonably be charged. That would not violate the constitu- 
 tional prohibition. But the moment Congress steps in and says, 
 " You can not charge less," and each road must charge precisely the 
 rates which Congress prescribes, then you are bound to have a direct 
 preference to the ports of different States. 
 
 Senator Carjiack. And if Congress undertakes to fix the rates 
 exactly ■ 
 
 Mr. MoRAWETz. Or if the Commission does. 
 
 Senator Carmack. I mean Congress, through the Commission, 
 undertakes to fix the rates exactly ? 
 
 Mr. MoRAAVETZ. Yes ; but I do not think the dilBculty arises if 
 it is merely a determination of the maximum reasonable rate. 
 
 Senator Carmack. The interstate-commerce act provides that it 
 shall be unlawful to charge more for a short haul than for a long haul, 
 under substantially similar conditions. The dissimilar conditions 
 which are held to justify a departure from this rule are chiefly con- 
 ditions of competition, are thej' not ? 
 
 Mr. MoRAWETZ. Yes, sir. 
 
 Senator Carmack. ^Vhen this competition has been practically 
 eliminated, by agreements or understandings or otherwise, what rea- 
 son is there for a greater charge for any short haul than for a long 
 haul? 
 
 Mr. MoRAWETZ. T can not think of any, unless possibly the products 
 of a particular point cost more than the prodxicts at a nearer point, 
 so that the products of the more distant point could only compete 
 with the products of the nearer point by being transported at a 
 lower rate. 
 
 Senator Carmack. Well, if they were transported at the same rate 
 they would have all the advantage they were entitled to, would they 
 not? 
 
 Mr. Moeawetz. If the difference in cost is more than the margin 
 of profit, they could not be sold at all unless the rate were shaded. T 
 do not know that that occurs. It is simply a possible case. 
 
 Senator Carjiack. It is the policy of the railroads to put all the 
 people at equal distances from the market and equalize the advantage 
 of nearness to markets? 
 
 Mr. Morawetz. Well, in a great measure the United States have 
 been built up, the prosperity of this whole country has been built up, 
 upon that theory, i If the railroads of this country should fix their 
 rates to-morrow according to distance it would destroy three-quarters 
 of the industries in this country, and we should have a commercial 
 revolution which would settle this whole question in very short order. 
 It is simply an impossibility. 
 
 Senator Carmack. You do not believe it ought to be settled that 
 waj'? 
 
 Mr. Morawetz. No, sir. 
 
94 REGULATION OF RAILWAY RATES. 
 
 Senator Cakmack. Competition in railroads is really competition 
 simply at comiDetitive points ? 
 
 Mr. MoE vwETz. Yes, sir. 
 
 Senator Carmack. What has been the effect, in your experience in 
 railroading, of this competition on rates at noncompetitive points? 
 Some time ago there was a very strong effort made on the part of a 
 mnnber of railroads to secure the right to pool, based, as I under- 
 stood, upon the fact that the competition at the competitive points 
 had become so fierce that railroads frequently carried freight at 
 unprofitable rates. Was not the effect of that competition, in cutting 
 down rates at competitive points to so low a point, to unnaturally 
 increase the rates at the noncompetitive points? Was not that com- 
 petition at the expense of the intermediate rates, to a great extent? 
 
 Mr. MoEAWETZ. Well, I do not think so. So far as my judgment 
 goes, it is the other way. I know in our territory the tendency noTv 
 is — and I believe it is true of most railroads — to lower the local rates, 
 to try to build up the local territory wherever practicable. Of course, 
 if the competition were eliminated the traffic to and from com- 
 petitive points might be made to pay a larger share, to bear a larger 
 share of the burdens, and local rates might be somewhat reduced. 
 Jn many instances that is true. 
 
 Senator Carjiack. I believe I have nothing further to ask. 
 
 Mr. MoRAWETZ. But I want to say this : If, by law, a railway com- 
 pany were prohibited from making the difference between the rate 
 at which the local business and the competitive business is done, it 
 would not benefit the local business in the long run. It would be a 
 direct injury to the local business, because the railway company 
 would simply be deprived of certain of its business, and would have 
 to throw all the burden of supporting the line on the local business, 
 "which can not escape. 
 
 Senator Carjiack. I will ask this, further: If Congress, or the 
 Commission, should order that the rate on grain from Chicago to 
 Xew York should be 15 cents, and the rate from Chicago to Balti- 
 more should be 12 cents, would that be a discrimination against New 
 York within the prohibition of the Constitution? 
 
 Mr. MoRAWETz. If you Avould amend that question by mairing it 
 the rate to Liverpool, I should answer, without any doubt in my 
 mind, that it would be. Wiether a law prescribing that the rate 
 from Chicago to New York should be 15 cents and from Chicago to 
 Baltimore should be 12 cents, and going no further than that, would 
 be in violation of the constitutional prohibition, is more doubtful. 
 
 Senator Cuixom. You say " If it was to Liverpool." What do you 
 mean by that? Do you mean going via Baltimore? 
 
 Mr. MoRAWETZ. Going through the port of Baltimore and going 
 through the port of New York. 
 
 Senator Cullom. And make the discrimination at Liverpool ? 
 
 Mr. MoRAWETZ. Make the discrimination as to shipments. 
 
 Senator Cullom. Both shipments would land at Liverpool, as I 
 understand you ? 
 
 Mr. MoRAWETZ. Yes. 
 
 Senator Cullom. And one would go -\aa Baltimore and the other 
 would go via New York, and if that discrimination existed it would 
 be contrary to the Constitution ? 
 
EEGTJLATION OF RAILWAY RATES. 95 
 
 Mr. MoEAWETZ. I think it would be. I think it would be the same 
 thing as if they granted a direct preference, in dollars and cents, to 
 the port of Baltimore over the port of New York. 
 
 Senator Dollivee. Are these rates made through to Liverpool — 
 joint rates — with the ocean carrying companies? 
 
 Mr. MoRAWETZ. I think they are, in a good many cases. 
 
 Senator Carmack. It would be, in effect, a lower rate to Liverpool, 
 would it not, via Baltimore than via New York ? 
 
 Mr. MoRAWETz. I think it would ; yes. 
 
 The Chairman. That would depend somewhat on the ocean freight 
 from the two ports, too. New Orleans has got more ocean freight and 
 less rail freight, for instance. 
 
 Senator Foraker. If that regulation stopped at New York and 
 Baltimore, respectively, and there was that difference in the rates to 
 the two places, it would be a question of fact, would it not, whether 
 or not there was any difference in natural advantages to justify a 
 difference in rates ? 
 
 Mr. MoRAWETZ. I think it would be a more difficult legal question. 
 
 Senator Forakee. Would it not be simply a question of fact, 
 whether or not there was a difference in distance or a difference in some 
 other respect that would justify giving to the one port such a prefer- 
 ence over the other port ? 
 
 Mr. Morawetz. I presume it would; yes. Really, the question in 
 my mind is whether it would be a direct and necessary preference to 
 the one port in such a case. I think it would be if it were in respect 
 to through shipments. 
 
 Senator Foraker. Take Boston and New York — I believe they are 
 equally distant from Chicago ? 
 
 Mr. Morawetz. Yes. 
 
 Senator Foraker. Suppose this had been Boston and New York, 
 instead of New York and Baltimore, and there had been that differ- 
 ence in rates. How would you justify it then, to avoid the claim 
 that it was a direct preference in favor of the port that had the lower 
 rate? 
 
 Mr. Morawetz. I could not justify it. 
 
 Senator Foraker. Nobody could justify it? 
 
 Mr. Morawetz. I think not. 
 
 Sena-tor Foraker. If there is any justification, I wish you would 
 think of it and point it out. 
 
 Mr. Morawetz. I can think of none, sir. I think Congress could 
 say that the maximum rate to Boston or via Boston should be so 
 much and the maximum, rate to New York or via New York should 
 be so much ; but Congress could not say that no man shall go through 
 one port without charging so much and could go through another 
 jjort by charging more. That Avould be a direct discrimination, by 
 regulation of commerce, if such a thing is possible. 
 
 Senator Foraker. Still I do not see how it would do the shipper 
 any good if the through rate to the common point — Liverpool — 
 should be the same from the initial point. It would not make anjj^ 
 difference to him whether the shipment went through Baltimore or 
 went through New York, would it, if it was a through rate and it 
 was the same by whichever port he went out of the countrjr? 
 
 Mr. Morawetz. Well, I was not contemplating that case. " I under- 
 
96 KEGULATION OP EAILWAY BATES. 
 
 stand that the effect of the law would be to require every shipper 
 via the one port to pay more than via the other port. 
 
 Senator Foeaker. Yes ; that would make it a very clear case. 
 
 Mr. MoEAWETz. Yes. 
 
 Senator Foeaker. I am referring to what is the practice, as we 
 understand it, that through rates are the same over all lines that 
 reach the common terminus. 
 
 Mr. Morawetz. I understand that the purpose in this differential 
 arrangement was not to affect the rates of the ocean carriers, but was 
 merely to fix the proportion which the railway company was to get. 
 
 Senator Cullom. It reached the ocean carriers, too. 
 
 Senator Newlands. Mr. Morawetz, in what States and Territories 
 does the Atchison, Topeka and Santa Fe system operate? 
 
 Mr. Morawetz. In twelve States and Territories. 
 
 Senator Newlands. Will you state them? , 
 
 Mr. Morawetz. Illinois, Missouri, Iowa, Kansas, Oklahoma, In- 
 dian Territory, Texas, Nebraska, Colorado, New Mexico, Arizona, 
 California. I think that is all. 
 
 Senator Newlands. Three of those are Territories and nine are 
 States? 
 
 Mr. Morawetz. Yes, sir. 
 
 Senator Nkwi,\nds. Does the power exist in any one of those States 
 in a commission to fix the domestic rates of transportation ? 
 
 jSIr. Mora^\etz. Yes, sir; in a good man\' of them. 
 
 Senator Newlands. How many, and what States? 
 
 Mr. MoRAMETZ. Illinois. I ought to begin with Texas, though. 
 
 Senator >.ewlands. Yes. 
 
 Mr. jMoea\\etz. A\'e have extensive regulation there. In Texas, 
 Illinois, and Kansas 
 
 Senator Dolliver. And Iowa? 
 
 Mr. MoRA\\'ETz. A\^e are not in Iowa. We have so little mileage in 
 Iowa that that does not count. [Laughter.] 
 
 Senator Dollivee. You cross one corner of Iowa ? 
 
 Mr. Morawetz. Yes. 
 
 Senator Dolliver. "\'\ eli, we take care of you on that corner. 
 [Laughter. 1 
 
 Mr. Morawetz. There is no complaint about that. [Laughter.] 
 
 i^enator Newlands. "What States have you enumerated? 
 
 Mr. Morawetz. The principal States are Texas, Kansas, and Illi- 
 nois. 
 
 Senator Newlands. How about California? 
 
 ]\Ir. Moeam'etz. They do not fix our rates there. 
 
 Senator Newlands. Yes; but they have the power? 
 
 Mr. Morawetz. I do not think they have. We have never had 
 that kind of trouble there. We can not increase rates without the 
 consent of the commission. 
 
 Senator Newlands. But you do not recall whether the commission 
 there has the ^aower to fix rates? 
 
 Mr. MoRA^\'£TZ. To fix absolutely, no. 
 
 Senator Nemlaxds. [ am inclined to think that they have the 
 power, but possibly they have never exercised it. 
 
 Mr. Morawetz. I did not know that. 
 
 Senator Newlands. Yes. How is it with Kansas? 
 
EEGXTLATION OP RAILWAY BATES. 97 
 
 ilr. MoEAWETZ. In Kansas they have not exercised the power op- 
 pressively. 
 
 Senator Xewlands. But they have a commission there which has 
 the power, haA'e they ? 
 
 i[r. ^MoRAWETZ. I think they have, now; yes. 
 
 Senritci' Xewlands. Are these powers exercised in these various 
 States as fully as the powers sought to be exercised under the Esch- 
 Townsend bill as regarding interstate rates? 
 
 Jlr. MoRAWETZ. 1 should think so; yes. In Texas I should say 
 certainly. 
 
 Senator Newlands. About what proportion of the business of the 
 Atchison, Topeka and Santa Fe Eailroad is domestic transportation, 
 between points in the same State, and what proportion is interstate? 
 
 Mr. MoEAWETZ. I can not state the precise amounts. The inter- 
 state business is very, very much larger than the local business. I 
 have seen the statistics as to all the railways in this country, and they 
 showed that in no one State was more than 5 per cent of the total 
 mileage in the United States, and that for the whole United States 
 about 75 per cent of the entire business was interstate business and 
 25 per cent local business. 
 
 Senator Newlands. That is, for the whole coimtry? 
 
 Mr. MoEAWETz. Yes. 
 
 Senator Dollivee. "WTiere do you get those statistics ? , 
 
 Senator Newlands. Are you not mistaken in saying 5 per cent ? Do 
 you not mean 25 per cent? 
 
 Senator Cullom. He said 25 per cent. 
 
 Mr. Moeawetz. The first per cent I was speaking of was 5 per cent 
 of the mileage. There are 200,000 miles of road in this country, and 
 there are 40 States. T imderstand that there is no more than 5 per 
 cent of the mileage in any one State, so that no local commission 
 ATould have to deal with more than 5 per cent of 25 per cent. 
 
 Senator Kean. There are 45 States. ' 
 
 Mr. Moeawetz. Yes. No local commission would have to deal 
 with more than 5 per cent of 25 per cent of the whole business dealt 
 with by the Interstate Commerce Commission if similar power were 
 given to the Interstate Conmierce Commission. 
 
 Senator Dollivee. Where can those figures be verified ? That docs 
 not agree with my recollection about that. 
 
 Mr. Moeawetz. I will endeavor to procure those statistics. I do 
 not remember where I got them. 
 
 Senator Dollivee. I saw a distinct statement that in Minnesota 
 the interstate business, I think, was 50 per cent of the business of the 
 road that was involved in the case before the Interstate Commerce \ 
 Commission. 
 
 Mr. Moeawetz. I think the average through the United States '- 
 
 Senator Newlands. Understand me, I am not talking of the busi- 
 ness of a particular road, but I am talldng of the entire railroad 
 business of the country. "Wliat proportion of it is local ? 
 
 Mr. Moeawetz. I understand about 25 per cent of the whole rail- 
 road business in the United States is of a local character. 
 
 Senator Newlands. And about 75 per cent is interstate business ? 
 
 Mr. MoRAWETz. And about 75 per cent is interstate business. Fur- 
 thermore, I understand that in no one State is there more than about 
 
 R R R— 05 M 7 
 
98 REGULATION OF RAILWAY BATES. 
 
 5 per cent of the total mileage in the country, so that, as a result, 
 there is no State railroad commission which deals with more than 5 
 per cent of one-fourth of the total business in the country. 
 
 Senator Newlands. As to these States that possess special powers 
 of rate making, through their commissions, has your railroad suffered 
 any such injury as you apprehend from the passage of the Esch- 
 Townsend law ? 
 
 Mr. MoEAWBTz. We have had a great deal of trouble, and we were 
 only saved from, I might say, annihilation in one or two instances by 
 the protection granted by the United States courts. 
 
 Senator Nem'lands. Yes. 
 
 -JMr. MoRAWETZ. But, as I wished to point out in my previous an- 
 swer, the amount of business which is within the power of the rail- 
 road commission of any one State is relatively very small. It would 
 not be a vital matter to this company, even though our rates on that 
 particular business should be unduly reduced. We could still live. 
 
 Senator Newlands. Then the objections which you urge against 
 interstate control of rates you also urge against State control of 
 domestic rates? 
 
 Mr. MoRAWETz. No ; I do not. I think that the danger of giving 
 a commission discretionary power of fixing the rates on interstate 
 business is so vastly gxeater than the danger of giving similar powers 
 to a State commission that no comparison is possible. 
 
 Senator Newlands. Well, that arises from the magnitude of the 
 business — of the interstate business as compared with the local busi- 
 ness, does it not ? 
 
 Mr. MoRAWETz. Yes. It arises from the fact, in the first instance, 
 that it is absolutely beyond humaii power for any commission to deal 
 knowingly, intelligently, with so great a problem as the regulation 
 of interstate rates in the United States; and, secondly, that an error 
 made by this Commission would be fatal, not only to the railways 
 throughoijt the country, but to the country itself — I mean an error 
 in fixing the relative rates of different localities. 
 
 Senator Neavlands. Mr. Morawetz, assume that Congress shouW 
 pass a law gi\ing to an interstate commission the power to fix rates, 
 amd the Interstate Commerce Commission should make a tariff of 
 rates regarding your road that you would regard as confiscatorj'. 
 
 Mr. Morawetz. Yes, sir. 
 
 Senator Newlands. "What would be your process for relieving 
 yourself of that situation? 
 
 Mr. Morawetz. If the Interstate Commerce Commission made such 
 a tariff? 
 
 . Senator Newlands. Yes; if they had that poAver and should 
 exercise it. 
 
 Mr. Morawetz. T would apply to the courts for an injunction. 
 
 Senator Newlands. An injunction against the Commission? 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. To prevent them from enforcino- it? 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. In that proceeding, upon what principles as 
 announced by the court would you rely for your protection ? 
 
 Mr. Morawetz. I should rely upon the views expressed by the court 
 in the case of Smith v. Ames — the Nebraska case. 
 
REGULATION OF RAILWAY RATES. 99 
 
 Senator NEWiiANDS. Was that the Maximum Rate Case ? 
 
 Mr. ]MoR.u\ETz. Oh, no. The Nebraska case, m which it -was stated 
 that the carrier is entitled to a reasonable return upon the property 
 which is devoted to the public use 
 
 Senator Newlands. A reasonable return upon the value of the 
 property ? 
 
 Mr. MoRAWETz. A reasonable return upon the value. 
 
 Senator Newlands. Yes. Has the court ever laid down what, in 
 the shape of interest, would be a reasonable return ? 
 
 Mr. MoKAWETZ. Never. 
 
 Senator Newlands. Has it ever laid down the rule b}' which the 
 value of the property shall be determined ? 
 
 Mr. MoEAWETZ. No. The court has stated some elements which 
 must be considered in determining what is the value, but the court 
 has always stated that other elements may exist. 
 
 Senator Newlands. Wliat elements did the court mention ? 
 
 Mr. MoEAWETz. I would not undertake to state, without referring 
 to the case. If the case can be obtained here, I will refer to it. I am 
 sure I should leave out something if I were to undertake to state them. 
 
 Senator Newlands. Did it state that the capitalization of the road 
 in stock and bonds would be a factor ? 
 
 Mr. MoEAWETz. I think that that Avas one thing that should be con- 
 sidered. 
 
 Senator Newlands. Did it state that the cost of the road should be 
 a factor? 
 
 Mr. MoEAV^^ETz. I think so. 
 
 Senator Newlands. Did it state that its earning capacity should be 
 a factor? 
 
 Mr. MoEAWETZ. That I do not recall. The earning capacity would, 
 of course, depend upon the rates which it was allowed to charge, so 
 that that could be regulated. 
 
 Senator Newlands. Do you recall any other elements, except cost? 
 
 Senator Clapp. The earning capacity would be the subject of the 
 pontroversy. [Laughter.] 
 
 Senator Newlands. Do you recall any other elements except cost 
 and capitalization? 
 
 Mr. MoEAWETz. I should not like to state them, for fear I could 
 not state them accurately. There were some others, which will be 
 found mentioned in the cases. 
 
 Senator Newlands. In such an action you would claim that the 
 rates were confiscatory, destructive of the value of your property; 
 and in such case, how would you establish the value of your property ? 
 
 Mr. MoRAWETZ. When you say value, you mean cost of reproduc- 
 tion? 
 
 Senator Newlands. I mean value as laid down by this decision of 
 the Supreme Court. I understood you to say that the railroad was 
 entitled to a reasonable return upon 'the value of its property devoted 
 to the business of carrier. 
 
 Mr. McEAWETZ. Well, I should prove as many of the different ele- 
 ments which enter into the determination of value as I could. The 
 value of the stocks and bonds I could prove by the stock-market 
 reports, if they are listed securities. 
 
 Senator Newlands. Well, regarding them, would you expect simply 
 
100 EEGULATION OF RAILWAY BATES. 
 
 to prove their market value, or would you expect to take the actual 
 capitalization, even though that exceeded the market value, as an ele- 
 ment in determining the value of the property ? 
 
 Mr. MoEAWETz. I thinic it would have some bearing. It should 
 have; yes. 
 
 Senator Newlands. You would rely upon that as having some bear- 
 ing upon the question ? 
 
 Mr. MoEAWETZ. I should think it might have some bearing. 
 
 Senator Xewi.ands. You would also rely upon the market value of 
 the stocks and bonds? 
 
 Mr. MoEA^^'ETz. Yes. 
 
 Senator Newlaxds. Would you expect to make any actual proof 
 of the value of the road itself — what it would cost to replace it? 
 
 Mr. MoEAAVETZ. I think I should ; yes. 
 
 Senator Caemack. May I ask a question? 
 
 Senator ISTewlands. Certainly. 
 
 Senator Caemack. Would not the value of the stocks and bonds be 
 dependent on the earnings of the road ? 
 
 Mr. MoEAAVETz. Yes. 
 
 Senator Caemack. And the earnings of the road would be depend- 
 ent on the freight rates, very largely? 
 
 Mr. MoEAMETZ. Yes; they ■would; but I am stating the elements 
 which were mentioned by the Supreme Court. 
 
 Senator Xewlands. A^Tiat is the amount of the bond issue of the 
 Atchison, Topeka and Santa Fe System ? 
 
 Mr. MoEAv.ETz. About $237,000,000. altogether. 
 
 Senator Xewlands. And what is the total capital stock? 
 
 Mr. MoEAAVETz. Two hundred and sixteen million dollars. 
 
 Senator Kean. Does that include the new issue — the new bonds? 
 
 Mr. Moeawetz. No; it does not; but we have the cash in the box 
 for those. [Laughter.] 
 
 Senator Newlands. Two hundred and sixteen million dollars of 
 stock? 
 
 Mr. Moeawetz. Yes. 
 
 Senator Xewlands. That is the par value, is it ? 
 
 Mr. Moeawetz. Yes, sir. 
 
 Senator Newlands. What is the market value of that stock ? 
 
 Mr. Moeawetz. Well, I believe the preferred stock, of which there 
 is $114,000,000, sold at about 103, and the common stock sold in the 
 neighborhood — well, it has fluctuated, of course, very largely, but I 
 think the last week it sold in the neighborhood of 89 or 90. 
 
 Senator Newlands. Did you say there were $114,000,000 of pre- 
 ferred stock? 
 
 Mr. Moeawetz. Yes. 
 
 Senator Newlands. At 105 ? 
 
 Mr. Moeawetz. One hundred and three. 
 
 Senator Newlands. And how much common stock ? 
 
 Mr. Moeawetz. One hundred and two million dollars. 
 
 Senator Neavlands. At 80? 
 
 Mr. Moeawetz. At 90, about. 
 
 Senator" Newlands. Well, then, the market value of your stock, pre- 
 ferred and common, is very nearly, on the average, par ? 
 
 Mr. Moeawetz. Yes. 
 
KEGULATION OF RAILWAY RATES. 101 
 
 Senator Xewlands. How manj^ roads are embraced in your system ? 
 
 Mr. MoKA\\ETZ. The Atchison, Topeka and Santa Fe Eailway 
 Company, a corporation of the State of Kansas, owns and operates 
 between 6,000 and 7,000 miles of road itself. Practically all the mile- 
 age except the mileage in Texas is owned by direct ownership by the 
 Atchison, and operated by it. The Texas lines can not be so operated, 
 because under the constitution of Texas no railroad in that State can 
 be owned or operated by a corporation of another State. 
 
 Senator Xewlands. Then how do you control that mileage? 
 
 IMr. MoRAWETZ. We own stocks of the Texas roads. 
 
 Senator Newlands. The Kansas corporation is authorized to do 
 that by the laws of Kansas? 
 
 jMr. ]yR)RAWETZ. To own the stocks ; yes. 
 
 Senator Newi^ands. Does it own the stocks of any other railroad 
 corporations ? 
 
 Mr. MoRAWETZ. Outside of Texas ? 
 
 Senator Xewlands. Yes. 
 
 Mr. MoRAWETz. Yes; I think there are some. Yes; there is some 
 mileage in California which has not yet been transferred, but which 
 is temporarily operated under lease. Steps are now proceeding to 
 get the absolute legal title in the Kansas corporation. 
 
 Senator Xewlakds. Is your Kansas corporation, then, authorized 
 to acquire and operate lines in other States? 
 
 Mr. MoR\WETz. It is. 
 
 Senator Xewlands. Have these other States passed statutes per- 
 mitting that ? 
 
 Mr. Moka^\'Etz. They have: and in one instance, I may say. Con- 
 gress has passed a laAA' permitting us to convey to this Kansas corpora- 
 tion 800 miles of road owned and operated by a United States cor- 
 poration. 
 
 Senator Xewlands. "VMiat corporation is that? 
 
 Mr. MoR v^^'ETZ. It was the Santa Fe and Pacific Railroad. 
 
 Senator Dolltver. That constitutes the only work that the Com- 
 mittee on Pacific Railroads of the Senate has done. [Laughter.] 
 
 Senator Xewlands. Xow, then, is the Atchison, Topeka and Santa 
 Fe System a part of any system or group ? 
 
 Mr. ]\IoRA^\"ETZ. It is not. It is absolutely independent. 
 
 Senator Xewl.vnds. Then I observe in this book, " Moody on 
 Trusts," that the Atchison road is put down as a part of the Moore 
 group. 
 
 Mr. MoRAWETZ. That is news to me. [Laughter.] 
 
 Senator Xewlands. Yes; I think that is the case. Let me see, 
 for one moment. 
 
 Mr. MoRA-^VETZ. I never had even heard the statement. 
 
 Senator Xewlands. It says here : 
 
 While the Aloore interests undoubtedly do not as yet control the Atc-hison 
 System, still they partially dominate it and, through close traffic alliances, 
 operate in perfect harmony. These two last-named systems have, therefore, 
 been included in the figures of the Moore group. 
 
 Mr. MoRvwETZ. As a matter of fact, we have no traffic alliances 
 whatsover and, so far as I know, no traffic agreements whatsoever 
 with the Rock Island Company or its affiliated companies; and, so 
 far as I know, Mr. Moore does not own, nor do his associates own, 
 any stock in the Atchison. 
 
102 REGULATION OF RAILWAY RATES. 
 
 Senator Newlands. Then your system of roads does not constitute 
 a part of any of these popularly termed " groups " or systems? 
 
 Mr. MoEAWETZ. No, sir. 
 
 Senator N"ewlands. It is a system by itself ? 
 
 Mr. MoEAWETZ. It is. 
 
 Senator Kewlands. And has no alliances, through trackage ar- 
 rangements or community of interest, or lease, with other roads? 
 
 Mr. MoRAWETz. Oh, yes ; we use trackage, small pieces of tracks of 
 other roads, and we grant the use of pieces of our tracks to other 
 roads, wherever that is economical, to avoid duplication of tracks. 
 Also, we lease some small pieces of road. We lease one or two long 
 pieces of road. ^Ye lease 200 miles of road belonging to the South- 
 ern Pacific, which runs from the Needles, on the Colorado Eiver, to 
 Mohave, in California. That piece of road, ever since it was con- 
 structed, has been leased to the Atchison Company. And, on the 
 other hand, we lease to the Southern Pacific Company a railroad 
 which we own in Mexico, which we could not operate economically, 
 and we were glad to get }'id of it. 
 
 Senator Xewlands. Yes; but you are not a part of any other 
 system ? 
 
 Mr. MoEAWETZ. Oh, no. 
 
 Senator Newlands. Now, Mr. Morawetz, in this suit that I speak 
 of, in which you say you would present all these elements of value, 
 the capitalization of the road and the market value of the bonds and 
 stock 
 
 Mr. Moeawetz. And the cost of reproduction. 
 
 Senator Newlands. Yes. I assume that you would first ascertain 
 what the entire gross income would be under the tariff ? 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. And then state what your annual expenditures 
 would be, would you not ? 
 
 Mr. Moeawetz. Yes. 
 
 Senator Newlands. With a view to determining whether or not the 
 rate would be confiscatory ? 
 
 Mr. Moeawetz. Yes. 
 
 Senator Newlands. Those expenditures would be, first, the operat- 
 ing expenses ; second, the taxes : third, the interest on debt ; and — are 
 there any others? In your operating expenses do you include the 
 betterment of the roads"? 
 
 Mr. Moeawetz. No. 
 
 Senator Newlands. Do you include the maintenance of your road 
 up to its standard ? 
 
 Mr. M0E.4.WETZ. We do. 
 
 Senator Newlands. Betterments you regard as an improvement of 
 the road ? 
 
 Mr. Moeawetz. For accounting purposes, yes. 
 
 Senator Newlands. Entitling you to extra capitalization, do you 
 not? 
 
 Mr. Moeawetz. Yes, sir; for accounting purposes. It may fre- 
 quently be very unwise and unjustifiable to issue new securities on 
 account of money spent for so-called " betterments." 
 
 Senator Newlands. Well, in that case, you would apply your 
 income to betterments and would claim the right later on to issue 
 
REGULATION OF RAILWAY KATES. 103 
 
 bonds and stock against them and make your income good in that 
 way, would you not? [ 
 
 Mr. MoEAWETz. Not necessarily. We have in the Atchison been 
 in the habit of every year charging off $3,000,000 for betterment and 
 improvement, on the theory that we never could make them earn any 
 more money for the road. 
 
 Senator Newlands. Yes; but outside of that $3,000,000, if you had 
 taken a larger sum than that out of your income for the purpose of 
 improving your road, you would claim the right later on to issue 
 bonds and stock, would you not ? 
 
 ^Ir. ^loRAWETz. Yes ; if it was not charged off'. 
 
 Senator Newlands. Subtracting, then, all those elements from 
 your gross receipts would give your net income, would it not? 
 
 Mr. MoEAWETz. Yes. 
 
 Senator Newlands. If that income should pay only 3 per cent upon 
 the valuation which you claimed, would you regard the rates as 
 confiscatory ? 
 
 Mr. MoRAWETZ. I should. 
 
 Senator Newlands. Under the decisions of the courts, do 3'ou think 
 the courts would be likely to so hold ? 
 
 Mr. MoEAWETZ. I think they would. 
 
 Senator Newlands. If the income under this proposed tariff would 
 justify a diyidend and return of 4 per cent upon the value, would 
 you regard that as confiscatory ? 
 
 Mr. MoRAWETz. I think it would be, in the case of the Atchison. 
 
 Senator Newlands. Would you expect the courts to uphold that 
 contention ? 
 
 Mr. MoRAWETz. I should expect it. 
 
 Senator Newlands. If the return were 5 per cent upon the value, 
 would 3' on regard that as confiscatory ? 
 
 ]\Ir. ;MonAA\ETz. I should not, at the present time, because that 
 would leave us substantially our present net earnings. It would 
 make no change. 
 
 Sen;i(or Newlands. Yes. Your present net earnings would pay 
 about how much upon your entire capitalization in stock? 
 
 Mr. ]\[op.A'i\ ETz. Well, we have $237,000,000 of bonds, most of 
 T.'hich are 4 per cent bonds. Our preferred stock is 5 per cent stock. 
 Our common stock has been paying 4 per cent dividends. We have 
 been earning 8 or 9 per cent in the past on our common stock. 
 
 Senator Newlands. Yes. 
 
 Mr. ]\roRAWETz. This year it is going to be less. It has been com- 
 ing down the last two years because of the very heavy increase of 
 expense?, although the gross income has been enormously increased. 
 For instraice, the year ending June 30, 1903, it was $62,000,000 and 
 the year ending June 30, 1904, it was $68,000,000. 
 
 Senntor Newlands. "\Vas that the dividends on the common stock? 
 
 ^Ir. ]k[oR.\-\vETz. I am speaking of the gross earnings. We paid 4 
 per cent on the common stock. 
 
 Senntor P\)raker. Your gross earnings fell off six millions hM 
 year ? 
 
 Mr. !Moeawetz. No; increased. But the net does not increase pro- 
 portionately. 
 
 Senator Newlands. You say that you would probably be satisfied 
 with a return of 5 per cent upon the value? 
 
104 REGULATION OF RAILWAY RATES. 
 
 Mr. MoRAAXETZ. Upon the entire valuation, yes; which would net 
 us about 8 per cent on the common stock to-day. 
 
 Senator Newlands. Would you claim that 5 per cent iipon that 
 part of the investment that was represented by bonds negotiated at 4 
 per cent? 
 
 Mr. MoKAWETz. AVell, I should think it confiscation, m greater or 
 less degree, li" the net earnings of the company, the earnings which 
 we are now receiving, should be in any material way diminished. 
 That is the position I should take. 
 
 Senator Newlands. Yes. 
 
 Mr. MoRAWETZ. As long as our earnings are not diminished, of 
 course, there is no confiscation. 
 
 Senator Newlands. As I understand it, you expect an average re- 
 turn of 5 per cent upon the entire valuation? 
 
 Mr. MoRAWBTz. Net, at the present time. 
 
 Senator Newlands. And if you took into consideration only 4 per 
 cent upon the bonds eliminated you would expect a higher rate than 
 T, per cent upon the balance of the value that is represented by the 
 claim ? 
 
 Mr. Moeawetz. Ye^. As I say, any legislation that would reduce 
 the net earnings of the company, as they are at present, I should con- 
 sider confiscatory, because 1 do not think the company is charging an 
 unreasonably high rates at the present time. 
 
 Senator Newlands. Well, now, take all this stock which you have 
 there — $114,000,000 of preferred stock — does that represent money 
 actually paid in? 
 
 Mr. MoRAAx'ETZ. I think it does. Most of that preferred stock 
 represents original first-mortgage bonds, which were paid for in 
 money and nhich were cut down first to income bonds, and then to 
 stocks, in processes of reorganization. Part of that preferred stock 
 represents cash paid in, in the form of an assessment, in a reorganiza- 
 tion. 
 
 Senator Newlands. How is it with the common stock of $102,- 
 000,000 ? 
 
 Mr. MoRA^\'ETz. The conmion stock 1 do not know about. The com- 
 mon stock was originally issued before my day, and T had nothing to 
 do with the company at that time. 
 
 Senator Newlands. You could not say, then, as to whether or not 
 that represents actual cash paid in ? 
 
 Mr. Moeawetz. I could not. I do know, however, that the com- 
 mon stock of the old companj' was away above par, and for many 
 years was a great deal higher than the common stock is to-day. 
 
 Senator Newlands. Your ta.ves -would be a charge, of" course, 
 against the gross receipts? 
 
 Mr. Morametz. I think so. 
 
 Senator Newlands. What is the total amount of the taxes of your 
 corporation? 
 
 Mr. Moeawetz. Excuse me for one moment. [Consulting pam- 
 l)hlet.] 
 
 Senator Neavlands. Approximately. 
 
 Mr. MoRAWETz. I think it is close to $2,000,000. 
 
 Senator Newlands. Do you find that the systems of taxation in 
 these various States vary ? 
 
 Mr. MoRAAVETz. Very much. 
 
REGULATION OF RAILWAY RATES. 1U5 
 
 Senator Xewi.axds. Do j'oii find there is a movement to increase 
 the assessments of railroad property ? 
 
 ilr. MoRAWETZ. I think in some parts of the country there is that 
 tendency; yes. 
 
 Senator Newi.ats^ds. Do you not find a movement in some quarters 
 toward assessing the properties at the market value of their bonds 
 and stocks upon the assumption that a corporation ought to pay 
 taxes upon the same value that it receives receipts? 
 
 ilr. MoEAAVETZ. I do not think that has been the case in our terri- 
 tory. I believe it has in some of the more northern States — Michi- 
 gan, I think. 
 
 Senator Newlands. But taxation is one of the difficulties that you 
 have to deal with in these various States, is it not? 
 
 ^Ir. MoEAWETZ. Yes. 
 
 Senator Xeavlands (continuing). Likely to be variable unless you 
 keep a close watch, and likely to be increased unless you are vigilant? 
 
 Mr. Morawetz. I think our taxes are high and show a tendency to 
 increase. 
 
 Senator Newlands. Would you regard it as preferable instead of 
 having this system of valuation, which varies all the way from the 
 valuation of the track and right of way to the valuation of those 
 things and the franchise also, and up to a claimed valuation of the 
 bonds and stock, to have a fixed franchise tax of 3 per cent upon your 
 gross receipts in lieu of all other taxation ? 
 
 Mr. Morawetz. My impression is that 3 per cent upon our gross 
 receipts would v/orlc out pretty nearly what we are paying to-day in 
 the aggregate, and if I were guaranteed by the Government of the 
 United States that it never Avould be increased I should be satisfied. 
 My experience, however, has been that whenever there is a change of 
 system of any kind the railway company gets hit. 
 
 Senator Newlands. Otherwise you would prefer a mathematical 
 adjustment of the tax according to gross receipts? ' 
 
 Mr. Morawetz. In the case of the Atchison, yes; I think it would 
 work out satisfactorily if it could be maintained; but this system of 
 taxing gross receipts would be a killing thing in some cases. A rail- 
 road company may have high gross receipts and small net income, 
 and the taxation on that basis might work out very unjustly. 
 
 Senator Newlands. What I want to get at is. Do you think it 
 would be a better system of taxation to have a fixed tax that could be 
 mathematically ascertained, leaving nothing to the judgment of the 
 various assessors and boards of equalization throughout the entire 
 country, or would you thinlc it best to have the present system, 
 unequal and variable as it is? 
 
 Mr. Morawetz. Well, sir, it all depends on what the result 
 would be. The risk and the danger of any such system of taxation 
 of gross receipts is that there would be a constant tendency to jack 
 it up, and there would be no basis for establishing the rate. Now in 
 the various States the railroad property is taxed Tike other property, 
 and it is a question of value. 
 
 Senator Newlands. But here is a railroad commission, recollect, 
 that is operating upon this question. It is to allow you, first, your 
 operating expenses, whatever they are. 
 
 Mr. MoRA^iTiTz. Yes. 
 
106 REGULATION OF RAILWAY RATES. 
 
 Senator Newlands. If thej^ are increased, they have to allow them. 
 
 Mr. MoRAWETZ. Yes. 
 
 Senator Neavlands. They have got to allow you your taxes, what- 
 ever they are, and they have got to allow you your rate ot interest 
 upon your bonds, Avhatever that may be. 
 
 Mr. MoEAWETz. Yes. 
 
 Senator Newlands. And the only thing that is left indeterminate 
 is the allowance in the shape of dividends. 
 
 Mr. MoRAWETz. Yes. 
 
 Senator Newlanus. Now, is it not a great deal better, then, to have 
 a system that would fix that taxation mathematically, instead of 
 leaving it to the judgment of a thousand commissions and taxing 
 oiEcers and assessing officers throughoTit the entire country, from the 
 standpoint of rate regulation ? 
 
 ^h\ JMoEAWETZ. Tf the United States will guarantee a proper rate 
 of dividends the railway- companies will not care what taxes and 
 ojDerating expenses may be. [Laughter.] 
 
 Senator Newlands. I am asking you now from the standpoint of 
 rate regulation, if this thing is to be scientifically adjusted, would it 
 not be better for the Commission to knoAv exactly what the taxes are 
 going to be from year to year? 
 
 Mr. MoRAWETz. I presume so ; yes. 
 
 Senator Newlands. And that it can not know under the present 
 system ? 
 
 Mr. MoRAWETz. It is impossible, because it has no way of con- 
 trolling it. 
 
 Senator Newlands. Assuming that a national incorporation act 
 should be framed for the purpose of expediting the consolidation of 
 railroads in this country, recognizing consolidation as a part of the 
 evolution of the railwaj' system, would you prefer to have a national 
 charter, provided the proper capitalization was allowed, or would 
 you prefer to have simply a State charter, which would enable you 
 to operate in other States only through the comity of those States? 
 
 Mr. Morawetz. I think, on the whole, I should rather have a Fed- 
 eral charter, a national charter. 
 
 Senator Newlands. In forming such a corporation under a national 
 charter, you would claim first the recognition, of course, of your ex- 
 isting bond issue; they would remain as liens upon the property. 
 Now, would you be content to receive for your stock, under this 
 national charter, an amount equal to the existing market value of your 
 preferred and common stock? 
 
 Mr. Morawetz. No, sir; I would not. 
 
 Senator Newlands. Why? 
 
 Mr. Morawetz. Did you say a stock equal to the value of the pres- 
 ent stock ? 
 
 Senator Newlands. Would you be willing to accept a capitalization 
 in stock equal to the aggregate market value of your preferred and 
 common stock to-day ? - 
 
 Mr. Morawetz. No, sir; I would not. That would mean c\itting 
 down the common stock, which now sells at 90. 
 
 Senator Newlands. You would Avant how much for it — par? 
 
 Mr. MoRAAVETZ. A¥ell, if I had all the stock, I do not thinlj I would 
 deliver it at par. No ; I think it would be Avorth more. 
 
BEGDXATION OF RAILWAY RATES. 107 
 
 Senator \ewlands. But you would get the stock. Understand me, 
 now, I am suggesting 
 
 Senator Ctjllo:.!. Are you getting ready to buy all these roads? 
 [Laughter.] 
 
 Senator Newlands. No ; not at all. 
 
 Senator Foraker. Or to have the Government buy them ? 
 
 Senator KEv^'LAJ;Ds. -Not at all; and not to have the Government 
 buy them. I am simply suggesting that these gentlemen should 
 incorporate, under a national charter, and the question is what bond 
 issue and what stock issue would be approved. 
 
 Mr. MoRAWETZ. "Why, the same we have got now. 
 
 Senator Newlands. The same you have now ? 
 
 Mr. MoRAWETZ. Yes. 
 
 Senator Newlands. I understand you to say that if the United 
 States Government or Congress should give a national commission 
 the power to fix rates, you would expect an allowance of your operat- 
 ing expenses, of your taxes, your maintenance, the interest upon your 
 bonds, and that that regulation should not be carried to an extent 
 that would prevent you from receiving 6 per cent upon your stock ? 
 
 Mr. MoEAWETz. No, sir; I did not say that. I should consider 
 that under the present conditions no regulation should be made 
 which would cut down the amount of our net earnings. 
 
 Senator Newlands. At present ? 
 
 Mr. MoEAWETz. At present; because I do not think the Atchison 
 Company is charging unreasonably high rates. 
 
 Senator NE^vLANDS. Very well. Suppose there should be a very 
 large increase in your business in the future — such an increase as 
 would raise your earnings upon your capital stock from 6 per cent to 
 9 per cent- — would you expect such a conunission to reduce your 
 rates ? 
 
 Mr. MoEAWETZ. It depends on circimistances. I do not thinli that 
 it would be just or that it would be right to deprive the railway com- 
 panies in this countrj' of some share of the prosperity which exists in 
 these days. Nine per cent net, under present conditions, may mean 
 starvation to a road in bad times, and therefore the fact that a rail- 
 road in one year eai-ns 9 per cent net on its stock is far from proving 
 that that is more than it ought to be allowed to earn. 
 
 Senator Newlands. Well, then, assuming that the extra profit 
 above 6 per cent made during the fat years should be put into a 
 guaranty fund to secure you against the lean years, would not that 
 practically secure you an average rate of interest of 6 per cent ? 
 
 ]\Ir. MoRAWETZ. It might, at present. "What the railways do with 
 their surplus earnings is to " plow them in," to make improvements. 
 
 Senator Newlands. But they afterwards issue bonds and stock 
 against them, do they not ? 
 
 Mr. MoRAWETZ. No, sir. 
 
 Senator Newlands. Except that portion which they charge off as 
 a part of the earnings and operating expenses ? 
 
 Mr. MoRAWETZ. No, "feir. The Atchison company has spent upon 
 the property about $3^,000,000 of surplus net earnings for which it 
 has never issued a dollar and never will issue a dollar of bonds or 
 stocks. 
 
 Senator Newlands. About how much ? 
 
 Mr, MoRAWETZ. About thirty-three millions. 
 
1Q8 REGULATION OF RAILWAY BATES. 
 
 Senator Newlands. That is in a period of how many years? 
 
 Mr. MoEAWBTZ. In a period of eight years. 
 
 Senator Newlands. That is about $3,000,000 a year? 
 
 Mr. MoKAWETz. Yes; and during part of that period we paid no 
 dividends on our stock, but spent the money on the property. 
 
 Senator Newlands. Now, Mr. Morawetz, I would like to ask your 
 opinion as to this : As I understand it, under the existing condition 
 cf taxation in many States, they not only tax the roads, but they also 
 tax the stocks and bonds in the hands of the holders, constituting a 
 kind of double taxation. Is not that so ? 
 
 Mr. MoEAWETZ. Well, that is true in some of the States, especially 
 in the East. 
 
 Senator Newlands. Is it not in most of them? They escape the 
 tax collector, I know, but, as a matter of fact, under the la\ys of most 
 of the States, does not this double system of taxation prevail ? 
 
 Mr. MoEAWETz. I believe bonds are generally taxed as well as the 
 property itself, but in most States stocks are not taxed separately. 
 
 Senator Newlands. Well, then, taking a 4 per cent bond, assuming 
 that these bond issues are taxed, the average tax is about from 1^ to 1 
 per cent, is it not ? 
 
 Mr. Morawetz. I believe, theoretically, yes ; practically, not. 
 
 Senator Newlands. But the tax, I mean, levied by the law is on an 
 average from 1| to 2 per cent throughout the United States ? 
 
 Mr. Morawetz. The tax rate prescribed by law ? 
 
 Senator Newlands. The tax rate prescribed by law. 
 
 Mr. iloRAWETZ. Yes. 
 
 Senator Newlands. Now, then, that would pretty nearly halve the 
 rate of interest, would it not? 
 
 Mr. Moraavetz. If it were enforced. But I think T ought to state 
 right here that I do not know of any State in which bonds are spe- 
 cifically taxed at that rate. The State of Now "\'ork, for instance, 
 provides that from the aggregate value of your personal property, 
 including bonds, you deduct the amount of your indebtedness, and 
 the surplus would be the amount on which you are taxed. Therefore, 
 it depends entirely on circumstances whether the bonds would be tax- 
 able, or whether they would be taxable to the full rate or not. 
 
 Senator Newlands. It depends upon the laws of the particular 
 State? 
 
 Mr. IMoE.uA'ETz. j\nd upon the circumstances of the owner. 
 
 Senator Newl.a.i<ds. That may be so in New York, but it is not so 
 ii,i other States. 
 
 Mr. MoiiAViETZ. I do not know how that i^;. 
 
 Senator Newlands. I want to ask you whether you do not think, 
 in view of this system of double taxation that prevails, and in view 
 of the variable system of taxation that prevails throughout the United 
 States, that an effort should be made to substitute a fixed percentage 
 tax all over the United States, which will be in lieu of all other taxes 
 upon property of railroad corporations, including their stock and 
 bonds, and whether it would not make these bonds better securities 
 in the market and enable the railroads to get a lower rate of interest? 
 
 Mr. Morawetz. Well, I should say that undoubtedly the taxes of 
 the various States on stocks and bonds of companies^ all of whoso 
 property is already taxed, should be repealed, because the various 
 States are imposing double and sometimes triple taxation by those 
 
REGULATION OF RAILWAY RATES. 
 
 169 
 
 processes; but whether the Congress should attempt to repeal those 
 State statutes is another question. T doubt that Congress could do it. 
 
 Senator Newlaxds. Now, assuming that a national incorporation 
 act is framed, and that these railroads are regarded as national 
 instrumentalities for the purpose of carrying out the constitutional 
 powers of the Government, could not such an act prescribe a per- 
 centage tax which coidd be divided amongst the States, by some fair 
 rule, according to trackage or volume of business, so that they would 
 receive practically what they get now, and absolutely exempt these 
 railroads from all State and local taxation, including their bonds and 
 stock ? 
 
 Mr. Moeai\'i;tz. Well, there are two points there. One is whether 
 Congress could grant an exemption to all those railroads from local 
 taxation; the second point is whether Congress itself could tax the 
 railroads and distribute the taxes as it saw fit among the diiferent 
 States and Territories. I think both of those questions present very 
 grave constitutional questions. 
 
 Senator Newi.ands. Have you looked into them at all, or would 
 you be able to give an opinion now regarding that question? 
 
 Mr. MoRA^^'BTz. I do not feel prepared to do so. I have not con- 
 sidered the matter with anj^thing like the degree of thoroughness 
 that it would require. 
 
 Senator Xewlands. Xo-w, coming to this question of statements of 
 railroads. There are a number of railroads in the country that are 
 organized in these various groups, are there not, that are not con- 
 trolled by one corporation, as in your case? 
 
 Mr. MoKAWETz. That is true. 
 
 Senator Newlands. Would you regard it as beneficial both to the 
 companies, to these corporations, and to the country, the public, that 
 consolidation of these groups should be facilitated by law ? 
 
 Mr. Moeawetz. Yes; I think it would be beneficial for many 
 reasons. 
 
 Senator Newlands. Could that be best accomplished under a na- 
 tional charter or a State charter? 
 
 Mr. Moeawetz. There might be some advantage in a national char- 
 ter, but the practical results can generally be obtained without a 
 national charter, except so far as the national prohibitorj' legislation 
 prevents it. • 
 
 Senator Newlands. As to State charters, it would be difficult, 
 would it not, to secure a State charter that would facilitate the con- 
 solidation of roads outside of that State? 
 
 Mr. MoRAWETZ. Well, the Atchison Company is entitled by the 
 laws of Illinois, Missouri, Iowa, Kansas, Oklahoma, Colorado, New 
 Mexico, Arizona, and California to own by direct ownership its rail- 
 roads in those States and Territories. 
 
 Senator Newlands. Do you know whether that condition exists 
 with reference to any other railroads in the countrj' ? 
 
 Mr. MoRAWETZ. Yes ; it exists in a great measure in the case of the 
 Northern Pacific and lines in the Northwest. 
 
 Senator. Newlands. Does it exist in the Middle States, the Middle 
 Western States, and in the Eastern States? 
 
 Mr. MoRAWETZ. Less in the Eastern States; I think the Western 
 States have been more liberal in that kind of legislation than the 
 
110 REGULATION OF EAILWAY BATES. 
 
 States in the East. Ohio is very liberal. It allows foreign railroad 
 companies to take title to railroads in that State. 
 
 Senator Newlands. In this case is there any limitation upon or 
 control of the issues of bonds and stocks? 
 
 IMr. MOBAWETZ. Xo. 
 
 Senator Newlands. Under the State laws? 
 
 Mr. MoEAWETz. Only by the 
 
 Senator Foeaker. There is in Ohio, as to the amount of stock that 
 can be issued and as to the amount of bonds that can be issued. 
 
 Mr. MoRAWETz. I am speaking of a foreign corporation which 
 takes title to a railroad in Ohio or in another State. 
 
 Senator Foraker. Yes. 
 
 Mr. MoRAWETZ. The State of its organization, I think, as a rule, 
 would determine the amount of stock that it could issue. 
 
 Senator Newlamds. Assuming that it is a desirable thing to facih- 
 tate the consolidation of the roads constituting these various systems, 
 would you regard it as easier to accomplish it by endeavoring to have 
 favorable laws passed in all the States for that purpose, or would 
 you regard it as easier to accomplish it under a national incorporation 
 act? 
 
 Mr. MoRAWETz. Oh, it would be much easier, much simpler, and, on 
 the whole, more satisfactory to have a national incorporation act if 
 such an act could be obtained. 
 
 Senator Newlands. Yes. There would be no objection to providing 
 in such an act that all issues of bonds and stock, whether for consoli- 
 dation or for new construction, should be approved by the Interstate 
 Commerce Commission, would there? 
 
 Mr. MoRAWETz. I think there would. 
 
 Senator Newlands. You think there would be an objection to that? 
 
 Mr. MoRAWETz. I think there would. 
 
 Senator Newlands. AVhat method would you suggest as a proper 
 one for preventing overcapitalization ? Would you leave the matter 
 entirely to the will of the incorporators or would you have some 
 supervision and control over that ? 
 
 Mr. MoEAWETZ. My own judgment is that it would be better, in the 
 long run, to leave that to the incorporators and the business sense of 
 those who form the corporation. Issuing a large amount of stock 
 and bonds does no one any harm, excepting the possibility that people 
 may be fooled in buying them. 
 
 Senator Newlands. Is not that an evil ? 
 
 Mr. MoEAWETz. Well, that is an evil with which I do not think 
 Congress has much to do. 
 
 Senator Newlands. Is there not another evil 
 
 Mr. MoEAWETZ. Large capitalization does not mean high rates. 
 
 Senator Newlands. Is there not this evil, also — that these stocks 
 get into the hands of innocent holders, even where they represent no 
 real value; they acquire in the market gradual value, and then it is 
 claimed by the railroads, in adjustment of their rates, that that value 
 should be recognized, because time and the innocent investment of 
 parties have in a measure legitimized it ? 
 
 Mr. MoRAWETz. A good deal would depend upon the way in which 
 the Commission exercised its powers. There is one State in this 
 country— Texas— in which no bond can be issued unless the railroad 
 commission of Texas indorses on the back of the bond that it is issued 
 
REGULATION OF RAILWAY RATES. Ill 
 
 under the authority of that commission ; and the railroad commission 
 of Texas must also certify — actually indorse — the stock certificates 
 issued in the first instance upon an original issue of stock. 
 
 Senator Newi-ands. Does not that tend to prevent overcapitaliza- 
 tion there ? 
 
 Mr. MoEAWETz. It does ; it prevents overcapitalization, but it also 
 
 ' prevents the construction of railroads in Texas and the sale of the 
 
 bonds and stocks of Texas railway companies. I do not know of 
 
 the stock of a single Texas railroad company that is sold on the New 
 
 York Stock Exchange or dealt in anywhere. 
 
 Senator Newlaxds. Do you think that is due to the fact that the 
 
 ■ corporation is properly capitalized instead of being overcapitalized? 
 
 Would it add to the strength of the stock of those Texas corporations 
 
 if they were known to be overcapitalized, instead of being known to 
 
 be capitalized at their legitimate value? 
 
 Mr. MoRAWETZ. No ; but I do think that the railwaj'^ commission of 
 the State of Texas has to such an extent discredited railwaj^ invest- 
 ments in Texas that you never could raise any money from the public 
 i:pon Texas railway bonds and stocks. Some railroads are built in 
 Texas from time to time by the existing systems. We have built 
 some; but we never could raise a dollar on the bonds of those Texas 
 lines. We have to do it on our own credit ; and if any bonds or stocks 
 of these Texas companies are issued we have to keep them in our box. 
 We could not sell them. 
 
 Senator Dollrtir. How do you explain that? It seems to me that 
 a bond that represented actual value would be salable somewhere in 
 this world about as well as a bond that represented a mere speculative 
 value. 
 
 Mr. MoEAWETZ. It is due to the attitude of the commission and of 
 the community in Texas toward railway investments. 
 
 Senator Carmack. That particular restriction is not due to that 
 particular regulation, is it? 
 
 Mr. MoRA'NVETZ. I think it is, to a great measure; yes. When you 
 build a railroad there the Texas railwaj^ commission inspects it, and 
 Siiys it costs so much ; and you can issue that much in bonds, and so 
 nmch in stock. 
 
 Senator Foraicer. That is, there is no latitude for the gentlemen 
 who promote the enterprise ? 
 
 Mr. Moeawetz. None at all. There is nothing to adequately cover 
 the risk of the venture. 
 
 Senator Dollivee. But after they get it built, it seems to me that 
 these stocks, being under rather than above the cost and value of the 
 property, would have a rather more definite and ascertainable market 
 value than if they were •* in the air." 
 
 Mr. Morawetz. I think it would be so if the Texas' commission did 
 not also find it its duty to keep down the earnings, so that if the thing- 
 succeeded you never could earn more than a very reasonable rate of 
 interest on these stocks and bonds, while of course you took all the 
 risk of failure if it did not succeed. 
 
 Senator Nea^'lvxds. What is that rate of interest? 
 
 Mr. Morawetz.- I think about 6 per cent. 
 
 Senator Newlands. About 6 per cent ? 
 
 Mr. Morawetz. Yes. 
 
 Senator Forakee. That is, if a man is satisfied with 6 per cent on 
 
112 REGULATION OF RAILWAY RATES. 
 
 his money, he ^Yill not go to Texas to build a railroad and take the 
 risks incident to such a corporation, when he can loan ]t on collateral 
 for that or a higher rate? 
 
 Mr. MoRAMTSTZ. Precise^. 
 
 The Chairman. Proceed, Mr. Xewlands. 
 
 Senator XE^VLANDS. Do 3'ou know what railway mileage the State, 
 of Texas has, in all ? 
 
 Mr. MoRAWETZ. I do- not know, sir. "We have about fourteen or 
 fifteen hundred miles, all told, in Texas. 
 
 Senator Newi.ands. Do you think that Texas has suffered m the 
 total amount of mileage bv'reason of the rigidity of its laws? 
 
 Mr. MoRAWETz. Oh, very much. 1 stopped a good many hundred ' 
 miles of railway construction in Texas myself by reason of this leg- 
 islation. 
 
 Senator Xewlands. In the future, assuming that Ave legitimize 
 these groups or systems, and we ha^-e some six or seven systems in 
 the country, each with 30.000 miles of road, do you not think that the 
 railroad building of the future would be largely done through the ex- 
 tension of those roads latterly and otherwise rather than through 
 the work of promoters that take up the detached roads here and there? 
 And would not that be a more rational development of the railway 
 system of the country than the develcrjiment that is secured through 
 the speculative promoter? I am si^eaking of the future, not of the 
 past. 
 
 Mr. MoRAA\'BTZ. I think decidedly the owners of the existing rail- 
 roads would benefit by such legislation. I think the public would not. 
 
 Senator Newi>anus. You think the public Avould not? 
 
 Mr. MoRAWETZ. I think clearly not. There would be less rail- 
 road construction, and especially there would be less competitive 
 railroad construction. 
 
 Senator Newlands. Now, Mr. Morawetz, in preparing such a 
 national charter which involved, first, the question of capitalization; 
 second, the question of taxation; and third the question of return 
 upon capital, would" it be wise to put anything relating to the 
 employees in it ? Would it not be possible in such a system to pro- 
 vide that a certain percentage of the gross receipts should go into an 
 insurance fund to insure the employees against the dangers of their 
 employment, so as to do away with this constant trouble that is going 
 on now in every State legislature regarding employees, fellow-servant 
 bills, etc., and the litigation that is going on? 
 
 Mr. Morawetz. I believe there is no set of employees in the United 
 States that is as well paid, on the whole, as railway employees ; and 
 there is no set of employees who feel more independent than railway 
 emj)loyees. I think there is no set of workers in this country who 
 so little need the fatherly aid of the Govermnent as the employees of 
 the railway companies. As I understand this, it means requiring 
 the railway companies to insure or pay the premiums for the insur- 
 ance of their employees. 
 
 Senator Newlands. It involves taking a portion of the gross re- 
 ceipts • 
 
 Mr. MorawStz. Or of the net receipts. 
 
 Senator Newlands. Or of the net receipts, and applying it for 
 that purpose. 
 
 Mr. MoKAWETZ. Yes. 
 
EEGXJLATION OF RAILWAY BATES. 113 
 
 Senator Newi,ands. That amount to be allowed by the Interstate 
 Commerce Commission as one of the expenses of the cotnpany, and not 
 to come out of net returns, but out of the gross receipts; frankly 
 regarding as a charge upon the railroads just as you would the taxes, 
 which would be recognized by the regulating power ? 
 
 Mr. MoRAWETZ. That means that Congress is arbitrarily going to 
 take from the railway companies and make a present to the employees 
 of so much money, if Congress thinks they ought to be insured. 
 
 Senator Newlands. And, on the other hand, it also involves fixing 
 rates that will give the railroad company a sufficient income to pay 
 that charge. 
 
 Mr. MoEAWETz. True. That means taking the money, then, not 
 from the railway companies, but from the consumers. 
 
 Senator Newlands. From the public. 
 
 Mr. MoEAWETZ. From the public. 
 
 Senator Newlands. Yes. 
 
 Mr. MoRAM'ETZ. Now, I say that that would be paternal legislation. 
 If Congress thinks that employees of railway companies should be 
 insured, let Congress then require the employees to insure themselves. 
 They will see to it that they get adequate wages. '^^ 
 
 Seniitcr Xewla>:ds. Your judgment, then, would bUEainst a sys- 
 tem of th.at kind, of insurance against injury? You regard the rail- 
 road employnient as hazardous, do j'ou not? 
 
 Ml'. Morawetz. Ye?. 
 
 Senator iVe'wlands. A great many men are wounded and maimed 
 and killed in the course of a year, are they not ? 
 
 Mr. Morawetz. A good many; j^es. 
 
 Senator Newlands. A great many of them leave families unpro- 
 vided for? 
 
 Mr. Morawetz. Frequently. 
 
 Senator Newlands. A great many of them endeavor to recover 
 against the companies for the loss? 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. And they generally lose? 
 
 Mr. Morawetz. The company generally loses. 
 
 Senator Newi.ands. No ; does the company generally lose ? 
 
 Mr. M0R.VWETZ. I think in every case in which by any possibility 
 the facts can be found against the company the company loses. 
 
 Senator Newlands. But the employees are constantly urging in all 
 our State legislatures and in our National Legislature the passage of 
 biUs that will relax the rigidity of the common law regarding the 
 obligation of an employer to a servant where the negligence of a 
 fellow-servant is concerned. 
 
 Mr. Morawetz. Yes; and it has been relaxed to a great extent by 
 the courts. 
 
 Senator Newlands. By the courts; and they are seeking to relax 
 it still further? 
 
 Mr. M.O-RAWETZ. Yes, sir. 
 
 Senator Neavlands. By law ? 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. Now, there is that matter of dispute going on 
 all the time, is there not ? 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. Would it not be wise to adjust it in some such 
 
 E B E— 05 M 8 
 
114 REGULATION OF KAIL WAY EAIES. 
 
 way and bring- about peace between the railroads and the employees^; 
 upon that subject? 
 
 Mr. MoRAWETZ. By requiring them to be insured and by making 
 the public pay the premiums? 
 
 Senator Newlands. Yes. 
 
 Mr, MoRAWETZ. That would satisfy the railway companies. 
 
 Senator lifEWLANDS. Yes. 
 
 Mr. MoRAWETz. I think it would. 
 
 Senator Newt.ands. Having it recognized as a charge upon the 
 transportation 'Service of the country. I am told by the president of 
 an insurance company in New York that twelve or fifteen million 
 dollars per annum would effectually accomplish that. Have you 
 ever looked into that question at all to see what would accomplish it? 
 
 Mr. Morawetz. No, sir ; I have not. 
 
 Senator Forakek. Was he willing to give the insurance for the 
 twelve or fifteen million dollars? 
 
 Senator Newlands. Yes. 
 
 Mr. Morawetz. Who would insure him ? 
 
 Senator Newlands. Now, then, as to the matter of compensation, 
 as to the controversies between the employees and the railroads. I 
 assume that vou regard the present condition as almdst intolerable 
 where, wh^jp difference arises, the employees strike and endeavor to 
 paralyze tliB commerce of the countrj^ ? 
 
 Mr. Moraavetz. It is very bad. 
 
 Senator Newlands. It is bad. Now, that is sought to be prevented 
 in various ways — ^by injunctions in some cases, by calling out the 
 military force and the police force in others. 
 
 Mr. Morawetz. There isx)nly one waj' of preventing it. 
 
 Senator Newlands. Could we not provide for the arbitration by 
 the Interstate Commerce Commission of all disputes between the em- 
 ployees and the railroads as to compensation, hours, and as to these 
 matters of safety appliances, upon the assumption that whatever in- 
 crease was allowed would have to be recognized in the operating ex- 
 pense account of the railroad, and that a fair net return to the 
 railroad would not be jeopardized ? 
 
 Mr. Morawetz. When vou say " arbitrate," I presume you mean 
 "fix?" 
 
 Senator Newlands. Yes. 
 
 Mr. Morawetz. To authorize the Interstate Commerce Commission 
 to fix the wages of all employees and all appliances to be used by the 
 railway companies ? In other words 
 
 Senator Newlands. I do not mean to fix them — I mean to arbitrate 
 disputes between them; where any dispute arises, to enter into the 
 thing judicially and render judgment regarding it. 
 
 Mr. Morawetz. The Interstate Commerce Commission can not be 
 given judicial power of any kind ; and if they were a court they could 
 not fix the wages to be paid by the companies to their employees. 
 
 Senator Newlands. Yes ; but here we propose, you recollect i 
 
 Senator Caemack. Could the Government do it in any way ? ' 
 
 Mr. Morawetz. It could not do it in any way. 
 
 Senator Newlands. Here we propose to operate upon national in- 
 corporations, which are the creatures of the National Government 
 Can not Congress then put into the national incorporation act any 
 provision it chooses ? 
 
REGULATION OF RAILWAY BATES. 115 
 
 Mr. MoRAWETz. No, sir. 
 
 Senator Newlands. For the arbitration of disputes between the 
 corporation and its employees ? 
 
 Mr. MoEAWETZ. In the first place, no arbitration is enforceable ; you 
 can not make it enforceable. In the second place, if it were not prop- 
 erly an arbitration, but it were intended to give to the Commission 
 power to decide and fix ■v^'hat should be paid as wages, the law would 
 be unconstitutional. 
 
 Senator Newlands. You do not think, then, that any such pro- 
 vision could be made that would stand ? 
 
 Mr. MoKAWETZ. I do not ; clearly not. 
 
 Senator Newlands. Can you make any suggestion at all upon that 
 line that would have the effect of keeping peace between the cor- 
 porations and their employees, as to disputes between them ? 
 
 Mr. MoRiVWETz. I can not. If the Government undertook to settle 
 those questions the dispute would simply be transferred from the rail- 
 way companies to the Government, and the political objections to 
 having the Government or any Government bureau or any branch of 
 the Government burdened with the settlement of labor questions I 
 think are too obvious to require any comment. 
 
 Senator Newlands. Then you see no cure for the conditions which 
 have arisen again and again in this country, where commerce has 
 been paralyzed and violence has had full sway as a result of these dis- 
 putes between the railways and their employees ? 
 
 Mr. MoRAWETz. It is not only between railways and their em- 
 ployees. There is a greater danger of paralyzing the whole country 
 in the case of the coal miners. If the coal miners of this country 
 should all strike the conditions would be far more intolerable than if 
 the railways should be stopped. In fact, there are a great many pos- 
 sible cases in which conditions would be made quite intolerable 
 through strikes or combinations of laborers in this country. But we 
 have to take our chances of that, and depend upon the good sense of 
 the employers and the employees to settle their differences, as they 
 always have ultimately done in the past, and as I think could be done 
 very much more quickly if the law were enforced and reasonable 
 security given to the property owners and to those laborers who are 
 willing to work. The strikes in this country that have paralyzed 
 commerce have been due in almost every instance to a faikire or a re- 
 fusal to enforce the laws for the protection of lives and property. 
 
 Senator Newlands. And you think that we couid not shape a meas- 
 ure that would relieve these conditions? 
 
 Mr. Moeawetz. I do not think so. 
 
 Senator Newlands. Now, I want to ask you just a few questions 
 more. I observe by the last report of the Interstate Commerce Com- 
 mission that the gross earning and income of all the railroads of the 
 country were $1,950,743,000; that the operating expenses, salaries, 
 and maintenance aggregated about 05 per cent of that, or $1,257,- 
 000,000, and that the net earnings aggregated about $692,000,000, 
 which was expeaded as follows : 
 
 For net interest on funded debt $268,000,000 
 
 For taxes 57,000,000 
 
 For interest on current liabilities, about 9,000,000 
 
 Making a total of 335,000,000 
 
116 REGULATION OF RAILWAY RATES. 
 
 Deducting that frojn the net earnings and income, it left available 
 for dividends and adjustments and improvements $357,000,000. 
 
 As I understand it, the total capitalization of all the roads of the 
 country in stock and bonds aggregates about $12,000,000,000, of 
 which '$(•.,000,000,000 is in stock and about $6,000,000,000 in bonds. 
 Three hundred and fiftv-seven million dollars would make 6 per cent 
 on that $6,000,000,000 o'f stock, or A^ery nearly. Now, the increase of 
 the gross receipts last vear over those of the year before was about 
 $175,000,000. 
 
 Senator Forakee. Have you got that right, Senator — 6 per cent 
 on six billions? 
 
 Senator Newlands. Yes. 
 
 Mr. MoRAWETz. That would be $360,000,000. 
 
 Senator Newlands. And this is $357,000,000. Now, the gross re- 
 ceipts last year were about $175,000,000 more than they were the year 
 before; and I understand you to say that during the next seven years 
 it is probable that the total tonnage of the country will very nearly 
 double, or will reach 300,000,000,000 ton miles; is that it? 
 
 JSIr. MoR4A\ETZ. It would, at the rate of the increase for the last 
 preceding seven years. 
 
 Senator Newlands. Yes. That would mean, then, that at present 
 rates the gross income of all these railroad companies would be pretty 
 nearly doubled, would it not? 
 
 Mr. MoEAWETz. Not necessarily ; no. This increase would 
 
 Senator Newlands. Would come from low-priced tonnage? 
 
 Mr. Mor4wetz. The larger part, I think. 
 
 Senator Newlands. Would it be increased one-quarter? 
 
 Mr. Moeawetz. I do not know, but I should thini: it would ; yes. 
 
 Senator Newlands. Now, in view of that large increase 
 
 Mr. Moeawetz. And expenses. 
 
 Senator Newlands. The expenses, of course, would increase, but 
 not in the same proportion? 
 
 Mr. Moeawetz. I think that is an open question. Now, it appears 
 that the gross earnings for the year ending June 30, 1904, were very 
 much larger than for the year 1897, and yet the percentage of operat- 
 ing expenses increased. I would like to put these figures in the 
 record : 
 
 The percentage of operating expenses to gross earnings of all the 
 railroads in the United States, according to the Interstate Commerce 
 Commission's reports for the year ending June 30, 1897, and for the 
 year ending June 30, 1904, was as follows : 
 
 Gross earnings : 
 
 In 1897 $1,122,089,775 
 
 For 1904 1, 966, 633, 821 
 
 Operating expenses : 
 
 For 1897 752, 524, 764 
 
 For 1904 1, 332, 382,948 
 
 The ratio of operating expenses for 1897 was 67.06 per cent, and for 
 1904 it was 67.75 per cent, although the gross earnings in the mean- 
 time had increased more than 50 per cent. 
 
 Senator Foraker. Nearly 100 per cent, had they not ? Was not the ■ 
 amount almost double in 1904 what it was in 1897 ? 
 
 Mr. MoRAWBTZ. No, sir; the ton mileage doubled, but the actual 
 jToss earnings did not. This proves what I was saying a moment 
 
±{J!;UUL.ATION OF BAILWAY RATES. Il7 
 
 ago — ^that an increase in ton mileage does not mean a corresponding 
 mcrease of gross earnings. 
 
 Senator Fohaker. Yes. I was not following you. 
 
 Senator Newlands. I can understand that, because the increase 
 might be in lower-priced transportation ; but it is likely to be a very 
 large increase ? 
 
 Mr. MoKAWETZ. Yes, sir ; but that is not proved. 
 
 Senator Newlands. I understood you to say that you thought that 
 the railroads should not be limited in their return upon their capital ; 
 that they should share in some degree the future prosperity. Would 
 you expect them to absorb all of that increase over and above the 
 operating expenses in dividends, or would you expect a part of it to 
 be applied toward a reduction of rates ? 
 
 Mr. MoEAWETZ. I should expect a part of it to be applied in reduc- 
 tion of rates. 
 
 Senator Newlands. About what proportion would you think 
 would be fair, as between the public on the one hand and the rail- 
 roads on the other? 
 
 Mr. MoKAWETZ. I do not think you can state any arbitrary rule. 
 These things, if left alone, will adjust themselves according to natural 
 laws ; and capital in no particular form will be allowed to earn more 
 than a reasonable return, in the long run. 
 
 Senator Newlands. Your idea, then, is that without any regula- 
 tion whatever upon the part of the Government that large increase 
 in earning capacity at present rates would be fairly distributed 
 between the return to capital on the one hand and a reduction of rates 
 on the other ? 
 
 Mr. MoEAWETZ. I have not the slightest doubt about it. We find 
 that the gross earnings of the different railway companies have been 
 constantly increasing at an enormous rate during the last twenty years, 
 and we find that rates have been going down almost as regularly. 
 In fact, in view of the increase of operating expenses, materials and 
 labor, there has not been a year in which the rates have not gone 
 down. 
 
 Senator Dolliver. The Interstate Commerce Commission, in a 
 report to us in the first session of the last Congress, pointed out that 
 during the past five years there had been a rather general increment 
 in the rates charged. 
 
 Mr. Moeawetz. I think the Interstate Commerce Commission's fig- 
 ures will not bear scrutiny on that point. 
 
 Senator Dollivee. They did not claim that there had been an 
 increase in the rate per ton per mile, but they did claim that the great 
 bulk of the merchandise passing from one section of the country to 
 the other had been reclassified, and that the reclassification resulted 
 in an actual charge in addition to the charges prevailing before that 
 time of from 20 to 30 per cent. 
 
 Mr. MoBAWETZ. Well, Senator, it is perfectly clear that the railway 
 companies have earned less money for the work they did than they 
 earned formerly. 
 
 Senator Dollivee. On the contrary, this report seems to indicate 
 that they earned $155,000,000 more last year than, I think, in 1900. 
 
 Mr. Moeawetz. I said " for the -work they did ; " but I do not 
 think it would be of much advantage to me to attempt to go into sta- 
 tistics which I have not in hand. But the exact figures will be fur- 
 
118 REGULATION OF RAILWAY KATES. 
 
 nished to this committee, which I think will prove to a demonstra- 
 tion that the statements of the Interstate Commerce Commission were 
 jot accurate. 
 
 Senator Doli,ivet{. I would like to have accurate statistics showing 
 what the net earnings of the roads would have been during the last 
 year if the tonnage of last year, the operating expenses of last year 
 being the same 
 
 The Chairman. Senator Dolli-\'er, I think if you will ask the 
 Bureau of Statistics they can give you every bit of that information. 
 
 Senator Dolliv'er. No, sir ; I asked the Interstate Commerce Com- 
 mission, and they replied that they had not the figures, so that th« 
 very object of our inquiry 
 
 The Chairman. Well, I think the Bureau of Statistics can fur- 
 nish it. 
 
 Mr. MoRAWETz. I would like to procure anything the Senator 
 wants. 
 
 The Chairman. Then I will state to the Senator that if he will 
 allow me I will get the very figures he wants, I think, and, in addi- 
 tion, Mr. Morawetz will do so. The reason I interfered here was to 
 let Mr. Newlands proceed. Mr. DoUiver is out of order. 
 
 Senator Newlands. I have no objection at all. 
 
 Senator Dollivee. I think my question, abstractly considered, re- 
 lated to our business about as directly as anything that could be 
 asked. 
 
 The Chairman. Undoubtedly; and I want to say to the Senator 
 that we will get the information. 
 
 Senator Newlands. Mr. Morawetz, you were stating that there 
 had been a steady decline in the price of transportation ? 
 
 Mr. Morawetz. Yes, sir. 
 
 Senator Newlands. That has been during a period of great com- 
 petition, has it not ? 
 
 Mr. Morawetz. Yes; there has always been more or less competi- 
 tion ; much less of late though. 
 
 Senator Newlands. Now, through these various systems and 
 groups competition has been very much reduced and will probably 
 be still further reduced. Is not that so ? 
 
 Mr. Morawetz. Yes ; I think that is true — ruinous competition. 
 
 Senator Newlands. And we are beginning now to regard competi- 
 tion between railroads as a bad thing, are we not ? 
 
 Mr. Morawetz. I think that many thinking men have reached that 
 conclusion. 
 
 Senator Newlands. Yes; I have. I regard a railroad as a natural 
 monopoly, myself. Now, then, with these consolidations going on 
 and likely to be perfected still further, is it not probable that the 
 decline in the price of transportation that has been taking place will 
 be arrested unless there is some public regulation and control of the 
 matter ? 
 
 Mr. MoifAWETZ. I do not think so. The consolidation does not 
 relate, except in a few instances, to the consolidation of parallel and 
 competing lines, which would be prohibited by the Sherman Act. 
 
 Senator Newlands. Yes; but, as a matter of fact, I understand 
 that these groups and systems, joined together as they are in some 
 method that Ave do not understand, really operate to put an end to 
 competition between parallel lines; do they not, to some extent? 
 
REGULATION OF RAILWAY RATES. 119 
 
 Mr. MoKAWETZ. I do not think it has had that eli'ect yet. It may 
 in the future. 
 
 Senator Xewlands. Yes. Now, ilr. ^lorawetz, I will ask you this 
 question: We have- now 2,000 railroads in the country, and they are, 
 I believe, under the control of about 600 operating roads, and almost 
 all of these 600 operating roads have noAv come within the control of 
 five or six groups or systems that bear the names of different indi- 
 viduals. Now, vrould it not, in your judgment, facilitate the financ- 
 ing of these roads, the lowering of the rate of , interest upon their 
 bonds, and the proper regulation of these roads by the Interstate 
 Commerce Commission or such other tribunal as we create for that 
 purpose, if we recognized this natural evolution of railroading and 
 sanctioned the consolidation of these roads under proper guards as 
 to the stock issues ? 
 
 Mr. MoEA-wTBTZ. I do not think it -nould facilitate the financing 
 of it. 
 
 Senator Newlands. You do not? 
 
 Mr. MoEAWETZ. No, sir. I think it would make it more difficult. 
 You take two independent railroads: Each has a certain amount of 
 credit. You fuse them into one railroad company, and the combined 
 credit of that one company would often be less than the separate 
 credit of the two constituent companies. 
 
 Senator Newlands. Do you mean to say that where those consoli- 
 dations have taken place" it hae resulted in an increased rate of interest 
 on their bonds instead of a diminished rate of interest? 
 
 Mr. MoRAWETZ. No ; I do not say that. 
 
 Senator Newlands. Well, that is the test of financing, is it not — to 
 get a low rate of interest upon your bonds ? 
 
 Mr. MoEAWETZ. I think it has frequently made it more difficult to 
 raise the money. 
 
 Senator Newlands. As a matter of fact, has not the rate of interest 
 upon the bonds of these railroads been gradually diminishing? 
 
 Mr. MoRAWETz. Yes ; during the last twenty -five years it has. In 
 these things I do not think theorizing is of much avail; you have to 
 take each case in view of its own circumstances. 
 
 Senator Ne\vlands. Then do I understand that you would regard 
 this present system of having 2,000 operating railroads as a thing 
 that should be allowed to be continued, without any attempt to au- 
 thorize and legalize the consolidation of lines? 
 
 Mr. MoRAWETZ. Oh, no. As I said earlier in this hearing, I think 
 if there were a national incorporation act which would enable us to 
 do all those things which we want to do in the management of our 
 properties, it would be a good thing. It would save us a lot of 
 trouble and complication and would be advantageous all around in 
 many cases. . 
 
 Senator Newlands. In your judgment, would it facilitate the pub- 
 lic regulation and control — ^the proper regulation and control — with 
 a view to determining a value upon Avhich a return should be made in 
 the shape of interest ! 
 
 Mr. MoRAWETZ. "V^Tiy, I should think it would make it .easier. I 
 thinlf that if it meant placing the management of the properties in 
 the hands of a Federal interstate commerce commission it would be 
 a great deal worse than the present condition of having the various 
 
120 REGULATION OF RAILWAY RATES. 
 
 State commissions interfere with the management of the local busi- 
 ness of part of the lines. 
 
 Senator Newlands. But this plan would involve an automatic reg- 
 ulation and reduction of rates through a regulation of the return 
 upon the investment, thus drifting the increase of business in the 
 fixture either toward a betterment of the roads or an increase in wages 
 of operatives or a reduction of rates, all of which would be to -the 
 public interest. Under this plan there would not be so much regiila- 
 tion and supervision of the affairs of the corporation by a controlling 
 body as there would be if that whole question were left to drift. 
 
 Mr. MoRAWETz. A'ssuming that this thing could be done constitu- 
 tionally, which I think very doubtful, the practical difficulties would 
 be these: In the first instance, it would give a commission appointed 
 by act of Congress power to allow the railway companies to earn 
 only what this commission saw fit to allow on any valuation which 
 this commission saw fit to place upon the railway properties. 
 
 Senator Newlands. All subjtect to the control of the courts ? 
 
 Mr. MoRAWETz. There would be no way that I can see of really 
 assuring a fair valuation or a fair return to the various properties. 
 But that may be brushed aside as being a consideration only affecting 
 the railway companies. 
 
 Senator Newlands. Of course the purpose of Congress should be 
 to make these investments absolutely secure, not to imperil them at 
 all, with a view to encouraging future railroad building. 
 
 Mr. Mohaavetz. It is a physicallj' impossible thing to lay down 
 any rule which will fit all the railway companies. If the commission 
 established by Congress should fix rates upon, say, the Atchison lines 
 which would enable that company to earn, we will say, 6 per cent net. 
 those same rates might bankrupt a line next to ours on the one side 
 and might allow still another line on the other side to earn 12 per 
 cent. You can not have a different set of rules upon every railroad 
 company in this country. They must all be harmonized, and the 
 traffic will find its level — will work through such channels as present 
 the least resfstance or obstacles in every case. So that you could not 
 by any possibility carry out the scheme which is involved in this 
 plan, as it seems to me. 
 
 Senator Newlands. Such a plan of limitation of dividends has 
 been carried out in the New England States, has it riot, in the case 
 of the Boston and Maine and the New York and New Haven 
 railroads ? 
 
 Mr. MoRAWETZ. Not for the purpose of affecting rates in any way. 
 As I understand it, some of the New England roads are prohibited 
 from declaring dividends at more than a certain rate. 
 
 Mr. TuTTLE. No; that is not true. There is no such prohibition. 
 
 Mr. MoRAWETZ. I understand that the earnings over and above a 
 certain amount may be spent upon betterments. 
 
 Mr. Ttjttle. That is sm error. 
 
 Senator Kean. How about the New Haven road ? 
 
 Mr. TuTTLK. There is no limitation. 
 
 Senator Newlands. Is not the Boston and Maine limited to 8 per 
 cent ? 
 
 Mr. TuTTLE. Not at all ; nobody is limited. Tliat is an error that 
 has been chasing up and down the country for twenty-five years, 
 followed by denials, but it goes just the same. 
 
REGULATION OF RAILWAY RATES. 121 
 
 Senator jSTewlands. I will ask you whether there is not a limita- 
 tion of dividends now, under the laws of the State of Massachusetts, 
 regarding the electric railways of the State ? 
 
 Mr. TuTTLE. None whatever. 
 
 Senator Newlands. What is that limitation of 8 per cent ? 
 
 Mr. TtrxTLE. There was originally in some of the railway charters 
 a limitation that if the railroad should earn 10 per cent, the State 
 might direct that that should be used in improvements upon the 
 property. 
 
 Senator Kean. That was in the case of the New Haven road, was 
 it not? 
 
 Mr. TiTTTLE. No; that was, I think, as* to some Massachusetts 
 roads. The New Haven road was not chartered in Massachusetts. 
 That was chartered in Connecticut, and there is no law in Connect- 
 icut about it. In Nevs' Hampshire there was a law allowing the State 
 to absorb anything above 10 per cent for its own purposes, but the 
 laws have been honored in the breach rather than in the observance. 
 [Laughter.] 
 
 The Chairman. This is a little out of order. Mr. Newlands, pro- 
 ceed with Mr. Morawetz ; he is tired. 
 
 Mr. TuTiLE. Excuse me, Mr. -Chairman, for interjecting. • 
 
 The Chairman. We will give you a chance to-morrow, 
 
 Mr. Morawetz. I would like to say, Mr. Chairman, that besides 
 its being a practical impossibility to adjust the rates of the different 
 railway companies in that, manner, no commission on earth, if you 
 bad the greatest geniuses that ever existed upon that commission, 
 could work out a complete system of rates governing all the railways 
 in the United States, and keep that system a harmonious and work- 
 able one. 
 
 Senator Newlands. Yet you give an instance of, say, two compet- 
 ing roads, and you say the same rates upon one of those roads would 
 be remunerative and upon another would be destructive ? 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. And yet, as I understand it, under the rules 
 laid down by the Supreme Court the Commission in regulating the 
 rates would have to have regard for return upon the value of each? 
 
 Mr. Moraavetz. Yes. 
 
 Senator Newlands. And that would necessarily result in different 
 rates for one road from those which were fixed for the other, would 
 it not? 
 
 Mr. Morawetz. That is, for local business ; yes. 
 
 Senator NEwa.ANDS. But the ^me principle would apply to inter- 
 state business? 
 
 Mr. Morawetz. Yes; but the interstate business is practically all 
 competitive. 
 
 Senator Newlands. That is all. 
 
 Tlie Chairman. Mr. Morawetz, there is one question that I want 
 to ask you about. Will you be here to-morrow? I should prefer 
 your staying over until to-morrow. 
 
 Mr. Morawetz. I would- rather answer the question to-day. 
 
 The Chairman. Mine is very brief, then. Do you regard the 
 present differentials maintained by the railroads as a preference to 
 a port in one State over the ports in other States ? 
 
 Mr. Morawetz. Do vou mean as in violation of the Constitution? 
 
122 EEGULATION OF RAILWAY EATES. 
 
 The CHAiitMAN. No ; is it a preference, without regard to the Con- 
 stitution just now? Is it a preference? As I understand it, the rail- 
 roads maintain differentials by common consent, and there is no law 
 to prevent it. 
 
 Mr. MoEAWETZ. Yes. 
 
 The Chairman. Now, is it a preference? Is the differential in 
 favor of Baltimore, for example, a preference ? 
 
 Mr. MoEAWETZ. I think it is; I think it is a preference given to 
 Baltimore to make up for the natural advantages of New York. 
 
 The Chairman. Very well. Now, that being the case, if Congress 
 confers the power upon a commissi(m (vrhich, for the moment, is the 
 agent of Congress) to fix rates, can the commission fix a rate that 
 would work a preference, under the ninth article of the Constitution? 
 In other words, doing just the same as the railroads do, and the 
 railroads doing this for a wise purpose, could the Commission adopt 
 any uniform rule that would not work a preference? 
 
 Mr. MoRAWETz. I do not see how the Commission could render such 
 a preference compulsory without violating the constitutional pro- 
 hibition; and in order to render that preference compulsory, the 
 C^ommission would have to prohibit the transportation via one of the 
 ports below a certain specified rate. 
 
 The Chairman. That is the point I wanted to make; that is suffi- 
 cient. Now, Senator Carmack asked you a question, and I want to 
 put it in a little different form. 1 have it here. Do I understand 
 from your statement that if, for example, a commission authorized 
 to fix a future rate should fix a differential from Chicago at 15 cents 
 and to Baltimore at 12, the difference in distance not justifying that 
 difference, that would, in your opinion, be a direct jareference pro- 
 hibited by the ninth section of Article T of the Constitution? That 
 is all I wish to ask if you will favor me with an answer to that. 
 
 Mr. MoRAWETZ. If I understand the question correctly, I think it 
 would be a preference given by regulation of commerce in favor 
 of the ports of one State against those of another. 
 
 The Chairman. Could the Commission adopt any but a uniform 
 rule, acting for Congress ? 
 
 Mr. MoRAWETZ. I do not see how it could. 
 
 The Chairman. Very well ; that is sufficient. Are there any other 
 questions ? 
 
 Senator Culi^om. Mr. Chairman, in deference to the fatigue of the 
 witness, I shall waive any further inquiries. 
 
 Senator Foraker. I will take only a minute of Mr. Morawetz's 
 time, for I sympathize with him myself. Mr. Morawetz, your atten- 
 tion was called by Senator DoUiver to the St. Cloud and the Cannon 
 Falls cases. You remember, without my repeating his question, what 
 was involved ? 
 
 Mr. Morawetz. I remember it; yes. 
 
 Senator Foraker. The question I want to ask you is whether or 
 not there is not a complete remedy for that discrimination, if it be 
 discrimination, without just cause, in the law as it now stands, under 
 the third section of the Elkins Act? And in that connection I call 
 your attention to a decision by the Supreme Court, reported in 189 
 TJ. S., at page 274 — the case of the Missouri Pacific Eailway v. The 
 United States. I wish you would glance at the syllabus a moment, 
 for I want to put the effect of that case, at least, into the record. 
 
REGXTLATION OF RAILWAY BATES. 123 
 
 Mr. MoEAWETz. This case involves a question of practice mainly, 
 as I understand it. 
 
 Senator Fokakee. No; it is this kind of case, as you will see if 
 you will look at it: The Missouri Pacific Eailroad was complained 
 of before the Elkins Act was passed. 
 
 Mr. MoEAWETz. Yes. 
 
 Senator Forakee. The charge being that it discriminated against 
 Wichita, Kans., in favof of Omaha. 
 
 Mr. MoEAWETZ. Yes. 
 
 Senator Forakek. Wichita being a shorter route to St. Louis than 
 the distance from Omaha to St. Louis and yet having to pay a much 
 higher rate of freight. 
 
 Mr. MoRAWETz. Yes. 
 
 Senator Foeaker. In the courts below it was held that although 
 the district attorney brought the complaint at the request of the 
 Interstate Commerce Commission, the court had no jurisdiction to 
 entertain the suit; there was no statute at that time authorizing that 
 kind of a proceeding. After the case came to the Supreme Courts 
 and before it was disposed of here, the Elkins bill was passed 
 
 Mr. Morawetz. Precisely. 
 
 Senator Foeakije. In February, 100.3. Then, a few days later, 
 in March, 1903, the Supreme Court held that while the decision of 
 the courts below was correct, on the ground that there was no law 
 authorizing such a proceeding at the time when this action was insti- 
 tuted and passed on by the courts below, yet under the Elkins law, 
 section 3, this identical proceeding had been authorized; and, inas- 
 much as the Elkins law provided it should apply to pending litiga- 
 tion, it applied to this case. 
 
 Mr. MoEAWETz. That is correct ; but it was only a question of prac- 
 tice which was involved in the case. 
 
 Senator Foeaker. No, not a question of practice; they held that 
 the practice below was correct. That is to say, there was no juris- 
 diction in the court, as the court decided ; but they held that the 
 Elkins law had made such a proceeding since its enactment appro- 
 priate. 
 
 Mr. Morawetz. Quite true. 
 
 Senator Forakee. And therefore they reversed the case and sent 
 it back, with instructions to proceed, the point being that the Inter- 
 state Commerce Commission is now authorized to present (if there 
 is any ground for it) just such a complaint as that to which the 
 Senator called our attention in the cases of St. Cloud and Camion 
 Falls. 
 
 Mr. Morawetz. Absolutely; but the lawfulness of the discrimina- 
 tion and charges is for the court to pass on. 
 
 Senator Forakee. Certainly; that is a question of fact. In other 
 words, since the Elkins law was passed, as the Supreme Court of the 
 United States in this instance has held, in all such cases as the Cannon 
 Falls and St. Cloud 
 
 Mr. Morawetz. There was a complete and perfect remedy. 
 
 Senator Foeakee. A complete and perfect remedy and the most 
 expeditious remedy imaginable, and yet there has not been an action 
 instituted by the Interstate Commerce Commission of which we have 
 yet been advised under that decision. 
 
124 REGULATION OF RAILWAY RATES. 
 
 Mr. MoRAWETz. Indeed. I understand that some six or nine months 
 after this decision was rendered the Interstate Commerce Comims_ 
 sion in its report made the statement that it was exceedingly doubttul 
 whether any such remedy existed. 
 
 Senator Foeaker. Perhaps they had not observed this case. I 
 want, with the permission of the committee, to put into the record, 
 in this connection, the statement of facts and the opinion of the court 
 in the case to which I have referred. t j • 
 
 The matter requested by Senator Foraker to be embodied in the 
 record at this point is as follows : 
 
 {Miaaourl Pacific Railway Company v. United States. Appeal from the circuit court 
 of appeals for the eighth circuit. No. 108. Argued January 23-26, 1903, decided 
 March 9, 1903.] 
 
 Prior to the passage of the act of Congress •' to further regulate 
 commerce with foreign nations and among the States," approved 
 February 19, 1903, a district attorney of the United States, under 
 the direction of the Attorney-General of the United States, given in 
 pursuance of a request made by the Interstate Commerce Commis- 
 sion, was without power to commence a proceeding in equity against 
 a railroad corporation to restrain it from discriminating in its rates 
 between different localities. Held, therefore, that there was error 
 committed below in refusing to sustain a demurrer of a defendant 
 railroad company to a bill filed by a district attorney of the United 
 States under the circumstances stated. 
 
 As, however, the act of February 19, 1903, expressly conferred the 
 power which did not theretofore exist, and as that act specifically 
 provided that the new remedies which it created should be applicable 
 to all causes then pending, held, that although the action of the lower 
 court in refusing to sustain the demurrer would be overruled, the case 
 would not be finally disposed of, but would be remanded for further 
 proceedings in consonance with the provisions of the act of February 
 19, 1903. 
 
 The original bill of complaint in this cause was filed on behalf of 
 the United States against the present appellant in the circuit court of 
 the United States for the second division of the district of Kansas on 
 July 26, 1893. To the bill a demurrer was filed and overruled. 
 (65 Fed. Eep., 903.) Subsequently exceptions were sustained to an 
 answer, and thereafter an amended answer and a replication were 
 filed. The questions now presented for decision, however, were 
 raised by an amended bill filed on July 19, 1897. In such amended 
 bill it was alleged that the suit was brought on behalf of the United 
 States by the United States attorney for the district of Kansas bv the 
 authority of and under the direction of the Attorney-General o^ the 
 United States and that such authority and direction had been given 
 in pursuance of a request of the Interstate Commerce Commission 
 of the United States " that the United States attorney for the district 
 of Kansas be authorized and directed to institute and prosecute aU 
 necessary proceedings, legal or equitable, for the enforcement of the 
 provisions of the interstate-commerce law against the defendant in 
 relation to the matters herein complained of." It was further 
 averred in substance that the respondent was subject to the terms and 
 provisions of the act to regulate commerce (24 Stat. L., 379), and 
 •operated lines of railway between the city of St. Louis, in the State 
 
REGULATION OF RAILWAY RATES. 125- 
 
 of Missouri, and the city of Omaha, in the State of Nebraska, a dis- 
 tance of 501 miles, and between the city of St. Louis and the city of 
 Wichita, in the State of Kansas, a distance of 458 miles. 
 
 It was charged that in the transportation of freight between St. 
 Louis and said cities of Omaha and Wichita the service was substan- 
 tially of a like, contemporaneous character, and was made under 
 substantially similar circumstances and conditions, but that, notwith- 
 standing such fact, the rates exacted upon shipments of freight be- 
 tween St. Louis and Wichita very much exceeded the rates charged 
 on freight shipped between St. Louis and Omaha. It was averred 
 that the collection of such alleged excessive freight rates or any rate 
 of freight on shipments between St. Louis and Wichita in excess of 
 the rate charged for shipments of freight of a similar character and 
 classification betAveen St. Louis and Omaha, operated an unjust and 
 unreasonable prejudice and disadvantage against the city of Wichita 
 and the localities tributary thereto, and against the shippers of freight 
 between St. Louis and the city of Wichita. Averring that the 
 wrongs complained of " are remediless in the premises under the 
 ordinary forms and proceedings at law, and are relievable only in a 
 court of equity and in this form of procedure," the ultimate relief 
 asked was the grant of a perpetual injunction restraining the re- 
 spondent from continuing to exact a greater rate for transportation 
 of freight of like classification between the city of Wichita and the 
 city of St. Louis than was asked between the city of St. Louis and the 
 city of Omaha. A demurrer was filed to the amended bill upon 
 various grounds, one of which denied the right of the United States 
 to institute the suit, 
 
 On hearing, the demurrer was overruled, exception was reserved, 
 and, the defendant electing to stand on its demurrer, a final decree 
 was entered granting a perpetual injunction as prayed and, on 
 appeal, the circuit court of appeals affirmed the decree but filed no 
 opinion. An appeal was thereupon allowed. 
 
 * * ^ * * * * 
 
 Mr. Justice White, after making the foregoing sta:tement, deliv- 
 ered the opinion of the court : 
 
 The violation of the act to regulate commerce, complained of in 
 the amended bill, was an asserted discrimination between localities 
 by a common carrier subject to the act, averred to operate an unjust 
 preference or advantage to one locality over another. The right to 
 bring the suit was expressly rested upon a request made by the Inter- 
 state Commerce Commission to do so, in order to compel compliance 
 with the provisions of the act to regulate commerce relating to the 
 matters complained of in the bill. 
 
 Bearing in mind that, prior to the request of the Commission upon 
 which the suit was brought no hearing was had before the Commis- 
 sion concerning the matters of fact complained of, and therefore no- 
 finding of fact whatever was made by the Commission, and it had 
 issued" no order to the carrier to desist from any violation of the law 
 found to exist, after opportunity afforded to it to defend, the ques- 
 tion for decision is whether, under such circumstances, the law officers 
 of the United States at the request of the Commission Were author- 
 ized to institute this suit. 
 
 Testing this question by the law which was in force at the time 
 
126 KEGULATION OF BAIL WAY BATES. 
 
 when the suit was begun and when it was decided below, we are of 
 the opinion that the authority to bring suit did not exist. 
 
 But this is not the case under the law as it now exists, since power 
 to prosecute a suit like the one now under consideration is expressly 
 conferred by an act of Congress adopted since this cause was argued 
 at bar — that is, the act " to further regulate commerce with foreign 
 nations and among the States," approved February 19, 1903. By sec- 
 tion 3 of that act it is provided : 
 
 " That whenever the Interstate Commerce Commission shall have 
 reasonable ground for belief that any common carrier is engaged in 
 the carriage of passengers or freight traffic between given points at 
 less than the published rates on file, or is committing any discrimi- 
 nation forbidden by law, a petition may be presented alleging such 
 facts to the circuit court of the United States, sitting in equity, hav- 
 ing jurisdiction; and when the act complained of is alleged to have 
 been committed or is being committed in part in more than one judi- 
 cial district or State, it may be dealt with, inquired of, tried, and 
 determined in either such judicial district or State, whereupon it 
 shall be the duty of the court summarily to inquire into the circum- 
 stances, upon such notice and in such manner as the court shall direct, 
 and without the formal pleadings and proceedings applicable to 
 ordinary suits in equity." 
 
 And the same section moreover provides as follows': 
 
 " It shall be the duty of the several district attorneys of the United 
 States, whenever the Attorney-General shall direct, either of his own 
 motion or upon the request of the Interstate Commerce Commission, 
 to institute and prosecute such proceedings, and the proceedings pro- 
 vided for by this act shall not preclude the bringing of suit for the 
 recovery of damages by any party injured, or any other action pro- 
 vided by said act approved Feoruary 4, 1887, entitled 'An act to regu- 
 late commerce,' and the acts amendatory thereof." 
 
 Although by the fourth section of the act conflicting laws are 
 repealed, it is provided " but such repeal shall not affect causes now 
 pending nor rights which have already accrued, but such causes shall 
 be prosecuted to a conclusion and such rights enforced in a manner 
 heretofore provided by law [italic ours] and as modi-fled hy tJie pro- 
 visions of this acty We think the purpose of the latter provision was 
 to cause the new remedies which the statute created to oe applicable 
 as far as possible to pending and undetermined proceedings brought, 
 prior to the passage of the act, to enforce the provisions of the act to 
 regulate commerce. In the nature of things it can not be ascertained 
 from the record whether the railroad company now exacts the rates 
 complained of as being discriminatory and which it was the purpose 
 of the suit to correct; but if it does, of course the power to Question 
 the legality of such rates by a suit in equity, brought like the one 
 now here, clearly exists. Under these conditions we think the ends 
 of justice will best be served by reversing the decrees below and 
 remanding the cause to the circuit court for such further proceedings 
 as may be consistent with the act to regulate commerce as originallv 
 enacted and as subsequently amended, especially with reference to 
 the powers conferred and duties imposed by the act of Congress 
 approved February 19, 1903, heretofore referred to. 
 
 The decree of tlie circuit court of appeals is reversed- the decree 
 
KEGULATION OF RAILWAY BATES. 127 
 
 of the circuit court is also reversed, and the cause is remanded to the 
 circuit court for further proceedings in conformity with this opinion. 
 
 S|G 3|> 3|C Sfs Sfc SfS *|b 
 
 lilr. Justice BreAver, with whom concurred Mr. Justice Harlan, 
 dissenting : 
 
 I am unable to concur in either the opinion or the judgment in this 
 case. 
 
 I think there was no final decree in the circuit court, and that there- 
 fore the court of appeals should have dismissed the appeal. After 
 the cause had been once put in issue by bill, answer, and replication 
 a stipulation was filed as follows : 
 
 " Whereas after joining issue upon the pleadings heretofore filed 
 in the above-entitled suit, to wit, the original bill of complaint, the 
 demurrer thereto, the original answer, the amended answer and the 
 replication thereto, it has been determined by all of the parties to 
 and all of the parties interested in said suit that it is desirable and 
 best that the questions of law arising upon the bill of complaint as 
 amended and a demurrer thereto be first finally adjudicated and put 
 at rest by the circuit court of appeals of the United States and the 
 Supreme Court of the United States ; 
 
 " Now, therefore, it is hereby agreed and stipulated by and be- 
 tween the above-named complainants, by their solicitors, W. C. Perry 
 and M. Cliggitt, and the above-named defendant, by its solicitors, 
 J. H. Richards and C. E. Benton, that said complainants shall file an 
 amended bill of complaint in said suit, to which said defendant shall 
 file a demurrer, and that, if the court before which said cause is now 
 pending shall overrule said demurrer and allow the relief prayed for 
 in said amended bill of complaint, then said defendant shall proceed 
 to appeal said caupe in due course, and that the party, complainants 
 or defendant, against which said circuit court of appeals shall decide 
 adverselj' shall, if said party so desires, in due course appeal said 
 cause for final determination to the Supreme Court of the United 
 States. 
 
 "And it is further hereby agreed and stipulated that pending said 
 appeal and all the procedure incident thereto the decree and order of 
 said courts, whether it be said circuit court of the United States for 
 the district of Kansas, or said circuit court of appeals, or said 
 Supreme Court of the United States, if adverse to said defendant, 
 allowing and decreeing the reliefs and remedies prayed for in said 
 amended bill of complaint, shall be suspended and not enforced 
 against said defendant, the Missouri Pacific Railway Company, and 
 when a decision has been rendered in said suit by said circuit court 
 of appeals, or by the Supreme Court of the United States, if the 
 cause is taken to that court, then it is further hereby agreed and 
 stipulated that the decision and judgment of either or both of said 
 courts, if adverse to said defendant, the Missouri Pacific Railway 
 Company, shall be vacated, set aside, and annulled, and shall not be 
 regarded as of any force or effect against said defendant, the Mis- 
 souri Pacific Railway Company, except so far as holding the amended 
 bill to be sufficient, but that said the Missouri Pacific Railway Com- 
 pany shall have the right and shall be permitted to file an answer in 
 said suit, to which said complainants the United States of America 
 shall in due course file a replication thereto, and the issues shall be 
 duly joined and the cause proceed to hearing and determination upon 
 
128 EEGULATION OF RAILWAY BATES. 
 
 its merits in due course, the intention of this agi'eement being that 
 the proceedings had upon the demurrer to said amended bill ot com- 
 plaint and the proposed appeal of said suit to a higher court shall 
 in no manner prejudice the right of said defendant to a trial of said 
 suit upon its merits. 
 " Dated this 16th day of July, 1897. 
 
 "W. C. Pekey, 
 " Morris C. Cliggit, 
 " Solicitors for Complainant.'''' 
 
 On an application made by the complainant, supported by tho 
 affidavit of his solicitor, stating that the defendant consented thereto, 
 an order was entered giving the complainant leave to file an amended 
 bill, and also to the defendant, with consent of the complainant, 
 like leave to file a demurrer. An amended bill of complaint and a 
 demurrer thereto were filed, the demurrer was sustained, and the 
 defendant electing to stand on its demurrer a decree was entered in 
 behalf of the complainant. A transcript before us shows that all 
 this, from the filing of the stipulation to the entering of the decree, 
 took place on the same day, to wit, July 19. Obviously all subse- 
 quently thereto was done in pursuance of the stipulation. That the 
 stipulation was not signed by the solicitors for the defendant is 
 immaterial, as it was for its benefit alone. In the brief for the Gov- 
 ernment in this court, after a statement of preliminary proceedings, 
 it is said : 
 
 " It being jnanifest that the great volume of testimony would have 
 to be taken, and as the defendant had raised the serious question 
 whether the United States could maintain the suit, or had the right, 
 in its own name, and without a preliminary hearing before the Inter- 
 state Commerce Commission, to enforce, by injunction, the provisions 
 of the interstate-commerce act which forbid discrimination, it was 
 thought best to finally settle that question. Therefore the stipula- 
 tion on pages 53-54 was entered into. That stipulation provides for 
 the filing of an amended bill, the leveling of a demurrer thereat, and 
 an appeal or appeals to the United States circuit court of appeals 
 and to this court. The amended bill was filed (pp. 55-60) ; the 
 defendant demurred (p. 61) ; the court overruled the demurrer, and 
 the defendant, electing to stand on its demurrer, final decree was 
 entered in favor of the complainant (pp. 62-73)." 
 
 And in the brief for the defendant and appellant it is in like 
 manner said : 
 
 "After all this the parties made the stipulation found on page 53, 
 to the effect that ' it is desirable and best that the questions of law 
 arising upon the bill of complaint as amended and a demurrer thereto 
 be fi-rst finally adjudicated and put at rest by the circuit court of 
 appeals of the United States and the Supreme Court of the United 
 States,' which it was stipulated might be done without prejudice to 
 the right of the defendant if it were held that the bill was maintain- 
 able to a trial of the suit upon its merits. 
 
 "• The amended bill was accordingly filed ( E,ecord, pp. 55-60) ; 
 demurrer thereto was filed (p. 61), and a decree rendered in favor of 
 the complainant." 
 
 Now, although it may. be that the stipulation was not brought into 
 the record by means of a bill of exceptions, and although it does not 
 
EEGXJIiATION OF RAILWAY EATES. 129 
 
 affirmativeh^ appear that the trial court ^vas made aware of this 
 stipulation, or acted in pursuance thereof, yet as the railway com- 
 pam' brings here a record containing the stipulation, and as it is 
 admitted by counsel for both parties that it was entered into, and that 
 subsequent proceedings were had in pursuance of its agreements, I 
 think notice should be taken of it by this court. 
 
 Indeed, if nothing appeared of record, and counsel should admit 
 before us that a stipulation had been entered into between the parties 
 in respect to the finality of the decree, ought we not to act on such 
 admission? Can parties stipulate that questions of law shall alone 
 be presented to this court, and that if our decision be one way the 
 case shall thereafter proceed in the trial court for an inquiry and 
 decree upon the facts? I know that the statutes of some States 
 permit the taking of a case to the appellate court upon a ruling made 
 on a demurrer, but we have always held that the decree or judgment 
 must be final before we are called upon to review it. When a case 
 has once been decided by this court no further proceedings can be 
 had in the trial court except upon our direction, whereas here the 
 parties have stipulated that without such direction a new trial may 
 be had. In other words, our decision is not to be final although we 
 affirm the decree. It seems to me that the decree of the court of 
 appeals should be reversed and the case remanded to that court with 
 directions to dismiss the appeal. 
 
 Upon the merits, also, I dissent. The bill is an original bill in 
 behalf of the United States, filed under the direction of the Attorney- 
 General,' and the fact that the Interstate Commerce Commission re- 
 quested him to cause this suit to be instituted in no manner adds to 
 or affects the question of the Government's right to maintain it. 
 The Commission was not asking the Department of Justice to enforce 
 any of its orders, in which case, as we held in East Tennessee, Vir- 
 ginia and Georgia Railway Company v. Interstate Commerce Com- 
 mission (181 U. S., 1) , it would become our duty to examine the pro- 
 ceedings had before the Commission. This is an independent suit 
 instituted by the Government, not to carry into effect any orders of 
 the Commission, but to enforce a duty cast upon carriers of interstate 
 commerce, and the right of the Government to maintain such a suit 
 does not depend upon the request of any individual or board. The 
 twenty-second section of the act to regulate commerce provides that 
 " nothing in this act contained shall in any way abridge or alter the 
 remedies now existing at common law or by statute, but the pro- 
 visions of this act are in addition to such remedies." Every remedy, 
 therefore, that the Government or any individual had to compel the 
 performance by carriers of interstate commerce of their legal obli- 
 gations remains unaffected by that act. 
 
 We held In re Debs (158 tj. S., 564), that the United States had a 
 right, even in the absence of a statute specially authorizing such 
 action, to come into the Federal courts by an original bill to restrain 
 parties from obstructing and interfering with interstate conunerce. 
 It seems to me singular that the Government can maintain a bill to 
 prevent others from obstructing and interfering with interstate com- 
 merce and yet can not maintain a bill to compel carriers to fully dis- 
 charge their duties in respect to such commerce. Can it be that the 
 Government has power to protect the carriers of interstate commerce 
 and not power to compel them to discharge their duties? 
 
 H R E— 05 M 9 
 
130 REGULATION OP KAIL WAY KATES. 
 
 It is said that this is a suit to compel the carrier to refrain from 
 discriminatiiig between places; that there was no common-law dnty 
 to abstain from such discrimination; that it is forbidden only by 
 statute. But confessedly it was a common-law duty of a carrier to 
 make no unreasonable charges. It is distinctly averred in the 
 amended bill (Record, 57, 59) : 
 
 "And vour orators f\]rther aver and show unto your honors that 
 said defendant has established and for a long time has mamtamed 
 and still maintains in force on the line of its railroad between the 
 city of St. Louis and the city of Wichita rates, rules, and regulations 
 governing all freight traiBc between said cities over the said railroad 
 which are unjust and unreasonable, in this, that said charges for serv- 
 ices rendered by said company in the transportation of property and 
 freight of each and every classification between the said city of St. 
 Louis and the city of Wichita is excessive, exorbitant, unreasonable, 
 and unjust to the extent and amount that such rates and charges 
 exceed the rates and charges on the line of said defendant's railroad 
 between the cities of St. Louis and Omaha, all of which is to the great 
 detriment , and hindrance of commerce and trade between the said 
 cities of St. Louis and Wichita, and between the localities to which 
 said cities contribute as a supply point, and to the irreparable 
 injury of the public and to the people of the United States. 
 
 "And your orators further aver and show unto your honors that 
 any schedule rates and freight charges for the various shipments and 
 classifications hereinbefore set forth between the said cities of St. 
 Louis and Wichita that are in excess of the tariff schedules and 
 freight charges for shipments of the like kind and class of property 
 between the cities of St. Louis and Omaha are unreasonable, exces- 
 sive, exorbitant, and unjust in and of themselves, and constitute an 
 unreasonable discrimination against Wichita and the localities tribu- 
 tary thereto and the people living therein and against persons ship- 
 ping freight between the cities of Wichita and St. Louis, and subject 
 such persons and localities to an unjust and unreasonable prejudice 
 and disadvantage." 
 
 The truth of these allegations is admitted by the demurrer. The 
 charges for shipments for freight between St. Louis and Wichita are 
 " unreasonable, excessive, exorbitant, and unjust in and of them- 
 selves." Surely here is a disregard of what was at common law a 
 plain and recognized duty of the carrier. 
 
 Further, while at common law a mere difference in the prices 
 charged by the carrier to two shippers respectively might not have 
 been forbidden, yet it may well be doubted whether, if the difference 
 was so great as to amount to an unreasonable discrimination, the rule 
 would not have been otherwise. In Interstate Commerce Commis- 
 sion V. Baltimore and Ohio Railroad (145 U. S., 263, 275) we said: 
 
 " Prior to the enactment of the act of February 4, 1887, to regulate- 
 commerce, commonly known as the interstate-commerce act (24 Stat. 
 L., 379, ch. 104) , railway traffic in this country was regulated by the 
 principles of the common law applicable to common carriers which 
 demanded little more than that they should carry for all persons who 
 applied, in the order in which the goods were delivered at the par- 
 ticular station, and that their charges for transportation should be 
 
EEGULATION OF BAIL WAY RATES. 131 
 
 reasonable. It was even doubted whether they were bound to make 
 the same charge to all persons for the same service (Fitchburg R. B. 
 Co. V. Gage, 12 Gray, 393; Baxendale v. Pjastern Counties Railway 
 Co., 4 C. B. (N. S.) 63; Great Western Ev. Co. v. Sutton, L. R., 4 H. 
 L., 226, 237; Ex parte Benson, 18 S. C.,' 38; Johnson f. Pensacola 
 Ry. Co., 16 Fla., 623) , though the weight of authority in this country 
 was in favor of an equality of charge to all persons for similar 
 services." 
 
 But beyond this the interstate-commerce act itself forbids unjust 
 discrimination, and such discrimination is also clearly and fully set 
 forth in the bill. Can it be that the Government is powerless to 
 compel the carriers to discharge their statutory duties ? It is nowhere 
 said in the interstate-commerce a:ct that this duty or any other duty 
 prescribed by statute is to be enforced only through the action of the 
 Commission. On the contrary, as we have seen, it expressly pro- 
 ■\ddes that all other remedies are left unaffected by the act, and a duty 
 cast by statute equally with a common-law duty may by the very 
 language of the act be enforced in any manner known to the law. 
 
 Further, the act to regulate commerce, as originally passed, in sec- 
 tion 16, required the district attorneys of the United States, under 
 the direction of the Attorney -General, to prosecute suits to compel 
 carriers to obey the orders of the Commission. If all remedies were 
 to be secured only through action in the first instance by the Com- 
 mission that provision was all that was necessary, but in the amenda- 
 tory act of 1889 (25 Stat., 855), there were added, in section 12, this 
 clause : 
 
 " The Commission is hereby authorized and required to execute and 
 enforce the provisions of this act ; and, upon the request of the Com- 
 mission, it shall be the duty of any district attorney of the United 
 States to whom the Commission maj' apply to institute in the proper 
 court and to prosecute, under the direction of the Attorney-General of 
 the United States, all necessary proceedings for the enforcement of 
 the provisions of 'this act and for the punishment of all violations 
 thereof." 
 
 Clearly that contemplates just such a case as the present, and 
 when, in the judgment of the Commission, it is better that the 
 proceedings should be had primarily in the courts, it may call upon 
 the legal officers of the United States to bring the proper actions. 
 
 For these reasons I am compelled to dissent, and I am authorized 
 to say that Mr. Justice Harlan concurs in this opinion. 
 
 Senator Caemack. I would like to have Mr. Morawetz put a state- 
 ment in the record as to how the railroads arrive at their net earnings. 
 I want a statement of that sort in the record, for purposes of my own. 
 
 Senator Dollivee. And, Mr. Chairman, as I was about to ask a 
 question which seemed to me to pertain to the object of this meeting, 
 which was ruled out of order, I intend to insist upon asking Mr. 
 Morawetz that question. 
 
 The Chairman. Well, at once, or 
 
 Senator Dollivee. As soon as the situation develops so that I can 
 do it. [Laughter.] 
 
 The Chairman. Do j'ou wish Mr. Morawetz to reply to Senator 
 Carmack first, or to you ? 
 
132 EEGULATIOBT OF RAILWAY BATES. 
 
 Senator Dolliver. Senator Carmack asked him to put into the 
 record a certain statement. 
 
 Senator Carmack. If he can state it now, I would like to have him 
 do so ; or, if it will save time, he might put it into the record later. _ 
 
 Mr. MoRA^^■ETz. I wish to say now that there is no absolutely uni- 
 form rule that is observed by all the railway companies. In the 
 main the operating expenses are made up of several separate items. 
 One is what is caUed maintenance of way — that is, the maintenance 
 of the fixed property. Another is called maintenance of equipment, 
 which is maintenance of the condition of the rolling stock. _ Still 
 another is conducting transportation, which is the expense of mov- 
 ing the business. But of course there is a great deal of latitude 
 in determining what items shall go in under the general head of 
 maintenance. Some roads are very strict in calling no expendi- 
 ture maintenance which in any way improves or adds to their 
 properties. Some roads spend - a great deal on their properties, 
 which improves their condition: but the general principles of ac- 
 counting upon this subject are perfectly well settled. The applica- 
 tion of those principles varies according to circumstances. Some 
 roads are not even uniform in their methods. Some years they will 
 charge to operating expenses or maintenance more liberally than in 
 other years. As a rule, though, my belief is that there are very few 
 roads in the United States that charge enough for maintenance of 
 property. Most of them charge things to capital account, as an 
 increase of their capital, which do not add to the earning capacity 
 of the property in the long run and should properly be charged as 
 an expense of operation. 
 
 Senator Carmack. There is no uniform rule among the railroads 
 as to what is included even in operating expenses ? 
 
 Mr. MoRA'H'iETZ. No, sir ; I say there is no uniform rule. 
 
 Senator Carmack. And a number of the railroads do not follow, 
 themselves, a uniform rule ? 
 
 Mr. MoRAWETz. Not always. 
 
 Senator Carmack. Some things they include one year and another 
 year they do not ? 
 
 Mr. MoRAWETZ. That is true of some of them ; yes. 
 
 Senator Carmack. Are taxes deducted in arriving at net earnings? 
 
 Mr. MoRAWETz. Well, frequently, in fact usuafly, taxes are not 
 counted into operating expenses ; they are a separate item. 
 
 Senator Newlands. Yes; but Senator Carmack was inquiring of 
 you how you ascertain your net earnings. 
 
 The Chairman. They are deducted, though, in order to reach the 
 net earnings? 
 
 Mr. MoRAWETz. The net income. 
 
 Senator Carmack. I want to know what are deducted in order to 
 arrive at net earnings, so that we can understand just exactly what 
 is meant when the term " net earnings " is used. Of course we know 
 it is a different thing from net profits. 
 
 Mr. MoR^AVETZ. It is largely a matter of definition — of phraseoloo'y. 
 I think the custom is first to deduct operating expenses from the gross 
 earnings, and the balancfe would be called net earnings. Then you 
 deduct interest, rentals, and taxes, and what is left there would be 
 •what is called net income. 
 
REGULATION OF RAILWAY RATES. 133 
 
 Senator DoUiWEE. Now, Mr. Chairman, the question I want to get 
 at is this: Does the prevailing system of railway accounts make a 
 calculation possible of what the net income of the year 1904 would 
 have been if the traffic of that year had moved upon the rates pre- 
 vailing in the year 1900? The complaint of the public is that rates 
 have been raised; the answer of the companies is that the cost cf 
 operation and various other things was raised ; and of course I think 
 the critical question is whether the net income has been exorbitantly 
 increased. Therefore, I would like to get at, if I can, what the 
 income of these roads would have been last year, for example, if 
 these rates had not been raised, so as to determine whether there would 
 have been any net income left for dividends and profits on the 
 business. 
 
 Mr. MoEAWETZ. If they had not been raised ? 
 
 Senator Dollivek. Yes, sir. 
 
 Mr. MoKAWETZ. I think that information could be obtained ; yes. 
 
 Senator Dollivek. The Interstate Commerce Commission tell me 
 that the reports to the Commission do not sufficiently separate this 
 account to enable them to tell anything about it, or to enable them to 
 answer intelligently that question ; but it seems to me that it ought to 
 be answered. 
 
 The Chairman. As I understand, Mr. Morawetz will try to fur- 
 nish the information, but he can not do it just now. 
 
 Senator Dollivee. I will be greatly obliged to him. 
 
 Mr. MoEAWETZ. 1 am quite clear that I could not give with abso- 
 lute accuracy the information as to all the railways in the United 
 States; in fact, the only way of getting at it with perfect accuracy 
 would be to analyze the traffic returns. 
 
 Senator Dollivek. -Will you analyze the traffic accounts of the 
 Atchison ? 
 . Mr. Moeawetz. On that point ? 
 
 Senator Dollivee. Yes. 
 
 Mr. Moeawetz. I will endeavor to have that done. 
 
 Senator Dollivee. Now, it is proper to say that witnesses were 
 here in the last Congress claiming that your cattle rates from the 
 Southwest toward the feeding grounds had been grossly increased 
 within the last year or two. 
 
 Mr. Moeawetz. They never were profitable; but if you will — of 
 course an expert investigation by the accountants of the road would 
 be necessary in order to determine this; a detailed examination 
 would be necessary of the books and vouchers. 
 
 Senator Dollivee. Well, that is what we are here for. 
 
 Senator Foeakee. I think you ought to call Mr. Morawetz's atten- 
 tion further to the matter to which he has just alluded. I suppose 
 you refer to the testimony of Mr. Cowan ? 
 
 Senator Dollivee. Yes, sir. 
 
 Senator FoEAiiER. In a general way, the witness that Senator 
 DoUiver has referred to testified that your company has increased 
 charges for the transportation of cattle from, the Southwest to what 
 points ? 
 
 Senator Dollivee. Points in Nebraska and South Dakota. 
 
 Senator Foeakee. Yes; almost 100 per cent during the last four 
 or five years ; that you had nearty doubled your charges. I have not 
 
134 EEGULATION OP RAILWAY RATES. 
 
 that testimony before me. I did not hear it, but I read it in the 
 rGCord. 
 Mr. MoRAWETZ. Was that testimony taken before the Senate com- 
 
 Senator Forakee. It was taken before this committee — ^the testi- 
 mony of S. H. Cowan. 
 
 Mr. MoRAWETz. I will examine that and I will hare the matter 
 
 Senator Foraker. Yes, sir ; we would be glad to have your answer 
 to it, if there is any answer. 
 
 Mr. MoRAAVETz. '^I will get it. 
 
 Senator Foraker. That is all. 
 
 Senator Newlands. Mr. Morawetz, I would hke to ask you just 
 one question, and that is whether you think, as the Interstate Com- 
 merce Commission is organized, it would be better to have that entire 
 Commission at Washington or divide it up into three or four com- 
 missions — one for the Pacific coast, say ; one for the country west of 
 the Missouri, one for the country tributary to New Orleans, and 
 another for the eastern territory ? 
 
 Mr. Morawetz. As this Commission would deal with through 
 rates, I think it would be absolutely impossible to have a number of 
 independent commissions. You would have to work through one 
 commission. 
 
 Senator Newlands. They could sit together in banc, could they 
 not, at times ? 
 
 Mr. Moraavetz. Oh, yes ; they might combine. 
 
 Senator Clapp. Like the railroads. [Laughter.] 
 
 Senator Neavlands. Mr. Fisher's contention was that the traffic 
 managers of all the roads, for instance, between Chicago and NeA^' 
 Orleans and Atlanta and those points, met in Chicago and practically 
 determined these rates from time to time; there Avere shifting con- 
 ditions which Avould require shifting action. 
 
 Mr. Morawetz. Yes. 
 
 Senator Newlands. The question in my mind was whether we 
 could not have, right at Chicago, where these rates are made by the 
 railroad com])anies, a commission composed of four or five men, the 
 very best traffic managers of the country, men experienced in the 
 business and not mere tyros, who could <lo the business of revision 
 just as satisfactorily as the present traffic managers could do the 
 business of Originally fixing the rates? 
 
 Senator Foraker. You do not contemplate dispensing with the 
 services of the present Interstate Commerce Commissioners, do you? 
 
 Senator Newlands. No; enlarging the Commission. 
 
 The Chairman. If there are no further questions, Mr. Morawetz, I 
 will express the thanks of the committee for your presence. 
 
 Mr. Moraavetz. I am verj' glad to have been here. 
 
 The committee thereupon adjourned to meet to-morrow, Thursday, 
 April 20, 1905, at 11 o'clock a. m. 
 
BEGULATION OF RAILWAY EATES. 135 
 
 Thuksdat, April W, 1905. 
 The committee met pursuant to adjournment. 
 
 Present: The chairman and Senators Cullom, Kean, Dolliver, 
 Foraker, Clapp, Millard, Carmack, and Newlands. 
 
 STATEMENT OF MR. LUCIUS TUTTLE. 
 
 The Chairman. Mr. Tuttle, if you are ready to proceed, you may 
 state your name, place of residence, and business. 
 
 Mr. Tuttle. Lucius Tuttle; residence, Boston; president of the 
 Boston and Maine Railroad, of the Maine Central Railroad, of the 
 Washington County Railway, and some others. 
 
 The Chairman. You have had advices of this hearing and a copy 
 of the resolution was sent you ? 
 
 Mr. Tuttle. That is correct. 
 
 The Chairman. You can address yourself to the subject-matter of 
 that resolution in any wajr you see fit. 
 
 Mr. Tuttle. I think, Mr. Chairman and Senators, that it must be 
 admitted that there is abroad among the people of this country a 
 very marked sentiment in favor of some supervision or regulation of 
 the railways, and I think it would be proper, with your permission, 
 that we should look a little first into the manner in which this senti- 
 ment has voiced itself. 
 
 I think, first, we might take what the President of the United 
 States has said in his message to Congress, and with your permission 
 I will read just a little. In the first part he said : 
 
 Above all else we must strive to keep the highways of commerce open to all 
 on equal terms, and to do this it is necessary to put a complete stop to all 
 rebates. Whether tlie shipper or the railroad is to blame makes no difference ; 
 the rebate must be stopped, the abuses of the private car and private terminal- 
 track and side-track systems must be stopped, and legislation of the Fifty-eighth 
 Congress, which declares it to be unlawful for any person or corporation to 
 offer, grant, give, solicit, accept, or receive any rebate, concession, or discrimi- 
 nation in respect of the transportation of any property in interstate or foreign 
 commerce whereby such property shall by any device whatever be transported 
 at a less rate than that named in the tariffs published by the carrier, must be 
 enforced. 
 
 Then he says later : 
 
 I am of the opinion that at present it would be undesirable, if it were not 
 impracticable, finally to clothe the Commission with general authority to fix 
 railroad rates. I do believe that, as a fair security to shippers, the Commission 
 should be vested with the power, where a given rate has been challenged and 
 after full hearing found to be unreasonable, to decide, subject to judicial review, 
 what shall be a reasonable rate to take its place, the ruling of the Commission 
 to take effect immediately and to obtain unless and until it is reveirsed by the 
 court of review. 
 
 One of the most active and able of the Interstate Commerce Com- 
 missioners has expressed some views in public utterances on these 
 points. Commissioner Prouty said, in an address before the Economic 
 Club, of Boston, on the 9th of March last : 
 
 That the people are not in, a frame of mind to oppress the railways is not the 
 fault of the railways themselves. For the last eighteen years these gentlemen, 
 who now insist; that they are above all control, have willfully and continuously 
 violated the statute law and have built up by their rebates trusts and monopo- 
 lies, which are the most difficult of all social problems. They have filled their 
 
136 REGULATION OF EAILWAY KATES. 
 
 published tarifes with discriminations in favor of gigantic combinations ; they 
 have themselves become the greatest of all monopolies; they have used their 
 tremendous power to stifle all action and even all discussion. And what to-day 
 is the attitude of these same gentlemen? Stiff-necked defiance. They are 
 " utterly and unalterably " opposed to all supervision of railway rates. Ill does 
 it become men with that record to accuse a long-sufCering people of dishonesty 
 when it demands at last regulation which shall in fact regulate. The oppression 
 which these gentlemen foretell, if it ever comes, will be the legitimate conse- 
 quence of their own conduct. 
 
 Again, at that same meeting Mr. Prouty said : 
 
 It is familiar knowledge that less than a half dozen railway magnates con- 
 trol 120,000 of the 200,000 miles of railway, "and that the remaining mileage is 
 largely at their mercy. 
 
 At an earlier date, on January 25, 1905, Mr. Prouty, speaking to 
 the Wholesale Lumbermen's Association, in Boston, said : 
 
 I may say, for your information, that the railroad combinations have pro- 
 ceeded to that extent that to-day five men can in most cases determine what 
 rates shall be imposed upon the shippers of the country, except in so far as 
 water competition and certain other competitive conditions prevent. 
 
 Mr. John J. Esch, of the House, has written for the National 
 Magazine, I think of the last month, an article in which he has made 
 some rather violent strictures on those who have control of railways. 
 He says : 
 
 It is further contended that such regulation will lead to socialism and gov- 
 ernment ownership. Who is responsible for the present growth of socialism in 
 the United States? What causes its growth; where does it most thrive? It 
 is common knowledge that the congested centers of population with infusions 
 of foreign blood, where monopolistic control of public utilities oppresses the 
 people, have been and will continue to be congenial to its growth. It grows 
 by what it feeds upon. Its food is furnished by the excesses of aggregated 
 wealth. No other agency has done more to promote socialistic sentiment than 
 have the public-utility corporations themselves. I am opposed to socialism as 
 well as to government ownership, and yet it is because both these are possible 
 if the carriers of the country are left longer to their own devices that I favor 
 some reasonable governmental control, to the end that the railroads may be 
 saved from themselves. Stubborn, unreasonable, and unwise resistance by the 
 railroads to what the country considers moderate yet necessary legislation may 
 cause the pendulum some day to swing too far the other way. 
 
 As to some of the reasons given why there should be governmental 
 control, Mr. I'routy, on the 25th of January, at this same meeting 
 of the Wholesale Lumbermen's Association to which I have referred, 
 answered some of the remarks that I had made previously. He said: 
 
 Not long ago I read in some Boston newspaper, with great interest, some 
 remarks of Mr. Tuttle, the president of the Boston and Maine Railroad, to his 
 trainmen. I know Mr. Tattle and have the greatest respect for him as a man 
 and a railroad manager. If all railroad presidents were as wise in the actual 
 operation of their property as he is, there would be less demand for public 
 regulation to-day. 
 
 He is, however, a little old-fashioned. He has a faculty of saying what he 
 actually thinks, and he said upon this occasion what most opponents of railroad 
 regulation really assume, but do not plainly state. 
 
 The substance of It was this : The transportation which the Boston and Maine 
 has to sell is as much a commodity as is the cotton cloths which the Manchester 
 mills have to sell, and the Government has no more right to fix the price of 
 one commodity than the other. 
 
 While it may seem a little like inquiring whether the world is round or flat, 
 I wish to glance for a minute at the illustration used by Mr. Tuttle 
 
 The Manchester mills in the manufacture of their "product emplov water 
 power and require land for their buildings. I have a water power or' a piece 
 
EEGULATION OF RAILWAY BATES. 137 
 
 of land which one of these, mills desires to use. Can I be compelled to sell it 
 to that mill? Most certainly not; hut if Mr. Tuttle's road desires to use my 
 land or my water power in its business, he can talje It, no matter how strong 
 my personal objection. 
 
 Why is this? For the obvious reason that Mr. Tuttle is engaged in a public 
 business and may appropriate my property for the public good. The right, how- 
 ever, to appropriate my property in the construction of his road is upon this con- 
 dition, that be shall render to the public the service of transportation for a rea- 
 sonable price. He is compelled in taking my land to pay me its value. If he and 
 I can not agree on that value, the question is submitted to a board of arbitrators, 
 and by their decision I must abide. So, after his road Is constructed. If he and 
 I do not agree as to what is a reasonable rate for the transportation of myself 
 or my property, that question in the same way should be submitted to a board 
 of arbitrators and the decision of those arbitrators should govern. 
 
 I think these expressions voice, in a general way, much of the pub- 
 lic sentiment in favor of railroad regulation, and I think they are 
 founded wholly upon wrong grounds. 
 
 There is no right in Congress or in the National Government to 
 regulate the railway rates of the country because it has eminent do- 
 main or because the owners of its charters are rich. The govern- 
 ments of the States have the right to regulate every railroad within 
 their borders as to intrastate traffic, because they have given the char- 
 ters to the railroads; and, as a part of the conditions, in almost 
 every instance it has been provided in their charters that the child of 
 the State should be subject to the general future government of that 
 State. I think there is rtb record of a case where the National Gov- 
 ernment, other than in territory owned by the Government, has ever 
 undertaken to issue a charter to a railroad, either interstate or intra- 
 state; and therefore the right which the Government has over the 
 railroads does not come", in my judgment, from any use of eminent 
 domain or because it is a public corporation, but because the Gov- 
 ernment possesses, under the Constitution, the power to regulate com- 
 merce among the States and with foreign nations and with the Indian 
 tribes, and, further, because it possesses a definite, but perhaps in- 
 definable, police power procured from the people of the United 
 States by anybody, whether it be a railroad corporation poor or a 
 railroad corporation rich. 
 
 The general charge, which is so often repeated, that the railroads 
 have fallen into the hands of five of eight banking houses or rich men 
 has very little to do with that question. The railroads are here as a 
 public entity having a public status subject generally to public laws 
 and public restraints and to a fair consideration of their rights, as 
 well as the rights of the public. 
 
 I want to say, in behalf of the managers of the railroads, so far as 
 I know them, that there is no " stiff-necked opposition " to regulation ; 
 that there is no desire to throttle investigation or to prevent suitable 
 supervision. I think the railroads of this country and their man- 
 agers, one and all, are perfectly willing to have the most adequate 
 investigation of all their matters, an investigation founded upon the 
 equality of the rights of the rich men and the poor men, of the cor- 
 poration and the individual, of the partnership or whatever associa- 
 tion it may be, with a further extension that the investigation shall 
 be thorough enough and sufficiently carried on so that when a result 
 is arrived at in the form of legislation there will be no injustice done 
 to the owners of railroads or to their customers. I believe, in a 
 
138 EBGULATION OF RAILWAY BATES. 
 
 broad way, that is the position of the railroads of the country and of 
 the owners of the railroads. 
 
 When you, as legislators, are asked to deal with this question in 
 any other way, I think that those who ask it are proceeding upon 
 prejudice, and not upon a general understanding of the conditions 
 or of the things that need attention or review. _ 
 
 As to eminent domain, that has been talked upon until it has 
 become threadbare. It is perfectly well known— it is common knowl- 
 edge not only among lawyers but by everyone— that the eminent 
 domain is never a corporate privilege. It always rests upon the para- 
 mount right of the public welfare. No railroad is given the right of 
 eminent domain or can exercise eminent domain except under the 
 most carefully prescribed statutes of the States within which it is 
 exercised, or of the National Government, by which it is exercised 
 within the borders belonging to the Government. 
 
 Let me take, as a typical illustration, the condition that exists in 
 certa:in of our New England States. We are not perniitted to take 
 any man's property, real or personal, because we want it. We must 
 go first to the county commissioners and demonstrate in a public hear- 
 ing to their satisfaction, after a vote by the board of directors, that 
 this property to be acquired is necessary to enable the railroad to 
 perform its services to the public. Then when the county commis- 
 sioners have passed upon the question aiid decided that the public 
 necessity requires the taking of certain property, real or personal, it 
 lays down the limits within which the property may be taken, and 
 we can take no more by even the fraction of an inch than the county 
 commissioners have decided to be necessary for the public service. 
 "When the county commissioners have fixed the amount we may take, 
 they may, upon application, fix a price which we shall pay for that 
 property. But the owner of the property is not obliged to take that 
 price. He may appeal to the courts and have a jury. He may try 
 the case before a sheriff's jury or other jury in exactly the same way 
 that any other jury case may be tried. Before that jury he may intro- 
 duce the fullest evidence as to the value of his property, and when 
 that jury has found an award he may appeal from that, perhaps, to 
 the courts, or he may have that award set aside. I have Icnown cases 
 to be tried five times before an award was finally made, and in the 
 meantime, from the very moment that the county commissioners have 
 made the award, the amount that shall be finally awarded to the 
 owner of the property bears 6 per cent interest, which must also be 
 paid by the railroad that exercises the right of eminent domain. 
 
 It is a perfectly well-known fact that no railroad, no city, no cor- 
 poration that possesses the right of eminent domain ever exercises it 
 except as a final resort. I have within a week purchased the neces- 
 sary land for the enlargement of a freight yard up in the center of 
 Massachusetts, 2 miles away from any city or any village, where the 
 assessed valuation of land 'in the neighborhood is about $25 an acre, 
 where nobody ever thinks of pacing more than $50 an acre for farm- 
 ing or any other present purpose. ""Yet to avoid the dangers of exer- 
 cising the right of eminent domain I have paid $200 an acre to get 
 that land. 
 
 More than that, if we exercise eminent domain we do not get the 
 fee, Ave get only the use of the land, and the fee remains in the ori<ri- 
 
REGULATION OF EATLWAY EATES. 139 
 
 nal owner forever. We can not devote that property to any other 
 uses except railroad uses. We can not even allow a telegraph line to 
 run over it or a telephone line without the consent of the owner of 
 the fee. 
 
 So that this right of eminent domain, about which so much is said, 
 is simply a necessity to the public that the railroads chartered to per- 
 form public service may fully exercise its right and perform its duty 
 in connection with the public service. 
 
 In the beginning of railroads in England, when the first railroad, 
 the Stockton and Arlington, Avas chartered in 1822, the rights of 
 eminent domain to public corporations were not very well defined. 
 
 The Stockton and Arlington Railroad, by reason of its inability 
 to enter upon property and to make surveys, was obliged to give up 
 one of the most desirable and feasible routes and take another less 
 desirable and feasible, because the Duke of Cleveland did not like to 
 have the road go through his fox covers, which he thought were of 
 more consequence than a public railroad. 
 
 In making the surveys for the Liverpool and Manchester Rail- 
 road, which was the next road to be constructed in England, Mr. 
 George Stephenson, in 1824, wrote as follows : 
 
 We bave liad sad work with Lord Derby, Lord Sefton, and Bradshaw, whose 
 grounds we go through with the projected railway. Their ground is blockaded 
 on every side to prevent us getting on with the survey. Bradshaw fires guns 
 through his grounds in the course of the night to prevent' the surveyor coming 
 on in the dark. We are to have a grand field day next weeli. Lord Sefton 
 says he will have a hundred men against us. 
 
 Again, as to the right of eminent domain for mills, Mr. Prouty 
 made the illustration that because the Boston and Maine Railroad 
 possessed eminent domain it ought to be regulated, but in the case of 
 the Manchester mills there was no reason for their regulation. But 
 it happens that the Manchester mills them'selves have the right and 
 under the laws of New Hampshire can exercise the right of eminent 
 domain, and do exercise it more than the railroads can. The right 
 of eminent domain is given in the statutes of many of the States^ and 
 in all those States it has been decided that in the construction of 
 mills and manufactories, so far as they are a matter of public con- 
 cern, they can take private property under the law of eminent domain. 
 
 It is equally true that no State has ever undertaken to regulate the 
 products of the cotton mills or their prices because of the eminent 
 domain, although it is perfectly well known that they have a right 
 to do so. Every State granting a charter to a manufacturing estab- 
 lishment or mill can prescribe, with or without eminent domain, the 
 price at which the mill may manufacture its goods; but it is per- 
 fectly well known that no mill would ever be constructed within the 
 domains of that State by anybody if he thought or knew that there 
 would be any attempt to regulate prices. If it were thought that 
 , the State would attempt to enforce any such regulation, no one would 
 ever invest a dollar in a cotton mill if the State, or a commission 
 appointed by the State, of disinterested, able, and indifferent men, no 
 matter whom, could regulate those prices without having any finan- 
 cial interest in the outcome. No business man would invest a dollar 
 in those properties under those conditions. 
 
 The conditions of the railroads have been entirely different. 
 
140 EBGULATION OF RAILWAY RATES. 
 
 Evefvone viho has invested in the raihvaj^s has kno^vn at the time 
 that the investment was made that they were subject to the regiila-; 
 tions of their charters and of the States granting the charters, but 
 very fe^w people ha.ve ever had the slightest idea that the National 
 Government would step in later and assume this right to regulate 
 these things, and what the effect would have been upon the invest- 
 ment if that knowledge had been common no man can state. 
 
 But we face a condition, and probably there is not the slightest doubt 
 but that the National Government, through Congress, has the ri^ht 
 to regulate, even to extreme measures, the rates, the rules, and every- 
 thing pertaining to interstate commerce. I think we must discuss 
 this question, not from the roundabout reasons which are so often 
 given — of the wealth of the owners, of the poverty of the operatives, 
 of the eminent domain, of the privileges of the corporation — but from 
 the mere fact that the Government does possess those rights, within, 
 of course, certain constitutional limitations. Those rights you have 
 heard very thoroughly discussed yesterday, and they are within the 
 province of the lawyer, and not of the layman or the railroad 
 operator. 
 
 I desire no'\\- to discuss some of the practical questions, with your 
 permission, that railway managers deal with and with which they 
 must deal under the natural laws of trade and of commerce. I desire 
 to impress upon you my belief that it should be the dutj' of Congress 
 to interfere just as little as possible and no more than is necessary 
 AviLh the movement and regulation of natural laws, and to leave the 
 owners of this property, in just so far as it is safe and proper to do so. 
 to manage their own affairs in their own way, believing that thereby 
 the best result to the whole people will be attained. 
 
 As I have said, the railway managers do not oppose legislative 
 super^'ision and regulation necessary to prevent secret and unfair 
 favoritism either to persons or corporations or localities; and they 
 agree that Congress possesses the power of police regulation, that 
 undefined and perhaps indescribable power necessary to prevent 
 abuses and injustice of every nature in the performance of their 
 public duty by these railroads. 
 
 But self-interest to the railroad is a governing factor in this mat- 
 ter. There is no mystery about the management of the railroad or 
 its operation. Its business must be conducted upon exactly the same 
 lines as every other trade or commercial business in the world. It 
 depends for its life, for its income, upon the transportation of the 
 business of its customers ; and, really, when you come to a final con- 
 clusion the only property right that any public transportation com- 
 pany possesses is the right to establish its rates. That is the basis 
 of its livelihood and of its income, and when any body or any govern- 
 ment assumes to any extended degree the right to make those rates 
 at which the company shall perform its service and does not go the . 
 next step and say what the cost of ]3roducing that s'ervice shall be, 
 and guarantee it, that is an interference with the proper business of 
 the railroad company which may lead to dangers of the most vital 
 significance to the business of the country itself. 
 
 Now, let me asli you to consider for a moment one of the reasons 
 why there is really this tremendous demand for regulation of rail- 
 ways. If you will analyze and refine it vou wilf find that it is 
 
KBGULATION OF RAILWAY EATES. 141 
 
 because the railwa}' finds it impossible to escape. It is here. It can 
 not go elsewhere. It can not go out of business. 1 said that the 
 only property right of a railway is its poAver to make rates. The 
 railway as a railway, operated as a railway, may be worth as much 
 or more than it costs. But the moment it ceases to be a railway, to 
 operate as a railway, to have the opportunity to make money as 
 a railway, then its property is simply scrap. Our locomotives 
 to-day cost $15,000 apiece, but if they cease to be usable as loco- 
 motives they are worth perhaps two or three thousand dollars apiece 
 or less; they are worth only what they can be sold for to some one 
 who wants second-hand locomotives. 
 
 Take the land over which railways run. It may be that that land 
 has cost $600 an acre or $50 an acre or $10 a square foot. But that 
 land, except for railway purposes, has no value to the railway except 
 it can find a customer, and if the land has been taken by eminent 
 domain the customer has been found, and so the railway has lost its 
 interest in it. 
 
 Therefore I say that the only property right the railway has is its 
 right to make rates and to make them upon such a basis as will 
 enable the company upon the whole to pay its operating expenses, to 
 pay the interest upon its debts, to pay its taxes, to keep its property 
 up to its normal condition, and to make a reasonable return to its 
 stockliolders. 
 
 Xo legislature has ever undertaken to say what a fair return to 
 stoclcholders shoixld be. In the earlier condition of the charters of 
 the New England roads, which were among the first, there was a 
 general expression in the legislation that the roads should be able to 
 earn 10 per cent before they were interfered with. That was at a 
 time when the ruling rates for moiiey were very much higher than 
 they are to-day. What would be determined as the ruling rate to- 
 day nobody can tell, although if the lawful j-ate of interest is 6 per 
 cent I suppose that that would be considered a fair return upon the 
 property or upon the cost of stock to the present owners of that 
 property. 
 
 I said that self-interest makes the railway careful not to abuse or 
 unfairly treat their customers. That comes within the general state- 
 ment I have made that the railways must be conducted like any other 
 business enterprise. This is true of every railway in the United 
 States. No railroad could conduct its business with reasonable 
 profits to its owners unless it were allowed to manage under the 
 natural laws that govern all other kinds of trade. If a railway were 
 to set up a standard of rates within its territory, which standard was 
 onerous or oppressive, its customers would remain in that territory 
 only until they could move out and go to some section where they 
 were better treated. 
 
 It is a curious fact, in connection with that, that the most of the 
 discussion of this matter comes from the sections of the country where 
 there are the most railways and the most competition. Take New 
 England as an instance. There are_three railway systems in New 
 England practically to-day. The Boston and Maine — if you will 
 pardon me for being personal, because I can illustrate better by 
 things I have to deal with — the Boston and Maine practically domi- 
 nates the whole of the northern half of New England east of the 
 
142 EEGULATION OF RAILWAY BATES. 
 
 Connecticut Kiver and upon the line leading from Springfield to 
 Boston, all the eastern country as far as the boundary of the province 
 and north as far as the boundary of the province. It would be a 
 practical impossibility for a man to do business m that section with- 
 out in some way arranging with the Boston and Maine tor the trans- 
 portation of his goods. What is the result? In the twelve years 
 in which I have known about these things— I speak of that because 
 that is the length of time I liave been president of the Boston and 
 Maine— in that twelve years no single complaint has ever been made 
 to the Interstate Commerce Commission of any rate or regulation 
 the Boston and Maine has instituted or put in force m connection 
 with its traffic. 
 
 The same is practicallv true as to the territory of the New York, 
 New Haven and Hartford and the Boston and Albany roads. It 
 is not of so much consequence that the rate shall be abnormally low 
 as it is that the rates shall be uniform and that everybody shall 
 know that for the transaction and carriage of his business he shall 
 be charged no more than his neighbor is charged who is doing the 
 same kind of business. 
 
 I believe it was Senator Clapp, yesterday, who thought that the. 
 railroad was a natural monopoly. It is. Yet it is not such a 
 monopoly as to be given any exclusive right to make rates in its 
 territory. Even in New England, where railroads are probably 
 better protected by legislation than in any other part of the country, 
 it is perfectly feasible to get as many opposition roads as the public 
 necessity requires and the people are ready to build. We have no 
 actual monopoly. It is possible, under the statutes of every New 
 England State, to build all the competing roads necessary when the 
 necessary money is ready and when it can be demonstrated to a cer- 
 tain official body appointed for that purpose that the public exigency 
 and necessity require additional railroad facilities. There are no 
 railroads asked for in New England, and none have been asked, for 
 many years. It is not a natural monopoly, but a business monopoly. 
 
 Senator Clapp. I think you refer to a statement made by Senator 
 Carmack yesterday. 
 
 Mr. TuTTLE. Perhaps I was mistaken. However, it is immaterial. 
 
 Senator Clapp. It is immaterial. 
 
 Senator Kean. It was Senator Newlands who made that observa- 
 tion, I think. 
 
 Mr. TuTTLE. Perhaps it was the Senator from Nevada. 
 
 Now, a word on the question of competition. Competition, the 
 most serious and troublesome competition the railway manager has 
 to deal with, is not competition between individuals or between 
 towns ; it is territorial. It is the business of the traffic manager, of 
 the operating manager, in making arrangements for transportation, 
 to see that to the fullest extent possible within his power the. cus- 
 tomers of that railroad within his territory shall be able to reach the 
 markets of the world at the lowest possible rates, or at such rates as 
 will put the customers into competition in the markets of the world 
 with the manufacturers producing their goods in widely different 
 sections, perhaps thousands of miles away. 
 
 When it comes to the question of making rates, there is no rule, 
 and if any of you gentlemen, or any of those who talk about five men 
 
EEGULATION OF RAILWAY EATES. 143 
 
 making the rates of the country, suppose that it is possible for the 
 directors or owners or the controllers of the railroads to make these 
 rates, then I do not understand the subject in the slightest degree. 
 Mr. Gould may control 10,000 or 100,000 miles of railway, Mr. Mor- 
 
 fan may control the same mileage, or Mr. Harriman or Mr. Vander- 
 ilt, but I guarantee that they would find it as impossible to sit down 
 to-day and in a moment make the rates upon any traffic as it would 
 be for a blacksmith to repair a fine watch. They know nothing 
 about it, and no man knows anything about it unless he be a traffic 
 manager and sits at the center of things eight or ten hours a day, 
 just as a traffic manager does, so that he may become familiar with 
 the necessities of the territory to be served. No general and broad 
 rule can be made to put up the rates in this place or to put down the 
 rates in that place. 
 
 I think that my experience has been rather typical. I have been 
 director and president, vice-president, and so on, of prominent rail- 
 ways for a matter of fifteen years, and I have yet to hear the first 
 discussion at a board meeting of the rates in detail or at large. The 
 directors and the owners oi the property periodically — say once a 
 month — sit down for two or three hours and hear the reports of the 
 executive officers in regard to what has been done and what needs to 
 be done, largely in connection with the physical construction and 
 operation of the road. And I can tell you that you gentlemen are 
 just as competent to sit down here to-daj^ and raake the tariff of the 
 'Nevf York Central or of the Pennsylvania Railroad as aiiy board of 
 directors would be. They can not do it and do not attempt it. The 
 rates are necessarily put into the hands of expert men, and I do not 
 care how many railroads are controlled or owned by one management, 
 each one of these railroads is still obliged to keep its expert traffic 
 officers continuallj' sensing the public necessities of the territories 
 within which the railroads operate. They can not say arbitrarily 
 that this particular article shall pa}' so much a mile or that this 
 particular transaction must bear its proportion of the cost and 
 render its proportion of the profits. They have got to take the 
 bitter with the sweet, just as the merchant has to do. And although 
 the traffic manager probably does not go through this same plan 
 of reasoning every time he Heals with this question any more than 
 the baker does as to the chemical reactions that occur when he 
 puts his yeast and milk and flour together to make bread, yet 
 the experienced traffic manager knows that it is the necessities 
 that oblige the making of rates, which common sense would say 
 were unprofitable in many instances, just as the baker knows he has 
 to put certain things together in order to make good bread. 
 
 I think there is a great deal of misapprehension, even on the part of 
 some railway people, in regard to this matter of profit and loss in 
 operation. Some people may tell you that they can do business at 
 a loss and make that business profitable directly. That is a paradox. 
 It is impossible. If you find that the average cost of operating a 
 railway for one, two, or three years requires the production of an 
 average rate received, we will say, of 9 mills per ton per mile, you 
 have got that 9 mills as your base line, and every pound of freight 
 carried below that base line of 9 mills per ton per mile is carried at a 
 proportionate loss. The traffic manager knows also that every pound 
 
1J:4 KEGULATION OP RAILWAY BATES. 
 
 of freight carried above that 9 mills per ton per mile is carried at 
 a proportionate profit. It does not mean that the rates above 9 mills 
 per ton per mile are unreasonable, and it does not mean that the 
 rates below 9 mills per ton per mile are reasonable. 
 
 As an illustration, a contest came up between the railways terminat- 
 ing on the Gulf and those on the Atlantic seaboard for the transporta- 
 tion of corn. The railroad I represent has carried thousands and 
 thousands of carloads of corn over its rails to the Atlantic seaboard 
 at less than 2 mills per ton per mile, probably below the cost of 
 operation. If we could have had any choice in the matter we should 
 have said we do not want that freight ; let somebody else have it. But 
 we were faced with this difficulty : If we said to our connections, " We 
 don't want any corn below 5 mills per ton per mile ; you take it your- 
 self or take it to some other connection that wants it," when the corn 
 rate came to be profitable at 5 or 6 mills per ton per mile that con- 
 nection will say to us, " You gentlemen did not want to carry this 
 corn when it was unprofitable, and now we do not care to give it to 
 you when it is profitable." In other words, the railroad has to stay in 
 the business whether it is profitable or unprofitable, and even though 
 its whole business becomes unprofitable. But it is the duty of the 
 traffic manager who makes these rates to see that in meeting these 
 real necessities and in granting these extraordinarily low rates he 
 does not put his general average of rates so low as to make the whole 
 business of the year unprofitable. It may be said that while you are 
 losing on one class of business you are recouping on this other busi- 
 ness. Not at all. The rates for through business are not increased 
 because of this local rate. They of themselves are reasonable. 
 Whether the railroad carried this corn at 2 mills or 5 mills per ton 
 per mile makes no difference to the other shipper who pays a reason- 
 able rate at 9 mills per ton per mile or above, and he does not suffer. 
 
 Suppose the railroad were to go absolutely out of the corn business 
 in order to avoid suffering this loss ; it would make no difference to 
 the other shippers, but it would make this difference to the railroad 
 itself and to the territory through which it runs : It has a seaport to 
 maintain. The railroads of New York have the obligation to main- 
 tain the seaport of New York and of the collateral business that goes 
 with a seaport. A seaport may be tremendously prosperous, but it 
 is only a gateway to what is beyond. You never knew a seaport, 
 from the earliest civilization, to be of any consequence of itself. It 
 is only prosperous and filled with people and with energy and with 
 enterprise and business because it is a gateway through which stuff 
 passes and through which stuff comes from a widely separated dis- 
 tance beyond. What would Chicago be if it were dependent solely 
 upon its own business? Wliat would St. Louis be? What would 
 St. Paul be ? They are simply gateways, and if through the malad- 
 ministration of the railways they prevent the traffic. from passing 
 through and centering in these cities they destroy the prosperity of 
 those cities. 
 
 So we are obliged to meet these questions also from that point of 
 view. Steamers come in for trans- Atlantic traffic. One of the neces- 
 sities of trans- Atlantic traffic is stiffening cargo for the hold. They 
 must have com, oats, barley, or wheat, or something of that kind, 
 otherwise they must pump in water or take in sand or stone or other 
 
EEGTJLATION OF RAILWAY BATES. 145 
 
 commodities. If they can not get that stiffening cargo, they must 
 necessarily reduce their rates for the other cargo in competition with 
 railroads — the prepared meats, the commodities, machinery, and all 
 such things. You must begin to load a ship at the bottom, and you 
 must put something profitable there. If you do not, and if the rail- 
 roads, by reason of these rates being abnormal, say " We can't afford 
 it," they will get no freight from that port. 
 
 This is not a theoretical case. The American market has been 
 unable to supply wheat for export during the last two years. Wheat 
 has been higher in Chicago than it has been in Liverpool and London. 
 Therefore the export has very sensibly decreased. What was the 
 result ? From the port of Boston a large number of ocean ships were 
 withdrawn from service because they could not find it profitable, and 
 there was a tremendous hue and cry on the part of the people of 
 Boston because they did not bring cargoes. We have had differential 
 hearings before the Interstate Commerce Commission founded 
 almost wholly upon the fact that there was a decrease of exports 
 from New York and Boston, to the advantage of Baltimore, Phila- 
 delphia, and Norfolk, and that has made New York and Boston very 
 uneasy, because it was believed that these more southern ports were 
 getting the most of our business, whereas the real fact was that the 
 ships withdrew, and so the New York and Boston people became dis- 
 contented. Suppose the railroad of its own motion refuses to carry 
 that necessary cargo, then these shippers have cause to blame the 
 service. That is a thing we must meet, whether it is profitable or 
 whether it is not profitable. 
 
 Another question, about rates. Comparisons are made. It is said 
 that the rates from Boston, New York, and along the seacoast to the 
 Southeast or the South are very much loA-^'er than they are from the 
 Middle West, Chicago, Cincinnati, and that terrtiory. That is true. 
 But they are lower simply because water transportation from the 
 Atlantic seaboard to the southern seaports with short rail trans- 
 portation inland fixes the rate at which goods may be shipped. The 
 rate from Cincinnati and Chicago may not be unreasonable; it may 
 be unsatisfactory, but being unsatisfactory is not necessarily being 
 unreasonable. But would it help the rates from Cincinnati or from 
 Chicago in the slightest degree for sales in the South if the rail rates 
 from New England and from New York were put up as the standard, 
 the water rate still being low ? Would the shipper be able to distrib- 
 ute any more goods? Of course not. So the necessary lowering of 
 these rates from New England can not be made a satisfactory basis 
 upon which to fix the rates from Chicago and Cincinnati. Those 
 rates must be fixed solely upon the question of whether they are of 
 themselves reasonable. 
 
 It may be said, "Why do the railroads of the East do this business 
 to the South at these low rates? If the rates from Chicago and Cin- 
 cinnati are reasonable, then it must be necessary to charge somewhere 
 near that rate in order to make it profitable for the railroads to trans- 
 port this business. That may all be true. But suppose the railroads 
 irom New England and New York State were to raise their rates 
 and thereby turn all competitive traffic, with all that could be handled 
 by water, to the steamer lines and short rail lines leading from the 
 coast ; would anybody be benefited except the steamer lines ? Would 
 B R R — 05 M 10 
 
146 EEGULATION OF RAILWAY BATES. 
 
 not the seller in New York and New England who wanted to get 
 goods quickly to the South and who could not take the time to ship 
 by water— would he not be harmed by having to have a rate higher 
 than his Competitor who could take the time to ship by water? Would 
 not the purchaser in the South be harmed also if, to get his goods 
 within two days, he were obliged to pay 20 per cent more than his 
 neighbor who could wait a week for his? 
 
 The railros^d has to take all these things into account from the 
 point of view of its customers as well as of its own. More than that, 
 the railroad is dealing with customers who are doing that kind of 
 business. It is like a grocer or merchant. It is a perfectly well- 
 known fact that at most times there is no profit to the grocer in 
 selling sugar. The average wastage upon sugar is so great that it 
 is an even chance that the retailer of sugar gets out whole in the 
 sugar part of his trade. But does any grocer for that reason dare to 
 give up that part of his business because it is unprofitable? What 
 would the housewife think if she telephoned in the morning to the 
 grocer her order for so many pounds of sugar, to be told by the 
 grocer, " I don't keep sugar ? " She would naturally say, " I will 
 buy my goods where they do keep sugar." We have precisely the 
 same condition in the railroad business. If the chairman of this 
 committee were to-day shipping ten commodities to different sections 
 of the country, and one of those happens to be to a section where the 
 water rate makes the rail rate very low, and if we should say, " We 
 don't do that kind of business because it is unprofitable," would the 
 chairman send the other nine commodities by our line? Of course 
 not. He M'ould naturally say, " My business all goes by one con- 
 cern." That is the way we have to meet all these conditions. 
 
 Take the transcontinental rates, which are abnormally low, and in 
 which I doubt if there is a penny's worth of profit to the railroads 
 engaged in it. Suppose the railroads were to have done what some 
 of them considered it necessary to do when the interstate-commerce 
 law was passed in 1887 — raised all their rates to the coast to a profit- 
 able basis ; would anybody have been benefited except the water lines 
 by way of Panama and around the Horn? If you wanted to ship a 
 product that must go bj' rail or that it was much to your interest 
 should go by rail to the Pacific coast, and you had to pay $5 a hun- 
 dred, while your competitor, who could wait two or three weeks, 
 could send his freight at $1 a hundred by water, who would be 
 harmed? Would it not have a tendency to concentrate the entire 
 business of the Pacific coast upon near-by places, and would the 
 eastern manufacturer be found there as he is now ? 
 
 The railroad managers all know that just as well as you know it. 
 They know that they have got to do business, many of them, at a 
 positive loss in order to keep all the business of the country in cir- 
 culation. 
 
 Our country is different in that respect from any other in the 
 world. We must not only abridge, but we must eliminate distance. 
 In Grea,t Britain things are entirely different. The rates are abnor- 
 mally high and distances short ; but the country is so densely popu- 
 lated and business so concentrated that a particular city may go out 
 of trade with another and yet have enough within its reach to com- 
 pensate. But you can not do that in this magnificent country. 
 
BEGUIATION OF RAILWAY BATES. 147 
 
 Take the one item that I am familiar with, the manufacture of 
 boots and shoes. There is no mystery in that art. They can be made 
 in one place just as well as in another. AVhat-do we have to do? 
 The manufacturers of boots and shoes in Lewiston, Me., could proba- 
 bly supply with two months' manufacturing all the boots and shoes 
 that would be used in a year within a radius of 500 miles. That 
 being the case all the other shoe shops would close. What do we 
 have to do? We have to make it possible for every shoe manufac- 
 turer between Lewiston, Me., and 'the Hudson River to put his 
 product into the uttermost parts of the West and Southwest, into St. 
 Louis and Denver, at rates that will admit those manufacturers to 
 competition with shoemakers even in Chicago or St. Louis or in 
 Denver. As an illustration of what must occur in equalizing this 
 transportation, it costs about 1^ cents to send a pair of shoes 1,400 
 miles from Lewiston, Me., to St. Louis, and that pair of shoes sells 
 for $3, $5, or $8. 
 
 That is one of the kind of things that we must do. If we do not 
 do that particular thing the busy cities that live upon shoe manu- 
 facturing in New England would close. What would be the result 
 to the railroads? Suppose a city has a population of 30,000 inhab- 
 itants engaged in the manufacture of shoes and the product of their 
 manufacture is distributed to the world at a loss to the railroads; 
 yet the carrying of the other things for those 30,000 people at reason- 
 able and profitable rates compensates for the loss occasioned by the 
 low rates. 
 
 The Chairmax. What are the rates from the near-by points as 
 compared with the through rates or to the more distant points ? 
 
 Mr. TuTTLE. They are practically the same. 
 
 The Chairman. The same for 20 miles as for 1,400 miles? 
 
 Mr. TuTTLE. Yes. Every .50 miles in New England you will find 
 shoe shops. They, do not need any rates for short distances. They 
 have a glut in the market, so far as shoes are concerned. 
 
 So it is all through the administration of the railways. There is 
 constant trouble on the part of the railway to meet not only the com- 
 petition of a competing railway, but the territorial competition of 
 manufacturing and distribution. 
 
 As an illustration of how these competitive conditions work in 
 the most extraordinary manner, let me take something that came to 
 my attention the other day. We were called upon to take a lot of 
 flour from our docks at Charlestown from a trans- Atlantic steamer 
 10 miles out to a starch factory in Belmont. That naturally attracted 
 a good deal of curiosity to know where that flour came from, espe- 
 cially as it was Pacific coast flour. It seems that a sailing vessel 
 had gone to the Pacific coast with goods from Europe. There was 
 some lack of a cargo for return. They found a lot of soft wheat 
 flour there at San Francisco with which they loaded that vessel and 
 carried it to Liverpool and put it in storage. Then the owner o:^ 
 the flour began to hunt around the world for a market, and found 
 that within 10 miles of Boston he could sell that flour to a starch 
 factory at a profit and pay for the additional land haul of 10 miles. 
 
 The Chairman. It first went to Liverpool ? 
 
 Mr. TuTTLE. Went from San Francisco around the Horn to Liver- 
 pool, and then across the Atlantic back to Boston. In order to carry 
 
148 REGULATION OF RAILWAY BATES. 
 
 that flour to Belmont, across the continent, by rail the railroads 
 would have had to make a rate which was practically nothing, be- 
 cause the transportation by water is so extremely low toat you can 
 not put the railway rate against it and make a profit. The carnage 
 of a ton of freight by a large steamer is so low that there is hardly any 
 figure to it. We have to meet those conditions. That is what we are 
 doing. 
 
 Continually from the West we have complaining statements, such 
 as I think Senator Dolliver spoke of yesterday, that the people at 
 intermediate points are charged a higher rate than from more distant 
 points to the same destination. 
 
 Senator Cakmack. I had it in mind to ask some questions in that 
 connection in regard to long and short haul. 
 
 Mr. TuTTLE. The long and short haul comes in in that connection. 
 If it be true that a greater rate is charged for a shorter distance than 
 for a longer distance, except under the provisions of exemption 
 granted by the interstate-commerce law, yet it is also true that the 
 chairman of this committee introduced a bill in Congress which was 
 made law two years ago, and which would have covered those cases. 
 But I think in every one of those cases you will find that the through 
 rate, which is lower than the local rate, is made by some line of trans- 
 portation that does not pass through the town in which these local 
 rates are charged. If it be from St. Paul to Chicago the rates are 
 probably made by some line leading directly from St. Paul to Chi- 
 cago, and all the other possible routes from St. Paul to Chicago must 
 either meet that rate or go out of that part of the business frqm St. 
 Paul. 
 
 The making of the rate of 15 cents from the intermediate point 
 may of itself not have been inequitable or unreasonable, and it would 
 do that customer no good, if his rate is equitable and reasonable, for 
 the railroad from St. Paul to decline to haul from St. Paul through 
 that town at the same rate with other lines. Nobody would be bene- 
 fited. The railroad might go out of that part of the business; it 
 might cease to do business with certain of its customers; it might 
 save the money it would otherwise lose in the transaction; but it 
 might at the same time lose a lot of profitable business from some 
 customer who would say, " If you can t take this kind of business I 
 don't want to give you any other." 
 
 I think, without knowing anything about the details of the case, 
 that if any railroad is charging more for the short haul than for the 
 long haul it is under the exemption of competition given by the 
 interstate-commerce law or by the Interstate Commerce Commission, 
 and if it is not you do not need any additional laws to deal with them. 
 
 The Chaiejian. Is not the effect of that you speak of to crush out 
 the smaller places? 
 
 Mr. TuTTLE. Possibly ; but it is one of the things that can not be 
 helped. 
 
 The Chairman. It is one of the necessary effects of such compe- 
 tition? ^ 
 
 Mr. TuTTLE. One of the things necessarily met in railroad business 
 or in business of any other kind. 
 
 Senator Newi.ands. Does it not also lead to a tremendous conges- 
 tion of population in these commercial cities ? 
 
 Mr. TuTTLE. Natural laws have led to that ever since the civiliza- 
 
EEGULATION OF BAILWAY BATES. 149 
 
 tion of the world began and long before railroads existed. The high- 
 ways, even in Roman times, made nations and cities, and always will. 
 
 Senator Dolliver. Are you troubled in northern New England 
 with complaints of parties that they do not get a fair deal ? 
 
 Mr. TuTTLE. We are not. 
 
 Senator Dollivee. How do you avoid it? 
 
 Mr. TuTTiiE. I do not know that anything is done to avoid it. I 
 mean as to the use of the long and short haul provision in connection 
 with competition by water the whole length of the seacoast. In 
 carrying goods from Boston to Maine at rates authorized and which 
 are published, one-third of the rates from the nearest points, as 
 compared with rates from intermediate points, are perfectly reason- 
 able and equitable. If all our rates were such that there might be 
 a proper correlation between through and local rates it would do 
 nobody any good except the water lines, who would carry all the 
 business. Suppose you make the rate from Bangor to Boston at, 
 say, $29 or $30 per car — that has to be considered in connection with 
 and governed by the fact that there is a water rate of $6 per car — 
 but would the man at the intermediate point be benefited by the 
 railroad making the rate at the intermediate point perfectly reason- 
 able for the service performed? The fact that the competition 
 obliges all parties, including the railroad, to perform a service in 
 which he is not interested at a lower rate does not benefit him if it 
 is changed. 
 
 Senator Dolliver. Then those intermediate towns are, in the 
 nature of things, doomed ? 
 
 Mr. TuTTLE. Not necessarily. They find other things to do. We 
 have been doomed in New England for many years in the minds of 
 many people. We used to manufacture iron. We used to make 
 iron kettles and all sorts of things. We do not any more. Other 
 things have taken their place. We used to have farms; we do not 
 any more, except for pleasure. Yet we go on in the same way. Pop- 
 ulation and wealth increase and new industries come in. 1 want to 
 tell you, gentlemen, that you can not change these natural laws of 
 trade by any statutes that can be made anywhere. 
 
 Senator Cullom. I understand that goods are shipped from New 
 York to California, their destination being Salt Lake City ; and 
 yet they go from New York clear to California and back again to 
 Salt Lake in order to get the cheap rate. Can it be possible that it 
 is necessary to do that ? 
 
 Mr. TuTTLE. That woiild be equivalent to carrying to Salt Lake 
 City and charging the competitive water rate to San Francisco plus 
 the local rate back to Salt Lake City? 
 
 Senator Cullom. That is the proposition. Can you imagine a 
 condition that would make that reasonable? 
 
 Mr. TtjTTLF.. Yes; the railroads can not afford to do the entire 
 business at a transcontinental rate. They do this transcontinental 
 business at a loss, I believe. 
 
 Senator Cullom. Even in shipping clear across to San Francisco 
 and back again? 
 
 Mr. TuTTLE. I believe they may makfe some profit on that shipment 
 back because there is a rate which pays; but on the large portion of 
 the shipments at the low rates from the Atlantic seaboard to the 
 
150 BEGULATION OF RAILWAY KATES. 
 
 Pacific I believe that the railroads actually make a loss instead of a 
 profit. Thoy could not afford to take the entire business and carry 
 it at a dead loss. But it is only a question with them, and with you, 
 whether they shall be obliged to go out of the Pacific business and 
 raise the rail rates to the Pacific coast, to the benefit of nobody, simply 
 that there may be a proper proportion between the interior rates and 
 the transcontinental rates. 
 
 Senator Cullom. So that you can not suggest any regulation or 
 legislation that would relieve the Salt Lake people from that par- 
 ticular burden ? 
 
 Mr. TuTTLE. I can not, unless you make legislation that shall fix 
 the rates of the railroads to Salt Lake and all the intermediate points 
 at a loss or at the cost of transportation. It does not require any-, 
 thing more than a pencil and a piece of paper to figure out that 
 freight from Boston to San I rancisco is carried at a loss. You can 
 not make it at a profit at all, except the collateral profit. If you are 
 a manufacturer and have 120 carloads of goods to sell, and you can 
 sell 1]5 of those carloads at a profit on the whole transaction by sell- 
 ing 5 at a loss, then you would make money on the whole transaction. 
 ■What would be the eii'ect upon the manufacturers of the country if 
 we were to put the rates up — not down, because they can not be put 
 down to interior points — ^what would be the effect upon New York, 
 New England and Pennsylvania manufacturers if they were ex- 
 cluded from the markets of the Pacific coast except at rates that 
 would be profitable to the railroads? I will tell you. You go any- 
 where on the Pacific coast to-day and buy a pocketknife, and you will 
 find it has •' Germany " stamped on it. Those goods are taken to San 
 Francisco on clipper ships at rates which are inconsequential, and 
 there are a large amount of goods on the Pacific coast that have come 
 from abroad. You would find that if you raised the rates to the 
 Pacific coast to a normal figure of profit to meet the lower inter- 
 mediate rates relatively, you might get them down somewhat. But 
 you can not make such a raisiiig of the Pacific coast rates as to make 
 them absolutely profitable upon shipments from the East — ^not the 
 least in the world. The rest of the world puts those goods in at a 
 very low profit. 
 
 Senator Foeaker. "What do you think of the suggestion of the 
 coastwise business compelling the water lines to raise their rates ? 
 
 Mr. TuTTLE. I should doubt very much, after what was said yes- 
 terday by Mr. MoraA^■etz, whether the Government can actually say. 
 how little the railroad may charge, or what a steamer may charge for 
 doing business. 
 
 Senator Forakee. The suggestion was to compel them to raise 
 their rates. 
 
 Mr. TuTTLE. Yes ; I think you can say how much a railroad may 
 charge, but not how little. 
 
 Senator Foeaker. That is, that they shall not charge above a cer- 
 tain rate ? * 
 
 Mr. TuTTLE. Yes. 
 
 Mr. Millard. A shipper from Chicago, as I understalid, can put 
 his goods in San Francisco at a lower rate than the shipper from 
 Fort Dodge, for instance, which is Senator Dolliver's town, or from 
 my town, and from Chicago to Council Bluffs and Omaha there are 
 
REGULATION OF RAILWAY RATES. 151 
 
 seven or eight competing lines; they all come together at Council 
 Bluffs and Omaha. In the town in which Senator Dolliver lives 
 are two of those lines. A shipper from Chicago can put his goods in 
 San Francisco cheaper than from either Omaha or Council Bluffs. 
 What is the reason for that when they go by the same line ? 
 
 Mr. TuTTLE. I am not sufficiently familiar with the situation there, 
 but I can only suggest a thought. The rates from Chicago to the 
 Atlantic seaboard on those goods plus the rate to Panama may fix 
 the rate. 
 
 Senator IMillard. The shipment would go the other way. 
 
 Mr. TuTTLE. I think it does. 
 
 Senator Millard. I had not thought of that in that connection, 
 because there is no water rate from Chicago. 
 
 Mr. Ttjttle. But the rates are very low. I think you will find in 
 all these cases — I am merely suggesting — if you analyze you will find 
 that there is that possibility which makes the rate. 
 
 The Chairman. Would not the Canadian Pacific affect that rate? 
 
 Mr. TuTTLE. Possibly. 
 
 Senator Forakek. I have seen it stated that steel rails manufac- 
 tured in Pittsburg and consigned to the Pacific coast have been 
 shipped to New York and back to Pittsburg; that is on account of 
 their desire to get the benefit of the cheap water rates, I suppose. 
 
 Mr. Ttjttle. They can consign to New York and let tl:^ consign- 
 ment end there, and then they can get the rate from New York to 
 San Francisco that is equivalent to the water rate, and get it through 
 cheaper, and you can not help it. 
 
 Senator Foraker. From New York it can go either by water or 
 rail? 
 
 Mr. TuTTLE. Yes. I can give you an illustration that came to my 
 knowledge many years ago, when I was a trunk-line commissioner 
 with Mr. Albert Fink. Worcester, Mass., has always been a center 
 for making wire. The Washburn & Moen Wire Manufacturing 
 Company have had a monopoly of malring barb wire and other kinds 
 for many years. That business was introduced at Pittsburg, and 
 extensively introduced. Pittsburg being a center of trade and cheap 
 manufacture in all metals made, the rates from Pittsburg to Chicago 
 and the West made it impossible for the Worcester manufacturers 
 to do business unless the railroads could help them out. Immediately 
 the railroads did help out by reducing the rate. The. roads leading 
 from Pittsburg to the West brought up the matter before the Trunk- 
 Line Association, and complained that the rate from Worcester 
 ought to be higher than the rate from Pittsburg because of the dis- 
 tance. What Was the answer? The Boston and Albany, leading 
 west from Worcester, and the Fitchburg road said : " Gentlemen, we 
 shall be very glad to adjust these rates if you can show us how our 
 wire manufacturers can continue to do business. If you can not 
 authorize a greater charge from Worcester than from Pittsburg, 
 5,000 men will go out of employment in Worcester. We can not 
 stand all the collateral damage that will ensue." 
 
 There is a practical illustration. WTienever you undertake to fix 
 arbitrarily rates in competition you are just as sure to destroy more 
 large industries than you can ever build up in the small towns and 
 villages as the sun is to rise to-morrow morning. It is too big a 
 problem. 
 
152 REGULATION OF RAILWAY BATES. 
 
 Senator Cullom. Mr. Tuttle, as I understand you, any attempt to 
 legislate to prevent a charge by a railroad for a shorter haul a greate? 
 amount than for a longer haul would not only not do the locality, 
 having the shorter distance any good, but it would not do anybody 
 else any good ? • i i. 
 
 Mr. Tuttle. It would produce one of two things— either the mak- 
 ing of through rates for the long hauls arbitrarily high or make all 
 the rates so arbitrarily low that the railroads would have to go into 
 bankruptcy. There is no middle ground. It is impassible. 
 
 Senator Dollivee. Have you had any trouble to adjust the rates 
 on agricultural specialties, such as poultry, eggs, and butter, shipped 
 from New England points as compared with the same articles shipped 
 from the western country ? 
 
 Mr. Tuttle. Oh, yes. 
 
 Senator Dolliver. How do those rates compare ? 
 
 Mr. Tuttle. We have to make whatever rate we find in the market 
 from the "iVest for the same kind of goods. They will pay a little 
 more for Vermont butter than for butter from some of the western 
 places. 
 
 Senator Kjeax. Not more than for Iowa butter? 
 
 Mr. Tuttle. Not more than for Iowa butter. But I will give you 
 an illustration of that to show you how these problems are coming 
 up constantly. You know the potato in Maine is the peach crop 
 of Maine. I think Senator Frye may have mentioned that to you 
 at some time, in conection with the tariff. Some three or four years 
 ago there was a magnificent crop of potatoes in the Aroostook region, 
 and we had to make large shipments and provide special heated 
 cars in the winter. It is a fairty profitable business although the 
 rates are low, but it is always in train loads, and we have provided 
 in Boston a regular market house at which these cars may be quicMy 
 unloaded and where they can be disposed of to the merchants quickly. 
 But suddenly the Boston market was flooded with Michigan potatoes, 
 and then we had a delegation of Aroostook farmers down there as 
 soon as thej^ could get there. There was nothing for us to do except 
 to reduce the rate to 20 cents a barrel. Suppose, however, we had 
 said " This is unjust; we can't afford it," what good would it have 
 done ? We might have helped the Michigan ]nen to get their potatoes 
 in Boston, and have let the whole potato crop of northern Maine 
 rot, but what good would it have done us ? That is a characteristic 
 illustration of the thing that the individual railroad and the indi- 
 vidual traffic manager have to meet, not once a month, but prac- 
 tically every day. 
 
 Senator Dolliver. If you can, I should like to have the rate on 
 such an article as butter, for instance, to Boston from New. Hamp- 
 shire compared with the rate to Boston on the same article from a 
 State situated as Iowa is. 
 
 Mr. Tuttle. I should imagine there would not be very much differ- 
 ence. 
 
 Senator Clapp. Mr. Chairman, it seems to me that some of the 
 members of the committee are forgetting the rule. 
 
 Mr. Tuttle. I am perfectly willing to deal with it in any way the 
 chairman pleases. 
 
 The Chairman. I think, perhaps, we had better confine ourselves 
 to the rule. 
 
REGULATION OF BAIL WAT BATES. 153 
 
 Mr. Ttjttle. I have endeavored to explain how it is that much of 
 the service by railroads is deliberately rendered below cost, not 
 because they want to do it, but because the necessities of their cus- 
 tomers require it. The railroad is nothing as a producer. It is 
 nothing to business any more than a thermometer is to the weather. 
 That is not a railroad per se- — unless it is a coal or iron mining road — 
 that produces anything of itself. It only carries what is produced by 
 the manufacturers and farmers along its line. The laws of life ajid 
 death for the railroad make it necessary for the railroad to give to its 
 customers rates for the transportation of products that on any rule 
 of mileage or of profit and loss would be wholly unjustifiable. If 
 you gentlemen are going to provide anybody who is going to do that 
 business for the people of this country, they have got to do just as 
 we do. They have got to sit down over this whole question, and sit 
 down every day and every minute. You can not have a body sitting 
 here in Washington who will take up to-day a complaint from New 
 Hampshire, and to-morrow one from Georgia, and take a month or 
 two in hearing those complaints. The whole business will stop. 
 The business of the country must be done, and generally as it is 
 being done now in all branches of trade — railroads or anything else. 
 The way it is done is instantly. Of course, we have to do it under the 
 direction of the law, but we have a sufficient exemption under the 
 long and short haul clause of the law, so that those contingencies can 
 easily be met. 
 
 Now, I want to touch upon -another thing which has been discussed 
 here. The Interstate Conunerce Commission produces cartloads of 
 figures, and I think everyone at this table knows that figures can be 
 made to produce as misleading results as anything else in the world 
 unless they are properly analyzed and properly understood. It has 
 been the common custom to take the average rate received per ton- 
 mile for a given year and compare it with the average per ton-mile 
 received in the preceding year, and undertake to make one a gauge 
 for the other as to the profit of the railroad or as to the amount of 
 business that has been carried, and as to many other deductions. 
 Now, I do not believe that a comparison of the average per ton-mile 
 received in 1904 with 1903 is of any more than theoretical value. If, 
 perhaps, j^ou were to take a series of years, saj', go back ten years and 
 compare it with the ten preceding years, you might see whether what 
 was done shows an increase or decrease in the rate ; but when you un- 
 dertake to say that because a rate was twenty-one one hundredths of a 
 mill higher in 1904 than it was in 1903,that does not state the case at all. 
 It has always been found that in periods of great prosperity in this 
 country there is a tendency to increase the average rate received per 
 ton per mile for freight. That is perfectly easy to understand. The 
 products that are manufactured are of a nature that pay a higher 
 rate per ton-mile than the natural commodities. 
 
 The business of the country has come to be very largely manufac- 
 turing. Manufacturing is increasing possibly faster than the pro- 
 duction of the raw materials from the earth. A period of prosperity, 
 such as we have had since 1900, increases tremendously the output of 
 manufactured goods sold to our own people and sold abroad. If 
 there is an undue preponderance relatively in the quantity of manu- 
 factured goods produced and shipped there will be an increase in the 
 
154 BEGULATION OF RAILWAY EATES. 
 
 general average rate per ton mile, because during periods of depr^- 
 fion, when manufacturing very largely diminishes, the natural prod- 
 ucts necessary for the food of the people and the coal and all the 
 heavy commodities do not shrink in volume proportionately, those 
 things moving at exceedingly low rates per ton niile would make that 
 business preponderate during that year. So, if you take 1904 or 
 1903, years of great manufacturing prosperity in this country, un- 
 less vou can make the impossible analysis of the traific ot the country 
 show that the rates on manufactured goods have been raised, the 
 mere finding of an increase in rate would mean nothing. It does not 
 mean that there has been any additional burden upon the people. 
 These rates upon manufactured goods may be low and entirely rea- 
 sonable, and yet the increase in volume or quantity would be not so 
 much more as to temporarilv raise the rates. 
 
 Suppose a further illustration. During the last six months the 
 railroads have been shipping millions of barrels of corn at 2 mills 
 per ton mile, yet the general average rates throughout the country 
 may not have been changed a particle. I think we ought to be on 
 our guard against accepting as a fact these bare additions, multiplica- 
 tions,; and divisions of millions of tons without analysis, which it 
 is impossible to make, so as to show us the different kinds of moving 
 and changing, so as to get the average rate without changing the 
 real rate. 
 
 Now, rates can not be made alike for like distances under all con- 
 ditions in the same section without seeious harm to trade and com- 
 merce. You hiay have a road of 50 miles where exceptional condi- 
 tions favor the movement of traffic, where, perhaps, competition by 
 water line has made it necessary to establish a Ioav rate. You can not 
 lay that 50 miles down on the map for that section and say that 
 should be the rate. It seems to me the question in all cases is 
 whether any particular rate complained of is of itself inequitable, 
 not whether a person could under certain circumstances establish 
 a lower rate. 
 
 I have never seen anybody who could draw an adequate statute to 
 cover such troubles. I think we have been trying since 1887. I do 
 not tliink questions of interstate-commerce regulation have been ab- 
 sent from either House of Congress during nearly twenty years. 
 
 As to legislation in the States, the States that have been legis- 
 lating on this question are those that went through the period of 
 tremendous uprising about this matter forty or fifty years ago. They 
 do not legislate any more about these matters. It is the newer Stat^ 
 that are continually legislating. Take the 23 States that have rail- 
 road commissions throughout the West. Are they satisfied? Is 
 there any legislature that meets? I think they meet on an average 
 once in two years, and a large portion of the time they are talking 
 about railway transportation, and I assume that if they met every 
 six months they would be pursuing the same course. Are they 
 accomplishing anything? Ate they satisfied? Do they pass any 
 statutes that satisfactorily govern trade? Have they iniproved the 
 conditions ? It does not seem to me so. I think it is almost an axiom 
 that no kind of business can be successfully conducted under the 
 whip of the law. It is a pretty serious question when you undertake 
 to make any kind of business transacted by human beings subject to 
 
REGULATION OF RAILWAY RATES. 155 
 
 the environment of fixed statutory law — quite a difficult thing. You 
 try to do it with the railroads, but you do not, where there is any 
 independent action on the part of the corporation. 
 
 Let me illustrate : It is continually said that the most important 
 element in the_ business of a country is the rates it pays for trans- 
 portation. Perhaps, qualified, that may be true. But I think there 
 IS one other thing that is of inestimably more importance — that is, 
 the rate that people pay for the money they are obliged to borrow to 
 carry on their business. No business is carried on in this country 
 with money on hand; it is all carried on upon credit. The ability 
 of every successful enterprise to carry on business depends upon its 
 ability to get the money it needs from financial institutions at rea- 
 sonable rates. When the rates become unreasonable the general 
 result is bankruptcy and insolvency. What do you gentlemen do 
 about that matter? Congress controls absolutely, hand and foot, 
 every national bank in this country. It even goes so far as to tax 
 State bank issues 10 per cent. Congress surrounds the national 
 banks, as I happen to know as a director, with all sorts of regula- 
 tions and rules. We get letters from the Comptroller of the Cur- 
 rency that examination shows this to be contrary to law, and we 
 must adjust it, and the next time something else is contrary to law. 
 But the Government has always stopped short of ever attempting to 
 regulate the most important thing m the whole business — the rates 
 at which banks shall loan money. W^hy ? Why do they not try to 
 do just as many people think they ought in regard to regulating 
 railroad rates ? 
 
 Senator Forakee. There is a maximum rate of interest. 
 
 Mr. Tttttt^e. But you pay a discount; so what does that amount 
 to — anything? Everyone who asks this regulation of railroads knows 
 that the railroads can not escape — that they must continue. He also 
 knows that the very moment Congress should undertake to regulate 
 the rates at which national banks shall loan money from day to day 
 every bank would liquidate just as soon as it could. 
 
 Senator Kjean- Is that statement accurate ? 
 
 Mr. TuTTLE. I think so. I think if the banks were to have their 
 rates of interest fixed by a commission or otherwise, no stockholder 
 would care to continue in the business. You know perfectly well 
 that when money is plentiful you can borrow all you want at from 
 2i to Bi or 4 per cent on collateral, but when money is scarce you 
 can only get it at 6 to 8 or 10 per cent. In 1893 the banks in the 
 eastern part of the country charged 10 per cent on good collateral, 
 and their customers were obliged to pay it, although at a great hard- 
 ship. 
 
 The Chairman. The States fix a maximum rate of interest. 
 
 Mr. TuTTLE. Yes ; but it amounts to nothing, really. You simply 
 give your note for a certain sum of money and you take a less sum ; 
 that IS all there is to it. 
 
 Senator Kean. We can not commit usury and recover under the 
 national banking law. 
 
 Mr. TUTTI.E. No ; but there are always ways of making anything 
 lawful. At any rate, it is usury in many States to collect above 6 
 per cent, and yet frequently banks loan at 10 per cent. 
 
 Senator Cullom. I do not believe there is one instance in a thou- 
 
156 BEGULATION OF RAILWAY BATES. 
 
 sand where the national banks in Illinois take the legal rate of 
 
 interest. , , , ^, x- 
 
 Mr. TuTTLE. I suppose it would be the exception. 
 
 Senator Newlands. Do they not discount^take a less sum< 
 
 Senator Cttllom. They take the regular rate ot interest. 
 
 Mr TuTTLE. You know in New York City, in a period ot active 
 stock speculation, the national banks loan money from day to day. 
 
 Senator Kean. There is a special statute for loans on collateral 
 of over $5,000. 
 
 Mr. TuTTLE. But I am supposing that you gentlemen would over- 
 ride these special statutes. 
 
 Senator Fokaker. The national banking act provides that a bank 
 may charge not exceeding the interest rates allowed in the States 
 wherein they are respectively situated. 
 
 Mr. Ttjttle. But you can make any other law you choose. You 
 can control the national banks absolutely by the power of Congress, 
 and you can make a law that no national bank should by any subter- 
 fuge charge anything above 4 per cent. I think very few banks 
 would consider it wise, however, to continue in business under those 
 conditions. I think they would liquidate just as fast as they could. 
 At any rate, Congress has never deemed it wise to regulate that par- 
 ticular matter, which is of almost as vital consequence as the rates paid 
 to railroads. 
 
 I want to make a little criticism upon what seems to me the 
 unwisdom of certain parts of the interstate-commerce law. I think 
 that it undertakes to do too much by force of the law and leaves too 
 little to negotiation and conciliation. It is true that the Commis- 
 sion has settled a great number of complaints without hearings', but 
 the process generally leads to the other method. Under ordinary 
 conditions a complainant goes to the Commission, and after he has 
 furnished the Commission with all the facts the Commission 
 addresses a formal letter to the defendant railway, with a statement 
 of the case and with a request that the things complained of be 
 desisted from, or that answer be made within a reasonable time. 
 One of the effects is, if it is a matter of anj^ material consequence, 
 for the defendant railway's traffic officer to turn that letter over to 
 the law department, and it ends with a lawsuit from the beginning. 
 1 think that ought not to be. 
 
 Locally we have a little different method, and perhaps a better 
 one. A complaint is made to the Massachusetts railroad commission. 
 The railroad commission can deal with it in any way it pleases. It 
 can call for a hearing if it wants to. But it is the general custom of 
 the commission to send a copy of the correspondence to the defendant 
 railway and ask them to see what can be done to obviate the diffi- 
 culty. I think that in ninety-nine cases out of a hundred those com- 
 plaints are adjusted by conference Math the commission or with the 
 complainant without the necessity of the public knowing anything 
 whatsoever about it. As to these complaints no record is ever made 
 anywhere, and no report is made by the commission to anybody. 
 Complaints causing hearings in the cases of railroads in Massachu- 
 setts are so rare that we nre hardly called upon to remember them, 
 and yet we have no end of cases adjusted in this amicable way. 
 
 Senator Cuixom. Is it not true— if I may be allowed to ask a queS- 
 
BEGULATION OF RAILWAY BATES. 157 
 
 tion — that more than 90 per cent of the cases that this commission 
 has in hand from year to year and from day to day are settled with- 
 out any lawsuit or any general hearing? 
 
 Mr. TuTTLE. Yes; i think that is true, Senator; but I think it 
 ought to be 99 instead of 90. 
 
 Senator Cuij-om. Perhaps it ought, but probably the railroads 
 wUl not come to terms. 
 
 Mr. Tdttle. I think, largely because of the fact I stated, that it 
 too soon becomes a matter between the law department and the com- 
 mission, instead of between the traffic department and the commis- 
 sion. 
 
 Senator CuiiLOM. It seems to be true, according to the reports, that 
 at least 90 per cent of the actual work that the commission does, does 
 not become necessary to the people at all. 
 
 Mr. Ttjtit^e. I would like to make a further suggestion, somewhat 
 in line, I think, with what Mr. Morawetz, as I understand, has said, 
 although I have not seen in detail what he did say day before yester- 
 day. I think that an interstate commerce commission is necessary. 
 I think that some body of that sort is necessary to stand between the 
 people and the railroads and perhaps between the railroads and the 
 people. I think there ought to be a buffer somewhere. But it does 
 seem to me that the purposes of the intei-state-commerce law have been 
 somewhat defeated by the attempt to put upon the Commission too 
 many duties. To-day it is the investigating officer, it is the grand jury, 
 it is the prosecuting officer, and it is almost the court in many of the 
 matters with which it deals. Besides that it has the duty of keeping 
 a great quantity of statistics, of taking care of sundry regulations as 
 to the operation of railroads, safety appliances, and many other 
 things. It is obliged to keep a corps of inspectors traveling about 
 the country looking into the railroad yards to see whether the safety- 
 appliance law is complied with. It is burdened with a great quan- 
 tity of voluminous reports, which certainly the Commission itself 
 does not have time to look at or know anything about except by 
 proxy. 
 
 I believe that the railroads have a right to think that the Interstate 
 Commerce Commission's duty should begin and end with the investiga- 
 tion of complaints ; that it ought to be relieved of all the other duties 
 that it performs ; and t]iat the keeping of statistics, the care of safety 
 appliances, and all of these other things ought to be transferred to the 
 new Department of Commerce and Labor, which is fitted to attend 
 to these things. I think the Commission ought to be kept so free 
 from all claims upon its time in regard to these extraneous matters 
 that it could devote all the time necessary to hearing complaints and 
 investigating them. And then I do not thinlc that the Commission 
 ought to try the complaints. I think that if, after the investiga- 
 tion has closed, they find that something needs to be done to apply 
 the law, the law should be so changed as to make it their duty to 
 report to the Attorney-General or the Department of Justice, and let 
 the subject be turned over to the district attorneys for prosecution 
 before the courts for a determination as to the reasonableness of rate 
 or regulation, so that there may be a quick adjudication of the matr 
 ters before the court that must have ultimate jurisdiction. 
 
 If some change in the law should be made in that direction, I think 
 
158 REGULATION OP RAILWAY RATES. 
 
 that the business would be greatly expedited ; that there would be less 
 reason for complaint than there is to-day, as to all the delays in get- 
 ting cases passed upon; that the railroads themselves would welcome 
 some such procedure as that. 
 
 I do not know that it needs a new court or a special court. I do not 
 know but the present courts could deal with the question of determin- 
 ing the reasonableness of rates as well as a special court. But I 
 believe it would be better if the Interstate Commerce Commission 
 were taken out of its present position of being a quasi cpurt, and were 
 made a buffer between the' public and the railways, with the rights of 
 conciliation, investigation, and negotiation, with an understanding 
 that they should endeavor to conciliate instead of try cases, and then 
 when they could not conciliate to get what they believed to be justice, 
 let the case be carried into the United States courts. If that were 
 done I thijtik we should get better results to everybody. 
 
 I think the complaint of the people to-day is just; that too much 
 time is taken. If the Townsend bill becomes a law, and it is known 
 that every complaint must be heard, I am quite certain the Interstate 
 Commerce Commission will be so overwhelmed with frivolous com- 
 plaints that there will be very little opportunity for them to accom- 
 plish anything. I do not know that that can be better dealt with than 
 in the speech of Representative Mann delivered in the House of 
 Representatives February 1. You know that it is the common claim 
 that there is no intention to give the Interstate Commerce Commis- 
 sion, under the Esch-Townsend bill, passed by the House, anything 
 more than power to pass upon a single rate and fix that, and fix it 
 quickly. That was evidently the President's intention in his recom- 
 mendation. But in Mr. Mann's speech on that subject he explained 
 his view of what the bill would produce, and as he voted for the bill 
 I think that is pretty good testimony. He says : 
 
 Under the bill now before the House any person or association can file a peti- 
 tion or complaint alleging any number of rates to be unjustly discriminative or 
 unreasonable, and when the Commission has its hearing upon this complaint it 
 must decide as to all of the rates named in the complaint, and when it finds 
 that " any existing rate " named in the complaint is unreasonable or unjust it 
 must fix the rate to take the place of that unreasonable rate. And this finding 
 may extend to each one of the rates named in the complaint, however many 
 there may be. 
 
 It is not necessary that the rates complained of shall all be on the same line 
 of railroad. In fact, the principal complaint which Is now made in the country 
 against the railroad rates is, not that they are too high, but that they are un- 
 just to different localities. I venture to say that there is not a single locality in 
 the United States of any importance served by rail which does not think that it 
 has a just complaint because of discrimination in rates against it. The dis- 
 crimination between localities is the burden of the present complaint. This is 
 ishown by some of the statements made by Mr. Bacon. 
 
 As we are somewhat called upon to discuss that Townsend bill, 
 suppose you were to give to the Interstate Commerce Commission the 
 powers that the passage of that bill would warrant. Every man who 
 sent a shipment across a State line anywhere, whether it went 5 miles 
 or 5,000, would be a competent complainant about anything he con- 
 sidered to be unjust — any unsatisfactory rate he could have the Com- 
 mission pass upon. Now, just stop and think what that might mean. 
 A man who ships a barrel of cider and pays 50 cents when he thinks 
 he ought not to pay more than 25 can take his complaint before the 
 
REGULATION OF EATLWAY KATES. 159 
 
 Commission, and they must consider it. The majority of such cases 
 would prove to be equally frivolous, and if the Commission had the 
 power to determine whether or not they would hear such frivolous 
 complaints they might get rid of great numbers of such cases. 
 
 In that same connection the statement is frequently made that they 
 could not group complaints and fix at once a great number of rates. 
 We know that in what is called the Maximum Kate Case the Inter- 
 state Commerce Commission did undertake to fix rates from Cincin- 
 nati and Chicago to five or six different junction points in the South, 
 and that it prescribed that all collateral rates depending upon those 
 junction-point rates should be changed to correspond ; that in fixing 
 those numerous rates they provided for an average reduction of 24 
 per cent on every class from Cincinnati to Knoxville, Ohattanoogaj 
 Rome, Atlanta, Meridian, Birmingham, Anniston, and Selma; a 
 reduction of 15 per cent on the first class, 16 per cent on the second 
 class, 22 per cent on the third class, 28 per cent on the fourth class, 
 32 per cent on the fifth class, and 32 per cent on the sixth class. On 
 the rates from Chicago they provided a tariff which would make a 
 reduction of 13 per cent in the first class, 14 per cent in the second 
 class, 17 per cent in the third class, 24 per cent in the fourth class, 26 
 per cent in the fifth class, and 27 per cent in the sixth class, and an 
 average reduction of 20 per cent. 
 
 These reductions would have taken away much more than the profit 
 that any railroad makes upon its shipments and would have left 
 them without sufficient income tt) carry on their business. 
 
 Senator Dolliver. I see it stated that the roads themselves the 
 other day put into effect an order very similar to that in respect to 
 the business from Chicago and St. Louis to southeastern points. 
 
 Mr. TuTTLE. Not so great a reduction. The reductions made were 
 from those formerly charged, but I think they were not so great as 
 were called for in this case. 
 
 Senator Dollivee. I know there was great rejoicing in St. Louis. 
 
 Mr. TtJTTLE. Oh, yes. These rates not only to junction points 
 were reduced, but the rates through every one of the junction points, 
 covering some 3,000 points, I think, were reduced by order of the 
 Commission. 1 simply quote this to show what would be possible 
 for the Commission to do under the Esch-Townsend bill, notwith- 
 standing the statement that is so frequently made that it is not 
 intended that the Commission shall do anything more than fix one 
 rate. 
 
 The committee took its usual recess. 
 
 AFTER RECESS. 
 
 STATEMENT OF LUCIUS TUTTLE, ESQ.— Continued. 
 
 The Chairman. Mr. Tuttle, you were interrupted in your state- 
 ment. What else have you to say on the subject ? 
 
 Mr. Ttjttle. I will occupy only a few minutes more. I think you 
 have had about all that I ought to inflict upon you in the way of a 
 general statement. 
 
 One or two things came up yesterday in, the course of Mr. Mora- 
 wetz's testimony that I think perhaps I may speak upon. Some 
 
160 BEGULATION OF RAILWAY BATES. 
 
 questions were asked about the manner of keeping railroad accounts 
 and determining what were expenses and what Avere net earnings, 
 etc. I think it is the general custom among railroads to charge 
 as an operating expense everything that is clearly a day-to-day ex- 
 pense of carrying on the business of the railroad, of handhng its 
 traffic, and performing its service to the public. In addition to that, 
 every solvent railroad ought to make a sufficient amount of addition 
 to its 'property of material things charged to operating expense to 
 keep the property good, and a little more than good. It is a very diffi- 
 cult rule to lay down and establish as applicable to all companies, 
 and the liberty to charge to operating is very much broadened by 
 the financial condition of the company itself at the end of the fiscal 
 year. 
 
 In the first place, every railroad company ought to charge for new 
 equipment to operating expense sufficient to keep its equipment fully 
 up to the ledger value which first appeared in the construction ac-' 
 count of its railroad. I mean, by " equipment," rolling stock, 
 engines, and cars. If in the construction account of that railroad 
 the ledger value of the equipment was, say, $13,000,000, it ought, as an 
 operating expense, to put in new equipment enough every year so 
 that an inventory of that equipment at any time would show that it 
 was worth the $13,000,000 shown in its account. 
 
 Of course every company does expend at all times great sums of 
 money in repairing equipment, but that does not make it good. 
 Equipment deteriorates, notwithstanding repairs, and if that thirteen 
 millions of equipment is going to deteriorate, say, $.500,000 a year 
 over and above the repairs that have been made, the solvent road 
 ought to put in about $500,000 a year worth of new equipment to 
 make that good. 
 
 As to other liberties in accounting, freedom to charge to operating 
 expenses or to improvement: When we talk about improvement we 
 generally mean something that is actually added to the value of prop- 
 erty, something that is new, something that is additional. In the 
 case of relaying rails, say that the tracks were originally laid with 
 50-pound or 55-pound or 56-poimd or 60-pound rails. No one 
 would lay 60-pound rails in a main line nowadays ; it would be 75, 
 85, 90, or 100 pounds to the yard. Now, it might be legitimate, if the 
 road's necessities required it, to charge that additional 15 pounds of 
 steel put in to improvements, and issue stock or bonds ior it; but it 
 would not be conservative and it would not be safe. You, to be sure, 
 have 15 pounds more to the yard of steel on your line, but it does 
 nothing but carry your traffic. It does not earn you a new dollar. 
 _ Under our laA-s s in New England there are certain things permis- 
 siblfe to charge to capitalization — elimination of grade crossings, 
 building new stations, building new tracks; but the conservative 
 railroad puts a sufficient amount of that new construction into its 
 operating expense to keep, if possible, its property abreast of the 
 needs of its business, and it adds as capitalization, for which bonds 
 or stock are issued, such things as are going to of themselves produce 
 new business. If a railroad should decide to add 10,000 freight cars 
 because its equijjment was not sufficient to do the existing business, 
 those 10,000 freight cars would be just as properly chargeable to 
 capitalization as the first 10,000 that it bought when it built its road. 
 
BEGULATION OP RAILWAY KATES. 161 
 
 But if those 10,000 cars were necessarj' in order to keep the eqviip- 
 inent valuation up to the ledger value of the road's constructiou ac- 
 count, they ought to charge it to operation, and not to new equipment. 
 
 As to the determining of net earnings, the methods of railways 
 vary ; but I think the generally accepted belief is that the net earn- 
 ings in the first instance are what the company has left out of its 
 gross income after it has paid its current operating expenses — the 
 expenses incurred in the carrying on of the business of the road. 
 For instance, if a railroad finds that it has a gross income of thirty 
 millions, and its operating expenses are twenty millions, the differ- 
 ence between the two, ten millions, is the net earning. Of that net 
 earning it disposes as follows : First, by paying the interest upon its 
 debt; second, by paying the taxes, which are a fixed charge, not an 
 operating expense. (They may vary in amovmt, as interest does, 
 •but they constitute a regular, fixed charge which has to be met. It 
 is not a flexible charge, like the question of hiring brakemen or put- 
 ting on train service or taking it off.) Then you have the rentals of 
 your leased lines, whatever they are. Those three items make up the 
 fixed charges, so called. After those are deducted from your net 
 income the balance is your surplus, and that surplus is applicable 
 to dividends or for whatever purposes the company has a right to 
 use it. 
 
 In regard to what is charged to improvement and what is charged 
 to operating, those things are concluded everj' year; and it is not 
 customary or proper for a railroad to capitalize after the year is over 
 things that have once been charged to operating expense. To do that a 
 new appraisal of the road is required, or more juggling with accounts, 
 which is not considered good and safe operation. 
 
 Senator Newlands. And yet that is sometimes done, is it not? 
 
 Mr. TuTTLE. I do not know of cases where it is probably done. It 
 may be that for certain purposes it is done; but it would not be 
 allowed under any of our laws. I do not think it is a proper thing 
 to do, and I do not think it ought to be done. I do not know that it is 
 done. I do know of a case. Senator, where, many years ago, a rail- 
 road in the East, which had under State law a right to issue bonds 
 to the extent of one-half of the value of its property, had a reap- 
 praisal of its property made so that it might increase its bond-issuing 
 power ; but that is not permitted in many of the States in the Bast, 
 at least. 
 
 We are obliged to close out the account with the 30th day of June 
 of each year ; and such items as are suitably chargeable to capitaliza- 
 tion during that year are reported in the aimual statement of the 
 directors as additions to capital account, for which bonds or stock 
 may be issued whenever the requisite authority is acquired from the 
 railroad commissioners. 
 
 Senator Newlands. And the amounts expended may be tempo- 
 rarily taken from the surplus account ? 
 
 Mr. Tuttle. Not at all. They stand by themselves, as so much 
 added to capital account, for which the company has temporarily 
 
 Erovided out of its current income the money to pay, but which it 
 as not capitalized or funded. 
 Senator Newlands. Yes ; that is what I mean. 
 Mr. Tuttle. But it does not appear anywhere as an operating 
 expense. 
 
 B E B — 05 M 11 
 
162 BEGULATION OF RAILWAY BATES. 
 
 Senator Nbwlands. No. •. i- .• 
 
 Mr. TuTTLE. Not at all. It is shown as a separate capitalization. 
 
 As to the forms of capitalization, that varies with every State, I 
 suppose; but in the East, in Massachusetts and in New Hampshire 
 and Maine (the States in which the Boston and Maine Kailroad is a 
 domestic corporation ; we are chartered alike in each State) , we are 
 not permitted to issue stock or bonds for any purpose until that pur- 
 pose has been definitely stated to the railroad commissioners of the 
 States in which the expenditure is to be made. They examine all of 
 the statements, and finally authorize the issuance of stock or bonds 
 sufficient to raise the money necessary to cover the expenditures we 
 ask permission to make. We may issue bonds on private terms, but 
 we are obliged to sell our stock at public auction in the market at the 
 highest price offered ; or, if it is more than 4 per cent of the outstand- 
 ing capital stock, it may be distributed to the stockholders pro rata, 
 at a price to be fixed by the railroad commissioners, which is supposed 
 to be about the market price. Consequently the par value with us 
 means nothing, now ; the market value is really the par value of the 
 stocks of railroads chartered under Massachusetts, New Hampshire, 
 and Maine laws. 
 
 To show you what I mean by that, I will say that the Boston and 
 Maine Railroad has at various times issued its stock, as authorized 
 by the railroad commission, for certain purposes, and it has sold, in 
 one case, 17,000 shares of stock to its stockholders at $190 a share ; in 
 another case it sold 2,000 shares to the public at $190 a share; recently, 
 8,000 more, under a lower market, at $170 a share; and all of the 
 money received for that stock must be used for permanent additions 
 and improvements, or for the definite purpose for which it was 
 issued. We can not take the premium and cover that in to current 
 income and declare it as dividends. 
 
 Consequently, the stockholders who have bought Boston and Maine 
 stock at $190 a share are not receiving 7 per cent dividends, although 
 the road pays $7 a share dividends. They are receiving about 3^ per 
 oent ; and when our legislatures made those la\y^s they estopped them- 
 selves from regulating the rates of the railroads by their own act. 
 They have fixed the price at which stock is sold to the public and 
 stockholders upon a basis of dividends of about 3^ or 4 per cent, and 
 you can see that hereafter, when it is claimed that the railroad ought 
 to have its rates reduced because it is earning too much money, the 
 stockholder will step up and say: "But you made me pay $i})0 a 
 share, and I am only getting 3J per cent at $7 a share. Now, if you 
 xeduce that dividend, I am going to get less than the current rates." 
 
 There is a iprotection on both sides, it warrants the stability of our 
 mortgages. But although technically the legislatures of Massachu- 
 setts and New Hampshire and Maine have the right to regulat* the 
 rates of the railroads that are chartered by them, by their own acts 
 in making the current prices of these stocks the market prices, and not 
 the par value, they rhave practically eatopjped themselves from regu- 
 lating the rates which the railroads should charge and they do not 
 try to exercise any ^power in that particular. 
 
 I want to discuss another matter which was touched upon yester- 
 day, and that is the relation between increased expenditure and 
 increased income. 
 
REGULATION OF RAILWAY BATES. 163 
 
 The various statements, made without explanation, of the account- 
 ing department of the Interstate Commerce Commission call atten- 
 tion to the very large increase in the ?imount of gross income, the 
 relative increase in the rate per ton per mile received, and draw the 
 inference that there has been a very large assessment upon the busi- 
 ness of the country by reason of this increase in rates, which runs 
 up into hundreds of millions, or a hundred millions or more. 
 
 Senator Foeaker. One hundred and fifty -five millions. 
 
 Senator Newlands. I thought it was one hundred and seventy- 
 five. 
 
 Mr. TuTTLE. Now, all those things are misleading imless you go into 
 the details. Let me give you, as a concrete illustration, some figures 
 that I have taken off from the accounts of the Boston and Maine 
 Eailroad which I think may epitomize and may be called typical of 
 the railroads of the country. 
 
 Take 1902 as compared with 1904. In 1904 the gross income of 
 the road was thirty-five million four hundred and seventy-one and 
 odd thousand doUars. In 1902 it was $32,432,000. There was an 
 increase of $3,040,000 in the gross income of the road, but the operat- 
 ing expenses increased in 1902 $22,433,000, and in 1904 $25,271,000— 
 an increase in operating expenses of $2,838,000 as compared with an 
 increase in gross income of $3,040,000. 
 
 The operating pay rolls increased in that time $1,511,000; so that 
 of this operating expense increase of $2,838,000 $1,511,000 was in the 
 operating pay roll, made necessary by the demands (not the requests) 
 of our men. "We had to face, as every other railroad did in 1902 and 
 1903, the question of whether our trains would run or whether they 
 would stop. We had no choice, and we had to temporize, negotiate, 
 and give to our men, as every other railroad did, a portion of what 
 they considered to be a fair wage-rate in view of the increase in the 
 expense ot living. Then we have the items of interest, rentals, and 
 taxes. Those increased from 1902 very largely — taxes from $8,- 
 059,000 to $8,198,000. There was an increase in the fixed charges 
 of $139,000. 
 
 Whein, therefore, we got through these things, and came to a com- 
 parison of ,the final balance between the two years, we found that the 
 (Wraliing expense from 1902 to 190,4 had increased $2,838,000 and 
 the tastes had increased $139,410, showin^g a total increase for operat- 
 4pg and taxes, of $2,9^8,000, with a gross income increase of $3;,04Q,000. 
 Therefore, all of that gross income increase except $62,629 had been 
 taken up by an increase in operating expenses, increase in rentals, 
 and increase in taxes, and thpit $62,000 increase in the 3\irplus appli- 
 cable ^qr dividends to the stockholders was jvist about taken up by a 
 qufintity of additional stock -^hich T((e had issued to ipaake improve- 
 ments and sold ajt $190 a share. 
 
 So that at the end of 1904, with the bald statement before yqu that 
 the Bpstqn and Maine Eailroad (increased its gross earnings over 
 $3,000,000— from $302,000,000 , to $305,000,000— it comes out at the 
 end of the two years', opei^ation? and finds it has $62,000 and a little 
 nbove left qut of that :$3,Of10,000 ; and its emploj'ees, the locomotive 
 builders, ,the steel-rail seller?, and the people who make all the other 
 things that they supply to us ha<ve,all theibalance, except ahout half 
 
164 REGULATION OF RAILWAY RATES. 
 
 of it that went to our employees. And to make the unexplained 
 statement that here is a gross increase of $3,000,000 and perhaps an 
 increased rate per ton per mile, and therefore the public have been 
 unduly assessed, is erroneous until you know the facts; and I think 
 vou -nill find that that condition o"f things prevails throughout the 
 coiuitrv. It is certainly true that the price of railway transportation 
 has in' no sense come up to the level of the cost of the commodities 
 and products and other things which make up the cost of railway 
 transportation. In other words, you can buy more railway transpor- 
 tation to-day with the same money than you can buy of other prod- 
 ucts as compared with eight or ten years ago. 
 
 Another little comparison. I have said that in my judgment it is 
 unfair to compare tAvo years in the same period, such as 1903 and 1904. 
 1 think you will have to talie more widely separated periods in order 
 to get a fairly definite result. And I find" that, taking 1888 as a start- 
 ing point, the rate received per ton per mile for the freight of the 
 countiy was 1.001 cents; the operating expenses of the railroads at 
 that time averaged G.lSi per cent of the gross income. In the case 
 of 190J fhe rate received per ton per mile has not yet been determined, 
 so far as I can fiad ; but in 1903 it had come down from 1 cent to 7.8 
 mills and a fraction. The operating expenses had gone up in 1903 
 from (55.31 to 66.16, and in 1904 had farther increased to 67.75 per 
 cent of the gross income. Now, when you take into account the fact 
 that the gross income had enormously increased from 1888 to 1904, 
 naturally, and that notwithstanding that enormous increase the ab- 
 sorption through increased operating expenses had brought the ratio 
 up frf)m 65.34 to 67.75-, you can see that the railroads are not them- 
 selves getting for their stockholders an undue proportion of this 
 increase. They are getting a less" proportion than they were with 
 the much higher rate. 
 
 Just another point on the difl'erence in the rates charged and re- 
 ceived, either per se or in general average, in different sections of 
 the countrj'. The railroad man understands, but. unfortunately, the 
 railroad man does not tell or does not know how to tell, these facts. 
 I sometimes think that the railroad man ought to be sent to school 
 to learn how to tell what he knows. In talking with men who know 
 all these things about traffic, I find that they can not tell it; they 
 can not put it in shape; but they know it, just as I said the baker 
 knows how to make bread, but he does not know anything about the 
 chemical processes and reactions. 
 
 Here is one of the things that goes into the cost of a freight rate: 
 It is found, by and large, that the terminal charge in handling freight 
 for yards, freight houses, switching men, loading and unloading, 
 will average from 20 to 25 cents a ton at each terminal. You can 
 readily see that when freight is moved a thousand miles, it having 
 only the same two terminal charges that it does if it is moved 20 
 miles, the effect of that terminal charge upon the cost of moving 
 that freight is very materially different in the 1,000-mile haul than 
 it is in the 20-mile haul. You take the charge of 20 miles, and sup- 
 pose it is 75 cents a ton ; out of that you must take as the cost of doing 
 that business from 40 to 45 cents for terminals, and for the haulage 
 the railroad gets about 30 or 35 cents. Therefore j^ou will find that 
 what many people complain of, the minimum rate usually charged 
 
REGULATION OF BAIL WAY RATES. 165 
 
 of 50 cents a ton for any morement of freight, is only a fair charge. 
 The railroad, in moving a carload of freight 5 miles, performs all 
 of the service of terminals that it does when it moves it 500 miles ; 
 and that terminal charge being from 40 to 45 cents if it moves it 10 
 miles or 5 miles, at a 50-cent rate all the railroad gets out of it for its 
 movement is from 5 to 10 cents. 
 
 When you take a section where the traffic is largely local, such as 
 the densely populated regions of the East (I do not mean within 
 State lines exactly, but in a district, within a hundred miles) , where 
 the local-freight movement predominates over the through- freight 
 movement to such an extent that it may be 80 per cent of the whole 
 movement of the roads in that territory, that freight movement will 
 not average over 60 miles to the shipment. Now, you can see that 
 you are going to have, taking in those terminal charges in the con- 
 struction of the freight rate, a very much higher average rate per 
 ton per mile for that movement than you will have on a line leading 
 from the Mississippi Kiver to the seaboard and carrying 80 per cent 
 of through tonnage long distances, with a terminal fitted only to a 
 thousand-mile haul. _That accounts for the differences, and that 
 shows why the rates can not be taken as a basis on any mileage plan 
 as between the Jlast and the West or the North and the South. 
 
 Then in individual sections, separate sections, you can haul over 
 the prairie country 60 cars in a train with an ordinary locomo- 
 tive, with one engineer, one fireman, three brakemen, one conductor, 
 and one signalman. In some of the hillier portions of the East you 
 can haul only 15 cars with that outfit, in some places 30, and so on. 
 
 The cost of construction of a road, too, makes a difference.- Unfor- 
 tunately, we can not always use it as a factor in making rates, but 
 we have to reckon with it in our operating expenses and in our capi- 
 talization. 
 
 Take, for instance, the famous Hoosic tunnel, which is now one of 
 the black beasts of the Boston and Maine Railroad. That is a tun- 
 nel about 5 miles long, I think, which cost the State of Massachusetts 
 $28,000,000. It is capitalized in our accounts at about ten niillions. 
 The State was very glad to get rid of it, as it has been of all of its ven- 
 tures in railroads! "WTiat do we do with that? There are 4| miles 
 and in making up a rate for the transportation of passengers and 
 freight it only counts as 4| miles, and freight moves over it perhaps 
 at 5 mills, at 2 mills, or 8 mills and 10 mills, just the same as if it cost 
 only $10,000 a mile. We can not change it. We are obliged in the 
 conduct of our business to carry things at the same price that other 
 people do who have not those expensive luxuries. 
 
 So that all of these things come into the problem, and I am only 
 bringing them to your attention to show you the magnitude of the 
 problem and how difficult it would be, I care not how able the men 
 are, for any set of men such as I have ever known to sit down in the 
 middle of this country and properly adjust, by maximum or 
 otherwise, the rates of all the railway mileage of this country, with- 
 out leading to confusion Avorse confounded. You do not get over the 
 difficulty by saying that they are only going to take up things com- 
 plained "^of. The rates are so tangled up that if I make the rate from 
 here to here [indicating], and afterwards from here to here [indi- 
 cating], I have made every rate that there is inside of that square, 
 
166 REGULATION OF RAILWAY BATES. 
 
 and it can not be helped ; and to put it into the power of anybody to 
 have that control of the traffic of this country is, in my judgAieilt, 
 going to be a thousand times as dangtooiis to the business prosperity 
 of this country as it is to any of its railroaid interests. I think the 
 prosperity of the country will suffer more than the railroads will. 
 
 I want to touch upon one point that is somewhat in accord with the 
 " Iowa idea." It is persistently said that those who advocate the 
 regulation of railway rates and of their regulations and rules depre- 
 cate Government ownership — deprecate anything like the Govern- 
 ment taking charge of the railways. I have found in the Boston 
 Transcript a special article on this subject contributed by the Hon. 
 William Larrabefe, ex-governor of Iowa, who has been an apostle of 
 advanced ideas in tegard to railroad management 
 
 Senator Dollivek. For many years. 
 
 Mr. Ttjttle. For many years ; and I want to read you just a little 
 of this, as expressing 
 
 Senator D'ollivee. I will add that he is the author, in a general 
 way, of the present railway laws of Iowa. 
 
 Mr. TuTTLB. I think he takes the credit of that in his article. 
 
 Senator Dolliver. He is entitled to it. 
 
 Mr. TuTTLE. But I will not read that. This is headed " Govern- 
 ment ownership no bugbear." [Reading:] 
 
 " Congress must provide for efficient Government restrictions, or 
 Government ownership is inevitable. Government ownership is not 
 the bugbear to intelligent people that it was a few years ago. Those 
 who have made a thorough and impartial examination of the sub- 
 ject are surprised to find that the objections to it are far less than are 
 generally supposed. Nearly all foreign governments have adopted 
 government ownership of railroads to a greater or less extent, and 
 their experience of many yeairs has proved it to be entirely prac- 
 ticable, and upon the whole shows much better results than private 
 management. 
 
 " The service is superior to that of private management, and is 
 equal to the public demand. The State road is kept in better condi- 
 tion, the public safety, convenience, and general advantage being 
 paramount considerations. Rates are stable and uniform, and all 
 persons and places are as equal before the railroad tax collector as 
 before any other law. Passenger fares are lower, many of them 
 are the lowest in the world, and freight rates are lower than on roads 
 managed by private companies. The State expends from 20 to 30 
 per cent more for maintenance of the road, and the rank and file of 
 employees fare on an average better under government managemeiit 
 than they do under private management, and yet the financial reports 
 show much better results from the government roads. 
 
 " This will be denied by those who are directly or indirectly inter- 
 ested in the present system here, and by those who have but little 
 knowledge of the subject, but no unbiased person can travel on the 
 State managed roads, and have full knowledge concerning thein, 
 without coming to this conclusion. In many countries the govern- 
 ment roads do a large amount of gratuitous service for th6 state. 
 Mails are carried free, troops and government Stores are transported) 
 and other service rendered at nominal rates. Many millions of dol- 
 lars are annually paved to the state in this way, and in many cases 
 
REGULATION OF EAILWAY EATES. 167 
 
 large revenues are derived from them for the state. Hates are based 
 more on the cost of service than upon what the traffic will bear, and 
 the ultimate object of the state's policy is not high profits, but to 
 give the best service possible for the least money, while the aim of 
 the private company is to get the largest revenue possible. Rail- 
 road men have been industrious, and their organs have made it a 
 special feature to deny this, but it is entirely safe to say that if our 
 Government would purchase the railroads at their original cost to 
 the stockholders, or at a fair valuation, they could be maintained 
 and operated by the Government, with a more efficient service than 
 we now have, at less than one-half of their present incojne." 
 
 I think anyone here who has traveled in Europe on government- 
 owned railways will hold a different opinion from Governor Larra- 
 bee in that regard. The railways of Great Britain are the finest in 
 the world in ever}' particular, and they are all privately owned, and 
 they are not governed beyond the making by government of a maxi- 
 mum tariff for all the railways. Each railway's tariff is approved 
 by Parliament as the tariff' of that railroad, and practically none of 
 them pretend to charge the maximum rates within their tariff. 
 
 Senator DoxT.rvER. How do they manage to change the actual rate 
 which is in force ? 
 
 Mr. TuTTLE. They go to their board of trade and get a reduction if 
 they want it, but generally it is a reduction and not an advance, be- 
 cause they have libertj^ within their tariffs to make rates up to that 
 maximum, and in, I think, no case does any English railway charge 
 the maximum that is allowed in its tariff. In the State of New York, 
 for instance, there is a maximum law of 3 cents a mile for passengers. 
 Very few of the roads there, I think, pretend to charge 3 cents a mile. 
 Some do, but most of them charge verjr much less. 
 
 As to the German railways, everyone loiows that it is impossible 
 to find out anything about the cost of the operation and construction 
 of those railways. You go to the Government official in Germany 
 and ask him about the cost of any particular thing and he says, 
 " Government — government.'" That is all. Xobody knows whether 
 there is a profit or a loss. They do not make public statements in 
 sufficient detail to warrant it. As to France, the Govermnent there 
 has a reversionary right in the railways and exercises a control, as it 
 has a perfect right to do, because it is an owner in the property ; but 
 I think it is the opinion of Americans who travel abroad that they 
 thank God when they can get off of a government-owned railway and 
 get onto one that is operated by private people, wherever they find 
 it on the Continent in Europe. 
 
 Gentlemen, I think I have wearied you enough. 
 
 Senator Foeaker. You have not told us how it is as to their fares 
 there. 
 
 Mr. TuTTLE. Oh, as to their freights, throughout Europe they are 
 from two to three times the average of what they are on the railways 
 of the United States, and their passenger fares are generally higher. 
 In Great Britain, as everyone knows, there is a parliamentaiy rate 
 of a penny a mile, which is equivalent to our 2 cents, and they are 
 obliged to run one train a day. As a matter of fact, they have re- 
 duced their fares even below the parliamentary rate for third-class 
 accommodations, and the English people stand it. They say over 
 
168 EEGULATTON OF EAILWAY BATES. 
 
 there that " nobody but fools and Americans ride first class; " but I 
 am willing to be a fool and an American rather than take their third- 
 class accommodations. They pack them worse than we pack cattle 
 in cars, and their accommodations are of such a kind as our people 
 would not submit to anywhere, if we would carry them for an eighth 
 of a cent a mile. The thing that you get in England that compares 
 to the accommodation that our railways regularly give costs more 
 than it does here. The things that they sell cheaper our people would 
 not have as a gift. And the freight rates are abnormally high, from 
 our point of view, throughout Europe. 
 
 Senator Newxanps. Is that not largely due, though, to the fact that 
 their hauls are generally short hauls? 
 
 Mr. TuTiXiE. Somewhat so ; but everything is on a higher scale in 
 that matter, and wages of the men are very much less. 
 
 I am at your service, Mr. Chairman. 
 
 The Chairman. I gather from what you say that you contend that 
 the fixing of rates logically and of right naturally belongs to the 
 railroads, and no person or set of persons can fix the rates as well as 
 the railroad companies ? 
 
 Mr. TuTTLE. I think, as a moral question, yes. I think that until 
 it can be shown that somewhere in the world a plan has been success- 
 fully carried out by which one man does the business and another 
 man fixes the price at which his labor shall be sold it hardly ought 
 to be considered that it is going to be successful in connection with 
 the railways. I believe the man or the railway or the corporation 
 that is charged with the duty of producing the goods, the commodity, 
 whatever it is, and with bearing the cost of the same and the losses 
 incident thereto, ought to be left as free as possible to make the prices 
 at which his or its product should be sold. 
 
 The Chairman. You hold, practically, that it would be very diffi- 
 cult for the Government, thrqugh any tribunal, to fix the rates? 
 
 Mr. Tdttle. I think it would be almost impossible. 
 
 The Chairman. Almost impossible? 
 
 Mr. Tuttle. Almost impossible. 
 
 The Chairman. Would the fixing of the rates by a commission 
 divide the responsibility of management and interest in the railroad? , 
 
 Mr. TuTTLE. Very much, indeed. 
 
 The Chairman. It would divide the responsibility, you say? 
 
 Mr. TuTTLE. Very much. If we were obliged to do the business at a 
 rate to be established by some one other than ourselves, our interest 
 in the traffic would soon cease. We should feel it necessary, if the 
 rates were unsatisfactory, to lower the quality of the accommodatioiis, 
 to decrease the service, and so on. 
 
 The Chairman. If the Commission should fix a rate, and it should 
 be reviewed by the courts, and the courts should agree Avith the rail- 
 road that it was too low, could any law be framed to compel the 
 railroad to haul the freight at a price lower than they thought would 
 be remunerative ? 
 
 Mr. TuTTLE. I should think not, under the general understanding 
 I have. 
 
 The Chairman. It would be difficult to frame such a law? 
 
 Mr. Ttjttlb. I think it would be impossible to frame such a law. 
 
 The Chairman. If the fruit rate from California was made so low 
 
EEGTJLATION OF EAILWAY RATES. 169 
 
 that the cars in that service could go to other points and be better 
 remimerated, would the railways then haul the fruit from California ? 
 
 Mr. TtJTTLE. I think that would perhaps depend very largely upon 
 what the railroad thought would be its duty to a certain portion of its 
 customers in California in regard to maintaining other businesses in 
 that section. But if you were to put the thing under the whip of the 
 law in such a way that the rates from California were reduced below 
 a remunerative price, the tendency of the railroad would be to get out 
 of that business just as fast as it could. 
 
 The Chairman. In that section of the country? 
 
 Mr. TuTTLE. Yes. I think I may say, in explanation of that, that 
 it is human nature everywhere to do a great many things if you do 
 them of your own accord, but you do not want to do them under com- 
 pulsion. You say to a man, " You have got to do this," and he will 
 say, " I'll be damned if I will, if I can help it." [Laughter.] That is 
 human nature; and railroads are governed by the laws of human 
 nature, just as Congressmen are. [Laughter.] 
 
 The Chairman. You hold that in fixing rates the commission that 
 might be given the power to fix them would have to do about as the 
 railroads do ? 
 
 Mr. TuTTLE. I do not see how it could be done otherwise, unless 
 the Government is at the same time going to guarantee the railroads 
 an income suiRcient to pay operating expenses and a fair return upon 
 the property. 
 
 The Chairman. Mr. Tuttle, why do railroads make differentials 
 to the seaboard — to the ports on the Atlantic coast — from Chicago, say ? 
 
 Mr. Tuttle. It is wholly a commercial question. 
 
 The Chairman. What is the reason for it ? 
 
 Mr. Tuttle. Originally differentials were made for export busi- 
 ness purely to offset differences in ocean rates. The purpose in 
 making the rate originally was to give the same through rate from 
 the point of origin — say Chicago — to Liverpool by all routes. When 
 the rates were established the steamships were absolutely free from 
 all combination as between themselves and ships could go to Balti- 
 more and make such rates as they saw fit or go to New York and 
 make such rates as they saw fit. The cost of working a ship in and 
 out of Baltimore or in and out of Philadelphia was said by the ship- 
 owners to be greater than that of working in and out of New Yorl>: 
 or working in and out of Boston. Therefore they said, in a general 
 way, to the shippers via Baltimore and Philadelphia : " Unless you 
 can give us a sufficiently higher rate to warrant our going into these 
 dangerous and difficult ports, we shall be likely to go to New York 
 instead of to your place." 
 
 To mept that, and to give the same through rates from the place of 
 origin of the traffic to Liverpool or London or Hamburg, as the case 
 might be, the railroads insisted upon giving a lower rate to Balti- 
 more and Philadelphia, which became a differential. The thing was 
 fought about between the railroads ; and finally, as a matter of arbi- 
 tration, it was submitted to the Interstate Commerce Commission, 
 and they fixed upon certain differentials which we always supposed 
 they based upon what they believed to be the difference in the cost 
 of ocean traffic as between the ports. 
 
 Now the question has come up again, because since those days a 
 
170 EEGULATION OF RAILWAY KATES. 
 
 considerable portion of tlie trans- Atlantic service has come under one 
 ownership, and they have undertaken at times to make maximum andi 
 minimum rates which should apply from all ports. Believing that 
 to be the case, the railroads leading to New York and to Boston askect 
 the Interstate Commerce Commission to rehear the matter, and to de- 
 termine whether, in the light of new conditions, those differentials 
 were necessary, and, if necessary, whether as great a differential was 
 necessary. 
 
 But to get back to your question — I am sorry to take so much time 
 in answering it — so iar as ocean differentials were concerned, they 
 were originally founded upon a belief that there was a disadvantage 
 between the ports; and in order to equalize that the rail rates must 
 be enough lower to make up the difference of the higher ocean rate 
 from that port. 
 
 There is another kind of differfential — that is, the rail differential. 
 ^Vhere those exist they are the result of old-time battles. When a 
 line would say, " You"^ shall not have a differential," and the other 
 party said " I shall," and they went on and settled it in the usual 
 way where one says " I shall not " and the other says " I shall," they 
 fought until it became cheaper for them both to agree that there 
 might be a differential, and to concede it. That is all there is 
 about it. 
 
 The Chairman. Are not the differentials remaining as to other 
 freights terminating in New York and Philadelphia and Boston, 
 without regard to the ocean-going freight ? 
 
 Mr. TuTTLE. I do not think so. 
 
 The CHAiEaiAN. Does that all apply to the through rate on the 
 ocean ? 
 
 Mr. TuTTLK. I think these differentials, so far as New York and 
 Philadelphia and Baltimore are concerned, refer to through and not 
 to domestic traffic. I do not know that any claim is made that Balti- 
 more is not entitled to a differential. Baltimore domestic freight 
 would not have any particular contention with New York and Phila- 
 delphia, because a rate could be made for New York a little higher 
 or a little lower than that for Baltimore without Baltimore people 
 suffering particularly. 
 
 The Chairman. If the differentials were abolished, would that 
 bring on confusion, disturbance, and trouble in the ocean freight 
 work ? 
 
 Mr. TuTTLE. I do not believe so. I do not think the differential is 
 such a source of trouble and confusion that it needs to occupy very 
 much time at the present time. If, however, you widen it into differ- 
 entials between Gulf ports and Atlantic seaports, you get in pretty 
 deep water. 
 
 The Chairman. I say, all differentials — all differentials. That 
 would involve the ocean freights from New Orleans to Liverpool, etc. 
 
 Mr. TuTTEE. I do not quite see how you can do that : because vou 
 may say what the highest rate charged by way of New Orleans shall 
 be, but you can not say that New York shall not charge less. 
 
 The Chairman. Do you agree that these differentials "are a pref- 
 erence ? 
 
 Mr. TuTTLE. Oh, they are certainly a preference in some ways, pro- 
 vided the ocean rate does not equalize it. 
 
REGULATION OF RAILWAY RATES. l7l 
 
 The Chairman. Do 5'OU know of any way by which the Govern- 
 ment could regulate the freight between Chicago and Liverpool — the 
 joint rate'^ 
 
 Mr. TuTTLE. Oh, I am quite sure they could not. 
 
 The Chairman. They could not do it? 
 
 Mr. TuTiTiE. I do not think that our Government has any control 
 of the ocean beyond 3 miles from shore. 
 
 The Chairman. If the power were conferred on the Commission to 
 fix rates just as the railroads do, could they, under the exercise of that 
 power, maintain these differentials, acting for the Goverimient? 
 • Mr. TuTTLE. If they did, it seems to me it would have to be a con- 
 cession, an agreement; I do not think they could make any rule 
 about it. 
 
 The Chairjian. If the Commission maintained the differentials, 
 then they would be making a preference to ports in one State over 
 those of another ? 
 
 Mr. TuTTLE. Undoubtedly. 
 
 The Chairman. And if they did not make differentials, as I under- 
 stand you, there would be confusion and trouble? 
 
 Mr. TuTTLE. If you made those differentials by order of the Com- 
 mission, which I suppose is a part of Congress, the ports might raise 
 the preference question ; I do not see how it could be otherwise. 
 
 The CHAiRirAN. If the power is given to a commission to fix rates, 
 as we understand is now contemplated, would there be any possible 
 conflict between State and Federal jurisdiction — these States having 
 given the original charter and the Federal Government exercising its 
 power under the Constitution to regulate commerce? In the exercise 
 of this power that is to be delegated by Congress, have you or have 
 you not thought whether they would be in conflict? 
 
 Mr. TuTTLE. I do not think there is any room for conflict there, 
 because I have never known a State authority to claim any jurisdic- 
 tion over interstate commerce; and, on the contrary, I have never 
 Imown the national legislature to claim any jurisdiction over State 
 commerce ; so I do not think there would be any difference there. 
 
 The Chairman. No question would arise? 
 
 Mr. TuTTLE. I do not think so; I do not see that there could. I 
 think all legislatures have been very careful to end all their exercise 
 of authority at the border of their States. • 
 
 The Chairman. Under the circumstances, and in view of the agi- 
 tation in the country over the subject of rate making, would you or 
 would you not advise providing by law that in a given case, con- 
 templating such review by the courts, the power should be given to 
 some tribunal — say a commission — to find and declare that a rate is 
 excessive, and declare by order that the same should cease and not be 
 effective, and then leave it to the railroads (the proper rate-fixing 
 power in the country, in whose hands it logically belongs) to fix a 
 new rate after a given rate was declared to be too high ? 
 
 Mr. TuTTLE. There certainly could be no objection to that, because 
 I understand that to be the law to-daJ^ 
 
 The Chairjian. Under your idea of the power of the Intetstate 
 Commerce Commission, could we enforce such an order? 
 
 Mr. TuTTLE. I am now touching on very dangerous ground, because 
 I am not a lawyer; but I understand, Mr. Chairman, that the 
 
172 EEGULATION OF RAILWAY BATES. 
 
 Supreme Court has decided that the Commission has power to enforce 
 the different provisions of the interstate-commerce law ; and I thmk 
 it has been decided that whenever the Commission declares a rate 
 excessive, that is a prohibition of that rate, and it is withm the power 
 of the railroad to use any other rate less than that and be in accord 
 with the law. ■ j , 
 
 The objection that is raised to that is that it a dollar is declared 
 to 'be an excessive rate— and that is all the Commission can do about 
 it^-the railroad can put in a rate of 99^ cents, and wait for another 
 order; and that is a pretty good objection if it worked that way; I 
 do not think it does. But that is really the objection that is raised. 
 
 The Chairman. Do you think that a railroad would seriously do 
 such a thing as that ? 
 
 Mr. TuTTLE. No, I do not; but that is the objection that is raised 
 against the present procedure. 
 
 The Chairman., I know it is. 
 
 Mr. TuTTLB. Yes. 
 
 The Chairman. Are you familiar with the Canadian railway act? 
 
 Mr. TuTTLE. Well, somewhat. 
 
 The Chairman. I want to read you now from a section of that act. 
 They have a board of commissioners ? 
 
 Mr. TuTTLE. Yes. 
 
 The Chairman. Section 257, chapter 58, says: 
 
 The board — 
 
 Meaning the board of commissioners — 
 
 may disallow aujr tariff or any portion thereof which is considered to be unjust 
 or unreasonable or contrary to any of the provisions of this act, and may require 
 the company, within a prescribed time, to substitute a tariff satisfactory to the 
 board in lieu thereof. 
 
 That is about what I meant to say; I meant to stop there before; 
 but they add: 
 
 Or may prescribe other tolls in lieu of the tolls so disallowed, and may desig- 
 nate the date at which any tariff shall come into force. 
 
 Mr. TuxTLE. There is no doubt, Mr. Chairman, but what the 
 Canadian Parliament has given to this new board of railroad com- 
 missioners autocratic and absolute powers over the receipts of the 
 companies. There are probably no constitutional questions that can 
 be raised. In the first place, they have no written constitution, and 
 the most that could be done under their form of judiciary would be 
 to get a final appeal to the privy council in England as to whether 
 this was or Avas not in accordance with the unwritten constitution of 
 Great Britain. But let me say in regard to that that I want to put 
 you on your guard against predicating anything whatsoever, except 
 your personal opinion, on the railway act of Canada. It has been in 
 effect for about a year, but they have done absolutely nothing under 
 it. There is not a single thing that they have done, other than to 
 pass the statute, which is of the slightest iise to us as a precedent. 
 
 Senator Dolliver. Is the commission at work now ? 
 
 Mr. TuTTLE. Not really. The chairman, who was, I think, the 
 minister of railways, resigned from the commission, and it has been 
 dead practically from that day to this, and thev have now just about 
 gotten into working order. But I speak somewhat by the book, 
 
REGULATION OF RAILWAY RATES. 173 
 
 because we are unfortunate enough (or fortuuate enough) to have 
 some railway in Canada, and we are directly under their jurisdiction. 
 But up to the present time not a single thing has been done by that 
 commission that can be predicated upon as indicative of its value or 
 its harm. 
 
 Senator Cullom. So that the railroads are run just as before? 
 
 Mr. TuTTi-E. Practically. Everything has gone just the same. 
 The commission has not intervened. 
 
 Senator Newlands. "Wlio constitutes the commission there? 
 
 j\fr. TunxE. They are appointed by Parliament, I think — by the 
 minister. Perhaps the Senator who has that act can tell you. I 
 have forgotten about that. Wlio constitutes the commission? 
 
 The Chairman. I do not know ; I think they are appointed. 
 
 Mr. TuTTLE. I do not know.' 
 
 Senator Newlands. But the minister of railways is one of them, 
 the chairman of the commission ? 
 
 Mr. TuTTLE. The minister of railways, I understand, is chairman. 
 
 Senator Clapp. Before you go any further, I would like to ask who 
 has this speech of Mr. Willcox — not his article that was published in 
 the magazine, but the speech he made ? 
 
 Mr. TuTTLE. The one he made in Boston ? 
 
 Senator Clapp. In Boston. We had a couple of them yesterday. 
 
 Mr. TuTTLE. I do not think I have a copy of it. 
 
 The Chairman. It is stated here that this board shall be ap- 
 pointed by the governor and council at any time after the passing 
 of this act, and from time to time as vacancies occur. 
 
 Senator Dollivee. Mr. Chairman, where do you get the Canadian 
 act? 
 
 The Chaie5ian. I sent for it, in order to have- it before us. 
 
 Senator Dolliver. I will ask that it be printed. 
 
 The Chairman. It is a very long document. 
 
 Senator Kean. Let it be printed as a separate document for the 
 use of the committee. 
 
 The Chairman. How would it do to print that section, Mr. Dol- 
 liver, referring more particularly to the rates; or do you want the 
 whole of it ? 
 
 Senator Dolliver. I think it would be a good thing to have the 
 whole of it. 
 
 (After an informal discussion, the committee ordered the printing 
 of the entire act as a public document.) 
 
 The Chairman. I understood you to say that there was no com- 
 plaint in New England as to high rates ? 
 
 Mr. TtTTTLB. I have never heard of any complaint to the Interstate 
 Commerce Commission or to our own State commission. 
 
 The Chairman. And New England is occupied by three com- 
 panies ? 
 
 Mr. TuTTLE. Practically. There are some little roads, but they 
 do not cut any figure. The New York Central is there with its 
 leased line, the Boston and Albany ; the New York and New Haven 
 covers pretty nearly the southern portion; and the Boston and 
 Maine, with its own and leased lines, covers the northern portion. 
 
 The Chairman. I gather from what you say that you think rail- 
 road rates are oftener too low than too high. 
 
 Mr. TuTTLE- I think the pressure upon the railroad is to make 
 
174 REGULATION OP RAILWAY RATES. 
 
 rates lower than perhaps is profitable, in order to assist in the 
 development and stimulation of the business of its territory. 
 
 The Chairman. Is it true that the United States has the lowest 
 railroad rates in the world and the highest wages ? 
 
 Mr. TtTTTLB. I am so informed from all the information I can 
 acquire. I know, Mr. Chairman — I made some inquiries as to Eng- 
 lish wages while I was on the other side last summer — and I find 
 that, as a rule, their trainmen get from one-half to two-thirds what 
 ours get. Where our engineers are getting $4 and $4.50 per hundred- 
 mile service, they get about $2.50. 
 
 Senator Cullom. There is no question about the difference in wages 
 in favor of our people, and I think there is no question as to the 
 question of rates. 
 
 Mr. TuTTLE. So far as I have been able to ascertain, our rates are 
 less than one-half the average rate in Great Britain, and considerably 
 lower than the German and the French rates. 
 
 The Chairman. The German rates are lower than any others. 
 
 Mr. TuTTLE. The German rate is lower than all, I think, bat there 
 there is a rich father. Nobody is called to account. The Government 
 runs the railway and pays the bills, and I have never yet been able 
 to find anybody who could tell absolutely about the cost of it. They 
 do not give out the figures. 
 
 The Chairman. I understood you to say that the price of trans- 
 portation during the period of the last ten or twelve years has not 
 increased, but is lower ? 
 
 Mr. TuTTLB. Very much lower. 
 
 The Chairman. While prices of labor and materials have ma- 
 terially advanced ? Is that true ? 
 
 Mr. Turtle. That is true. 
 
 The Chairman. Mr. Tuttle, would you change the present inter- 
 pretation given by the Supreme Court to the fourth section of the 
 original interstate-commerce law, commonly known as the " long and 
 short haul clause ? " Would you change it by legislation ? 
 
 Mr. Tuttle. I would not, sir. Circumstances and conditions gen- 
 erally — that is what you mean, I presume. The Supreme Court has 
 allowed varying conditions to vary the law. 
 
 The Chairman. Yes. 
 
 Mr. TuTTT^E. I should not change that. 
 
 The CHAiitMAN. Do you agree that there should be some limita- 
 tion somewhere upon the railroads to np,me a rate that is too high or 
 extortionate? That is, is it, in your judgment, best to leave it en- 
 tirely to the railroads or to put some limitation in the hands of the 
 Government ? 
 
 Mr. TuTTiiE. No, sir ; I believe there should be a limitatiqn, prop- 
 erly exercised; but I think it should be a judicial dstqrpiiiifition 
 rather than the determination of a commission. 
 
 The I Chairman. Upon complaint to a court? 
 
 Mr. Tuttle. I think so. 
 
 The Chairman. Very well ; that is the point about which I wanted 
 to get your judgment. 
 
 Mr. Tuttle. May I elaborate just a little? As I endeavpred to 
 say in the original statement, I believe that our Commission should 
 act as an investigating body. Jou ought to have a firsttqlftss Inter- 
 state Commerce 'Commission. If I might suggest it, J would make 
 
EEGULATION OP BAIL WAY RATES. 175 
 
 them high-salaried men, the best you can get; and I would give 
 them their office for life or during good behavior, free them from all 
 political entanglements 
 
 Senator Ctjllom. Are vou speaking of a court now, or what? 
 
 Mr. TuTTLE. Of the interstate Commerce Commission. I would 
 make them free from all bias that could come through political influ- 
 ence of any kind, good or bad. I would make them the investigating 
 body; but I would make the question whether a new rate should be 
 substituted for one that they condemned a question to be determined 
 by a court, and determined, instantly, as soon as the case could be 
 heard, whenever submitted by the Commission. I would make the 
 Commission the investigating and, you may say, prosecuting body, 
 and I would lake away everything else. 
 
 The Chairman. Is there any abuse, in your judgment, in the ordi- 
 nary terminal charges made by the railroads? 
 
 Mr. TxTTTLE. I know of none. 
 
 The Chairjvian. Well, would it be better to abolish terminal 
 charges and let that be added into the freight per ton per mile? 
 Would not that be fair to the shippers ? 
 
 Mr. TuTTLE. It is really done in that M'ay now. In tlie making of 
 through rates the terminal charge is usually brought into the pro- 
 portion of the railroad furnishing the terminals — that is, the propor- 
 tion of the railroad that furnishes the terminals is usually slightly 
 increased to compensate it for the terminals that it furnishes and in 
 the expense of furnishing which the intermediate lines contribute 
 nothing. That is practically the case to-day. A distributing rail- 
 road is always allowed somewhat higher proportions. It does not 
 affect the through rate in the slightest. In the division of whatever 
 through rate is made a little higher percentage is given to the termi- 
 nal road because of the additional facilities that it is obliged to 
 supply at its own cost. 
 
 May I explain just a bit? Take the ISiew York Central Railroad. 
 It supplies large terminals for the distribution of business from the 
 West. It bears the whole cost of those terminals. The Lake Shore, 
 the K^orthwesterji, the Big Four, contribute nothing toward the 
 cost of operation of those terminals. The freight moves over the 
 combined route. The intermediate lines get their percentage — their 
 proportion of whatever that through rate is. But when the freight 
 gets to its destination the New York Central road must furnish 
 freight houses, yards, switching crews, perhaps give the shipper (as 
 is the case in New England) four days after the car is placed at, a 
 delivery track before he is obliged to unload it, all of which adds 
 very much to the cost of the terminal road in doing business. And 
 in making up the through rates those things are generally taken into 
 ftccount, not by an addition to the rate, but by allowing, in the divi- 
 sion, a little higher proportion per mile to the terminal road than is 
 given to the intermediate road, and it is perfectly just. 
 
 The 'Chairman. They sometimes charge by the ton ; they say it 
 shall be so much a ton, tx)o ? 
 
 Mr. TtTTTiiE. WeU, if that is done that is not taken out of the 
 Aipper, but is taken out of the through rate and assessed upon the 
 other railroads. 
 
 The Chairman. There is no abuse there ? 
 
176 EEGULATION OF RAILWAY KATES. 
 
 Mr. TtJTTLE. I think not. I never heard anything of that kind 
 charged. 
 
 The Chairman. There is an impression in the country that some 
 of the great railroads, directly, or perhaps more often indirectly, 
 engage in other business (or that their officers do) than that of com- 
 mon carriers hauling freight. 
 
 Mr. TuTTLE. T am unable to say that I know of any such cases, 
 unless they are authorized to do that by the States within which they 
 are chartered. 
 
 The Chairman. Ought not that, as to interstate-commerce laws, 
 where the Grovernment has jurisdiction, to be strictly prohibited? 
 
 Mr. TtJTTLE. I think if it 'could be done it would be a wise thing; 
 but I am inclined to think that in certain cases you would run into 
 the question of the law of contract. I think certain of the coal- 
 carrying roads have charter rights which enable them to do mining 
 and selling coal as a part of their charter right to operate the rail- 
 road. I am quite sure that some of the earliest railroads, like the 
 Delaware and Hudson, hold that charter right in Pennsylvania and 
 New York State, and I am inclined to think it would be difficult to 
 interrupt or to stop what may be considered a contract right. 
 
 The Chairman. A large majority of them have not any such char- 
 ters now. 
 
 Mr. TuTTLB. I think that it would be a wholesome thing. 
 , The Chairman. A wholesome thing ? 
 
 Mr. Tttttle. A wholesome thing, if you can do it. In our section 
 of the country I do not know of any case where a railroad is per- 
 mitted to engage in any other business. We are A'ery closely re- 
 stricted about that. We can not even buy the stock of another rail- 
 road. We can not even buj' the stock of a street railroad and operate 
 it. We can not engage in banking or mining. We can not even go 
 out into Pennsylvania and buy coal mines for our own purposes. 
 The New England roads are very closely limited in that regard. 
 
 Senator Kean. But that is not so as to the New Haven road, is it, 
 in Massachusetts ? 
 
 Mr. Tuttle. I think it is so as to the New Haven road, but they 
 get about it by indirection. They form an association or a holding 
 company. 
 
 Senator Kean. I noticed in the papers that they were buying the 
 street railways. 
 
 Mr. Tuttmj. They are buying them through holding companies 
 and associations. 
 
 Senator Newlands. Do you think that those limitations upon the 
 operations of the railroads are wise ? 
 
 Mr. TuTTLE. I think they are. We have found them to be rather 
 useful in our section. I do not think that the managers or the 
 owners — those who have the direct voice in the management and con- 
 trol of railways— ought to be permitted to engage in business which 
 will put their railway at their service to the detriment of others. I 
 think common morality should take care of that. 
 
 The Chairman. That construction would cut out the railroads 
 being interested in the companies owning the refrigerator cars, would 
 it not? Not in owning the cars themselves, you understand me, Mr. 
 Tuttle, but in the companies— in the stock of companies who own 
 refrigerator cars. Do I make myself plain? 
 
EEGULATION OF RAILWAY EATES. 177 
 
 Mr. TuTTU.. Yes; you do. I want to think of that a bit. I do 
 not quite see what harm can come to anybod}' from a railroad com- 
 pany owning stock in a refrigerator-car line, assuming, as I do as- 
 sume, that the operating of a refrigerator car by any company is a 
 part of interstate-commerce business and is amenable to the law. 
 
 The Chairman. Would you make the refrigerator cars or private 
 car systems generally subject to all the interstate-commerce laws as 
 common carriers ? 
 
 Mr. TuTi'LE. T would make every instrumentality that is vised as a 
 part of railway service subject to the interstate-commerce law, just 
 the same as the railways. 
 
 The Chairman. The same as the railways? 
 
 Mr. TxJTTLE. I think that is the simple thing to do. 
 
 Senator Cullom. Would you interfere with the ownership ? 
 
 Mr. TuTTi,E. It makes no difference who owns things, provided 
 they are obliged to perform their service. 
 
 Senator Cui.lom. Under general law ? 
 
 Mr. TuTTiiE. Under general law. In answer to that. Senator Cul- 
 lom, I should say it would not make any difference at all if one man 
 owned all the railways of the country ; the railways and their service 
 are the things that are regulated, not the owner. You have the 
 railway on the top of the ground and you can get at that by law. 
 It does not make any difference whether it is owned in Australia or 
 England or Georgia. 
 
 Senator Citllom. Or Texas ? 
 
 Mr. Ttittle. Well, I do not know about Texas. I believe there is 
 no Senator from Texas here. [Laughter.] 
 
 The Chairman. I want to draw your attention to the lateral and 
 branch lines. Could a statute be framed so as to provide that the 
 shippers on lateral and branch lines to the great trunk lines should 
 be put as nearly as might be on an equal footing with the shippers on 
 the main lines ? 
 
 Mr. TuTTLE. That would be very difficult, I think. I do not see 
 how you could word language to that end that would be capable of 
 fair and just interpretation, because you then go into the question, 
 really, of mileage rates. 
 
 The Chairman. Well, Mr. Tuttle, there are not going to be a great 
 many more trunk lines built, if any more, to the great cities — Boston, 
 Philadelphia, and New York — and the country must depend for its 
 interior development largely upon branch and lateral lines. Now,, 
 should not the lateral and branch lines have all the encouragement 
 and aid in the arrangements made between the great through lines 
 and the branch lines that can be given them by law ? 
 
 Mr. TunuE. I think, Mr. Chairman, that that will cure itself in 
 
 ' this way : Just as soon as a place upon a branch line becomes of any 
 
 importance to the railways it is almost immediately entered by one or 
 
 two other branch lines from some other trunk line, and then the 
 
 things equalize themselves. 
 
 The Chairman. But does it not more often result in this, that the 
 through line tries to get the branch line, and does not treat it as a 
 mother should a child? 
 
 Mr. TuTTiiE. Well, there are different kinds of -mothers. [Laugh- 
 ter.] I thing the experience in the Northwest, where there has been 
 a great deal of building of lateral lines, has been that just as soon as 
 
 R R R — 05 M 12 
 
178 REGULATION OP RAILWAY RATES. 
 
 the traffic developed at any point so as to be of consequence several 
 branch lines have gone into that place, and the rates have in that way 
 equalized themselves ; and that, I think, is going to go on. I do not 
 believe that any community of interest is going to prevent the build- 
 ing of branch lines into places where there is traffic sufficient to war- 
 rant it, because the traffic from those branch lines contributes not 
 only to the through but to the local traffic of the adjoining trunk 
 lines ; and I am inclined to think that you would find it very difficult 
 to regulate anything of that kind by statute. It is one of those things 
 you have got to depend upon natural conditions to regulate. There 
 are a lot of those thmgs in this world. You can not fix them. 
 
 The Chaieman. Could you not make the trunk lines return cars 
 more promptly rather than, after they are unloaded, send them to all 
 parts of the country ? 
 
 The Chairman. You think that is competent under present law? 
 
 The Chairman. You think so ? 
 
 Mr. TuTTLE. I think the Interstate Commerce Commission can, 
 under the present law and the decisions of the Supreme Court, call 
 upon any railroad to furnish shippers, whether on branch lines or 
 elsewhere, a due proportion of their cars to move the traffic over those 
 branch lines. 
 
 The Chairman. You think that is competent under present laws? 
 
 Mr. TuTTLE. I do. I think there is a decision of the Supreme 
 Court in connection with that matter which has settled that. 
 
 Senator Ne%vlands. Under the Elkins law ? 
 
 Mr. TuTTLE. Under the Elkins law. 
 
 The Chairman. Partly. Now, Mr. Tuttle, I will turn you over 
 to Senator CuUom. 
 
 Senator Cullom. Mr. Tuttle, I shall be very brief. You had been 
 running railroads a good many years before the interstate- commerce 
 law was passed, as I understand ? 
 
 Mr. Tuttle. Well, trying to learn something about it — put it in 
 that way. 
 
 Senator Cullom. I did not say " learn," I said you had been 
 running railroads. You are a very apt scholar, in my judgmeiit. 
 
 Mr. Tuttle. I go back to about 1865, and the interstate-commerce 
 law was passed in 1887. 
 
 Senator Cullom. Now, what I want to know of you is this: (You 
 seem to be perfectly familiar with the traffic business of the country, 
 and I suppose you are perfectly familiar with the law as it stands.) 
 Have you had any trouble with that law at all ? 
 
 Mr. Tuttle. The interstate-commerce law ? 
 
 Senator Cullom. The interstate-commerce act. 
 
 Mr. Tuttle. More with knowing what we may do than with actual . 
 troubles that have arisen from the results of wliat we have done. 
 
 Senator Cullom. I see that some gentleman who is a railroad law- 
 yer announces that rebates and discriminations are both things of 
 the past. What is your observation about that ? 
 
 Mr. Tuttle. So far as my observation goes that is literally true. 
 
 Senator Cullom. As to both those things? > 
 
 Mr. Tuttle. I think so. 
 
 Senator Ctdllom. 'What great abuse is there going on in the country 
 under the present law, as it stands now, then? 
 
 Mr. Tuttle. I am clearlv unable to sav. 
 
EEGtrLATION OF EAILWAY RATES. 179 
 
 Senator Cullom. I have alwa3^s thought that those two grounds of 
 violating the law were the main things. 
 
 Mr. TuTTLK. T think so. 
 
 Senator Cur.LOJii. Eebates and unjust discrimination? 
 
 Mr. TuTTLE. I think so. 
 
 Senator Ctjllgim. Js o\^'. if they are things of the past, what amend- 
 ment to this law is necessar^v to protecfthe people? 
 
 Mr. Ttjttle. My suggestion — I might refer to it again — is that 
 you remake the interstate-commerce law so as to make the Commis- 
 sion only an investigating body in regard to rebates or any other 
 thing that may be improper, if they exist, and to determine whether, 
 in its opinion, upon complaint, the rates are unjust or exorbitant; 
 and then let the Commission take the thing immediatelj' to the courts 
 and have it determined. I would change your interstate-commerce 
 law so as to put into the hands of the Interstate Commerce Commis- 
 sion only those particular things, and let all the other stuff, which is 
 rubbish so far as the Commission is concerned, go to the Department 
 of Commerce and Labor, where it belongs. 
 
 Senator Culloj:. That is really the substantial ground for change, 
 in your opinion ? 
 
 Mr. Ttjttle. In my opinion. 
 
 Senator Cullom. Of the present act? 
 
 Mr. TuTTLE. Yes, sir. 
 
 Senator CtrLLOM. What is the cause, if you know it, that has pro- 
 duced the temporary excitement of the people within the last few 
 months with reference to the interstate-commerce law and its amend- 
 ment? 
 
 Mr. TuTTLE. You mean this agitation in favor of greater powers? 
 
 Senator Cullom. The agitation that is apparently going on all 
 over the country, and has been especially noticeable for the last few 
 months — what produced it? If rebates are things of the past, and 
 unjust discriminations are things of the past, what has produced 
 this recent excitement in reference to the railroad business of the 
 country ? 
 
 Mr. TuTTLE. I can only answer in this way: For a number of 
 years every report of the Interstate Commerce Commission, circulated 
 broadcast throughoiit the country, has persistently asked amendments 
 of the law which would give to the Commission the power to make 
 rates. That is one thing. That has been almost propaganda. The 
 other thing is that wherever I have discussed this question Avith those 
 who most urgenth' desire to have the rate-making power given to 
 the Commission, they invariably ground their belief upon a further 
 belief that rebates and secret practices exist and need to be corrected. 
 
 Senator Cullom. That they are still going on ? 
 
 Mr. TuTTLE. And when T asked them how making the rate is going 
 to correct it, they are unable to answer. 
 
 Senator Dollivee. A famous railway president, speaking in this 
 city a month ago, stated that the whole railway practice of America 
 was honeycombed with secret rebates and discriminations as late as 
 last January. 
 
 Mr. TuTTLE. I think I know the gentleman you mean, Senator 
 DoUiver, and I think possibly he ought to be able to speak by the 
 
180 EEGULATION OF BAIL WAY BATES. 
 
 book, because there is an impression that he had a personal knowledge 
 of those things in days past, which was very troublesome to his neigh- 
 bors, to say the least. [Laughter.] 
 
 Senator Dollivee. Well, I do not intend to enter into any defense 
 of hira; but he seemed to state, in cold blood, facts which rather 
 corroborated the statements which you read from the President's 
 message. 
 
 Mr. TuTTLE. In ansAvcr to that. Senator DoUiver, if you will allow 
 me, I might say that he made a statement, but he did not substantiate 
 it with anv proof. Perhaps proof might have been in the form of 
 confessions. [Laughter.] There are statements of equally intelli- 
 gent and I think equally credible witnesses, who are presidents and 
 managers of other roads, to the contrary. And, so far as my personal 
 knowledge goes, the railroads throughout the country favored the 
 adoption of the so-called Elkins amendment to the interstate-com- 
 merce law as a protection to themselves, and I believe they have hon- 
 estly tried to enforce the provisions of that law; and that while 
 to-day there may be rebates, there may be secret practices, they have 
 become so minimized that they are not of consequence to the business 
 of the country, and the tendency is to still further minimize them if 
 they do exist. There is not any railroad manager who wants to give 
 rebates or commissions to get business. 
 
 Senator Cullom. Are there not, in j'our judgment, Mr. Tuttle, 
 ample laws for the prosecution of men who take rebates or who, in 
 the management of railroads, practice unjust discrimination? 
 
 Mr. TtJTTLE. I think there is ample law to-day, and I think there 
 is ample opportunity to ascertain if rebates exist. There are always 
 opportunities. You can not cover those things up. 
 
 Senator XeavI;Ands. What opportunities — by examination of the 
 books ? 
 
 Mr. TuTTLE. The competitive shipper knows about it. There is 
 always enough of the loose end hanging out somewhere so that if the 
 Interstate Commerce Commission or whoever is authorized to move 
 in those matters will take the time to proceed upon the lines of infor- 
 mation that they can always get they will be easily ferreted out and 
 punished. I do not think there is any evidence that the Interstate 
 Commerce Commission has tried to enforce the Elkins law. It has 
 one case, which was discussed here yesterday, which it is talking of 
 bringing to the courts. That is the case of the Atchison road; and 
 there was a cackling over that like twenty hens over one new laid egg. 
 That has been carried through the newspapers as conclusive evidence 
 that the railroads throughout the country were still giving rebates, 
 although the case is not yet brought into court and no indictments 
 have been returned. If these things do exist there is going to be no 
 difficulty in finding out about it. The competitive shipper knows it; 
 he finds it out. The man who is in the same line of business soon 
 finds that his customers can not buy of him as well as they can of 
 somebody else, and you can not cover those things up. They were 
 perfectly simple before the Elkins amendment was made. 
 
 Senator Dolliver. Would such things necessarily appear in the 
 company's books of account ? 
 
 Mr. Tuttle. I^ot unless they wanted them to. I will say to J'ou 
 frankly that if a company intended to evade the law by giving" re- 
 
REGULATION OF RAILWAY RATES. 181 
 
 bates and commissions they would find some way of so covering them 
 up that all the experts on the face of the earth could not find them. 
 
 Senator Dolliver. Then you would have nothing left except the 
 suspicions of the rival merchants ? 
 
 Mr. TuTTLE. But when you suspect you do not need to go "to the 
 books for these things. The acts themselves will in some way become 
 known. 
 
 Senator Newlands. You would not regard a method of investi- 
 gating the. books of the companies as a means of suppressing the 
 system of rebates ? 
 
 Mr. TuTTLE. I do not think it would amount to anything in par- 
 ticular; because, of course, if you assume at the beginning that the 
 railroad management is deliberately gping into violations of the law 
 it is not going to make records of those things which can ever be 
 found out. 
 
 Senator Newlands. Now, Mr. Tuttle. in that connection it was 
 stated that some years ago the practice of rebates was so cus- 
 tomary 
 
 The Chairman. Mr. Newlands, I would suggest that Senator Cul- 
 lom rather objects to interruption. 
 
 Senator Newlands. Oh, I beg pardon ; I thought 
 
 Senator Cullom. I have no objection, but I do not want to be held 
 responsible for time when 1 am not using it. 
 
 Senator Newlands. I will withdraw, my question. 
 
 Senator Cullom. I was about through, anyhow. "What I wanted 
 to find out was whether the books of the company do or do not show 
 every transaction that it has involving the question of unjust dis- 
 criminations and rebates, or any other violations of thei act ? 
 
 Mr. Tuttle. I doubt if they would; I do not think they would 
 show them in such form as could develop to an examiner, even a 
 careful examiner, sufficient of fact to trace them to that source. • Of 
 course, the books of every railway company must show a voucher for 
 every disbursement of money. 
 
 Senator Cullom. Yes. 
 
 Mr. Tuttle. But that does not necessarily mean that the details of 
 those disbursements would appear upon the voucher or upon the book. 
 
 Senator Cullom. It would not show that it was paid out as a re- 
 bate? 
 
 Mr. Tuttle. Not at all ; my point being. Senator Cullom, that if a 
 man is going to deliberately violate the law he is not going to make 
 such a plain record of it that you can find it. 
 
 The Chairman. Not if he can help, it. 
 
 Senator Cullom. Well, if it has been the practice of the railroads 
 to pay rebates and not let it be shown upon the books, of course I do 
 not know of any way by which they could be caught in it. 
 
 Mr. Tuttle. You generally find, in defalcations everywhere, that 
 the criminal endeavors as far as possible to hide them. He may 
 ultimately get found out, because the conditions of his books are per- 
 sonal and you may get at them. But I can imagine many ways in 
 which expenditures of railroads could be so concealed, if they tried 
 to deliberately do it, that the examiner would have no direct evidence 
 about it. 
 
 Senator Cullom. But in your judgment the practice of rebates has 
 gone by ? 
 
182 REGULATION OF BAIL WAY BATES. 
 
 Mr. TuTTLE. I think it has gone by to such an extent that it is not 
 a serious matter to-dav in the traffic of the country. 
 
 Senator Cullom. And that if it has not gone by, the law is ample 
 for the pi'otection of the public against it ? 
 
 Mr. TuTTLE. Exactly; exactly. 
 
 Senator Cullom. Now, as I understand you, with reference to these 
 private cars, the only amendment to the law which you would sug- 
 gest would be to put them under the same authority and commission, 
 if the Commission is to be retained ? 
 
 Mr. TuTTLB. Certainly ; I should make all the rules applicable to 
 railways applicable to all persons. I think the law is to-day appli- 
 cable to all persons engaged in interstate commerce; and certainly 
 the owner of a private car line is directly or indirectly engaged in 
 interstate commerce. I do not see but what you can get at those peor 
 pie to-day just as well as you can the railroads. 
 
 Senator Cullom. We have never undertaken to do so, have we? 
 
 Mr. TuTTLE. I have never heard of its being undertaken. 
 
 Senator Kean. I have only one question that I want to ask. Will 
 you kindly state, Mr. Tuttle, the amount of bonds and capital stock 
 of your road ? 
 
 Mr. Tuttle. The Boston and Maine? 
 
 Senator Kean. Yes. 
 
 Mr. Tuttle. I can give it to you approximately. We have about 
 twenty-five millions of bonds and twenty-five millions of stock. 
 Under our laws we can have no greater par value of bonds than par 
 value of stock; and we have a capitalization of about fifty millions, 
 divided twenty-five and twenty-five. 
 
 Senator Kean. About how many stock and bond holders have you? 
 
 Mr. Tuttle. I can not tell you anything about the bondholders; 
 but we have about 7,500 stockholders. 
 
 Senator Kean. Scattered all over the country ? 
 
 Mr. Tuttle. Scattered all over the world, and rather increasing 
 than diminishing. 
 
 Senator Kjean. Are they small holdings, mostly? 
 
 Mr. Tuttle. I should think probably 5,000 of those would not aver- 
 age to hold over 50 shares each. 
 
 Senator Kean. And how are the bonds held — mostly in savings 
 banks? 
 
 Mr. Tuttle. We have no means of knowing about that. They are 
 issued and disappear, and we have no means of knowing about the 
 bonds; but I suppose they are. Of course we know, in a general 
 way, that our bonds are more largely held by savings banks and in- 
 surance companies than by any other class of investors. You luiow, 
 as a mere lousiness matter, that the private individual can not very 
 well afford to hold 3^ per cent bonds nowada3'^s. Savings banks are 
 usually exempted in various ways from taxation, so that they can 
 afford to hold 3^ per cent bonds as the available security which they 
 can turn into the market in an emergency. So I think that except 
 here and there, in the case of small holdings, the mass of the bonds 
 of the railways of the country are in the savings banks and the in- 
 surance companies. They are really a trust fund. 
 
 Senator Millard. Mr. .Tuttle, there is one question I wanted to ask 
 you in regard to. Yesterday, 1 think, it was stated that there might 
 
REGULATION OF BAIL WAY RATES. 183 
 
 be or would possibly be examiners appointed to examine into the 
 affairs of the different railways of the country. Take your railway, 
 for instance : To what extent would such an examiner interfere with 
 the regular daily business of your road? 
 
 'Mv. TuTTLE. If examiners were appointed, I suppose v/e should 
 have the same experience with them that we do with the inspectors 
 who are now appointed to look into the safety appliances. They are* 
 expected to earn their salaries and to be efficient, and thej' are quite 
 constant] _v with us ; and I think that it would be — of course it would, 
 not, perhaps, be oppressive — but it would be troublesome to have a 
 series of men coming Avhenever they pleased to go into the audit and 
 the treasury office and to examine whatever and whenever they 
 pleased. 
 
 Senator Millard. Would it not be necessary, in a great corporation 
 like yours, that such an examiner would be with you pretty much all 
 the time? 
 
 Mr. I'tTTTLE. It would take pretty nearly all the time. I think 
 that is covered, if you will allow me to anj so, by the fact that under 
 the present interstate-commerce law the Commission can send for 
 books and papers and can examine anything that it sees fit to 
 examine. 
 
 Senator Millard. I understand that; but I understand that there 
 is a proposition to have special examiners appointed. 
 
 Mr. TuTTLE. I think that it would be perfectly useless. 
 
 Senator Millard. Do you see where the Government or the ship- 
 pers would be benefited in any way by that ? 
 
 Mr. TuTTLE. I do not see that anybody would be benefited. 
 
 Senator Millard. That is all. 
 
 Senator Foraker. What are the evils arising from the use of pri- 
 vate cars — the refrigerator cars that we hear so much about ? 
 
 Mr. TuTTLE. Personally, I do not know of any. So far as we are 
 concerned, we have no contracts or arrangements with anybody own- 
 ing private cars that are not applicable to anybody and everybody. 
 There are no contracts. Private cars, by whomever owned, pass 
 over our rails just the same as the cars of a railroad company. We 
 receive them as cars of a railroad. If they are ordinary cars, they 
 pass like any other cars. There are a great many private cars owned 
 by coal companies. They are handled just the same as the other 
 traffic. They receive 20 cents per diem for the time allowed, and it is 
 paid to the owner of those cars or to some railroad through which 
 they work, just the same as other cars. 
 
 A.S to what is more particularly meant by " the private car," the 
 refrigerator car, the special car, we have no contract of any kind with 
 anybody. We pay for refrigerator cars passing over all of our lines, 
 containing dressed meats, 1 cent a mile, and for all other refrigerator 
 cars, three-quarters of a cent a mile; and in view of the extra cost 
 of those cars that is not an exorbitant charge. The old mileage rate 
 for ordinary cars- was 6 mills a mile. They cost about $600 
 apiece. The refrigerator cars cost about $1,000 apiece, on an average. 
 Now, the rate of 10 mills for a $1 ,000 car and 6 mills for a $600 car is 
 the same. 
 
 As to all of these privileges and icing, we know nothing about 
 anything of that kind. The icing plants are established by certain 
 
184 REGULATION OF RAILWAY RATES. 
 
 owners of car lines upon our lines at convenient points, and tliey 
 sell the ice and the salt to evervbodv at the same price. If you send 
 a car personally it has just the same attention and no more is charged 
 for the icing of the car than for any other, and so far as we know in 
 New England— I think I speak for New England— we know nothing 
 of any contracts or abuses regarding private cars. 
 
 Senator Foeakeb. You simply receive these private cars and haul 
 them over your road at a fixed charge ? 
 
 Mr. TuTTLE. Just the same as we would anything else. 
 
 Senator Foraker. And the owners of the private car lines make 
 their own contracts as to the rates of freight and as to icing and as 
 to everything else, do they not, and the shipper 
 
 Mr. TuTTLB. Not as to 'rates of freight. They only make contracts, 
 as I understand that, with the shipper for a charge for the use of the 
 refrigerating appliances in that car. 
 
 Senator Foraker. That is what T mean. 
 
 Mr. TuTTLE. Not the freight rate. 
 
 Senator FoEAitEU. That is to say, the cost of the use of the refrig- 
 erator car is determined by the owner of the line, by contract with 
 the shipper ? 
 
 Mr. TuTTLE. Yes. 
 
 Senator Foraker. And if there is any abuse it is in that contract? 
 
 Mr. Tuttle. Between the oAvuei' of the car and the shipper. 
 
 Senator Foraker. Do you know whether or not there is any unjust 
 charging of that kind? 
 
 Mr. TuTTiiE. I have not heard of anj'thing. This is somewhat in 
 the way of impersonal knowledge; but I have been told, upon what 
 seems to be good authority, that in sections of the country where 
 there are perishable fruits that need prompt and rapid shipment, 
 they have thought it desirable to have the railroads make contracts 
 with private car lines, so that there might be an ample supply of 
 those cars for the month or two months when they are needed. 
 
 Senator Foraker. Do you have refrigerator cars on }-oiir road that 
 belong to the road? 
 
 Mr. TuTiTiE. We have very few, because we own very few ; we orig- 
 inate no refrigerating traffic. But in regard to those refrigerator cars, 
 when they come into our territory we are perfectly at liberty to load 
 them homeward with anything that we see fit to put into them. 
 
 Senator Foraker. That is all that I care to ask. 
 
 Senator Doi,liver. I yield to the Senator from Minnesota. 
 
 Senator Clapp. Following the line of inquiry made b3' Senator 
 Foraker, do you do any icing yourself ? 
 
 Mr. TuTTi^E. None whatever. The plants are placed at conven- 
 ient points, in buildings owned by the people who control car lines 
 or cars in considerable number. They are at convenient stations 
 upon our lines, with the necessary sidetracks. They furnish the ice 
 and the salt, and they furnish the men to ice the cars. It is a trade, 
 and their charges are the ordinary charges for ice in that neighbor- 
 hood. If cars do not need icing, they do not go to this place. If 
 they do, they are set underneath and are iced, and the cost of the ice 
 goes forward as an expense upon the waybill, and we simply collect 
 it for the company. 
 
 Senator Ci.app. The owners of the cars, then, charge nothing to 
 the shipper except the icing charge ? 
 
REGULATION OF RAILWAY RATES. 185 
 
 Mr. TuTTLE. That is all, as far as we are concerned. 
 
 Senator Clapp. I understood you to state that good morals re- 
 quired, so far as it could be done without infringing upon contracts, 
 that the railroads be prohibited from dealing in products? 
 
 Mr. TuTi-LE. 1 should say so. 
 
 Senator CLArr. You also stated, I thini, that, in your judgment, 
 the owners of all these private cars should be declared to be common 
 carriers. At least, I so understood. 
 
 Mr. TuiTLE. I should say that if that is necessary that would 
 cover it probably, because the interstate-commerce law refers to com- 
 mon carriers. If you make them common carriers, that would bring 
 them under the interstate-commerce law. 
 
 Senator Clapp. Would not the same rule, then, re(][uire that in the 
 ownership of these car lines the business of producing and distrib- 
 uting their own products ought to be prohibited as well as in the 
 case of the railroads to-day ? 
 
 Mr. TuTTLE. You mean the car lines distributing ? 
 
 Senator Clapp. Yes. 
 
 Mr. TuTTLE. Well, you would have to distinguish there, I think, 
 because it is a well-known fact that the producers of dressed meats 
 must have instrumentalities for distribution in order to give good 
 service, which shall be more directly under their control than would 
 otherwise be possible. If you should say they should not be able to 
 produce things or to ship their own products you would make it 
 necessary for the large meat companies to go out of the ownership 
 of private cars. I could see no advantage in that, and I could see 
 great disadvantages. The movement of dressed meat is a business 
 that requires the most careful attention and requires an enormous 
 supply of cars, fluctuating at times, and I do not think the rail- 
 roads could supply those cars and distribute them to the satisfaction 
 of the people most interested in receiving and distributing the 
 products. 
 
 Let me explain a little further: These products of meats are pro- 
 duced in certain localized sections, and out of those localized sections 
 run certain railroads, but they do not carry the traffic to destination. 
 They carry as far as they go and then hand it over to some other 
 railroad. Take, for instance, the Boston and Maine, which probably 
 carries into Boston 90 per cent of all the dressed meats from the West. 
 It has various lines over which they come, but it does not originate 
 a pound of this freight. Now, suppose the Boston and Maine Rail- 
 road should be called upon to supply its quota of refrigerator cars. 
 It would have no means of distributing those cars or getting them 
 to the point of origin of the product, unless the intermediate line was 
 willing to take them there. 
 
 In Sie ownership of private car lines you have a central distrib- 
 uting office which insures the movement of those cars to the point 
 where the traffic originates witli all the promptness necessary. It is 
 the same as the use of Pullman cars. Probably — again talking about 
 shop — the Boston and Maine Railroad needs in the winter time not 
 exceeding 100 Pullman cars; but in the summer it would need four 
 or five hundred. In the summer time the roads to Florida and South- 
 ern California need very few Pullman cars, but in the winter time 
 they need a lot of them. The consequence is that the Pullman Com- 
 pany, owning equipment enxaugh to furnish the roads of the coun- 
 
186 REGULATION OF BAIL WAY KATES. 
 
 tiT is able to aive us, Avlien we need them, all the cars we need. 
 AVhen we are through with them the other sections o± the country 
 havino- much travel can have all they need. Now, if you were to 
 to us "You must not do that. You must supply these cars," 
 
 say 
 
 see what the effect would be. These cars cost from fifteen to twenty 
 thousand dollars apiece, and the Boston and Maine road does not need 
 them more than four months. Now, should we be called upon to buy 
 SOO cars at $20,000 apiece and put them on side tracks for eight 
 months in the year, so that we should be the instrumentality and not 
 the Pullman Company? The same thing is true of refrigerators. 
 You know that during July the peach crop moves from Georgia. It 
 is worth everything to Georgia to get that peach crop to market. 
 But after that peach crop is shipped in July they have nothing under 
 heaven to send in refrigerator cars. Could the roads in North Caro- 
 lina supply the cars for that? Take it again: In the earlier season 
 they send out from the Pamlico Sound region in North Carolina 60 
 or 70 cars a day of strawberries for a week. They need those 60 or 
 70 cars a day as much as the fellow in New Orleans needed his gun. 
 How is the road in Nortli Carolina, with its limited -facilities, going 
 to supply the shipper of strawberries and small fruits with the cars 
 which would be required by them for two or three weeks? It is an 
 utter impossibility. 
 
 In my opinion, notwithstanding any abuses that may exist, of 
 which I know nothing, the building and operation of private refrig- 
 eratoj' cars for the movement of perishable fruits and perishable 
 meats to all parts of this country has been the greatest blessing to 
 this country that has ever been developed in connection with rail- 
 roads. What do you find? You may go to St. John, New Bruns- 
 wick, or Montreal, or Boston, or New York and you find the streets 
 lined with all kinds of perishable fruits in season. How do they 
 get there ? 
 
 Senator Kean. You mean out of their season, do you not ? 
 
 Mr. TuTTLE. In their season. 
 
 Senator Kean. And out of their season? 
 
 Mr. TuTTi-,E. And out of their season, also. But in their season 
 they are sold at rates that bring them within the means of the day 
 laborer. How is it done? By the private refrigerator-car lines, 
 which make possible the movement of these fruits in train loads at 
 prices which permit the sale of California oranges in Boston for 
 probably less than j^ou can buy them for in San Francisco. 
 
 Senator Clapp. Well, now, returning to the other question. You 
 stated, if I remember, that on moral grounds the engaging by the 
 railroads in business should be prohibited. 
 
 Mr. TuTTLE. I was speaking of railroads per se. 
 
 Senator Clapp. Yes. Now, why do j^ou make that statement and 
 base it on moral grounds ? 
 
 Mr. TuTTLE. Because I believe that it is the business of the rail- 
 road to carry other people's goods and not to engage in competition 
 with those producers in the production. 
 
 Senator Clapp. Exactly. Then, so far as that reason applies, not 
 dealing now with the possibility of doing away with the meat cars, 
 does not that reason apply with equal force to the ownership and 
 operation of private cars ? 
 
 Mr. TuTTLE. I do not think so. 
 
REGULATION OF RAILWAY KATES. 187 
 
 Senator Clapp. Is there any distinction, based on moral grounds, 
 between the man or the company engaging in fruit raising and also 
 as common carrier carrying their own products and a railroad as a 
 common carrier engaging in business, that bvisiness in both instances 
 being a business in Avhich others are engaged in competition? 
 
 Mr. TxjttijE. I should say there is a very wide difference. 
 
 Senator Clapp. In morals? 
 
 Mr. TuTTLE. Yes; morally and every other waj'. Morally par- 
 ticularly. I will tell you why, if you care to have me. The private 
 car owner has no power to exclude other private cars from the line 
 of the railroad over which he operates. You mnj be a producer of 
 fruit in southern California and own 1,000 cars, and you may ship 
 that fruit to the eastern market in your thousand private cars, but 
 you can not prevent the Southern Pacific or any other railroad run- 
 ning through that territory from letting in my thousand cars or any 
 other thousand cars in competition with you. 
 
 Senator Clapp. No ; that is true. 
 
 Mr. Tdttle. Allow me to finish 
 
 Senator Clapp. But suppose the Southern Pacific has no fruit 
 cars and they are using my cars. Does not that give me a certain 
 advantage over the producer of fruit who has no cars? 
 
 Mr. TuTiLE. You will generally find that wherever that condition 
 of things exists and there is a monopoly by the individual some other 
 person comes in and supplies other cars to offset it. My reason for 
 saving that there is a difference is this : Whenever the railroad, cov- 
 ering 8,000 or 9,000 miles of territory, goes into fruit raising, or goes 
 into the producing of natural commodities or manufactured goods, 
 the tendency is going to be, sooner or later, that everybody connected 
 with that railway will understand that that railway has the greatest 
 interest in its own products. 
 
 Senator Clapp. Yes. 
 
 Mr. TuTTLE. And the moral, or immoral, tendency would be to give 
 a preference to all those products, and the railroad company would 
 have the power to enforce it, statutes or no statutes. But when you 
 come to the private owner of cars, he is only one of a hundred who 
 may be engaged in the same business. There can not be any prohibi- 
 tion. If I have 1,000 cars and have fruit to ship of my own, there 
 can not be any prohibition against your having 1,000 cars to ship your 
 fruit. But when it comes to the railroad, if it goes into the fruit 
 business, it may put little blocks and obstructions in the way that will 
 prevent the other person competing from sending the stuff forward 
 in their cars on as favorable terms as those on which the company 
 would send its own stuff. There is the moral question. 
 
 Senator Clapp. You do not think that the ownership of these cars 
 by a company would place it where it would put any of these little 
 blocks in the way of the man who did not own any cars ? 
 
 Mr. TuTiLE. I think not ; and I think that if it did. Senator, the 
 making of those owners common carriers would bring them so within 
 the administrative powers under the interstate-commerce law that 
 they could not put those blocks in the way. 
 
 Senator Clapp. Supposing the railroad is to be regulated by gov- 
 ernment. State or Federal, would there not exist the same power to 
 insure equal rights to the man who Avas engaged in that business and 
 was not a railway company ? 
 
188 EEGULATIOHr OF RAILWAY BATES. 
 
 Mr. TtTTTLE. Not to the same extent. 
 
 Senator Glapp. You think not ? 
 
 Mr. TuTTLE. It would be to a greater extent. The railroad, ex- 
 tending with its line over a whole State, would, in my judgment, as 
 a practical matter, be able to put little blocks in the way of shippers 
 that it wanted to disfavor that the individual owner of car Imes 
 could not put in. I am not discussing this from the academic or 
 theoretical point of view, but I am looking at it from what the rail- 
 road could do and what the individual could do. 
 
 Senator Clapp. Speaking of terminal charges, it is claimed quite 
 currently, perhaps, that the terminal charge, or the charge that is 
 made to the short lines, not at the point of distribution, but at the 
 point of the origin of the traffic, is used as a cloak for discrimination. 
 What do you know or think of that ? 
 
 Mr. TuTTLE. I think you intend me to understand that an allowance 
 is made to the short initiative line, which is a compensation to it ? 
 
 Senator Clapp. Yes ; and that that is a cloak. 
 
 Mr. TuTTLE. I can have only one opinion about that. That is a 
 subterfuge — ^that is, a discrimination — and I believe the law is suf- 
 ficient to take care of that to-day. If it is not, it ought to be amended. 
 
 Senator Clapp. I am asking your opinion as to whether that is 
 used as a cloak. There is no doubt about the law. 
 
 Mr. TuTTLE. Oh, I do not know of any cases. If there have been 
 cases I rather think that the publicity and the ventilation of the sub- 
 ject has made them scarcer. Of course, I can understand perfectly 
 well that if I had a railroad and you had a plant on that railroad 
 with a switching track to your plant, and I wanted particularly to 
 favor you, I could allow you a switching charge of $3 a car because 
 you had what you called a railroad. I could allow you that as a 
 division. It may be done, I have no doubt, but I am under the 
 impression that the publicity that has been given to that has wiped 
 it out. I want to make a distinction, however. It is perfectly proper, 
 under certain conditions, to allow that division or proportion to the 
 industrial railroad. Suppose that you have a large manufacturing 
 plant turning out 50 or 60 carloads of material a day to a railroad 
 upon which your plant is located, and you have in connection with that 
 plant side tracks of your own aggregating perhaps 8 or 10 or 20 miles. 
 You use switching engines of your own, and place the cars and load 
 them with goods, and put them, with your own equipment, into the 
 yard of the railroad — a thing which is done frequently and in many 
 parts of the coimtry. You are performing for the railroad a duty 
 from which it is relieved and which would cost it something to do. 
 It is perfectly proper that the railroad should compensate you for 
 that service. 
 
 Senator Clapp. There is no question about tliat. The question I 
 was asking you, with your experience, was as to -wlietlior at thi? time 
 you thought there was much of any foundation to the claim that 
 that is bemg used as a cloak ? 
 
 Mr. TiTTTiJ!. I know of none of it. In the oastern section I do not 
 know of it anywhere. I think the claim, however, has been that it 
 applied more to the far western section of the country, and I must 
 plead ignorance about that. I believe it has been "stopped, if it 
 existed. That is a kind of thing, Senator, that does not smell Avell 
 
BEGULATION OF RAILWAY BATES. 189 
 
 when it is stirred ■ up ; and railroads are pretty apt to avoid bad 
 smells, the same as other people — in their back yards, at least. 
 
 Senator Clapp. Well, do they ever use perfume to overcome the 
 bad smell? [Laughter.] 
 
 Mr. TuTTLE. The money would be the perfume, and that money 
 would smell as badly as the back yard. [Laughter.] 
 
 Senator Clapp. Coming down to the question of rates: I under- 
 stood you this morning to say that there was something in the fact 
 that Congress never has undertaken to regulate the ifiterest that 
 should be charged by national banks, and that you doubted whether 
 men would invest their money in banks if there was any such regu- 
 lation. Is it not a fact that nearly all the national ban&s have been 
 started where they had to at least go in competition under State 
 laws fixing the irate of interest ? 
 
 Mr. Ttjtti.e. I think theoretically that may be so; but although 
 there may be exceptions, as I do not pretend to know them all, I 
 know of no State in which the usury laws are of any effect. It is 
 found, in the actual transaction of business 
 
 Senator Clapp. I take it that vou have not loaned money out West, 
 then? 
 
 Mr. TuTi'LE. No ; I have not been fortimate enough to loan money 
 out West; but I have always understood that there were ways of 
 correcting any troubles about usury laws, if one saw fit to apply 
 them. 
 
 Senator Clapp. That would apply with equal force, would it not, 
 if it was a Federal law against usurj^? 
 
 Mr. Ttjttle. Oh, I suppose so. 
 
 Senator Clapp. Well, then, if by reason of the fact that the law has 
 not been enforced, or for any reason men would put their money in 
 under a limitation by the State law, they would be equally prone to 
 invest even if there was a Federal prohibition, would they not? 
 
 Mr. TuTTLE. I think not. Allow me to say why. Federal law 
 over national banks carries with it Federal supervision. State law 
 carries with it no supervision over national banks. You may have a 
 law in the State of New York against usury, but the officers of the 
 State of New York have no business in the national bank investigat- 
 ing its accounts. The Comptroller of the Treasury, however, has 
 every business to send his men into the national banks and to investi- 
 gate to the uttermost. Therefore a Federal usury law, preventing 
 a national bank from -taking more than a specified percentage on 
 loans, wouldbe an effective stoppage, and if that law were enforced 
 as five or several men might from day to day think just, I for one 
 should not care to have any more bank stock, and I think the ma- 
 jority of the people would feel the same way. 
 
 Senator Clapp. In a question of legislative interference between 
 the railroads and the banks, is there not a vast difference in this, that 
 the shipper has no alternative — he must, practically, submit to the 
 charge made by the r-ailroad, whereas the man who wants to borrow 
 &ome money has numerous avenues through which he may seek to 
 borrow ? 
 
 Mr: TuTTLE. Theoretically, yes ; but I think in most cities if a man 
 finds it is difficult to get money at one national bank he will find it 
 equally difficult to get it in another. There is some sort of community 
 
190 REGULATION OF RAILWAY RATES. 
 
 of interest among these banks, so that the inability to borrow at one 
 is pretty nearly a prohibition at some other. 
 
 Senator Clapp. Is there any foundation for the suggestion that 
 there are large sums borrowed in New York outside of the banks? 
 In other words, is there not an open avenue to the man who wants to 
 borrow that does not exist to the man who has freight to ship ? 
 
 Mr. TuTTLE. To a limited extent. 
 
 Senator Clapp. Yes. 
 
 Mr. TuTTLE. But we find that the ruling rate of interest is the same 
 at trust companies, and usually higher with private individuals. 
 Between trust companies and banks from day to day there is a ruling 
 rate of interest, and if it turns out to be at the First National Bank 
 8 per cent it is the same over at the Knickerbocker Trust Company 
 on the same day. I do not know how they do it, but it is the same. 
 
 The CHAiEJ\rAN. There is no combination there? [Laughter.] 
 
 Mr. TuTTLE. No combination. 
 
 The Chairjiax. It is just like the railroads. They have not com- 
 bined, but they get there. [Laughter.] 
 
 Mr. TuTTLE. In fact, whatever one finds to be the ruling rate with 
 one has got to be the ruling rate of all the others. 
 
 The Chairman. It is just like the same rate between two points, in 
 the case of the railroads. 
 
 Senator Clapp. You think there is no diflference, so far as the ave- 
 nue for the borro"^^■el■ is concerned, and the avenue for the shipper? 
 
 Mr. TuTTLE. The avenue opened to the borrower, outside of the 
 legitimate trust companies and banks, to borrow money is very much 
 like the avenue opened to the railroad shipper on the highways and 
 the turnpike roads. He can put wagons on. 
 
 Senator Clapp. In regard to the existing law, you think that it 
 ought to be so changed that the Commission would be divested of 
 certain work that it has at present, and that it should be authorized 
 to make complaint, and upon that complaint being made, to apply 
 to a court for its enforcement ? 
 
 Mr. TtiTTLE. I do. 
 
 Senator Clapp. What is the evil to-day for which you would sug- 
 gest legislation? I am speaking now, of course, of interstate-com- 
 merce legislation. 
 
 Mr. TuTTLE. You mean this particular subject 
 
 Senator Clapp. Yes. 
 
 Mr. TuTTLB. More in answer to a popular belief that something is 
 necessary than for any other reason; or, as a member of the last Con- 
 gress said recently, at a public address in Boston — it was rather a 
 facetious remark, but I think it covers the ground — that there must 
 be some legislation of this kind, so as to show that the members of 
 the House were supporting the people. [Laughter.] 
 
 Senator Clapp. Do you feel that conditions are such in this coun- 
 try now that there is no logical reason for anv additional legislation 
 whatever ? 
 
 Mr. Ttjttle. Oh, I have not said that. I do not think that at all. 
 
 Senator Clapp. Well, upon what groimd do you base the sugges- 
 tion, then, of additional legislation? 
 
 Mr.TuTTLE. So that the remedies for any existing evils, small or 
 great, may be more expeditious. Fou have got machinerv. but it 
 does not work. There may be, Senator, if you will l^t me continue, 
 
REGULATION OF RAILWAY RATES. 191 
 
 something that will happen to-morrow which will require remedial 
 legislation, and require it immediatelj^ 
 
 Senator Clapp. Then you do realize the necessitj^, in view of pres- 
 ent conditions and their operation in the future, of some additional 
 legislation, aside from merely answering a popular demand for 
 legislation ? 
 
 "Mr. Ttjttle. I think I should put it in this way : I think there is 
 a necessity for remaking the present legislation, so as to make it do 
 what it was intended to do and do it fairly and expeditiously. 
 
 Senator Clapp. And that is aside from making any suggestion of 
 meeting a mere popular demand for some more legislation, is it not? 
 
 Mr. TuTTLE. Oh, yes ; I think the — • — 
 
 Senator Clapp. It is based upon the conditions that exist to-day ? 
 
 Mr. TuTTLE. I think the laws should be made effective and useful. 
 
 Senator Clapp. Your suggestion was, then, that this should be done 
 by bringing a case in court ? 
 
 Mr. TuTTLK. Through the Interstate Commerce Commission, or 
 through the individual, if he so preferred. 
 
 Senator Clapp. Now, what would vou give that court authoritv 
 to do? 
 
 Mr. TuTTLE. Well, I suppose that court might have authority to 
 determine, without conflict with constitutional limitations, what was 
 a reasonable rate. I assume that. I have to assume that, somewhat 
 upon the guess of what the fifth man in the Supreme Court is going 
 to decide. [Laughter.] 
 
 Senator Clapp. Assuming that under the Constitution a law could 
 be devised whereby the decision of a court operating on the law 
 would fix rates, do I understand that you favor that kind of a plan? 
 
 Mr. TuTTi.E. I should. 
 
 Senator Clapp. Yes. Well, to simply declare as to an existing 
 rate, whether it is reasonable or unreasonable, or to so adjust it that 
 it shall be a rule to apply to future rates under similar conditions ? 
 
 Mr. TuTTLE. I think I should limit that to the rate itself. Of 
 course we should all know that the adjustment by the court of any 
 particular rate would probably make necessary the readjustment of 
 a large number of other rates. But I think that " sufficient unto 
 the day is the evil thereof," and that the court should decide the case 
 that is brought to it. It should fiiid upon the complaint of the indi- 
 vidual or of the Interstate Commerce Commission, after a careful 
 hearing, what it believes to be a reasonable rate for the tariff of cer- 
 tain duties by that particular public carrier or set of carriers that 
 form alliances. 
 
 Senator Clapp. Do you mean past duty-i^service rendered — or 
 service to be rendered? 
 
 Mr. TuTTLE. Well, it naturally would be service to be rendered 
 from the time the rate is put into effect until some competent author- 
 ity should change it. 
 
 Senator Clapp. Or modify it. Then I understand that you favor, 
 assuming that it can be done under the Constitution, a law which 
 ■would vest in a court the power to make a declaration which, taken 
 in conjunction with the law, would operate as a rule for future rates 
 under similar conditions, until conditions change? 
 
 Mr. TuTTLE. For that rate. 
 
192 BEGULATION OP RAILWAY BATES. 
 
 Senator Clapp. For that one. 
 
 Mr. TuTTLE. For that rate which was passed upon. I do not mean 
 by that that if a rate was established between New York and Albany 
 that should be the rate for a similar distance from New Orleans. 
 
 Senator Clapp. No. Let us try to get this thing narrowed 
 down 
 
 Mr. TuTTLE. I think we understand each other perfectly. 
 
 Senator Clapp. Then why not state it so ? 
 
 Mr. TuTTLE. I thought I had. 
 
 Senator Clapp. I will ask another question. Assuming that it 
 could be done under the Constitution, if complaint was made as to a 
 rate between New York and Albany — or, say, between Albany and 
 Manchester, so as to make it interstate — ^you would favor a law under 
 which the decision of the court upon that complaint would not only 
 determine what was reasonable as to that service, but would be a con- 
 tinuing rule as to that freight between those points until conditions 
 changed ? 
 
 Mr. TtTTTLE. Oh, yes. 
 
 Senator Clapp. That, reduced to its last analysis, would practi- 
 cally clothe the court with the power to fix rates, would it not ? 
 
 Mr. TuTTLE. It would clothe the court, as I understand it, with 
 power to decide what were reasonable rates in cases complained of, 
 but not with power to say that because they had fixed the rate be- 
 tween New York and Manchester, a distance, say, of 260 miles, every 
 other distance of 260 miles in the United States should take, by infer- 
 ence, that rate. 
 
 Senator Clapp. I am not discussing 
 
 Mr. TuTTLE. Pai"don me a moment, Senator. What I mean, in 
 other words, is this : That instead of the jurisdiction being given to 
 the court, or required to be exercised by the court, to fix rates gen- 
 erally, it should take the complaint of the shipper who believed he 
 was unjustlj^ treated and deal with that case, and deal with the others 
 just as fast as they came along; and that when the court had said 
 that the specific rate which you mention, between New York and 
 Manchester, was the proper rate, that should continue to be the rate 
 unless for some reason the same authority should say that some other 
 rate should be reasonable. 
 
 Senator Clapp. Exactly. Then they could take a rate between 
 New York and Philadelphia and also fix that for the future ? 
 
 Mr. 1\tttle. Upon a complaint. 
 
 Senator Clapp. Exactly. Then they could take a rate from New 
 York to Chicago ? 
 
 Mr. TtjTtle. Upon a complaint. 
 
 Senator Clapp. And so, as far as cases were brought before the 
 courts, reduced to its last analysis, it would be fixing rates in the 
 future. 
 
 Mr. TxJTTLE. Undoubtedly. 
 
 Senator Clapp. As to those commodities for those distances? 
 
 Mr. TuTTLE. Undoubtedly. 
 
 Senator Clapp. Well, now, does not that, aside from the difference 
 of opinion as to whether it should be done by the court or a commis- 
 sion, meet the objection that is so often raised sigainst there being 
 somewhere vested a power, outside of the railroad company, to say 
 what it shall receive lor its services ? 
 
REGULATION OP RAILWAY RATES. 193 
 
 ilr. TuTTLE. I think it doe?. That is my reason for suggesting it. 
 .Senator Clapp. Exactly. I think tliat is all. 
 
 The Chaie3ian. Now, I believe it is jour turn, Senator Xewlands. 
 
 Senator Dollivee. You spoke of these private refrigerator car 
 companies putting a block in the way of their competitors. We had 
 during the hearings before the committee in the last Congress a 
 written contract between the Armour Car liine and the Marquette 
 Railway System, in Michigan, by which that car line and railroad 
 comiDany agreed together that that company, which penetrate-- the 
 whole fruit region in Michigan, would use exclusively the Armour 
 Car Line cars. The testimonj' slioAved conclusively — at least it was 
 accompanied by vouchers and written evidences that convinced me 
 that there was truth in it — that this car line, having acquired an 
 exclusive right on the Marquette Railroad for delivering fruit cars 
 to Boston and Minneapolis and every place else, had practiced a gross 
 extortion in the icing charge, not only increasing it, but multiplying 
 it many times from what it had been universally a few year-, "and 
 p,veu a few months, before. 
 
 Mr. TuTTLE. On the Marquette road ? 
 
 Senator Doijlivee. Yes, sir; and the fruit people, and especially 
 the fruit commission people — I think this gentleman, Mr. Ferguson, 
 resided at Duluth — made claim here, supported by a great variety of 
 evidence, that the fruit business was passing entirely into the control 
 of this Armour Line. I think he said that $11 was charged for icing 
 a car from the fruit points in Michigan to Duluth, Minn., whereas it 
 had been done in other years for $2 or $3 or $4 or $5. That was pre- 
 sented to us as a very serious abuse. He also claimed that this car 
 line had gone into the business of a commission fruit merchant, and 
 that they were put in the position of doing business against a com- 
 pany which got its own cars delivered to itself at cost and charged 
 everybody else three or four times what the actual use of the cars was 
 worth, besides receiving its mileage from railways that carried the 
 cars. Now, has that state of facts been brought to your attention ? 
 
 Mr. TuTTLE. I have seen the statement of it, about as you make it, 
 in the newspapers. 
 
 Senator Dollivee. What would you say about a situation like that ? 
 
 Mr. Ttjttle. I should say that any arrangement of that kind be- 
 tween the railway company and the private car line was, in the first 
 place, injudicious. I should say, in the next place, that I would like 
 to see a case of that kind brought to the attention of the courts, 
 through the Interstate Commerce Commission or somewhere, and 
 find out whether it could not be stopped by the ordinary processes of 
 law. 
 
 Senator Dolliver. I think the Interstate Commerce Commission 
 is moving in that direction, but how swiftlj'^ I do not know. 
 
 Mr. Tttttle. If they would move. I would say, further, that I do 
 not think it quite fair, either to the private car lines or to the rail- 
 road, to take this individual case of the Marquette road as indicative 
 of the way the business is transacted throughout the country and 
 blame all the railroads as being unjust in their treatment of the pub- 
 lic because of this case which has been exposed. As an illustration 
 of that, we had up in Massachusetts last year some boxes of dyna- 
 mite fall from an express wagon in front of a trolley car, and there 
 was a serious explosion, and a good number of people were killed. 
 
 B B B— 05 M 13 
 
194 EEGULATION OF EAILWAY BATES. 
 
 Now, T do not think you would indict the whole State of Massachu- 
 setts for anything of that kind, nor the people there. I believe this, 
 Senator Dolliver, that the difficult}^ about cases of that kind is that 
 they are talked about, but there is nothing done. I believe that 
 
 this 
 
 Senator Dolliver. There will certainly be nothing done if they are 
 not talked about. 
 
 Mr. TuTTLE. I believe this interstate law has the power within its 
 language to deal with those cases, and certaiial;- if the people who are 
 charged with the administration of this law would demonstrate the 
 inabilitj' of the laws to deal with them they would get new laws so 
 they could just as fast as you could make them. 
 
 Senator Dolliver. I noticed a magazine article dealing with the 
 Armour car line and other such institutions, which claimed, appar- 
 ently with truth, or at least with an accuracy of statement that seems 
 to be correct, that the whole fruit business of California has been 
 takeji out of the hands of the railway companies and is monopolized 
 hy this institution at Chicago. 
 
 Mr. TuTTLE. It seems to me that if that magazine article has the 
 semblance of truth it is time for the State authorities to find out 
 whether something can not be done under the present law rather than 
 sit around the table and talk about it. 
 
 Senator Dolliver. I quite agree with you. 
 
 Mr. TuTTLE. I think we have laws enough, and I think we are gov- 
 erned enough. But laws are no good unless there is an attempt to 
 enforce them, and I believe that that pamphlet [referring to copy 
 of the Ellfins law] contains law enough to reach those things, or at 
 least determine whether other laws are necessary, and I do not believe 
 it is the duty of Congress to go on piling up and piling up laws when 
 those that it has already passed are not tried. 
 
 The Chairman. Now, Senator Newlands. 
 
 Mr. TuTTLE. I think you will have to excuse me from going on 
 further at this time 
 
 Senator Newlands. There are only a few moments remaining, and 
 I suggest that we continue on Saturday with Mr. Tuttle. 
 
 The Chairman. Will you be in this vicinity on Monday, Mr. 
 Tuttle? ■^' 
 
 Mr. Ttjttle. Only at great inconvenience. I will be here Satur- 
 day. 
 
 Senator Clapp. \Vhat is the objection to going to work at 11 
 o'clock to-morrow morning ? 
 
 (After further discussion, upon motion the committee adjourned 
 until Saturday, April 22, 1905, at 11 o'clock a. m.) 
 
 By direction of the chairman, the following letters were ordered to 
 be printed in connection with this day's proceedings : 
 
 Senate of the United States, 
 
 , ^ February 2L 1905. 
 
 Hon. Martin A. Knapp, 
 
 Chairman Interstate Commerce Commission. 
 
 Dear Judge Knapp: I am requested by the Interstate Commerce 
 
 Committee of the Senate to ask the opinion of the Commission of the 
 
EEGULATIOIT OP BAILWAY RATES. 195 
 
 effect which the pending Esch-Townsend bill would have if it be- 
 came a law on the differential freight rates in favor of any par- 
 ticular ports of the United States, and would it be necessary to set 
 aside these differentials in case the bill became a law? 
 Very truly, yours, 
 
 S. B. Elkins. 
 
 Interstate Commerce Coimmission, 
 
 Washington, April 11, 1906. 
 Hon. Stephen B. Elkins, 
 
 Chairman Senate Govimittee on Interstate Commerce, 
 
 Washington, D. C. 
 
 Dear Sir: The Interstate Commerce Commission has the honor to 
 submit the following in response to your request for an opinion as to 
 the effect which the enactment of the Esch-Townsend bill would 
 have upon differential freight rates in the United States, and whether 
 it would be necessary under such a law to set aside and prohibit 
 differential rates altogether. 
 
 It is assumed that the inquiry has reference to the provision in 
 subdivision 6, Section IX, Article I, of the Constitution, as follows: 
 
 " No preference shall be given by any regulation of commerce or 
 revenue to the ports of one State over those of another." 
 
 Without attempting to discuss the question at length, or to point 
 out the absurd consequences to which a contrary conclusion would 
 lead, the Commission holds with the 'utmost confidence that the 
 exercise of authority for the regulation of rates, as proposed in the 
 Esch-Townsend bill, would not be controlled or limited in any 
 degree by the above-quoted provision in the Constitution. If it be 
 assumed, as it certainly is not conceded, that this provision has any 
 application to charges for transportation, to and from the several 
 ports, it would seem that such rates should be so adjusted as to avoid 
 the prohibited preference. To establish the same rates from a given 
 point to all ports would obviously, as it seems to us, prefer the most 
 distant port, other things being equal. To establish rates on a 
 uniform mileage basis, so that distance alone determined the relation 
 of rates, would in many if not most cases result as a practical matter 
 in the actual preference of one port over another. And this is all 
 the more apparent in view of the fact that numerous " ports " have 
 been established from time to time at various points in the interior. 
 If the constitutional restraint is held to apply at all to railroad 
 charges, which appears to us improbable, then the question of what 
 constitutes a preference depends upon a variety of circumstances and 
 conditions besides the element of distance. In short, upon that 
 theory, it would be necessary to determine in each case the proper 
 adjustment of rates which would place different ports upon a basis 
 of' relative equality ; and that is precisely the aim, among other 
 things, of the act to regulate commerce and of the measure in ques- 
 tion. The establishment of a differential might be and often would 
 be the appropriate and only method of accomplishing the purpose 
 ■of the constitutional limitation. 
 
 It strikes us as very singular that this question, if it has any merit. 
 
196 HEGULATION OF EAILWAY BATES. 
 
 has not been raised heretofore. Differentials have long been applied 
 without the suggestion that they were in disregard of this para- 
 graph of the Constitution. The differentials between Xew York, 
 Philadelphia, and ]3altimore, for (-xample, were reviewed and sanc- 
 tioned in 1S8^ b}' three eminent constitutional lawyers, viz, Allen G. 
 Thurman, Elihu B. Washbnrne, and Thgrnas M. Cooley. It evi- 
 dently did not occur to them that the allowance of such differentials 
 to the ports named was in conflict with the " no preference " clause 
 of the Constitution, for no mention of the matter appears in their 
 very al)le and comprehensive report. To say that the carriers them- 
 selves may do what the Government could not permit is simply beg- 
 ging the question. 
 
 The leading authority upon the subject appears to be the case of 
 Pennsylvania r. ^=\aieeling and Belmont Bridge Company et al. (18 
 Howard, 421), decided by the United States Supreme Court in 1855. 
 The following paragraphs are quoted from the opinion in that case: 
 
 •' There are .many acts of Congress passed in the exercise of this 
 po-s^er to r.'gulate conunerce, providing for a special advantage to the 
 port or ports of one State, and which every advantage may incident- 
 ally operate to the prejudice of the ports in a neighboring State, which 
 ha^'e never been supposed to conflict ^vith this limitation upon its 
 power. The improvement of rivers and harbors, the erection of 
 light-houses, and other facilities of commerce, may be i-eferred to as 
 examples. It will not do to say that the exercise of an admitted 
 power of Coiigi-ess conferred by the Constitution is to be withheld, 
 if it appears, or can be shown, that the effect and operation of the 
 law may incidentally extend beyond the limitation of the power. 
 Upon any such interpretation, the principal object of the framers 
 of tlie instrument in conferring the power would he sacrificed to the 
 subordinate consequeiices resulting from its exercise. 
 
 " The clause in terms seems to import a prohibition against some 
 positive legislation by Congress to this effect, and not against any 
 incidental advantages that might possibly result from the legislation 
 of Congress upon other subjects connected with commerce and con- 
 fessedly within its power. 
 
 " Besides, it is a mistake to assume that Congress is forbidden to 
 give a preference to a port in one State over a port in another. Such 
 preference is given in every instance where it makes a port in one 
 State a port of entry and refuses to make another port in another 
 State a port of entry. No greater preference, in one sense, can be 
 more directly given than in this way, and yet the power of Congress 
 to give such preference has never been questioned. Nor can it be 
 without asserting that the moment Congress makes a port in one 
 State a port of entry it is bound at the same time to make all other 
 ports in all other States ports of entry. The truth seems to be that 
 what is forbidden is not discrimination between individual ports , 
 within the same or different States, but discrimination between 
 States ; and if so, in order to bring this case within the prohibition it 
 is necessary to show not merely discrimination between Pittsburg and 
 Wheeling, but discrimination between the ports of Virginia and those 
 of Pennsylvania." 
 
 Your attention is also invited to the case of Knowlton v. Moore, 
 
REGULATION OP RAILWAY RATES. 197 
 
 decided in May, 1900 (178 U. S., 41) . On page 104 in the opinion in 
 that case Mr. Justice White says : 
 
 " It follo'ws from the collocation of the two clauses that the pro- 
 hibition as to preferences in reg:ulations of commerce between ports 
 and of uniformity as to duties, imposts, and excises, though couched 
 in different language, had absolutely the same significance." 
 
 The decision then holds, all the justices concurrmg upon this point, 
 that the requirement of uniformity is satisfied by geographical uni- 
 formity, that is , by a law which is the same in all parts of the United 
 States. It would seem to follow that the no-preferonce clause, hav- 
 ing absolutely the same significance as the uniformity clause, would 
 he complied with bj' any regulating statute whose provisions and 
 grant of authority operate generally and with equal force in every 
 part of the country. If uniformity in one case means simply geo- 
 graphical uniformity, does not the prohibition of preferences in the 
 other case mean merely that the legislative ennctment shall be of 
 general and equal application? 
 
 Another case which seems to us significant is the Texas and Pacific 
 Railway Company ?'. Interstate Commerce Commission, commonly 
 known as the Import Rate Case (162 U. S., 197). 
 
 The Commission had held, construing the act to regulate commerce, 
 that rail carriers could not lawfully transport imported traffic at 
 lower rates than they charged on domestic traffic of the same ]und 
 from the same port to the same destination. The Supreme Court 
 decided that this was an erroneous construction of the act and that 
 lower rates on import traffic were not necessarily in conflict with the 
 statute. It appeared in that case that from some ports no differ- 
 ence was made between import and domestic traffic, while from other 
 ports the difference was very great. These varying and dissimilar 
 rate adjustments were essentiafly differentials, as the record in that 
 <!ase disclosed. But there was no suggestion by counsel from first to 
 last that the rate relations then in question were at variance with the 
 no-preference clause of the Constitution, nor does the elaborate 
 opinion disclose that any such point was deemed worthy of considera- 
 tion. 
 ^ The tenor of these decisions seems to us unmistakable. Neither the 
 Esch-Townsend bill nor any measure of similar character can be 
 seriously regarded as conflicting in any degree with the provision of 
 the Constitution which prohibits preference of the ports of one State 
 ■over those of another. 
 
 All of which is respectfully submitted. 
 
 Martin A. Knapp, Chairman. 
 
 Saturday, April £2, 1905. 
 
 The committee met pursuant to adjournment. 
 
 Present: The chairman and Senators Dolliver, Foraker, Clapp, 
 Millard, 'Carmack, and Newlands. 
 
 The Chairman. Senator Kean sends his regrets and says that he 
 has been called to New York. 
 
 Senator Foraker stated that he had been receiving requests from 
 members of Congress for copies of the hearings. 
 
 On motion of Senator Newlands, it was ordered that copies be sent 
 daily to the members of Congress. 
 
198 REGULATION OF EAILWAY RATES. 
 
 , STATEMENT OF MR. LUCIUS TUTTLE— Continued. 
 
 The Chairman. Senator Carmack, had you concluded your ques- 
 tions ? 
 
 Senator Cakmack. T was not here, Mr. Chairman, at the conclusion 
 of the proceedings day before yesterday. I have a few questions I 
 want to ask, however. 
 
 The Chairman. As next in order, the Senator from Tennessee has 
 the right to interrogate. 
 
 Senator Carmack. I have not a great many questions. In your 
 statement, Mr. Tuttle, you dealt with a question I propounded to Mr. 
 Morawetz with respect to the method of computing net earnings. I 
 believe you agree with him that there is no uniform system— that 
 individual roads change their systems from year to year. 
 
 Mr. Tuttle. Somewhat. 
 
 Senator Carmack. Is not that somewhat confusing? Does not 
 that make the reports misleading, or at least uninforming, to the 
 general reader? 
 
 Mr. Tuttle. I do not think so, for the reason that the Interstate 
 Commerce Commission prescribes to the railroads a uniform system 
 of accounting, and no matter what the system of the individual rail- 
 road may be, when the reports appear in the Interstate Commerce 
 Commission's books they are brought down to uniform methods, so 
 that you find that the accounts of one railroad have been brought to 
 the same system as all the others. 
 
 Senator Carmack. Has not the Interstate Commerce Commission 
 itself made some complaint on that subject, that the reports were not 
 sufficiently clear? 
 
 Mr. Tuttle. I am not aware of that. They have prescribed the 
 details of the reports, and, as I understand it, they are getting 
 according to what they have prescribed. They have asked for cer- 
 tain additional information as to tonnage, which the railroads be- 
 lieved were not covered by law, and I think the court has recently 
 decided that that request was not in accordance with law.- I do not, 
 however, understand that there was any objection on the part of the 
 railroads to giving the information which the court has passed upon 
 adversely, except as to the extreme difficulty and cost or getting it. 
 The Commission asked for an analysis of the tonnage, to prepare 
 which would have cost the railroads several hundred thousand dollars 
 a year, and, in the opinion of the railroads, would tend rather to 
 satisfy curiositj'^ than to give information. 
 
 Senator Carmack. Then you do not think it is important that 
 there should be some uniform system enforced among the railroads 
 in reference to this matter? 
 
 Mr. Tuttle. I think that may be left to the Interstate Commerce 
 Commission. I think thej^ have practically that power to-day for 
 all useful purposes. 
 
 Senator Carjiaciv. I believe you stated the other day that there 
 was no rule that govei'ns rate making; that rates were not gbveriied 
 by any rule. 
 
 Mr. Tuttle. I think there can be no specific rule. 
 
 Senator Carmack. The owners of the roads, you say, practically 
 leave that matter entirely to the traffic managers, requiring from them 
 a certain general result. 
 
REGULATION OF EAILWAY KATES. 199 
 
 ilr. TxjTTLE. They are obliged to. 
 
 Senator Cakmack. That is necessary, you think, in connection 
 with the business. 
 
 Mr. TuTTLE. T think so. Of course. Senator Carmack, I should 
 qualify to this extent: Xo radical change in the policy of any rail- 
 road as to its rates would be made by traffic officers without bringing 
 the subject to the attention of the President, and perhaps the Presi- 
 dent would bring it to the attention of the board of directors ^ but, 
 as to the things that must necessarily be done from day to day, the 
 traffic managers must be intrusted with that, and they must do it; 
 they must do it or business stops. 
 
 Senator Carjiack. I believe j'ou said that you had never heard the 
 making of rates discussed at meetings of the board of directors? 
 
 ilr. TuTTLE. Xot in detail. 
 
 Senator Caujiack. Xor at large? 
 
 3Ir. TuTTLE. No. 
 
 Senator Caemack. The management of railroad property, then, 
 can hardly be called a science, like that of banking, in which certain 
 well-recognized rules govern ? 
 
 Mr. TuTTLE. ^;ot as closely as in banking; no, sir. 
 
 Senator CAinr.ACK. Is not the complexity of the rate-making prob- 
 lem due very largely to the fact that the business is conducted in the 
 manner you liave described? 
 
 ?^Ir. TuTTnE. I think so, because of the impossibility of making 
 rules. 1 assume that if you get the thing to a scientific basis you 
 must come to mileage. AVhen you do that you establish zones within 
 which the ro;ids may do business, and beyond on which the rates 
 would be prohibitive. 
 
 Senator CAR-^rACJi;. I believe you say that the traffic managers in 
 fixing rates observe the necessities of the different territories and fix 
 rates accordingly ? It would not be considered very good banking, 
 would it. to fix rates on loans according to the necessities of their 
 customers ? 
 
 ]Mr. TuTi'LE. Xot according to the necessities of their customers. 
 
 Senator Caemack. I should not object to that rule myself. 
 
 Mr. TuTTixE. I should think the customer, as a rule, would not 
 object. 
 
 Senator Caemack. As to competition, I believe you stated that a 
 railroad is a natural monopoly, that there is no effective competition 
 between railroads except at competing points, and Mr. Morawetz's 
 statement was that that is practically done away with by agreements 
 and understandings. Is that about correct ? 
 
 Mr. TrrxTLE. It is, I think, correct in the matter of ruinous com- 
 petition such as went on up to 1903 or 1904. 
 
 Senator Carmack. There are no more rate wars. 
 
 Mr. TuTTLE. I think rate wars have terminated, not only because 
 of the unifications of interest which have gone on, but because the 
 railroad managers have learned something. 
 
 Senator Carmack. That has worked itself out. 
 
 Mr. Tttttle. I think so. Like other wars, they were carried on 
 very vigorously, and each side fought as long as it was able to fight, 
 and then they quietly made a truce, buried their dead, and went on 
 as well as they could under existing conditions without settling 
 much of anything. 
 
200 REGULATION OF EAILWAY BATES. 
 
 Senator Caemack. Suppose competition to be eliminated; is there 
 any condition reniaining to justify a greater charge for a short haul 
 than for a long haul ? 
 
 Mr. TuTTLE. Only the necessities of the business ; the necessities of 
 the shipper and the customer. As I endeavored to explain day before 
 yesterday, if you make the rule that no greater charge shall be made 
 for a short haul than for a long haul over the same lines, you would 
 obliga the railroads to go out of a large portion of the long-haul 
 business because they could not reduce the general rate on the larger 
 proportion of their business to the long-haul rate, and they would be 
 obliged either to put their rates for the long hauls so that they would 
 be prohibitive of traffic, or they would have to go out of business. As 
 I said in my testimony, railroads carry long-haul traffic with the 
 knowledge that it is carried at a loss because the necessities of their 
 customers and their own necessities in dealing with them make that 
 necessary. 
 
 Senator Caemack. Eailroads have built up large industries at cer- 
 tain points by giving abnormally low freight rates on long hauls. 
 That is true, is it not ? 
 
 Mr. TuTTLE. I should hardly agree to that statement in so broad a 
 way as that. I think that the desire of every railroad is to build up 
 the industries in which it may be interested. In the hauling of 
 materials necessary to carry on that industry (the natural products 
 coal, iron, or cotton) the railroad must take into account the neces- 
 sities of their customers and the distance from the sources of supply, 
 and in order to make it possible for the manufacturer to do business 
 in its territory and upon its line, it is often obliged to give to that 
 customer facilities for transportation which will equalize its dis- 
 abilities by reason of these distances from the sources of supply and 
 from the markets. 
 
 I know of no better illustration of that than some of the testimony 
 that was adduced before the Industrial Commission. They ^ay some- 
 where in the summary of their hearings that they found that cotton 
 was carried from Memphis to Lowell, Mass., at a lower rate than 
 for a much shorter haul — perhaps from Memphis into Xorth Cnro- 
 lina ; and the reason for that is that the cost of living in Lowell is 
 very^^much greater. Coal is higher, lumber is higher, and everything 
 else IS higher than in the North Carolina section, and unless the 
 Lowell mill can be assisted by the lowest possible rates in the trans- 
 portation of the raw product, which is the foundation of this business, 
 it would have to stop. 
 
 Senator Caemack. That means that a railroad tries to overcome 
 the natural economic disadvantages under which the industry of any 
 particular community may labor. 
 
 Mr. TuTTi.E. Just as far as it can. As I said in my testimony, I 
 think, the railroads of the country have believed it to'be their duty, 
 in the interest of their customers, not only to abridge, but, as far as 
 possible, to eliminate distance. 
 
 Senator Cae^mack. Eliminate distance and other economic dis- 
 advantages. 
 
 Mr. Ttjttle. Economic disadvantages must all be taken into ac- 
 count in this necessity for eliminating distance. 
 
 Senator Caemack. You say that a shipper at an intermediate point 
 has no right to complain that a charge for a long haul is lower, pro- 
 
REGCLATION OF RAILWAY RATES. "201 
 
 vided his own charge is in itself reasonable. May not a rate be rea- 
 tionable, considered absolute!}', and yet unreasonable, considered rela- 
 tively ? 
 
 ilr. TuTTLE. Undoubtedly. 
 
 Senator Carmack. It might be considered unreasonable when it 
 led to unjust discrimination against one comnmnity ? 
 
 ilr. TuTTLE. Undoubtedly. 
 
 Senator Carmack. Is not the effect of this, as you said the other 
 day, to crush out the business of such communities which are really 
 nearer to market than those that have the lower rate for the long 
 haul? 
 
 Mr. TuTTLE. I think undoubtedly there are instances- where inter- 
 mediate industries suffer by reason of the higher rate for the shorter 
 distance as compared with communities that are differently located, 
 where they can get the benefit of competition and lower rates, made 
 for whatever reason. 
 
 yiy belief is, as I endeavored to elucidate, that these intermediate 
 liites must always be reasonable and equitable for the service per- 
 formed. If an industry or town or village is located upon one of 
 five lines extending, for instance, from St. Paul to Chicago, and the 
 rate between St. Paul and Chicago is by reason of any competition 
 made, say, 5 cents a hundred, there is only one way in which the 
 line, running perhaps by a roundabout route through local points, 
 can deal with that question — it must either reduce all of its local rates 
 to the competitive rate of 5 cents a hundred, which would probably 
 make its whole business unprofitable, or it must charge for a short 
 haul more than for the short haul, or it must raise the rate in competi- 
 tion from St. Paul to Chicago to a point which would be prohib- 
 itive in itself and go out of the St. Paul traffic. The fact that this 
 particular line from St. Paul to Chicago passing through these in- 
 termediate points finds it impossible to lower its rates at intermediate 
 points and raise its through rates from Chicago to St. Paul does not 
 prevent the other lines leading from St. Paul to Chicago from carry- 
 ing at the previously low rate. So that all that has happened in 
 case the railroad raises its St. Pa,ul and Chicago rate is that it cuts 
 out the St. Paul and Chicago business and leaves it to competition, 
 whether by water or land. 
 
 Senator Carjiack. My question was based on the supposition of 
 water competition being eliminated. 
 
 Mr. TuTTLE. I do not think you can do that, broadly as the methods 
 of transportation in this country are diversified. 
 
 Senator Carmack. Suppose the law permitted an agreement upon 
 rates from competitive points ? 
 
 Mr. TuTTLE. You mean a sort of pooling? 
 
 Senator Carmack. Not exactly pooling, but agreement. 
 
 Mr. TuTTLE. I have no faith in that whatever, for the reason that 
 pooling or agreement upon rates must always be based upon the 
 . equitable distribution of the traffic that is competitive between all 
 the lines that can participate in that competition. If you have five 
 lines leading from A to B through five different sections of the 
 country, and all parallel with each other, those roads are bound to 
 be of varying strength ; they are bound to vary in ability to handle, 
 control, and' move traffic. If you make an agreement between those 
 five roads, unless they are all under common control, you are going 
 
202 BEGXJLATION OF RAILWAY BATES. 
 
 to find it very difficult to satisfy them all as to the proportion of 
 business to be allowed them. I went through this experience when 
 pooling was not prohibited by the law, and, although schemes for 
 pooling were formulated and partially carried out, I never knew one 
 that prevented competition or that was wholly satisfactory. 
 
 The agreement is always made upon the assumption that the con- 
 ditions are going to change, so that the weak road Avill get some of 
 the strong road's business. If you have five roads, one of which is 
 doing a fO per cent business, and another that is doing 20 per cent, 
 and another that is doing 50 per cent, and so on through, the struggle 
 of the 10 per cent road is always going to be to put itself where it can 
 get 20 per cent instead of 10. " The consequence was that, e^'en under 
 the pooling system adopted previous to 1887, there was never what 
 was considered an equitable distribution of traffic to anybody, be- 
 cause the strong lines that could control and handle .50 per cent of 
 the traffic were always struggling against parting with any of that 
 60 per cent business, Avhile the weak 10 per cent road was always 
 trying to get 15 per cent, and even though there was no cutting of 
 rates there was an ambition on the part of every road in the pool to 
 get just as much traffic for itself as it could, even though it might 
 pay over something to the others, because, like the two Socialists, they 
 thought there might be something to divide some day. 
 
 Senator Foraker. Or they might fall out all together ? 
 
 Mr. Tttttle. Thej' might all fall out. Any agreement as to the 
 jnaintenance of rates based upon a division of traffic is a form of 
 pooling.' 
 
 Senator Caejiack. I was not speaking of pooling. I was speaking 
 simply of agreement to maintain rates, which I understand is prac- 
 tically the case now. 
 
 Mr. TuTTLE. Not wholly, and not even practically, because a rail- 
 road between any two pints may establish its own rate without con- 
 sulting with anybody, though, of course, it must be a published rate. 
 It is the practice of almost every railroad of any consequence in 
 this country to keep a man in Washington Avho regularly visits the 
 Interstate Commerce Commission offices and reports the nling of 
 tariffs, so that the instant that the road from A to B puts in a new 
 tariff the road from Y to B, in competition, may know what that is 
 and change its own accordingly. It is necessary to have an agree- 
 ment. I do not know that any writing is made for that agreement, 
 but each road finds out as well as it can what the rate of the other 
 road is, and it can find out within three days, and then it immediately 
 adopts that rate, or else it goes out of the business. 
 
 The Chairman. Do they not often have fixed tariffs which are not 
 changed without notification to the others? 
 
 Mr. TuTTLB. I do not think there is much of that nowadays, be- 
 cause there is very little changing of tariffs except that which the 
 exigency business requires. The plan A^hich formerly prevailed, of 
 having stated meetings of traffic officers to discuss tariffs, is all ended. 
 It may be that if a road finds it necessary to change its tariff, by 
 lowering or by increasing, it may say to "the traffic officers of the 
 other roads, " We have got to do such things and we intend to do so 
 on such a day." 
 
 Senator Car.mack. Ctiming back to the question of equalizing ad- 
 vantages and disadvantages between different points, you mentioned 
 
KBGTJLATION OF RAILWAY RATES. 20S 
 
 the case of the barbed-wire industry at Worcester. In that case if 
 the railroads had not helped the necessities of the corporation by giv- 
 ing extraordinarily low rates, and had left it to contend with natural 
 economic conditions, that business would have gone to the wall. 
 
 Mr. TuTTLE. Undoubtedly. 
 
 Senator Car-\jack. It was saved by these artificial conditions 
 created by the railroads in its behalf. 
 
 Mr. TuTTLE. It was saved by giving to the Washburn & Moen 
 Manufacturing Company, at Worcester, as low a rate as was given 
 to Pittsburg, the distance from Pittsburg to the West being so much 
 shorter than tlie distance from Worcester, not by cutting the Pitts- 
 burg rate, but by putting them on a plane of equality. 
 
 Senator Cai;.-\lack. Giving it an equal rate for a longer distance. 
 
 Mr. TxjttIjE. Yes; which is done everywhere for similar commodi- 
 ties in order to meet the necessities of trade competition. 
 
 Senator CAiniACK. So in another case you speak of, giving the very 
 low rates on cotton to the Lowell mills, that was because without that 
 advantage the Lowell mills would not have been able to compete suc- 
 cessfully with the North Carolina mills, which were nearer to the 
 raw material. 
 
 Mr. TuTTLE. Yes. 
 
 Senator Caemack. And by giving them very low rates the roads, 
 in a measure, equalized the advantages in that respect ? 
 
 Mr. TuTTi.E. Yes. 
 
 Senator Caemack. And counteracted the natural economical dis- 
 advantage under which they labored ? 
 
 Mr. TuTTLE. As much as possible. We do this. Perhaps in the 
 city of Lowell 40,000 out of the population of 80,000 are dependent 
 upon textile industries for their living. If those mills for any reason 
 are closed that 40,000 people cease to live in Lowell, for they have 
 nothing else to do ; the traJfic of that 40,000 people over the railroads 
 going into Lowell would cease. There is no philanthropy in this 
 railroad business any more than there is in any other business. It is 
 an endeavor to make as much business for the railroad as possible, 
 and in maldng as much business as possible for itself it is obliged to 
 malve business for the customer as well. 
 
 Let me illustrate again : In the northern part of ilaine there are 
 perhaps hundreds of thousands of acres of spruce lands. Up to 
 within a few years, say within ten years, in certain portions of 
 northern Maine there were no inhabitants. At a certain place there 
 was a primeval forest, not containing even a hundred cabins. A 
 railroad was put into that territory — the Bangor and Aroostook. 
 An opportunity was given to develop the timber industries of that, 
 section. Certain capitalists discussed the question of establishing 
 a pulp and paper mill in that region. They selected a place, and 
 called it Millinocket, and found that they could bond a large quan- 
 tity of timber land, with good available water power, and the condi- 
 tions for manufacturing paper and pulp were very satisfactory. 
 But before they could do anything more than bond it, it became neces- 
 sary for them to go to the railroad and find out what it could do for 
 them in the distribution of their product. In order to establish a 
 profitable industrj^ up there they had to manufacture an enormous 
 quantity daily. That involved the problem of distribution of that 
 product, which was largely paper upon which to print newspapers. 
 
204 REGULATION OF RAILWAY RATES. 
 
 They could sell a portion to Boston, certain portions to New York, 
 and perhaps some to Philadelphia papers, and all those places could 
 be reached easily in competition Avith paper and pulp sent from 
 other sections of the country, because the distances were compara- 
 tively short. But they found that that would not use up all their 
 product. It was necessary for them to manufacture upon a scale 
 sufficiently large to make the product cheap, so that their production 
 would be' very much in excess of that which they could get used in 
 the nearer markets. So they came to the railroad and said : " We 
 want to know what rate you will charge us to carry these products to 
 Boston and Xew York and Chicago and all about for us, and then we 
 can determine whether we can build that mill." 
 
 Then the railroad had to take into account the fact that perhaps in 
 Chicago paper was received from mills not more than 500 miles away, 
 and so it became necessary, in order to meet that competition, to 
 carry that paper from Maine to Chicago, a distance of some 1,400 or 
 or 1,500 miles, so that it could be sold to the Chicago newspapers at 
 the same price that they would have to pay for paper that came only 
 500 miles. The railroad did equalize its rate and gave the company 
 such a rate that they could put their products into the markets of 
 the United States, and in consequence of that has arisen that place 
 of Millinocket in the last teh years, a place which has schools, 
 churches, streets, electric lights, and a population of 3,000 or 4,000, 
 who live as comfortably as they do anywhere in the world — a place 
 where ten years ago it was primeval forest. Those 2,000 or 3,000 
 people receive practically all their supplies by rail — their food, their 
 clothing — and they travel; they make business where before that it 
 was forest or desert; and the railroads leading into that place get 
 reasonable rates for that travel and get enough out of those people 
 so they can afford to give those mills the low rates to Chicago, and 
 nobody suffers. If the railroad had said, when that subject was first 
 brought up, " No, we can not give those rates," there would have 
 been no such place as Millinocket. 
 
 The Chairman. But the pulp manufacturer 400 miles from Chi- 
 cago does not sell as much of his product in Chicago as he would 
 have done. 
 
 Mr. Ttjttle. Perhaps not ; but that is one of the conditions of trade 
 that I do not believe Congress can regulate. 
 
 Senator Carmack. That is a case, then, where the railroads have 
 practically created an industry and built up a great community by 
 giving a very low rate for a very long haul. 
 
 Mr. TxjTTLE. For a certain part of the product. 
 
 Senator Carmack. Wliatever it is. But the community would 
 never have been built up but for these extremely low rates for a very 
 long haul. 
 
 Mr. TuTixE. Probably not. 
 
 Senator Carmack. And yet at the same time other communities 
 have languished because they coiild not get equal rates for a short 
 haul. 
 
 Mr. TuTTi-E. I do not think that is our experience. To illustrate 
 further in regard to this particular product — paper — we have other 
 mills in the different parts of New England producing paper which 
 is sent into the same markets. We have practically got to equalize 
 
BEGTJLATIOIsr OF RAILWAY RATES. 205 
 
 cost, regardless of distance, between all these mills, so that the prod- 
 uct shall be sold in the market at the same price. 
 
 Senator Cahmack. But you said the other day that a great many 
 small communities had been industrially crushed by reason of the fact 
 that they could not get for their short hauls the same rate that other 
 communities got for a longer haul. 
 
 Mr. TuTTLE. I hardly think what I said went to that length. I 
 think I was answering the question of one of the Senators, who stated 
 that as a fact, and 1 said it might be, but I know of none in our 
 section that have suffered to that extent or to any extent. 
 
 Senator Carmack. You know manj^ intermediate points that are 
 languishing industrially, do you not? 
 
 Mr. TuTTLE. That is not true with us — I do not know how it is in 
 the West and South— because, as I have said, we endeavor to equalize 
 rates, regardless of distance, on the commodities that need the 
 markets. 
 
 Senator Dollivee. How do you get the other roads to agree to that ? 
 
 Mr. TuTTLE. The initial road in long traffic generally has the right 
 to make the through rate, or is given the right to make the through 
 rate, in the development of large amounts of traffic. For instance, a 
 road into New York or Boston has nothing whatever to do with the 
 rate from Chicago, except to say whether it will accept a certain 
 proportion of the rate. The traffic officer in Chicago says what the 
 rate shall be and files a tariff, and the other roads either agree to 
 accept their percentage proportion of that rate or notify him that 
 they will not. Generallj^ the roads have never refused to help in the 
 stimulation of industries everj'where. They all participate. I have 
 even known it to happen between New York and Boston that a 
 freight train would haA^e a carload of bananas going in one direction 
 and would pass a train having a carload of bananas going in the oppo- 
 site direction, so that a carload of bananas are landed in New York 
 and in the Boston market on the same day. I do not know how it is 
 done, but it is done. 
 
 Senator Carmack. Is it the policy of the roads, wherever thej'^ find 
 an industry established, to keep it going by advantages in the way of 
 rates, regardless of changes in economic conditions? 
 
 Mr. TuTTLE. I think in so far as it is possible for them to do so. 
 It has not been possible in all cases. We could not keep iron furnaces 
 running in New England ; they are all gone. 
 
 Senator Carmack. If rates at noncompetitive points were equalized 
 or reduced in proportion to rates at competitive points, would there 
 not be an immense growth of business all along the lines of those 
 roads ? 
 
 Mr. TuTTLE. Possibly, and done by the railroads in the way that 
 the Texas clothing dealer explained his wealth ; he did it all at a loss, 
 but he did so much of it that he got rich. 
 
 Senator Carmack. Railroads do not do their business that way, I 
 understand. 
 
 Mr. TuTTLE. They would if we equalized intermediate rates. For 
 
 . instance, it is a well-known fact that rates for long distances are often 
 
 made, as I endeavored to explain the other day, under conditions of 
 
 necessity and competition, as low as 2 mills per ton per mile, and 
 
 millions of tons are carried at that rate, but everybody knows that 
 
206 BEGULATIOSr OF RAILWAY BATES. 
 
 that would involve a loss in that particular transaction of at least 3 
 mills per ton per mile. 
 
 Senator Caemack. And that arises out of the existing conditions 
 you have named — the maintenance of an industry that could not 
 maintain itself without the advantage of very low rates. 
 
 Mr. TuTTLE. The broadest industry of the country, the farming in- 
 dustry, if we made the transportation rates upon the natural products 
 that the farmer sends to market — wheat, oats, ba-rley, corn— if we 
 made those rates wholly upon the idea of their being profitable, the 
 farmers of the Mississippi would burn corn for fuel instead of send- 
 ing it to Europe to market. 
 
 Senator Caemack. You mean there would be no profit ? 
 
 Mr. TuTTLE. I mean that a very large portion of it could not be ex- 
 ported, year in and year out, because it would not pay the cost of 
 operation. 
 
 Senator Caemack. Why is that ? 
 
 Mr. TuTTLE. Because the European market conditions make it nec- 
 essary that those products shall be moved at a price that will get them 
 there. 
 
 I can give you an illustration of that in regard to a matter I had 
 occasion to look up within a few months. Wheat exports from the 
 United States to Europe very materially decreased, and after a time 
 practically ceased. I found that Canada was sending wheat to 
 Europe in large quantities. The price of wheat in St. Paul for mill- 
 ing was about $1.25 a bushel; the price in Liverpool and London was 
 $1.25 a bushel; therefore there was nothing for the transportation 
 between the wheat fields and Liverpool. But Canadian wheat was 
 selling at $1 a bushel, our tariff on Canadian wheat being just 25 
 cents. That 25 cents moved Canadian wheat to Liverpool in great 
 quantities. AVheat from Manitoba was selling at $1 a bushel in Min- 
 neapolis and St. Paul for milling purposes. The tariff on Canadian 
 wheat in the LTnited States was, as I say, 25 cents a bushel. There- 
 fore our price in IMinneapolis fixed the price in Canada, and at $1 a 
 bushel they could send it to Liverpool just as well as they could send 
 it to the United States, because 25 cents a bushel, or about 24, would 
 move it from Manitoba to Liverpool. 
 
 Those conditions are always varying. The price is not what the 
 farmer or the railroad wants, but the price is what the product will 
 sell for in the markets of the world. The question of whether wheat 
 or grains of any kind can be sold in Europe depends upon cable ad- 
 vices from hour to hour at times, and whenever it is necessary to enter 
 those markets in the closest competition the railroads throughout the 
 country endeavor to move the wheat or grain without very much 
 question whether it is profitable or not, because they laiow, as a gen- 
 eral proposition, that if our natural products rot on the ground where 
 they are produced there would not be as much money to distribute 
 throughout the country with which to buy manufactured goods that 
 we want to send thein. Let there be an absolute stagnation in the 
 farming interests of the Mississippi Valley and the Northwest and 
 within twelve months the effect of that stagnation will appear in 
 Lowell and Lawrence, Mass., and in Lewiston, Me., just as ftiey will- 
 in the near by points in the West, because goods can not he sold unless 
 there is something to buy them with. 
 
 It is the great business of the transportation lines of the United 
 
REGULATION OF RAILWAY RATES. 207 
 
 States to minimize, as I said, to eliminate distance, so that there may 
 be such an interchange of commerce in the country that the money 
 shall floAv regularly and steadilj' so far as possible from any part to 
 every part. 
 
 I give it as my opinion — and I feel very strongly upon the matter- 
 that anj' attempt on the part of Congress to establish rules for the 
 movement of traffic which shall prevent the railways from having 
 the greatest freedom to stimulate these movements for the purpose 
 of circulating the commerce of the country will hurt the commerce of 
 the country more than it will hurt the railroads in the first instance. 
 It will hurt all in the end. 
 
 If I may occupy your time for a moment by way of further illus- 
 tration, the New England manufacturer finds one of his greatest 
 items of cost in the fuel he uses. The time when wood can be made 
 useful, even in the northern part of New England, has gone by. He 
 must have coal. Coal is essential. It is advantageous for him to 
 have it come to him by rail. The coal sent by water and then by rail 
 is materially damaged. And yet, generally, the water rates make the 
 through rates. Coal is shipped from the coal mines of Pennsylvania 
 and West Virginia to tide water at an exceedingly low rate over the 
 railroad, and it is taken up by sailing vessels and by barges from 
 Newport News, or from Baltimore or Philadelphia, and sailed up 
 the coast in very large quantities to the coastwise ports, and then 
 sent by rail inland distances of 25 or 30 or 50 miles, and together the 
 rates are low, as applied to a long-distance rail transportation of the 
 same coal. Consequently for a long time is was found impossible to 
 send coal by rail from the Pennsylvania mines into northern New 
 England; but that has been overcome by the railroads making rates 
 for the transportation of that coal even at the cost of transportation, 
 or perhaps less. 
 
 There are a great many advantages to the user of coal in that con- 
 nection. In the first place, he is able to buy his coal and have it 
 come to him as he wants it— 5 carloads, 10 carloads, or 1 carload at a 
 time. If it comes by water, he must buy 1,000 or 2,000 or 3,000 tons, 
 and provide storage and transportation and all that. Another advan- 
 tage: The coal passing through Newport News, for instance, is 
 dropped 30 or 40 feet into the hold of a vessel and considerably 
 broken. When it is taken out at the Charlestown dock, near Boston, 
 the digger breaks it up once more, and when it gets into the car, and 
 from the car into the bin of the user in northern New England, at 
 least 10 per cent of that coal has become culm. If he gets it by rail, it 
 has no transshipping. It goes from the tipple into the car and from 
 the car into the bin, and it is worth 10 per cent more to the user. The 
 railroad might say, " That coal being worth 10 per cent more to you, 
 we will charge 10 per cent more than the water-transportation lines," 
 but as a rule they transport it for less than the rate by water and rail. 
 
 It is no hardship to a man at an intermediate point, like North 
 Adams, Mass., to pay for his coal perhaps a high relative rate, 
 which is reasonable, because a man at Berlin Mills can buy his coal 
 and have it shipped by rail at a lower relative rate. Both industries 
 are served. I want to stop short of any statement that it is, so far 
 as I know, a part of the policy of any system of railroads to throttle 
 intermediate industries by charging exorbitant rates. I think the 
 tendency is always to endeavor to introduce intermediate towns into 
 
208 EEGULATION OF RAILWAY HATES. 
 
 the markets, provided they can show that they are of consequence 
 enough to warrant changes in tariffs. 
 
 Senator Cakmack. Provided what? 
 
 Mr. TuTTLE. Provided they can show that they are of consequence 
 enough as manufacturers, or likely to be, to warrant special rates or 
 changes in tariffs. I think every railroad that I have ever known 
 anything about goes where there is water power and induces people 
 to set up a plant and makes rates with that object in view. If that 
 is not beihg done in individual instances I can only conclude that the 
 parties managing those railroads are pretty stupid. 
 
 Senator Carmack. Has it or not been the policy of the roads to 
 concentrate business as much as possible for their own convenience? 
 
 Mr. TuTTLE. I do not think so. Senator. I think the railroad is 
 trying to develop everj^where and do all that it can to help every 
 industry, because one is just as good as another. The railroad can 
 have no jiarticular interest in any place. 
 
 Senator Carmack. Would it not be more convenient to the rail- 
 roads to have business done at a few points than to have it widely 
 distributed ? 
 
 Mr. TuTTLE. I think not. 
 
 Senator Carmack (continuing). Along the line of the railroad? 
 
 Mr. TuTTLE. I think not. It would be convenient, possibly, in 
 operation, but I think the tendency is in furthering the growth of 
 its business; that the ufiore places a railroad can build up within its 
 territory the greater future it is going to derive from the distribu- 
 tion of traffic throughout that territory, instead of having it concen- 
 trated in two or three places. 
 
 Senator Carmack. But if it does get the business, say the manu- 
 facturing business ■ 
 
 Mr. TuTTLE. It will get more in twenty places than in a less 
 number. 
 
 Senator Carmack. If the manufacturing business of the whole 
 section were concentrated at a few points, would not that be more 
 convenient to the railroad in handling the business, and would they 
 not have the same amount of business ? 
 
 Mr. Ttjttle. I do not think they will have the same amount of 
 business. I think you will get more business at twenty places than 
 you will at five, no matter how large the five are or how much they 
 are concentrated. I think wherever you can get a new industry 
 started at a new place it is an infusion of new blood, which helps. 
 I have never discovered a disposition on the part of railroads to 
 concentrate business at a few points. I thinli the disposition is 
 always to spread them over as large a territory as possible and' di- 
 versify them as much as possible. It is very unfortunate for a rail- 
 road to have its industries so much concentrated that depression in 
 business seriously diminishes its traffic. It is much better to have 
 them Avidely distributed. 
 
 Senator Carmack. . I had something which I wanted to call to your 
 attention, and have been trying to get hold of it this morning, but 
 have not been able to do so yet. In the first hearing before the Com- 
 mittee on Interstate Commerce, when the original interstate-commerce 
 act was under consideration, there was testimony of some railroad 
 nien as to the giving of rebates and discriminations in favor of indi- 
 viduals, in which it was said that it had been their policy to give 
 
REGULATION OF RAILWAY RATES. 209 
 
 rebates to certain individuals or. corporations in a community so as 
 to concentrate the business in the hands of one or a few persons; 
 that it simplified the matter, and the railroads could handle the busi- 
 ness more easily and simply where they had to deal with few ship- 
 pers than where they had to deal with many. That was the reason 
 given as to the giving of rebates and the making of discriminations 
 as between individuals. Do you think that that was one of the 
 reasons why rebates formerly were so prevalent ? 
 
 Mr. TuTTLE. That evidence was given about twenty years ago. 
 
 Senator Caemack. About 1887, 1 think. 
 
 Mr. TuTTLE. Just before 1887^ — eighteen or twenty years ago ? 
 
 Senator Carmaok. Yes. 
 
 Mr. TuTTLE. I should say if any railroad man or railroad operator 
 gave that testimony as a reason for giving rebates, that he was, per- 
 haps, properly fitted to be in the railroad business at that time, but 
 I think he would have a hard time to-day in getting employment. 
 
 Senator Carmack. Would not the same reason apply in concen- 
 trating business in a few places instead of scattering it, distributing 
 it widely ? 
 
 Mr. TuTTLE. If there was such a reason ; but I do not think there 
 ever was, or ever is. Such a reason is mere fallacy. There is nothing 
 in it. 
 
 Senator Caemack. You said the other day that the most serious 
 competition is between towns or territories ; and you said this morn- 
 ing that it is the business of the road to equalize, as nearly as possible, 
 natural advantages and disadvantages, and to eliminate distances. 
 If there were no railroads, the community within 100 miles, say, of 
 a port, or market, ^\'Ould have a natural advantage over one 500 
 miles distant. It is the policy of the railroad, as I understand you, 
 to neutralize, as far as possible, these natural advantages ? 
 
 Mr. TuTTLE. As far they can. 
 
 Senator Carmaok. Is not the net result of this policy that, instead 
 of ministering to the natural development of the country, the rail- 
 roads have created and are maintaining an artificial industrial con- 
 dition ? 
 
 Mr. TuTTLE. I should hardly think that. I think that the best 
 answer that can be made to that is the continued prosperity of the 
 country at large. I do not think there is anything specially artificial 
 about a prosperity that continues uninterruptedly through a series 
 of years, as it has in this country, within the last twenty or thirty 
 years, with the natural ups and downs. 
 
 Senator Caemack. A country may prosper, you know, in spite of 
 some things. ■ ' , 
 
 Mr. TuTTLE. Undoubtedly ; but when you can find a teal agency in 
 sight that seems to have had something to do with it, it is not always 
 necessary to hunt for problematic theories. 
 
 Senator Caemack. But is not that true, as a matter of fact? For 
 instance, you said a while ago that the cotton mills at Lowell, if left 
 to contend with natural economic conditions, would go to the wall. 
 Consequently you had to create an artificial condition, by which 
 they were able to maintain their business in competition with south- 
 ern mills, which are nearer to the raw material. Is not that creating 
 an artificial industrial condition ? 
 
 R B K — 05 M 14 
 
210 REGULATIOK OF RAILWAY RATES. 
 
 Mr. TuTTLE. I should use the word differently from what you 
 appear to. As to its being artificial, it may be artificial as compared 
 with the times when there were no railroads, when salt sold at the 
 seashore at a cent a pound and at 6 cents a pound a hundred miles 
 inland, and when it cost $3 to carry a hundred pounds of flour a 
 hundred miles. I think, as compared with those conditions, you 
 might say that an artificial condition has been created. But the 
 artificial condition has become, through the facilities for the circular 
 tion of commerce afl'orded by the railroads, the real condition of the 
 country. It is no longer artificial. 
 
 Senator Garmack. Well, it is the actual condition. 
 
 Mr. TuTTLE. It is actual, and it is no longer artificial. I should 
 be just as much interested in the stimulating of Chicago manu- 
 facturers, in sending their products into New England to sell, as I 
 would be in sending those from Xew England into Chicago to sell. 
 It is the business of the railroads centering in Chicago to send the 
 products from Chicago in every direction. It is our particular busi- 
 ness in New England to send the New England products all over 
 the country. The more they scatter the better it is for the railroads. 
 The railroad does not discriminate against shipments because they 
 are eastbound or westbound. We are glad to see the same things 
 come from Chicago into New England that are manufactured and 
 sent from New England into Chicago. 
 
 Senator Dollivee. Would you feel the same about the pork- 
 packing establishment in Iowa as the railroad feels about the pork- 
 packing institutions of Chicago ? 
 
 Mr. Ttjttle. I should, so far as we are concerned. We want the 
 pork. 
 
 Senator Dollivee. We have been baffled, out there in our country, 
 in an effort to supplj' it to you. 
 
 Mr. TuTTLE. We want Emory's hams in Boston as much as Ar- 
 mour's; and we want the trade of carrying them. 
 
 Senator Carmack. You said the other day that the railroads ought 
 to be left free, like sellers of commodities, to fix the prices of trans- 
 portation. Do you not recognize that the railroad, by virtue of the 
 monopoly of transportation, stands on a different footing from a 
 business where prices are fixed by competition? For instance, the 
 banker does not fix the rate of interest, but the state of the money 
 market; the merchant does not fix the price of his goods, but the 
 law of supply and demand; while the shipper must pay whatever 
 the railroad exacts. Do you not recognize that there is an essential 
 difference in their situation? 
 
 Mr. TuTTLE. I think you will find. Senator, that I said thej should 
 be left free, in so far as was proper and consistent with their public 
 duties. Of course, we recognize that the public-utility corporations 
 are in a different situation from individuals, but I do not thinlt the 
 conditions are so very different from those pertaining to bankers. 
 Theoretically you can make your own trade with a bank, but you 
 do not. 
 
 Senator Carmack. The bank is not able arbitrarily to prescribe 
 the rate of interest, is it ? 
 
 Mr. Ttjttle. Well, I think they usually do. That is my experi- 
 ence. I never knew a bank to be willing to state what they would 
 
REGULATION OF KAIL WAY RATES. 211 
 
 loan a million dollars for, because the customer wanted it at a cer- 
 tain rate. 
 
 Senator Carmack. No ; but does it not depend on the general con- 
 dition of the money market and the state of business ? 
 
 Mr. TuTTLE. Yes; undoubtedly. 
 
 Mr. Cahmaok. The bank has to lend the money at what it can get 
 for it? 
 
 Mr. TuTTLE. Exactly ; and so do the railroads have to carry freight 
 for what they can get for it. We have moved corn, as I said the 
 other day, by the millions of tons, out of the corn belt into the Gulf 
 ports and into the Atlantic seaboard, for what we could get for it. 
 We did not stop taking corn because the rates were unprofitable. We 
 had to 'take the market rate, and the market rate was made by the 
 lines to the Gulf. We had to take it. It is just the same as the case 
 of the banks. 
 
 Senator Carmack. That is in cases where you have competition; 
 but there are many c^ses where there is no competition, where the 
 shipper has to pay the rate you fix, where you do actually fix the 
 price. 
 
 Mr. TuTTLE. But my experience is that the railroad is endeavor- 
 ing to make, where there is no competition as between it and another 
 road, reasonable rates that will enable the man that is doing business 
 upon its lines to meet the territorial competition. There may be in- 
 dividual cases that can be used as illustrations of oppression in rates, 
 but I do not think that they are general, and I think that the general 
 prosperity of business, the general improvement of business in this 
 country everywhere ought to be taken as an indication that what the 
 railroads are doing in the country through rates is not throttling the 
 industries of this country. 
 
 Senator Carmack. There is no doubt about that. The only ques- 
 tion is as to whether there is a fair divide. 
 
 Mr. TuTTLB. I think. Senator, if you will allow me to interject it, 
 that there is not anywhere — -I will not say anywhere — ^butl think 
 there is not generally a complaint that the railroad rates are oppres- 
 sive or too high. As I said once before, I have never yet discussed 
 with an intelligent person this question of rate regulation that I 
 was not immediately switched off on to the rebate and secret-rate' 
 charge. Now, they are not connected in the slightest degree, because 
 a man who desires to manipulate rates can just as well manipulate 
 one made by the Government as one made by himself, because they, 
 are both lawful rates and are published. 
 
 Senator Carmack. JSIr. Tuttle, speaking of the great prosperity of 
 the country, has it not been one of the characteristics of our industrial 
 progress for the last few years that there has been an abnormal con- 
 centration of industry into a few centers, or largely a concentration of 
 wealth? 
 
 Mr. Tuttle. I think that is the tendency the civilized v/orld over, 
 and always has been. You v.ill find it in Europe, you will find it in 
 England, and you Avill find it everywhere. 
 
 Senator Carmack. You think the general prosperity of the country 
 is due to the railroads, but that this abnormal concentration is due 
 just to the general conditions? 
 
 Mr. Tuttf^e. I think that it is due to natural conditions. You can 
 not keep the farmer's boy away from the city. You can pass all the 
 
212 BEGULATION OF BAIL WAY BATES. 
 
 laws 3'ou please, but he is going to the city to try to do somethiiig 
 there, and he will select that city that has the best chances for doing it. 
 He is not going to set his littLe manufacturing establishment up on 
 the home farm. He is going down where there are a lot of people^ 
 where he can get employees. One of the things that has much to do 
 with the concentration is the ability to secure labor. If you are going 
 to set up a new plant to construct machinery, or anything of that sort, 
 YOU would be much more apt to go to Worcester, Mass., than you 
 would to go to Milford, N. H., although the facilities at Milford 
 might be just as good as those at Worcester, because in Worcester 
 there are thousands of men engaged in the business, and you can 
 always find men. That has much to do with the concentration. 
 
 Senator Carmack. If a man is going to start a manufacturing 
 establishment, he is going where he can get the cheapest rates, is he 
 not? 
 
 Mr. TuTTi.E. Xot altogether. He is going where he can get men 
 to work, where he can get a general distribution of his goods, and 
 where his rates are equitable and favorable. 
 
 Senator C.aejjack. Do you think there should, be some limitation 
 upon the poAver of the railroads in the making of rates? I believe 
 you say that you think the power to make a rate should be in the 
 courts, upon the complaint of the Interstate Commerce Commission? 
 
 Mr. TuTTLE. Yes. 
 
 Senator Caumack. Well, do you think the courts could or would 
 exercise the authority to make rates? 
 
 Mr. TuTTLE. Perhaps that gives me an opportunitj' to say some- 
 thing that I had intended to say on that subject, after looking over 
 my testimony of day before j^esterday. My belief is that the railroads 
 generally recognize the fact that there must be somewhere a restraining 
 power against exorbitant and unreasonable and unfair rates. You 
 have, of course, the difficulties, constitutional and legal, of establish- 
 ing and continuing that power to regulate rates. Possibly the courts 
 would not have power to make absolutely a rate for the future. Pos- 
 sibly and probably that is a legislative poAver which must be used by 
 Congress or by some one directly Avithin its appointment and control, 
 directly or indirectly. 
 
 My notion, however, is this, and I think I voice the views of the 
 railway people generally : That if the Interstate Commerce Conunis- 
 sion is made a prosecuting, investigating, negotiating, conciliating 
 body, that should be the end of its direct function, except to take 
 such cases, where it believes injustice is being done, into the courts 
 for trial upon their merits. 1 believe it will be entirely conipe- 
 tent for the courts to declare that the rate complained of was unjust 
 and unreasonable, and therefor should no longer continue. Possi- 
 bly the court might find it impossible lawfully or constitutionally 
 to say that another rate should be the lawful rate; but 1 think 
 there Avould be no difficulty in the court saying, under those circum- 
 stances, that the rate of $1, which was complained of, is clearly unlaw- 
 ful, because it is unreasonable, and it should no longer prevail, but 
 in the opinion of the court a rate of 80 cents a hundred would be a 
 reasonable rate. I believe if that were done, and it were to stop 
 there, that every railroad in this country would adopt that rate until 
 it could later demonstrate to the satisfaction of that or some other 
 court that the 80-cent rate was prohibitive upon its prosperity, and 
 
REGULATION OF RAILWAY RATES. 213 
 
 therefore the case would have to be heard again in some court. I 
 am quite_ sure you will not find the railroads contumaciou;^ about 
 any opinion that a court, after careful hearing, might make as to 
 its opinion in regard to the reasonableness of a certain rate. 
 
 Senator Dolliver. Would the railroads want to appeal that from 
 the circuit court ? 
 
 Mr. TuTTLE. I do not think they would appeal in any case. 
 
 Senator Carmack. The courts could not be required even to do 
 that, could they ? 
 
 Mr. TcTTTLE. No; I do not suppose that there would be any power 
 to procure the recommendation of the court. My belief is that if the 
 court could clearly exercise the right to name a future rate, that 
 might be a way of dealing with it ; but I am only suggesting this as 
 getting rid of that constitutional difficulty of the court performing 
 legislative functions. If the court should decide, as it has a right 
 to do, that any rate complained of is unlawful, and then should 
 in the course of its opinion express its views as to what would be a 
 reasonable rate and a lawful rate, I think I know enough about the 
 railroad people of this country to warrant me in believing that they 
 would accept that opinion of the court. 
 
 Senator Carmack. Can the court be required to do even that? 
 Could the court be required even to express an opinion as to what 
 would be a reasonable rate, that not being the matter actually in 
 controversy, but simply the question as to whether the existing rate 
 is reasonable? Could you require the court even to express an opin- 
 ion as to what would be a reasonable rate, and could you have any 
 assurance that they would do that? Courts have been a little care- 
 ful about going beyond the strict matter before them. 
 
 Mr. TuTTLE. Not being a lawyer, I should be unable to answer 
 that question, but I believe that any United States court would be 
 willing to perform that duty if the law should recommend it. 
 
 Senator Carmack. You do think, then, that there shouM be some 
 body, or tribunal, or whatever you call it, with general authority to 
 investigate the question of freight rates, and some body or tribunal 
 with authority to condemn existing rates and substitute new ones? 
 
 Mr. TuTTLE. Yes; undoubtedly, in some form, and to make it in 
 such a way, if possible, that it would be in accordance with 
 
 Senator Carmack. The only question is how it should be done? 
 
 Mr. TuTTLE. Yes; and in such' a way that we should not plunge 
 ourselves into a whole lot of litigation to find out whether it was 
 properly done. 
 
 Senator Carjiack. You concede the principle, then, of the right 
 and propriety of fixing railroad rates by the Government, provided 
 it is done in the proper way ? 
 
 Mr. TuTTLE. Provided it is done in such a fair and reasonable way 
 that no injustice is done on the one side any more than on the other. 
 I think I have said. Senator Carmack, in the course of my testimony 
 day before j'esterday, that there is no doubt in my mind about the 
 power of Congress, under its constitutional authority, to deal with 
 pretty much everything there is in railroad and interstate transpor- 
 tation. 
 
 Senator Carmack. I know you concede the right; I was getting 
 at the question of the propriety of doing so. 
 
214 EBGULATION OF RAILWAY EATES. 
 
 Mr. TuTTLE. There is always the power, in the exercise of public 
 authority, to prevent injustices. If the Government has not got it, 
 it will have it and take it. The Government has that right. It is 
 bound to have it. It is inherent in the principles upon which this 
 Government is founded that everybody shall be protected against 
 injustices, in so far as it is possible to do it. 
 
 Senator Cakjeacjc. Just one other question, Mr. Tuttle. In the 
 beginning of your statement you quoted from Mr. Prouty. 
 
 Mr. Tuttle. Yes. 
 
 Senator Caemack (reading). "It is familiar knowledge that less 
 than a half dozen railway magnates control 120,000 of the 200,000 
 miles of railway and that the remaining mileage is largely at their 
 mercy." Is that substantially correct? 
 
 Mr. Tuttle. I do not think it is. That was Mr. Prouty's state- 
 ment, not mine. 
 
 Senator Cakmack. I say, you quoted it from Mr. Prouty. 
 
 Mr. Tuttle. Yes. I have no means of knowing about that, but I 
 doubt the correctness of that statement. It may be true, though. I 
 think that all kinds of dogmatic statements of that kind overlook the 
 fact that if half a dozen men do appear to control they are not the 
 real owners of this railroad property. Suppose there are 250,000 
 shares of stock issued by a railroad and outstanding, and some 
 coterie of wealthy persons should buy 60,000 shares out of that 
 250,000, and they should ask representation in the board of directors. 
 They would be entitled to have it. They might come into the board 
 of directors and continue the policy of that railroad, unchanged. 
 And when the time for the annual :neeting came about, proxies would 
 be solicited from the stockholders, as is usual, and the board of 
 directors would be continued with those men in it. They would 
 have, at once, the reputation of owning and controlling that railroad ; 
 but I thinji that in these circumstances, where these few men are said 
 to control, if they should undertake to use their power to the disad- 
 vantage of the other stockholders (who are generally in the majority), 
 or should undertake to change materially the policy of the company in 
 which they had become ownei-s, there A^ould be contests in which it 
 would be very difficult for them to maintain a supremacy over 120,000 
 miles of railroad in this country. 
 
 Take anj' of the large financial transactions and " Where Mac- 
 gregor sits, theire is the head of the table." If you engage in any 
 manufacturing enterprise, and you are a director with half a dozen 
 other directors, all able men, and for any reason, for your benefit or 
 otherwise, Mr. Morgan should become a director in your company and 
 take a seat at your table, Mr. Morgan's reputation as a financier, as 
 a business man, would be warrant enough for any of those directors 
 to consult him in intricate matters of finance or otherwise, more, 
 perhaps, than they would the farmer who might be just as intelligent 
 in regard to farming. So that, from my pomt of view, this control 
 of railways by eight or ten financiers or by eight or ten banks is more 
 in theory than in practice. I know from personal experience, or, 
 rather, I can say from personal experience that T have served in the 
 past on the board with some of the men who are called the controllers 
 of the railways of the country and I never Imew any of those men to 
 do anything else in the directors' room than any other director did. 
 I never knew any of them to say, " This shall be so and that shall not 
 
REGULATION OF RAILWAY BATES. 215 
 
 be so/' In fact, so far as my experience goes, those men say really less 
 than almost anybody else who sits at the table. I simply want to 
 impress my belief that this idea that five, six, or eight men direct and 
 control, because they have wealth and can have large ownerships, 
 the management of these railways disastrously to the people or ad- 
 vantageously to the people is tremendously exaggerated. The man 
 who sliands in the high financial position that^ these men do can not 
 spread himself out thin enough to get into all these things and be of 
 any consequence in them. It is not within the power of the human 
 mentality to do it. It is an easy thing to talk about. It is an easy 
 thing to make a stump speech iibout, and it is a very difficult thing to 
 contradict. However, 1 have never seen any authentic statement or 
 any authentic proof that the statement quoted is true. I quoted that 
 remark for the purpose of showing what the charges were rather than 
 as subscribing to their truth. 
 
 Senator CARMACfe. I understood that; I did not understand that 
 you were approving them at all. 
 
 Mr. TuTTLE. No; and I have no reason to believe that it is a fact 
 other than that Mr. Prouty made the statement. 
 
 Senator Carmack. That is all. 
 
 The Chairman. Xow it is your turn, Mr. Newlands, I believe. 
 
 Senator Newlands. Mr. Tuttle, I understood you to say that the 
 Boston and Maine Railway has $25,000,000 of bonds outstanding and 
 about $2.5,000,000 of stock. 
 
 Mr. Tuttle. Of its own issue. You know, probably, Senator, that 
 the Boston and Maine Railroad is, like some of the other older rail- 
 roads in the East, the owner of a certain portion of the mileage that 
 it operates and a lessee of a very much greater mileage; so that, in 
 estimating the bonds outstanding on the Boston and Maine System 
 I think you would have to put it at something more than that. I can 
 not tell you exactly, for I was not prepared to answer these statis- 
 tical questions; but it would be a very much larger sum. It might 
 be seventy-five millions instead of twenty-five millions of bonds, and 
 it might be seventy-five millions of stock instead of twenty -five. In 
 answering that question I was speaking of the parent company. 
 
 Senator Xeavlands. Could j^ou put in your statement a table of the 
 bond issues and stock issues? 
 
 Mr. Tuttle. Perfectly well. 
 
 Senator Newlaxds. And the rate of interest that each pays ? 
 
 Mr. Tuttle. Yes; that is shown in our annual reports, and I can 
 give you that. 
 
 Senator Newlands. I should like to have it in the shape of a tabu- 
 lated statement. 
 
 Mr. Tuttle. It is tabulated in our annual reports. 
 
 Senator Newlands. In how many different States does the Boston 
 and Maine operate? 
 
 Mr. Tuttle. We are in Massachusetts and Maine and New Hamp- 
 shire and Vermont and New York and the Dominion of Canada. 
 
 Senator Newlands. Under the laws of what State is the Boston 
 and Maine incorporated ? 
 
 Mr. Tuttle. It is incorporated under like charters in Maine, New 
 Hampshire, and Massachusetts. The charters are not ancillary ; they 
 are the same, and are passed by each legislature. 
 
216 REGULATION OF RAILWAY RATES. 
 
 Senator Newlands. Well, then, would you regard it as a Massa- 
 chusetts corporation or a New Hampshire corporation or as a Maine 
 corporation ? 
 
 Mr. TuTTLE. Its domicile is in Massachusetts, and we have to re- 
 gard ourselves as a Massachusetts corporation for things in Massa- 
 chusetts, and as a Maine corporation for things in Maine, and as a 
 New Hampshire corporation for things in New Hampshire. 
 
 Senator Newlands. la New York, however, there is no such 
 charter ? 
 
 Mr. TuTTLE. We are not chartered in New York, simply operating 
 a leased line there — the Fitchburg Railway.. 
 
 Senator Newlands. And you operate in Vermont? 
 
 Mr. TuTTLE. We operate in Vermont leased lines also. 
 
 Senator Newlands. In your litigation, for instance, in New Hamp- 
 shire, would j'ou characterize yourself as a Massachusetts corpora- 
 tion? 
 
 Mr. TuTTLB. No; in litigation in New Hampshire we are a New 
 Hampshire corporation. In fact. Senator, that makes very little 
 difference. 
 
 Senator Newlands. Are these laws identical regarding the number 
 of trustees and the rules of the corporation as to control over issues 
 of bonds and stock, etc. ? 
 
 Mr. TuTTLE. Not entirely identical, but practically the same as to 
 all issues of stock and bonds. 
 
 Senator Newlands. Yes. 
 
 Mr. TuTTLE. In fact, within the last four or five years we presented 
 legislation in New Hampshire and in Maine practically the same as 
 that in Massachusetts — quite restrictive — so that we might have uni- 
 form laws in the three States as to those questions of the issue of 
 stock and bonds. 
 
 Senator Newlands. Then, when you propose to make an issue of 
 stock and bonds, do you have to go to the railway commissions of each 
 one of these States for approval? 
 
 Mr. TuTTLE. I do not know whether Ave have to or not, but we do. 
 That has been a very interesting question, and the supreme court of 
 Massachusetts marched up to the edge of it, but did not cross the line; 
 so we never have quite known, although, in order to remove all ques- 
 tion in the minds of the purchasers as to validity of our issues, we go 
 to the commissioners of the three States and get their authority for 
 all new issues of bonds and all new issues of stock. 
 
 Senator Newlands. That is compulsory under the laws of Massa- 
 chusetts, is it not? 
 
 Mr. TuTTLE. That is compulsorj^ yes. 
 
 Senator Newlands. Do you regard that as a wise regulation of a 
 railroad corporation incorporated under the laws of a State? 
 
 Mr. TuTTLE. It has many benefits. It has some disadvantages; I 
 think some unfairnesses; perhaps not so much disadvantages. I 
 believe, however, that the advantages overbalance the disadvantages 
 in the fact that our laws very greatly strengthen the market value in 
 the minds of the investors in our securities. 
 
 Senator Newlands. The laws of Massachusetts provide for the 
 issue of bonds and stock only for property at its value or for cash, do 
 they not ? 
 
 Mr. TuTTLE. Yes; and for the purpose of making specific pur- 
 
EEGXJLATIOJSr OF RAILWAY RATES. 217 
 
 chases, additions, or improvements, which all have to be shown to the 
 railroad commission in detail, and which they approve; and then 
 they approve the issue of bonds or stock as we ask for them, as neces- 
 sary and adequate for the purpose. 
 
 Senator Newlands. And the purpose of that is to prevent over- 
 capitalization of these enterprises, is it not? 
 
 Mr. TuTTLE. It is to prevent what they call, in Massachusetts, 
 " stock-watering." [Laughter.] That has been a famous phrase 
 there. 
 
 Senator Newlands. If at the time the Boston and Maine corpora- 
 tion was organized, with a view to operating in these various States, 
 there had been a national incorporation act which provided for just 
 as much control as to bond and stock issues, which would you have 
 thought the most convenient and suitable method of conducting your 
 railroad operations — under a national charter or under a State 
 charter ? 
 
 Mr. TuTTLE. Oh, I think it would undoubtedly have been more sim- 
 ple and easier for the corporation to have had a national charter cover- 
 mg all its acts, and ojily one body to deal with. I must, however, 
 qualify that a bit, looking at it from the point of view of the present. 
 1 think the investors in our securities, in the light of recent events, 
 would have just a little more confidence in the conservatism of our 
 New England legislatures, as to their particular securities, than they 
 might have in a Congress composed of members from all over the 
 United States, having other purposes to serve than those of the States 
 in which we are chartered. That may be an erroneous notion, but I 
 am inclined to think that there would be something in that. 
 
 Senator Newlands. Do you believe in the consolidation of rail- 
 roads ? 
 
 Mr. TuTTLE. I think it has been one of the greatest benefits to the 
 section of the country which we serve that has ever come to them, in 
 the way of transportation ; and I think, through what we know of the 
 opinion of our customers, that nothing that can be thought of would 
 induce them to go back to the disjointed conditions that prevailed up 
 to within twenty years. 
 
 Senator Newlands. And you think that is the view not only of 
 the stockholders and investors in railway securities, but also the view 
 of the customers themselves ? 
 
 Mr. TuTTLE. Yes, sir. 
 
 Senator Newlajtos. I understood you to say that there were about 
 three railway systems in New England? 
 
 Mr. TuTTLE. Practically that. 
 
 Senator Newlands. And how many separate railway systems or 
 railroads were there prior to these consolidations ? 
 
 Mr. TuTTLE. Well, I can not tell you. 
 
 Senator Newlands. Can you state it approximately? 
 
 Mr. Tuttle. I can not tell you about the other two, the Boston and 
 Albany and the New York and New Haven; but the Boston and 
 Maine is now made up of what was originally something- over 120 
 different railroads. 
 
 Senator Newlands. One hundred and twenty ? 
 
 Mr. Tuttle. Yes. Perhaps I should explain that a little. I do 
 not want to unnecessarily prolong the hearing, or to weary the com- 
 mittee 
 
218 REGULATION OF RAILWAY RATES. 
 
 Senator Foraker. What was the number given ? 
 Mr. TuTTLE. About 120, for the Boston and Maine. You must 
 remember that we were the beginners, or among the beginners. The 
 legislature of Massachusetts in 1828 had a survey made for a railroad 
 from Boston to Albany ; and it is a very interesting document. There 
 were only two railways in operation at that time. I thmk there Avere 
 only two in actual operation, the Stockton and Darlington and the 
 Liverpool and Manchester. Massachusetts had been, previous to the 
 invention of the steamboat, the port of entry for foreign trade that had 
 passed all through the State of New York and went as far west as 
 they were settling. Great stage lines and wagon trains went over 
 the hills from Salem and Boston and distributed the traffic. But 
 when Fulton invented the steamboat this trade Avas put on the Hud- 
 son River, and Massachusetts soon found that the steamboats were 
 carrying the freight up the Hudson River and that it was not coming 
 into Boston and Salem any more. Therefore they undertook to 
 find some way to counteract that. Stephenson had made his success- 
 ful railroad from Stockton to Darlington and from Liverpool to 
 Manchester, and they immediately went about seeing if they could 
 have a railway from Boston to Albany, which would bring the busi- 
 ness to Boston and Salem and distribute it by rail. They had some 
 very interesting suggestions. It was to be a horse railroad. It was 
 to be built with tAvo walls, filled in with gravel. The rails were to be 
 laid on the top of those Avails, and among the other suggestions made 
 was that when the cars were going down hill the horses that drew it 
 up should get on the rear platform and ride down and eat their pro- 
 vender. [Laughter.] That Avas one of the suggestions, showing the 
 very slight knowledge they had of Avhat Ave now consider trans- 
 portation. 
 
 When they began to charter railroads, there was nothing that they 
 could predicate upon except canal legislation. We had one canal 
 there — the first that A\as built in the country — from Boston to Low- 
 ell, the Middlesex Canal; and the canals and turnpikes that had 
 been constructed were practically the basis of all corporate le^sla- 
 tion. They knew of no way in which they could cross State lines. 
 They had no jurisdiction beyond their own State. So the reason 
 why there are about 120 railroads in the Boston and Maine system is 
 that each State chartered to its own borders, although it was intended 
 to build a continuous line for operation as a whole. Take one of 
 the first that was built, chartered as the Eastern Railroad, from 
 Boston to the State line of New Hampshire, at Salisbury. Then 
 they chartered, in New Hampshire, the Eastern Railroad of New 
 Hampshire, to connect and carry it across the State of New Hamp- 
 shire to Portsmouth, where they were to connect with the Portland, 
 Saco and Portsmouth to carry them to Portland. They intended 
 to operate it as one riailway and under one management, but under 
 the necessities of the case they had procured charters in each sepa- 
 rate State. Next the Boston and Lowell Railroad was chartered, 
 from Boston to LoAvell, and the Nashua and Lowell, 14 miles to 
 Nashua. It was chartered in Massachusetts up to the State line of 
 Massachusetts and in New Hampshire up to the State line of New 
 Hampshire, and so on all through. Consequently Ave began with 
 the system of legislation which has been somewhat troublesome, but 
 
REGULATION OF RAILWAY RATES. 219 
 
 in view of the conservative methods of our legislators, as a rule, we 
 have found no difficulty with the system. 
 
 Senator Newlands. Take the case of a railroad system that is 
 intended to operate in ten States and it is incorporated under the 
 laws of one State ; as to all the other nine States, it would be a for- 
 eign corporation, would it not ? 
 
 Mr. TuTTiJi!. It would, I suppose. 
 
 Senator Newlands. All other things being equal, would you regard 
 the condition as most favorable for both the investors in the railroad 
 and the customers if that foreign corporation were a national cor- 
 poration or a corporation organized under the laws of one State and 
 operating in nine others ? 
 
 Mr. TuTTLE. All other things being equal, it would be decidedly 
 advantageous to have one incorporation. 
 
 Senator Newlands. A national incorporation ? 
 
 Mr. TuTTLE. Yes. 
 
 Senator Newlands. You think that would tend to unity and sim- 
 plicity ? 
 
 Mr. TuTTLE. Undoubtedly. 
 
 Senator Newlands. Have you any doubt that if this great evolu- 
 tion of railroading had been foreseen, involving the construction of 
 over '200,000 miles of railroad, three-fourths of whose business is 
 interstate, that a national incorporation act would have been urged 
 for the formation of corporations by a jurisdiction as broad as inter- 
 state commerce itself ? 
 
 Mr. TuTTLE. I think there is good reason to suppose that if the peo- 
 ple of the country could have foreseen the results that were to come a 
 hundred years afterwards there would have been a national incorpora- 
 tion act. There is no reason why there should not have been. 
 
 Senator Newlands. As I understand it now, a practical evolution 
 of railroading is that it is conducted regardless of State lines ? 
 
 Mr. TtTTTLE. Absolutely ; it must be. 
 
 Senator Newlands. Assuming that a national incorporation act 
 were passed now that would give the proper security to investors and 
 properly guard the public against overcapitalization, would you deem 
 it wise simply to confine such an act to railroad building in the future, 
 or to permit under it the consolidation of existing lines of railroad ? 
 
 Mr. TuTTLE. I should say clearly that if you are able to pass a 
 national incorporation act, its terms ought to be made as broad as 
 possible. You ought to take anybody that could come in, whether 
 they were new or whether they were old. 
 
 Senator Newlands. Yes. 
 
 Mr. Ttjttle. That would give an elective choice. 
 
 Senator Newlands. And you would regard as a fair provision in 
 such an incorporation act a provision against overcapitalization, by 
 requiring that the issues of bonds and stock should be approved by 
 the Interstate Commerce Commission ? 
 
 Mr. Ttjttle. Well, I should hardly want to go to that length. I 
 think they should be approved by some suitable body. I do not know 
 whether it would be proper to burden an Interstate Commerce Com- 
 mission with all of those duties. 
 
 Senator Newlands. I mean an ideal Interstate Commerce Com- 
 mission. 
 
220 EEGULATTON 0¥ RAILWAY BATES. 
 
 Mr. TuTTLE. It would have to be some representative of Congress. 
 That is what you would have to have. 
 
 Senator Newlands. It would have to be some tribunal or body? 
 
 Mr. Ttjttle. It would have to be some commission. 
 
 Senator ISTewlands. Yes. Now, assuming that such an incorpora- 
 tion act was framed, with a view to encouraging the consolidation of 
 existing railroads in the country, what would you regard as a fair 
 rule for determining the issues of bonds and stocks ? 
 
 Mr. TuTTLE. You mean the replacement issues ? 
 
 Senator Newlands. Yes. 
 
 Mr. TuTTLE. Well, that has so many factors entering into it that 
 it would be very difficult for a man to even form judgment upon it 
 without a tremendous amount of study. I should say as a personal 
 opinion, given somewhat offhand, that investors would not willingly 
 exchange their securities into new securities, except upon the basis 
 of their market value, and that market value to be based upon the 
 new securities returning the present equivalent in interest or divi- 
 dends upon the par value of the new security. As it is to-day, the 
 value of all railway securities fluctuates as the money market fluctu- 
 ates, leaving out, of course, the matter of solvency or insolvency ot 
 particular railroads. But assuming that a railroad is solvent, the, 
 market value of its securities fluctuates as the available rate of inter- 
 est on the money fluctuates. Of course, you have to leave out the 
 speculative value for the present moment of one particular property 
 that may be manipulated in the market ; but you can calculate that the 
 value of practically all stable properties, perhaps, east of the middle 
 of the country, predicate their values on about a 4 per cent return. 
 The bonds sell at a higher price and yield a lower rate of interest, 
 because they are the equivalent of a mortgage or a first lien upon 
 the property. Stocks sell at a lower price in proportion to the in- 
 come, because there is always more or less risk about the stockhold- 
 ers' dividends. Leased line stocks usually sell on the basis of bonds, 
 because they have the guaranty of the lessee company's surplus before 
 it pays any dividends to its own stockholders. But I think it may 
 be assumed, very broadly, that any other changes in securities would 
 be made upon about a 4 per cent basis, provided — and here is the nub 
 of the whole business — ^that the man who is going to receive the new 
 securities is satisfied that future legislative conditions are going to 
 be as ample a protection of his vested interest as the existing legis- 
 lative conditions are over the securities he now holds. That, I think, 
 would be the greatest element of doubt in the minds of the holders 
 of present stocks and bonds. 
 
 Senator Newlands. He would be unwilling to surrender them if he 
 thought the legislation of the United States would be confiscatory? 
 
 Mr. TuTTLE. Well, if it was going to be uneven. 
 
 Senator Newlands. Or uneven ? 
 
 Mr. TuTTLE. Yes. The legislation of the older Eastern States has, 
 as I intimated day before 3^esterday, been pretty well thrashed out 
 in regard to their corporations. The fever has passed; they have 
 recovered, and they now deal with them as they deal with other 
 vested interests, and they surround them with a good deal of pro- 
 tection. Therefore the men who hold stock or bonds of a Massachu- 
 setts chartered railroad would be apt to say : " I think I will let well 
 
EEGULATION OF RAILWAY RATES. 221 
 
 enough alone. I know what Massachusetts is likely to do, but I do 
 not quite know what Congress may do in the next twenty years." 
 
 Senator Newlands. But the condition of railway securities in the 
 New England States is regarded as rather more secure than in other 
 parts of the countrj'^, is it not? 
 
 Mr. TuttLe. I think that is true. 
 
 Senator Nbwlands. Because of the conservative character of their 
 legislation ? 
 
 Mr. TuTTLE. Yes. 
 
 Senator Newlands. Now, if these existing railroads were to become 
 consolidated under a national charter, the question of the bonds need 
 cut no figure. The transfer could be made subject to existing bond 
 issues, could it not ? 
 
 Mr. Tttttle. Oh, yes, indeed. 
 
 Senator Newlands. And then, as those bond issues matured, the 
 national corporation would substitute its own bonds for the existing 
 bonds ? 
 
 Mr. TuTTLE. It ^Y0uld issue refunding bonds of a new kind. 
 
 Senator Newlands. And if conditions were favorable and the prop- 
 erty was regarded as secure it is probable that it would result in a 
 lower rate of interest upon the bonds, would it not? 
 
 Mr. TuTTLE. I should hardly think that. I should think it might 
 be as low — practically the same. 
 
 Senator Neavlands. That would leave, then, the national incorpora- 
 tion simply to issue stock 
 
 Mr. Ttjttlb. Yes. 
 
 Senator Newlands (continuing). In lieu of the existing stock of 
 State corporations? 
 
 Mr. Tuttle. Yes. 
 
 Senator Newlands. Now, as to the system of taxation, Mr. Tuttle. 
 Do you have the same system of taxation in each one of the States in 
 which your railroad operates? 
 
 Mr. Ttjti'le. There are no two alike. I think it varies in every 
 State in the Union. 
 
 Senator Newlands. Has the complexity of the tax situation oper- 
 ated at all to the disadvantage of either the railroads or the public, 
 in your judgment ? 
 
 Mr. Tuttle. So far as our personal experience goes, I do not think 
 it has. The forms vary, but in the New England States, where the 
 taxation is fair and reasonable, I do not think that we have anything 
 to complain of except the occasional desire to change in a given State. 
 We always find that if the committee of a legislature is looldng up the 
 question of corjoorate taxation, which includes the railroads as well 
 as all other corporate business, they go over the United States with a 
 fine-tooth comb, and nothing catches in the comb except the things 
 that will get the most out of the railroads. [Laughter.] 
 
 Senator Newlands. And that keeps you in a condition of appre- 
 hension, does it, with regard to State legislation ? 
 
 Mr. Tuttle. Not very much ; no. 
 
 Senator Newlands. Is not that the case, though, in other States? 
 
 Mr. Tuttle. I suppose it is in many States. I think a little far- 
 ther west or northwest there is some discussion about those matters 
 that troubles the railroads a good deal. 
 
222 REGULATION OF EAILWAY BATES. 
 
 Senator Newlands. Well, now, if the regulation of rates, either by 
 the States or by' the National Government, js to be effected, would you 
 regard it as a wise thing to make these taxes as fixed and certain as 
 possible ? 
 
 Mr. TuTTLE. Undoubtedly. 
 
 Senator Xewlaxds. xind a matter of mathematical calculation? 
 
 Mr. TuTTLE. Undoubtedly ; if it is possible. i 
 
 Senator Xewlaxds. And not a matter of judgment of the thousands 
 of assessing officers and boards of equalization, and so forth ? 
 
 Mr. TuTTLE. Yes. 
 
 Senator ]SfE\rLAXDS. "What system of taxation have you in Massa* 
 chusetts? 
 
 Mr. Tuttle. n js a taxation on all corporations, paid by corporar 
 tions upon the market value of its shares on the 1st clay of May in 
 each year. The commissioner of corporations ascertains the market 
 value by the ^ales, or otherwise, of each and every corporation stock 
 in the State. Then the assessment is levied on the basis of the aver- 
 iige assessment of city taxes and town taxes throughout the State, 
 so that it produces an assessmeiat of alDOut $16 in a thousand upon the 
 marlfet value of the corporation shares within the State. The cor- 
 poration is entitled to deduct proportionately or actually all property 
 lying outside of the State. In railroads a proportionate amount of 
 mileage is deducted. If 200 miles of railroad lies in the State of 
 iVIassachusetts and 200 outside, then, after that market value is de- 
 termined, the levy is one-half to be collected in Massachusetts. Wlien 
 this total levy is made up all of the taxes paid by the corporation in 
 towns on real estate, or elsewhere, are deducted from that total valu- 
 ation, and upon the remainder is levied the tax upon the basis of the 
 average tax of the State. Then the State reserves to itself all of the 
 taxes on stock held by citizens outside of the State of Massachusetts, 
 and it distributes to the towns the tax collected from stockholders 
 resident in ^Massachusetts according to the towns in which they reside. 
 In New Hampshire there is an assessment by a board of equalization 
 upon the property of the railroad, just as the farmers are assessed. 
 In Vermont there is a tax on the gross income for the j'ear. 
 
 Senator Jvewlaxds. Of what percentage^ 
 
 Mr. Tuttle. About 2 per cent, T think. In jMaine it is a sliding 
 scale, according to the gross earnings per mile of the railroad, begin- 
 ning with a tax of, saj\ 1 per cent for 500 miles' earning and 1^ 
 for a thousand, and so forth, up to a maximum of 4 per cent, as 
 I remember it. In Maine the tax is upon the gross income per 
 mile upon that railroad whether the business is carried in the State 
 or outside of the State. Although the business of the railroad may 
 have been transacted and its income may have come, five-sixths of it, 
 from lines entirely beyond the State of Maine, its whole average of 
 earnings per mile is made the basis of the Maine taxation. In New 
 York State they assess in every conceivable way. They assess school 
 district taxes one way and assess your railroad roadbed as a farm in 
 another way, and so on. 
 
 Senator Newlands. The various systems of taxation are a sample 
 ■of the variability of the systems in the States throue-hout the United 
 ♦States? 
 
 Mr. Tuttle. I suppose that would be a sample of the variability 
 
REGULATION OF RAILWAY RATES. 223 
 
 of the systems throughout the United States. There is no doubt 
 about that. 
 
 Senator Newlands. "W^iat was the total tax paid by your corpora- 
 tion last year? 
 
 Mr. TuTTLE. About $2,000,000 a year, on a gross income of about 
 $35,000,000. 
 
 Senator N■E^\'L4NDS. What percentage is that? 
 
 Mr. TuTTLE. That would be somewhere about 6 per cent. 
 
 Senator Newlands. Six per cent? The general counsel of the 
 Atchison, Topeka and Santa Fe Railroad stated the other day that 
 the taxation of that system amounted to $2,000,000, and that was 
 about 3 per cent of the gross receipts; so that the taxation in New 
 England is 6 per cent and in the West it is 2 per cent. If we were 
 to institute a system of national taxation of gross receipts, mathe- 
 matically ascertained, say 3 per cent, gradually increasing over a 
 period of ten years until it reached, ultimately, 5 per cent, but stop- 
 ping there ; providing that system in lieu of all State and local taxa- 
 tion, and all separate taxation upon the interests in the corporation 
 in the shape of bonds and stock, and providing for the same 
 equitable division of that tax among various systems in the Union 
 according to trackage or volume of business, so that they would not 
 lose their present revenue — do j^ou think that a fixed and mathe- 
 matical tax of that kind would tend to the simplicity of rate regu- 
 lation throughout the country, and national control, or not ? 
 
 Mr. TuTTLE. I think it would, of necessity, lead toward national 
 control of many matters, but whether it would be of assistance in the 
 question of rate regulation I doubt. It might have some value, but 
 I think very little. I do not see where it would assist in the deter- 
 mination of the reasonableness of rates. 
 
 Senator Ne-\vlands. Would it not add to the simplicity — — 
 
 Mr. TuTTLE. Oh, yes; it would add very much to the simplicity 
 of the matter. 
 
 Senator Newlands (continuing). Of the entire railroad opera- 
 tion of the country ? 
 
 Mr. TuTTLE. Tt would add very much to the simplicity of the 
 railroad part, but I would like to see the fellow who would come out 
 and convince the State of Massachusetts that it ought either to be 
 .content with 3 per cent, where it now gets 6, or that Nevada should 
 contribute to Massachusetts something of the increased tax that it 
 gets out of its roads out there. 
 
 Senator Newlands. You think it would be difficult, then, to carry 
 out such a system of taxation, Mr. Tuttle ? 
 
 Mr. Ttjttle. I think there would be so many inherent difficulties 
 that it would be very 'hard to carry it out. 
 
 Senator Newlanus. In such a national incorporation act would it 
 be practicable, in your judgment, to provide that the corporation 
 organized under it should set apart a certain percentage of their 
 gross receipts as an insurance fund against injuries? 
 
 Mr. Tuttle. I think it would be an excellent thing if that could 
 be done. Of course there is very great difficulty to-day in providing 
 a pension or insurance fund for employees because of the varying 
 laws of the different States through Avhich we operate. I should 
 suggest, as an added condition, that it would be necessary to make 
 
224 EEGULATION OF BAIL WAY RATES. 
 
 some law, which might be impossible of enforcement, that all of the 
 iXired should in some way participate m the creation and fomation 
 of this fund from vear to vear. I do not think that it should ever 
 be a plan of any railroad to establish an insurance or pension fund 
 toward which those who serve the company and who are to benefit 
 later should not contribute anything. _ , , ^. , , , 
 
 Senator Newlands. As it is, there is constant dispute between the 
 railroad and the employees regarding the dangers of the occupation, 
 
 is there not ? i i ■ 
 
 Mr. TuTTLE. I should not want to say that there is constant dis- 
 pute. I should say that there is some, but, in our experience, not 
 much. We have made it a rule to care for the employees to the full- 
 est extent possible. The injured employee knows the risk of his 
 business when he enters the service. We have, I think, in common 
 with many other railroad systems, endeavored to keep a careful 
 supervision of all cases of injury, to take care of the injured employee, 
 to pay his doctors' bills, and see him through the hospital, and take 
 him back into the service if he is capable of continuing his regular 
 duties, or, if not, to give him some other emplojanent; and although 
 it probably costs us as much as it would to pursue the other plan of 
 letting the employee bring a claim and contest it we have very much 
 less friction and a greater amount of satisfaction on the part of our 
 emploj'ees; and it is very rare indeed that we have a suit brought 
 against us by an employee. Such suits are usually brought b| 
 lawyers who follow the business of tort attorneys and get hold of 
 the fellow, and possibly he may get some of the money when he gets 
 through, but very little. 
 
 Senator Newi^ands. But in very many States of the Union the 
 employees are constantly urging legislation varying the jDresent rule 
 regarding the responsibility or a corporation for the negligence of 
 f ellow-serA^ants ? 
 
 Mr. TuTTLF.. Yes; but quite often endeavoring to get legislation 
 providing that the fact that a man has been injured shall be prima 
 facie evidence of the negligence of the company, . whether there is 
 any proof of that or not. I suppose that kind oi agitation will con- 
 tinue until we can get a different race of human beings on the face 
 of the earth. 
 
 Senator Newlands. Well, now, if such a fund could be created, 
 would it not diminish this friction between the employees and the 
 companies regarding the matters of safety appliances and damages 
 for injuries, etc. ? 
 
 Mr. TuTTUE. That is very difficult to answer. Senator. I have 
 found from experience that the appetite grows by what it feeds on; 
 so that if a fund is set aside for that purpose I am inclined to think 
 that we should find attempts made for additional legislation to 
 greatly increase that fund, so that the participants might get more 
 of it ; and I think we should simply go from one difficultv into an- 
 other — that we should "fly to evils that we know not of." 
 
 Senator Neavlands. The gross revenue of all the railroads of 
 the country is nearly $2,000,000,000? 
 
 Mr. TuTTLE. Something like that ; yes. 
 
 Senator Newlands. One per cent of that would be about 
 $20,000,000, would it not? 
 
 Mr. TuTTLE. I think so. 
 
BEGTJLATIOir OF RAILWAY RATES. 225 
 
 Senator Xewlands. Do you not think that that 1 per cent, or less, 
 would provide an adequate insurance fund ? 
 
 Mr. TuTTLE. As to injuries, probably yes. I do not think it would 
 provide an adequate fund for pensions — for retired pensions. I 
 should think it would have to be more than that. 
 
 Senator Newlands. Would you think it advisable, in such an act 
 of incorporation, to provide for some method of arbitration of dis- 
 disputes between railroad companies and their employees as to com- 
 pensa,tion, hours of labor, and measures for the protection of life 
 and limb ? 
 
 Mr. TuTTLE. If that could be agreed to by both sides, undoubt- 
 edly; but our experience is that, except as a matter of last resort, 
 to save ultimate defeat, in case of labor troubles, the labor side is 
 unwilling to enter into arbitration. 
 
 Senator Newlands. You think they would be unwilling to sub- 
 mit all such controversies to a tribunal of high character and dig- 
 nity, such as an interstate commerce commission should be ? 
 
 Sir. TxJTTLE. I think there would be the same objection to it. It 
 would be, perhaps, somewhat like the case of a man wno was told 
 that he would be sure to get justice at the hands of the court, and he 
 said : " That is just what I don't want." [Laughter.] The trouble 
 with the labor organizations to-day is, all through — it is one of the car- 
 dinal principles — that they object to arbitration. The leaders of the 
 Federation of Labor are perfectly willing to have conciliatory meas- 
 ures, but they stop short of arbitration. 
 
 Senator Newlands. They stop short of the final determination 
 by any tribunal ? 
 
 Mr. TuTTLE. Yes; and they say there is no possibility of arbitra- 
 tion. And there is not, as we understand arbitration. We never 
 get arbitration. We get the opinion of one man, who splits the dif- 
 ferences. You select three men to arbitrate a case. They take the 
 claims of both sides, and they never arbitrate — which means that they 
 shall decide who is right and who is wrong ; they always split the dif- 
 ference. The leaders of the labor organizations — I speak " by the 
 book," because I am forced into the place of president of the Civic 
 Federation in New England, and meet necessarily Mr. Gompers and 
 Mr. McCarthy, and the others at different times — have a most pro- 
 nounced opposition to compulsory arbitration. 
 
 Senator Newlands. Is there any method that would be satisfactory 
 to both sides that could be provided for in such an incorporation act? 
 
 Mr. TtJTTLB. I know of nothing. Senator, except the negotiation and 
 a patient discussion of the question as between the two parties endeav- 
 oring to arrive at some reasonable solution. I think, as to the railway 
 employees, that it is due to them to say that they are, in point of 
 intelligence, the best men that we have in the country to-day, and 
 among those whose service is vital to the railroad company there is 
 such a high grade of intelligence that whenever the officers of the 
 company are willing to meet them on common ground and discuss 
 things from a fair point of view the dangers of ultimate difference 
 are very remote. Of course, in the lower grades of the service, where 
 intelligence and education are not as widely disseminated, perhaps 
 those difficulties are going to continue. I believe, however, from hav- 
 ing given a good deal of study to the labor question and the difficul- 
 
 E E B — 05 M 15 
 
226 EEGULATION OF BAILWAY EATES. 
 
 ties involved, that no man has ever yet suggested a panacea and that 
 we have got to work the problem out by negotiation and conciliation 
 and fair treatment and by educating the railroad men up to a level 
 where they can see what the right of the employer is. 
 
 As an illustration, a couple of years ago I went through a series of 
 very interesting and very wearing meetings with representatives of 
 our different bodies of brotherhoods. I gave those committees just 
 the same kind of information that I should give to our board of 
 directors as to the condition of the company. I gave them type- 
 written statements of the earnings, the operating expenses, and the 
 surplus — what our financial condition was — with the same care and 
 the same confidence in them that I should have had toward our board 
 of directors. They took those papers away with the understanding 
 that they were for their use, and not for the public. I was told after- 
 wards that they discussed them in their jneeting with fully as much 
 care as the board of directors would have done, and when they came 
 back and handed them to me, they said : " Nobody has seen these, and 
 we are satisfied that it is wise for us to negotiate and talk this thing 
 over; " and we did, and we came to a conclusion which gave them a 
 good deal of benefit. There is no objection that I can see to any man 
 desiring to better his condition, and I always lay down the rule with 
 our subordinate officers that a matter of more wages or the hours of 
 labor is always a proper subject for discussion, and they must treat it 
 upon its merits and take all the time that is necessary, and give just as 
 much care to it as they would to the largest problem that the railroad 
 has to deal with, for it is the largest. 
 
 "What we may face in the future, I do not know; but we have 
 managed to get along somehow withovit the intervention of outside 
 parties, and I think we have been able to get into the minds of our 
 employees generally the belief that we intend to be fair with them; 
 that we intend to make a fair divide. I thinli if you can get the 
 employees of a railroad company, or of any other corporation, to 
 believe that the officers of the corporation are to make a fair divi- 
 sion of any increase in the business they will deal fairly with it; 
 and perhaps, later on, it is more difficult to convince them that they 
 ought to share in any material part of the decrease. Senator, you 
 have broached a subject which has troubled me more than anything 
 else, and has made me more willing to think about giving up railroad 
 work than anything else — this labor question — and I have no fixed 
 views about it. I do not believe that compulsory arbitration, national 
 or otherwise, will ever be of any value until the sentiment of the 
 labor organizations themselves is wholly changed; and they are 
 stronger than they used to be in the idea that they do not want 
 arbitration. 
 
 Senator Newlands. Your view also extends to any methods of con- 
 ciliation that would be provided for ? 
 
 Mr. Ttjttle. 1 think that each side in the discussion of any dis- 
 puted question very much dislikes to bring in any element outside of 
 their own body. 
 
 Senator Newlands. Yes. 
 
 Mr. Ttjttle. These railroad organizations all have their chief 
 officers, and they want the assistance of those chief officere, and are 
 very jealous of bringing in any outside person to mix in the negotia- 
 tions. We welcome those chief officers always. "We always say, " We 
 
SEGITLATION OF RAILWAY RATES. 227 
 
 Meed help more than you do, and if you can help us you are welcome ; " 
 and if we should suggest that they take the governor of the State, or 
 the attorney -general, or Senator Newlands they would say, " We 
 don't know about those fellows. We do know about our own men. 
 We will handle it ourselves." 
 
 Senator Forakee. Is not their objection to compulsory arbitration 
 based on that idea — that they are liable to fall into the hands of 
 people about whom they do not know ? 
 
 Mr. TuTTi-E. That is the point. 
 
 Senator Newlands. My suggestion did not cover the question of 
 compulsory arbitration. 
 
 Mr. TuTTLE. No. 
 
 Senator Xewlands. It covered anj^ form of arbitration. 
 
 Ml-. TuTTLE. Arbitration that is not compulsory is not of any use. 
 
 Senator Dolliver. You have the other kind now ? [Laughter.] 
 
 Mr. Tt'TTLE. We have the other kind now. 
 
 Senator Newi.ands. Mr. Tuttle, you spoke of government owner- 
 ship in other countries. I would like to ask you whether, in case the 
 United States should pass a law organizing a bureau of transporta- 
 tion, and authorizing that bureau to condemn not the railroads, but 
 simply the interests of the stockholders in the various railroads of the 
 country, leaving them subject to their present bond issues, those stock 
 issues having now a market value of about $4,000,000,000, with power 
 to the chief of that bureau to enter into' immediate possession and 
 control of these railways with the existing employees and officers 
 and traffic managers, and assuming that you were made chief of that 
 bureau, do you think you would have any difficulty in handling the 
 railway system of the United States ? 
 
 Mr. Tuttle. Well, Senator, T do not think I should be willing to 
 try it. ^Vhen you come to Goveriiment ownership you have got to 
 have classified service, and ci\il service, and all that sort of thing. 
 
 Senator Xewlakds. Yes; but I speak now, at the start, of simply 
 accepting the service that now exists, leaving you the time to make 
 the adjustments, part with unnecessary officials through consolida- 
 tion, etc., that you should have a free hand now, with the present in- 
 come of all these railroads, aggregating $2,000,000,000, and with 
 the present employees of the railroads, that you should be subject 
 only to accounting to the proper officials of the Government, would 
 you have much difficulty in running the whole railway system of the 
 country under those conditions? 
 
 Mr. Tuttle. Probably not, if I could have what you describe as a 
 "free hand;" but you are suggesting there an utter impossibility. 
 If you know of anything that this Government owns that is put 
 under the charge of any one man or twenty men with a " free hand," 
 you have discovered a white blackbird. 
 
 Senator Newlands. The difficulty, then, would arise from the re- 
 strictions 
 
 Mr. Tuttle. Which are bound to follow. 
 
 Senator Newlands. Which are inseparable from Government 
 ownership ? 
 
 Mr. Tuttle. "V\Tiich are inseparable from Government ownership 
 and operation. 
 
 Senator Newlands. Will you state how those restrictions would 
 operate to the disadvantage of the service ? 
 
228 REGULATION OF RAILWAY RATES. 
 
 Mr. TuTTLB. They have a government railway in Canada, and the 
 officers are appointed by the government; and it is a well-known 
 fact that just preceding a general election there is a tremendous addi- 
 tion, to the forces, new side tracks and new stations are constructed, 
 and the party in power uses all the machinery of the government for 
 purpose of that sort. And the government does not hesitate to 
 investigate all of the affairs of that company or of its officials. 
 
 Some years ago a party of railroad gentlemen from New England 
 made a tour of inspection in the lower provinces with the idea of 
 seeing what could be done in the development of an increased 
 traffic. The officers of this Intercolonial Railway found us at St. 
 John and tendered a car to take us over to Halifax ; and afterwards 
 the chief officer of the railway tendered us a train to take us to 
 Quebec on our way to Montreal, such a thing as the American rail- 
 ways would do at any time for officials of other railways who were 
 investigating or inspecting their territory. We had a very interest- 
 ing time, and learned a lot. But the subject of that special train 
 became a matter of investigation in Parliament a month or two 
 afterwards, and the minister of railways was called to account to 
 explain why his superintendent had a special train running over a 
 government railway for a lot of Yankees, what their purposes were, 
 and what they were there for. You can "not get rid or that, Senator, 
 as long as we are a Grovernment as we are, or any other government. 
 
 Senator Newlands. So far as the financing of the transaction is 
 concerned, there would be very little difficulty, would there? Take 
 for instance the four billions of bonds that would have to be issued in 
 order to purchase this stock. 
 
 Mr. TuTTLE. The Government could finance it easily. 
 
 Senator Newlands. These bonds would be taken, probably, at an 
 average of 3 per cent, would they not? 
 
 Mr. Tdttle. If they were Government bonds, undoubtedly. 
 
 Senator Newlands. And so far as the existing bond issues on the 
 railroads, now standing at an average of four and a half per cent are 
 concerned, there would probably be gradually effected a reduction in 
 the interest to 3 per cent, would there not ? 
 
 Mr. Tuttle. If the Government assumed the responsibility and 
 guaranteed, the interest on the bonds, undoubtedly a large portion of 
 them would be exchanged for Government 3 per cents. 
 
 Senator Newlands. Well then, as it is now, the net income of all 
 the roads of the country amounts to about 6 per cent, and the average 
 rate of interest on the bonds is four and a half per cent ; taking the 
 six billions of bonds at an average saving of one and a half per cent, 
 that would make an annual saving of $90,000,000, would it not ? 
 
 Mr. Tuttle. I should think so, if you could conduct the business 
 in the same way by the Government as you do by private corpora- 
 tions; but you can only reason from analogy in such cases. I do not 
 think the Government's experience in the Post-Office Department has 
 indicated that it would make any very great saving in operation over 
 the present management. 
 
 Senator Newlands. You think the Post-Office Department could 
 be conducted at a much less cost if intrusted to private enterprise? 
 
 Mr. Tuttle. Undoubtedly so; for one reason alone: The demand 
 upon the revenues of the Government is subject to the powerful inter- 
 vention of different localities for added facilities in the way of post- 
 
REGULATION OF RAILWAY RATES. 229 
 
 office buildings and all that sort of thing. Suppose the Government 
 were operating the railways between Washington and New York. 
 To-day the Pennsylvania Eailroad and the Baltimore and Ohio Eail- 
 road erect stations and provide other facilities proportionate to the 
 needs of the traffic and the ability of the company ; but did you ever 
 Icnow anybody coming to Congress and asking for an appropriation 
 for $100,000 for a post-office who cared 2 cents what the needs of the 
 Government were, or its revenues, or the needs of the rest of the coun- 
 try? No! They want that post-office. They have no interest in 
 anything else. And you would have precisely the same conditions 
 in the operating of a railway that you have now in the Post-Office 
 Department, and in anything else that the Government has to do with. 
 
 It is a very well known fact that the Government can not eco- 
 nomically build war ships. It may be obliged to build here and 
 there a war ship in order to satisfy a particular navy-yard and the 
 district that surrounds it, for some purpose, political or otherwise; 
 but it is perfectly well known that the navy-yards of this country, 
 working upon an eight-hour day basis, can not compete ' with the 
 private yards run on ten hours a day. Officers of the Navy and 
 officers of the Navy Department have explained to me the reasons 
 why the Government does not build more of its own ships as being 
 that the. outside contractor can build them 10 or 20 per cent cheaper 
 than the Government can possibly build them under the hampered 
 conditions of Government operation. AAThen you take away the in- 
 centive of private gain from any business enterprise you leave the 
 expenses and income at loose ends, and you can not help it. The Gov- 
 ernment is always looked upon as a rich father and expected to meet 
 anything. I think every Senator around this table has had some 
 experience with his constituents in that direction, so that I do not 
 need to make any demonstrations of that. 
 
 Senator Newlands. Another question, Mr. Tuttle: As I under- 
 stand it, the saving in interest on the six billions of bonds now out- 
 standing would be about $90,000,000 per annum, and the saving in 
 interest upon the marliet value of the stock of four billions of dollars 
 would be a saving of from 6 per cent to 3 per cent by the issue of 
 United States bonds, which would make, say, twenty millions more? 
 
 Mr. TuTi'LE. Possibly. 
 
 Senator NEAViiANDS. Over two hundred millions, then, would be 
 saved annually? 
 
 Mr. Tuttle. Possibly 
 
 Senator Newlands. And it is contended that that two hundred 
 millions alone, put into a sinking fund, would pay for the entire roads 
 within thirty or forty years. As contrasted with those manifest 
 advantages in the financing, do you think that those advantages 
 would be entirely counterbalanced by the possible maladministration 
 to which you refer ? 
 
 Mr. Tuttle. Not maladministration, but lack of administration, 
 and the demands upon the Government to which it would be obliged 
 to accede as a political measure. 
 
 Senator Newlands. Eegarding the Interstate Commerce Commis- 
 sion: As I understand it, you have in the State of Massachusetts a 
 very efficient commission that acts within a territory not more than 
 300 or 400 miles long and 250 miles wide ? 
 
230 REGULATION OP RAILWAY BATES. 
 
 Mr. TuTXLE. But with a population about half that of the whole 
 Dominion of Canada, whose railway commission acted for us. 
 
 Senator Xewlands. Well, now, would it be possible for a commii?- 
 sion, simply possessing the powers which you advise, namely, the 
 powers of investigating, prosecuting, and conciliating, with a mem- 
 bership only as large as the present Commission, and having its 
 f.eat at Washington, to do everything that you assume they ought to 
 do, and the very .things that the Massachusetts commission does? 
 
 Mr. TuTTLE. I am unable to say that five or seven men could do 
 it; but 1 think that it would be perfectly competent for the Gov- 
 ernment to add to the number of the Commission from time to time 
 without dividing the Commission if it were necessary to enlarge their 
 duties, and a quorum of three or four members could sit in diflPerent 
 parts of the country if it was required. I think we might start on 
 that. 
 
 Senator Newi.ands. Your suggestion would be to have the Com- 
 mission a unit and not divide it into districts? 
 
 Mr. Tuttle. Absolutely. 
 
 Senator Newlands. Would there not be some advantage, for in- 
 stance, in having one commissioner to act upon all this region that 
 is tributary to - the Mississippi Valley — all the railroads that are 
 tributary to the Mississippi Valley — and have their headquarters 
 at Chicago and New Orleans and Atlanta and two or three other 
 points of that kind ? 
 
 Mr. Tuttle. There might be advantages in having a Congress sit- 
 ting in Chicago; but would you think it expedient? 
 
 Senator Xe'natlands. I am simply asking your view. I have no 
 view on the matter myself. 
 
 Mr. Tuttle. I think it would be highly inexpedient. I do not 
 think you can divide national authority in that way. You have to 
 centralize it. If you had a commission in Chicago, New Orleans, 
 Boston, and so on, you would have each commission quoted against 
 the other as a precedent, and you would have confusion. 
 
 Senator Newlands. One other question, Mr. Tuttle, and I shall 
 have finished. It is claimed now that the controlling men in these 
 great industrial corporations called " trusts " have become of late 
 years very much interested in the railroads. 
 
 Mr. Tuttle. Yes. 
 
 Senator Newlands. Now, assuming that to be the fact, and that 
 whilst they may not own the majority of the stock of the railroads 
 they do control the great banks and financial institutions through 
 which these railroads are financed, would it not be possible under 
 any system of administration for these great industrial incorpora- 
 tions to get such favored service, such secret preference, as would 
 give them the advantage over all other producers ? 
 
 Mr. Tuttle. I do not think it is so. I think that all of those 
 financial operations, no matter how much they may seem to be cen- 
 tered for a period of time — a year or two years or a month — are so 
 large and so widely distributed that, like water, they will find their 
 own level. They will work their own cure. I do not think there is 
 any preference in financing. There are so many financial institu- 
 tions in the country capable of marketing securities and bonds that 
 we have never found that we were obliged to consult any one or 
 any dozen men. Our custom in selling securities is to give notice 
 
EEGULATIOIir OF RAILWAY KATES. 231 
 
 that we have a million or five millions or seven millions subject to 
 tender. We recently refunded in a case amounting to something 
 more than $7,000,000. We sent invitations to 25 or 30 banking 
 houses in the country to tender for those bonds. The tenders were 
 received at a given hour, and were opened. I opened them m 
 the presence of the executive committee, and within thirty minutes 
 the successful bidder was notified that he had received the bid, al-. 
 though his bid was not more than a fraction of a cent above half 
 a dozen other bidders. I think that is the practice generally. 
 
 Senator Neavlands. Is it the practice generally, Mr. Tuttle? Is 
 it not a fact that all these conditions are of the very best in Massa- 
 chusetts, as contrasted with other parts of the country, and is it not 
 a fact that so far as the southern railroads and the western railroads 
 are concerned most of them are financed through a few great finan- 
 ciers in New York ? 
 
 Mr. Tuttle. I think that is true, but solely because it produces the 
 best financial results for the southern and the western railroads. 
 
 Senator Newlands. Admitting that, that so far as the finances of 
 the roads are concerned, that is well adjusted, but assuming that 
 this concentration of the financing of these roads is likely to throw 
 the administration of the roads themselves under the control of the 
 very men who are now in a large measure monopolizing the produc- 
 tion of the country, will not that system result in such a imion of 
 production and transportation in the interests of these great corpora- 
 tions as to practically handicap the small producers? 
 
 Mr. TtTTTLE. I do not think it has the remotest effect upon it, for 
 this reason: The financing is simply an underwriting for the tem- 
 porary furnishing to the corporation of the highest price that the 
 bidder will make for its securities ; and its securities do not stay with 
 the underwriter. They are iromediately distributed throughout the 
 world. Suppose that Kuhn, Loeb & Co. have bought twenty millions 
 of bonds of the Atchison Kailroad. Kuhn, Loeb & Co. do not keep 
 those bonds any longer than is necessary to enable them to find a mar- 
 ket for them and distribute them ; and they go into the savings banks 
 and into the insurance companies and into the hands of trustees, and 
 perhaps within a week Kuhn, Loeb & Co. are ready to take another 
 underwriting of twenty millions of bonds, with the same money. 
 There is not any concentration of the bond securities of railroads. 
 
 Senator Newlands. I do not claim that for a moment. 
 
 Mr. Tuttle. Therefore, that being true, the underwriter does not 
 maintain any control over the traffic or the business of the railroads 
 because he has successfully financed its bonds. 
 
 Senator Newlands. Just one question more: As a matter of fact, 
 is it or not the case that the men who are largely interested in these 
 great industrial combinations have also become prominent, if not 
 dominant, factors in the transportation system of the country ? 
 
 Mr. Tuttle. They may have become— — 
 
 Senator Newlands. Outside of Massachusetts, noAv. 
 
 Mr. Tuttle. I will say outside of Massachusetts they may have 
 become largely interested as individual owners: but you know that 
 the history of the world has been that " prosperity only goes three 
 generations, from shirt sleeves to shirt sleeves ; " and I think that 
 will regulate itself. But the main point of it all, Senator, seems to 
 be this: No matter who owns the railway, the railway is always a 
 
232 REGULATION OF RAILWAY BATES. 
 
 thing that can be regulated. It malies no difference whether one man 
 owns the whole, or a hundred thousand men own it. The railway is 
 what you can ahvays get at, and always regulate. I think that the 
 concentration of ownership of railways is going to assure a higher 
 degree of conservatism in their operation, because of the fact that the 
 owner becomes more vulnerable. You are always finding it difficult 
 to deal with ten thousand small stockholders, but if you have got 
 four or five instead of the ten thousand, those four or five are always 
 more vulnerable, always more open to attack, and always, as I have 
 discovered, much more desirous of avoiding charges of discrimina- 
 tion or unfairness. I am not, perhaps, as capable of judging as some 
 of the gentlemen in this room are; I have not the very extensive or 
 wide acquaintance with the so-called financiers; but I have known 
 some of them., and have been associated with some of them; and I 
 have alwaji^s found those men more sensitive to public opinion and 
 to public criticism than any set of men with whom I have ever come 
 in contact. I have heard the most distinguished financiers of this 
 country say that the bar of public opinion is where the ultimate 
 trial is going to be; and whether we want to do things or whether 
 we do not we have to submit to the decision of public opinion at the 
 bar of public opinion. 
 
 Senator Xewlands. That is all the questions I desire to ask. 
 
 The Chairman. I have one question that I would like to ask Mr. 
 Tuttle. Are all the passenger rates between Boston and Xew York 
 the same as to price? 
 
 Mr. Tuttle. By the different routes ? 
 
 The Chairjian. Yes. 
 
 Mr. Tuttle. They are the same for the service furnished by the 
 rail lines, and they are the same by the water lines. There is a differ- 
 ence of a dollar or t\A0 between the water and the rail lines. 
 
 The Chairman. Could a ticket be made interchangeable over the 
 different roads? Could a ticket over one road be made good over 
 all, in the interests of the public service, where the prices are the 
 same? 
 
 Mr. Tuttle. It is practically so to-day. Senator, because any man 
 who purchases a ticket by one route and finds it more convenient to 
 go by another can immediately get it exchanged. 
 
 The Chairman. Would you advise such an arrangement between 
 cities ? 
 
 Mr. Tuttle. I think it would be very troublesome, and very un- 
 just to the railroads. 
 
 The Chairman. One other question. Would j'ou advise that all 
 passes and free transportation on interstate-commerce roads be abol- 
 ished by legislation ? 
 
 Mr. Tuttle. If you can do it. [Laughter.] 
 
 The Chairman. I think we could if we tried. 
 
 Senator Clapp. There seems to be a good deal of criticism of exist- 
 ing laws in some of the States relating' to the prohibition of poohng. 
 I would like to ask you whether you regard the prohibition against 
 pooling as a mistake in the way of legislation ? I gathered from your 
 statement this morning that you did not. 
 
 Mr. Tuttle. I think that pooling, in the general sense, is of very 
 little value to the railroads. I think that the extreme prohibition 
 upon arrangements between railroads by the Sherman antitrust law 
 
BBGTJLATION OF EAILWAY BATES. 233 
 
 is unfortunate to the railroads and to the public. I do not believe, 
 however, that the law giving the railroads the right to pool and to 
 distribute traffic under a pool would in the end be any panacea for the 
 troubles that exist or be of anj-^ real value to the railroads themselves. 
 
 The Chairman. I have received a communication from the Broth- 
 erhood of Locomotive Engineers of Sacramento, Cal., in connection 
 with the subject of the investigation here, and as it comes from so 
 respectable an organization I thought it might be well to insert it in 
 the hearings of the committee. If there is no objection it will be 
 printed, following the session of to-day. 
 
 Senator Dollivee. What is the subject of it? 
 
 The Chairman. The subject of our investigation. ■ 
 
 (It was ordered by the committee that the communication referred 
 to be printed at the end of to-day's proceedings.) 
 
 Mr. TuTTLE. May I ask the permission of the committee to say juSt 
 one word more ? I want to call attention to the fact that every reduc- 
 tion in rates is not only a reduction in gross income, but a reduction in 
 net income. It costs just the same to carry a carload of freight that 
 pays $25 as it does to carry one that pays $50 or $5, and I want you to 
 bear in mind the fact that whenever you reduce the rates of a railroad 
 anywhere the reduction comes not only out of the gross income, but 
 out of the net. I thinli the majority of laymen think that you can in- 
 terfere with the gross by reduction in rates without interfering with 
 the net. You can not. You can reduce your gross operating ex- 
 penses by economies and keep your net low, but everything that 
 reduces the rate received by the railroad for transportation has an 
 immediate effect upon the net income of that railroad, and it can not 
 be otherwise. 
 
 Senator Cullom. In view of the announcement of the death of 
 Senator Piatt, of Connecticut, I think it proper that this committee 
 should adjourn out of respect to his memory. 
 
 Senator Forakee. I move as an amendment to that motion that in 
 addition to adjourning.as a mark of respect to the memory of the late 
 Senator Piatt, this committee shall attend his funeral as a body as a 
 further mark of respect. 
 
 The committee accordingly, at 1.45 o'clock p. m., adjourned until 
 Monday, April 24, 1905, at 11 o'clock a. m. 
 
 By order of the committee the following letter is printed in connec- 
 tion with to-day's proceedings : 
 
 Brotherhood of Locomotive Engineers, 
 
 Pacitic Division, No. 110, 
 Sacramento, Gal., April IJ^., 1905. 
 Hon. S. B. EwtiNS, 
 
 United States Senator, Washington, D. C. 
 Dear Sir: It having. come to the notice of the Brotherhood of Lo- 
 comotive Engineers, through its legislative committees, its representa- 
 tive at Washington, and the press, that a bill is before Congress to 
 increase the power of the Interstate Commerce Commission^ Division 
 110, Brotherhood of Locomotive Engineers, as a body of citizens in- 
 
234 REGULATION OF RAILWAY RATES. 
 
 terested in the welfare of California deems it a duty to address you 
 on the subject. 
 
 The bill referred to is the Quarles- Cooper bill, which is drawn with 
 a view to giving to the Interstate Conunerce Commission full power 
 to make and unmake all interstate passenger and freight rates. 
 
 We desire to say that while we believe some changes in the present 
 rate and conditions may be necessary, we do not think such changes 
 should be made by political appointees, fully believing that any modi- 
 fication they might make would bring about a complete revolution in 
 business circles in the West, especially on the Pacific slope, to its great 
 detriment. 
 
 The commercial experience of the Pacific coast manufacturers, job- 
 bers, producers, and merchants has shown that interstate rates, in so 
 far as they have borne on the interests of this coast, have been filed 
 by the railroad with a knowledge and appreciation of the conditions 
 that could not be expected in the case of a Federal conmiission whose 
 members are chiefly, if not wholly, appointed from parts of the coun- 
 try removed from the Pacific coast. 
 
 We deem it most important to the commercial interests of the 
 Pacific coast that the system of rate making should not be done on a 
 mileage basis from the East to the West and vice versa. 
 
 Under present conditions, and under the law as it now reads, rates 
 have been made and determined by the railroads by which the Pacific 
 coast manufacturers and others have been able to find a market for 
 their goods naturally tributary to them. 
 
 Nothing could be more disastrous to the business interests on this 
 coast than any substantial disturbance in the manner of making these 
 interstate rates. As a body of your constituents, we would ask that 
 very careful consideration be given this measure before lending it 
 your support. 
 
 Much more could be said on this matter by us, but we deem it 
 
 unnecessary, feeling that the expression herein contained and those 
 
 that you will receive from others will place the matter before you 
 
 in such a way that the interests of the Pacific slope will be protected. 
 
 Respectfully, yours, 
 
 O. F. Patrick, 
 J. Launtz, 
 
 Committee. 
 
H. T. NEWCO»*B, 
 
 LAWYER 
 BONO BUILDING. WA»miii» 
 
 REGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 SIXTH DAY. 
 
 Monday, April 24, 1905. 
 The committee met pm'suant to adjournment. 
 
 Present: The chairman and Senators Ciillom, Dolliver, Foraker, 
 Clapp, Millard, and Newlands. 
 
 STATEMENT OF MR. WALKER D. HINES. 
 
 The Chairman. Mr. Hines, please state your name, occupation, and 
 residence. 
 
 Mr. HixES. AValker D. Hines ; I am at present engaged in the gen • 
 eral practice of the law at Louisville, Ky. Up to last July I was first 
 vice-president of the Louisville and Nashville Railroad Company. 
 
 By way of attempting to qualify myself to talk on this subject, I 
 will say that in 1894, while I was in the law department of the Louis- 
 ville and Nashville Railroad Company, some rate troubles under tho 
 Kentucky law came ujo, which were put in my special charge and 
 which resulted in my giving special attention to the construction and 
 operation of the interstate-commerce act. In 1897, when the effort 
 began to be made to secure for the Commission the rate-making 
 power, I began giving special attention to that subject as the repre- 
 sentative of the Louisville and Nashville Railroad Company and 
 while in its law department as assistant chief attorney. In 1901 I 
 became the vice-president in charge of the law department and also 
 assisted the president in supervising the traific department, and re- 
 mained in that position until July, 1904, during all of which time T 
 gave special attention to this subject. 
 
 The Chairman. At present you have no connection with the road? 
 
 Mr. Hines. Not with the Louisville and Nash^dlle. I appear here 
 in behalf of the Atlantic Coast Line. 
 
 The Chairman. Are you in an official position there ? 
 
 Mr. HiNJiS. No ; I am in the general practice of law. 
 
 Senator Cui^lom. Then you are here as an employed attorney for 
 the Atlantic Coast Line ? 
 
 Mr. Hines. Yes, sir. What I shall say before the committee, how- 
 ever, is really the result of my experience and my observation of the 
 law extending over a considerable period of years. 
 
 At the outset it seems desirable to state briefly, but as clearly as 
 possible, what the present law is. Its object is twofold: (1) To se- 
 cure the publication and observance of tariff rates so that all shall be 
 charged alike, and in addition to that its object is to prevent unrea- 
 
 6 D— 05 M 1 1 
 
2 SIXTH DAY. 
 
 sonable and discriminating rates; (2) dealing with the second 
 branch of the question, which is the one involved in the rate-making 
 power, its object is to prevent tariff rates being unreasonably high or 
 unjustlj' discriminatory. All unreasonable rates are prohibited. All 
 rates that are undul}' preferential or unjustly discriminatory are pro- 
 hibited. 
 
 Under section 13 of the act the Interstate Commerce Commission 
 can entertain complaints on behalf of anybody, with or without in- 
 terest, and on behalf of commercial organizations or bodies politic, 
 as well as in behalf of individuals; also on behalf of State railroad 
 commissions, and n)ay itself inaugurate complaints and hear them 
 with the same effect as if they had been inaugurated by outside 
 persons. 
 
 Under section 15 of the act, •when the Interstate Commerce Com- 
 mission finds that any rate is unreasonably high or unduly preferen- 
 tial or unjustly discriminatory, it may order the carrier to cease and 
 discontinue that rate. If the carrier fails to comply with that order 
 the Commission can, under section 16 of the act, bring a suit in a cir- 
 cuit court of the United States, or any party interested may bring a 
 suit in a circuit court of the United States, and if the court finds that 
 the Commission's order is lawful it is its duty to enter a decree com- 
 pelling an observance of that order on the part of the carrier — that 
 is, compelling the carrier to cease and desist from continuing to 
 charge the rate which has been condemned by the Commission. 
 
 Upon this hearing in the court the findings of the Commission are 
 prima facie evidence as to every fact found by the Commission. 
 
 Senator Cullo:ai. That is the law now ? 
 
 Mr. HiNES. That is the present law. If the court finds that the 
 Commission's order is lawful and enjoins the carrier to discontinue 
 the rate it had Ijeen charging, the carrier may appeal from that decree 
 of the court to the Supreme Court of the United States, but that 
 appeal does not supersede the decree of the circuit court pending the 
 appeal. 
 
 This is a point deserving of emphasis, because it has always been 
 assumed in the argument of this subject that the carrier, by appeal- 
 ing from an order of the circuit court, simply by virtue of the appeal 
 suspends the operation of that order until such subsequent time, 
 after considerable delay, as the appellate court might dispose of the 
 case. But it is not true. Section 16 expressly provides that an 
 appeal shall not supersede an order of the circuit court, and that 
 doctrine has been recognized by the Supreme Court in the case of the 
 Louisville and Nashville Railroad Company v. Behlmer (_169 U. S., 
 044). So that if the circuit court does order the discontinuance of 
 the rate condemned by the Commission the carrier must at once dis- 
 continue that rate unless the circuit court, in its discretion and upon 
 such terms as the circuit court deems just, suspends its order until dis- 
 posed of by the appellate court. The circuit court can put the car- 
 rier on such terms as it pleases to secure that suspension, or it can 
 refuse altogether to suspend, whereupon the carrier must at once com- 
 ply with the order, notwithstanding the appeal. 
 
 Under the Elkins Act of 1903 the procedure of going through a 
 formal hearing before the Commission in order to secure an order 
 condemning the carrier's rates is not necessary in any case involv- 
 ing unjustly discriminatory rates. It does, however, seem to be nee- 
 
SIXTH DAY. 3 
 
 essary where the sole complaint is that a rate is unreasonably high. 
 But practically without exception every complaint that arises with 
 respect to a tariff rate, directly or indirectly, rests on the proposition 
 that some particular discrimination exists as compared with the 
 rate in some otjier locality or as compared with some other com- 
 modity. So that for all practical purposes almost every complaint 
 that may arise as to unreasonable or unjustly discriminatory rates 
 can now be brought in the first instance in the circuit court by the 
 Interstate Commerce Commission whenever it has good reason to 
 believe that the law has been violated, without the necessity of the 
 Commission taking the time to have a formal hearing and to pre- 
 pare a formal opinion. 
 
 In the case of the Missouri Pacific Railroad v. The United States 
 (189 U. S., 274) the Supreme Court held directly that this procedure 
 under the Elkins Act applied to a complaint of unjust discrimina- 
 tion in tariff rates as between two different cities. 
 
 Senator Dolliver. That is the case that Senator Foraker had put 
 into the record the other day. 
 
 Mr. HiNES. This Elkins Act was passed over two years ago, and 
 this decision of the Supreme Court was rendered in March, 1903, 
 over two years ago. But up to the present time, so far as I am 
 advised, there has not been a single effort made to resort to the cir- 
 cuit court in the first instance, and thus avoid the delay of going 
 through the Commission. 
 
 The Elkins Act also applies what was known as the " expedi- 
 tion act " of February 11, 1903, to all cases brought by the Commis- 
 sion. The expedition act provided that in any case to which it 
 applied or where the Attorney-General of the United States con- 
 sidered it desirable to expedite the case if it were of suiRcient public 
 importance, it became the duty of the circuit court to hear that case 
 as soon as practicable before three of the circuit judges, if there were 
 so many in the circuit, or before two of the circuit judges and the 
 district judge. It made as. ample provision for an immediate hear- 
 ing as could be made. That act has been in effect over two years, 
 but has never yet been resorted to in any case brought by the Com- 
 mission to correct any tariff rate complained of. 
 
 The Chaieman. Is that because no cause for such suits has arisen 
 or because the Commission did not act? 
 
 Mr. Hikes. Some cases were pending and some were instituted 
 after this act was passed and are now pending, but no effort has been 
 made to take advantage of the provisions of that act with respect 
 to those suits. 
 
 Senator Foeakee. If the chairman will permit me to interrupt 
 you a moment, Mr. Hines, there has been a hearing in Congress before 
 the Interstate Commerce Commission for a number of weeks, as I 
 learn from reading the newspapers, in regard to the differentials 
 between Philadelphia and Baltimore, and New York and Boston. Is 
 there any reason why that hearing might not have been instituted 
 upon motion in the United States circuft court and disposed of there 
 finally? 
 
 Mr. Hines. There is a distinction to be borne in mind in regard to 
 that, which I think I can point out more clearly when I come to that 
 subject of differentials. 
 
 Senator Foeakee. I wanted to get your view about it. 
 
4; SIXTH DAT. 
 
 - Mr. Hikes. I caiT point it out, I think, more clearly when I come 
 to that part of the subject, so that, if equally agreeable to the vSenator 
 from Ohio, I should prefer to defer it until I reach it. 
 
 Senator Foeaker. Certainly. 
 
 Mr. HiNES. The interstate-commerce act at present, especially as 
 amended by the Elkins Act of 1903, aifords a definite, and I think a 
 workable, method of dealing with any tariff rate Avhich is unreason- 
 ably high or unjustly discriminatory. 
 
 It is claimed on the part of those who insist upon the rate-making 
 power for the Commission that the power which resides in the courts 
 under the pres^ent law to order the discontinuance of an unlawful 
 rate is of no practical ^alue because the court might order the dis- 
 continuance of such rate and the carrier might fully comply with 
 that order by making some insignificant reduction. That claim 
 has absolutely no experience to support it. The interstate-commerce 
 act has now been in effect over eighteen years, and yet there has never 
 been an instance that I have been able to find where a carrier has 
 complied with an order of the Commission in this merely literal way. 
 If the Commission's orders were found to be lawful the carrier has 
 complied with them substantially, and very substantially, and has 
 given substantial relief according to the lines laid down by the order 
 of the Commission. If the carrier believed the order not to be lawful 
 it has not attempted to evade the order hy making some insignificant 
 modification of its rate and leading the matter to be brought before 
 the court in order to test the legality of the Commission's orders, but 
 in every one of these cases, except two, the courts have found that the 
 orders of the Commission were unlawfid — that is, that the Commis- 
 sion had not proceeded according to the lines laid down by the stat- 
 ute, or if they had proceeded according to the lines laid down by the 
 statute, they were unreasonable and improper on the merits. 
 
 Senator Cullom. If I may be permitted to ask a question in that 
 connection, the Commission makes an order or decree stating that a 
 certain rate is too high or is unreasonable; ordinarily, does the rail- 
 road company appeal at once to the court to determine that question? 
 
 Mr. Hikes. Under the procedure of the present law the Commission 
 or the complaining party has to set in motion the machinery of the 
 court ; they bring suit to enforce the order. The theory of the present 
 law is that it is the court which gives efficacy to the act; that the 
 Commission is simph' an assistant to the complainants and to the 
 public in the enforcement of the act, and it resorts to the court to 
 compel compliance with any of its orders which the carriers do not 
 observe. 
 
 Senator Cuixom. As I understand, they have the right now under 
 the law, and you say so, too, to determine when a rate is unreasonable; 
 but they can not have the right to deteraiine what a reasonable rate 
 would he. Do the railroads pay any attention to that order of the 
 Commission at all except to appeal it to the court?- 
 
 Mr. HiNES. In a great majority of the cases the railroads comply 
 absolutely with an order made by the Commission, not merely discon- 
 tinuing the rate which the Commission condemned, but substituting 
 the rate which the Commission recommends. In the few cases where 
 the Commission found it necessarj' to sue, the railroad believed the 
 orders were in conflict with the statute, and in all but two of those 
 cases the courts so found. 
 
SIXTH DAY. 5 
 
 Senator Newlands. I would like to ask what percentage of these 
 cases are complied with by the carriers in the first place, and what 
 percentage of those cases have been taken before the courts. 
 
 Mr. Hikes. I am coming to that in a detailed statement in regard 
 to that in a few moments. 
 
 So that, taking into consideration the experience under the inter- 
 state-commerce act for eighteen years, there is no basis at all for the 
 claim that what might be called the preventive method of dealing 
 with unlawful rates is useless. As I say, the orders of the Commission 
 have been complied with except in cases where the Commission made 
 an unlawful order or where the carrier has believed that it was so. 
 So far as experience goes, it fully sustains the position that I take, 
 that this is a practicable method of dealing with this subject. 
 
 Now, looking at the thing as to probabilities, if we go beyond the 
 question of experience, in the nature of things a responsible railroad 
 company, with these vital local interests it has throughout its whole 
 length of line, is not going to invite needless legislation by making a 
 mere insignificant compliance with the decree of the United States 
 court. If it does, the thing is open at once. The Commission, having 
 already investigated the matter, could promptly make an order requir- 
 ing the discontinuance of a new rate; and the court, having already 
 gone into the matter, would probably be able to make, with very little 
 delay, a new decree. So that the carrier would be simply inviting 
 litigation and very just public pondemnation by evading, in this way, 
 the spirit of a decree of a United States court while nominally com- 
 plying with this law. 
 
 For nearly three years I was practically in -charge of the traffic 
 management of the Louisville and Nashville Railroad and directed 
 the policy in those matters in ordinary things without consulting the 
 president, and always in regard to these interstate matters never con- 
 sulted the president about any position to be taken; and I know 
 from my own experience that I regarded with very great concern any 
 order which the Interstate Commerce Commission might make 
 regarding the discontinuance of any rate or practice of the Louis- 
 A'ille and Nashville road. I knew that unless there wns some legal 
 defect in that order or unless it was plainly unreasonable on the facts 
 the court would uphold that order and the company would be bound 
 to comply with it substantially as a practical matter. 
 
 Senator Cullom. Has the Commission made many orders, or did 
 they while you were ^vorkiug in connection with that road, pertaining 
 to the action or conduct of that road in the transportation business 
 that the railroad failed to comply with ? 
 
 Mr. HiNES. In the early j'ears of the Commission, before the long 
 and short haul section received a definite construction, the Commis- 
 sion made a number of orders affecting the Louisville and Nashville 
 road, Avith which it declined to comply because it was satisfied the 
 Commission had given a wrong construction to the statute, and that 
 position was upheld by the courts, excejDt in one case, where the court 
 held that the findings of fact of tlie Commission were prima facie 
 correct, and as the Commission had found substantially similar cir- 
 cumstances in both cases the court affirmed the order of the Com- 
 mission. 
 
 Senator Cuixom. I understood you to saj' a while ago you com- 
 plied with many orders. "Were you not obliged to comply ? 
 
b SIXTH DAY. 
 
 Mr. HiNES. As a matter of fact the Commission, since it made 
 these long and short haul orders by construction of the statute, has 
 made comiDaratively few orders as to the Louisville and Nashville 
 Eailroad. Those orders have, in a number of instances, been com- 
 plied with. I do not recall in the last few years but one or, two 
 instances where they were not complied with, and in those cases it 
 Avas the belief of the company that the order was not in conformity 
 with the statute. 
 
 Senator Ctjli.om. AVhat I want to find out is whether the roads 
 have been comjDlying with the Commission's orders at all, except at 
 the end of a lawsuit. 
 
 Mr. HiNES. Very generally they comply with them nt the outset. 
 Wliat I was attempting to eniphasize right there was that, judging 
 by my own experience as a traffic officer, I knew that the railroads did 
 regard these orders as worthy of respect and obedience unless there 
 was some clear mistake of law or some very clear error of fact affect- 
 ing the conclusions of the Commission. 
 
 This plan was deliberately adopted by Congress. In the very 
 clearest language it provided for appealing by this method, and 
 yet I say not an instance can be cited where there has been any mere 
 evasive or technical failure to comply with that law, and I suggest 
 for the consideration of the committee that where that is the case, 
 where a line of action has been deliberately adopted by Congress, 
 and where there is an utter absence of any practical evasion of it, 
 it ought not to be assumed on the part of the public or on the part 
 of anybody that that is absolutely worthless, l^t may be that there 
 are conditions which would justify the conclusion that some other 
 system would be better, but certainly the present system can not be 
 brushed aside as absolutely worthless, because experience and rea- 
 son both demonstrate that it has been of substantial value. 
 
 Senator Dolltver. There has been printed in this record a long 
 list of cases, probably 100 in number, in which the Commission made 
 an order fixing a rate to take effect in the future. Have you ever 
 made an examination to see what v.-as the fate of those orders? 
 
 'Mr. HiNES. I am going to discuss that in a little while. 
 
 Now, recurring to the actual operation of the law, I want to point 
 out, in the first place, that the failures to comply with the Commis- 
 sion's orders have been due, almost without exception, to a mistaken 
 conception on their part as to what they had a right to do under the 
 law. One long list of cases consisted of the long and short haul 
 list where the Commission gave a construction to the law which the 
 courts, with very strong unanimity and steadfastness, decided was 
 void absolutely because the Commission had proceeded on an 
 utterly wrong theory of the law. It can not be claimed that the act 
 has failed or that the Commission's valid functions have failed because 
 it has made a lot of invalid orders. All failures have come, not 
 from the acts of the Commission in line with the statute, but from 
 the act of the Commission wholly outside the theory of the statute. 
 That is true also of the unreasonable rates. As Senator DoUiver 
 suggests, the Commission made numerous orders prescribing rates 
 for the future, ^^'hich it had no power to do under the law. Every 
 such order Avas void. But the failure of those orders has nothing 
 to do with the question of whether the procedure actually prescribed 
 by Congress is a workable procedure and of value to the public. 
 
SIXTH DAY, 
 / 
 
 The Interstate Commerce Commission a few days ago sent a list of 
 cases to Senator Kean, and I want now to take up only those cases 
 since the decision of the Maximum Rate Case, in May, 1897. That is 
 the date since which, as the Commission claims, it has been without 
 power, because the Supreme Court held that it did not have the rate- 
 making power. I want to call the attention of the committee to a 
 few of those orders made since that time. 
 
 The Chairman. Was that list to which you refer sent in accord- 
 ance with a letter from the committee, or was it sent to a member of 
 the committee ? 
 
 Mr. HiNES. I think probably it was sent in accordance with a letter 
 from one of the members of the committee. 
 
 Senator Newlands. Is this communication in the record ? 
 
 Mr. HiNES. Yes, sir. I find I can not put my hand right now on 
 my analysis of that list, but I was going to say that that list of the 
 Commission does not seem to be complete for that period. It seems 
 to take a shorter period for examination, the period from January 1, 
 1900, to January 1, 1905, since which time the principal clamor has 
 been developed. I have endeavored to make a careful examination 
 of all the orders the Commission has made since the date of the Maxi- 
 mum Rate Case, in May, 1897, and the extent to which they have been 
 complied with by the carriers, either with or without suit. 
 
 Taking up the first cases, where the Commission has ordered, in 
 some form, the discontinuance of the rate which the Commission 
 regarded as unreasonably high, I find there are only 13 such cases 
 since May, 1897, when the Commission found it necessary to make an 
 order requiring the discontinuance of a rate. 
 
 The Chairman. Becauseit was too high? 
 
 Mr. HiNES. Because it was too high. Of those 13 the court has con- 
 demned 1, the hay case, where the Commission not only required the 
 discontinuance of the rate, but ordered the substitution of another 
 classification — that is, it undertook to prescribe affirmatively what 
 should be done for the future, which the courts have time and again 
 declared they could not do. The court held, therefore, that that 
 order was void, because it was not in compliance with the statute. 
 
 But the court went further and suggested — although it said it was 
 unnecessary to decide it — that on the merits the rate condemned by 
 the Commission was a reasonable rate and not subject to criticism. 
 That was but a suggestion, because the court said it was not necessary 
 to go into that question, but it decided that the order was plainly 
 void because it was not in conformity with the statute. 
 
 One of those thirteen orders has been disregarded by the carrier, 
 and suit has been instituted by the Commission to test the question, 
 and that suit is now pending. I may say, as a matter of possible 
 interest to the committee, that that case related to an advance in the 
 rate on soap in less than carload lots in official classification territory. 
 The advance was made in January, 1900. The Commission in April, 
 1903, over three years after the advance had taken effect, decided that 
 it was unreasonable and ordered its discontinuance. Then, in the 
 summer of 1904, about a year and three months after it made its 
 order, it brought suit to enforce it. So that the actual effort to en- 
 force the discontinuance of that rate which the Commission regarded 
 as imreasonable did not take place until four and a half years after 
 the rate had been ado]Dted. 
 
8 SIXTH DAY. 
 
 That makes two of the thirteen cases. 
 
 Senator Fokaker. Has that same rate continued in force ever 
 since ? 
 
 Mr. HiNES. Yes, sir. 
 
 Another case which has been disobeyed, and the only additional 
 one, was decided about ten months ago. The carrier failed to com- 
 ply with the Commission's order, deeming it imlawful, and, as I 
 understand, the Commission is preparing to enter suit on that. 
 
 There are only three of the thirteen cases where there has been 
 any refusal by the carrier to comply with the orders of the Commis- 
 sion. 
 
 Xow, take the other ten. In only eight of them did the Commis- 
 sion find it necessary to make a direct order of discontinuance. In 
 seven of the eight the carriers complied in full with the suggestion of 
 the Commission. In the eighth one the carrier did not comply fully. 
 That is what is known as tlie peach case. The railroads from New 
 York to Boston charged an arbitrary of $80 a carload on peaches from 
 the South. The Commission deemed that arbitrary, as being unrea- 
 sonably high, and suggested that there be a reduction to $50. The 
 carriers comi^lied Tilth the order discontinuing the rate and reduced 
 the rate to $65, Avhich was a reduction of 19 per cent, and that was 
 certainly a very substantial reduction. That compliance was made 
 quite a number of months ago. If the Commission deemed the $65 
 rate unreasonably high it was within its power to make a new order 
 promptly on the subject, but it has not done so. So the natural con- 
 clusion is tliat it does not think that rate is unreasonably high, be- 
 cause it has made no order suspending that $65 rate. 
 
 Senator Forakee. Was that the case to which the Commission 
 called attention in their last annual report, on pages 6 and 7? 
 
 Mr. HiNEs. Y'es, sir. I do not remember the page. 
 
 Senator Forakee. It is at the foot of page 6, where the Commis- 
 sion say: 
 
 The Commission can issue its order only against the rate complained of; it 
 can condemn tlie wrong, but it can not prescribe the remedy. 
 
 This is illustrated by two cases decided during the present year. A rate of 
 $80 per car on peaches from New York to Boston, used as part of the througli 
 charge from Georgia, having been found unreasonable, a reduction to $50 was 
 deemed reasonable by the Commission and recommended. The carrier reduced 
 the charge to $05 per car. A rate of $1.90 per ton on coal from Indian Terri- 
 tory to a point in Texas was declared excessive by the Commission, and a rate 
 of $1.25 was recommended as reasonable upon the facts shown in the case. 
 The rate was reduced to $1.50 per ton. The proof in each of these cases de- 
 manded, in our opinion, reductions to the extent recommended, but the carriers 
 thought otherwise, and being under no compulsion to follow our recommenda- 
 tions, they put in much higher charges. 
 
 Mr. HiNES. I say that $15 a carload, out of $80, was a very sub- 
 stantial reduction, but if the Commission thought it was not enough 
 it was open to them to enter another order making a still further 
 reduction. 
 
 Senator Doli.iver. Could they not have made a summary order 
 upon their own motion without any further investigation? 
 
 Mr. HiNES. No. The proof was already prepared. There was no 
 ground for additional delay for want of proof. The case could have 
 jbeen very speedily supplemented by another proceeding if the Com- 
 mission had been really convinced that it could sustain the position 
 that the $65 rate was unreasonably high. 
 
SIXTH DAY. 9 
 
 Senator Foraker. Would the third section of the Elkins Act ap- 
 ply to that kind of complaint ? I suppose not. 
 
 Mr. HiNES. Not unless there is some distinct basis for unjust dis- 
 crimination, and I doubt in this particular case if that could have 
 been made. 
 
 Senator Foeaker. But there would be no trouble to amend that 
 section so as to make that applicable, I imagine ? 
 
 Senator Nbwlands. In such a case would the Commission be com- 
 pelled to enter into a hearing de novo, or could it act upon the 
 testimony already in ? 
 
 Mr. HiNES. I doubt if it could act under the present law upon the 
 testimony already in. Of course that is a matter of procedure that 
 I believe the law could provide for. 
 
 Senator Newlands. Would it not be well to amend it in that par- 
 ticular? 
 
 Mr. HiNES. T do not see any objection to that. 
 
 Senator Foraker. Why could not the Commission act on the tes- 
 timony already taken? That is a very important question. They 
 should not have to take the same testimony over again. 
 
 Mr. HiNES. What I meant is that I doubt if they could refuse 
 absolutely to hear anything further. - 
 
 Senator Foraker. I do not know, if they regarded $65 as too high, 
 why they could not proceed upon the testimony already before them. 
 
 Senator Dot-,liver. Could not the law be made to provide that in 
 case the Comniission felt the need of no further testimony they could 
 instantly issue another order against the rate fixed by the railroad? 
 
 Mr. Hines. They could, under the present procedure, where the 
 final effective power is with the court. Under the third section of 
 the Elkins Act the Commission does not have to make any order; 
 they can go into court right at the beginning. 
 
 Senator Clapp. But it could not go into court in this case? 
 
 Mr. Hines. Not under the Elkins Act, unless, as I say, they could 
 make the basis of it unjust discrimination, and that probably could 
 not be done with respect to this particular commodity in this particu- 
 lar instance. 
 
 Senator Newlands. What suggestion would you make in order to 
 expedite the action of the Commission in a case where they have 
 adjudged a rate unreasonable and the carrier has made a concession, 
 but not the concession demanded by the Commission, and the Com- 
 mission proposes to condemn the substituted rate ? 
 
 Mr. Hines. If agreeable to you, Senator, I should like to defer 
 answering that until I deal with some affirmative suggestions, although 
 I will do so now if it will be more satisfactory. 
 
 The Chairman. Perhaps that had better come in order. 
 
 Mr. Hines. Going back to the thirteen cases, three of those were 
 where the carrier disregarded the order of the Commission ; seven 
 were cases where the orders were obeyed absolutely, and in one more 
 it was obeji^ed substantially by giving about a 19 per cent reduction 
 in the rate — that was the peach case. 
 
 In addition, in another case the Commission pronounced the car- 
 rier's rate unreasonable, but issued no order, stating that the com- 
 plainant might apply to the Commission for reparation if compelled 
 to pay rates in excess of those indicated by the Commission to be 
 proper. The carriers changed their tariffs in accordance with these 
 
10 SIXTH DAY. 
 
 suggestions of the Commission, so that they complied with the Coin- 
 mission's views without the necessity of any formal order being 
 entered. 
 
 In another case the carrier reduced its rate complained of by more 
 than 20 per cent before the Commission made any order. The Com- 
 mission then suggested that the rate ought to be reduced still more, 
 but, as I recall, made no final order, and have taken no further steps. 
 
 So, of those thirteen cases, in only three have the carriers failed to 
 comply in some substantial way with the orders of the Commission, 
 and in onlj^ three has the court suggested the order of the Commis- 
 sion to be unlawful on the merits. That is the result as to cases that 
 have occurred since the Maximum Rate Case in 1897. 
 
 Senator Ctxllom. You say that in seven of the cases the orders of 
 the Commission were obe3'ed, as I understand? 
 
 Mr. Hikes. Yes; where definite orders were made. 
 
 Senator Ctjllom. ThosQ cases never went to court at all ? 
 
 Mr. HiNES. Never ; only three of the thirteen have gone to court. 
 
 The Chairman. By appeal ? 
 
 Mr. HiNES. It is by a suit to enforce, rather than by appeal. 
 
 Senator Doi-liveh. The Commission has claimed in its various 
 reports, and there has been testimony before this committee tending 
 to show, that prior to the decision of this Maximum Rate Case the 
 Commission was possibly proceeding to make orders as to rates which 
 should operate in the future. Have you examined that list of cases 
 which the Commission has furnished ? 
 
 Mr. HiNES. I am going to take that up later and analyze that list. 
 
 Since May, 1897, the Commission has made six orders in long and 
 short haul cases. Of those the carriers have complied with three 
 without any necessity to resort to the courts, and in the other three 
 the cases have been taken to the courts, and the courts have found 
 that the orders were in conflict with the statute as proceeding upon 
 a construction of law which was inadmissible. So that in three of 
 the cases whatever orders the Commission made have been complied 
 with under the long and short haul clause. 
 
 Of those as to rates between localities the Commission has made 
 three orders since May, 1897 ; one was obeyed by the carrier without 
 resort to the courts ; one was disobeyed by the carrier, and, by the way, 
 the Louisville and Nashville was an interested party in that case ; but 
 the circuit court sustained the order of the Commission, and the 
 company made no appeal, but has complied with it ever since. The 
 third case was by the court condemned as unreasonable on the facts, 
 and the court sustained the company in their refusal to comply. 
 
 So that, so far as I can get at the information, from an examina- 
 tion of decisions and from correspondence with the railroads inter- 
 ested, that is the actual result of the operation of the interstate-com- 
 merce act since May, 1897, in cases where the Commission has found 
 it necessary to enter formal orders condemning tariff rates as un- 
 lawful. 
 
 In addition to that, the Commission has in that time probably 
 settled several hundred, perhaps as many as 1,500 or 2,000, cases 
 without any resort to formal hearing at all. 
 
 Senator Foeaker., I should like to know what those three cases of 
 discriminations between localities were in which the Commission 
 made an order. 
 
SIXTH DAT. 11 
 
 Mr. Hikes. One of them was a case involving rates on coal in 
 Missouri, I think ; at least, it was a case against the Missouri Pacific 
 as between two localities, and the Commission found that the dif- 
 ference in rates was unjust and ordered a discontinuance, and the 
 carriers complied with that order. 
 
 Senator Forakee. I wanted to find out, if I could, whether the 
 facts in that case disclosed that these localities were on the same line 
 or on different lines. 
 
 Mr. Hikes. They were on the same line. 
 
 Senator Forakee. In all cases ? 
 
 Mr. HiNES. I think so ; that is, the orders simply operated on the 
 carriers serving both localities. It was claimed that the act of the 
 carriers was what caused the injustice, but the condemnation was of 
 the act of one carrier. 
 
 The next case was the Savannah Freight Bureau case, where a rate 
 was charged on naval stores to Pensacola by a branch of the Louis- 
 ville and Nashville, not the Louisville and Nashville itself, which rate 
 was alleged to discriminate against Savannah. The Commission 
 condemned that rate as unlawful; the circuit court sustained the 
 order, and the Louisville and Nashville complied with the order and 
 adopted the rate suggested by the court. 
 
 Senator Forakee. The basis of that complaint M'as that there was 
 some discrimination in favor of Pensacola as against Savannah ? 
 
 Mr. HiNES. Yes, sir. The tliird case was the Wilmington case, 
 Avhere the Commission held that the carriers operating from Chi- 
 cago, St. Louis, and Ohio River points to Norfolk and Wilmington 
 made a discrimination as against Wilmington and in favor of Nor- 
 folk. The court -lield that that rate was reasonable on the facts, that 
 no such discrimination existed on the facts, and therefore that the 
 order ought not to have been enforced. 
 
 Senator Doluvee. You used the expression " arbitraries," whicli I 
 would like j'ou to define. <_ 
 
 Mr. HiNES. In the case I referred to, the Louisville and Nashville 
 made rates from points on its Pensacola and Atlanta division on cot- 
 ton and naval stores. Those commodities could move in the opposite 
 direction to Kiver Junction and then go to Savannah by one of two 
 lines. The Louisville and Nashville took the position that it was not 
 to its interest to make a tariff on those commodities which would 
 take them away from its own road, and it therefore insisted on a pro- 
 portion of the other rate, which was very high. The Commission 
 condemned that as unreasonable. That high proportion is called an 
 arbitrary. "Whether it was high or low, it would be an arbitrary if 
 it were regardless of distance or upon any other basis than mileage 
 or percentage. 
 
 The Chairman. AlTiat is the usual rule betAveen railroads upon 
 which to base an arbitrary for originating freight? An arbitrary, 
 I believe,- is the rate paid by one road to another for originating 
 freight. 
 
 Mr. HiNES. Yes. 
 
 The CiiAiEJiAx. ^^Tiat is the rule generally adopted between rail- 
 roads in the South as an allowance to connecting lines for originating 
 freight ? 
 
 Mr. Hikes. I do not think there can be said to be any general rule. 
 The matter rests usually on so many different considerations that each 
 
12 SIXTH DAY. 
 
 case has to be considered by itself. It is very usual for originating 
 lines to get a considerable amount more than the mileage would 
 warrant. • i • 
 
 The Chairman. Do you know what that was in this case? 
 
 Mr. HiNES. I do not recall what it was in this case. I would not 
 like to undertake to say just from the vague recollection I have. It 
 was pretty high, though. 
 
 The Chatesian. Is not the usual rule to allow 40 miles and after 
 that the mileage basis ? 
 
 Mr. HiNES. I do not think I have sufficient definite information to 
 say that. 
 
 The Chairman. Can you name some arbitrary 1 
 
 Mr. HiNES. I am sorry to say that I can not recall a single one 
 offhand. I could file with the committee numerous illustrations. 
 
 The Chaieman. I wish you would file with your testimony some 
 information concerning what the rule in the South is as to allowing 
 arbitraries for originating freight. 
 
 Mr. Hikes. I do not believe I shall find any usual rule, but I can 
 find some illustrations. 
 
 The Chairman. Proceed. 
 
 Mr. HiNES. I will file some information on that subject for you, 
 Mr. Chairman. 
 
 So an investigation of the actual operation of the present law, as I 
 take it, as to the correction of unlawful tariff charges, fails entirely 
 to sustain the theory that that law has been worthless or ineffective. 
 It shows in the vast majority of cases that the Commission has not 
 seen fit to make any orders. In much the larger portion of the few 
 cases where it has made orders they have been complied with, and 
 where they have not been complied with it has developed, almost with- 
 out exception, that the Commission has failed to proceed along the 
 lines laid down by law. 
 
 There is a remedy provided by the act — reparation. The Commis- 
 sion frequently allows that. Of itself that would be a substantial 
 remedy in a great many cases. 
 
 I regard, though, as the most important and far-reacliing remedy 
 under the law, this preventive process which the courts can set in 
 motion at the instance of the Commission, after formal hearing, in 
 the case of unlawful rates, and Avithout hearing before the Conunis- 
 sion in the case of im justly discriminatory rates. Notwithstanding 
 this, it is undoubtedly true that there is a verj general impression 
 that the act is worthless. 
 
 Senator Cullom. What is your impression ? 
 
 Mr. HiNES. I think it is very effective. 
 
 The Chairman. If enforced ? 
 
 Mr. liiNES. If enforced. Wiile I was in charge of traffic matters 
 for the Louisville and Nashville I ivuow that I regarded an order of 
 the Interstate Commerce Commission as a very serious matter, one to 
 be complied with unless it was plainly unlawful or unreasonable on 
 the facts. I thought it was a very serious matter and had to be com- 
 plied with. 
 
 I think it would be of interest to the coiiimittee to read you very 
 briefly a little history in order to show hoAv tliis impression has got 
 abroad that the act is worthless. You ^vill find that practically all the 
 demands for additional legislation are predicated in some form or 
 
SIXTPI DAY. 13 
 
 other upon that theory. This impression, in my opinion, has been 
 due to expressions by the Commission and its members and officers. 
 
 On November 26, 1897, the press of the. country reported Colonel 
 Morrison, chairman of the Commission, as stating, in an interview in 
 Washington, that the courts had destroyed all of the usefulness of 
 the Commission, and that the Commission had no powers whatever 
 to enforce the law. 
 
 In the Forum for December, 1897, Hon. Charles A. Prouty, of the 
 Commission, declared : 
 
 The murrlerei- under death sentence hns just as nmch po\yei' over the exeru- 
 tion of that sentence as the Interstate C'ouiuierfe Commission has over the put- 
 ting in force of a rate. 
 
 He further said that the most eminent counsel -which the Commis- 
 sion could find had declared that it was preposterous to say that the 
 Commission had not the power to prescribe reasonable rates, and yet 
 that the Supreme Court had recently made that declaration, and that 
 this decision was the climax to a series of Federal decisions which 
 had shorn the law of the effective part of the powers with which it 
 began its career ; and further said " in the present state of the law 
 the Commission has absolutely no control over rates." 
 
 In its eleventh annual report, for 1897, the Commission said that 
 the decision of the Supreme Court in the Maximum Bate Case was 
 " startling " and removed all doubt that the carriers alone established 
 their rates and charges and judged for themselves what rates were 
 reasonable and just, independent of any regulating authority. 
 
 In that report the Commission further stated, referring to one case 
 decided by it since the decision of the court in the Maximum Rate 
 Case: 
 
 The Coumiission found and reported that under the iuterstate-conmierce act, 
 as now construed by the Supreme Court, the carrier is given the right to estab- 
 lish and change its rates independent of the judgment of the Commission and 
 independent of any action and judgment of the court or other tribunal ; that the 
 right to establish, demand, and recei^-e unreasonable and unjust charges is not 
 prohibited ; and that in respect to the charges which may be demanded and 
 received for any transportation service the carriers are made judges in their 
 own cases as to what is, reasonable and just. 
 
 In the case of Montell i\ Baltimore and Ohio (7 I. C. R., 429), 
 decided December 31, 1897. the Commission held that certain rates 
 complained of were excessive, but instead of ordering the discontinu- 
 ance of those rates, as the act provides it shall do in such cases, the 
 Commission dismissed the complaint, announcing that — 
 
 As recently interpreted by the courts said act makes no provision under which 
 the defendants or other carriers can be ordered or required to establish or 
 maintain any rate of charges to or fro,m any place other than such rate of 
 charges as any such carrier may fix and establish for itself. 
 
 As a matter of fact in that case it ^^'as the duty of the Commission, 
 under the law, to order the discontinuance of the rate found unrea- 
 sonable, and that railroad would have complied with that order 
 unless there was some legal defect in it or unless it could have been 
 plainly demonstrated that, the order was unlawful. 
 
 In an article by Hon. Charles A. Prouty, in the North American 
 Review for November, 1898, he stated : 
 
 Although the statute of the United States expressly declares that rates shall 
 be just and reasonable, the carrier can with immunity in interstate traffic impose 
 and collect whatever rate it sees fit. 
 
14 SIXTH DAY. 
 
 He further indicated that the Supreme Court, in the Maximum Eate 
 Case, had decided that there '\Tas no way in which the provisions of the 
 first and third sections of the act (relating, respectively, to unreason- 
 able rates and unduly preferential rates) could be made effective. 
 
 The Commission, in its thirteenth annual report, for 1899, said : 
 
 It is perhaps safe to say that nine-tenths of the people clo Ivnow that any 
 railroad company can charge for its service whatever it pleases, and as much 
 as it pleases, without any real power in this Commission, or in any other 
 tribunal or court, to limit the amount of such charge for the future, when com- 
 plaint is made by an aggrieved shipper. 
 
 I think it is very true that nine-tenths of the people believed that 
 at that time, but as a matter of fact the railroads that paid most atten- 
 tion to it knew that there was a very large and effective measure of 
 control over them. 
 
 In a statement of Hon. Charles A. Prouty to the Senate Committee 
 on Interstate Commerce, February 13, 1900, he said: 
 
 After the decision of the Maximum Eate Case in 1897 this Commission had no 
 more power to secure to the vegetable grower of Florida, or to the cotton raiser 
 of Texas, or to the farmer of Iowa, a .lust and reasonable rate than it had to secure 
 the necessary sunshine and rain to ripen that man's crop. It could intercede 
 with the railroads for the rate, and it might intercede with Divine Providence 
 for the rain, but the power was exactly as great in the one case as in the other. 
 
 In an address by Hon. Edward A. Moselej', secretary of the Com- 
 mission, to the members of the Xational Hay Association, in Balti- 
 more, August 16, 1900, he said, as is reported in the Baltimore Sun of 
 August 17, 1900 : 
 
 Take a rate of 20 cents on hay from St. Louis and assume the Commission has 
 found it to be unreasonable. The carrier need not obey its order until com- 
 pelled to do so after four years of trial in the courts, -and if required to obey it 
 the carrier need only reduce, say, 1 cent. Now assume that 10 cents is a reason- 
 able rate. It would require under that procedure ten suits in the courts of the 
 United States during a period of forty years to secure the enforcement of a 
 reasonable rate of 10 cents on hay from St. Louis. 
 
 As a matter of fact, if 10 cents had been a reasonable rate, and 
 that had been ordered discontinued, I do not see why there should be 
 more than six months' delay to get a decision from the circuit court 
 ordering a discontinuance of that rate ; and I should suppose with as 
 many interests as a railroad has, it would be to its interest to respect 
 the decrees of the court, inasmuch as the railroad involved would 
 have been bound to make a very substantial reduction. 
 
 Senator Dollivee. There was a reduction of the hay rate subse- 
 quently, was there not ? 
 
 Mr. HiNES. Yes, sir ; the court found the order was unlawful. 
 
 Senator Dolliver. What time did the courts require to reach that 
 opinion ? 
 
 Mr. HiNES. I will get that information and give it to you; I have 
 not the exact time. 
 
 The Chaieman. I think Mr. Moseley's name is mentioned there. 
 He is the secretary of the Interstate Commerce Commission. 
 
 Mr. Hikes. This was an address he made to the National Hay 
 Association. 
 
 The Chairman. Proceed. 
 
 Mr. HiNES. Senator Dolliver, I think it was two years and three 
 months after that advance was made on hay before the Commission 
 made this order. How long it was before the Commission brought 
 
SIXTH DAY. 15 
 
 suit and how long it was until the court decided the case I do not 
 know ; but I will get that information. 
 
 Senator Dolliver. I wish you would. 
 
 Mr. HiNES. Hon. Charles A Prouty, in an address before the Illi- 
 nois Manufacturers' Association, at Chicago, April 2, 1902, in refer- 
 ring to rates, said : 
 
 Tbe Interstate Commerce Commission has at this time no authority to correct 
 these wrongs, and this fact is well understood by the public. 
 
 Hon. Charles A. Prouty, in an address to the American Economic 
 Association, at Philadelphia, in December, 1902, said : 
 
 I am asked to prepare a paper upon national regulation of railways in the 
 United States. There is none. There is State regulation to some extent and 
 national supervision which is of some value. Regulation means control, and 
 there is and can be no control by the Government over interstate transportation 
 until some method is adopted to supervise and correct railway rates. 
 
 These expressions, which have been made so repeatedly ever since 
 1897 by the ofBcers Avhose duty it is to enforce the law, have undoubt- 
 edly had a very great effect upon the public mind. To some extent 
 they have probably influenced the carriers. It is very natural that 
 they should. Wlien the same tribunal makes an order against the 
 carrier, and announces publicly and repeatedly that it has absolutely 
 no power to do anything, it is probable that that would have some 
 influence on the carrier in respect to that order. Notwithstanding 
 that fact, my opinion is that tlie carriers, relying on their counsel, 
 who have to judge the law by what it is instead of by what the Com- 
 mission say it is, have been led to the conclusion that they would 
 have to obey those orders unless it could be demonstrated that the 
 orders of the Commission were unlawful. So I say that the law is 
 substantially effective. Yet I do not say that some other law might 
 not be better. Nevertheless, the scheme deliberately adopted by 
 Congress niust be effective and valuable. The contrary opinion pre- 
 vailing so widely is, in my opinion, due to these widespread declara- 
 tions by members of the Commission that the act is worthless. 
 
 As is well Jinown, the Commission has supplemented these expres- 
 sions by very extensive propaganda in behalf of the rate-making 
 powers. 
 
 Senator Foraker. Before you pass from that, if the chairman will 
 allow me to interrupt you, I wish to put in the record here a quotation 
 from the last annual report of the Commission, in line with what you 
 have been saying on this subject, as to their inability to enforce 
 their orders. They say, on page 7 : 
 
 The more important the case may be. the greater the benefit conierred upon 
 shippers or communities, the less likely is the order of the CojnmJssslon to be 
 obeyed. 
 
 Mr. HiNES. As I say, these expressions have been supplemented by 
 extensive propaganda by members of the Commission, continued for 
 several years. In 1904 thej' made an order instructing their secre- 
 tary to cooperate with commercial organizations looking to securing 
 the rate-making power for the Commission, and the secretary sent 
 out circular letters indorsing a bill for that purpose and asking the 
 recipients of those circulars to use their influence with their Senators 
 and members to aid all they could in securing its passage. More 
 recently some members of the Commmission have been quite active 
 
16 SIXTH DAT. 
 
 in making addresses pointing out that the law was of no value. The 
 Commission as a body has identified itself publicly and clearly with 
 this movement, and it is commonly understood at this time that 
 literature supporting and i^romoting rate-making views is being dis- 
 tributed from the Commission's headquarters, 
 
 Senator Culloji. No one has been making addresses over the 
 country except Mr. Prouty, and possibly the chairman of the Com- 
 mission in one or two instances. 
 
 Mr. HiNES. I do not recall that any other members of the Commis- 
 sion have recently made addresses. 
 
 Senator Ctjlloji. I do not remember any except those two. 
 
 Mr. HiNES. I think we have got to this point: That there is a 
 substantial value in the present act; that it is so recognized by the 
 railroads. Whether it is as good as it could be is, of course, a ques- 
 tion for you gentlemen to determine. 
 
 The question for immediate consideration is whether the present 
 act shall be supplemented by giving the rate-making power to the 
 Commission. 
 
 Senator Clapp. Why do you say " supplemented ? " Do you mean 
 added to what is now in the law ? 
 
 Mr. HiNES. If the Commission is given the power it will adopt 
 the methods most sweeping and, in its opinion, most eifective. Under 
 the Townsend bill it is provided that whenever the Commission shaU 
 find a rate unjust, discriminatory, or unreasonable it shall be its duty 
 to fix a rate for the future. I will say that the thing to be con- 
 sidered is whether this should be supplemented by the rate-making 
 power. Necessarily that proceeds on the idea that some governmental 
 tribunal or bureau shall determine the specific thing which the rail- 
 road company must do for the future in order to comply with the 
 law. To the extent that that system is used it abandons the idea of 
 simply prohibiting a railroad from doing wrong and leaving it to 
 the railroad to adjust its rates so as to do what is right, and leaves 
 it to the governmental bureau to say that the thing shall be allowed 
 for the future. In other words, it means, to the extent of its use, 
 the running of the railroad business by a governmental bureau. 
 That is a very serious departure from the present system, and it is a 
 very radical innovation imder the Federal Constitution. 
 
 I Avant, if the committee will indulge me, to refer as briefly as I 
 can to the reasons which are the basis of this demand. I have 
 watched this, as I say, closely ever since 1897, and have seen the 
 reasons urged by the shipping organizations and by those who are 
 trying to get the indorsement of the shipping organizations. I have 
 endeavored to analyze, and will present the best I can, what those 
 reasons are, and believe that the committee, on weighing them, wUl 
 find that, almost without exception, those reasons are based on mis- 
 conceptions of the facts or misconceptions of the arguments used. 
 
 One reason we find very frequently urged is that the railroad busi- 
 ness is a public function, and that the railroad will exercise the power 
 of eminent domain. Without attempting to take up time by talking 
 about the extent to which it is a public function or to which the 
 power of eminent domain would affect the situation, I want to call 
 attention to the fact that that argument goes absolutely and solely 
 to the question of power and right. It does not touch at all the ques- 
 tion of expediency. No matter if it is a public function ; no matter 
 
SIXTH DAY. 17 
 
 if the railroads have the authority of eminent domain; the fact 
 remains that the Government has chosen to permit railroads to be 
 built and operated by private capital. The question of expediency is 
 whether, assuming that the Government has the right, it is proper to 
 put the earnings of that private capital under the practically final 
 control of a governmental bureau, and whether, further, it is proper 
 to put the business interests of the country under the domination of 
 such a bureau. So that all their talk about public function and 
 eminent domain wholly fails to meet the issue that is presented for. 
 consideration. 
 
 It is a fundamental idea in all these demands that have been pre- 
 sented that there is no control now. You find it stated repeatedly in 
 every sort of form that it is impossible to deny that some tribunal 
 should exist with power to decide whether a railroad rate is too high ; 
 that that is a matter that ought not to be left in its final analysis to 
 the absolute and arbitrary decision of a railroad company. That, of 
 itself, has prompted a great deal of the sentiment that exists on this ' 
 subject. That, of course, proceeds on the idea that the present act is 
 absolutely worthless, which I honestly believe is wholly erroneous; 
 that there is a substantial measure of control now, and that probably 
 goes on the theory that the only control the Government can possibly 
 exercise is to take charge of the whole thing in every case it takes hold 
 of and make rates and prescribe details as to the manner in which the 
 business shall be conducted. So that that reason, which runs through 
 all these demands, is largely fallacious and erroneous as confined to 
 existing conditions. 
 
 Now we come to a proposition that has been made and reiterated 
 in the most remarkable way for the last eight years, and that is that 
 Congress intended to give the rate-making power to the Commis- 
 sion when the present interstate-commerce act was passed. When 
 this agitation began in 1897 that proposition was more persistently 
 stated than in recent years. The distinguished Speaker of the House 
 of Representatives was reported as having stated in caucus during 
 the last Congress that that was the situation, that Congress had 
 intended to give this power, and all that was to be done now was 
 simply to effectuate what Congress itself intended. Undoubtedly 
 this belief has had a very far-reaching and influential bearing oil the 
 demand that has grown up for this legislation, and yet it is absolutely 
 incorrect. 
 
 The Senate appointed a committee in 1885, known as the Senate 
 Select Committee, which made very extensive investigation of the 
 subject. It took testimony making a volume of 1,000 or 1,500 pages, 
 and made a careful and detailed written report over 200 pages long. 
 
 The Chairman. Do you refer to the report of the Windom com- 
 mittee ? 
 
 Mr. HiNES. No; Senator CuUom, I think, was chairman of that 
 select committee. 
 
 The Chairman. The other committee was some ten years before 
 that, I think. 
 
 Mr. HiNES. Yes. 
 
 The Chairman. How would you identify that report? 
 
 Mr. HiNES. It is the report made to the Senate January 18, 1886. 
 
 6 D— 05 M 1 
 
18 SIXTH DAY. 
 
 On page 194 of its report the committee declared that the fixing 
 of rates by legislation was impracticable, and added: 
 
 Those who have asked the adoption of this plan of regulation have suggested 
 the establishing of rates by a commission ; but it is questionable whether a com- 
 mission or any similar body of men could successfully perform a work of sueh 
 magnitude, involving, as it would, infinite labor and investigation, exact knowl- 
 edge as to thousands of details and the ad,1nstment of a vast variety of con- 
 flicting interests. 
 
 That was Senator CuUom's report, submitting the bill creating the 
 Commission. 
 
 When the subject came up for discussion on the floor of Congress 
 it was frequently stated in both houses that the Commission did not 
 have any rate-making power, and it was clearly understood on all 
 hands that that was the state of the case. Several years ago I ar- 
 ranged for Mr. Edwards W. Hines, who was then a member of the 
 editorial staff of the West Publishing Company here in Washington 
 (the company that gets out the reports of all the States and the 
 Supreme Court reports) to read all the debates in Congress on this 
 subject and submit a statement as to what they showed, in view of 
 the repeated assertion that they did show that Congress intended to 
 give the rate-making power. If there is no objection, I would like 
 to incorporate in my remarks about a page of his statement, which 
 gives briefly the general scope of the discussion on that subject. 
 
 The Chairman. Is that his finding, or is it just in the body of the 
 report ? 
 
 Mr. Hines. It is his finding. He submitted it with a letter sum- 
 ming it up. I asked him to do that. 
 
 (The committee directed that the entire docmuent referred to by 
 Mr. Hines be printed as an appendix, and the same will be found at 
 the end of his statement of to-day.) 
 
 Mr. Hines. Mr. Hines said, in part, in his report : 
 
 " It is a significant fact that the Senators and Representatives 
 whose utterances showed them to be most hostile to corporations were 
 most bitterly opposed to a commission, their argument being that as 
 the Commission was without any real poAver it merely delayed the 
 shipper in his effort to get into the courts, and that this barrier should 
 not be interposed. On the other hand, the princi^Dal if not the only 
 argument urged in favor of a commission was that it would be an aid 
 to the litigant in the preparation of his case, giA'ing him the benefit 
 of the special knowledge of the Commissioners, and putting behind 
 him the power of the Government to compel the production of testi- 
 mony, both oral and documentary, thus enabling him to get justice 
 more surely and cheaply. 
 
 ■ " To those who opposed any legislation upon the ground that the 
 common law afforded the injured shipper ample relief, the answer 
 was made that the shipper was powerless to make out his case against ^ 
 the rich railroad corporation having peculiar knowledge of all the' 
 facts and with vastly superior advantages for procuring testimony, 
 and that the purpose of interposing the Commission was merely to 
 enable the shipper to enforce common-law principles. So it seems 
 clear that in empowering the Commission to make orders which, if 
 not complied with, were to be made the basis of proceedings in court, 
 it was not contemplated that the Commission should have any greater 
 power than the courts would have upon a direct resort to them by the 
 
SIXTH DAY. 19 
 
 aggrieved shipper. And as no one ever thought of contending that 
 the courts would have power to make rates, it can not be supposed 
 that it occurred to Congress that it was conferring upon the Com- 
 mission that power. 
 
 Hi $ ^ :is »!: ^ ^ 
 
 " It was repeatedly argued by the most extreme advocates of legis- 
 lative regulation that the Commission was a useless body because 
 without any substantial power, and in answer to that objection the 
 advocates of the Commission bill one after another set forth the 
 value and uses of the Commission, and yet not one of them suggested 
 that the Commission would have the extraordinary power to fix rates, 
 which, had it existed, would have been a complete answer to the ob- 
 jection, since no one can deny that such a power is a substantial one. 
 So, even if the disclaimers on the part of those in charge of the bills 
 of any intention to confer on the Commission the power to make 
 rates are not, when considered alone, evidence of the construction 
 placed upon the bill by other Senators iand Eepresentatives, still the 
 failure of other members to challenge these statements at the time, 
 coupled with the fact that they did not, when enumerating the 
 powers of the Commission, include the power to fix rat«s, would seem 
 to be conclusive that the courts have in so construing the law as to 
 deny to the Commission such power conformed to the real intention 
 of Congress. 
 
 " It is worthy of note that the evil which seemed to be regarded by 
 Senators and Representatives as demanding more than any other 
 remedy was the inequality of rates, there being but little complaint 
 that rates were unreasonable per se. Each of the House bills was 
 entitled 'A bill to regulate interstate commerce and to prevent unjust 
 discriminations by common carriers,' which is itself significant. 
 
 " I am convinced from my reading of all the debates that Congress 
 had no thought that it was conferring upon the Commission the 
 po^Yer to fix rates, and that no bill expressly conferring such power 
 could have passed." 
 
 Senator Cujaom. The chief purpose of the Commission was sup- 
 posed to be their power and duty to get close to the people and find 
 out what was going on, informally or in any other way they chose, 
 so that the people could have somebody to look after their own inter- 
 ests ; because at that time an individual could not go before the courts 
 and make a case against a railroad company without being rmi out 
 of business. Another consideration was the expense to which an 
 individual would be put. 
 
 Senator Foraker. Then, as I understand it, you agree with Mr. 
 Hines on this question — ^that it was not intended to confer the rate- 
 making power ? 
 
 Senator Cullom. There is nothing in the law that justifies the con- 
 duct of the Commission in making rates to take effect in future, and 
 nobody ever pretended there ever was any such thing; but they had 
 power, we supposed (and I think that has been sustained), to de- 
 termine whether a rate now existing is reasonable or unreasonable. 
 Then it is for the railroad to reduce the rate in accordance with the 
 order. 
 
 Mr. Hines. As far as the intention of Congress can possibly be 
 deduced from the report of the Senate committee and from the debates 
 
20 SIXTH DAY. 
 
 on the floor of both Houses, it is absohitely clear that there was no such 
 intention, and that all this pretense that was used and circulated over 
 the country, and which is now the basis to a very large extent of the 
 support of the rate-making power, had no foundation in fact. 
 
 Taking the language of the act itself, I think anyone who carefully 
 reads the Maximum Eate Case will be convinced that tliere never was 
 a clearer case of effectuating the actual intent of the legislative body 
 than that case affords. I have never seen any attempt to answer the 
 arguments which the court makes in that case in support of the con- 
 clusion that it reached. 
 
 Then the next proposition — this is one that was mentioned incir 
 dentally this moring — was that the power had been exercised for ten 
 years without question, and very beneficially. Throughout all tliis 
 agitation that has been one of the first things that 'has been said to 
 anybody whose support was sought — that " we are just asking now 
 for what has been done for ten years withoiit any complaint, and very 
 beneficially to. the country." Of course, that is a po's^-erful argument. 
 The ordinary business man has no time to study legislative history, 
 or the history of the acts of the Interstate Commerce Commission; 
 and if he believes that what is sought by new legislation is simply to 
 confirm what has actually been done without question for ten years, 
 it is a tremendous argument with him to encourage him to support 
 the measure. It is said that it was done for ten years without any 
 challenge. Let us see about that. 
 
 About the first cases involving the construction of the interstate- 
 commerce act were two cases that came up in the circuit court before 
 Judge Jackson, who was afterwards a member of the Supreme Bench. 
 In each of those cases his expressions were very clear to the effect 
 that the Commission was only an administrative body pure and 
 simple, and was not vested with any original powers in regard to 
 rates. Those cases are K. and I. Bridge Company v. Louisville and 
 Nashville Eailroad Company (37 Fed. Rep., 635) and Interstate 
 Commerce Commission -v. Baltimore and Ohio Railroad Company 
 (43red. Rep., 37). 
 
 As early as 1888 we find carriers beginning to ignore the rate- 
 making orders of the Commission; and in 1890 one of the most 
 sweeping rate-making orders which it ever made, relating to the rates 
 on grain from the Mississippi River east, was ignored. In 1890, in 
 the Commission's annual report, it said : 
 
 " In some cases the carriers decided against have, for a consider- 
 able period, manifested a purpose not to obey an order of the Com- 
 mission reducing rates, claiming to have the advice of counsel that 
 the action of the Commission was not conclusive, and that they might 
 safely await the determination of the courts in the premises. If they 
 have finally acquiesced in the reduction, they have in some cases 
 taken pains to have it understood that in doing so they were acting 
 from motives of policy rather than because of any legal obligation 
 which required it." 
 
 That was the Commission's report for 1890. In 1891 the Lehigh 
 Valley Railroad was made the defendant in a suit by the Commission 
 to enforce a rate-making -order, and set up in court the defense that 
 the Commission had no power to make rates. 
 
 In 1892 the Commission in its annual report referred to its decision 
 in a case presented involving a question of unreasonable rates, in 
 
SIXTH DAY. 21 
 
 which its right to make rates was challenged. In its opinion in that 
 case, and also in its annual report, the Commission went over again 
 its argument in support of its power to do this, and added : 
 
 " Yet some carriers continue to deny the soundness of this view." 
 
 Early in 1893 the Louisville and Nashville Railroad Company, in 
 the first case in which the Commission attempted to make a rate for it, 
 denied the power of the Commission in court. The case was argued 
 fully in the circuit court, and that court held that the rate fixed by 
 the Commission was unreasonable on the merits, and therefore said 
 it was unnecessary to pass on the question of power. But when the 
 case got to the Supreme Court the court held, in March, 1 896, that the 
 Commission had no rate-making power, and its maximum rate 
 decision in 1897 was simply a reiteration and amplification of its 
 earlier decision in 1896. 
 
 So that so far as the claim is based on the proposition that the 
 Commission's power to make rates Avas not challenged, it is negatived 
 right straight through, jiractically from the beginning down to the 
 decision of the Supreme Court in the Social Circle case, in 1896, and 
 m the Maximum liate Case in 1897. 
 
 But it is said that as a practical matter the Commission made these 
 rates and the carriers observed them, and that this was very bene- 
 ■ ficial. Mr. E. P." Bacon, in Jhis statement before the House com- 
 mittee, has gone on to explain how very satisfactory conditions were 
 during the first ten years of the existence of the Commission because 
 the rat«-making orders of the Commission were complied with. 
 The President, in his message in 1901, stated that during the first 
 ten years of the Commission's existence the Commission exercised 
 this power, and that conditions adjusted themselves to that exercise of 
 power; and the clear implication was that, that having gone on for 
 ten years without disastrous consequences, it must naturally be 
 assumed that the legislative confirmatioia of that power and its fur- 
 ther exercise would not be disastrous. 
 
 The Ctiairjian. Do you say that was in 1891 or 1901? 
 
 Mr. HiNES. 1901. 
 
 Senator Fokakek. You mekn President Roosevelt's message, in 
 J-)ecember, 1901 ? 
 
 Mr. HiNES. In December, 1901; yes. 
 
 The Commission furnished to the House committee a statement of 
 the orders in which it made rates up to the time of the maximum-rate 
 decision in 1897. This committee, as I understand, called on the 
 Commission for a report stating how many of those orders were com- 
 plied with and how many were not complied with ; and the Commis- 
 sion has made a report that appears on page 68 of the hearings before 
 this committee at the present set of hearmgs. That report shows that 
 up to the time the Supreme Court decided, in May, 1897, that the 
 Commission did not have the rate-making power, the Commission 
 made rates in forty-one cases. Of those forty-one cases we find that 
 as early as 1888 the carriers began to ignore them ; that in fourteen 
 cases they Avere ignored absolutely and suits were brought on them 
 either by the Commission or by the shippers, the suits being lost every 
 time; that one of them was not complied with at all and no suit was 
 brought. That makes fifteen. 
 
 Senator Dolliver. Are you identifying the cases ? 
 
 Mr. HiNEs. They appear. Senator, in this statement, and I am 
 
22 SIXTH DAY. 
 
 simply classifying them. Then the Commission makes the state- 
 ment as to eleven, that they were " partially complied with." 
 
 I want to call the committee's attention to the fact that if a com- 
 mission of this kind claims the power to make a rate and does malre 
 a maximum rate and says to the carrier : " You must not charge more 
 than that rate," that is something the carrier either has to comply 
 with or not comply with. Such a thing as partial conipliance with 
 an order of that sort is hardly practicable except in this way : That 
 the carrier might establish some of its rates within the maximum and 
 might ignore the order as to some of the others. But any theory of 
 partial compliance with an order fixing a definite maximum rate 
 necessarily means that the carrier denies the power ; because if it ad- 
 mitted the power it would be bound to comply absolutely. There is 
 no leeway there ; no room for " more compliance " and " most com- 
 pliance." You have either got to comply or not comply. 
 
 So in the case of those eleven orders which the Commission states 
 Avere partiallj' complied with, it necessarily follows that the carrier 
 disputed the Commission's power to make the rate, and complied with 
 the order to the extent that it saw fit to do so. 
 
 One of the cases that is classed as '" partially complied with " is this 
 case fixing rates on grain from the Mississippi River east ; and I have 
 been told by traffic representatives of the railroads out there that the 
 railroads did not comply with that order at all. There may have 
 been, in some scattering cases, a reduction of a rate in accordance with 
 the suggestion of that order; but for practical purposes the order 
 was disobeyed. 
 
 Moreover, in not a single one of these cases where there was the 
 alleged partial Compliance with the rate-making order did the Com- 
 mission institute a suit to compel full compliance, so that we have 
 practically 14 orders ignored and sued on, 1 ignored and not sued on, 
 and 11 igiiored more or less, according to the idea of the carrier. 
 
 The Chairman. Ignored bj^ the railroads ? 
 
 ^fr. HiNES. Ignored by the railroads; making 26 out of 41, and 
 only 15 complied with by the railroads. 
 
 That is certainly' very far from showing a general acquiescence on 
 the part of the railroads in the power of the Commission to make 
 rates. It shows just the opposite — that the railroads generally be- 
 lieved it did not have the power, and confirms the expression which 
 we find in the annual reports of the Commission showing that the 
 power was always in dispute. But it goes further than that, and 
 shows — and this is the point I want to make in that connection — that 
 it is radicallj'^ erroneous to assume that the power was beneficially ex- 
 ercised for the first ten years, because whenever the Commission made 
 an injurious order, an order that would hurt the business or would 
 hurt the railroad, the railroad simply did not comply with it. It 
 was purely optional with the railroad company. 
 
 You can not predicate anything on an optional course of conduct 
 like that. 
 
 Another thing you will find from this list, if you will go back to 
 the opinions of the Commission, is that in the first cases in which it 
 made rates it toolc a particular rate on a particular article between 
 two points, and after very elaborate investigation it made a new rate. 
 That was in itself not a very extensive exercise of the power. In 1890 
 it made rates on all east-bound grain, as I understand it, from the 
 
SIXTH DAY. 23 
 
 Mississippi liiver, with -which the carriers did not comply. Whether 
 that was a Avise order fi'om a practical standpoint or not can not be 
 told. If the carriers had complied with it, then we might have had 
 somi;thing to go on. 
 
 In 1892, I think it was, the Commission got to a point where in a 
 single order it reduced the rates on several hundred articles, first- 
 class, under the southern classification, from Cincinnati to Atlanta, 
 which would ha^'e reduced the rates on all south-bound business from 
 the Ohio River and all east-bound business from the ^Mississippi River 
 south of Cairo into the South. The Commission made that reduc- 
 tion — which was a reduction, as I recall, of 7 cents per hundred 
 pounds — on the testimony of a single witness. That witness said the 
 reasonable rate would be $1.01 — the old rate was $1.07 — and the Com- 
 mission reduced it to $1. That showed the growth of its preten- 
 sions — starting out with a very elaborate and careful investigation as 
 to one rate and getting in a few years to a point where it reduced sev- 
 eral hundred rates, on the testimony of one .witness, to a point below 
 what that witness said was reasonable. 
 
 Then the next year M-e find the Commission, in the Maximum Rate 
 Case, reducing the rates on about 2,000 or more articles from Chicago 
 and Cincinnati, which meant from Chicago, St. Louis, and every 
 point north of the Ohio River and every point on the Ohio River and 
 every point on the Mississippi River into southeastern territory. 
 
 So that there was this rapid increase of the generality and sweep 
 of the Commission's rate-making orders, and those general orders 
 were not complied with. So that you can not assimie, because the 
 carriers complied with some orders which they thought were reason- 
 able and proper, that therefore it would not have been injurious to 
 the railroads or to the business of the country if the carriers had 
 complied with all of them. That whole argument, based on the opera- 
 tion of the Commission's orders for the first ten years, falls to the 
 ground. And yet there is no reason, no point in this whole discus- 
 sion that has been more widely believed or has had more weight. 
 As closely as I have watched this thing for the last eight years I 
 assmned from the repeated statements in the public press that it was 
 true that all those orders were complied with except the very ones 
 that were sued on; and only in the last few months, in discussion 
 with an important traffic official of one of the line§ interested in that 
 grain-rate order, did it occur to me that possibly some of the others 
 were not complied with, and now it develops that only fifteen out of 
 forty-one were complied with. 
 
 Then we reach another reason that was asserted and used a great 
 deal more a few years ago than now, and that is that no general 
 rate-making power was demanded for the Commission, or could be 
 exercised imder the bills that were being considered by Congress. 
 
 I think everybody has now practically abandoned that argument, 
 and that it is pretty generally understood that you can not have a 
 little rate-making power and a big rate-making power ; you have got 
 to have all the rate-making power or not have it at all ; and that if 
 the Commission has the right to prescribe one rate for the future 
 it has the right to prescribe all rates for the future. 
 
 The Chairman. It has, or it should have. 
 
 Mr. HiNES. That if it has the right to prescribe one rate, it is 
 bound to have and necessarily has the right to prescribe all. 
 
24 SIXTH DAY. , 
 
 The Chairman. Yes. 
 
 Mr. HiNES. And, moreover, the interdependence of rates is such 
 that to prescribe one important rate means necessarily the fixing of 
 a very large number of rates. 
 
 Senator Cullom. Illustrative of that, do you mean to say that if 
 shippers in Omaha, Nebr., for instance, should complain that the 
 rate there on corn or wheat or anything else was too high, and the 
 Commission was called upon to go there and investigate it, and did so, 
 and determined that the rate was too high, and the order was made, 
 and the result was a reduction, there would have to be the same dif- 
 ference everywhere else? Is that the idea ? 
 
 Mr. HiNES. If you will let me use an illustration that I am more 
 familiar with, Senator, I think I can make it clearer. 
 
 Senator Cullom. Yes. 
 
 Mr. HixES. Assume that the Commission should, as it tried to do 
 in the Social Circle case, reduce the rate from Cincinnati to Atlanta. 
 It attemj)ted to reduce it in that case from $1.07 .to $1. The rates 
 from all points on the Ohio River are the same to Atlanta by all 
 railroads. The rates from Memphis, Vicksburg, and New Orleans 
 are 4 cents less to Atlanta and to all points taking Atlanta rates. 
 That one reduction would have brought down the rates from Louis- 
 ville and Evansville and Cairo the same as from Cincinnati; it 
 would have brought down the rates from Memphis, Vicksburg, and 
 Xew Orleans, and all points on the Mississippi, in the same way. 
 That would no doubt have pulled down the rate from Mobile, which 
 sells into that same territory in competition with A'^ew Orleans. 
 That probably might have affected the rate from Montgomery, and 
 no doubt would have affected it from Pensacola. So you would 
 have gone clear around the circle; and practical! j? every rate to 
 points in southeastern territory (which consists of an important 
 part of Alabama, all of Georgia, all of Florida, and some of South 
 Carolina) would have been pulled down by that one reduction which 
 the Commis^on made on the testimony of a single witness. 
 
 Senator Ctjllom. That is the same thing as the other suggestion. 
 
 Mr. HiNES. Yes ; I used that because I knew exactly how it worked 
 there, and I was not familiar with that other territory. 
 
 But while that vicAV is the basis for a great manj'^ of the demands 
 that still exist, and while I have no doubt that a great many of the 
 petitions that have been sent to Congress rest on that as a sub- 
 stantive and separate ground — the belief of the petitioners that it is 
 not a general rate-making power— yet that has gradually been 
 abandoned, I think, by those who now appear in advocacy of this 
 kipd of legislation; and they are bound to admit that it is just as 
 general as the Commission choosps to malte it. 
 
 Then we come to another proposition that has been urged a great 
 deal, and that is the delay in the courts under the present system. 
 It has been s^id that it takes, on an average, four and a half years 
 to get an order of the Commission enforced. But the peculiar thing 
 about that is t^iat those calculations are made with respect to cases 
 where the Commission's orders were not enforced. Tlie circuit 
 court found the orders were unlawful, and therefore did not enforce 
 them; and consequently there was no opportunity for them to go 
 i][itp effecl;. pending an appeal. They were unlawful, and were never 
 enforced. They had, during the earlier years of the act, to woiri? 
 
SIXTH DAY. 25 
 
 through the circuit court of appeals and then to the Supreme Court. 
 The act, of course, was new and doubtful, and there was a good deal 
 of delay. I have not figured it out — it may be as much as four and 
 a half years, on an average — but out of all the cases in court, only 
 two of the Commission's orders were enforced by the courts. So the 
 time it takes to'work through to the court of last resort in a case 
 where the Commission's order is unlawful and not sustained by the 
 court at all is no criterion of the time it would take, where the Com- 
 mission made a lawful order, for it to go to the circuit court, and, 
 using the machinery now provided for a speedy hearing in the circuit 
 court, to get an order and secure its enforcement. For if the circuit 
 court enforces it, that decree has to be observed from that minute, 
 unless the circuit court itself suspends the operation of the decree 
 pending an appeal ; and if it does that, it can put the carrier on such 
 terms as it chooses in regard to the appeal. 
 
 So that the statements that have been made about the delay in the 
 courts are based on an entirely diiferent condition of affairs from 
 that that exists now, or from that that would exist in a case where a 
 lawful order of the Commission had been disobeyed by the carrier. 
 
 I believe I stated to the committee that the expedition act of 1903, 
 which provides for the earliest possible hearing in the circuit court, 
 has never been resorted to in a single case by the Commission, 
 although it had cases pending when that act was passed, and other 
 cases have been instituted since that time. 
 
 In this connection it may be proper to call the committee's atten- 
 tion to the fact that there has been very serious delay before the 
 Commission in making its ordex's, and that much of the discontent of 
 the public on account of delay in getting action in these matters is 
 really attributable to the Commission's delay rather than the courts' 
 delay. I have not complete information about that; it is rather 
 difficult to get it without access to the Commission's own records. 
 But in this connection I will mention the fact that in that hay case — 
 and I am going to get Senator DoUiver some additional information 
 about that— the rate was advanced on January 1, 1900, and it was not 
 until October, 1903, that the Commission condemned it as imreason- 
 able. In the soap case the rate was advanced January 1, 1900, and it 
 was not until April, 1903, that the Commission condemned that rate, 
 which was about three years and three months. Then it waited about 
 one year and three months longer before it brought suit, making four 
 years and six months from the time the advance took place until the 
 court had a chance to do anything. That case is still pending in 
 court, and, as I say, I am not aware of any effort to expedite it 
 according to the terms of the Elkins Act. 
 
 Senator Newlands. Would there be any objection to expediting 
 the cases involving unreasonably high rates as well as those involving 
 discriminatory rates ? 
 
 Mr. HiNES. None in the world. 
 
 Senator Newlands. But there is at present no law for that ? 
 
 Mr. HiNES. No. Still, if the Commission makes an order, and 
 brings suit to enforce that order, there is the same provision for 
 advancing that case whether it is an unreasonable rate case or an 
 unjustly discriminating rate case. But the Commission can only go 
 into court in the first instance to enjoin the rate on the ground that 
 it is unjustly discriminating. That is the distinction between the two. 
 
26 SIXTH DAY. 
 
 Senator Newi.ands. But in one case it can go in without a prelimi- 
 nary hearing ? 
 
 Mr. HiNBS. Without a preliminary hearing. 
 
 Senator Newlands. And in the other the preliminary hearing is 
 required ? 
 
 ilr. HiNES. Yes ; but when it once gets into court there is the same 
 machinery for advancing it in one case as in the other. 
 
 Senator jSTewlands. Mr. Morawetz seemed to be of the opinion that 
 that preliminary hearing could be dispensed with in the case of the 
 unreasonably high rate. 
 
 Mr. Hikes. Yes. 
 
 Senator Newlajstds. What is your judgment about that? 
 
 Mr. HiNES. I do not see any objection to that at all. It would 
 simply save time and get decidedly quicker action. 
 
 Senator Neavlands. Is it j'our observation, taking the total time 
 from the inauguration of the proceedings before the Commission to 
 the final decree of the court, that about half the time is taken up in 
 the Commission and half in the court, or how is it distributed ? 
 
 Mr. HiNES. I am afraid that nij' data are not sufficiently full for 
 me to make a satisf actor}' conclusion on that point ; but I will venture 
 this opinion, that under the present system, with the machinery 
 there is for expediting the case in court, as a practical matter more 
 time will be taken before the Commission than will be taken in court. 
 
 As I say, all of these arguments about the four and a half years' 
 time are therefore wholly inapplicable to present conditions; or, for 
 that matter, to any case where the Commission makes a lawful order. 
 But no matter what the delay is, the proposition is to stop the delay 
 and not to revolutionize your system of regulating carriers. If a pre- 
 A^entive and a judicial method of dealing with carriers has delay in it, 
 stop the delay; make such a provision as will avoid it; but do not 
 throw that away and substitute for it a paternalistic plan of having^ 
 a bureau manage the business of the country. It is a non sequitur. 
 The fact that there is delay under the present system does not prove 
 that you have to have the rate-making power for the Commission. 
 
 There is this further thought in that connection — that under any 
 rate-making power you give the Commission, or any other bureau, 
 there is going to be infinitely more delay than th^re is now. That is 
 because the Commission is going to be so congested, not merely with 
 original cases, but with applications to modifj^ what it has already 
 done, and with efforts to try to adjust an inelastic system to changing 
 conditions, that it Avill be simply impossible for it to attend to busi- 
 ness even with the expedition that it attends to it now. So the rate- 
 making power is not going to stop the delay, in mj' opinion; it is 
 going to increase the delay. 
 
 (At this point the committee took a recess until 2 o'clock p. m.) 
 
 after recess. 
 STATEMENT OF MR. WALKER D. HINES— Continued. 
 
 The Chairman. You may proceed, Mr. Hines. 
 
 Mr. HiNES. Mr. Chairman, this morning I mentioned several of the 
 reasons which had served as the basis for the demand for the rate- 
 making power, all of which grew, it seems to me, out of entire miscon' 
 
SIXTH DAY. 27 
 
 ceptions as to the scope of the present law or the character of the pro- 
 posed rate-making power. The last one I discussed was the delay in 
 the courts. I will now take up the one which, it seems to me, has been 
 more potent than aU others together in bringing about and sustaining 
 this demand" for the rate-making power, and that is the dissatisfac- 
 tion which grows out of secret rebates and the feeling that somehow 
 the rate-making power is going to cure that trouble. Undoubtedly 
 this is the most important reason of all. It has been the source of 
 the greatest dissatisfaction and irritation of all the evils, or the possi- 
 ble railroad evils, in this country, and it is the cause that is most 
 frequently assigned as to why this rate-making power should be given 
 to the Commission. You will recall that it was the only specific evil 
 mentioned by the President in his last message, and that his recom- 
 mendation that the Conunission be given the rate-making power 
 came under the heading of " Eebates " in his message. The Townsend 
 biU has been repeatedly referred to by the public press as the anti- 
 rdbate bill, although there is absolutely no connection between the 
 prevention of rebates and the exercise of the rate-making power by 
 any Government tribunal. There would be exactly the same facility 
 and inducement to cut a rate made by an Interstate Commerce Com- 
 mission as to cut a rate made by a railroad company. The rates now 
 published by the railroad companies are the lawful rates, and the law 
 absolutely forbids any departure from those rates. The law could 
 do no more with respect to rates fixed by the Commission. I think 
 that is coming to be better understood, although it really is the corner- 
 stone of all this structure that has been raised on this subject and all 
 this agitation. 
 
 Senator Foeakee. I think the suggestion that has united the two 
 ideas has been that whenever there is a rebate given, if it be dis- 
 covered, the Commission having the rate-making power can make 
 that the rate. 
 
 Mr. HiNES. I am going to refer to that phase of it. 
 
 Senator Foeakee. That, it is claimed, would be a remedy. 
 
 Mr. HiNES. It is a strange thing that the advocates of the rate- 
 making power have professed to believe that for ten years it was 
 exercised by the Commission with very beneficent results without ques- 
 tion by the carriers, and yet that during those ten years rate cutting 
 was far more prevalent than it has been since and infinitely more 
 prevalent than it is to-day. That state of affairs existed during all 
 the time it was claimed that the Commission was exercising with 
 such beneficence this rate-making power. 
 
 The only tangible suggestion that has ever been made as to how 
 the rate-making power could stop rebates is the one which Senator 
 Foraker mentioned, that when it was discovered that a rebate was 
 being given the Commission could reduce the tariff rate to that 
 figure and that would stop the rebate. That necessarily presupposes 
 that the Commission has evidence of the existence of the rebate, and 
 if it has that evidence it does not have to resort to that remedy, 
 because the claim has been all along that it was only the lack of 
 evidence which prevented the enforcement of the present law against 
 rebates ; that the thing was so concealed and kept in the background 
 that nobody could tell definitely that rebates were being given, and 
 therefore they could not be prevented and those giving them could not 
 be punished. Of course j^'ou will be confronted with exactly the same 
 
28 SIXTH DAY. 
 
 difficulty if you try to apply another remedy. Assume that the rate on 
 ^rain from Chicago to New York is 15^ cents and it should be found 
 that there was a cut of 5 cents in the rate for some one shipper. To 
 apply that as the open rate would mean a tremendous loss to the 
 railroad company involved of several hundred thousand dollars. 
 Now, is it possible that any Government tribunal would impose that 
 loss upon that carrier on less evidence than would be necessary to 
 impose a fine of $10,000? It seems to me that the thing is absurd. 
 You have got to have the evidence to start with, and when you have 
 it you do not need to resort to this indirect way of meeting the situ- 
 ation. 
 
 Senator Newlands. But it is contended, is it not, Mr. Hines, that 
 a mere fine might not stop the rebate, whereas the imposition of a 
 rate equal to the rebate rate would be effective in stopping the prac- 
 tice? 
 
 Mr. Hines. I do not think there is any doubt but what the imposi- 
 tion of fines, or repeated fines, will be suiBcient; but, of course, the 
 most effective way which has been found to deal with rebates is the 
 injunction. You can, if you have any sort of evidence on which you 
 could base any tangible action, get out an injunction, which can be 
 absolutely enforced. That is something which people can not afford 
 to disobey, or evade, when it is established, and that is the remedy 
 that would prevent it as absolutely as the other. 
 
 But, going on to the other difficulties with respect to this, take 
 the case of Chicago and New York: Suppose one railroad does cut 
 the rate 5 cents a hundred pounds on gram and you do go to work 
 and put in a reduced tariff rate from Chicago to New York. That, 
 as a practical matter, pulls down the rate on every other railroad 
 between Chicago and New York. It pulls down the rate from St. 
 Louis and the rate on grain from all intermediate points from every 
 point east of the Mississippi River. It pulls down the rate to Boston 
 and Philadelphia and to Baltimore and to Newport News, and, in 
 fact, establishes an entirely new system of tariffs on grain through- 
 out the principal part of the United States. 
 
 When you come to figure on the consequences of that, it shows how 
 impracticable it would be, even if you had the evidence, and even if 
 you were willing, as a punishment for giving the rebate in the past, 
 to impose such an enormous pecuniary loss on the railroad that gives 
 the rebate, how unjust it would be and how impracticable from the 
 general commercial standpoint to apply anj"^ such remedy. 
 
 Of course, if a rebate is given and adhered to, that becomes sub- 
 stantial evidence and important evidence as to what a reasonable rate 
 would be. It is of value to be considered in that light, but it is only 
 evidential. You can not turn the rate-making power into a punitive 
 measure. It has got to rest on what is just and reasonable under all 
 the circumstances and taking into consideration all the ways in which 
 it would affect commerce. So, wliile that method has been suggested 
 in some quarters, I do not think it has ever been worked out to its 
 final conclusions, and I think working it out clearly shows that it is 
 utterly impracticable. 
 
 Senator Dollivek. You mean the penalty would fall upon all the 
 railroads — upon the innocent as well as the guilty? 
 
 Mr. Hines. Upon all the railroads. 
 
 Senator Dolliver. But suppose this rebate occurred at a non- 
 
SIXTH DAY. 29 
 
 competitive point, where a single railroad dealt with the industries 
 of the community ? 
 
 Mr. HiNES. Of course, ordinarily the difficulty is that they occur 
 at the competitive points and on account of competition ; but, no mat- 
 ter where they occur, there is a certain relative adjustment of rates 
 on the commodity involved. 
 
 Senator Doli.ivee. Suppose they occurred upon an isolated coal 
 road, for instance, and were not based upon competition, but were 
 based on the rather uglier situation that the controllers of the road 
 also own the coal bank, or the coal mine, and an individual should 
 complain that the large coal enterprises belonging to the people inter- 
 ested in the road were given a preferential rate over individual 
 shippers or those of smaller importance, and there was only one road 
 interested ? 
 
 Mr. HiNES. That, of course, would relieve it of those ultimate con- 
 sequences that would make it utterly impracticable elsewhere, but 
 the thing would be presented in either one of two aspects: Either 
 that the published rate was too high and ought to be reduced, or that 
 the railroad ought to be punished for violating the law. 
 
 Senator Dolliver. Could not the fact that they extend this favored 
 rate to a large shipper be made conclusive by the law that that was 
 ,a reasonable and profitable rate? 
 
 Mr. HiNES. If you did that you would give the statutes such a 
 highly penal character as would require, of course, the clearest evi- 
 dence to warrant its enforcement. Besides, in an isolated case like 
 that you mention, it would have this very disastrous consequence on 
 the innocent as well as the guilty, and upset business generally. But 
 even in a case of that sort the thing is presented in one of two forms : 
 Either the thing to be accomplished is to secure a reasonable tariff 
 rate, or to punish the railroad for its violation of the law in giving 
 secret rebates. If the purpose is punitive, that can be accomplished 
 now when you get the evidence. If it is to secure a reasonable 
 tariff rate, that can be accomplished now by holding that the tariff 
 rate is unreasonable and enjoining the continuance of that rate. 
 
 The fact that a systematic rebate is given, of course, would be very 
 important evidence before the court as to what is a reasonable com- 
 pensatory rate for doing that service, and it would have its full oper- 
 ation in that direction. 
 
 Senator Cullom. Mr. Hines, is it not true that in many instances 
 these rebates or secret cuttings of rates are made by railroads and 
 nobody finds out anything about it, and the result is that you get the 
 freight and that is the reason you give the rebate, so that you may 
 transport the property at the rates secretly agreed upon ? 
 
 Mr. Hines. Of course that always has been the inducement to 
 rebates, where they have been given — to get the business. 
 
 Senator Cullom. And if the rebates are not found out it does not 
 affect the rates anywhere else or with anybody else ? 
 
 Mr. Hines. That is true. 
 
 The Chairman. Who suffers by the rebates and who gains by 
 them? 
 
 Mr. Hines. The railroad, of course, suffers in one way a loss of 
 revenue. On the other side it may gain business. It may gain a 
 temporary advantage. 
 
 The Chairman. But the shipper gains, does he not? 
 
30 SIXTH DAY. 
 
 Mr. HiNES. The shipper gains and his competitors lose. 
 
 Senator Cullom. And all of his competitors are made to suffer? 
 
 Mr. HiNES. The competing shippers lose. 
 
 The Chairman. And the railroad is out the money ? 
 
 Mr. Hikes. Yes. 
 
 Senator Dollivee. Unless the increased business removes that 
 feature ? 
 
 Mr. HiNES. Yes. In the long run I do not think it does. The 
 plausible claim is made that, if we are right in our contention that 
 there is an adequate correction for unreasonably high and unjustly 
 discriminatory rates under the present law, there can be no objection 
 to giving the rate-making power and just making it a little plainer. 
 They say : '' If the fact that there is a rate which is unreasonably 
 high would now be sufficient cause for an injunction requiring its dis- 
 continuance, is it jiot preferable that the Commission to which the 
 question of the reasonableness of the rate is submitted shall prescribe 
 what the rate shall be for the future, as it will accomplish just the 
 same thing? If you are right in your contention that there is a 
 complete remedy now, what is the objection to making it a little 
 clearer? " That sounds very plausible, but it is fallacious, because 
 the two remedies are of a very different character. A preventive 
 remedy, which compels the railroad to quit violating the law, but. 
 leaves it to the railroad to adjust its business in accordance with the 
 injunction, is a very different thing from having a Government 
 bureau specify the detailed manner in which the railroad must con- 
 duct its business for the future in order to comply with the law. 
 Let us take an illustration: Suppose a coal rate is found unreason- 
 ably high, and under the present system the court, at the instance of 
 the Commission, enjoins the continuance of that rate; in other words, 
 orders it discontinued. The railroad would make a substantial re- 
 duction in that rate and would comply with the spirit as well as the 
 letter of the court's injunction. That would be the operation of the 
 present system. 
 
 Now, suppose in a year or two years or three years conditions 
 should radically change. There might be some enormous increase in 
 the cost of operation or some changed local condition. There might 
 be a change in the method of disposing of the coal. When the rate 
 was made there may have been simply one rate for all coal. It may 
 become to the interest of the coal operators, and they may use their 
 fine coal for coke; or they may change their method of business in 
 some way, so that it is to their interest to have the rate re%ised and 
 a higher rate established on the higher grades of coal, and a lower 
 rate established on the lower. In other words, there may be some 
 substantial change in conditions. Now, if the railroad company has 
 been enjoined under the present law, it would, where there was such 
 a substantial change in conditions, be able to go ahead and make 
 another rate, because the injunction would not apply under changed 
 conditions, but it would do that practically under the" eye of the court. 
 The court would have enjoined the railroad with respect to that very 
 traffic. The shipper aggrieved by it Avould have a right, under the 
 present law, to bring the matter "before the Commission, or the law 
 could be made clearer to give him the right to revive it in that par- 
 ticular case in court, without taking time to go through the Commis- 
 sion. In other words, while the railroads would be left with the 
 
SIXTH DAY. 31 
 
 right to make such changes as changed conditions required, the 
 shipper would have an adequate opportunity to prevent anj'- advance 
 which would not be justified. 
 
 Under a rate-making power the thing would be entirely different. 
 The Commission would make the rate on coal. That rate would 
 become a part of the law of the land. No matter how conditions 
 changed afterwards, that rate could not be changed or revised with- 
 out going to the Commission and getting an affirmative dispensation 
 from it. When you take into consideration the extent of the country 
 and the enormous number of questions of that sort that would come 
 before the Commission when it gets the rate-making power, it is 
 apparent that practically that rate would be perpetual. You could 
 not get it changed. The Commission would never get to it, or it 
 would be three or four years after the conditions had arisen, and they 
 might have disappeared before the Commission would get to the 
 point of making the change that was rendered necessary by changed 
 conditions. 
 
 The same thing would be true if it was an unjust discrimination. 
 There might be coal mines on two branches of a railroad doing busi- 
 ness in a common market. The court might find that the relative 
 adjustment of rates between those two points was unjustly discrimi- 
 natory and order the discontinuance of that adjustment. Under the 
 present law, the carrier would comply with that substantially, could 
 be made to do so, and the thing would be corrected. Suppose condi- 
 tions changed. They might change in a month, or they might change 
 in a year. It might be to the interests of the shippers on those two 
 branches to have the rates changed — their business might change; 
 their methods might change ; they might go into other business along 
 with this ; they might build an iron furnace at one of the places, and 
 might have return loads for the cars at one of the places for carrying 
 ore, or something like that, so that there would be a vital change in 
 conditions, and it would be very desirable, and perhaps essential, to 
 the orderly conduct of the business to make an important change in 
 that adjustment which the railway company had established in 
 obedience to the court's decree. Under the present system, they could 
 go ahead and do that, and yet the court would be right there to stop 
 it if it was not lawful and was not proper under the changed condi- 
 tions. In other words, the power of initiative would remain with the 
 carrier. Under the rate-malring power, that would have to go to 
 Washington and have to wait until the Commission could get around 
 to it, and perhaps all plan of change in the business that the shipper 
 wanted to accomplish or all the conditions which made the new 
 adjustment desirable or necessary would pass away before the Com- 
 mission got an opportunity to operate upon it. 
 
 The difference in the two systems is that one is doing business 
 mider an effective power of control and the other is having a Gov- 
 ernment bureau at "\'\'ashington manage the business for you. It is 
 just the dividing line, or rather, they fall on each side of the clear 
 dividing line between leaving the people who have put their money 
 in the property to manage it in accordance with business conditions 
 and haAang a Government power manage it for them. So that it is 
 entirely a different thing. And the fact that the present remedy may 
 be adequate, and I believe it is, although the machinery raay be cor- 
 rected so as to improve it, is very far from proving that the entirely 
 
32 SIXTH DAY. 
 
 different remedy of a rate-making power would be desirable. The 
 present remedy "is flexible and affords an ample remedy to the public. 
 The other is absolutely inflexible and is wholly unnecessary under 
 present conditions. 
 
 There has thus been an entire misconception as to the origin of 
 the present law and as to its scope and the operation under it and as 
 to the operation under the proposed rate-making power. Based on 
 these misconceptions, the demand that now exists to a great extent 
 for a change m the law has grown up. And, of course, it is essen- 
 tial, in deciding what is necessary to do, to review these reasons and 
 to find oat the exact truth and adjust any new legislation to meet not 
 the imagined evils but the actual evils, and to base any new legisla- 
 tion on the actual history of the law and the necessities developedj 
 instead of upon a mere fictitious history of the law and fictitious 
 evils, or evils that would not be helped by the power that is sought. 
 
 Passing beyond that phase of the matter, we come to the reasons- 
 that areT)ased on supposed existing railroad conditions. The first 
 one, and the most prominent one, or one of the most prominent ones, 
 is unreasonably low rates. Up to 1899 that was not seriously urged 
 in a.nj quarter. It seemed to be conceded, even by the most ardent 
 advocates of the rate-making jDower, that rates were reasonably low; 
 that there ware unjust discriminations not merely by secret rates, but 
 in tarifl' ratefe between different localities or different commodities, 
 but that rates were not unreasonably high, or, if any particular rates 
 happened to be unreasonably high, that they were palpably out of 
 line with the general adjustment and therefore were susceptible of 
 correction on the groimd of being unjust discriminations. 
 
 About January 1, 1900, however, numerous important advances 
 were made in railroad rates by the railroads in some sections of the 
 country, and from that time the cry has been raised that tariff rates 
 are unreasonably high. 
 
 Senator Newlands. From what time ? 
 
 Mr. HiNES. From January 1, 1900. 
 
 Senator Cullom. What produced that change of feeling, or senti- 
 ment, with reference to the rates getting to be very high ? Did they 
 increase much? 
 
 Mr. Hikes. It must have been due to these advances in rates. Of 
 course it was greatly exaggerated, because in certain quarters there 
 w£is an effort to get this power and to exaggerate everything that 
 would serve as an argument for it. However, there were important 
 advances and those advances must have been the basis for the belief, 
 as far as there was a basis for it, that rates were unreasonbly high. 
 
 Senator Dollivee. Mr. Hines, if you are able to tell, to what goods 
 as a rule did these advances apply, and how extensive was the ad- 
 vance? 
 
 Mr. HiNES. It is impossible for me to stat« with any degree of 
 accuracy what that condition was over the country. I know in the 
 southern territory there were changes by advances in classifications 
 on a number of articles ; perhaps four or five hundred changes alto- 
 gether. They really applied to a very small percentage of the total 
 traffic in that territory. A great many of them applied to less than 
 carload shipments, and they represented a very small percentage of 
 the total business of the railroad company, because most of its busi- 
 ness is, naturally, carload business. They did not apply to the 
 
SIXTH DAY. . 33 
 
 staples of the South, to cotton or coal. In the Central Traffic Asso- 
 ciation territory I think there at ere marked advances on bituminous 
 coal, because the rates had become excessively low in 1898 and 1899. 
 
 Senator Dolliver. Did they apply to lumber ? 
 
 Mr. HiNES. In the South they applied to lumber. In 1893, or 
 about that time, during the period of depression, the rate on lumber 
 from Arkansas to Cairo, A^hich was the key to the situation, came 
 down to 13 cents a hundred pounds. That pulled down the rates 
 from points east of the Mississippi River. Subsequently — this did 
 not happen until 1903 — the rate was raised. 
 
 Senator Doll^'ek. To what ? 
 
 Mr. HiNES. It was first raised to 14 cents and then to 16. Then 
 that brought about a corresponding raise east of the Mississippi 
 Eiver on some traffic because it had been brought down to that un- 
 reasonably low figure on account of the very low rate west of the Mis- 
 sissippi River. The lumber people were making enormous profits, 
 and of course the cost of production to the railroad had very much 
 increased, and they took advantage of the opportunity which the 
 withdrawal of that excessive competition west of the river gave 
 them to raise their rate. In other words, it was brought clown only 
 because the rate from Arkansas to Cairo came down to 13 cents, and 
 when conditions were such over there that that rate was raised, the 
 rate cast of the river was raised accordingly. I think lumber, as I 
 now recall, was the only commodity that constituted any very im- 
 portant part of the tonnage where the rate was raised. As I say, its 
 reduction to a very low figure in the first place and its increase after- 
 wards were due to that fact. 
 
 These advances, however, have been gi-eatly exaggerated. Take 
 advances making .500 or 600 changes in the classification, say there 
 were that many advances; it looked very large, but it actually ap- 
 plied to a very small part of the total traffic. 
 
 The Industrial Commission made a statement, which has been re- 
 peatedly quoted, that those changes appeared to be an advance of at 
 least 25 per cent in all the public rates in this country. That state- 
 ment was wholly incorrect and without any foundation whatever. 
 I think it grew out of the fact that in the official classification terri- 
 tory — that is, the territorj' north of the Ohio and Potomac rivers and 
 east of the Mississippi River-— in the case of about 800 articles that 
 were changed, many of them on less than carload rates, affecting a 
 comparativelj' small part of the traffic, the increase on those 800 ar-. 
 tides was approximately 2.5 per cent. So the Industrial Commission 
 jumped to the conclusion that it meant 25 per cent increase on the 
 whole traffic of the United States. 
 
 The Chairman. The Industrial Commission stated that in their 
 report? 
 
 Mr. HiNES. Yes, sir. Thej' say there was an advance of 25 per 
 cent on the tariff rates. 
 
 The CHAiR^rAN. And it was really in one single case only ? 
 
 Mr. HiNES. Over the United States, they said. 
 
 Senator Newlamds. That is absolutely proved by the gross income 
 of the companies as compared with the income of the preceding year, 
 is it not ? 
 
 Mr. HiNES. Of course it does not begin to be any such increase as 
 
 6 »— 05 M 3 
 
34 SIXTH DAY. 
 
 that. Moreover, there is a rery large increase in the number of tons 
 handled, which would increase the revenue without any change in 
 rate, and the increase in high-class business would increase the reve- 
 nue without any change in rate. Moreover, not all, but many of 
 these advances were restorations, such 51s that lumber rate, of which 
 1 have spoken; usually, in the main, a restoration to the rate pre- 
 vailing in 1893. It is necessary to face the facts, however, and there 
 were important advances in rates in 1900, and in two or three in- 
 stances since then. 
 
 Senator Cullom. Are you prepared to say what they are now: in 
 comparison with other countries? 
 
 Mr. HiNES. ^\Tiy, I have not accurate data to lay before the com- 
 mittee on that subject. I have no doubt that such data will be put 
 before the committee. However, from a general knowledge of the 
 subject, I feel satisfied that they are far loT^er than in any other 
 country, and they have not been materially increased, taking the traf- 
 fic of the country as a whole, by reason or these advances which took 
 place in 1900 and since, because, taking the traffic as a whole, they 
 apply to such a small percentage of the traffic. 
 
 Senator Culloji. You do not know how they applj' to grain — 
 wheat, corn, etc. ? 
 
 Mr. HiNES. In the southern territory there has been no advance 
 on the rates for those articles. I am not sure whether there has been 
 any reduction or not, but I know there has been no advance in the 
 prevailing scale of rates on grain and grain products. 
 
 The Chairman. On the whole, is it your opinion now that rates 
 have lowered since then? Of course there have been advances in 
 some cases, but on the whole, taking the general traffic of the country, 
 have the rates lowered ? 
 
 Mr. HiNES. I do not believe, as a whole, that the rates can be sub- 
 stantially or appreciably higher than thej' were in 1899, because if 
 they were there would be a much more marked increase in the relative 
 rate per ton per mile. I was going on to explain in a minute in re- 
 gard to that. 
 
 The CHAiRM;A>f. But labor and materials have advanced? 
 
 Mr. HiNES. Yes, sir; labor and materials have advanced very 
 much. I was just going to Speak of that. 
 
 The Chairman. I am sorry to interrupt you. Go ahead, Mr. 
 Hines. 
 
 . Mr. Hines. While there have been advances in rates, they have been 
 mucli less than have been represented and are otiset by the most 
 marked advances in the prices paid for labor and in the prices paid 
 for materials. The advances in the prices paid for labor and mate- 
 rials constitute a far higher percentage than the advances in rates. 
 There is, ho^vever, this phase of the matter that I think it is im- 
 portant to consider : Under the interstate-commerce act every unrea- 
 sonably high rate is prohibited. It is the express duty of the Com- 
 mission, whenever it finds any rate is unreasonably high, to make an 
 order requiring the discontinuance of that rate. 'These various ad- 
 vances have been before the Commission verv prominently, because 
 it has referred to them a great deal in its aimual reports, and its mem- 
 bers have referred to them a great deal'in public addresses and other- 
 wise, and yet, notwithstanding the numerous advances which were 
 
SIXTH DAY. 35 
 
 made in 1900 and since then, so far as I can find the Commission has 
 condemned only three of them. 
 
 In October, 1902, it condenxned the advance in hay rates. The 
 United States circuit court has since suggested, although not neces- 
 sary to decide in the case, that that advance was reasonable. The 
 Commission held that it was unreasonable. That is one of the three. 
 
 Senator Dolliver. ^\liat was that advance? 
 ' Mr. HiNES. It was a change from sixth to fifth class. 
 
 The Chair:\[an. That came through classification ? 
 
 Mr. HiNES. Yes. 
 
 The Chairman. It did not come as a direct advance? 
 
 Mr. HiNES. It was for the purpose of making an advance. 
 
 The Chairjian. But they changed the classification? 
 
 Mr. HiNES. They changed the classification on hay ; yes, sir. Hay 
 was in a class with grain, which loaded very much heavier and was 
 verj' much more desirable traffic than haj', and they raised it to a 
 class where it had to pay a somewhat higher rate. 
 
 Senator Dolliver. Thirty per cent more ? 
 
 Mr. HiNES. I do not know that it was that much. I am not 
 familiar enough with the rates in that territory to be able to give an 
 accurate answer, but it was an advance. As I say, the Commission 
 condemned it, and the circuit court said that the advance was rea- 
 sonable. 
 
 Senator Forakee. Was not that the case of which the secretary of 
 the Interstate Commerce Commission, Mr. Moseley, was speaking in 
 an address which you read ? 
 
 Mr. Hikes. No; he ■s^aK speaking on general principles there. 
 That case had not come up. 
 
 Senator IfoEAiiER. I thought he g;ave figures in regard to that ad- 
 vance. 
 
 Mr. HiNES. No. That case had not come up at the time when he 
 made that address. It came up subsequently. But the court indi- 
 cated that it was proper to class hay higher than grain and that the 
 advance in the rate wa^not unreasonable. 
 
 The next one of the three was an advance, on January 1, 1900, in 
 the rates on soap in less than carloads in official classification terri- 
 tory. I am not familiar with this opinion in detail '- 
 
 Senator Foraker. Was that the Proctor & Gamble case? 
 
 Mr. HiNES. Yes, sir. The Commission condemned the advance. 
 That was three years and nine months after the advance took effect. 
 Then, in the summer of 1904, about a year and three months later and 
 about four and a half years after the advance took effect, the Commis- 
 sion brought suit in court to enforce its order. That suit is still pend- 
 ing, and the opinion of the court as to the reasons for that advance has 
 not yet been obtained. 
 
 The third case was the lumber case, to which Senator DoUiver 
 referred. The rates on lumber from both east and west of the Mis- 
 sissippi Eiver to the Ohio River were advanced 2 cents a hundred 
 pounds and 1 cent a hundred pounds to certain western territory. 
 A complaint was filed before the Commission concerning that as to 
 the territory east of the Mississippi in June or July, 1903, and in 
 February, 1905, the Commission, by a majority of one-^that is, three 
 in favor of the opinion and two dissenting — found that that advance 
 
36 SIXTH DAY. 
 
 was unreasonable and ordered its discontinuance. That was about a 
 month ago. 
 
 Senator Dollivee. Mr. Hines, you speak of rates being based upon 
 rivers. What is the reason for that ? 
 
 Mr. Hines. The southern railroads, when they were built, stopped 
 at the Ohio River, and that is practically so to-day. That is where 
 the roads went to. 
 
 Senator Dollivee. There is a river out in our country that is the 
 basis of all the rates in the oiBcial classification territory — the Mis- 
 sissippi Kiver. The rates come up to that river at a very reasonable 
 sum. On the other side of the State of Iowa there is the Missouri 
 River, and the rates from the other direction seem to be based on that 
 river. As the State of Iowa lies bodily between the two, what effect 
 upon the State does the artificial basis of rates like that naturally 
 have ? 
 
 Mr. Hines. Senator, you know a great deal more about the State 
 than I do, and I have always understood it was about the most pros- 
 perous State in the Union. I know of no State that has a better 
 reputation in that direction. 
 
 Senator Dolliver. It is very gratifying to have a reputation of that 
 kind, but we find ourselves with our eastern-bound rates based on the 
 Missouri River, which is on our borders, and our west-bound rates, 
 from Chicago and New Yorii, based on the Mississippi River, and all 
 our manufacturers and merchants in the interior are compelled to 
 pay the classification rate to the Mississippi River plus the local rate 
 into the interior of the State. I wanted to find out why you do not 
 take a meridian instead of following the windings of a river. Would 
 it not be better and more reasonable to take a -meridian as the basis 
 of these rates ? 
 
 Mr. Hines. I would not undertake to express any opinion about 
 conditions out there, because I am not familiar with them. In the 
 South, however, you have all the railroads stopping at the Ohio River. 
 That is the natural boundary for the railroads. The Louisville and 
 Nashville was built from Nashville, and thq Cincinnati Southern 
 from Cincinnati. The old Kansas City, Memphis and Birmingham 
 was built from Memphis. You have all those railroads, and from 
 that point 
 
 Senator Dollivee. I think we would get along all right if we had 
 only one river, but we seem to be in between the two bases from which 
 the rates are calculated. 
 
 Mr. Hines. Of course there is bound to be some basis, some start- 
 ing point. In the South the Ohio River has been the natural and 
 really necessary boundary, because any other would have been abso- 
 lutely arbitrary and cut right through the middle of our lines that 
 were built in that territory ; and as road construction in that terri- 
 tory was started under that plan this was natural and, I think, inev- 
 itable in the South. 
 
 So those are the three advances that the Commission has con- 
 demned — the hay case, where the court disagreed with them ; the 
 soap case, where the court has not had the chance to pass on it. 
 and then the lumber case, where the Commission has disagreed, three 
 for apd two against the opinion that the advance was unreasonable. 
 
 Out of all this talk about advances since January 1, 1900, that is 
 the practical effect as far as formal decisions of the Commission have 
 
-JXTI-I DAY. 37 
 
 gone. It held a hearing in April, 1903, Avith respect to the advances 
 in official classification territory on iron articles, packing-house prod- 
 ucts, and dressed meats and grain. The Commission expressed the 
 opinion that the advances on iron articles, packing-hovise articles, 
 and dressed meats were not unreasonable, and pointed out that to a 
 considerable extent they were mere restorations of former rates. It 
 suggested that the advance on grain rates was unreasonable, but 
 refrained from making an order regarding its discontinuance. At a 
 subsequent time I think the, railroads all reduced the rates to the 
 basis which the Commission suggested, but the Commission made 
 no definite order, and I do not think it was claimed that that reduc- 
 tion ^^as due to the Commission's suggestion. The Commission did 
 not pursue that at all, as far as the published opinion showed. , 
 
 In the Commission's report for 1900 they discussed this advance 
 at some length, and it is stated that it had " advised complaining 
 shippers that under the interstate-commerce act as at present applied 
 it was powerless to afford them any effective relief." I do not think 
 that is correct. Under the law as it now stands I think any- one of 
 these advances which the Commission has found unreasonable and 
 ordered the discontinuance of could have been discontinued by 
 promptly following it up in court, unless it was plainly apparent 
 to the court that the Commission's order was not justified by the 
 facts. However that may be, after all the discussion about advances 
 in rates, there is the record of three advances having been condemned 
 and definite orders issued requiring their discontinuance,- the last 
 one of those orders having been made in February. 
 
 I want to discuss somewhat Senate Document 257, on the subject 
 of advances. ' That has furnished the principal text in the discus- 
 sion as to advances in freight rates. A resolution was adopted by 
 the Senate on March 11, 1904, calling for information as to changes 
 in rates, in the revenue of the carriers, and in expenses; and in 
 response to this the Interstate Commerce Commission sent a letter 
 to the Senate, which was printed as Senate Document No. 257 and 
 which showed by a method of calculation which the Commission 
 adopted that there had been an increase in the revenues of $155,- 
 000,000, due to increases in rates, and. that $155,000,000 has formed 
 a prominent part of all the discussion of the subject since that time. 
 
 Of course, I can not undertake to speak with any information at 
 all of the details of this matter over the whole country, but I made 
 some investigation of the subject with respect to what is known as 
 southern classification territory, which embraces the territory south 
 of the Ohio Kiver. The Commission stated in this report : 
 
 Prior to February 1, 1900, southern classiflcation No. 25 had been for some 
 time in forr-e. There were three issues of this classiflcation during the ^ear 
 1900, namely, Xo. 20, effective February 1 ; No. 27, effective June 1, and No. 28, 
 effective NoVember 10. By comparing the last with No. 25 it was found that 
 63G changes were made during the year, of which 5.31 were advances and 105 
 reductions in rating. 
 
 It then refers to the western classification, about which I know 
 nothing. Then the Commission added : 
 
 A number of issues of each of the classifications referred have been made 
 since the year 1900, but the changes made in such issues were comparatively 
 few and were not of such importance as to deserve special notice. 
 
38 SIXTH DAY. 
 
 This report was dated April, 1904. Taking the southern classifica- 
 tion territory in the calendar year 1901, which was the year following 
 the one in which they referred to these numerous advances, there 
 were 25 advances in the changes in rating in southern classification 
 territory and 112 reductions. In 1902 there were 11 advances and 136 
 reductions. In 1903 there were 23 advances and 112 reductions, 
 jnaking in the three years, all of which came in the period where the 
 Commission said the changes had been few and unimportant, 59 
 advances and 360 reductions. The Commission deemed that 530 
 advances were of so much importance that the Senate committee 
 must be advised about it, but regarded the 360 reductions in the suc- 
 ceeding three years as not worthy of mention. 
 
 Senator Cijllqm. How did those two footings come out? Which 
 ^Vas the largest sum in the aggregate ? 
 
 Mr. HiNES. There were more advances in 1900 than there were 
 reductions in the three succeeding years. There were 531 advances-^ — 
 
 Senator Dollivee. Is there any real value to those figures unless 
 we know what the articles are ? 
 
 Mr. HiNES. As a matter of fact, it is hard to attach any real value 
 to them. There is this point : It does show that in 1900, as I stated a 
 while ago, there were a good many, an unusual number, of advances 
 in rates, but the figures will show, what is undoubtedly the fact, that 
 under normal conditions and year by year there is a constant tendency 
 to reduce rates. But just taking the nuinber of changes, as you say, 
 they are of very little importance without knowing what they were 
 and what the changes amounted to. That is why it seems to me that 
 the only way to deal with this is for the tribimal which is charged 
 with the enforcement of the law to take up these advances one by 
 one and condemn those that are unreasonable and order their dis- 
 continuance. These broad general assertions are bound to mislead. 
 
 But if the 531 advances were significant facts in 1900, then the 360 
 reductions in the succeeding three years were just as much signifi- 
 cant, making allowance for the difference in amount, and were equally 
 entitled to be laid before the Senate for its information. 
 
 Senator Foeakee. The one was probably as important as the other? 
 
 Mr. HiNES. Yes. But the Commission went beyond those refer- 
 ences, and said that the rate per ton was the most accurate basis on 
 which to figure the increased revenue. So it proceeded to give the 
 number of tons of freight carried, and the total freight revenue as 
 charged, and then to figure the average rate per ton ; and then to see 
 what the revenue in 1903 established if the average rate per ton 
 charged in 1899 had been charged instead of the average rate per 
 ton which thcv found for 1903. On that basis they figured out an 
 increase of $1.55,000,000. 
 
 There are some very remarlrable errors in that calculation. Mr. 
 II. T. Newcomb pointed out before the House committee that for 
 1899 the Commission gave the average rate per ton as 95 cents and 
 2 mills, whereas its own published report shoAved, on page 96, for the 
 year 1899, that the average rat€ per ton Avas 97.13 cents. That is, it 
 understated the rate for 1899 by about 2 cents a ton. That in 1903 
 it stated the rat« at $1.0793, ^^•hereas on page 97 of its report for 1903 
 this same figure was given as a dollar and five cents and fifteen- 
 hundredths. Taking the correct figures, Avhich appeared by the 
 (Commission's own report, it cuts down the amount of excess, accord- 
 
SIXTH DAY. 39 
 
 ing to their basis of calculation, from $155,000,000 to a little over 
 $100,000,000. I understand that the way that discrepancy arises is 
 that when the Commission comes to figure its tonnage and its reve- 
 nue it is confronted with this condition : Some railroads report reve- 
 nue and omit to report tonnage, and some report tonnage and omit 
 to report revenue, at least in the available shape. The consequence is 
 they have to cut out both of those sets of delinquents, which, of course, 
 are not very large for the country as a whole, and they simply follow 
 the reports of the roads giving all the information they call for. 
 On that basis you get the figure of 97 cents for 1899 and $1.05 for 
 1903, whereas in this report which the Commission has made to the 
 Senate it abandoned its own method of avoiding these delinquencies 
 that caused their mistakes and took the total tonnage reported and 
 divided it into the total revenue received, with the result that thej'' 
 made a mistake of about $45,000,000 against the railroads. 
 
 If you take their own method of dividing the total tonnage into 
 the total revenue, you find that the Commission did not have, when it 
 made this report — and it made it very promptly after it was called 
 for; it was called for March 11 and submitted on April 7 — The Com- 
 mission did not have, when it made this report, the full figures for 
 1903. But if you take the full figures, which it must have had not 
 very long after, and pursue the very method which the Commission 
 did here, and divide that total tonnage into the total revenue, it 
 figures out only about $96,000,000 instead of $155,000,000; yet when 
 the Commission got the full figures it did not advise the Senate that 
 it had misadvised it in this original report, and the figures of 
 $155,000,000 stood unchallenged. 
 
 There is further a most remarkable error in this whole basis, which 
 the Commission uses, and which makes it very unreliable for any pur- 
 pose whatever. Of course each railroad company reports to the Com- 
 mission the tonnage which passes over its road. But take a case down 
 in our country, of a ton of grain moving from Louisville to Birming- 
 ham by the Louisville and Nashville. That is reported once as 1 ton 
 carried by the Louisville and Xashville, and is reported to the Com- 
 mission. That ton of grain might move by the Illinois Central to 
 Memphis and by the Frisco to Birmingham, and the Illinois Central 
 would report that as 1 ton carried, and the EVisco would report it as 
 1 ton carried. The only way to get figures of the whole country 
 together which are reliable and which will avoid duplications is to 
 report the tonnage originating on the line. In that case the Louis- 
 ville and Nashville would report the ton in the one case and the Illi- 
 nois Central would report it in the other, and the Frisco would not 
 report it all, becaxise it did not originate with the Frisco. 
 
 The Commission, in getting up these figures which it reported to the 
 Senate, estimated upon and reported all railroads. So that if a ton 
 moved over three railroads it appeared three times, whereas if it 
 moved over one railroad it only appeared once. That was a wholly 
 uncertain element, an adventitious circumstance which crept into the 
 report, which destroyed its comparative value. That, probably, had 
 an important bearing. In 1899 the railroads were not nearly so 
 crowded with traffic as they were in 1903. While I do not know it 
 as a fact, yet, judging from what Ave found on the Louisville and 
 Nashville, I think it is very probable that the Illinois Central would 
 have been willing to haul more freight via Memphis and Birmingham 
 
40 SIXTH DAY. 
 
 in 1899 than in 1903, when they did not have the cars, because their 
 local business imperatively demanded those cars, and it was bound to 
 give attention first to its own business ; it was its duty to do that. 
 The result was that in 1903 an immense quantity of freight passed 
 over the direct lines between the two points, while in 1899 it passed 
 over roundabout lines. Consequently, the number of tons piled up 
 by that method of calculation of the Commission was relatively veiy 
 much greater in 1899 than it was in 1903, and if niy estimation is 
 correc^of course it is a surmise and is not susceptible of absolute 
 demonstration — it follows that the average revenue per ton in 1899 
 would have been much less on exactly the same roads than it was in 
 1903. 
 
 There is another circumstance which impairs the value of the 
 Commission's calculations. As I understand it, the Commission 
 divides the United States into ten territorial groups which, as far 
 as possible, are in accordance with traffic conditions, and, as far as 
 practicable, according to some natural lines of demarcation. If 
 the railroad is in two groups, as I understand, it must make two 
 reports to the Commission; and it reports the total carried in one 
 group and the total carried in the other. So, if the railroad hauls a 
 carload across the line it has to report it twice. The Louisville and 
 Nashville runs into western Virginia, the Big Stone Gap, and if it 
 carries a ton of coal from Big Stone Gap to Cincinnati, it reports it 
 once, and it is reported in group 4 ; it is also reported in group 5, and 
 there is a duplication. If the ton moves across the continent it is 
 reported in groups 10, 8, 6, 3, and 2 — five groups. 
 
 It is multiplied five times. Now, in these figures that the Com- 
 mission uses that uncertain elonient appears — some tons being multi- 
 plied five or six times, while others appear only once; or if one ton 
 passed over two lines in a group it is doubled on that account. So 
 it is possible that that same ton might appear ten or twelve times, 
 whereas another ton would appear only once, and yet they might take 
 exactljr the same rate. 
 
 Of course figures of that sort are absolutely Avorthless, even for 
 ■statistical purposes. You are bound to eliminate, in statistics, a 
 great many circumstances of difference, but A^hen you introduce a 
 purely fortuitous condition of that sort you render then absolutely 
 worthless. 
 
 Now, the Commission l^eep a record of the tonnage originating on 
 a line, in order to avoid that duplication; and as showing that the 
 duplication exists we find, for exumplc. that for the year 1903 they 
 report the total number of tons carried in the United States as 
 1,300,000,000. That includes all these duplications due to tonnage 
 passing over two roads or crossing a group line. In the same report 
 they report the number of tons originating on lines (which eliminates 
 all these duplications) ns 638,000,000 tons, Avhich is just about half 
 of the figures they use in this report. Xow, if you take the tonnage 
 originating on a line (which the Commission has in its own reports, 
 and whicli is intended to eliminate all these duplications), whereby 
 one ton is reported only once, and divide that into the total revenue 
 for 1899 — if you take the tons moved in 1899 and divide that into the 
 revenue for 1899, and the tons moved for 190.S and divide that into 
 the revenue for lOO;]— you get this condition: That in 1899 the 
 average revenue per ton was $2.0678 ; in 1903 it was $2.0945. That 
 
SIXTH DAY. 41 
 
 is, the average rate per ton for 1903 was in excess of the average rate 
 per ton of 1899 by the amount of 2.67 cents, which, multiplied by the 
 total tons for 1903, 638,800,658, gives a total of $17,087,278.80, which 
 represents the difference in revenue between 1899 and 1903 due to 
 increased average rates per ton in 1903. Yet the Conmiission, by 
 adopting a basis which is altogether unreliable and includes all these 
 numerous duplications, got at a result of $155,000,000. 
 
 Senator Newlands. Mr. Chairman, I would like to ask Mr. Hines 
 a question there. You say, Mr. Hines, that the number of tons in 
 1899 that were reported as originating in these various groups was a 
 little over 600,000,000? 
 
 Sir. HiJTES. No ; that was in 1903. 
 
 Senator Xewl\nds. Yes; a little over 600,000,000 ? 
 
 Mr. HixES. Yes. 
 
 Senator Newlands. And that the number of tons which they com- 
 pute as having been actually moved a mile 
 
 Mr. Hines. Xo ; not a mile ; that is the number moved. 
 
 Senator Nbwlands. The number moved 
 
 Mr. Hines. Yes. 
 
 Senator Newlands (continuing). Was over double that. 
 
 Mr. Hines. One billion three hundred million. 
 
 Senator Neweands. And that one computation gives an average 
 rate of 1 cent per ton per mile, does it? 
 
 Mr. Hines. No; one computation gives an average of $1.05. 
 
 Senator Newlands. $1.05 ? 
 
 Mr. Hines. Yes. 
 
 Senator Newlands. Per ton per mile? 
 
 Mr. Hines. Per ton, not per mile; just per ton. ♦ 
 
 Senator Newlands. And the other gives over two? 
 
 Mr. Hines. Over two, being less than half the number of tons. Of 
 course the ultimate result is the same. Multiply it out and you get 
 the same result. 
 
 Senator Newlands. Then that would affect the accuracy of all 
 these comi3utations regarding the price which the railroads receive per 
 ton per mile, would it not ? 
 
 Mr. Hines. Not per ton per mile; there is no opportunity for 
 duplication there, because each railroad reports the number of ton 
 miles on its road. That has nothing to do with the number of ton 
 miles on another road. Take the instance I used, of the Illinois Cen- 
 tral : That ran to Memphis, and then it went to 'Birmingham. Say 
 the distance from Louisville to Memphis by the Illinois Central is 
 390 miles. That would be 390 ton miles for hauling a ton of freight. 
 
 Senator Newlands. Yes. 
 
 Mr. Hines. There is no duplication when the Frisco reports, say, 
 250 ton miles for hauling from Memphis to Birmingham. That is no 
 duplication; that is additional ton miles. But when you report the 
 tons carried there is a duplication, because there is only 1 ton carried. 
 That is reported twice. 
 
 Senator Dollivee. If you are going to measure the tons carried 
 against the revenues of all the roads, why is it not necessary to include 
 these duplications, because the tons are carried on all the roads? 
 
 Mr. Hines. But the Commission was trying to get at the total rate 
 charged for each ton. 
 
42 SIXTH DAY. 
 
 Senator Dolliver. But you are dividing the total number of tons 
 carried into the total revenues of all the roads. , 
 
 Mr. HiNBS. Yes. 
 
 Senator Dolliver. It would seem to me that if those tons were car- 
 ried over more than one road, if you are going to measure it against 
 the revenues of the combined roads, you ought to include the duplica- 
 tion. I may be wrong about that. 
 
 Mr. HiNES. Xo, Senator. The number of tons actually carried in 
 the United States was 638,000,000; that is all that was carried. 
 Some of those tons were carried over two or three roads. Of course 
 that caused duplication, but it did not increase the number of tons of 
 freight carried. That 638,000,000 is divided into the total revenue 
 of all the lines in the United States. That gives you the average 
 that all the lines received for each ton of freight. You do not cut 
 out the revenue of any lines; you take all the revenue and all the 
 tons that were carried. Where a ton is carried over two lines you 
 simply count it once instead of twice, but you divide it into the 
 revenue of both roads. All the revenue is counted. So, of course, 
 the ]point is, in making an estimate of this sort, to see whether the 
 carriers have unreasonably increased their rates, to see that there is 
 no bookkeeping method by which the rate is depressed or reduced 
 below what it ought to be. But all the revenue is taken into account, 
 and you simply divide into that the total number of tons that were 
 actually carried. 
 
 Senator Dolliver. Well, I see that dimly. I think Carlisle was 
 right in saying that the chief practical use of statistics is to keep other 
 people from imposing on you. 
 
 Mr. Hikes. To put it in a little more concrete form, possibly, take 
 the case I suggested : Suppose you want to get the average rate per 
 ton for hauling grain from Louisville to Birmingham. Take 5 tons, 
 for example. It that freight moved from Louisville to Birmingham 
 over the Louisville and Nashville the gross revenue from it would 
 be $10, and the number of tons moved would be 5. Divide that 
 and you get your average rate per ton of $2. Now, suppose it moves 
 by Memphis and the Illinois Central and the Frisco. The total rate 
 is just the same for the whole distance — $2. I do not know how 
 it is divided, but the gross revenue of both roads for moving this 5 
 tons is $10. Now, you have 5 tons to move, but according to the 
 method of computation used by the Commission it counts as 10 tons; 
 it counts as 5 for the Illinois Central and as 5 for the Frisco. Divide 
 your 10 tons into j'our $10 and you get a dollar a ton as the average 
 revenue. But that is not the average revenue from Louisville to 
 Birmingham. The average revenue is $2, and if you count the 5 
 tons originating there (that is all you have, no matter how it moves) 
 and divide it into the total revenue of all the railroads, you are bound 
 to get a correct result. 
 
 The Chairjmats^. How do you know the Commission adopted that 
 method? Could they not see these duplications? 
 
 Mr. HiNES. They comment upon it in their reports every year, and 
 point out that this basis of tonnage originating on the line is the 
 more reliable one ; but when they come to figure the average rate per 
 ton — which they do in their reports every year, and which they fur- 
 nished to the Senate — they use this method, which results in the most 
 jDalpable duplication and destroys the value of the result. 
 
SIXTH DAY. 43 
 
 Senator Foeakee. \Miy were they trying, as they apparently were, 
 to make the rates appear so mnch lower than they really were? 
 
 Mr. HiNES. They appeared so much lower in 1899 and so much 
 higher in 1903. It has swelled the apparent increase in a very marked 
 degree. 
 
 Senator Foeakee. Did they not make the calculation on the same 
 basis for each year ? 
 
 Mr. HiNEs. Yes ; but, as I say, these different elements coming into 
 it may not work the same, and I do not believe thej' do work the same, 
 because traffic went around over several railroads in 1899 that un- 
 doubtedly went by the more direct line in 1903, on account of the con- 
 gestion of traffic. That unduly swelled the number of tons and un- 
 duly depressed the average rate in 1899, and had just the opjDOsite 
 effect in 1903. 
 
 Senator Foeakee. That is, they made the calculation for those 
 years on a duplicating basis ? 
 
 Mr. HiNES. Yes ; and there was no doubt more duplication in 1899 
 than there was in 1903, due to different traffic conditions. Of course 
 there are infinite circumstances that might work one way or the other, 
 but it is an absolutely uncertain element that ought never to be used 
 in an attempt to make a general calculation of that sort. 
 
 I want to make just one more reference to this $155,000,000. That 
 is $756 a mile for every mile of railroad in the United States. The 
 net income per mile for 1903 was $3,133. If cut down by the amount 
 of this alleged advance of $756, it would have been $2,377. The 
 taxes per mile in 1903 were $290. Deducting them, you have left a 
 net income per mile of $2,087 in 1903. Assuming that there was an 
 increase in rates of $155,000,000 which ought not to have been made — 
 of course that is the clear inference in all these arguments, that that 
 increase was made and ought not to have been made — if it had not 
 been made the net income per mile in 1903 would have been $2,087. 
 This is less than the net income per mile in 1890, in 1892, and in 1893, 
 and only $31 per mile more than in 1891. 
 
 The income in those earlier 3'ears, ten years before, was not 
 regarded as excessive. The Commission Avas then claiming to* exercise 
 the rate-making power which its advocates say was so beneficently 
 used and kept things in such good condition, and there was no claim 
 then and there is no claim now that that net income was unduly high. 
 Yet if this theory is correct, that there was $155,000,000 added, and 
 unjustly added, the railroads in 1903 would have had less revenue 
 than they had ten years before, and against that they had a much 
 larger capital invested. Enormous amounts of improvements had 
 been made in those ten years, great additions to the rolling stock, to 
 terminal facilities, and of every character, which were entitled to 
 additional return. It is simply another illustration of the fact that 
 those figures of $155,000,000 must be grossly excessive and misleading. 
 
 Ordinarily heretofore the Commission has .used the rate per ton per 
 mile in all these calculations. Taking that basis and comparing 
 1899 and 1903, the increase would have been only $67,000,000, as 
 against $155,000,000. 'V\Tii]e all these statistics are misleading, as 
 Senator Dolliver suggests, yet the rate per ton per mile probably 
 comes as near a uniform and reliable basis as anything you can get. 
 It is not open to the possibility of the duplication that is bound to 
 exist in the method which the Commission used. 
 
44 SIXTH DAY. 
 
 There were numerous circumstances which tended to make the rate 
 per ton per mile higher in 1903 than in 1809 on the sanie rates. Take 
 the illustration I used before. The rate per ton per mile from Louis- 
 ville to Birmingham on a direct line is of course higher than the rate 
 per ton per mile on exactly the same rate around by Memphis, which 
 is a longer distance. You have your same rate per ton and you have 
 more miles to divide into it in the longer haul. Now, whenever busi- 
 ness can move by a circuitous line, as it can in times when the railroads 
 are not crowded", that tends to produce a low rate per ton per mile on 
 that business, iviien it has to move by the direct and shortest line 
 it tends to produce a higher rate per ton per mile on exactly the same 
 rate. 
 
 There was relatively much more export traffic, undoubtedly, in 
 1899 than in 1903. That always moves at'a low rate, and it would 
 tend to depress the rate per ton per mile. 
 
 Just another very important, circumstance is that 1903 was a time 
 of much more general prosperity and more high-grade traffic moved — 
 that is, traffic moved that took a higher rate ; so without any advance 
 in the rate there would have been a tendency for the advance in the 
 rate per ton per mile. So that all those circumstances would operate 
 to show that this $67,000,000 would be too high as showing that the 
 revenue had been increased that much by actual increases in the rates. 
 
 The auditor of the Commission made a statement on page 5 of this 
 Senate document as follows: 
 
 " It may be said that there is a constant tendency toward an 
 increase in the percentage of the tonnage of low-grade freight, so 
 that if there had been no advances in rates or classification since the 
 year ending June 30, 1899, it is safe to say that the average rate, per 
 ton for each of the subsequent -years would have been somewhat less 
 than that year."' 
 
 The auditor does not consist with his own statistics, or, rather, the 
 statistics of the Commission. It would be natural to assume, in a 
 time of general prosperity, especially in a country which has had the 
 rapid and widespread industrial development that this country has, 
 that there would be a tendency for more high-grade traffic to move; 
 people would use more high-grade commodities in prosperous times 
 than in dull times. And we find that is sustained by the statistics 
 of the Commission. The lowest grade traffic is products of mines, 
 and it is one of the most important classes of traffic in point of ton- 
 nage. From 1899 to 1903 the tonnage of the products of mines 
 increased 44 per cent ; but merchandise, which is far higher grade, of 
 course, increased 50.9 per cent, and miscellaneous freight, which is 
 also high-class freight, consisting of high-class comanoaities in gen- 
 eral that do not fall under the direct definition of merchandise, 
 increased 51 per cent. So, taking the lowest class, on the one hand, 
 we find that increased -44.7 per cent, and the highest classes, on the 
 other hand, we find increased over 50; and yet the auditor of the 
 Commission makes the statement that there is a constant tendency 
 for the low-grade traffic to increase, and therefore the rate per ton 
 per mile ought to diminish, whereas the tendency is exactly the other 
 way, and would tend to make the rate per ton per mile increase. 
 
 But, as Senator DoUiver says, there are so many elements that 
 you have to eliminate in any statistical dealing with a subject so 
 wide as this that, after all, your statistics are not very valuable; and 
 
SIXTH DAY. 45 
 
 the thing to do is to take the particular advance and saj' whether, 
 under the circumstances surrounding it, it is reasonable or unreason- 
 able. The Commission has done that in three cases out of all the ad- 
 vances that have been made, and has held it was unreasonable, and in 
 three other cases it has said that it was reasonable; and it has made 
 a suggestion, but no delinite order, about the rate on grain. x\.nd 
 that is the sum of the specific action of the Commission on this sub- 
 ject; although by this combination of inaccuracies which were put 
 in this Senate Document 257 the impression has gone broadcast o'/er 
 this country that there has been $155,000,000 increase in gross reve- 
 nues due to advances in rates from 1899 to 1903. 
 
 Senator Forakee. How many cases of advancement did they inves- 
 tigate? 
 
 Mr. HiNES. I do not know of any but the hay case, the soap case, 
 the lumber case, and the rates on iron articles, packing-house prod- 
 ucts, dressed meats, and grain. There may have been others, but 
 they are the only ones in which they took any affirmative action so far 
 as i have been able to ascertain. 
 
 The Chairman. Does the Commission anywhere, either in i;hat re- 
 port or elsewhere, note that the complaints as to high rates have 
 increased — that there have been more complaints as to increased 
 rates? Is there anything said about that subject? 
 
 Mr. Hikes. The Commission has mentioned the fact that there have 
 been more complaints, bujt I do not recall whether it has attributed 
 them to unreasonably high rates or not. 
 
 The Chairman. I mean high rates. 
 
 Mr. HiNES. There have been more complaints as against tariff rates. 
 
 Senator Dolliter. Do you know what change in classification was 
 made in the carriage of merchandise from New York to the West? 
 Take the case of groceries; a man out there is complaining, not of the 
 rate per ton per mile, but that so many dollars have been added to the 
 cost of bringing a carload of coffee from New York to Chicago, for 
 instance. 
 
 Mr. HiNES. Important advances were made in class rates in official 
 classification territory, which embraces that business. What they 
 were I do not know in detail. 
 
 Senator Dolliver. Is there anybody that knows ? 
 
 Mr. HiNES. The Commission ought to know. It gets the figures. 
 The rates are filed with it as soon as they are published, and have to 
 be filed with it ten days before they can take effect. It has com- 
 mented repeatedly in general upon these advances, and I suppose it is 
 advised about that, and it was its duty to order the. discontinuance of 
 that advance if it was unreasonable. 
 
 The Chairman. Did the Commission report on the subject of in- 
 creased expenditures, or not? 
 
 Mr. HiNES. I was going to refer to that, too. 
 
 The Chairman. Very well, then; just take your time. 
 
 Senator Foeaker. Mr. Chairman, I do not want to interrupt the 
 witness, but at page 36 of the annual report for 1904 of the Interstate 
 Commerce Commission they state the number of complaints filed with 
 the Commission for the year covered by this report at 62, and they 
 give a statement as to each case, showing the nature of it, and extend- 
 ing to page 39. I want to put that into the record at this' point, so 
 
46 SIXTH DAY. 
 
 ihat you can have the reference when you come to look over the 
 testimony. 
 
 Mr. HiNES. The Commission, in response to the call of the Senate, 
 undertook to point out specifically the effect of certain advances in 
 rates on specific articles. It referred to advances in rates on hay, 
 sugar, iron, and steel articles- -and, by the way, that was an advance 
 which the Commission said was not unreasonable — bituminous coal, 
 and rates on lumber. It was this advance of lumber rates in the 
 South that it referred to, and that is the only one of these with which 
 1 have any familiarity at all. As to that advance, it pointed out that 
 there had been an advance of 2 cents per himdred pounds in the rates 
 from all lumber-producing points in the southern territory east of 
 the Mississippi liiver to Ohio Elver points and points north; also 
 from points i]i Arkansas and Louisiana and Texas to the same terri- 
 tory. Then it goes on to say that '' for the year ending June 30, 1902 
 (figures for 11)03 not yet available) the total tonnage of lumber and 
 other forest products was 67,703,050 tons, of which it is estimated that 
 about 20,000,000 tons originated in the territory above described. 
 Assuming that there has been no falling off in tonnage, the increase 
 in revenue for the nine months the advanced rates have been in force, 
 at an advance of 2 cents per 100 pounds, or 40 cents per ton, would be 
 about $6,000,000.'' Forty cents per ton on $20,000,000 would be at the 
 rate of $8,000,000 per year. 
 
 The Commission there fell into the error of assuming that that 
 advance of 2 cents per hundred pounds applied on all lumber origi- 
 nating in that southern territory. In that it made a very grave mis- 
 take. A '. ery large percentage of the lumber in that territory moves 
 to the Gulf and Atlantic ports for export. There was no advance 
 on that. A great deal of the lumber in Georgia, and much of it in 
 Alabama and Florida, goes to Eastern States. There was no advance 
 on that. A great deal of the lumber goes to the interior points in 
 the South, south of the Ohio liiver. There was no advance on that. 
 And it is true also, as to the lumber west of the Mississippi River, 
 that much of it goes for export and to interior points in the South- 
 west, on none of which was there any advance. On a very important 
 part of tlie lumber west of the Mississippi River there was an advance 
 of only 1 per cent. The advance was only on yelloAV-pine lumber and 
 kindred lumbers. It was not on hard wood, and a very large amount 
 of the 20,000,000 tons produced in that territory Vas hard wood. 
 
 The Commission does not give any consideration to any of those 
 conditions. It assumes that the 2 cents advance per hundred pounds 
 applied on all the lumber originating in that territory, and rushes 
 into the Senate with the information that there is an advance of 
 $8,000,000 a year on that traffic; Avhereas, while it is impossible to 
 figure the exact amount, probably not 25 per cent of the lumber 
 originating in that territory was affected by that advance. 
 
 Senator Dolliver. That lumber that moved up into the Mississippi 
 River comitry ? 
 
 Mr. Hikes. Up to the Ohio River and beyond. 
 
 Senator Dolliver. That looks like an ugly situation for us. The 
 same reasons of increased expenses, and so on, would have been appli- 
 cable to all that territory; and why should the Mississippi Valley 
 country be picked out to bear the burden of all the increase in the 
 cost of operating those railroads? 
 
SIXTH DAY. 47 
 
 Mr. HiNES. ^Vhy, Senator, relatively the rate to the Ohio River 
 was much lower than these other rates, and had been pulled down to 
 that by circumstances of competition in times of depression, so that 
 after this rate was restored, if you take it on a relative basis, that rate 
 was still low as compared with the other rates on the shorter hauls 
 in the South, in my opinion. 
 
 The Chairman. The lumber rate was one of the rates about which 
 they instituted inquiry and suit, was it not? 
 
 Mr. HixES. They instituted inquiry in June, 1903 — or rather com- 
 plaint was filed then ; and in li'ebruary, 1905, the Commission found 
 that advance was unreasonable, two of the Commissioners dissenting. 
 
 The Chairjean. And what was the result ? 
 
 Mr. Hikes. That was this last February. The carriers have not 
 complied Avith it, and no suit has been brought to enforce it as yet. 
 
 The Chairman. The Commission- has not brought suit? 
 
 Mr. HiNES. Perhaps I had better qualify that in this way : "Before 
 the Commission acted at all the lumber association in Georgia 
 brought suit in the United States circuit court to enjoin the advance; 
 and Judge Speer granted a temporary restraining order, which pre- 
 vented the advance. On hearing for a preliminary injunction it was 
 argued that under the interstate-commerce act, where the complaijit 
 was of an unreasonable rate, resort must first be had to the Com- 
 mission, and thefefore he had no jurisdiction, in adviinco of an 
 order from the Commission, to grant any injunction. jVs I recall. 
 Judge Speer did not fully concur in that view. T think liis view 
 was that the court had the common-law right to control a situation 
 of that sort ; but he said the Commission was the body selected and 
 created by Congress for the purpose of dealing with those questions ; 
 that presumably it was much more expert and better informed about 
 them than a court ; and, therefore, as it was a tribunal created to aid 
 the court in these matters, it would be better for it to go before the 
 Commission. 
 
 Senator Cullom. AVho said this? 
 
 Mr. HiNES. Judge Speer. He said he had no doubt that the Com- 
 mission would very promptly dispose of it, and then the court would 
 have the aid of the Commission's views, and then woidd enforce jiiiy 
 order the Commission made. So I think it is entirely probable that 
 this order of the Commission may have been filed in that case, which 
 he kept open for that purpose, but I have not been advised as to the 
 result. The decision was only rendered within the last three or four 
 weeks. 
 
 Senator Dolliver. Would it not expedite that matter to have that 
 finding of the Commission that the rate was unreasonable take effect 
 by virtue of the order and let the burden of determining its legality 
 be upon the people that were dissatisfied with the order 1 
 
 Mr. Hines. Senator, I can say right here that my idea is that there 
 ought to be provision for a tribunal to pass in an authoritative 
 way on those things at the outset, without sending it first through a 
 tribunal without authority. But I think it ought to be a court, and 
 not a bureau of the Govemment. I will discuss that more at large 
 later on and give some reasons for it ; but I think this delay of going 
 through the Commission ought to be obviated. 
 
 Senator Cullom. You want to get rid of the Commission? Is 
 that what you are driving at ? 
 
48 SIXTH .DAY. 
 
 Mr. HiNES. No; I want to get rid of the Commission as a court, 
 because it is not a court and can not afford the protection to property 
 that the courts can afford. 
 
 Senator CrLLOM. You want to take away from it all pretence of 
 fixing a rate under any circumstances whatever. 
 
 Mr. HiNES. There is no pretence of that now. They have the right 
 to order the discontinuance of a rate, but 
 
 Senator. DoLLiVEE. But in order to make that effective they have 
 to commence a lawsuit on the subject ? 
 
 Mr. Hikes. Yes. I think, in the interest of a prompt enforcement, 
 of the law, it would be better for the Commission to go in the first 
 instance to the court and get the order from the court, instead of 
 first making ah investigation and delivering an opinion of its own. 
 
 Senator Cullom. '\Vhat would be the effect if you abolished the 
 Commission and made a law to be executed by the courts? 
 
 Mr. HiNES. I think, looking at it from the public standpoint, that 
 you need some public tribunal to represent the public and to repre- 
 sent the shippers. 
 
 Senator Cullom. You do not believe in that, then? 
 
 Mr. HiNES. No; I do not think the law would be as effectively 
 executed from the public standpoint if it was simply left to the 
 initiative of individual shippers. 
 
 I referred to these grave errors which the Commission made in its 
 report in this lumber case, in reporting on that to the Senate and 
 ignoring absolutely all these important elements which made its state- 
 ment altogether erroneous. I want to call attention further to the 
 fact that the Commission was under no obligation to give any infor- 
 mation to the Senate on that point; and for that reason (while I 
 do not want to appear in an attitude of criticism) it seems to me it 
 ought to have been more reluctant to give information which it could 
 not have known was absolutely correct. This resolution, as originally 
 introduced in the Senate, called simply for a report as to changes 
 in rates and change in revenue, and further called on the Commission 
 to report on specific commodities, such as iron and steel articles, 
 lumber, grain, flour, hay, and sugar. 
 
 The CHA1RM.A.N. AATiat are you reading from — the resolution of the 
 Senate ? 
 
 Mr. HiNES. The resolution of the Senate as originally introduced 
 in the Senate. The Senate Committee on Interstate Commerce 
 amended that resolution by calling for the net revenue as well as the 
 gross revenue, and calling for a statement of expenses as Avell as 
 revenue; and, further, struck out this call for data as to specific com- 
 modities like iron and steel articles, coal and lumber, etc., a very 
 natural course to talre, because of course it was difficult for the Com- 
 mission to give specific information on these subjects. But when the 
 Commission came to report in response to the Senate conunittee's 
 resolution, about three Aveeks later or a little more, it proceeded to 
 give or to attempt to give all the information which the Senate had 
 struck out of the resolution, but did not give the additional informa- 
 tion which the Senate called for. In other words, it answered the 
 resolution as originally introduced and did not answer the resolution 
 which the Senate passed, except so far as the two resolutions were the 
 same. 
 
 The Chaiemajj . ^T.iat do they say about expenditures ? 
 
SIXTH DAY. 49 
 
 Mr. HiNES. That was the additional information called for by the 
 Senate — to " rei^ort the changes in cost of operation and maintenance 
 of said railways for said years." The resolution also directs the 
 Commission to report the changes in cost of operation and mainte- 
 nance of the United States railways for the years therein raentioned. 
 The Commission says, in response to that, " P^xcept for the fiscal year 
 ending June 30, 1903, this information is contained in a table pre- 
 pared by the statistician of the Commission, which will be found here- 
 with as Part II of the appendix. The returns for the fiscal year 
 1903 have not yet been compiled, and the figures relating to the cost 
 of operation and maintenance for that year must therefore be omitted 
 from this report." 
 
 When the Commission came to answer that resolution it found 
 that the number of tons carried for 1903 had not been compiled'for 
 the whole United States; so it proceeded to give an estimate which, 
 it stated, was for about 98 per cent of the mileage in the United States, 
 which resulted in this grossly inaccurate estimate of $155,000,000. 
 In its annual report to Congress, which was made on December 15, 
 1903, the Commission gave the expenses for 1903 on about 98 per cent 
 of the entire mileage — that is, on just the same per cent of the mileage 
 that it undertook to compile special figures, for in response to the 
 Senate's resolution, but it did not give that information as to expenses 
 in its response. The result for 1902 showed gross earnings from 
 operation of $1,700,000,000; operating expenses, $1,116,000,000; and 
 the percentage of operating expenses to earnings was 64.66 per cent. 
 Now, the very information which it had put in its report to Congress 
 over three months before showed that with respect to 98 per cent of 
 the mileage it had the operating expenses as well as the earnings, and 
 that the ratio of operating expenses to earnings was 66.05 per cent. 
 That is a very much larger relative expense in 1903 than in 1902. 
 But while it compiled special figures to show the increase in revenue 
 for 1903 for about 98 per cent of the mileage, it did not favor the 
 Senate with the figures it had already compiled for about 98 per 
 cent of the mileage as to operating expenses, which showed a very 
 substantial increase in operating expenses. Notwithstanding the 
 alleged increase of $155,000,000 in revenue, these figures showed that 
 there was a very marked increase in operating expenses. 
 
 I have devoted a good deal of time to this Senate Document 257 
 because it has undoubtedly had a very profound effect upon the pub- 
 lic niind. More than that, I have felt that the document showed, in 
 numerous particulars, the difficulties under which a Government 
 bureau labors, under any circumstances, in furnishing opinions about 
 the effect of rates throughout a tremendous country like this and the 
 mistakes it is liable to fall into under the most favorable circum- 
 stances. 
 
 Senator Ctjllom. Can anybody else do it better ? 
 
 Mr. HiNES. I think you are bound to have a tribunal of some sort 
 for these purposes; but it is certainly an argument against giving 
 any unnecessary power to such a tribunal that the subject is so big 
 that mistakes of this sort are likelj' to be made. 
 
 In addition to the claim that rates have advanced the point is made 
 that they may advance because competition is being eliminated ; that 
 combinations are becoming more frequent, and that the result will 
 6 D— 05 M 4 
 
50 SIXTH DAY. 
 
 be, if it is not already, that rates will be unreasonably advanced, and 
 therefore the public will be oppressed. 
 
 This is not a new condition. Kailroad combinations have been! in 
 progress for a, great many years, and in some sections of the country 
 they had attained practically a state of complete combination many 
 years agR. This is notably true in New England. Mr. Tuttle ex- 
 plained that to you the other day, and I want to supplement what 
 he said by a statement made by Mr. Knapp in 1895, Mr. Knapp being 
 then a member and now the chairman of the Interstate Commerce 
 Commission. This was a statement which he made in some corre- 
 spondence with Senator Chandler, which was afterwards printed in 
 Senate Document No. 39, Fifty-fourth Congress, first session. He 
 said : 
 
 ',' In the New England States the process of absorption in one way 
 or another has gone on until there is now practicallj'^ no competition 
 in the railway service in that section. So far as I am aware this 
 consolidation "has not resulted in any increase in charges, but, on the 
 contrary, has been attended by a considerable reduction in rates, by 
 improved facilities, and the better accommodation of the public. 
 Fewer complaints come to us from that region than from any other 
 part of the country. My observation and inquiries lead me to believe 
 there is less dissatisfaction with railroad charges and practices in 
 New England than is found elsewhere in the United States, and that 
 the people in that territorj' will not welcome a return to competitive 
 conditions." 
 
 The same thing is true, to a greater or less extent, in every impor- 
 tant section of the country where some large system of railroads has 
 acquired most of the mileage in a given section, and there has not 
 been, in fact, this tendency toward increased rates on account of such 
 combinations. I do not claim at all that that is due to any gen- 
 erosity or philanthropy on the part of the railroads, but the railroad 
 business is of such a character that the railroad finds itself constantly 
 impelled to increase its business. If a railroad can increase its busi- 
 ness, its earnings will increase faster than its expenses, and it can 
 make more profit by doing a large business than it can by doing a 
 small business, even though the small business is done at larger rates. 
 No matter how large a railroad system becomes or how complete ap- 
 parent control it may have of traffic in a given section of the country, 
 its constant motive is to increase the business, to give rates to encour- 
 age the^business^.so as to increase its profits, and that is the reason, in 
 my opinion, why these favorable . conditions exist in New England 
 and why you find. the same conditions in other parts of the country 
 where there has been a centralization of railroad property. ' It is not 
 at all because the railroad wants to do business cheaply for the bene- 
 fit of the public in any abstract sense, but because it is to this interest 
 of the railroad and always will be to the interest of the railroad to 
 promote business and increase the volume of its business. 
 
 The statement that " five men sitting around a table in New York 
 can fix the rates all over this country " is utterly unfounded, because, 
 in the nature of things, they have not the information. They do not 
 think of attempting to dictate to the traffic officers how the business 
 of the railroads shall be managed, because they know that the salva- 
 tion of the railroads and their profits depend upon a large volume 
 of traffic freely and constantly moving over the road. They Imow 
 
SIXTH DAT. 51 
 
 that they have not the time or the information to attempt to dictate 
 how that shall be done, and that is invariably left to the traffic 
 managers. 
 
 Senator Dolliver. But do they not sometimes inform .the traffic 
 managers how much money they need for a given year ? 
 
 Mr. HiNES. Mr. Prouty stated that one traffic manager during 
 this' hay investigation said that his president suggested that they 
 needed more revenue. That is the only case I ever heard of. Of 
 course, it is not impossible, by any means, that those suggestions should 
 be made ; but, after all, the question is left to the traffic managers as 
 to what to do to develop the business, and their business is to develop 
 the business. 
 
 While probably railroad consolidations are going on, of course the 
 newspaper reports have largely exaggerated it, and a great deal of 
 the talk that is heard is absolutely incapable of proof or substantia- 
 tion; there is no foundation in fact for it. But to the extent that 
 railroad consolidations do seem to be going on, yet the fact remains 
 that railroads are not giving up any of their markets. There is a 
 very aggressive disposition on the part of all these big systems. They 
 are continually reaching out for new markets. Instead of giving 
 some of them up to other people they are reaching out after more. 
 They are going into territory occupied by other railroads, and each 
 one is reaching out and trying to get the biggest volume of business 
 it can for its own system of railroads. 
 
 Senator Cullom. And that struggle gives rise to a good deal of this 
 rebating and unjust discrimination, does it not? 
 
 Mr. HiNES. I do not think the reaching out after new markets has 
 any bearing on the question of rebates. Of course, it does tend to 
 bring about a reduction of tariff rates. 
 
 Senator Cttllom. Cut rates ? 
 
 Mr. Hikes. No; not cut rates in the sense of secret rates or unlaw- 
 ful rates, but a reduction in tariff rates — publishing new tariff rates, 
 lower than the rates that have been in effect before. 
 
 Senator Cullom. Does not this struggle to get business give rise to 
 rebates and unjust discrimination now? 
 
 Mr. HiNES. The struggle to get business does, but the > struggle to 
 get business by going into new markets does not, in my opinion. 
 That is, where a railroad builds into a new section, that brings about 
 a readjustment of rates which tends to lower rates. 
 
 Senator Newlands. That region may be new to it, but not to some 
 other road ? 
 
 Mr. Hikes. Not to some other road. 
 
 Senator Newlaistds. Do you apply that to the seeking for new busi- 
 ness, reaching out for a region that is already occupied by some rail- 
 road and whose demands are met by it, or do you apply it simply to 
 reaching out for virgin territory — ^unoccupied territory ? 
 
 Mr. HiNES. Either. I say the tendency in either event is toward 
 reduced rates, and therefore the opposite to the claim that so many 
 make noMn— that the country is confronted with the danger of tre- 
 mendous increases in rates on account of these combinations. In my 
 opinion, the real competition which has brought about permanent 
 reductions in tariff rates is the competition of markets, different mar- 
 kets, different railroads reaching different markets, trying to put the 
 products of their lines as far as they can into all the markets that can 
 
52 SIXTH DAY. 
 
 be reached ; and in order to do that there is a constant tendency to 
 reduced rates and to give the markets wider play. 
 
 That sort of competition has kept on, notwithstanding these rail- 
 road combinations, and, it seems to me, is bound to keep on for all 
 time to come, because each railroad will take care of itself, and has to 
 increase its own markets in oi'der to increase the volume of its traffic. 
 
 Senator Newlands. Eight there, Mr. Chairman, I would like to 
 ask a question. It is likely that these combinations will go on and 
 increase, is it not? 
 
 Mr. HiNES. I think there is a tendency in that direction always. 
 
 Senator Newlaxds. That as time goas on a larger mileage will be 
 included within the control of a particular combination? 
 
 Mr. HiNES. I think each railroad system is likelj' to increase in 
 mileage to some extent by absorbing shorter lines, and to some extent 
 by building new lines. 
 
 Senator Newlands. Yes; but mainly by the absorption of existing 
 lines ? 
 
 Mr. HiNES. Yes; I do not look for any widespread consolidation 
 of big systems. They may be said to be under the same general con- 
 trol; but for practical business purposes and rate-making purposes 
 they have to be separate, because the conditions are such as to 
 demand it. 
 
 Senator Newlands. Is it not possible that in the near future these 
 great combinations which now control the mileage in the southern and 
 middle-western States will get together into one larger combination? 
 
 Mr. HiNES. Of course my view about that would be the merest 
 expression of opinion. 
 
 Senator Newlands. Yes. 
 
 Mr. HiNES. But I can not see any signs of that, or any reasons 
 which would induce that. 
 
 Senator Newlands. As it is, the number of systems has been dimin- 
 ishing and the mileage of each has been increasing for some years? 
 
 Mr. HiNES. Yes. 
 
 Senator Newlands. Do you think that process has stopped, or will 
 it go on ? 
 
 _ Mr. HiNES. That process has always been conducted by a stronger 
 line absorbing smaller lines, and of course weaker lines. 
 
 Senator Newlands. Yes. 
 
 Mr. HiNES. It niust be getting more and more to the point where 
 you will have a number of tremendously strong systems; and it seems 
 to me there is less likelihood of any one of them absorbing another. 
 But that is a mere expression of opinion, and, of course, it is specu- 
 lative and problematic. 
 
 Senator Newlands. Suppose that in the region west of Chicagb, 
 stretching out to the Pacific coast, all the great systems that cohtM 
 that region — the intermountain region and the Pacific coast States- 
 should combine into one great system. This element of competition 
 of markets as a factor in diminishing rates would disappear, would 
 it not ? 
 
 Mr. HiNBS. I do not think it would. This competition of markets 
 is really world-wide. Take the item of lumber : The Great Northern 
 and the Northern Pacific Company, in hauling lumber, are competing 
 with the lumber of Michigan, the lumber of Georgia, the lumber of 
 North Carolina, and the lumber of Pennsylvania. The freer trans- 
 
SIXTH DAY. 53 
 
 portation becomes and the greater the accessibility of places becomes, 
 the wider range that competition talies; and I think that is true to 
 a very large extent in other lines of business — that the railroad, no 
 matter how big a section it may apparently control, is reallj^ com- 
 peting with the rest of the world. 
 
 But while conclusions one way or the other may be drawn from this 
 subject of combinations, the complete answer to all of it is that you 
 have now a jjracticable remedy to prevent unreasonably high rates. 
 
 Senator Newlands. As I understand it, the Louisville and Nash- 
 ville System, which you represented at one time, consisted of a com- 
 bination of a number of roads ; and recently the Atlantic Coast Line, 
 which was a rival system, I believe 
 
 Mr. HiNES. I would not call it a rival system. 
 
 Senator Nkwi.ands. Well, which is an independent system? 
 
 Mr. HiNES. Yes. 
 
 Senator Newi.ands (continuing). Has now come into the control 
 of the Louisville and Nashville, has it not? 
 
 Mr. HiNES. It owns a majority of its capital stock. 
 
 Senator Newi.ands. Now, would not that combination have a ten- 
 dency to reduce the territorial competition to which you refer — the 
 competition of the region that was at one time served by the Louisville 
 and Nashville as a separate system with the region that was served 
 by the Atlantic Coast Line as a separate system? Would not the 
 reduction of rates likely to come from that competition disappear? 
 
 Mr. HiNES. I do not think it would. Senator. There has certainly 
 been absolutely no suggestion of such an influence, and I do not see 
 how it could. As a matter of fact, there never was much competition 
 of any sort between those two systems, because they serve such widely 
 separate parts of the country. For practical purposes each one of 
 those railroads has to be operated for the purpose of developing 
 traffic, and any attempt to try to build up one at the expense of the 
 other would really be futile. The only thing to do is to work each 
 one to the best advantage and make all the traffic you can on each 
 road. That certainly has been the policy, and I can not imagine any 
 departure from that; and it seems to me any departure from it 
 would be absolutely futile if it was entered upon. As to those two 
 systems, there would be no competition between them to suppress 
 in that way. 
 
 As I say, however, different conclusions can be drawn from the 
 rumors and statements and imaginings on this. subject, or from the 
 facts on the subject; but the complete answer is that if such combi- 
 nations exist now or do exist hereafter, and lead to an attempt to 
 advance rates unreasonably, there is a workable remedy at present, 
 which can no doubt be improved by improving the machinery, but 
 which would be very substantial in preventing these evils that are 
 anticipated. That remedy is particularly applicable in the case of 
 advances in rates. Where a railroad has maintained a rate for a 
 long period of years that affords a very valuable standard of reason- 
 ableness, and where the railroad advances that rate the Commission 
 or whatever body would set in motion the law against it would have 
 a very valuable standard to go by. In such a case it is verj' clear 
 that the coiyts would not uphold an advance by the railroad com- 
 pany unless it could make a very plain case of necessity due to 
 changed conditions, increased cost, or something of that sort. 
 
54 SIXTH DAY. 
 
 Senator Dollivee. Suppose the changed conditions should be a 
 very large addition to the capital stock ? 
 
 Mr. HiNES. I do not think the court would pay any attention to 
 that unless there was an actual increase in investment. 
 
 Senator Dollivee. AVould the court inquire into the relation of 
 the new liability to the assets of the company before passing upon 
 the question of the reasonableness of the rates? 
 
 Mr. HiNES. I think, for practical purposes, where a rate of long 
 standing has been in effect and is changed the burden is on the rail- 
 road to sustain it. It would have to show these additional expenses, 
 and if there was an additional capital charge it would have to show 
 it, and necessarily it would have to sustain it as a valid addition. 
 
 Senator Dollivee. Would it be competent for us to require these 
 additions to the capital stock to be submitted to some public tribunal, 
 in case of roads engaged in interstate commerce, before the additional 
 issues of stock or other liabilities are made ? 
 
 Mr. HiNES. I do not doubt the power of Congress to do that. 
 
 So, as I say, there is a practicable remedy against any such ad- 
 vances in rates if combinations do lead to them; and it is a remedy 
 that is especially applicable in case of advances, because you have the 
 standard of a long-continued rate to go by ; and as a matter of law I 
 do not see why the entire advance, if unlawful, could not be absolutely 
 enjoined. You have an existing rate that is a lawful rate; the court 
 holds that that rate is as high as it ought to be. The carrier proposes 
 to put it up still higher. It seems to me that that whole thing could 
 and would be a judicial question — that here the carrier is proposing 
 to do an unlawful act; just enjoin that act absolutely. I doubt if 
 the present law provides for that, but I do not see why the law could 
 not provide for it, so as to give the court absolute control of this ques- 
 tion of advances in rates whenever the public tribunal wanted to set 
 the proper machinery in motion. 
 
 Another independent subject of considerable discussion and com- 
 plaint is this long and short haul question. I notice that a good many 
 inquiries have been made about that, and I would like to refer to it. 
 
 The nature of the railroad business is such that it has relatively a 
 very large fixed expense, which does not vary with the amount of 
 traffic. Taking the income account of the railroads of the United 
 States, for 1903, it shows total operating expenses and charges against 
 income of, say, about $1,593,000,000; operating expenses of $1,257,- 
 000,000, or 78.8 per cent of the total — that is, the other 21.2 per cent 
 of the charges the railroads have to meet are absolutely independent 
 of the movement of traffic and have nothing to do with it. 
 
 The Chairman. Kindly state that again. "What do you say the 
 78 per cent is ? 
 
 Mr. HiNES. The operating expenses are 78 per cent of the total 
 expenses of the railroad ; the other is interest and taxes. 
 
 The Ci-iAiEMAJsr. Do you mean to say that the average operating 
 expenses of all the railroads of the United States were 78 per cent? 
 
 Mr. HiNEs. Of the expenses. I do not mean of gross earnings; I 
 mean of total expenditures. 
 
 The Ch-iAiEMAN. Oh, yes — I mean of gross earnings. 
 
 Mr. HiNES. No ; that is about 67 per cent. 
 
 Senator Cullom. What is the per cent of gross earnings? 
 
 Mr. HiNES. About 67. 
 
SIXTH DAY. 55 
 
 The Chairman. And this other part is taken up with taxes, and 
 so on? 
 
 Mr. HiNES. Taxes and interest; it is the total of charges that the 
 railroad has to meet. 
 
 The Ctiajkman. Yes; that is, 78 per cent of the total exj)enses; the 
 operating expense is 67 per cent of the gross earnings ? 
 
 Ifi'. HixES. Yes; so that here you have about 21 per cent of the 
 total charges that the railroads have to meet that are entirely inde- 
 pendent of the volume of traffic. 
 ■ The CiiAiRMAX. And that is the real net? 
 
 Mr. HixES. Well, that is the interest and taxes ; there is no net in 
 that. 
 
 The Chairmax. But the 78 per cent includes interest and taxes, 
 as I understand ? 
 
 Mr. HiNBS. No ; the 78 per cent is operating expenses. I will state 
 it again. Senator : 
 
 The total charges shown on the income account of the railroads of 
 the United States amount to $1,593,000,000. That includes operating 
 expenses, interest, and taxes. 
 
 The Chairman. Yes ; tha,t includes everything. 
 
 Mr. HiNES. Now, of that sum, the operating expenses amount to 
 $1,257,000,000; that is, 78 per cent of the total, taking the total 
 charges of every sort that the railroad has to meet at 100; 21.2 per 
 cent of that is entirely free from the volume of the traffic that moves. 
 Taking operating expenses themselves, they are divided in the Com- 
 mission's system of accounting into 53 subaccounts. A great many 
 of these are entirely independent of the traffic that moves over the 
 road. For example, the repairs of the roadbed, the repairs of bridges, 
 repairs of culverts, repairs of fences, repairs of station houses, wages 
 of station agents — all that sort of thing. They are the same whether 
 the traffic is much or little. So when you take them and take the 
 interest charges and take the taxes and other things which are inde- 
 pendent of the volume of traffic, you find that at least 50 per cent 
 of all the charges which the railroad has to meet are entirely inde- 
 pendent of how much business it hauls, and a good many others — a. 
 good many of the remaining 50 per cent — do not vary in proportion 
 to the traffic. 
 
 Now, if a railroad can get additional business which pays a small 
 amount it is to its advantage to get it rather than not to get it, be- 
 cause all these general expenses and a great part of operating expenses 
 run on just the same whether it has that business or not; and even 
 if it takes the business at a low rate, by taking it it will increase its 
 revenues more than it will increase its expenses. Consequently, this 
 additional business is of value to the railroad if it pays more-than 
 the mere cost of moving it bver the railroad, leaving out of view all 
 these other items which must be met, but which can not be charged 
 against certain sorts of traffic, because, if they were, the traffic would 
 simply go some other way and the railroad would not get it at all. 
 
 That IS the theory of the long and short haul adjustment of rates. 
 To take a concrete illustration, suppose you have a railroad 100 miles 
 long, with an important local coal traffic, and suppose that one end 
 of the road is at numerous important mines, and it runs through a 
 prosperous countrj', and the other terminus, 100 miles away, is an 
 important citj'. We will assume, for the sake of argument, that the 
 
5,6 SIXTH DAY. 
 
 railroad, being confined to its local business, barely pays its fixed 
 charges, charging rates on coal which grade up to a dollar per ton for 
 the 100 miles. There can be no claim there that the rates are unreason- 
 ably high, because the road barely makes both ends meet on those rates. 
 Now, assume that that city has a very favorable source of coal supply, 
 and gets its coal at, say, an average rate of 60 cents a ton, and this rail- 
 road finds that by making a rate of 60 cents for the 100-mile haul it 
 can get 200,000 tons of coal a year to haul to that place. Very natu- 
 rally it is going to make that rate in that event. That would give 
 it $120,000 additional revenue in the year, and it is not probable that 
 the additional cost of that business would be as much as $70,000. I 
 say that because it has to meet its interest just the same, it has to 
 niaintain its road just the same, and it has to maintain a number of 
 employees. All the additional expense of the traffic would be the 
 wear and tear on the track, the wear and tear on the equipment, 
 perhaps providing some additional equipment, wages of trainmen, 
 the cost of fuel, oil, waste, and things of that sort that go into the 
 train service. So that its expenses will be increased comparatively 
 little, while its revenue would have increased $120,000 a year, and it 
 would probably make net on that transaction, to apply to its profits 
 or to payment of dividends, $50,000. 
 
 That is the theory on which this business is done. It does ont 
 increase the rate to the intermediate points; they have been paying 
 not exceeding a dollar before for coal, and they continue to pay that. 
 They are not hurt by reason of the fact that this railroad charges 
 only 60 cents for the longer haul. If the railroad did not charge 60 
 cents, however, it would lose that traffic. 
 
 The Chairman. Right there, suppose there is a place on that road 
 where they can manufacture just the same as they can in the city, 
 ought not the man who is 20 miles from the city or 10 miles from the 
 city to get his coal as cheaply as the city man gets his ? He is in the 
 same business and requires the same amount of coal in that business; 
 and if he could get his coal for 60 cents 10 miles from the city, would 
 he not be better oil ? 
 
 Mr. Hi>fi;s. To go back a little while 
 
 The Chairman. You see mj' point ? 
 
 Mr. HiNES. I see your point. Let us go back to the time when this 
 railroad was not built. The place that is 10 or 20 miles from tlie city 
 is of course at an utter disadvantage as compared with the city. It 
 may not have any transportation facilities at all. It has the disad- 
 vantage of its location. The city has its independent coal supply, 
 and its large manufacturing business as a result. Now, this railroad 
 is built through those intermediate towns. They then for the first 
 time get the benefit of railroad transportation! That railroad is 
 bound to make rates, if it can, which will enable it to pay its expenseSr 
 If it undertakes to put all these intermediate points in a new country 
 on an equal basis with an established city, of course it will not make 
 anything at any time. It is bound to charge reasonable local rates 
 to pay for the service these local places get, and which they never 
 got before and could not get except by the" operation of a railroad. 
 
 This long-hp,ul business is simply an incident. The railroad never 
 would have been built for that business. It is too small an amount in 
 itself to justify the building of a railroad, and the railroad could not 
 afford to reduce its intermediate rates to the same basis. It might 
 
SIXTH DAY. 57 
 
 have a business of several hundred thousand tons a year to these local 
 points if it cut down the rate on it to 60 cents, but it might lose four 
 or five hundred thousand dollars. It could not afford to do that, and 
 consequently it could not afford to put those places on the same basis 
 with the established manufacturing place that has a nearer supply of 
 coal, and the act of the railroad does not put those places at any addi- 
 tional disadvantage. It is a disadvantage they suffered anyhow, in- 
 dependently of the acts of that railroad, and,"so far as the railroad 
 has had any influence, it has served to diminish their advantage by 
 giving them coal cheaper than they ever got it before and by making 
 them nearer for commercial purposes to the manufacturing point than 
 they ever were before. But the railroad can not put all those local 
 points on its line on the basis of a manufacturing point and give them 
 all the advantages that naturally has, or has through causes beyond 
 the control of the railroad. 
 
 For practical purposes, therefore, the question presented when you 
 take up the long and short haul adjustment as applied to a case of that 
 sort is. Shall the railroad retire from this long-haul business for 
 which it gets 60 cents a ton, or retain it? It can not reduce its inter- 
 mediate rates to that point, because it would lose more than if it gave 
 up the -through business. Retaining the through business does not 
 hurt the intermediate points. On the contrary, it helps the line of 
 the railroad in general, it increases the business of the mines on the 
 road, it increases its number of trainmen, it is an additional element 
 of prosperity in that section of the country. Very probably it will so 
 increase the production of coal as materially to decrease the cost, and 
 that will be an element that will redound to the benefit of the inter- 
 mediate points. 
 
 The Chairman. Right there, the town that is 10 miles away, the 
 intermediate town, by reason of the dollar charged on the ton of coal 
 is driven out of competition with the city, is it not ? It can not com- 
 pete with the city ? 
 
 Mr. Hikes. Why, it never was in competition with the cit^'. 
 
 The Chaii; jiAX. Yes ; but suppose it wanted to compete in making 
 iron, say, or anything where coal is used — making cotton, manufac- 
 turing cotton, for instance. If you charge one a dollar and the other 
 60 cents, the intermediate town that is charged a dollar can not com- 
 pete with the other. 
 
 Mr. HiNES. But, Senator, that is not due to the act of the railroad. 
 If the railroad was not there, the intermediate place could not com- 
 pete any more than if the railroad is there. 
 
 The Chairman. Yes; but we are dealing with railroads on the 
 ground now, already built. 
 
 Senator Ci-APr. Let me ask this question. We will go back before 
 the railroad is built. You ^^'ould not build it for the through traffic 
 of 60 cents? 
 
 Mr. HiNES. Xo. 
 
 Senator Clapp. You build it for the traffic that you are going to 
 develop ? 
 
 ilr. HiNES. Y'es. 
 
 Senator Clapf. Is it not possible that it is a mistake to build up 
 your through business instead of developing your town 10 iniles out 
 from your terminal city ? In the long run, would you not make more 
 as an independent railroad? I just make that as a suggestion. 
 
58 SIXTH DAY. 
 
 Mr. HiNES. I am very glad you made that suggestion, Senator. Of 
 course that is a business question under the existing conditions. 
 
 Senator Clapp. Certainly it is. 
 
 Mr. HiNEs. And I do not think there is any railroad in this countrj'- 
 to-day that would not make that adjustment the minute it thought 
 that it could secure that result. It is undonljtedly the policy of the 
 railroads now to build up local stations. There are obvious reasons 
 for this. A prosperous local population along a line of railroad con- 
 sumes a great deal of high-class goods, and brings traffic of that sort 
 to the railroad. Another very important and very obvious reason is 
 this ; You take a local point on a railroad, and if it builds up traffic 
 there it hauls all that traffic, whereas if it builds up traffic at a big com- 
 petitive point all that traffic may go by some other line of road. There 
 is every reason why a railroad should build up the local traffic when it 
 can; and if conditions were such as to make it practicable, in the 
 illustration I used, to build up local traffic by making a lower coal 
 rate or as low a coal rate for the short haul the railroad would un- 
 doubtedh' do it. But of course there may be conditions that make it 
 utterly impossible. 
 
 Take the case in Kentucky, which is perhaps somewhat analogous 
 to the case I was citing: The Louisville Railroad was built, a good 
 many years ago, from Louisville up into the coal regions of Kentucky. 
 Louisviile was then ah important manufacturing place. It got its 
 coal from down the Ohio River, principally, at a very low price. 
 When the Louisville and Nashville road was built up there, coal 
 mines were opened. To begin with, their only market was local 
 points on the Louisville and Nashville ; and the Louisville and Nash- 
 ville charged what was, under the circumstances at that time, a rea- 
 sonable rate for hauling that coal. Subsequently, in order to build 
 up business, the Louisvnle and Nashville gave a lower rate from the 
 mines to Louisville, in order to meet the water competition at Louis- 
 ville. Now, that of itself did not hurt those local points. Louis- 
 ville by reason of that fact did not have any advantage over them 
 which it did not have already. Its advantage was due to its location 
 on a navigable river. It had been a prosperous manufacturing point 
 before that railroad was built, and after it was built, and before the 
 railroad began to haul that coal to Louisville. Now, if as a business 
 proposition the railroad could have built up and made industrial 
 points all along that line of railroad by giving a very low rate on coal 
 to them, it would have done it; but commercial and physical condi- 
 tions were against it. Louisville had a great many natural advan- 
 tages ; and it is absolutely impossible for a railroad to make a manu- 
 facturing town contrary to the drift of commerce. Louisville was 
 there; it had all these advantages; it had these various avenues of 
 distributing its traffic, these various avenues of bringing in its raw 
 materials. Now, take a place situated in an agricultural country, 
 without any natural advantages as an industrial point, without any 
 "mineral resources right around it, or anything of that sort, and the 
 railroad might haul coal there for nothing, but it could not build up 
 industrial plants to compete with those of Louisville. 
 
 So, in cases of that sort, the railroad is simply confronted with the 
 question whether it will haul the competitive business at a rate at 
 which it will get it, or will abandon it ; and when it does haul it it 
 does not hurt the intermediate points. These intermediate points 
 
SIXTH DAY. 59 
 
 were no worse off when the Louisville and Nashville hauled that coal 
 at a lower rate than they were before it hauled it, because 
 
 Senator Clapp. Outside of a few points which would have natural 
 advantages, perhaps, by reason of water facilities, the industrial and 
 manufacturing and commercial centers have been built up by the 
 railroads, have they not? 
 
 Mr. HiNES. I think that works both ways. I think the point with 
 the natural advantages attracts the railroads, and of course when it 
 gets the railroads that helps the community. But the railroads 
 never would have gone there if they had not 'had those natural ad- 
 vantages. Every place in the country can not be a metropolis, and 
 there is something besides the decision of people to build railroads 
 that makes these places large and prosperous cities. Of course it 
 acts and reacts; but in the first place it is some natural advantage 
 or some strategic advantage that gives a place its prominence as a 
 business center. 
 
 The Chairman. Do not the railroads largely discourage the short 
 haul in order to get the long haul, and elimmate distance ? 
 
 Mr. HiNES. No railroads that I know of do that. They get all 
 the business they can on the short haul. They do everything they 
 can to build up that business. 
 
 The Chairman. But 'the long haul, even at a reduced rate, is more 
 profitable than the short haul at a higher rate ? 
 
 Mr. HiNES. No. 
 
 Senator Forakee. If they are making energetic efforts to build 
 up a local business, how do you account for the discriminations, as 
 they have been called, against Cannon Falls, for instance, and St. 
 Cloud ? Was not that the name of the other place ? 
 
 Mr. Hines. I am not at all familiar with the conditions up in that 
 section of the country. 
 
 Senator Foeaker. That was the case where double the rate was 
 charged for the shorter haul — over the same line, of course — that 
 was charged for the longer haul. 
 
 The Chairman. Eight on that point, if the rates were adjusted on 
 a basis of mileage, would that not build up manufacturing near the 
 source of the raw material? Take coal, for instance, which is a 
 factor in such matters, or cotton. Would not cotton be manufactured 
 nearer where it is produced, instead of taking it to New England, 
 even with its water facilities? Is not the tendency now to go to the 
 raw material, to get nearer to it, even with the railroads trying to 
 eliminate distance? I know a railroad wants the longest ham it 
 can get ; that is indisputable, because it is to its interest. 
 
 Mr. Hines. I think there is an iindoubted tendency to dissenunate 
 industry and to encourage the estaljlishment of industries all through 
 the country. I know the railroads are working constantly and try- 
 ing to do that. The railroads do not give the low rate on the long 
 haul because they want to build, up the long-haul place. The long- 
 haul place is already built up and they are simply trying to get some 
 of the business that would be there whether they gave that rate or not. 
 
 The Chairman. But in the end would not the building up of the 
 local business be more profitable than encouraging the long haul to 
 these cities, these centers, as you said a while ago ? 
 
 Mr. Hines. Well, now, if you make rates on a mileage basis, it 
 would be hard to tell where you will land. 
 
60 SIXTH DAT. 
 
 The Chairman. That is the point I want to find out about. Say 
 it is on a mileage basis ; the effect, in the long run, would be to im- 
 mensely increase the business locally, and that is the great perfection 
 of such matters; there is where railroads get the biggest profits, in 
 the country where they have the largest local business. 
 
 Take the case of a railroad 500 miles long, and assume that you 
 could have 150 big establishmejits on a road of that length. That 
 would be better than having a long haul and only one big city for all 
 the traffic that comes in — all kinds of merchandise — it is only on one 
 road. 
 
 Mr. HiNES. Make your rates on a mileage basis, and get your 150 
 big establishments, and they would not have any market, because the 
 mileage basis would cut off their market, and they would go a few 
 miles from home and there they would end. 
 
 The Chairman. They might make so much profit that they could 
 send it over the long haul. 
 
 Mr. HiNES. Well, the long haul is cut out by your proposition. 
 The rate would be on the mileage basis. 
 
 The Chairman. No; they could send it to market. They could 
 reduce that so much lower that they could pay the additional mileage 
 rate. 
 
 Senator Ci.app. AYould not this result — if the cotton, for instance, 
 was manufactured where it was raised, and nowhere else, it would 
 still have a market, would it not? The peojjle would still have to 
 use it, would they not ? 
 
 Mr. HiNES. Yes; and they would have to pay more for it on a 
 mileage basis, also. 
 
 Senator Clapp. That may be. 
 
 Mr. HiNES. Because the rates would be higher than they are now. 
 
 Senator Clapp. That may be. They would get cheaper rates, 
 however, on thqse things that thev were nearer to, in turn, would they 
 not? 
 
 Mr. Htnes. Yes; but 
 
 Senator Clapp. In other words, is it not unnatural to haul cqtton 
 from the South to New England to manufacture it? 
 
 Mr. HiNES. Let us pursue that a little further. Take that illus- 
 tration; take cotton, and suppose your rates are made on a mileage 
 basis on cotton. Assuming that it w;orks out as is suggested, you 
 have a little cotton niill here and a little cotton mill there and a 
 little cotton mill beyond. Each cotton mill has a territory that it 
 dominates. The people that raise cotton in that territory have only 
 one market, and that is that mill. I believe there would be a less 
 price paid, for the raw material when each man is shut up to a httle 
 near-by local market than now, when he has the markets of the 
 Avorld. 
 
 Senator Clapp. That might be; but on the principle of water 
 seeking its level, if that is a natural condition, would it not in the 
 end be a general benefit? In other words, has not the idea upon 
 which this question has proceeded, of trying to eliminate distance, 
 been a mistaken one? 
 
 Mr. Htnes. I do not think that 
 
 Senator Clapp. I think the committee would be glad to hear you 
 fully on that, would it not? 
 
 The Chairman. Oh, yes; go ahead. Before you answer that, how- 
 
SIXTH PAY. 61 
 
 ever, let me put another question. If coal costs 25 cents (being near 
 the point of shipment, you understand, now), could not the party 
 there manufacture with coal at 25 cents a ton better than the party 
 in New England could manufacture at $3 ? By the time the coal gets 
 to New England it costs him three dollars and three and a half, you 
 understand. If he is right bj' the coal mine, the freight costs hini 25 
 cents. There is a difference of $2.75, we will say, in a ton. Would 
 not that enable him, in manufacturing, to send this freight on a mile- 
 age basis to this wider market ? 
 
 I will be glad to have you answer that in conjunction with what 
 Senator Clapp said. 
 
 Mr. HiNES. Senator Elkins, answering your question first : As I say, 
 the location of any industrial establishment has got to be based on all 
 the conditions. If you could get j^our coal for nothing, but if the 
 factory was not favorably located for its raw materials and was not 
 favorably located for a market and was not favorably located to get 
 labor at reasonable prices, it could not do business. In this country 
 you do not find, except in very rare cases, your raw materials and your 
 fuel and your labor and your market all within 100 miles of each 
 other — all in the same territory. You have to go a long distance for 
 something. 
 
 Senator Cullom. The trouble is that we all want to buy things a 
 long W(ay off. Half of us would be buying things a long way off, 
 and having to pay a high price for them. We might have one or two 
 things close by — «orn, for instance, in Iowa and Illinois, and many 
 other things; but everybody has to go a long distance to get some- 
 thing that is worth getting, and you have got to have the railroads 
 to bring it. 
 
 Mr. HiNES. What has determined these things is simply the con- 
 currence of favorable conditions. No manufacturing point, in my 
 opinion, has ever been built up, and no great commercial business has 
 ever been built up simply because of its long-haul rates. That has 
 simply been an element when it has been built up, or has developed by 
 reason of the natural or strategic advantages which it has, because 
 things can be assembled there for manufacturing, or it is a convenient 
 place from which to distribute. Then it ma^' get an additional ad- 
 vantage by reason of having the long haul and having the business 
 increased ; but while the carrier, by giving a low rate on that business, 
 may increase that business, it could not possibly create a new manu- 
 facturing point by giving the same rate to some other place that did 
 not possess the other natural advantages. 
 
 Take as an example the Louisville and Nashville, which is the only 
 railroad company with whose management I have ever had anything 
 to do. Of course every railroad company is trying to make money, 
 and I do not knpw any one that is working harder than the Louis- 
 ville and Nashville in that direction, and I do not believe any railroad 
 could try harder to build up its local business. It realizes that by 
 retiring from the long-haul business it could not either create new 
 local manufacturers or destroy those that already exist. It realizes 
 that the powers which have established them are far more powerful 
 than it is, that it has no creative power to build up new ones in place 
 of them, and that the best it can do is to build up all of the local 
 industries where local conditions are favorable, and to make rates 
 in order to encourage that; and it does that right straight along. 
 
62 SIXTH DAT. 
 
 Why, it \yould ten times rather have a prosperous local industrial 
 establishment at a local point on its road than at a competitive point; 
 but the trouble is that ordinarily the competitive point possesses 
 advantages which the local point does not possess. That is why the 
 railroads have come to them. 
 
 Senator Clapp. Take Indianapolis, for example: AVhat advantage 
 did Indianapolis possess, until the roads began to center there, over 
 any other point? 
 
 Mr. IliNES. I think Indianapolis is a point whose advantages 
 might possibly be strategic ; it is a natural point of crossing of the 
 roads. 
 
 Senator Clapp. Oh, no; the roads are there now; but I mean 
 before the roads were built. Of course, after the roads were bnilt 
 that was so ; but I mean before there were any roads. 
 
 Mr. HiNES. Well, I do not suppose it was so then. 
 
 Senator Clapp. It arose from the fact that one road came, and 
 then, in some process, another, and in time it became a competing 
 point. 
 
 Mr. HiNES. Well, it became a competing point by reason of all these 
 railroads. It had many sources of supply, many markets, neces- 
 sarily more than a single railroad. 
 
 I understand that in Joint Traffic Association territory, and, in 
 fact, all the territory east of the Mississippi Kiver and north of the 
 Ohio, the long and short haul rule is observed pretty strictly ; that, at 
 least in the main, a place is not charged more than a place beyond; 
 and that can be done because the traffic is very dense, and the rates can 
 be profitable and still be as low as the competitive rates. Still, you 
 do not find manufacturing points growing up like mushrooms over 
 the whole face of the earth. They still pick out favorable points 
 which have advsgitages, and they always will. People would rather 
 live in one place than another. Labor would rather go to one place 
 than the other. 
 
 Senator Clapp. My question remains unanswered. Indianapolis 
 to-day is a larg^ distributing center. What natural advantage had 
 Indianapolis before the railroads began to center there any more 
 than if uiey had centered at some other point in Indiana ? 
 
 Mr. HiNES. None ; and, in my opinion, the other place would then 
 have had the advantage. 
 
 Senator Clapp. Then it is the fact that the railroads got in there 
 that made it what it is ? 
 
 Senator Ctjllom. I. can tell you how that was. The people of the 
 State of Indiana took pride in making that a great center and they 
 arranged to have all those roads go there. 
 
 Senator Clapp. Exactly ; but that is an artificial condition. 
 
 Mr. HiNES. But you take a point that has ten or twelve railroads 
 over which to draw supplies and by which to send out and distribute 
 property, and it has an advantage regardless of the question of rates, 
 1 do not understand that Indianapolis has less rates than longer hauls. 
 As I say, in that territory I think the rates are built on a basis of not 
 more for the short than the long hauls, and yet it has grown because 
 it has these other advantages. 
 
 I think these advantages are artificial only in the sense that a rail- 
 road is artificial. A railroad is not a natural thing. You take the 
 country before any railroads were built and, approximately, this ideal 
 
SIXTH DAY. 63 
 
 was realized that is suggested, of having a lot of little local factories 
 of one sort and another and nothingelse. The establisliment of rail- 
 roads has given new methods of travel, and it has enabled people in 
 the farthest parts of the country to enjoy the benefits of all the prod- 
 ucts of every other part of the world. In Louisville you can see 
 all the fruits of the tropics on sale, which have come there and are 
 within reach of the poorest people of the city- by reason of the fact 
 that the railroads, although thej' are trying to build up their local 
 business, have at the same time, when there was other business to be 
 developed, taken it at the rates they could get. 
 
 I do not think that has hurt the local points. They are better off 
 than they were before. They are growing more rapidly than they 
 were before, and the general system has benefited them indirectly in 
 a great many ways. It certainly has not hurt them. If you abol- 
 ished the railroads, they would not be any better off, or if you re- 
 stricted them to this zone system. Each place would be deprived 
 absolutely of things that it has now if that were done. It would be 
 deprived of markets. Every place would be deprived of markets 
 that it has now, and the competition that now exists throughout the 
 country in all lines of trade would be very much restricted, in my 
 opinion. 
 
 It seems to me that the practical results of taking the country for 
 a period of years show that this is a wise and beneficial system ; and 
 as soon as the people realized that there was any proposition to 
 change it, if any system were attempted to be substituted which 
 would make zones of prosperity or industry around little points all 
 over the country, there would be an absolute revolution. That may 
 be an ideal condition in one way, but it is a condition the people in 
 this country would not stand for. 
 
 Senator Ci.Apr. Perhaps that is true now ; but it has been suggested 
 that originally the policy was a mistaken one. 
 
 (The committee at this point adjourned until Wednesday, April 26, 
 1905, at 11 o'clock a. m.) 
 
 The committee during its session ordered the laws of Great Britain 
 on this subject to be printed as Appendix B. 
 
 The report of Mr. Edward W. Hines, referred to in the foregoing 
 statement, follows. 
 
DID CONGRESS INTTEND TO GIVE RATE-MAKING POWER TO 
 INTERSTATE COMMERCE COMMISSION ?— WHAT THE CONGRES- 
 SIONAL DEBATES SHOW.— EXTRACTS FROM THE RECORDS. 
 
 The Interstate Commerce Commission has persistently claimed that 
 Congress intended to give it power to make rates. The debates of 
 Congress on the subject are, therefore, of interest. 
 
 Mr. Edward W. Hines, an attorney at law, who had practiced for 
 many years in the court of appeals of Kentucky, who was for ten 
 years official reporter of the decisions of that court, and who is now 
 at Washington, D. C. upon the editorial staff of the West Publish- 
 ing Company, which publishes the decisions of all the courts of last 
 resort in this country, was asked to make a careful study of the de-; 
 bates of the Forty-eighth Congress and of the Forty-ninth Congress 
 upon the subject of interstate commerce, and to abstract therefrom 
 all portions tending in any way to throw any light upon this question, 
 whether tending to sustain or refute the claim that Congress intended 
 to confer such power, and also to embody' in a letter the conclusions 
 reached by him after that investigation. This pamphlet gives in 
 full Mr. Ilines's letter expressing his conclusions, and also the ab- 
 stracts made by him from the debates. 
 
 Although the debates on interstate commerce cover over 2,000 
 pages, the few pages incorporated here contain everything reason- 
 ably relating to this subject, and most of what is here incorporated 
 relates only remotely Or incidentally to it. The silence of the Con- 
 gressional Record upon this all-important subject is of itself con- 
 clusive evidence that Congress had no thought of conferring the 
 rate-making power upon the Commission. 
 
 Washington, D. C, January 31, 1898. 
 Mr. Walker D. Hines, 
 
 Assistant Chief Attorney, Louisville and Nashville 
 
 Railroad Company, Louisville, Ky. 
 Dear Sir: I send you by Adams Express the four volumes of 
 Congressional Record of the Forty-eighth and Forty -ninth Congresses 
 on interstate commerce which I received from you some time since, 
 together Avith an abstract of so much of the debates on that subject, 
 as serves to throw light upon the intention of Congress with reference 
 to conferring upon the Interstate Commerce Commission the power to 
 make rates. 
 
 I have read all the debates, comprising more than 2,000 octavo 
 pages, and the few pages I send you include every thing reasonably 
 bearing on the subject of the making of rates, either directly by Con- 
 gress or by a commission, whether tending .to sustain or refute the 
 64 
 
SIXTH DAY. 65 
 
 claim that Congress intended to confer on the Comnussion the rate- 
 making power. 
 
 To intelligently apply the debates it may be necessary to keep in 
 mind the points wherein the several bills pending in the House and 
 Senate at different times differed from each other. 
 
 On December 2, 1884, the House took up a bill theretofore reported 
 by committee entitled "A bill to establish a Board of Commissioners 
 of Interstate Commerce, and to regulate such commerce."' 
 
 This bill declared that all charges shall be reasonable, and prohib- 
 ited discrimination. For a violation of these provisions it gave to 
 any person injured ^a right of action for actual damages, to be recov- 
 ered in any State or United States court of competent jurisdiction, 
 and also provided that any person violating the act should be sub- 
 ject to a fine. A. commission of three members was provided for, with 
 power to entertain complaints and, after a formal hearing, to make a 
 report and findings which should, upon the refusal of the defendant 
 to conform to the decision, be made the basis of a proceeding in court 
 by the United States district attorney in the name of the aggrieved 
 party, the relief to be granted, in the event the report of the Commis- 
 sion should be sustained, being an injunction requiring the railroad 
 company to desist from the act_ complained of. 
 
 For this bill Mr. Keagan proposed as a substitute a bill prohibiting 
 discrimination, requiring all charges to be reasonable, prohibiting 
 pooling and the charging of more for a short than a long haul, and 
 requiring rates to be posted. The substitute further provided that 
 any person violating any of these provisions should forfeit to any 
 person who should sustain damages thereby three times the amount 
 of such damages, to be recovered in any court of competent jurisdic- 
 tion. The principal point wherein the substitute differed from the 
 bill which finally became a law was that it made no provision for a 
 commission, but sent all aggrieved persons directly to the courts. 
 With a few unimportant amendments, the substitute was passed by 
 the House January 8, 1885. 
 
 At the time there was under consideration in the Senate a bill to 
 establish a commission to regulate interstate commerce, and for other 
 purposes. That bill provided for a commission of nine members to 
 mvestigate all questions relating to commerce between the States. 
 This commission was to make an annual report to be transmitted to 
 Congress, and was to make recommendations as to additional legisla- 
 tion its first report " to be preceded with " an investigation of the subject 
 of interstate commerce, " which shall embrace the subject of establish- 
 ing a system of both maximum and minimum charges for transporta- 
 tion, and for the preservation of free competition within the limits so 
 fixed." This bill also provided for the punishment of the offenses of 
 extortion and unjust discrimination, and for the recovery of damages 
 by any person injured thereby after a hearing by the commission, its 
 report to be made the basis of a proceeding in court instituted by the 
 United States district attorney in the name of the aggrieved party. 
 This bill, unlike the bill which finally became a law, contained no pro- 
 hibition of pooling and on short and long haul clause, while the bill 
 which finally became a law did not preserve the provision of this bill 
 as to a report by the commission on the subject of establishing a sys- 
 tem of both maximum and minimum charges. There were other dif- 
 '6 D — 05 M ^5 
 
g6 SIXTH DAY. 
 
 ferences which do not seem materia] to an understanding of the 
 debates. 
 
 January 20, 1885, the Senate having proceeded to the consideration 
 of the House bill, Senator Cullom moved that the Senate bill be made 
 an amendment to the House bill, striking out all after the enacting 
 clause of the House bill and inserting the Senate bill as a substitute. 
 The amendment, with some amendments thereto, was concurred in, 
 and the bill as thus amended, being in substance the original Senate 
 bill, was passed February 4, 1885. When the House bill as thus 
 amended was reported back to the House that body refused to appoint 
 a committee of conference, and so a new beginning had to be made. 
 Thereupon, on March 17, 1885, the Senate adopted a resolution for 
 the appointment of a special committee to investigate and report upon 
 the subject of the regulation of transportation by railroad and water 
 routes in connection or in competition therewith. "With the report 
 provided for in that resolution the committee appointed thereunder 
 reported to the Senate a bill (S. 1532), which was taken up for con- 
 sideration in th^ Senate April 14, 1886. This bill, unlike the former 
 Senate bill, contained a long and short haul clause, with power in 
 the commission to make exceptions, and also a provision as to the pub- 
 lication of rates, and provided for a commission of five instead of nine 
 members. The general powers conferred upon the commission, as to 
 the investigation and hearing of complaints and the course provided 
 subsequent to an investigation, were substantially the same as those 
 provided by the former bill. This bill, with certain amendments, 
 ■passed the Senate May 12, 1886, and, together with a bill theretofore 
 reported to the House, was taken up in the House July 21, 1886, the 
 House bill being offered as a substitute for the Senate bill. The sub- 
 stitute, which was in substance the same bill which had formerly 
 been passed in the House, was passed July 30, 1886. Thereupon a 
 conference was appointed by the two Houses, and the conference 
 report was presented in the Senate December 15, 1886. The amend- 
 ment recommended by the conferees in the nature of a substitute 
 embraced the. main features of the Senate bill, with the addition of 
 the clause of the House bill prohibiting pooling. The conference 
 report was agreed to by the Senate January 14, 1887, and by the 
 House January 21, 1887. 
 
 I have given the dates at which the different bills w'ere taken up in 
 the two Houses, respectively, in order that it may be seen by a com- 
 parison of dates just what bill was under consideration at the time 
 of any particular argument or objection; and while I have in a 
 general way pointed out the respects in which the several bills differed 
 from each other, it may be that for the purpose of applying the 
 debates it will be sufficient to remember that the Senate bill provided 
 for a commission while the House bill did not. 
 
 It is a significant fact that the Senators and Representatives whose 
 utterances showed them to be most hostile to corporations were most 
 bitterly opposed to a commission, their argument being that as the 
 commission was without any real power it merely delayed the shipper 
 m his effort to get into the courts, and that this barrier should not be 
 interposed. On the other hand, the principal if not the only argu- 
 ment urged in favor of a commission was that it would be an aid 
 to the litigant in the preparation of his case, giving him the benefit 
 
SIXTH DAY. fi7 
 
 of the special knowledge of the commissioners, and putting behind 
 him the power of the Government to compel the production of testi- 
 mony, both oral and documentary, thus enabling him to get justice 
 more surely and cheaply. 
 
 To those who opposed any legislation upon the ground that the 
 common law afforded the injured shipper ample relief, the answer 
 was made that the shipper was powerless to make out his case against 
 the rich railroad corporation having peculiar knowledge of all the 
 facts and with vastly superior advantages for procuring testimony, 
 and that the purpose of interposing the commission was merely to 
 enable the shipper to enforce common-law principles. So it seems 
 clear that in empowering the Commission to make orders which, if 
 not complied with, were to be made the basis of proceedings in court, 
 it was not contemplated that the Commission should have any greater 
 power than the courts would have upon a direct resort to them by 
 the aggrieved shipper. And as no one ever thought of contending 
 that the courts would have power to make rates, it can not be sup- 
 posed that it occurred to Congress that it was conferring upon the 
 Commission that power. 
 
 But it is unnecessary to resort to such inferences, conclusive though 
 they seem, for the purpose of refuting the argument that it was in- 
 tended to confer upon the Commission the rate-making power, in 
 view of the fact that both Senator CuUom and Representative 
 Reagan, who prepared and had in charge the Senate and House bills, 
 respectively, disclaimed any intention to fix rates or to confer upon 
 the Commission the power to do so, and that Mr. Miller, of the 
 Senate committee, said not only that the bill did not attempt to fix 
 rates, but that the committee did not believe it to be wise to give that 
 power to the Commission. Mr. Anderson, of the House, also said 
 that neither of the bills purported to regulate rates, and that he was 
 anxious to go further than either of these bills and enact legislation 
 " which shall be affirmative action regulating the rates of these 
 roads." 
 
 The fact that no amendment was ever offered so extending the 
 poAvers of the Commission as to include the making of rates is 
 entitled to some weight, for in view of the disclaimers referred to it 
 can not be urged that this omission was due to the fact that it was 
 supposed that the power was already conferred. 
 
 It is true Mr. McPherson, in the Senate, did contend that the power 
 of the Commission to compel the railroads to make their rates reason- 
 able implied the power to fix rates ; but that statement was by way of 
 criticism, and, besides, was challenged by Mr. Camden, who said : 
 
 I beg pardon. The Commission is not given power to fix rates. I contend 
 that Congress can not give any body the right to fix rates, but the Commission 
 •can decide whether a rate is reasonable or unreasonable. 
 
 It was repeatedly argued by the most extreme advocates of legis- 
 lative regulation that the Commission was a useless body because 
 without any substantial power, and in answer to that objection the 
 E dvocates of the Commission bill, one after another, set forth the value 
 and uses of the Conmiission, and yet not one of them suggested that 
 the Commission would have the extraordinary power to fix rates, 
 which, had ' it existed, would have been a complete answer to the 
 objection, since no one can deny that such a power is a substantial 
 
68 SIXTH DAY. 
 
 one. So, even if the disclaimers on the part of those in charge of the 
 ^)ills of any intention to confer on the Commission the power to make 
 rates are not, when considered alone, evidence of the _ constriiction 
 placed upon the bill by other Senators and Eepresentatives, stillthe 
 lailure of other members to challenge these statements at the time, 
 coupled with the fact that they did not when enumerating the powers 
 of the Commission include the power to fix rates, would seem to be 
 conclusive that the courts have in so construing the law as to deny 
 to the Commission such power conformed to the real intention of 
 Congress. 
 
 It is worthy of note that the evil which seemed to be regarded by 
 Senators and Representatives as demanding more than any other 
 remedy was the inequality of rates, there being but little complaint 
 that rates were unreasonable per se. Each of the House bills was 
 entitled a bill " to regulate interstate commerce and to prevent unjust 
 discriminations by common carriers," which is itself significant. 
 
 I am convinced from my reading of all the debates that Congress 
 had no thought that it was conferring upon the Commission the 
 power to fix rates, and that no bill expressly conferring such power 
 could have passed. 
 
 Very sincerely, yours, Edward W. Hi.ves. 
 
 Extracts from, the debates. 
 
 FORTY-EIGHTH COXGRESS. 
 
 IN THE HOUSE OF EEPEESENTATIVES. 
 [On December 2, 1884.] 
 
 Eepresentative Reagan said : ilr. Speaker, there is nothing before 
 the House, and I therefore ask to take up for present considera- 
 tion the special order, being House bill Xo. 5461 to establish a board 
 of commissioners of interstate commerce and to regulate such com- 
 merce. 
 
 ******* 
 
 There are t^^ o bills pending before the House, one the bill author- 
 ized by the committee, the other a substitute offered by myself as 
 a member of the committee. 
 
 ******* 
 
 Whilo, I know there are others that agree with the majority of the 
 committee in favor of a commission, I also Imow that all the railroad 
 companies and railroad attorneys and railroad experts seek a com- 
 mission instead of that legislation which will enaWe a citizen to go 
 right directly to an honest court and an honest jury. * * * jf 
 we were attempting to make regulations, if we were attempting to 
 fix the price of freight, I agree with you a conmiittee might be neces- 
 sary ; but we are trying to do no such thing. * * * 
 
 rOn Decembei- 3, 1884.] 
 
 Mr. Seymour said -•But at this point I desire to call attention to the 
 scope and object of the bill as it stands. Brieflv and generallv, its 
 purport IS to declare certain specified acts of interstate Railroads un- 
 
SIXTH DAY, 69 
 
 lawful, to furnish sundry remedies, to provide sundry penalties, and 
 to create a railroad commission with power to prevent and put a stop 
 to such unlawful acts, to assist in applying the remedies and enforc- 
 ing the penalties, and also (and herein lies the chief merit of the bill, 
 in my opinion) to investigate all grievances brought to its notice, 
 with power, after careful examination, to make such reconmienda- 
 lions to Congress for future legislation respecting interstate com- 
 merce as may reach all well-founded complaints and remedy the evils 
 complained of, thus taking the detailed examination of the complaints 
 upon which the demand for legislation is based out of Congress, in 
 the first instance, and placing it in the hands of commissioners, who 
 have not only more time to devote to it, but who, by the inspection of 
 books and papers, schedules and contracts, by the investigation of real 
 instead of hypothetical cases of complaint, can act more intelligently 
 than a committee of Congress can possibly do. 
 
 Mr. Long. * * * It is for these reasons that a majority of the 
 Committee on Commerce * * * agreed that the only way to meet 
 this protean, this ever-shifting and recurring danger and pest of 
 railroad discriminations, is to adopt certain remedial provisions, 
 somewhat after Mr. Eeagan's plan, but, instead of leaving them to 
 rust cm the statute book, to establish for their application and elastic 
 enforcement an interstate commerce commission. * * * 
 
 [On December 4, 1SS4.] 
 
 Mr. xVjfDERSON said: * * * Now, Mr. Speaker, on a compari- 
 son of these tvio bills, though neither of them purports to regulate 
 rates, as between the Reagan bill and the committee's bill I am un- 
 questionably in favor of the former. As between either of them and 
 a bill which created, say, a commission, or which by a direct act regu^ 
 lated the rates of the railwavs of the United vStates, I should prefer 
 the latter. * * * 
 
 Ix)oking from the standpoint of the people and their interest as I 
 see it, I, for one, am not only ready but anxious to engage in any 
 legislation which shall go much further than either of these bills goes, 
 and M'hich shall be affirmati^'e action regulating the rates of these 
 roads. 
 
 ******* 
 
 Mr. Hopkins. The clauses in this bill creating a commission and 
 prescribing its powers and functions are, as I understand it, merely 
 auxiliary to the general purpose. The rights and remedies of indi- 
 viduals can not be impaired by the commission. But, on the con- 
 trary, supplemental guaranties are herein provided for the main- 
 tenance of rights and enforcement of their remedies. * * * 
 
 Mr. Shiveley, after pointing out that neither the conamittee's bill 
 nor the substitute regulates rates, says: * * * It may be inex- 
 pedient at this stage of progress on the subject to go to this extent, 
 though I have not the slightest doubt of the right and power of Con- 
 gress to do so. 
 
 [On December 8, 1884.] 
 
 Mr. FiNDLAT said : * * * It is perfectly legitimate to prescribe 
 that a rate shall be reasonable and then leave it to the courts to deter- 
 mine what is and what is not reasonable, but to declare ui advance 
 
70 SIXTH DAY. 
 
 not merely the principle by which the fixing of the/ate^\f i,^^£J; 
 erned but to prescribe the rate itself by referring it to a fixed standard 
 and apply the rule to the complicated system of interstate transporta- 
 tion, with all of its vast ramifications and subtle competitions, is_ the 
 exercise of a power which, if it be legislative in its nature, certainly 
 ought to be sparingly and cautiously used. The bill of the committee 
 keeps this distinction full in view in all of its provisions, and is con- 
 sistent and symmetrical throughout ; but the lleagan substitute, as 1 
 have shown, is not only not distinguished by this unity and integrity 
 of purpose, but is complex and contradictory in some of its essential 
 features. 
 
 ******* 
 
 Mr. Reagan. But it would be understood from his reasoning that 
 my bill not only requires rates to be reasonable, but fixes the rates. 
 There is not a word in the bill having that effect. 
 
 ******* 
 
 Mr. EiCE. In 1873 a board of railway commissioners was estab- 
 lished in England, with large powers of superivision and control over 
 the railways of the kingdom. It has given larger powers than are 
 provided in this bill or than are believed necessary in this country. 
 * * * 
 
 [On December 9, 1SS4.] 
 
 Mr. Baeksdale said: * * * The bill has the double merit of 
 providing remedial measures and appointing a commission armed 
 with the power and authority and money of the Government to 
 enforce them. * * * 
 
 Mr. Davis. * * * From these recommendations and authorities 
 and in the light of what has already been accomplished, in the experi- 
 ence of others, I am constrained to believe that a railroad conunission 
 with limited powers is the step for us to take first. 
 
 Mr. Boyle. * * * As I have said that the first section is only 
 declaratory of the common law, I object to it only on the ground that 
 it is an assertion of the power of Congress to regulate and determine 
 the rates at which railroads shall carry what is called " interstate com- 
 merce." If Congress may require that rates shall be reasonable, it 
 may also determine what are reasonable and Avhat unreasonable rates, 
 and may thus fix rates and assume entire control of the whole matter. 
 I may refer further to this before I conclude. * * * 
 
 The establishment of a commission was urged by nearly every rail- 
 road man who appeared before the Commerce Committee, and I do 
 not wonder. As provided for in Ibis bill, it will not only be without 
 power to aid the shipper but will be an actual obstruction in his way 
 when he seeks redress for injuries done him by a railroad company. 
 "^ * * Mr. Speaker, no case has been cited touching the power of 
 Congress to regulate interstate commerce from which it can be gath- 
 ered that any court has held that that power would warrant the Fed- 
 eral Government in interposing between shipper and carrier to the 
 extent of prescribing how commerce shall be carried by rail or what 
 rates shall be charged for its transportation. To my knowledo-e there 
 is no such case. Congress has the right under the Constitution to 
 regulate and control interstate commerce ; that is, to facilitate it, and 
 to prevent States from placing obstacles in the way of carrying it on. 
 
SIXTH DAY. 71 
 
 It has the power to prevent the imposition of burdens or taxes upon 
 it by States. * * * 
 
 Mr. Weavee. Now, will some one point out the utility of this com- 
 mission, in that any citizen has a right at any and all times before 
 the courts to ask for an injunction in case of an alleged violation of 
 the law ? 
 
 We have now arrived at that point where we have spent at least 
 thirty or forty days with the commission — landed in the court (a 
 place where we had a right to go in the first instance) for an investi- 
 gation of the case de novo. 
 
 [On December 10, 1884.] 
 
 Mr. Stewart, of Vermont, said: * * * Now, what is my 
 friend's objection « * * * "y^en you come to sum it up, this com- 
 mission has not power to render a final judgment and enforce its 
 judgment by execution. That is the sum and substance of the ob- 
 jection. Kow, both those gentlemen are too good lawyers not to 
 understand that it is not in our power to create such a commis- 
 sion. * * * 
 
 My friend from Pennsylvania complains because the redress 
 afforded is not full and sufficient. It goes just as far as the law will 
 allow it to go. Commissions elsewhere in the States are clothed 
 with no judicial or executive power. They do not render final judg- 
 ment ; they have no power to issue injimctions ; they have no power 
 to make peremptory orders. Such a commission is a board of inves- 
 tigation, a board of inquiry, and a board of advice, representing the 
 sovereignty of the State, as this proposed commission would repre- 
 sent the sovereignty of sixty millions of people. 
 
 ^ ^ - ^ :j« ^ ^ :J: 
 
 [On Dccembei- 11, 1S84.] 
 
 Mr. Glascock said : * * * It (the commission) has none of the 
 elements of the English commission, so potent to regulate railway 
 abuses in Great Britain. It can not render a decision, can not enjoin, 
 can not punish for contempt. It is not automatic. It can not be 
 brought into even the most distant relations with the companies it 
 is supposed to regulate except through the medium of a petition and 
 a quasi investigation, prosecuted either through itself collectively or 
 individually, or under delegation of full powers, by a stranger who 
 may not possess a single qualification required by law, of the com- 
 missioners. 
 
 ******* 
 
 The commission provided for in this bill are not clothed with 
 judicial powers. As stated by the gentleman from California, who 
 has just left the floor [Mr. Glascock], it is not clothed with the 
 powers conferred upon the English commission ; for that commission 
 can investigate, it can restrain, it can enjoin, it can render advice. 
 ******* 
 
 Mr. McAdoo. * * * Railroad commissions work well in many 
 of the States. There they are invaluable in settling questions of taxa^ 
 tion between the railroads and the people. Such is the case in my 
 own State. But the commission proposed by the bill of the commit- 
 tee seems to me a useless institution. I should think the railroad 
 
72 SIXTH DAY. 
 
 managers would favor the commission. Very imposing but entirely 
 impotent, it would be a harmless safety-valve for popular and indi- 
 vidual discontent without benefiting or hurting anyone concerned. 
 Their finding would be less potent than the editorial condemnation 
 of a leading journal. 
 
 ******* 
 
 [On January 7, 1885.] 
 
 Mr. Reagan said: * * * Q^a of the greatest , troubles I have 
 had, even with the friends of legislation in this direction, has been 
 to get them to understand that this is not a bill to regulate freight 
 rates, that it does not undertake to prescribe rates for the transporta- 
 tion of freight. I know the difficulties which would attend any meas- 
 ure attempting to prescribe rates of freight. I am persuaded that 
 no law fixing rates of freight could be made to work with justice 
 either to the railroads or to the public, and I have intended from the 
 beginning to avoid that difficulty. * * * 
 
 The difficulty with gentlemen in considering the bill is that they 
 can not keep out of their minds the arguments of the raili'oad lawyers 
 and lobbyists, who are continuallj' harping upon it, that this bill 
 establishes arbitrary rates of freight. It does no such thing. It 
 carefuly guards against that, simply intending to prevent the most 
 manifest abuse against the public and control the monopoly powers 
 of these corporations. 
 
 IN THE SENATE. 
 [On December 18, 1884.] 
 
 Senator CuLi.o^r said • * * * Some may object to this bill be- 
 cause it does not attempt to specifically prohibit pooling and rebates, 
 or because it does not provide for fixing rates. I do not consider 
 these objections well founded. In the first place, it must become 
 clear to those who carefully investigate this subject that the root of all 
 the evils complained of to-day, the source of all the trouble in railway 
 operations, if favoritism — unequaled preferences allowed to favored 
 persons or places, or, in other words, unjust discrimination. 
 
 [On December 19, 1884.] 
 
 Mr. George said: * * * I have already pointed out how vain 
 and ineffectual is the main provision of the bill prohibiting the 
 charging of unreasonable rates unless there be some efficient provision 
 to enforce it. This bill contains no such provision. As to that, if 
 the bill becomes a law as it now stands, it will be but glittering words, 
 holding out a hope sure to be disappointed and a promise never to be 
 redeemed. I have already pointed out its assured failure from the 
 want of a standard by which to measure the reasonableness of the 
 rates. The powers of the commissioners furnish no substitute. 
 Their powers as to this point extend only to ascertaining the exist- 
 ence of wrongs already well knoAvn, and the institution of suits cer- 
 tain to fail. '■' * * 
 
 [On J:iuunry 5, 188.5.] 
 
 Mr. Sewell said : Mr. President, the bill under consideration aims 
 at a national control of the railroad system of the country, so far as 
 
SIXTH DAY. 73 
 
 it pertains to interstate commerce. It proposes to establish a com- 
 mission for the purpose of seeing that fair rates are made by rail- 
 roads, and that the people of the country are fairly treated by the 
 corporations, giving the commission power to punish those companies 
 that do not comply with what they consider just rates for transporta- 
 tion. * * * Therefore, I think it is wise to leave to the discretion 
 of the commissioners to be appointed under this act the determination 
 of what are fair rates in the different sections of the country and 
 under the different circumstances that the various lines are operated. 
 
 [On January 7, 1885.] 
 
 The Senate, as in Committee of the 'Whole, resumed the considera- 
 tion of the bill (8. 2112) to establish a commission to regulate inter- 
 state commerce, and for other purposes, the pending question being 
 on the amendment of Mr. CuUom to add, at the end of section 11, the 
 following : 
 
 And said commission shall accompany its first report with a bill presenting a 
 just and comprehensive code for the regulation of the ti-ansportation of com- 
 merce among the States, which said bill shall embrace provisions for establish- 
 ing a system of both maximum and minimum charges for transportation, and 
 for the preservation of free competition within the lines so fixed, for the pro- 
 hibition of discriminations of any kind whatever, either in favor of or against 
 cities. to\\ns, or other localities, whether the same be competing or noncom- 
 peting points, and for applying the same principles to transportation for indi- 
 viduals, firms, associations, or corporations in all matters relating to commerce 
 among the States; for the preservation and enforcement of the right of ship- 
 pers to select the lines and parts of lines over which their shipments shall pass, 
 to the end that said commerce among the States may avail itself of the all-rail 
 or part rail and part water routes of the country ; for the prevention of such 
 pooling arrangements and agreements to refrain from .just competition as may 
 tend to impose unreasonable burdens upon said commerce among the States, 
 and for the protection of said commerce against unjust exactions based on a 
 class of securities commonly denominated " watered stock ; " and said commis- 
 sion, in conducting said investigation and in the preparation of said bill, shall 
 be guided by such rules of action as will bo fair, just, and equitable toward all 
 of the interests involved, whether the same be private, public, or corporate, 
 connected with the subject of commerce among the States. 
 
 (This amendment, though offered by Mv. CuUom, was in fact the 
 amendment of Mr. Wilson.) 
 
 :i! ^: :ii * * * * 
 
 Mr. Wilson. * * * There is nothing in the amendment which 
 commits any person to any line of policy. It merely directs the 
 investigation, with the result to be presented, accompanied by a bill 
 in which shall be formulated the pHnciples involved in the investiga- 
 tion directed. 
 
 Mr. CtTLLOM. I inquire of the Senator from Iowa, if he has his 
 amendment before him, whether he would be willing to strike out, in 
 line 5, the words " both maximum and minimum," and leave the rest 
 of the amendment stand? I think the Senator will find that there 
 will be serious opposition to the amendment with these words in. 
 With them out, so far as I am personally concerned, while I have not 
 the authority to speak for the committee, I would not object to the 
 adoption of the amendment. 
 
 Mr. Wilson. As I have just said, the amendment commits no one 
 to the policy of establishing a system of maximum and minimum 
 rates. * * *' 
 
74 SIXTH DAY. 
 
 Mr. Harrison. If the Senator from Iowa will allow me, I will 
 state one objection that I think I see in the amendment. It I were 
 an advocate of a law which should establish maximum and minimum 
 rates of transportation, I should not want to submit the framing of 
 such a law to a commission that might be opposed to it. 
 
 ******* 
 
 Mr. Garland. * * * The first section of the bill speaks of the 
 proposed commission, provides for its organization, and then the 
 next section proceeds in this language : 
 
 Sec. 2. That the commission liereby created shall have supervision over all 
 matters pertaining to the regulation of commerce among the several States. 
 
 The word " supervision " there is the strong word of the phrase 
 which carries with it the power of these commissioners. Supervision 
 for what? Supervision to make, to change, or to alter the regula- 
 tions of commerce ; or is it a supervision merely to put them in a par- 
 ticular order and arrange them in a certain way to be presented to the 
 community? The first of these propositions is the true one. They 
 are to have " supervision " — that is, the entire control of, not merely 
 the overlooking of these regulations, but power to see that they are 
 in proper shape and properly passed out, properly spelled, and prop- 
 erly written. Thej' are to have full supervision of the regulation of 
 commerce among the States. * * * gut when Congress, in the 
 exercise of a legislative power delegated to it by the Constitution, 
 may do a thing, where do we find the power in Congress to delegate 
 this authority, delegated to it, to a mere commission of seven, or five, 
 or three, as the case may be ? * * * 
 
 To meet the case before us, what should be done? If I read this 
 power of the Constitution aright, Congress should prescribe its regu- 
 lations itself. It should not say if a company, in the judgment of 
 the commission, charges extraordinary rates or practices extortion, 
 the commission shall prescribe regulations. That should not be left 
 to any commission or person in the world to determine ; but Congress 
 should prescribe the rule itself, and that is what the Constitution 
 means; that is one of the regulations contemplated by the Consti- 
 tution. * * * 
 
 [January 14, ISSo.] 
 
 Mr. Slater said ; * * * ^yg (Jq ^ot undertake to fix the price 
 
 at which freight shall be moved upon any of the roads, but we 
 
 undertake to say that certain evils which now exist shall cease to 
 
 exist, and put upon them the force of statutory prohibition. * * * 
 
 ***** * * 
 
 Mr. Williams. * * * ^Ye can not say what the rates on the 
 railroads ought to be for freight or for passage money. We can not 
 pass a general law. "We can not appoint a commission and give them 
 power to regulate it, because that would be delegating to the com- 
 mission legislative power which Congress has no right to confer. 
 ***** # * 
 
 Mr. Hawley. * * * For the present I coincide with the Eail- 
 road Committee in saying that we ought to begin with what is very 
 generally demanded by the best students of this great question, a 
 
SIXTH DAY. 75 
 
 commission with comparatively limited powers to study the subject 
 carefully, and proceed as may seem best afterwards. 
 
 [.Tauuary 20, 18S5.] 
 
 Mr.MAXEY said: * * * So I can not see for the life of me 
 what is the object of this commission. * * * Then, when you 
 come to test it to the bottom they do not determine the facts; that * 
 is done by a court, and this investigation which they make is nothing 
 in the world but an investigation for the purpose of furnishing data, 
 as I understand, to the district attorney. It is the most remarkable 
 proceeding I have ever heard of, and I do not think it will do. * * *" 
 
 These five propositions, prohibiting discriminations, prohibiting 
 rebates, prohibiting pooling, prohibiting discrimination between 
 places, and requiring rates to be posted up in public places, are all 
 the requirements of the Eeagan bill, and everything else in the bill 
 simply prescribes the methods of enforcing them. * * * 
 
 Then what do you propose to give to the House of Eepresentatives 
 in place of an efficient bill declaring that which is right and just and 
 reasonable ? What do you propose to give them in place of that bill 
 which the motion of the Senator from Illinois would trample under 
 foot, and ignore, but this hybrid concern, a legislature that is im- 
 potent and a court that is powerless ? This is the Senate bill. * * * 
 
 Mr. Coke. * * * ^ow, Mr. President, it is proposed that the 
 Senate of the United States shall ignore the reasonable, sensible, 
 simple propositions contained in the Eeagan bill, embodying sub- 
 stantially the common law of the land, which should be left to the 
 courts of the country at the homes of the people of the United States 
 to enforce, as is done in the Eeagan bill. It is proposed to ignore 
 these, although the people have demanded them in every form in 
 which they can speak, and give them the remedy of a commission 
 which takes away from the people the only remedy they now have 
 and leaves their complaints against the railroad companies barred 
 by limitation before they find out whether the commission will let 
 them bring suit or not. * * * 
 
 ron February 2, 1885.] 
 
 Mr. Harrison, after quoting Mr. Chittenden, said ; * * * rpj^^^ 
 gentleman says we do not want any more law; the common law 
 covers the whole ground; if the Eeagan bill goes further he is not 
 for it ; but what we do want, as he expresses it, is " some more effective 
 means of enforcing the rights of the citizens at common law," some- 
 thing that will reenforce the citizen in this contest with the railroad 
 companies. * * * 
 
 As to the other objection, that judicial power is conferred upon 
 the commission, I do not think it is well founded-. Its powers are 
 simply supervisory. They are empowered to get information; they 
 are empowered to administer oaths ; just as a committee of Congress 
 may in the examination of witnesses. It is not a judicial function. 
 The commission may make recommendations as to what ought to be 
 done, but the bill does not give their conclusion the force of a judg- 
 ment. * * * 
 
76 SIXTH DAY. 
 
 [February 3, 1S85.] 
 
 Mr. Maxey said : Mr. President, the essential distinction, as I un- 
 derstand it, between the Senate bill and the House bill is whether or 
 not the irrievances complained of by the people as to the action of 
 the railroad shall be investigated by a commission without authority 
 of law to hear and determine or whether the grievances complamed 
 of shall be set forth and declared misdemeanors and submitted to 
 ■ the courts for adjudication, like any other misdemeanor or grievance. 
 ******* 
 
 Mr. McPheeson. The statement that he makes, found in the Sen- 
 ate bill, that the commission will have the power to determine as to 
 the reasonableness of rates, gives them the power to fix rates, does it 
 not? 
 
 Mr. Sherman. They are authorized by the general phraseology of 
 the bill not only to say what rates are reasonable, but to prescribe 
 rules and regulations. Indeed, their field is as broad as the power 
 of Congress. ^Tiatever can be done under the authority to regulate 
 commerce can be recommended by the commission. 
 
 * * * * * * * 
 
 Mr. McPheeson. After all, the commission have the power to fix 
 the rates and determine their reasonableness. 
 
 ******* 
 
 Mr. Kenna. This bill was never designed, I repeat, to fix the rates 
 of the railroads in the management of their business. 
 
 [February 4, 1885.] 
 
 Mr. Satjlsbury said: * * * j am \ery sure there are few 
 suits that will be instituted under the provisions of the bill, and 
 without suits originated by the district attorney there is no remedy 
 secured under it to any person who has been damnified hj the injus- 
 tice of a railroad company. 
 
 FORTY-NINTH CONGRESS. 
 
 IN THE SENATE. 
 
 LOn Wednesday, April 14, 1886.] 
 
 Mr. CuLLOM said: * * * In the second place, we are justified 
 in believing that under the course of procedure which has been pro- 
 posed, and with the aid of the great force of public opinion, the 
 commission would be of great service to the people in bringing about 
 an amicable adjustment of the larger portions of the complaints sub- 
 mitted promptly and to the entire satisfaction of the complainant. 
 But, in the third place, even in those cases in which resort to the 
 courts should happen to become necessary, the complainant would 
 gain rather than lose by prosecuting his case before the commission. 
 All he could lose would be the time occupied in the investigation, 
 while he would gain an immense advantage by having a prima facie 
 
SIXTH DAY. 77 
 
 case established and the summary method provided for its prosecu- 
 tion and by having his case prosecuted by the Government. 
 
 * * * 
 
 [On Thursday, April 22, 18S6.] 
 
 Mr. Miller said ; * * * The bill does not attempt to fix rates. 
 The committee did not believe it was wise for Congress to undertake 
 to do that with its present imperfect knowledge. It did not believe 
 that it was wise to give that power to any commission which might 
 be organized under the bill. 
 
 ***** He * 
 
 [On Thursday, May 6, 1886.] 
 
 !Mr. Call, referring to amendment to section 4, giving commission 
 power to make exceptions, said : Mr. President, I merely wish to say 
 that it seems to me there may be a doubt as to this amendment, and 
 in regard to the powers conferred in the section as to how far Con- 
 gress may confer the authority upon commissioners to legislate, to 
 make laws to establish rates over railroads. It seems to me that 
 there is a doubt in regard to that, and that the section gives the com- 
 mission power which, if it exists at all, can alone be exercised by 
 Congress. , 
 
 ******* 
 
 Mr. Kenna. * * * ' ^Yhat constitutes a reasonable rate irf pre- 
 cisely the thing which the people of this country are unwilling to 
 leave to the arbitrary discretion of the railroad commission. 
 
 • [Monday, May 10, 1886.] 
 
 Mr. ATalthali, said: * * * Does any Senator feel safe in an- 
 nouncing that Congress can confer on *a commission the power to 
 regulate the rates of transportation so as to bind the railroad com- 
 panies ? And, if it can not fix rates, what good purpose that is prac- 
 tical can a commission serve? But if the power be conceded, the 
 work is beyond the capacity of any commission that can be appointed. 
 * * * Judge Reagan, at the last session, secured the passage of a 
 bill through the lower House by a vote of two to one to regulate inter- 
 state railroad traffic. In advocating that measure he expressed the 
 opinion that '• no law fixing rates of freight could be made to work 
 with justice either to the railroad or to the public," and the same con- 
 clusion has been reached by others who have maturely considered the 
 subject from a wholly impartial standpoint. To me this seems clear, 
 and the reasons for it are equally forcible when applied to rates fixed 
 by an interstate commerce commission. 
 
 [Tuesday, May 11, 1886.] 
 
 Mr. Morgan said : * * * The doings of the commissioners to 
 be appointed under this act, so far as they fall short of being the 
 decrees of the courts of inferior jurisdiction, will be nugatory. 
 
 They may persuade or intimidate the railroad companies, but they 
 will work no change in their material rights. 
 
 The frame of the bill shows that they are not intended to decide 
 
78 SIXTH DAY. 
 
 anything finally, but only to malre a case and present it in a certain 
 form for the adjudication of the courts. 
 
 [Weflnesday, May 12, 1886.] 
 
 The President pro tempore. The amendment proposed will be 
 
 The CniEY Clerk. In section 4, line 4, it is proposed to strike out 
 the words " class and quantity," and insert in lieu thereof the word 
 " kind," so as to read : 
 
 That it shall be unlawful for any common carrier to charge or receive any 
 greivter cojupensation in the aggregate for the transportation of passengers or 
 bf the lilto Idnci of property subject to the provisions of this act, for a shorter 
 than for a longer distance over the same line and in the same direction. 
 
 The President pro tempore. The question is on this amendment to 
 the amendment as made as in the Committee of the Whole. 
 
 Mr. Allison. Under the amendment as suggested by the Senator 
 from West Virginia the same price shall be charged per one hundred 
 pounds for a single Iveg of nails as will be charged for a carload. 
 That, I think, is manifestly unjust. 
 
 Mr. Harris. I beg to assure ihe Senator from Iowa that no such 
 construction is possible. The railroad companies under this bill have 
 the right to fix their own tariffs on freight; they will fix one tariff 
 for packages, one tariff for the carload, and perhaps A totally dif- 
 ferent tariff' for a larger than a smaller number of carloads. 
 
 ******* 
 
 Mr. Ingalls. * * * q^j^g Senator from Tennessee, last upon 
 the floor [Mr. Harris] , said that the section proposed to legislate with 
 regard to rates of freight. 
 
 Mr. Harris. On the contrary, I said it did not propose to fix rates 
 at all. 
 
 ******* 
 
 Mr. CuLLOM. The railroad companies are allowed to make their 
 own classifications as far as this bill is concerned. The bill does hot 
 undertake to say that they shall charge as much or less for shipping 
 a carload, or any other given quantity of grain. We do not under- 
 take to regulate the question of amount at all, but we leave the sub- 
 ject in the hands of the commission, so that if a man is charged as 
 much for shipping a jackJmife as he is for shipping a carload of 
 grain, it is extortion, and it is for the commission to see what is being 
 done and to prosecute the railroad company if it is proper to do so 
 in such a case. The bill .does not interfere with that. * * * 
 
 Mr. Vance. * * * -pj^g ^p^g object of the fourth section is to 
 prevent the unjust discrimination of the overcharge of the short haul. 
 That is the whole object; and it seems to me that if that is the object 
 of the section, the purpose is sufficiently and explicitly answered as 
 the original language of the bill was with the exception of the 
 amendment which was made in lines 6 and 7 : 
 
 That it shall be unlavi^ful for any common carrier to charge or receive any 
 greater compensation In the aggregate for the transportation of passengers or 
 property. 
 
 Leaving the classification of property and all the details of it to 
 the discretion of the railroad companies. 
 
SIXTH DAY. 79 
 
 Mr. McPherson. Your bill proposes to appoint a commission, and 
 upon that commission you confer the absolute power of determining 
 the question whether a rate is reasonable and just or unreasonable and 
 unjust. When from a station between here and Chicago complaint 
 is made to the commission, I say, under the powers conferred on the 
 commission by the bill, they could change that rate and make a dif- 
 ferent rate and more reasonable rate without affecting the Chicago 
 rate at all. 
 
 Mr. Camden. I want to say to the Senator that unless the amend- 
 ment offered by me is adopted the commission have no discretion 
 whatever on that subject. 
 
 ******* 
 
 Mr. Teller. In this bill, as it came from the committee, the distin- 
 guishing feature in it from other bills which have from time to time 
 been presented, was the provision for a commission. The commission 
 is given extraordinary powers — powers which I venture to say were 
 never given to any other commission in any other bill. After having 
 given this commission these extraordinary powers, as if afraid that 
 the commission would not exercise them with proper discretion, in a 
 proper manner, the committee insert section 4 of the bill. 
 
 Mr. Saulsbuey. * * * j propose to strike out what I now read : 
 
 Such annual reports shall show in detail the amount of capital stock issued, 
 the amounts paid therefor, and the manner of payment for the same, the divi- 
 dends paid, the surplus fund, if any, and the number of stockholders ; the 
 funded and floating debts and the interest paid thereon ; the cost and value of 
 the carrier's property, franchises, and equipments ; the number of employees 
 and the salaries paid to each class ; the amounts expended for improvements 
 each year, how expended, and the character of such improvements ; the earn- 
 ings and receipts from each branch of business and from all other sources ; the 
 operating and other expenses ; the balances of profit and loss ; and a complete 
 exhibit of the financial ofieratioii of the carrier each year, including an annual 
 balance sheet. 
 
 <! Sp ^ !p ^ -1* ^ 
 
 Mr. Ctjllom. I only want to say one word. It seems to me that one 
 of the important things that will result from the passage of this act 
 will be the acquisition of information. One of the troubles with the 
 people of the country is that they suppose that railroads are capital- 
 ized over and over again beyond what their actual value is, and they 
 therefore are complaining of extortion. My judgment is that this 
 information is necessary m order to enable the commission to know 
 what reasonable rates are, and it is very important that the provision, 
 now proposed to be stricken out, shall remain in the bill, and I hope 
 it will. 
 
 The PEEsroENT pro tempore. The question is on the amendment 
 proposed by the Senator from Delaware (Mr. Saulsbury) . 
 
 The amendment was rejected. 
 
 IN THE HOTJSE OF EEPBESENTATIVES. 
 [On Wednesday, July 21, 1886.] 
 
 Representative Reagax said: * * * Another reason for the 
 publication of freight rates, which should be controlling, is that in 
 questions before the courts involving the reasonableness of such 
 
80 SIXTH DAY. 
 
 charges when the rates are not authoritatively published it is not 
 difficult for railroad experts in the interest of the companies to deteat 
 iust demands for damages by confusing juries with arttui statements 
 of what they term all the elements which enter into the question as 
 to the reasonableness of rates, while if they are required to post up 
 their schedules and rates they can not deny that those posted up are 
 reasonable nor escape the penalty of charging more or less than their 
 schedule rates. These schedules of rates would not only advise the 
 people what thev would have to pay, but they would furnish evidence 
 of what reasonable rates are. The first section of the House bill 
 requires that all rates shall be reasonable. The making of an unrea- 
 sonable schedule of rates would subject them to the penalties pre- 
 scribed by the bill. These two sections of the bill^would greatly pro- 
 tect the people against imjjroper charge^;;. * " '^' 
 
 The House bill makes no provision for a commission. And here I 
 beg to call special attention to the theory of these two bills. The 
 Senate bill is framed on the theory of securing a detailed regulation 
 of freight and passenger rates, though it neither fixes any rate nor 
 authorizes the commission to fix rates. In this it seems to be 
 strangely illogical. 
 
 The House bill proceeds on the theory of abridging the monopoly 
 powers of the railroad companies and of prohibiting the greater and 
 more manifest violations of right by them without attempting a de- 
 tailed regulation of freight rates, and provides for the enforcement 
 of its provisions through the courts of ordinary jurisdiction, which 
 are within convenient reach of the people and with whose methods of 
 procedure they are familiar. * * * xhe Senate bill is, however, 
 preferred by the railroad companies, because under it they see greater 
 chances for trickery and evasion, * * * ^j^^j because the Senate 
 bill puts the commission between the complaining citizen and the rail- 
 road instead of allo-ning the citizen to appeal directly to the court for 
 redress of his wrongs, as the House bill does. 
 
 =:' ****** 
 
 Mv. Davis. * * * The gradual diminution of the rate of 
 charges within a few years to their present low standing proves that 
 this problem is being satisfactorily solved and as rapidly as the most 
 sanguine could expect. That there are evils in railroad" management 
 which require correction is unquestionable. These evils should be 
 corrected by some authority which can decide each case upon its 
 merits. This authority could be exercised by a commission appointed 
 by the General Government, which could investigate all charges of 
 unjust discriminations and exorbitant rates and advise the parties of 
 their conclusion. If not acceded to, the commission could suggest 
 arbitration, and, if this were declined by the offending partv, could 
 prosecute the delinquent at common law. * * * 
 
 Mr. HiTT. Both these bills aim at the same thing, but by different 
 methods. One is to be enforced by five commissioners at the public 
 expense for the public good, the other by lawsuits brought by an indi- 
 vidual against the railroad — a method that people in our region, 
 especially poor men, do not feel encouraged bv their experience to 
 undertake. 
 
 * * * * * * • * 
 
 Mr. Hepbuen. I take it that no legislation is necessary to declare 
 that extortion and overcharges shall not be permitted. Under the 
 
SIXTH DAT. * 81 
 
 common laAV to-day a person who suffers by extortion may bring his 
 action in the court and recover if he can make his proof. 
 
 But the difficult}^ with him under the Eeagan bill is to establish his 
 cause of action. He has the affirmative of the issue, and the burden is 
 upon him to show that a given rate — the one exacted from him- — is 
 excessive or extortionate. Under the other bill this is not true. He 
 has A friend at court. It becomes, under the Cullom bill, the duty of 
 the commission — skilled men, experts on the subject of transporta- 
 tion — to investigate for him and ascertain the very facts, to furnish 
 the very proof of all that he may need. 
 
 They have the broadest range, the amplest facilities, to procure the 
 necessary information. They may resort to and examine all sources 
 of information, and the expenses are paid by the Government. The 
 bill provides that the commission shall have all of these ample oppor- 
 tunities for investigation, and they are required under the law to 
 make their findings of fact ; and these findings in the subsequent liti- 
 gation that may occur are to stand as true prima facie. These find- 
 ings make out the complainant's case for him, shifting the burden 
 of the proof from the weak, where it can not be made, on the 
 strong. This is on the supposition that the comjDlainant is in the 
 right. * * * 
 
 The man aggrieved is not compelled to resort to the commission. 
 He may proceed at once to invoke the aid of the courts. He may 
 bring this suit precisely as he must do under the substitute. All of 
 the aids given him by the commission are in addition to those of the 
 substitute and in addition to the court remedies also provided for by 
 the Senate bill. 
 
 * * « 4: Hs H: 4s 
 
 Mr. EowELL. * * * The main trouble with the common law 
 rests in the evidence and not in the right. The Cullom bill, unlike 
 the Reagan bill, takes away that difficulty and provides efficient 
 remedies. 
 
 Under the Eeagan bill you may take your case into a court with the 
 burden upon you of producing the evidence to maintain your rights, 
 and at the end of the case you have settled nothing but the right in 
 one case. You must have a new case for every unjust charge, involv- 
 ing, it may be, but a few dollars. How many shippers do you think 
 will be willing to take the risk of such expensive litigation, so uncer- 
 tain in results, and so sure to provoke hostility on the part of the 
 railroads ? Pigmies do not invite giants to battle. 
 
 Why, then, shall we not turn to the Cullom bill and use the strong 
 arm of the Government in this contest, which must sooner or later 
 be fought out with the great railroad powers of the country ? 
 
 IN THE SENATE. 
 [On Wednesday, January 5, 1887.] 
 
 Mr. Platt said : * * * So, then, I think we should confine our 
 
 legislation to the enforcement of the common law. That is simple. 
 
 It is only this; it can be expressed in a word: The rates charged by 
 
 common carriers must be reasonable, and such carriers must only 
 
 6 &— 05 M 6 
 
82 , • SIXTH DAY. 
 
 charge like rates for like services. That is all. . It>as been the inten- 
 tion of this committee to confine legislation withm these limits. A 
 careful study of the bill as it was passed by the Senate will show that 
 we did not go outside of those limits; that we undertook to make no 
 new law for the regulation of railroads and the business of railroads 
 and interstate commerce in this country, but that we did undertalie 
 to hold the railroad management of this country up to the strict letter 
 of the common law. * * * • , i i • 
 
 The committee believed that it was not best in experimental legis- 
 lation to go too far, and this legislation is experimental. They 
 believed that it was unwise to attempt to prescribe a remedy tor 
 every alleged abuse to railroad management by specific legislation, 
 by hard and fast iron-bound statutes applying thereto. I think the 
 committee were right, and I therefore have great pleasure in stand- 
 ing by the committee bill, with the single exception to which I am 
 to-day to call the attention of the Senate. 
 
 The discussion on this bill is narrowed to two issues, and I thinlc 
 the committee and the Senate may be congratulated that the work of 
 the committee has been practically adopted by both branches of the 
 National Legislature, with the exception of these two topics, which 
 still excite discussion. These two questions are, first, whether the 
 Senate will adopt the modification proposed by the conference com- 
 mittee in the short-haul section, and, second, will it prohibit pooling 
 instead of leaving it for the present to the investigation of the com- 
 mission. * * V 
 
 And right here I want to call attention to a glaring inconsistency 
 in the proposed legislation. The proposed prohibition of pooling 
 does not prohibit the railroad companies from making rates. 
 
 Indeed, the whole bill compels agreements between competing 
 roads for the making of rates. The section does not propose to pro- 
 hibit a hard and fast agreement between railroads to maintain rates. 
 Indeed, it almost compels it. It does not propose to interfere with 
 any other means which railroads may adopt which are inducements 
 to the railroads themselves to maintain rates. * * * i said I 
 assumed in discussing these pooling contracts that the rates were 
 always reasonable, and I challenge proof of fact to show that a com- 
 petitive rate in this country is unreasonable unless it be relatively 
 so. * * * 
 
 [Monday, January 10, 18S7.] 
 
 Mr. Beck said ; * * * 'pj^^ j^m )jef ore ns simply asserts that the 
 railroads are public highways, and that their managers are common 
 carriers, and as such that their rates must be reasoname, and that they 
 shall not discriminate between individuals or corporations, either 
 by differences in charges or by rebates or drawbacks, and that their 
 rates of charges shall be made public. It does not attempt to pre- 
 scribe rates further than to prohibit a higher charge for hauling 
 over any part of their line than is made for hauling over the whole 
 length of it. 
 
 [Tuesday, January 11, 1887.] 
 
 Mr. Coke said : * * * a?his bill, except as to remedies, is in ■ 
 substance and legal effect, so far as they are applicable to conditions 
 
SIXTH DAY. 83 
 
 here, a substantial epitome of the English statutes, which gonf essedly 
 are only a codification of the English conunon law of common car- 
 riers, the source of our common law on the same subject. There is 
 but one substantial exception to this proposition, and that is as to com- 
 binations and agreements between railroad corporations, which in 
 some cases are permitted under the English law, but forbidden under 
 this bill. * * * 
 
 I am not apprehensive of error or mistake, nor do I fear that we 
 may wrong either the people or the corporations while adhering with 
 fidelity to the tried and approved principles of the common law, as 
 is done in the pending bill. 
 
 ******* 
 
 Mr. Haeets. I am satisfied the effect of the bill will prevent what 
 are known as rate wars, which sometimes reduce through rates to a 
 ruinous point, and they ought to be prevented. But as to legitimate, 
 honest, fair, and square through rates, there is not, in my opinion, 
 a single feature in the bill which will necessarily increase them. 
 Upon the contrary, I think the probabilities are they may be lowered, 
 but at all events they will be uniform and stable. 
 
 Mr. McPhekson. * * * xhe railway company may fix such 
 rate as they please, but the commission have the revision of that rate, 
 and they may make it such rate as in their view is reasonable. This, I 
 take it, the commission will do : in short, the power to make reason- 
 able within a certain limit is the power to make rates. 
 
 Mr. Camden. Let me ask the Senator a question. There is nothing 
 in the bill which will require railroads to do otherwise than they are 
 doing now. The bUl does not prohibit them from charging as much 
 for the short rates as they do for the long. But that is outside. . 
 
 Mr. McPherson. No; but you give the commission the poAver to 
 fix rates. It is not only a power that is placed in their hands, but it 
 is a responsibility which they must exercise. 
 
 Mr. Camden. I beg pardon. The coiBmission is not given the 
 power to fix rates. I contend that Congress can not give to anybody 
 the right to fix rates ; but the commission can decide whether a rate 
 is reasonable or unreasonable. That is the only point in the creation 
 of a commission. 
 
 ******* 
 
 Mr. Mitchell, of Oregon. It will be conceded by all that whatever 
 legislation upon this important subject may be enacted shall be in its 
 nature and purposes, in whole and in part, as a unit and in detail, 
 certain, specific, definite, unambiguous, and free in its construction 
 from all reasonable doubt; and that as to the vital points involved 
 too much should not be left either to the construction of the courts or 
 the discretion of subordinate boards, whose judgments, to say noth- 
 ing else, are constantly subjected to powerful ulterior influences. 
 ******* 
 
 [Thursday, January 13, 1887.] 
 
 Mr. HoAE said ; * * * Here is a bill which embodies four great 
 salutary propositions upon which the Senate, the House of Eepre- 
 sentatives, and the American people are substantially agreed : First, 
 that the principle of the common law, which it has been held does not 
 
84 SIXTH DAY. 
 
 belong to the jurisprudence of the United States without special 
 legislation" shall be extended to the common carriers of the (X)Uiitry 
 who are engaged in commerce among the States or with foreign 
 nations. Second, that there shall be a commission who shall investi- 
 gate, report, and to some extent direct the conduct of that business. 
 Third, that hereafter the doctrine of reasonableness shall prevail by 
 the authority of the statute of the United States between the carrier 
 and the customer in fixing rates. Fourth, that there shall be no undue 
 discrimination between persons or places or classes of business in the 
 conduct of the great carrying trade of the country. 
 
 [Friday, January 14, 1887.] 
 
 Mr. Sheemax said ; * * * Then the bill limits the powers of 
 the commission to allow special rates to a considerable extent, some- 
 what more than the original Senate bill did, because they must take 
 up each particular case, each particular matter, and decide from that. 
 What does this mean ? Does that mean that they shall not make any 
 general regulations which would apply to all articles exported to 
 foreign countries? Not at all. But they must take up the case as 
 applied to a particular railroad under particular circumstances and 
 particular conditions. If .that is the duty imposed on this commis- 
 sion there will not be time in the twelve months between January 
 and January to act upon one-tenth of the cases that will be presented 
 to it. 
 
 H: ^ H: ^ M: ^ Hi 
 
 Mr. Morgan said: Mr. President, there is one feature of this bill 
 against which I have always been very seriously opposed — I can not 
 get toy consent to it — and that is the power that is conferred on this 
 commission. It is a power that is derogatory of the divisions be- 
 tween legislative and judicial powers which have existed in this 
 country and in Great Britain from time immemorial : 
 
 That upon application to the commission appointed under the provisions 
 of this act, such common carrier may, in special cases, after investigation by 
 the commission, be authorized to charge less for longer than for shorter dis- 
 tances for the transportation of passengers or propertj' ; and the commission 
 may from time to time prescribe the extent to which such designated common 
 carrier may be relieved from the operation of this section of this act. 
 
 What shall we call that — a repealing power, a suspending power, 
 a dispensing power, or an amended power? Take it in either cate- 
 gory and it is contrary to the principles of the American Constitu- , 
 tion, and contrary to every tradition which has come down to us from 
 our English ancestors. That very same principle incorporated in 
 this bill has led to some of the grossest outrages in the history of 
 English jurisprudence and legislation. The Star Chamber itself 
 had its origin in that very principle. 
 
 ******* 
 
 IK THE HOUSE OF REPRESENTATIVES. 
 [Tuesday, .January 18, 1887.] 
 
 Representative Crisp said : Mr. Speaker, I propose now to explain, 
 somewhat, the provisions of this bill and the action of the managers 
 
SIXTH DAY. 85 
 
 who represented the House in the conference. * * * By the 
 terms of this bill we create a railroad conmiission, and I ask the 
 attention of gentlemen interested for a few moments to that point. 
 
 I say with the utmost frankness that, as an individual I preferred 
 the bill without the commission, but I say also in the same breath that 
 I am not to be classed with those, who Avill not take anything unless 
 they can get all they want, and that, with all respect, I submit, must 
 be the attitude of those gentlemen who oppose the bill because of the 
 commission. What are the powers of that commission? In par- 
 ticular cases, under the fourth section of the bill, they may relax the 
 rule therein set up. As to other matters, they may require the rail- 
 roads to make returns of their accounts, their stock and bonds, their 
 running expenses, rates of charge, etc. 
 
 Where the complainant invokes their authority they may pass 
 upon a given case between the individual and the railroad company. 
 When they so pass upon the case their finding upon the facts is prima 
 facie true. They have no power to give vital force and effect to their 
 judgment, but it is prima facie true in the courts of the country. 
 Is fliere anything in this power that is alarming or dangerous to 
 the public? Is there anything in this bill that should lead repre- 
 sentative men, men who have had large experience in public affairs, 
 to say that nowhere in this country are to be found men of power 
 enough, men good enough, and men honest enough to administer the 
 law? * * * 
 
 Mr. Speaker, we do not drive the complainant to the railroad 
 commission. If he chooses to go there, he has the right to go and 
 invoke this power, which is created by the Government for his pro- 
 tection ; but if he prefers, for any reason, to go to the courts of the 
 country, they are open to him. The same judge who passes.upon his 
 rights of property, his rights of life and liberty, will there pass upon 
 his rights in his dealings with the railroads. 
 
 Hi ijs i^ i^ ii: ii; iii 
 
 [Thursday, January 20, 1S87.] 
 
 Mr. Fuller said ; v* * * But while the commission may not 
 be effective as a mode of redress, there is much that it can do in the 
 way of gathering statistics, making report, examination of the man- 
 ner in which railroads are conducted which will be of benefit to the 
 people. I could not vote for this bill if the only remedy was through 
 a commission. The courts being open to the people, they will furnish 
 to them a forum in accordance with our system of government. And 
 I have faith to believe that jurisdiction will soon be given to State 
 courts in accordance with the demands of the people. 
 
 4: ^ ^ ^ H: # ^ 
 
 Mr. Grosvenor. * * * Under the provisions of this bill they 
 must submit to a schedule of rates which this commission in its 
 wisdom will be willing to approve, and they shall not have cheaper 
 rates, though all the railroads on the continent should offer them. 
 
 :i: :{« ^ 4: ^ ^ ^ 
 
 Mr. EowELL. * * * What, then, is this bill? It clearly de- 
 fines interstate commerce. It prohibits extortion and unjust discrim- 
 ination. It prohibits a greater charge for a longer than for a shorter 
 haul under " substantially similar circumstances and conditions," 
 
86 SIXTH DAY. 
 
 thus declaring the general rule that like and contemporaneous service, 
 other things being equal, ought to have like compensation in the inter- 
 est of fair dealing. 
 
 It provides for stability of rates so long as stability is at the same 
 time fair and reasona.ble, and it provides for publicity of rates, 
 because all the public have an interest in them, and to prevent undue 
 advantage of one shipper over another. It provides for the establish- 
 ment of a commission through which the public may btecomo possessed 
 of a knowledge of all the facts necessary to an intelligent Judgment 
 upon questions between them and the carriers, and through which 
 the provisions of the law may be enforced at public expense. * * * 
 Talk about this commission having unlimited power; why, it has 
 only the power that is necessary in order to carry out the purpose for 
 which it is created. Its first power is to make inquiry into the ques- 
 tion of interstate railroad transportation. 
 
 Do we not need that? Do we not desire that? Is not that what 
 the people want and what they have clamored for? The next power 
 of the commission is to investigate complaints that may be made 
 against transportation companies. They can investigate them and 
 ascertain facts, and then their finding of fact in any case shall be 
 prima facie evidence in regard to the case when it comes into court. 
 Is there any injustice in that? Is it any unusual grant of power to 
 such a body to allow them to ascertain facts and then to declare that 
 their ascertainment, or the conclusion at which they arrive, shall be 
 prima facie evidence of the existence of the fact? That is all there 
 is in this grant of power to these commissioners. 
 
 ^ ' >H :{; -1: H: ^ ^ 
 
 Mr. Hepburn. * * * -g-^^^ ^g ^^.^ j.^^^ ^j^^^^^ there are many 
 persons determined in advance to distrust this commission. To such 
 I say. Do not go to it. You need not. If you seek the aid of the 
 commission, your so doing will be entirely voluntary. It will be your 
 own choice if you go to it for aid. This bill furnishes you a remedy 
 entirely independent of it. Such distrustful persons can go to the 
 courts. If the wrong you complain of is such an one as you can now 
 have redress for, then go to your local State courts. If the redress 
 you seek is given by this bill, then go to the Federal court and let the 
 commission " severely alone." But if you want redress without 
 expense to yourself, if you want the aid of the commission in your 
 contest with the carrier, then go to the commission, remembering 
 always that the court remedies and the remedies provided by the 
 commission are entirely independent of each other, if you choose to 
 have them independent. 
 
REGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 SEVENTH DAY. 
 
 A^^EDNESDAY, Ajvil 26, 1905. 
 
 The committee met pursuant to adjournment. 
 Present ; The chairman and Senators Cullom,. Kean, Foraker, 
 Dolli^er, Clapp, Millard, Carmack, and Xeirlands. 
 
 CONXmUATION OF STATEMENT OF MR. WALKER D. HIKES. 
 
 The Chairjiax. Proceed, Mr. Hines. 
 
 Mr. HixES. ISiv. Chairman, before taking up in regular order the 
 statement I pi'opose to make, I want to go back a little and to refer 
 briefly to one or two points about the advances in rates, 
 
 I made the statement day before j'esterda}' that, while a bare state- 
 ment of the changes in classifications was of very little significance 
 mile'^is the actual circumstances as to each change were known in 
 detail, j^et the statement for a number of years did show that under 
 normal conditions and year by year there was a marked tendency 
 toward reduction in rates through changes in classification. I fur- 
 nished the committee Avith the figures which the Interstate Conamerce 
 Commission had given for the year 1900 and with the figures which 
 thej' had not given for the calendar years 1901, 1902, and 1903. I 
 now give the figures for the year 1904, which I should like to put in in 
 that connection, and which I obtained from the southern classifica- 
 tion committee. 
 
 As a further illustration of the proposition that, under normal con- 
 ditions and year by year there is a constant tendencj' to reduce rates, 
 I call the attention of the committee to the fact that during the cal- 
 endar year 1904 there were 120 changes in the southern classification, 
 of which 103 were reductions and 17 were advances. Of course these 
 figures as to 1904 were only partially, if at all, available when the 
 Commission made its response on April 17, 1904, to the Senate reso- 
 lution. 
 
 Senator Xewlands. TNTiat is the source of your information in re- 
 gard to these figures ? 
 
 Mr. PIixES. I obtained them from the southern classification com- 
 mittee. 
 
 Senator Foeakee. To what do you attribute the fact that there was 
 an overwhelming reduction to the extent of 103 reductions as com- 
 pared with 17 advances ? Was it diie to the policy of compulsion at 
 any time ? 
 
 7,^5m — 1 H. T. NEWC0MB, 
 
 LAWYER 
 o«"D BUtLDIna WASHINGTON, 
 
2 SEVENTH DAY. 
 
 Mr. HiNES. I would not want to call it compulsion. 
 Senator Foraker. It was not required by any law • . „ 
 
 Mr. Hiiv-Es. I will say that commercial conditions require them, tor 
 their own interest, to make reductions all the time ni order to develop 
 traffic. 
 
 Another important point which I wish to emphasize m regard to 
 this $155,000,000 increase which the Commission reported m response 
 to the Senate resolution. 1 endeavored to point out that the figures 
 the Commission used were simpl.v the totals of the number of tons 
 carried by all the roads, and that consequently when a ton passed over 
 two roads it was counted twice ; or, if it was carried by a group of 
 lines it was counted for each separate line; that, therefore, this intro- 
 duced an element which made the comparison absolutely worthless; 
 and that it could not be said that the uncertainty of one year was 
 counterbalanced by the uncertainty of another, so that in the long 
 run it was a valid' basis of comparison. I suggested to you that in 
 1899 it was true that traffic went l)v circuitous routes, whereas in 
 1903 it went by a direct line. Of course this tended to make an ap- 
 parent decrease in the relative number of tons carried in 1903, and 
 consequently an apparent average increase in the rate per ton. 
 
 There is another very important factor bearing on that point. It 
 is well known that there is a tendency from year to year for a rail- 
 road to acquire independent connecting lines; in other words, that 
 a certain measure of consolidation is going on all the time. Wlien 
 two roads are separate each road reports the mmiber of tons it has 
 carried, but when they are consolidated there is only one report of 
 the number of tons carried. So that this constant tendency toward 
 relative reduction in the number of reporting lines would tend to 
 reduce the number of tons carried as reported. 
 
 I can give a concrete illustration : In the year ended June 30, 1899, 
 which was the year the Commission started with its response, the 
 Plant Sj'stem, which extended from ^Montgomery through southern 
 Alabama and Georgia to Savannah and through a considerable part 
 of Florida, was an independent system of railroads. Since that 
 time and before the year ended June 30, 1903, it was acquired by the 
 Atlantic Coast Line. There was a very large movement of lumber 
 from points on the Plant System to the East over the Atlantic Coast 
 Line and connecting lines. Assuming that there were 100,000 tons 
 of that lumber carried — no doubt there was considerably more — ^in 
 the year ended June 30, 1899, and assuming the average rate to be '20 
 cents per hundred, which would be $1 a ton, in the report for that 
 year, 1899, the Plant System would have reported the carrying of 
 100,000 tons of lumber, and the Atlantic Coast Line would also have 
 reported the carrying of tliat 100,000 tons. Then, according to the 
 Commission's method, acting on this basis, it would have added those 
 two amounts separate, which would show. 200,000 tons of lumber 
 carried in 1899, and the total rate would have been $4 a ton, making 
 $400,000, so that the average rate per ton, on the Commission's basis 
 of figuring, would have been $'2 a ton. 
 
 But, assuming exacth' the same amount of lumber was carried, at 
 the same rate, from the same point of shipment to the same destina- 
 tion and over the same railroads, for the year ended June 30, 1903, 
 the Atlantic Coast Line having then acquired the Plant Svstem, only 
 that one line making a report, and that line I think reported 100,000 
 
SEVENTH DAY. 6 
 
 tons of lumber carried, making the re^■enlle $400,000. So that, tak- 
 ina; the Conmiission's basis, this would be an average iDer ton rate 
 «f'$4. 
 
 So, taking the two transactions of traiRc over tlie same roads and 
 at the same rates, we would get an average rate of $2 in 1899 and of 
 $4 in 1&03, which would look like the rate had been increased 100 per 
 cent, whereas there Avas no increase at all. 
 
 That is going on all the time, and it continually makes the number 
 of tons carried, according to the Commiasion"s method of calcula- 
 tion, relatively small as compared with the tons carried in the earlier" 
 years when there were separate roads rejjorting. 
 
 The Commission recognizes that fact in its report for June 30, 
 1903, with reference to passenger traffic. The railroad reports the 
 number of passengers carried and the connecting line reports the 
 same, so that there is a duplication, whereas if there were but one 
 road the number of passengers carried would be reported but once. 
 
 The same is true as to the number of tons of freight. 
 
 The Commission said in its report for the year ended June 30, 1903 : 
 
 The aggregate number of passengers carried during tbe year ending June 30. 
 1903, was 094,891,535, being an increase as compared with the previovis year of 
 45,013,030. It should, however, be held in mind that every consolidation or 
 reorganization of railway properties by means of which the number of report- 
 ing lines is reduced, tends to curtail this increase in the number of passengers 
 reported as carried. The truer basis for the measurement of passenger traffic 
 is found in the number of passengers carried 1 mile, which, for the year covered 
 by this report, was 20,915,703,881. (Statistics of Railways in the United 
 States, I. C. C, 69, 100§.) 
 
 Thus the Commission thoroughly appreciated that that was an unre- 
 liable basis, and yet that was the basis used to get at the startlingly 
 erroneous result of $155,000,000 increase in freight charges. 
 
 To illustrate further the fact that the Commission thoroughly 
 appreciated this and to emphasize the fact that there is a difference, 
 the Commission in its report for 1899 pointed out with resi^ect to 
 , passenger traffic that there was such a duplication when it added up 
 the reports of all the carriers and ascertained that there would be a 
 much smaller total if all the railroads were in one single system ; that 
 in the case of passengers it was impossible to avoid that duplication 
 because the railroad can not tell, when it carries a passenger, ^vhether 
 he is an original passenger or comes from a connecting line. But 
 as to freight they do not correct that duplication. They saj' : 
 
 A corresponding error presents itself in connection with the a^-erage haul per 
 ton, but in this instance it is possible, as explained in connection with the sum- 
 mary showing the classification of freight, to eliminate the error and to give an 
 approximately correct statement of the number of tons of freight that would be 
 reported were all the railways under a single system, and, consequently, of the 
 true average haul per ton. (Statistics of Railways in the United States, 
 I. C. C, 1899, 72.) 
 
 Exactly the same system is necessary to get at the true average haul 
 per ton, but the Commission did not resort to the correct basis for the 
 $155,000,000 calculation. 
 
 In its report for 1902 the Commission said : 
 
 It will be observed that the above summary divides total freight tonnage 
 originating on the road making report and tonnage received from connecting 
 roads or from carriers other than railways. The purpose of this division is to 
 eliminate the duplication in. tonnage due to the fact that the same freiglit may 
 
4 SEVENTH DAY. 
 
 pass over more than one line. The true measure of tonnage is found in the first 
 column. 
 
 That is, tonnage originating on the line. 
 
 The aggregate amount of tonnage originating on the lines making report dur- 
 ing the rear ending June 30, 1902, was 581,832,441. It is this figure that should 
 )3e used'in determining the average length of haul. (Statistics of Railways m 
 the United States, I. C. C, 1902, G9.) 
 
 But when they came to the figures for 1902 they did not use the- 
 figures which they said were the true figures, but used the figures 
 which involved these numerous duplications. 
 
 And in their report for 1903 the Commission said : 
 
 In the case of freight traffic, it is possible to exclude duplications. The num- 
 ber of tons of freight carried by the railways of the United States during the 
 year covered bv this report was <j38.800.658, being an increase as compared with 
 the previous year of 56,968,217. (Statistics of Railways in the United States,. 
 I. C. C, 1903, 69.) 
 
 Senator Carjiack. Have you given the correct figures? 
 
 Mr. Hrxios. In my statement day before yesterday I gave the cor- 
 rect figures. I took the number of tons originating on the line, which 
 the Commission said is the true basis, for 1899 and for 1903, and 
 divided those figures into the gross amount of freight revenue for the 
 two vears, with the result that I obtained about $17,000,000, whereas 
 the -tatistics of the Connnission show $15.5,000,000. 
 
 Xow, taking up my statement where T stopped day before yester- 
 day, I want to call the attention of the committee to the fact that the 
 theory with resjDoct to charges for long and short hauls, where compe- 
 tition compels a lower charge, is exactly the same as the theory on 
 which a railroad charges very much more for a higher class of traffic 
 than for a lower class of traffic for hauling the same distance. 
 
 There is very little difference between the expense of hauling a 
 carloa'd of dry goods. 40,000 pounds, and hauling a carload of coal. 
 There may be some diiference, but that difference could be eliminated. 
 If it were eliminated and the same rate were charged on both classes 
 of freight, the result would be either that the rate on dry goods 
 would be so Ioav that the general result to the company would be un- 
 profitable or the rate on coal would so high that it would not be 
 haulecl at all. As a matter of fact, the rate on dry goods is eight or 
 ten times as much as the rate on coal, but there is no corresponding 
 difference in cost. The total results to the company are not excessive, 
 and they have to be apportioned as between the different kinds of 
 traffic so that the low-gxade traffic, which can not stand a high rate, 
 will be carried at a rate which it can stand. 
 
 Exactly the same theory operates with respect to the long and 
 short haul. If you charge against the long haul all the cost of operat- 
 ing the railroad, or its proportionate part, it would cost more than for 
 the short haul, but the long-haul traffic would not be carried at all 
 except at a rate which might not be enough to pav interest and taxes 
 and a great many elements of maintenance. Still there is no claim 
 that that is unjust discrimination, although it makes the rate on other 
 things higher than it ought otherwise to be. It is the only practi- 
 cable system of fixing rates so that thev will have due relations to 
 Avhat will keep the traffic moving. The' theory of the complaint, of 
 course, is that there is an injurious discrimination. Of course that 
 does not appear in dry goods and coal, but there is an apparent dis- 
 
SEVET^TH DAY. t> 
 
 -crimination which is assumed to be injurious, just as when the same 
 commodity from two different places is in competition. 
 
 But the point to be borne in mind is- that the raik'oad does not 
 voluntarily give the longer-distance point the lower rate. It is not 
 the railroad that creates the discrimination. 
 
 Take the case I spoke of clay before yesterday, of Louisville and of 
 points which obtain very largely their coal supply from Louisville. 
 The fact is that the Louisville and Xashville recognizes that condi- 
 tion and makes the rate on coal to Louisville just low enough to en- 
 able coal mined in Kentucky to compete with coal mined in West 
 Virginia. That does not hurt the intermediate points and does not 
 help Louisville, because Louisville would pay the same price for coal 
 anyhow. 
 
 Senator Carmack. On account of the Ohio Eiver? 
 
 Mr. HiNES. Yes. It is the natural situation of things which gov- 
 •erns. The railroad simply recognizes that condition. 
 
 Allien the history of the situation is studied it will be found that 
 it is something other than the act of the railroad Avhich creates the 
 ■discrepancy between the two places. As a matter of fact, if the 
 railroad could control the matter it Avould put the rate so that the 
 long-haul rate would be as great or greater than the short-haul rate. 
 "WTien the rate is made less it is only because of some circumstances 
 intervening which the railroad can not control. 
 
 Senator CiTLLo:\r. I mentioned an instance some days ago, of a rail- 
 road haul from Xew York to San Francisco and back to Salt Lake 
 City. Would j'ou charge more from Xew York to Salt Lake than 
 jou would from Xew York to San Francisco, a thousand miles 
 farther? Is that necessary at all? Is that a fair deal? 
 
 Mr. Hikes. There would be only two ways of avoiding that : One 
 would be to reduce the rate from Xew York to Salt Lake City. For 
 the purposes of the long and short haul section you can assume that 
 that rate is reasonable. If it be imreasonable, it can be reduced. 
 If you increase the rate from X'ew York to San Francisco the rail- 
 roads simply lose that tralRc. If they do not haul it at all San Fran- 
 cisco would have a very great advantage over Salt Lake, just as it has 
 now, because it is situated on the ocean, whereas Salt Lake is in the 
 interior. With the railroad it is a question whether it will haul the 
 •cheap traffic which otherwise would go by ocean steamers or by 
 sailing vessels, in view of the fact that that traffic pays no more than 
 the expense of hauling. The fixed charges, taxes, and the invariable 
 ■expenses of operation all have to be taken into consideration. 
 
 Senator Cui.lom. Do you think it would not be fair to the rail- 
 roads to pass an act prohibiting the charging of a greater sum for 
 transportation over the shorter distance than for the longer one on 
 the same line and going in the same direction? 
 
 Mr. HiNES. I do not think it would be fair to the railroads, 
 because the result would be either that they would have to reduce 
 their -rate for the short haul, or the railroads would be compelled 
 to give up traffic which is of value to it and yet which does not hurt 
 the intermediate points. I think it would be very unfair to the rail- 
 roads to do that. 
 
 Senator CAnjiACK. I desire to understand the point j'ou were mak- 
 ing a moment ago; was it that where the cost of water competition 
 'Comes in the point that gets the low rate by the railroad simply gets 
 
Q SEVENTH DAY. 
 
 what it would be given by means of water transportation if there- 
 had been no railroad ? 
 
 Mr. HiNES. Yes, sir. ^ . i x, ^.u 
 
 Senator CARntACic. But in a case, like the one you stated the other 
 day, Avhere a lower rate is charged on raw cotton from jNlemphis, say, 
 to Lowell, Mass., than to mills in North Carolina, what ]ustihcation 
 is there for that? There is no natural condition there that justifies. 
 tlin.t IS tliGrG ? 
 
 Mr. HiNES. I do not know what that rate of adjustment is, or, in 
 fact, whether the rates are less. 
 
 Senator Cakmack. I am not taking the present rates, for I do not 
 know what they are. I have not investigated. But that was some 
 years ago. 
 
 Mr. HiNES. The condition there must be taken into consideration. 
 The rate-making line from ^Memphis to Lowell, Mass., is to some 
 point on the Ohio Kiver or St. Louis, and then by one of the trunk 
 lines direct to New England. That traffic is very clense, and the rates 
 there have always been very much lower than they are in the South. 
 Of course the rate from Memphis to Louisville or to Cincinnati is low, 
 by reason of Ohio River competition. Take that rate plus the trunk 
 line rate to Lowell, Avhich maj' for very good reasons be lower than 
 the rate from Memphis through the southern territory, where the 
 traffic is much less dense and the revenues are very much less, to a 
 point in North Carolina, and it is barely possible that after the line- 
 via Louisville or Cincinnati had established a lower rate some line- 
 operating through North Carolina would be Avilling to carry the 
 freight simplj' because it would pa}' more than the mere movement 
 exi^ense. But it would not be the connecting line which gave the 
 rate. It would be to the advantage of the other roads which would 
 primarily haul the traffic. 
 
 Senator Carjiack. The statement made by Mr. Tuttle was that it 
 was done simply because southern mills hacl the advantage of prox- 
 imity to the raw material and other natural advantages, like cheap 
 coal and cheap cost of living, as compared with Lowell, and that they 
 had to counteract those disadvantages under Avhich the spinners of 
 Lowell labored by giving lower rates than were given in North 
 Carolina. 
 
 ]Mr. HixES. That may be very true, but I do not think the railroads 
 operating through North Carolina would participate in originally 
 establishing a lower rate to mills beyond simply in order to per- 
 petuate an advantage they had. Ajiy adjustment would come about 
 by the trunk lines that had no interest in North Carolina and which 
 would not get the traffic at all unless it went that way. 
 
 Senator Foraker. Li other words, the road that carries the cotton 
 to Lowell must take it at a lower rate tlian would have to be paid to- 
 carry the cotton from Memphis to North Carolina, or else it would 
 have to lose the business altogether ? 
 
 Mr. HiNES. Yes, sir. 
 
 Senator Foraker. And they very naturally prefer to ihake a lower 
 rate than lose the business. That is 'the whole of it. 
 
 Mr. HiNES. That is my idea of the situation. The Boston and 
 Maine Eailroad, having a vital interest in t*lie New England cotton 
 mills and none whatever in the North Carolina mills, would probably 
 do all in its power to get the lowest possible rate, and would be- 
 
SEVENTH DAY. 7 
 
 favored by the natural circumstance that rates are much lower on 
 the trunk lines which have to compete with Ohio River rates. 
 
 Senator Foraker. This simply comes because of genuine competi- 
 tion between railroad lines for business ? 
 
 Jlr. HiNES. Yes, sir; each one being identified with an entirely 
 different section of the country. 
 
 Senator Foraker. If the cotton were carried to Lowell by some 
 line that went also to North Carolina, that would be a different case 
 altogether ? 
 
 Mr. HiNES. Yes, sir. But after the rate is established it may be 
 possible that the North Carolina line would take the business; but 
 the fact might also exist that that line participating would not at all 
 increase the traffic to North Carolina. The North Carolina lines 
 would not establish that rate; it is the other roads that would do that. 
 
 The prevailing impression that the competitive business is carried . 
 at a loss which has to be made up on local business is entirely incor- 
 rect, so far as my observation goes. Tn the territory with which I 
 was familiar, as far as I have had occasion to investigate it. I have 
 never found an instance where I believed that noncompetitive traffic 
 was carried actually at less than the mere additional cost of hauling. 
 Of course much of it was carried at a very low rate, but I never saw 
 an instance where the i-ailroad handled the traffic at a greater cost 
 than the amount of money it took in. It is possible for that to be 
 true because the fixed expense is so very large. Take a small amount 
 of additional traffic and allow only for the additional expense of 
 additional wages of trainmen and fuel for locomotives, without con- 
 sidering the other equijDment necessary for the traffic which really 
 can not be calculated. The mere train-movement expense is a very 
 small part of the total amount the railroad has to meet. Wiere they 
 can make anything over the train-movement expense — that is, in 
 that sense and with respect to that traffic — they must fix a rate that 
 is not unprofitable and which it would not otherwise get ; but, as I 
 say, I do not recall any instance that I have investigated where it 
 could be said that the train-movement expense was more than the 
 revenue from the traffic. 
 
 Mr. Tuttle indicated that at times it was less than movement 
 expense, but he explained that even where that was true the general 
 results to fhe railroads were better, and that in no case was there any 
 loss to the railroad. Those rates were not higher by reason of the 
 railroads engaging individually in cheap traffic than if they had not 
 engaged in that cheap traffic," but it is undoubtedly true that the 
 cheap traffic engaged in by the railroads by reason of competition 
 does not raise the rates on local traffic. In the long run it gives the 
 railroads more revenue than they would otherwise have and makes 
 them the better able to reduce the rate, and certainly gives the rail- 
 roads an opportunity to give the public a better train service, and 
 that indirectly redounds to the benefit of the local points. 
 
 The impression. seems to prevail also that competition has ceased 
 by reason of what is said to be the cooperation of the railroads in the 
 establishment of rates, and therefore that there is no necessity now 
 for the less rates for the longer haul. But that impression is, m my 
 opinion, entirely erroneous. The commercial conditions which 
 necessitate the lower rates for the longer haul are of a character that 
 still continues; The fact that the railroads confer and may establish 
 
8 SEVENTH DAY. 
 
 the same rates for the same haul does not eliminate the competition 
 that enforces the low rates. . 
 
 I will give an illustration which simply suggests a basis tor com- 
 parison. As a matter of fact I do not think there is any com- 
 petition, but assume for the purposes of illustration that there may 
 be. Elizabethtown, Ky., is probably about 100 miles from the west- 
 ern Kentucky coal field and about 200 miles from the eastern Ken- 
 tucky coal field. Consequently the railroad from the western Ken- 
 tucky coal field to Elizabethtown would charge and does charge a 
 less rate for 100 miles over its own road than the other railroad, which 
 is entirely independent, charges for its haul of 200 miles. The result 
 is that if the railroad from eastern Kentucky wants to haul coal it 
 must make a rate to compete with the coal from western Kentucky. 
 
 It may be that in the orderly transaction of business the railroad 
 from western Kentucky might make the rates upon advice of the rates 
 of the other road. I do not think, as a matter of fact, they did, but 
 assuming that that is so, thej' could reduce their OAvn rate at the same 
 time the other road reduced". That would be concurrent action, but 
 would be working in the daylight instead of trying to hide. The 
 fact that the railroads might concurrently establish new rates would 
 not in any wise make low rates impracticable. The railroad to west- 
 ern Kentucky has a shorter haul and its rates are less, and no matter 
 what rate the other roads are charging it is not going to lower its 
 rates. That is a fair illustration, I think, of the character of the 
 competition that brings about such charges in regard to the long haul. 
 
 Senator Dollivee. What does this phrase mean which occurs in the 
 southern classification charges : " Southern Railway and Steamship 
 Association? " 
 
 Mr. HiNES. That is the name of an association that existed a good 
 many years ago. 
 
 Senator Dolliver. What is it? 
 
 Mr. HiNES. It was an association to which the southern railroads 
 in general belonged and by which they attempted to supervise the 
 general rate situation of the South. All the railroads agreed not to 
 reduce rates except after certain notice, and agreed to submit to arbi- 
 tration under certain conditions. 
 
 Senator Dollivee. Is that institution still in existence? 
 
 Mr. HiNES. No, sir; under the decision of the trans-Missouri case 
 it was stopped. 
 
 Senator Dollivee. I notice, in the St. Louis Globe-Democrat of 
 April 12, a statement in Avhich this occurs : 
 
 ST. LOUIS RATE SOUTHEAST ADOPTED BY CONFERENCE. 
 
 New York, April 12. 
 
 Action taken at a meeting of southeastern railroad officials held here Indi- 
 cates an early reduction in freight rates on all the lines leading from Chicago 
 and St. Louis to Atlanta, Birmingham, Montgomery, and other points in the 
 Southeast. The rates from St. Louis have been announced in the Globe- 
 Democrat. Some time ago the merchants' associations of both Chicago and St. 
 Louis made concurrent appeal to the management of the roads that tap and 
 traverse the territory in question, asking for lower rates. The matter was fully 
 considered, and a meeting of the lines interested was called. S. F Parvott, of 
 Atlanta, chairman of the Southeastern Freight Association, presided 
 
 Only the roads tributary to St. Louis were represented. Resolutions favoring 
 reductions in the rate schedules were adopted, and there will be a meeting in 
 
SEVENTH DAY. 9 
 
 the near future of the lines radiating from Chicago. The new scale equalizes 
 the situation from the West and the Atlantic seaboard. 
 
 There seems to be something still described as an association which 
 is represented to be holding a meeting in New York and adjourning 
 to a subsequent day for a similar purpose. 
 
 Mr. HiNES. In the southern territory with which I am familiar 
 there are two associations known as freight associations. One is the 
 Southeast and Mississippi Valley Association, and the other the 
 Southeastern Freight Association. The only objects of those asso- 
 ciations, so far as I know, are simply for the exchange and preserva- 
 tion of information. 
 
 Senator Dollivek. But that newspaper says that they are about to 
 hold a meeting to reduce rates from Chicago. 
 
 Mr. HiXES. I make the point that these two freight associations, 
 which I believe are the only two permanent ones, are simply bureaus 
 for the exchange and preservation of information; that Avhen, in the 
 orderlj^ conduct of the business of these railroads, it is proposed to 
 reduce a rate in which another road is interested because that other 
 railroad handles that same kiiid of traffic, it simplj^ falls out that one 
 company gives notice to the other that it proposes to do that, and the 
 matter is recorded there and perhaps discussed there. But each rail- 
 road acts absolutelj' independently of the other. It announces what 
 it is going to do at some time in the future, but it may change its 
 mind the next day, and sometimes does. It is not bound to do any- 
 thing. All that that amounts to is that that meeting at as one for the 
 exchange of viewf^. I am not advised as to the meeting to which that 
 newspaper clipping refers, but of course there are matters which do 
 not come within the ordinary line of cases which are discussed in 
 these tAvo bureaus to which I refer. If they are matters that affect 
 many railroads, very naturally the responsible officers of those rail- 
 roads meet and discuss the matter, because there is no use of one rail- 
 road trying to keep the other railroads from fiading out what it is 
 doing or is going to do. It is far better for the general character of 
 business to be done that it be done openly and due notice given, and 
 in this way no advantage can be taken of one company by another. 
 
 Senator Dollivee. Would it not be better to put such action under 
 some sanction of the law? 
 
 Mr. HixES. I think it would be very desirable; I think it would 
 be better to permit those railroads to agree definitely to maintain 
 rates that they establish, and to provide that they shall not be 
 changed except Avithout notice and after discussion. But the law 
 does not noAv authorize that. So that all they do and all they can do 
 is to meet for the discussion of matters, and in that way simply deal 
 openly. 
 
 Senator Cullom. Do you favor pooling? 
 
 Mr. HiNES. I have never had any practical experience with pool- 
 ing, of course, and therefore my opinion would have no real value. 
 I think Mr. Tuttle explained fully the objections to pooling. 
 
 Senator CuLLOsr. A few years ago the roads Avere very anxious to 
 pool. 
 
 Mr. HiNES. Some of them were, and some were not. 
 
 Senator CrixoAi. Most of them, I think, were for it. 
 
 The Chairmajst. Proceed, Mr. Hines. 
 
 Mr. HiNES. As I said a moment ago, I think that, almost without 
 
10 SEVENTH DAY. 
 
 exception, when you investigate cases where it is alleged that less 
 has been charged for the longer haul, you find that there is some com- 
 mercial condition which renders it necessary; otherwise the railroads 
 would charge the higher rate. It is not as a matter of preference 
 that thev charge a less rate for the long haul than for the short. 
 
 Senator Cae^iack. Yqu say there is some commercial condition 
 that governs the matter ? 
 
 Mv. HiNES. Yes, sir. 
 
 Senator Carjiack. Then you would not consider, where an in- 
 dustry at a particular point "is languishing' from natural economical 
 conditions, that that fact would justify giving it a lower rate in order 
 to enable it to compete with some other community which has natural 
 advantages for the development of its industry ? 
 
 Mr. HiNES. Taking separate lines of railroads, there are some 
 places prosperous and some arc languishing, as you say ; but I do not 
 believe it would be proper for the railroads to pick out the languish- 
 ing place and give it advantages that it did not give to other places, 
 assuming that the rates to both places were subject to the jurisdiction 
 of the railroad company. In other Avords, I do not think a railroad 
 ought to pick out some place on its line and try to boost that because 
 its population is not enterprising or for any other reason of that 
 character. But take the case of a I'ailroad where all its local points 
 are languishing, you might say, as compared with some other section; 
 there niaj' be some new discoveries along one railroad giving it an 
 advantage. I say then the railroad has the right, and it is good busi- 
 ness for it to do all it can for all the places along its line and to put 
 rates down to all places just as low as it can because those places are 
 languishing, and it is the duty of the railroad to try to build up every 
 one of them, so it is not unjustly discriminatorj^ as between the 
 places it reaches. I think it has a moral and a legal right, and that 
 it is a matter of good business expediency, for it to do all it can to 
 build up every place on its line as compared with the competing places 
 on other lines. 
 
 Senator Cuixo^r. Is the practice abandoned of late years of build- 
 ing up particular towns or localities as against others on the same 
 line? 
 
 Mr. HiNES. It certainly does not pre\-ail now in the section of the 
 country with vhich I am familiar. The railroad makes it a point to 
 try to treat every point alike and encourage traffic everv place. Of 
 course there may be instances where one locality has' a rate that 
 another locality has not : but that is because some' industrv is estab- 
 lished at the one place that is not estnblished at the other.' I do not 
 believe an instance can be found Avhere a railroad has given one local 
 point greater advantages than anv other local point Avhere both 
 points are on exactly the same footing. Xo railroad can afPord to 
 do that, ho that this recognition of commercial conditions at longer- 
 distance points does not contemplate the languishing of intermediate 
 points. It IS a condition that the railroads are not responsible for. 
 Jt IS simply a recognition of that fact; but it is not the act of the 
 railroad that makes the comjjetitive point or gives it more advan- 
 tages than the noncompetitive point. There are advantages that 
 the competitive point would have in any event 
 
 Senator Carmack. Iwill not interruptVou again,but Iwant one point 
 made clear. This was the point I had in view : Reading from page 
 
SEVENTH DAY. IT 
 
 93, from Mr. Morawetz's testimonj^, in answer to a question of mine 
 as to whether there were any conditions that justified a greater charge 
 for a short haul tlian for a long haul, competition being eliminated^ 
 he said : " I can not think of any, unless possibly the products of a 
 particular point cost more than the products at a nearer point, so 
 that the products of the more distant point could only compete with 
 the products of the nearer point by being transported at a lower rate." 
 
 There he indicated that it was the policy of roads to equalize as 
 nearly as possible the cost of production between two points on the 
 same line by giving lower rates to the point where the cost of pro- 
 duction was greatest and higher rates at the place where the cost of 
 production was less, so as to deprive one community of its natural 
 economic advantages. 
 
 Mr. HiNES. I am not in a position to attempt to interpret Mr. Mora- 
 wetz's language, but from hearing him discuss the matter before the 
 committee I got the impression that he did not have in mind so much 
 charges over the same line as one railroad giving rates to places on its 
 line which would counteract those which competing places on other 
 lines might have. But certainly, so far as the territory is concerned 
 with which I am familiar, that is not the fact, for a railroad to pick 
 out one place on its line and give it a favorable rate and a less charge 
 for a longer haul than a charge to some other place on its line for a 
 short haul, simply to offset the advantages which a short haul has. 
 
 Senator Caemack. Do you not remember that Mr. Tuttle said it 
 was the policy of the road to equalize economic advantages and dis- 
 advantages ? 
 
 Mr. HiNES. Well, I understood him to refer to places situated in 
 other parts of the country, not on the Boston and Maine road, and I 
 think it is proper for the railroad to do everything it can to build up 
 its section of the country and give it just as many advantages as it 
 can compared with other sections of the country ; but it ought not to 
 discriminate between places on its own line, and I do not believe rail- 
 roads do so. 
 
 Under the present law, if the rate for a short haul is unreasonably 
 high it can be reduced. If the rate for a long haul is lower than is 
 necessitated by actual competition the practice can be stopped. The 
 long and short haul section has not been annulled by the construc- 
 tion of the court. I think the court construed it just as its language 
 necessarily required if any effect at all was to be given to the phrase 
 '' under substantially similar circumstances and conditions " — con- 
 strued it as the debates in Congress showed it was to be construed, 
 and gave the full, rational effect to the construction which the Com- 
 mission itself adopted at the outset in an elaborate opinion by Judge 
 Cooley. The law has not been annulled by these decisions. If a 
 railroad actually charges so little for the long haul as to be below the 
 cost of service, the practice can be stopped under the present law, 
 or if the railroad itself creates that condition at the longer distance 
 point it can not claim the benefit of it and say that that is competition 
 which it has to meet. Legitimate competition is only that which 
 exists independent of the acts of the railroad, and that is all it is 
 justified in meeting. 
 
 I think it has been largely assumed that the law was nullified by 
 those constructions because as construed in that way there was noth- 
 ing left for it to operate upon. In the first place that is hardly true. 
 
12 SEVENTH DAY. 
 
 There are doubtless a great many cases where rates can be corrected 
 under that condition. They may be too high for the short haul, un- 
 reasonably high, and that can he corrected ; or they inay be too low 
 for the long haul, and that can be corrected. As has been pointed 
 out, the Commission in the last fiye years had occasion to make six 
 long and short haul orders. Three of them the carriers have complied 
 with, and as to the other three the courts have found they did not 
 proceed upon the proper construction of the act. But, assuming that 
 that is the correct commercial practice, to go on and let a railroad 
 carry long-liaul business at a cheap rate Avhen it does not hurt the 
 intermediate point, and is of some service to the railroad, then 
 it is no argument for a change in the law that there are no cases in 
 existence prohibited by the law. You might as well say that because 
 nobody carries concealed weapons, therefore repeal the law against 
 carrying them. If the law is observed, that is all you want. It is 
 not necessary to make a law to do something else because the present 
 law is observed. The NA'hole question is whether the present law, as 
 construed at present, is a proper law on the subject. 
 
 Senator CuLLOii. What is your opinion on that, specifically? 
 
 Mr. HiNES. I think the law, as at present construed, is the proper 
 law. It prevents a railroad from giving a less rate for a longer dis- 
 tance unless there is actual and independent competition there which 
 gives the longer distance point advantage independent of the act of 
 the railroad. That keeps a road from doing something for a longer 
 distance poiht that builds it up at the expense of the shorter distance 
 point. 
 
 Senator Dollivek. AYould you suggest such a change in the lan- 
 guage of the exception ? 
 
 Mr. HiNES. I think it means that now, as construed by the court, 
 and is so applied, '^"^^lile the matter has been greatly discussed, I 
 do not think anybody has e'\'er come deliberatelj^ to the conclusion 
 that there should be an ironclad long and short haul rule that under 
 no circumstances should the carrier charge more for the short than for 
 the long haul. I think whejiever that has been debated to a con- 
 clusion, the result has been a decision that that would be un■^^■ise. 
 Then the only intermediate course would be to provide that there 
 should be no greater charge for the short haul than for the long haul 
 except when the Commission authorizes it. That was the construc- 
 tion that was forced upon the Interstate Commerce Commission at 
 the outset, and was considered by the Commission in this elaborate 
 opinion that I referred to, written by Judge Cooley; and I do not 
 know of any better answer to that proposition than was made by 
 Judge Coolej' in this language: 
 
 The Commission would in effect be required to act as rate maimers for all the 
 roads and compelled to adjust the tariffs so as to meet the exigencies of busi- 
 ness, while at the same time endeavoring to protect relative rights and equities 
 of rival carriers and rival localities. This in any considerable state would be 
 an enormous task. In a country i-o large as ours and with so vast a mileage of 
 roads it would be superhuman. A construction of the statute which" would 
 require its performance would rendei' the due administration of the law alto- 
 gether impracticable; and that fact tends strongly to sho\v that such a con- 
 struction could not have been intended. 
 
 Senator Cullom. He made that statement while he was Commis- 
 sioner ? 
 
SEVENTH DAY. 13 
 
 5Ir. HixES. Yes. sir; that was the statement of the Commission, in 
 an opinion delivered by him. 
 
 Senator Culloii. In a case? 
 
 Mr. Hikes. Yes, sir : as to what was the proper construction of the 
 section. 
 
 So those are the only three methods. One is to let the law stand 
 as it is now, where the court can correct every instance of pretended 
 competition, and where the carrier is allowed to handle this competi- 
 tive business when it is not an unjust discrimination, thus giving a 
 flexibility to the operation of traffic matters and giving the railroad 
 the opportunity to build up all the business it can, or get all the 
 business it can, which otherwise it would lose. That is one way, and 
 I think the only way. Another way is to prohibit absolutely charges 
 made for the short haul greater than for the long haul. I do not 
 think anybody, when it is thought out, will insist upon that plan. 
 And the third way is to saj' that no charge for a long haul shall be 
 less than the charge for a short haul except when tlie Commission 
 says it shall. That is the plan that Judge Cool ey and the Commis- 
 sion condemned in the vigorous language I quoted, and it seems to be 
 absolutely impracticable in a country of this size. 
 
 Senator Cullom. It might be of some interest for me to state that 
 the original bill as reported to the Senate for passage did not have 
 those Avords " under substantially similar circumstances and condi- 
 tions " in it. Thej' were added in the Senate on motion of Senator 
 Sewell. 
 
 ^Ir. Hikes. I want now to take up the subject of differentials. It 
 has been very prominently claimed that the rate making power is 
 necessary' to prevent unjust discriminations between localities. I 
 want to point out to the committee, and to emphasize as much as I 
 can, that that power is absolutely unnecessary to prevent an unjust 
 discrimination by a single railroad or by a line of railroads — that is, 
 railroads that are parties to a joint rate. That can be corrected 
 under the present law. All that is needed is the prompt and efficient 
 enforcement of this law to prevent any discrimination of that sort. 
 
 If a railroad has two lines going into different coal territories, 
 both of which are local to that line, and they come to the same mar- 
 ket, and the railroad deliberately or otherwise gives an advantage to 
 one section of its road which it does not give to the other section of 
 the road, and which, under the facts and circumstances is not fair 
 and just, that condition can be corrected under the law as it stands 
 to-day, through the courts. Of course the procedure can, as was said 
 day before yesterday, be amended in various particulars to make it 
 more siaeedy and effective than it is to-day, but the principle of the 
 law does not need to be changed to meet every case of that sort. 
 
 The complaint Avhich arises, when it is analyzed, is based on the 
 theory that it is necessary to have some rate-making power to prevent 
 what are called discriminations between different railroads serving 
 different localities. A vital feature of any such case as that is that 
 each carrier is identified in interest with the locality it serves, and it 
 is really a contest not between two localities to get advantages from a 
 given railroad, but between one set of localities and its railroad on the 
 one hand against another set of localities and an entirely different 
 railroad on the other. 
 
J 4 SEVENTH DAY. 
 
 Take a case that has been very frequently referred to as tyiiical, 
 and I think it ife fairly typical— the contest between the Orult ports 
 and the Atlantic ports for the export grain from the Northwest; and 
 to simplify it, we can take New York and New Orleans as tiie pomts 
 involved. The railroads going to New Orleans give a low rate. 
 They think conditions justify it, and that it is to their interest to do 
 it, and they insist on giving a rate very much lower than the rate 
 made to New York. New York wants a 
 
 The Chairman. You mean from Chicago and Milwaukee and the 
 North? 
 
 Mr. HiNES. The Northwest, yes, sir. New York wants a lower rela- 
 tive rate, so that it can get business which is now going by New Or- 
 leans. The railroad going to New York is just as much interested in 
 that proposition as the city of New York, and probably more so; 
 probably its profits from hauling that freight would be greater and 
 more important to it than the trade would be to the city of New York; 
 so that it is a contest where the railroads are fighting each other as 
 well as the cities. That is a vital element in all these cases involving 
 differential questions, because if it was a case on only one railroad, as 
 I say, that is susceptible of complete correction under the law as it 
 stands to-day. 
 
 The Chairman. Distance being equal, does it not cost more to haul 
 to Atlantic ports than to the Gulf ports ? 
 
 Mr. HiNES. I have had no occasion to investigate that. My offhand 
 opinion is that it would cost substantially more. 
 
 The Chairman. But you do not know the exact percentage per 
 ton? 
 
 Mr. HiNES. I do not. I have never been connected with either one 
 of those sets of railroads, so that I am not in a position to state- what 
 the actual facts are. 
 
 Another illustration of that sort is the one that Mr. Tuttle men- 
 tioned, that was referred to this morning, of the Massachusetts cotton 
 mills, the New England cotton mills, as compared with the North 
 Carolina cotton mills. There is a set of railroads that is interested 
 exclusively in the New England mills. They have no . interest in 
 North Carolina. Another set is interested in North Carolina. Any 
 contest as to the railroad rates from the cotton section of the country 
 to those two sets of mills is a contest between those two sets of rail- 
 roads as well as between those two sets of localities. 
 
 Where these relative rates have become fixed on any definite basis, 
 the difference between the rates to the two points or the number of 
 points, whichever it is, is called a differential. So that the term 
 differential is used in a general way to apply to all these quastions of 
 relative rates to competing localities on different railroads, which are 
 competing for the same business. 
 
 Senator Nbwt.ands. I would like to ask vou this question: In case 
 the lines in Ncav England and these trunk lines from Chicago and the 
 southern railways were all consolidated into one company, would 
 there be any different rule applied then to the competition in these 
 various localities than is now justified, in your judgment, Avhere there 
 are competing lines? 
 
 Mr. HiNES.' In the first place I do not think that is a condition that 
 will ever be realized ; but assuming, as Aour question does, that it 
 should be realized, then it might, and probablv would, affect, and 
 
SEVEKTH DAY. 15 
 
 affect in an important way, the right of that consolidated railroad to 
 pick out a part of its communities and help them at the expense of 
 the others. Of course, I should thinli it would be very unwise, even 
 then — — 
 
 Senator Xewlands. That would produce a ^'ery decided readjust- 
 ment of existing conditions, would it not? 
 
 Mr. HiNES. I was going to say that I think it would be extremely 
 unwise, even if the Government should attempt to revise long-stand- 
 ing commercial conditions. But I should think any change which 
 that consolidated road would make which ^^ould tend to build up 
 one section it was serving at the expense of the other would have to 
 be controlled on an entirelj' different basis, and it would be subject to 
 control under the principles of the present act. Assuming that the 
 same railroad became responsible for rate adjustments to all those 
 points, any change which contemplated helping one point at the 
 expense of the other Avould be an unlawful act on the part of that 
 railroad, which would be subject^to correction under the jiresent law. 
 
 Senator Xewlakds. One question fui'ther: You assume that so 
 large a consolidation is not probable or possible, and hence the ques- 
 tion is not likely to arise; but is not the practical consolidation that 
 is going on of these railway lines practically nullifying the power of 
 the consolidated line to do what the constituent lines entering into 
 the consolidation were able to do when separate ? 
 
 Mr. HiNES. It puts them on a very different basis, of course. 
 
 Senator Newlands. Well, then, the process of consolidation 
 
 The Chajrjiax. Senator, do you not think these questions Avould 
 come in more properly after Mr. Hines has finished his statement? 
 
 Senator Newlaxds. Yes. I just wished to ask this question fur- 
 ther: Then this process of consolidation is gradually eliminating this 
 form of competition, is it not, pro tanto ? 
 
 Mr. HixES. Of course, one way you look at it, theoretically, it does ; 
 but for practical purposes, as I tried to explain the other day, no mat- 
 ter how big a railroad consolidation is, the only way it can be suc- 
 cessful as a railroad corporation is to develop all the traiEc it can. 
 It would be utterly futile for any controlling body of a railroad to 
 pick out certain points and try to build those up at the expense of 
 others. They can 2iot do it. They have to try to take cave of every 
 place on their line. I think the practical answer to that is that while 
 consolidations have proceeded very extensively in this country, I do 
 not think any instances can be cited — and certainly they would he 
 very rare, comparatively — where a consolidation of that sort has 
 tended to put some of the places on the consolidated line at a disad- 
 vantage as compared with their former situation. The railroad is 
 bound to try to develop all the business it can from eveiy place on the 
 consolidated line, because e^'erv branch of the road can be most pro- 
 fitably operated only when the most traffic is carried over it. They 
 can not begin to try to pick out some places where they could make 
 money by so doing and letting the traffic languish on other branches. 
 The other branches have to be run and expenses have to be met, and 
 the only practical way is to run each one for all the business it can 
 develop. 
 
 Senator I'oraker. I ^ant to ask one question for information. T 
 suppose that at some time in the course of your remarks you will dis- 
 cuss what the effect will be of consolidating the rate-making power 
 
16 
 
 SEVENTH DAY. 
 
 as to the whole system. In answer to Senator NsAvlands you said 
 YOU did not think it probable that there would ever be actual con- 
 solidation of all these lines to the extent indicated by him; but if 
 the rate-making power should be consolidated m the hands of a com- 
 mission for instance, it would be fully within these lines as well as 
 all other lines. You will discuss the effect of that, I presume? 
 
 Mr. HiNES. Yes, sir. 
 
 Senator Fokakee. If not, I wish you would do so. 
 
 Mr. HiNES. Yes, sir. A point I wanted to eniphasize was that 
 these existino- differentials, so far as they are established on a definite 
 basis, are the outcome in the past of very active competition, and as 
 they stand to-day they have the advantage of being the result of a 
 practical test of' the commercial forces that are at war with each 
 other, not only artificial competition, stimulated by a railroad at 
 one point and suppressed at another, but one railroad fighting against 
 another railroad to get a definite status; so that the present differ- 
 entials in general have the advantage of not being any mere theories. 
 They are not pretended to be illustrations of abstract justice of some 
 all-wise tribunal saying what one shall do and what another shall do, 
 but they are just the results of plain, everyday commercial strife; 
 they are the outgrowth of that strife, and they have stood the test 
 of it. 
 
 As an illustration of how they have come about: Louisville and 
 Cincinnati have always been important distributing points for Ala- 
 bama territory. Before the construction of the Cincinnati South- 
 ern, early in the eighties, the short-line distance to a very large part 
 of that territory in Alabama was through Louisville. There were 
 two railroads from Cincinnati to Louisville, and of course there was 
 the river from Cincinnati to Louisville, so that there was plenty 
 of competition between those points, and by reason of that, Cincin- 
 nati being farther away and Louisville haAdng a marked advantage 
 of distance, Louisville rates to this Alabama territory Avere very sub- 
 stantially less than Cincinnati rates, and there were settled differ- 
 entials which themselves were the outgrowth of competition among 
 the different elements. 
 
 The Chairtman. Those were differentials as to interior points ? 
 
 Mr. Hikes. Yes. Cincinnati was so many cents above Louisville 
 on each class to points in the Alabama territory. 
 
 The Chairman. And this was maintained by consent? 
 
 Mr. HiNES. It Avas simplv the outgrowth of competition. 
 
 The Chairman. And maintained by agreement and consent? 
 
 Mr. HiNES. Yes. 
 
 The Chairman. By common consent of ttiese roads interested ? 
 
 Mr. HiNEs. By common consent; by their concurrent action in 
 that way. They all agreed to maintain these differentials. 
 
 The Chairman. Yes. 
 
 Mr. HiNES. The Cincinnati Southern was built from Cincinnati 
 and did not pass through Louisville, and that very materially 
 changed the situation, because then the short-line distance from a 
 great many of these points gave Cincinnati the advantage, and as to 
 all of them it materially changed the situation. That led to the 
 most vigorous competition between the roads leading from Louis- 
 ville and the roads leading from Cincinnati as to a reduction of 
 those differentials. That was fought up and down and finally 
 
SEVENTH DAY. 17 
 
 boiled itself down to a new set of differentials, which have prac- 
 tically lasted until to-day. It might be that somebody should say 
 that theoretically, and as a matter of abstract justice, one point 
 was hurt and the other was not; but it is so impossible to try 
 to settle questions of that sort by any abstract standard that it 
 seems to me very clear that a far better standard is one that has 
 been the outgrowth of pronounced competition, where one rail- 
 road was fighting against the other railroad, and the result, at any 
 rate, was a result that each railroad recognized, taking all the cir- 
 cumstances into consideration, was as fair as it might hope for. So 
 they rested their oars and let it go at that adjustment. 
 
 The Chairman. They are seemingly satisfied with these differen- 
 tials now. 
 
 Mr. HiNES. Yes; they realize that it was the best they could do. 
 They got to the point where each side felt that it could not gain any- 
 thing in the long run by further fighting, so that has stood the severe 
 test of competition. 
 
 Senator Foeakee. As an actual fact, that competition brought into 
 existence the Southern Railroad ? 
 
 Mr. HiNES. Yes ; it did. 
 
 Senator Foeakee. It would not have been built at all in all proba- 
 bility, or in the way in which it was built — by a municipality — had it 
 not been for the competition, in which competition Cincinnati was 
 at a disadvantage, as it thought? 
 
 Mr. HiNES. Yes; Cincinnati built that railroad to get a shorter 
 line into the southern territory, so as to get the advantage of that 
 situation. 
 
 While these differentials are thus the outgrowth and the perma- 
 nent results of strong competition, yet they are subject from time 
 to time to new conditions. They are not absolutely fixed now, be- 
 cause despite all the railroad consolidation that has gone on and all 
 the talk about railroad consolidation, the fact remains that these 
 various systems have still that character of competition to, deal 
 with, and these various cities have each some special reason, as they 
 think, why they should be favored, and sometimes natural condi- 
 tions come to aid them and enable them to enforce that claim. So 
 we find this competition still continuing. 
 
 The Chairman. Do you know of any differentials being main- 
 tained in a section of a country controlled absolutely by one combina- 
 tion or road ? 
 
 Mr. HiNES. Well, I do not 
 
 The Chaieman. By one ownership,- one management. 
 
 Mr. HiNES. Of course there may be. For instance, in eastern 
 Kentucky there are two coal fields some distance apart. They estab- 
 lished bases of differentials to the Louisville market so that the rates 
 from the farther coal field are 10 cents more than from the nearer coal 
 field. There had to be some basis for them to act upon, and finally 
 the coal operators and everybody settled down to the idea that that is 
 the best adjustment possible. There has to be some difference, and it 
 seemed best for practical business purposes that that should be the 
 adjustment. If they had any complaint of that 
 
 Senator Cullom. That was based simply on the question of dis- 
 tance ? 
 
 7 1>— 05 M 2 
 
18 
 
 SEVENTH DAY. 
 
 Tho^MMA?.' There is a case of the long haul being charged 
 more ? 
 
 Mr. HiNES. Yes, sir. ,. n ■ .. ^ cw 9 
 
 Senator Foeakee. That is entirely m that btate ^ 
 
 Mr Hikes. Some is interstate— from Jellico, Tenn., to Louisville. 
 Those differentials exist in that way on a single line, but they are 
 
 being revised. • ^ .1 v 
 
 Senator Newlands. Were these two points on the same line, one 
 
 being farther off ? 
 
 Mr. HiNES. Yes. 
 
 The Chaieman. I would not call that a differential. 
 
 Mr. HiNES. That is what a differential is in a broad sense, an es- 
 tablished difference between two rates from two points to a common 
 
 point. II- 
 
 The Chaieman. But on the same line. I do not see how that is a 
 
 differential. 
 
 Mr. HiNES. The point I made was that the cry for the rate-making 
 power to correct differentials necessarily applied entirely to the other 
 phase of the matter, where the points were on different lines, but the 
 particular definition would cover a case of that kind. 
 
 Senator Dollivee. What is the total distance involved in that last 
 coal discrimination that you have referred to ? 
 
 Mr. Hines. I think the nearest mines are about 150 miles and the 
 farthest about 200 miles. 
 
 Senator Ne-wlands. Is that difference proportionate ? 
 
 Mr. Hines. They group them. Mines in a certain group pay one 
 rate and the others 10 cents more. 
 
 Senator Dolliver. In that milk case that has been referred to here 
 the Interstate Commerce Commission decided it was equitable and 
 proper to have identically the same rate for all milk stations on the 
 whole line of a railroad from (I think the final outside terminal was) 
 200 miles from New York City. 
 
 Mr. Hines. In that case, if I am not mistaken, the railroad had a 
 group rate for the whole distance, and the Commission cut it up into 
 two or three different groups for shorter distances; still the same 
 principle was recognized. 
 
 Senator Dollivee. No, sir ; I think they laid down distinctly that 
 the main cost of operating the trains was loading them and unloading 
 them, and that it was not only fair to the railroad, but fair to the 
 farming communities involved all along the line to put them on 
 exactly the same basis, regardless of distance. 
 
 Mr. Hines. At any rate, they recognized the principle of the prac- 
 tice of grouping, and any such case is subject to control under the 
 law as it stands to-day. It is only where these different railroads 
 come into play that any rate-making power would be needed to deal 
 with that situation. 
 
 Senator Foeakee. Did I understand j^ou to say that when a rail- 
 road man used the term " differential " he referred to a difference in 
 rates only on the same line? 
 
 Mr. Hines. No. I said it was broad enough to cover that. Gen- 
 erally it refers to the other — to competing points on different lines. 
 
 So that there is always some new condition arising, calling for some 
 change somewhere in some established differential. Boston and New 
 
SEVENTH DAY. 19 
 
 York, Philadelphia and Baltimore, have recently gotten into quite a 
 contest over those differentials, and some railroad cooperated with one 
 of the points and brought about quite a rate Avar, which has resulted 
 in the submission of the whole subject to arbitration by the Commis- 
 sion. 
 
 The Chairman. To the Commission ? 
 
 Mr. Hikes. To the Commission, as an arbitrator. It is not claimed 
 that the Commission has any power under the law to fix minimum 
 rates, which it would have to do, virtually, to control that situation, 
 but it has been submitted to the Commission as an arbitrator. In 
 every such condition, and whether there is any such condition or not, 
 every railroad has a powerful incentive to increase traffic on its road, 
 because its fixed expenses being so large, and not varying with the 
 traflSc, it can increase its profits more than it increases its expenses by 
 the additional business, even though it has to handle the additional 
 business at a low rate. That is true even if one railroad owns lines 
 that would otherwise be regarded as strictly competing lines. Each 
 ,one of those roads has to be operated. It can only be operated suc- 
 cessfully by a constantly increasing volume of traffic, and the only 
 practical way to deal with it is to let each one of those lines get all 
 the traffic it can. So that there is, in fact, even where there is a con- 
 solidation, so called, a very lively competition between those branches, 
 the officers in charge of those different branches, to develop an addi- 
 tional traffic on their respective lines, each watching out for any 
 change, any inducement that will help its part of the line, and resist- 
 ing anything that will hurt its part of the line. 
 
 As a practical business proposition, the railroad has got to build up 
 its traffic on all parts of its line all the time if it is going to be a con- 
 tinuing successful proposition. 
 
 I want to call the committee's attention to the fact that the ordi- 
 nary, the usual reason urged for governmental regulation of railroad 
 rates is that the railroad and the shipper do not stand on an equal 
 footing; that the railroad is more powerful; that the shipper has to 
 ship by the railroad, and that while in some things their interests 
 may be the same, yet there is a point where their interests diverge; 
 and that whenever they diverge the railroad, being the more power- 
 ful and being to a greater or less- extent a monopoly, is going to get 
 the advantage of the shipper. That does not apply at all to a propo- 
 sition to give a tribunal the power to prescribe differentials as 
 between competing lines, because there there is no question of diverg- 
 ence betAveen the shipper on a given line and that line. They have 
 precisely the same interest, and that is to build up their part of the 
 traffic. The other line somewhere else is identified throughout with 
 its shippers, and the whole basis ordinarily assigned for governmental 
 interference falls to the ground entirely Avith respect to these differ- 
 entials. The lines from Chicago to 'New York are throughout iden- 
 tified in interest with the persons interested in having export grain 
 moved by those lines. The line from Chicago to Ncav Orleans is 
 throughout identified in interest with the people interested in hav- 
 ing grain exported through New Orleans. There is no point of 
 divergence there. There could not be a difference of interest in a 
 contest of that sort. 
 
 Another point to be considered as showing the difficulty of a gov- 
 ernmental tribunal trying to regulate this matter is that there is no 
 
20 SEVENTH DAY. 
 
 basi'^ for a comparison. Taking that case again as an example, it 
 is hard to see what basis you could have if Congress itself, or any 
 tribunal appointed by Cdngress, tried to settle how much of the 
 jrrain traffic should go by New Orleans and how much ought to go by 
 New York. The thing just depends on the enterprise of the two 
 localities and on the enterprise of the railroads serving those localities 
 The conditions are so different in the two sections of the country, and 
 the ability of the railroads may be so different that there would be 
 absolutely no basis for any definite action by a governmental tribunal. 
 It would simply be an effort at governmental equalization, not only 
 of the natural advantages of different sections of the country, but of 
 the enterprise of different sections. If the capitalists of a port go to 
 work, whether connected with a railroad or not, and build an enormous 
 grain elevator and provide very excellent facilities for handling 
 grain, that is going to increase the amount of gram shipped there. 
 The Government might just as well try to regulate that and say 
 how much enterprise the port should have in increasing its conven- 
 iences for handling export grain as to say how much enterprise the 
 railroad going to that port should have in increasing the conveniences 
 of that port, because there is no question that that railroad is oppress- 
 ing any place depending on it to which it owes a public duty. 
 
 Senator Doli.ivee. Well, then, the railroads recognized that the 
 Interstate Commerce Commissioji is peculiarly well fitted to settle 
 such a question ? 
 
 Mr. HiNES. How do you mean ? 
 
 Senator Dolliver. By agreeing unanimously to submit their dif- 
 ferences to the arbitration of the Commission. 
 
 Mr. HixES. The communities as well as those particular railroads 
 have agreed to submit it to that tribunal. 
 
 Senator Doi.livee. Is not that a pretty convincing testimonial of 
 their qualifications to do that kind of business ? 
 
 Mr. Hikes. The railroads have announced, as I understand it, that 
 they are perfectly willing to adopt any differentials that are agree- 
 able to those communities. Now, because those particular communi- 
 ties have agreed in that particular case that the Interstate Commerce 
 Commission is a proper arbitrator it does not follow that all the com- 
 munities in the United States would be willing to submit their con- 
 troversies to that tribunal. I do not believe they would. 
 
 Senator Foeaker. How do these committees agree? 
 
 Mr. HiNBS. Oh, I think through their commercial organizations. 
 
 Senator Forakee. That is, through their chambers of commerce ? 
 
 Mr. HiNES. Yes. Of course you could tell more about that after 
 the Commission announces its decision, but I am satisfied the com- 
 munities of this bountry would not, if left to themselves, be willing 
 to submit this matter to the Commission. Why should they ? Why 
 should New Orleans leave that to the Commission, when it has got the 
 enterprise of the railroads running to New Orleans to help it out all 
 the time? They would much rather take an enterprising business 
 corporation which is identified in interest with them, and get its 
 assistance to do the very best they can, than to turn the matter over 
 to some tribunal to put a limitation on the extent to which that rail- 
 road company shall show its enterprise in its behalf. 
 
 The Chairman. Explain right there, if you can, what would be 
 the effect it you should now abolish these differentials that ate ob- 
 
SEVENTH DAY. 21 
 
 tained by common consent and by arrangement of these railroads. 
 Suppose they were dropped right out, what would be the effect ? 
 
 Senator Forakee. \VTiat would you substitute if you were to drop 
 them out? 
 
 The Chairman. Yes; and suggest some uniform plan. Would 
 you just adopt a mileage basis and let the city that is nearest get the 
 traffic? 
 
 Mr. HiNES. If you adopt a mileage basis, and give the nearest city 
 the advantage, of course that basis simply is a damper on all further 
 progress. That thing is settled fore'^'er, and there is no use in fight- 
 ing against a permanent enactment of that sort, assuming that it is 
 valid. It is there, and no matter what you do or what additional 
 railroads are built or what additional traffic you can offer to a rail- 
 road to induce it to bring traffic to the port, there is no use in doing it. 
 The rate is fixed, and that is the end of it; and there would be a tend- 
 ency to centralize traffic there and hurt all the other points. 
 
 Senator Forakee. Could you substitute anything else than the mile- 
 age system ? 
 
 Mr. HiNES. Of course you have got to have a specific rate to each 
 port. If those rates are the same to all the ports, regardless of dif- 
 ference, there would be no differentials. They would all be flat rates 
 then. If they are not the same, there would be a differential — that is, 
 there would be an established difference. If that differential was 
 on the mileage basis, the point nearest of two given points would get 
 the traffic. 
 
 Senator Forakee. I mean is there any basis that you can think of 
 other than the mileage basis on which to fix rates ? 
 
 Mr. HixES. It seems to me that if a Government .tribunal tried to 
 deal with that subject it would ultimately be driven to an approxi- 
 mation at least to a mileage basis, because otherwise you would have 
 no tangible basis to go on. No naatter what you do on any other 
 basis, you could not defend it, and it could be criticised from every 
 standpoint ; and every place except the one that is helped by it will 
 criticise it. I should think the Government tribunal would be driven 
 in self-defense to try to adopt some uniform rule, so that it could say 
 to each place making complaint, " Your place has been governed by 
 the same rules that were followed in regard to the other place." 
 You could have a uniform rule, and that is all you could do. 
 
 Senator Cullom. You do not think such a rule as that would be to 
 the best interests of the country ? 
 
 Mr. HiNES. I think it would be extremely unfortunate. Instead 
 of having the j^resent very extensive competition that there is in all 
 these things, and there is always bound to be as long as the present 
 system prevails, it would stop it all. The thing would be settled^ for 
 all by edict of the Government. 
 
 Senator Cullom. In the illustration you gave a while ago it would 
 lose Elizabethtown one coal field? 
 
 Mr. HiNES. Yes. 
 
 The Chairman. I wish you would explain a little further right 
 here how these cities and railroads jointly, acting together, compel a 
 differential? Why does Philadelphia get its differential over New 
 York, or Baltimore over both? Why do they allow it? How does 
 New York, or any of these other cities, compel it? What do they do 
 
00 SEVENTH DAY. 
 
 in the way of reprisals, if you please? They do overcome distance 
 bv concessions. How does a city enforce that? . n- ■ r 
 
 Mr HiNES. Taking the illustration I gave ]ust now ot Cincinnati 
 and Louisville. When the Cincinnati Southern was built it ]ust 
 reduced its rates to those two points. Then the railroads from Louis- 
 ville iust reduced their rates so as to preserve the old difterentials. 
 
 The Chairman. But, generally, to the Atlantic coast? 
 
 Mr HiNES. I was using those examples as an illustration, so that 1 
 would be talking of something that I knew about rather than a mere 
 
 surniisG 
 
 The Chairman. But the principle that governs them is the same? 
 
 Mr. HiNES. The principle is the same, that the railroad that wants 
 to change the differential reduces its rate, so as to make a new differ- 
 ential, or to wipe out the differential, and the railroad that resists it 
 reduces its rate so as to preserve it; and they seesaw back and forth 
 until they get to the point where the thing is bound to be adjusted 
 on some basis that both will recognize as the best that can be done. 
 
 The Chairman. And by consent ? 
 
 Mr. HiNES. Yes; they are bound, in the last resort, to reach a 
 point where they realize themselves that that is the only thing they 
 can do. Sometimes a new differential comes out of it, and sometimes 
 the old one sticks. After all, however, it is the result of perfectly 
 untrammeled competition. 
 
 Another thing to be borne in mind is that no governmental body 
 can fix differentials except by prescribing minimum rates or, really, 
 by prescribing specific rates. Take our New Orleans and New 
 York case again : Assuming that the Interstate Commerce Commis- 
 sion had the power, and exercised it, to say that the present relative 
 adjustment is wrong, and that the rate from the Northwest — from 
 some typical point out there, for instance, Omaha — to New Orleans 
 should be only so many cents less than the rate from that point to 
 New York, those railroads not being under the same management, 
 the only way in the world to control that is to fix the specific rate 
 that can be charged, because if you leave the carriers any option at 
 all the carrier from Omaha to New Orleans might simply reduce its 
 rate and there the differential established by the Commission would 
 disappear unless the railroad going to New York would reduce its 
 rate. So, if you leave it to the option of the carrier, you leave it 
 right where it is to-day. The only way to do would be for the Com- 
 mission to say the rate from Omaha to New Orleans shall be so many 
 cents per hundred pounds and the rate from Omaha to New York 
 shall be so many cents per hundred pounds. Wherever you do that, 
 the Government steps in and stops competition — competition that is 
 going on and always will go on, as each railroad is trying to get all 
 the traffic it can carry ; the Government steps in and says, " You can 
 not charge less than a certain rate on this traffic, and to this other 
 point you can not charge less." In other words, if you leave the rail- 
 roads any freedom at all, practically,' they can break the governmental 
 differential ; and the only way to carry it out is to fix specifically a 
 rate ; and when you do that, you stop the competition. 
 
 It is not only competition in the ordinary sense that is to be con- 
 sidered there, but there are commercial conditions, changing from 
 day to day, that necessitate and justify changes from time to time 
 in these rates. Even though there is no effort to change the relative 
 
SEVENTH DAY. 23 
 
 rates of the two places, if the Government fixes specific rates, I say 
 they can not leave the carriers any option about it. The carrier has 
 to observe those rates until the Government changes them. 
 
 Conditions might arise which would necessitate the very prompt 
 changing of those rates. Take a situation that we have in the South- 
 west. There is very active competition between the grain dealers 
 at Louisville and Evansville and Memphis for the handling of grain 
 into the southeastern territory which comes from the Northwest. 
 There has been an immense amount of competition among the rail- 
 roads about that, and there still is, from time to time. Suppose 
 the Government stepped in and decided that question, and figured out 
 about how much grain it thought the Louisville grain dealers ought 
 to handle in the Southeast, and how much Evansville should handle, 
 and how much Memphis should handle. Then it would fix the 
 specific rate. That would be the only way in the world to regulate 
 it. Well, now, that adjustment depends on crop conditions. If 
 there is a failure of the corn crop in Illinois, that redounds very sub- 
 stantially to the benefit of Memphis,^ because Memphis gets most of 
 its grain from west of the Mississippi Eiver, whereas Louisville gets 
 a large part of its grain from Illinois and Indiana. If that condi- 
 tion arises the railroads would change that adjustment immediately. 
 That is, the railroads going through Louisville would say, " This 
 may be a fair adjustment under normal conditions, but under these 
 abnormal conditions we are going to change this adjustment for this 
 year." 
 
 Otherwise the Louisville grain dealers will be absolutely out of 
 business. That is a result that would come about in the natural 
 course of business, simply in order to preserve what might be recog- 
 nized as the relative amount of grain that should pass through those 
 places. But if you turn that over to a Government tribunal and it 
 has fixed those specific rates, that crop would be sold and another one 
 planted and matured before that tribunal would get around to chang- 
 ing those rates. They could not move fast enough. Even under their 
 present powers, which are less onerous than those proposed under 
 such differential fixing power would be, they can not act with suiR- 
 cient promptness to meet a situation like that, and it would be utterly 
 out of the question under those conditions. 
 
 So there is a very grave practical difficulty that, assuming that 
 they — a Government commission — were wise enough and had a suffi- 
 ciently tangible basis to make a fair adjustment to start with, that 
 adjustment would probably become unjust the next day or the next 
 month, and yet it would remain in effect, because the commission 
 would not have time to get around to it to readjust it to changing 
 conditions before the conditions had passed. 
 
 To my mind that is an exceedingly serious objection to attempting 
 to apportion by Government how much business competing points 
 may do. Inasmuch as all these questions involve -such an infinity of 
 details and so much history of local conditions and so much consider- 
 ation of current conditions all over the country, the commission would 
 have a tremendous task in prescribing these differentials to start 
 with. I do not know that it ever would get through even with the 
 present differentials; and it would be so congested in this work that 
 the thing would simply be frozen in the shape it is now in. There 
 
24 SEVENTH DAY. 
 
 would be no elasticity, no opportunity to meet new conditions that 
 arise from time to time. And there is another phase o± it-— -^ ^, 
 
 Senator Nbwlands. I would like to ask one question right there, 
 Mr. Chairman. . . 
 
 Your contention is that such a commission, in order to meet the 
 wants of the country, would have' to act as (luickly and as often as 
 the present traffic managers ? 
 
 Mr. HiNES. Yes. 
 
 Senator Newlands. How many traffic managers are there m the 
 country? 
 
 Mr. HiNES. I am going to give some statistics on that m a little 
 while. It Avill come in a little later. 
 
 The Ghaikman. Yes; let it come in regularly, Senator. 
 
 Senator Nem'lands. All right. 
 
 Mr. HiNES. I have some figures on that. And there is another ele- 
 ment. These differential questions are, to a very considerable extent, 
 sectional questions. Take the New England and the North Carolina 
 cotton mills. There is a very marked sectional issue. A question 
 between New C)rleans and New York would be a sectional question. 
 Whenever the Government assumes the responsibility of setting aside 
 the initiative of the railroads and steps in to decide those questions 
 it becomes responsible for the relative commercial prosperity of all 
 the sections of the country, and I do not see how it could be possible 
 to avoid the most serious political embarrassments on that account. 
 Assume that the Interstate Commerce Commission, being invested 
 with this power, should undertake to deal with the cotton-mill situa- 
 tion, and after looking over the field should decide that, on the whole, 
 the New England cotton mills had too favored rates and that the 
 North Carolina cotton mills ought to have more favorable ones. As 
 Mr. Tuttle told you, the restriction of the markets and operations of 
 those New England mills would be very seriously felt by those towns 
 which are so largely dependent on that industry. Just as soon as that 
 went into effect and those localities began to feel the effect of that 
 governmental interference in their business, you can readily imagine 
 the pressure that would be brought to bear upon Congressmen and 
 Senators to make the Commission change that. The cry would be 
 that " the Commission is ruining our part of the country." 
 
 The theory is that the Commission would be good enough and wise 
 enough to do exactly the right thing, but nobody can tell what is 
 exactly the right thing, and each community thinks that the right 
 thing is for it to have the advantage. Under the present system the 
 railroad identified with the community does the best it can for that 
 community, and in the long run that comes far nearer to reaching 
 practical relative justice than to turn the thing over to the Govern- 
 ment, when you would immediately introduce those political features 
 that do not exist at all at the present time. 
 
 (Thereupon, the committee took its usual noon recess.) 
 
 AFTER KECESS. 
 
 STATEMENT OF WALKER D. HINES, ESQ.— Continued. 
 
 Mr. HiNES. Mr. Chairman, when the recess was taken I was on the 
 subject of differentials, and I want to emphasize again the fact that 
 
SEVENTH DAY. . 25 
 
 this proposition to give any Government tribunal the power to fix the 
 specific rates as between competing points (which it would have to do 
 if it was to control differentials) will inevitably result in stamping 
 out competition, not merely competition between the railroads or 
 between the markets, but it will have this further result : The present 
 system, whereby the railroad reaches out as far as it can for markets 
 to places on its line, while refraining from unjustly discriminating 
 in doing that as between places on its line, serves to promote com- 
 merce generally and to promote competition generally. Referring 
 again to the case of the cotton mills in New England and in North 
 Carolina, if the Government should undertake to fix the differentials 
 as between those points it would be on the idea, presumably, that one 
 of those points had an advantage over the other which ought to be 
 maintained by governmental interference. In other words, the 
 result of the governmental interference would be to help along one of 
 those points more than it did the other, on account of difference in 
 distance or difference in natural advantages. 
 
 The Chairman. Would that be because of the rule the Government 
 would necessarily have to adopt? 
 
 Mr. HiNES. It would have to adopt some rule. 
 
 The Chairman. And any rule would work a preference ? 
 
 Mr. HiNES. Any rule would be bound to work a preference; and, 
 as I say, it would be driven to an approximation to the mileage 
 method. That would result in the place nearest the point of supply 
 having a practical monopoly, provided other conditions Avere equal; 
 or, taking everything into consideration, the result would be there 
 that some one place or some one section, after you added up all 
 of the advantages and struck a balance as far as you could in anything 
 that is as intangible as commercial advantages, would be ahead of the 
 other, and the railroad serving the other place could not put that 
 place on an equality. That would have a tendency to centralize that 
 work or industry, whatever it was — say, cotton manufacturing, in 
 that instance — at the one place or the other. 
 
 When that is done, it not only puts a stop on railroad competition, 
 but it puts a stop to other competition. Where a producer of cot- 
 ton now has several markets in which he can sell it, he might then only 
 have one. 
 
 Suppose that these cotton mills in New England and North Caro- 
 lina are both running under favorable conditions. One of them gets 
 a little short of material, or something of that' sort. It will then 
 pay, if necessarjr, a higher price to get it. That is an element of 
 competition which gives the producer more markets in which to sell. 
 After these concerns have manufactured their products they are com- 
 peting against each other for the sale of them. That gives the con- 
 sumer more "markets in which to buy. Consequently competition 
 for the benefit of producers and for the benefit of consumers is stimu- 
 lated by this effort of the railroads to extend the scope of the opera- 
 tion of the industries on their respective lines; and if you hamper 
 that or 'restrict it by the Government undertaking to say — and it 
 would in effect be that — to what extent each place should operate, you 
 restrict the market for producers and the market for consumers, and 
 you really facilitate the oppoi-tunities for industrial combination. 
 If the result should be that, after adding up all the advantages under 
 a governmental system of differentials, the North Carolina mills and 
 
26 SEVENTH DAY. 
 
 the territory around there should have a practical monopoly of the 
 cotton, it would be much easier for them to combine and pay lower 
 prices for cotton than if they had to compete with the New England 
 mills and had to compete with all other places. Then, of course, the 
 thing would not stop right there. There are very low rates on cotton 
 for export. If the Government is going to regulate all those things 
 according to some fixed rule— mileage, or an approxirnation to mile- 
 age, would be about the only rule it could adopt — that will interfere 
 with the export business, and that would hurt the producer, whereas 
 now competition abroad plays as against competition of the mill pro- 
 ducers at home and gives the producer a higher price for his product. 
 And, on the other hand, when the products are manufactured you 
 now have the manufacturers of the whole world competing against 
 each other, and that gives the consumer a better opportunity to buy 
 what he has to consume. 
 
 The necessary tendency of governmental interference would be to 
 restrict that widespread' competition that now exists. It may be 
 said that the present system tends to stamp out some industries and 
 build up business at the Avrong place, but the practical result is not 
 that. You will find that there is a constant increase in the develop- 
 ment of new industrial centers. In the South there is a constant 
 increase of cotton mills right straight along. While some roads are 
 not interested in the South, and give low rates to New England cot- 
 ton mills, yet the railroads interested in the South are doing every- 
 thing they can to build up the industry at home ; and it is being built 
 up in the South, and the number of cotton mills is increasing and has 
 increased in a very marked degree in recent years. That process is 
 going on everywhere, because the whole system at the present time is 
 that each railroad is practically competing against the whole world 
 in the interest of the industries on its line ; that makes those indus- 
 tries compete against all other industries, and it helps the producer 
 and helps the consumer, and makes industrial combination harder 
 than if things were centered in fewer localities, as they would be if 
 the Government tried to intervene and virtually pick out what terri- 
 tory each industry should operate in. 
 
 Coming now to the constitutional question that is involved as to 
 the power of Congress to appoint a tribunal to fix differentials, if 
 Congress has that power at ail it is under the power to regulate com- 
 merce among the States and with foreign nations. 
 
 Senator Clapp. Right there, you say " if Congress has that power." 
 Do you doubt it ? 
 
 Mr. HiNBS. I am going on to point out why I doubt the power- 
 not the power to regulate commerce or to fix rates, but the power to 
 fix differentials. 
 
 Section 9 of Article I of the Constitution is a limitation upon the 
 power of Congress to regulate commerce, and says : 
 
 No such regulatioil shall give a preference to the ports of one State over those 
 of another. 
 
 It is, I think, clearly settled by the Wheeling Bridge case,* to which 
 the committee's attention has been called, that any regulation of com- 
 merce that merely incidentally gives a preference to the ports of one 
 State over those of another can not be said to be prohibited because in 
 violation of section 9 of Article I; that it must be a direct preference 
 
SEVENTH DAY. 
 
 ^7 
 
 to come -within the inhibition of that section. If a differential should 
 he established pursuant to an act of Congress, and a specific rate pre- 
 scribed and a minimum rate prescribed (as would have to be done in 
 order to enforce it) , the direct purpose and effect of that would, be to 
 limit the advantage of the one port for the benefit of another. Take 
 the case, so frequently cited, of New Orleans and New York : If the 
 Commission should have the power to fix the differentials as between 
 those two places on export grain, it would have, in order to enforce 
 its decision, to fix the specific rates which should be charged by the 
 railroads to New Orleans and New York, respectively, on export 
 grain. 
 
 The direct purpose of that act of the Commission would be to give a 
 preference to one of those points over the other — that is, to change 
 the existing status as between those two points on export grain. The 
 object of the Commission would be to hdp one of the points, because 
 if it did not want to change the existing status they would be left as 
 they are. Therefore the sole purpose of the regulation would be to 
 give a preference to the ports of the State of New York over those of 
 the State of Louisiana. Consequently, it seems to me, it would be 
 directly in violation of this section 9 of Article I of the Constitution. 
 
 The Chaiemax. Right there, let me ask why they could not leave 
 the differentials just as they are? Please give the reason for that. 
 The railroads adopt the differentials by consent, or agreement, or 
 whatever you think. Now, why could not the Commission do just as 
 the railroads do ? Would it be unconstitutional ? 
 
 Mr. HiNES. The act is now not an act of Congress ; it does not come 
 from an act of Congress. 
 
 The Chairman. No; but, as I say, it exists by consent? 
 
 Mr. HiNES. Yes. 
 
 The Chairman. But if the Commission, acting as the agents of 
 Congress, could not do it — is that your argument, that they could 
 not do it? — if they could not do it, why not? 
 
 Mr. HiNES. My contention is that the Commission would not have 
 the power to fix a specific rate which it would require a railroad to 
 charge as against another port, when the purpose of it, and the sole 
 purpose of it, was to establish a relative status between those ports. 
 
 To make it, perhaps, clearer, suppose we turn it around. Suppose 
 Congress should empower a commission to fix ocean rates. Suppose 
 a commission should declare that the ocean rate from New Orleans 
 to Liverpool must be so many cents per ton higher than the ocean 
 rate from New York to Liverpool. I do not think anybody would 
 deny that that was a plain, direct preference of the port of New York 
 over the port of New Orleans, and, therefore, a violation of the Con- 
 stitution. 
 
 The CifAiRMAN. Could the commission regulate ocean rates ? 
 
 Mr. HiNES. Congress has as full power over foreign commerce as 
 it has over commerce among the States. There would be a very 
 serious practical difficulty there. 
 
 The Chairman. But how could Congress get jurisdiction out of 
 the 3-mile limit ? 
 
 Mr. HiNES. It would not have any jurisdiction out of the 3-mile 
 limit; it could only operate upon the ships while they were in the 
 territorial jurisdiction of the United States. 
 
28 SEVENTH DAY. 
 
 The Chairman. I know; but in what way would they operate, 
 then, to regulate the freight charges ? 
 
 Mr. HiNES. If they established a Irav that a ship must observe a 
 certain course, and it did not observe that course, I suppose they 
 could impose a fine upon the shipowners, or impose a fine upon the 
 ship when it was here. It has the full power to regulate that; and 
 when the ship is in the territorial jurisdiction of this country it can 
 adopt any coercive measures it chooses to make it observe whatever 
 regulation of commerce Congress adopts. Of course, if the ship gets 
 away, and violates the regulation, and does not come back, then you 
 can not get it in your territorial jurisdiction, and you can not accom- 
 plish anything. But looking at it from the theoretical standpoint, 
 or the constitutional standpoint. Congress has just as much right to 
 regulate the rates of ocean carriers as it has to regulate the rates of 
 inland carriers. 
 
 The Chairman. Could the Commission forbid the clearance — ^you 
 know what I mean — of the vessel until she had agreed to a certain 
 rate ? Is that one of the methods ? 
 
 Mr. HiNES. I fancy it could — anything in connection with the 
 papers of the vessel. It could adopt any rule it pleased on that 
 subject. 
 
 Suppose the Commission should undertake to do that — to say that 
 the ocean rate from New Orleans to Liverpool should be so many 
 cents higher than the rate from New York to Liverpool. That would 
 be a direct preference of the port of New York over the port of New 
 Orleans. It would be a denial to the port of New Orleans of the 
 natural results of competition between the vessels coming there. It 
 would be a denial to that port of the full enjoyment of the enter- 
 prise of shipowners that wished to sail from that port, and I do not 
 believe there would be any hesitation on the part of the court in 
 saying that that was a direct interference on the part of Congress 
 with the relative advantages of those ports which constituted a pref- 
 erence of the ports in the State of New York over the ports in the 
 State of Louisiana. 
 
 The same thing is true if the Commission regulated the inland 
 rate. If anything, it is easier for it to do it. The Commission says 
 to the railroads running from the northwestern territory to New 
 Orleans, " You must charge a certain rate on export grain." That is, 
 the only way they can enforce the difi'erential is to fix the rate. 
 That IS denying New Orleans the benefits of its location and the bene- 
 fits of the enterprise of the railroads serving New Orleans. It is 
 saying, " Beyond a certain point you shall not have the advantages 
 of your location, because we want New York to have more advantage 
 than It would have if you did have vour full advantages." That 
 regulation would be for the sole and direct purpose of a preference 
 of the ports of the State of New York over the ports of the State of 
 Louisiana, and, m my opinion, would be plainlv unconstitutional. 
 
 It has been claimed that the railroads can establish differentials, 
 and therefore Congress can. That claim loses sight of the fact that 
 
 i^.il'^^i^f ,?. '^°^ '^^^■^^''^ *^®^'' powers from the commerce clause 
 the i^ederal Constitution. Railroads are common carriers. Either 
 as individuals or corporations they have the powers of common car- 
 riers, which are not granted by the Constitution of the United States. 
 -Hie power of Congress is a regulative power, and not a dispensing 
 
SEVENTH DAY. • 29 
 
 power. So that the fact that railroads establish differentials does not 
 go any distance to prove that Congress has that power, because 
 the situation is absolutely different, as the railroads are not subject 
 to that restriction. It is a restriction upon Congress in the exercise 
 of the constitutional power to regulate commerce. 
 
 It has also been said that certainly Congress can do whatever the 
 railroads could; but that does not follow. In the case of the Lake 
 .Shore and Michigan Southern Railroad Company v. Smith (173 
 U. S., 684) , the Supreme Court of the United States had under con- 
 sideration the statute of Michigan, which required the railroads to 
 sell family tickets at a much lower rate per mile than the ordinary 
 passenger rate. That was an effort on the part of the legislature 
 to give an advantage to that class of travel — to families that wanted 
 to travel. That ticket was good when used by any member of the 
 family. The Supreme Court of the United States held that that 
 was an unconstitutional interference with the legitimate business 
 of the carrier; and they answered that very argument. That said, 
 it does not follow that because the railroad could establish these 
 family rates, therefore the legislature had the right to compel the 
 railroad to do it.. As a matter of internal business administration 
 a railroad may do many things which a legislature can not compel 
 it to do. 
 
 Senator Dolliver. "What case is that? 
 
 Mr. HiNES. The case of Lake Shore and Michigan Southern Rail- 
 road V. Smith (173 U. S., 684). 
 
 The fact that that was a State case and this is a Federal case would 
 make no difference. The State, of course, was exercising its police 
 power, but its police power to regulate intrastate commerce. The 
 States have delegated to Congress that part of their police power 
 which relates to the regulation of commerce among the States; but 
 the nature of that power with respect to commerce among the States 
 is exactly the same as the nature of the power which the States 
 exercise with respect to commerce within the States. 
 
 The Supreme Court was very plain on that proposition — that 
 while the railroad might have done that as a matter of internal busi- 
 ness administration, the legislature could not compel it to do it. And 
 the Supreme Court went further and indicated very plainly that the 
 province of the legislature in regulating a railroad was to prevent 
 oppression and injustice and was not to assume the affirmative direc- 
 tion of what discriminations it should make in the ordinary manage- 
 ment of its business; that the legislature might prescribe maximum 
 rates and prohibit unjust discriminations, but it could not say to the 
 railroad, " You must make a specific discrimination in favor of a 
 specific part of the communitj'," even though it would have been good 
 business for the railroad to do so. 
 
 Senator Dollivek. Would that principle apply to an effort of the 
 State or of Congress to regulate the time and speed of trains? 
 
 Mr. HiNES. Well, I have not thought that out. 
 
 Senator Clapp. That would rest on the source of power, anyhow, 
 would it not ? 
 
 Mr. Hines. I will try to think that out. 
 
 Senator Dolliver. One of the most lively complaints in the west 
 is the change in schedules by which live stock are gotten into Chicago 
 on a very much slower schedule than heretofore. 
 
30 SEVENTH DAY. 
 
 Mr HiNES. I will think about that, Senator Dolliver, and when 
 YOU come to question me I will try to give you an answer, i would 
 not like to do so ofthand. I never thought of that betore. ,, . ■ 
 
 This Smith case is interesting further on this proposition— that it 
 is a serious question whether Congress, under the power to regulate 
 commerce, can say to a railroad that is owned by private capital that 
 it must do specific things in order to promote a specific object. It is 
 a very serious question with me whether Congress is not conhned to 
 preventing illegal acts on the part of a railroad. Take the case of a 
 railroad from Chicago to Xew Orleans. If it, without any discrim- 
 ination between points on its road, makes exceedingly low rates for 
 everybody on that railroad it is not clear to me that Congress has the 
 right to prohibit that because some other part of the country might 
 be embarrassed by it. Its power is to prevent a wrongful act on the 
 part of the carrier. It is not a wrongful act on the part of the carrier 
 to be just as liberal as it pleases with everybody on its line. If it 
 unjustly discriminated between different points on its line, that 
 would be a wrongful act. Congress could prevent that. If necessary 
 it could make rates to prevent that. But where the object of the 
 regulation is not to prevent any wrongful act on the part of the 
 carrier, but to prescribe a different status which will give other com- 
 munities, to which that carrier owes no duty, advantages that they 
 do not have as long as the carrier pursues its present course, it seems 
 to me it is a very serious question as to the power of Congress ; and 
 this case of Lake Shore and Michigan Southern Eailroad Company 
 V. Smith strongly sustains that view. The court said that the prov- 
 ince of the legislature was to prevent acts of injustice and oppres- 
 sion; it is not its province to require specific things to be done for 
 the benefit of specific portions of the community. That is a matter 
 of internal railroad administration. 
 
 Senator Clapp. Would not that involve, and did not that case in- 
 volve, the idea that that was a special benefit which it gave to a few ? 
 The court in that case did not question but what Michigan could have 
 put the same rate upon all passenger traffic that was involved in 
 these family tickets, did it? It has been some time since I read the 
 case. 
 
 Mr. HiNES. The court said that the legislature had the power to 
 prescribe a reasonable maximum rate, of course to apply to all traffic. 
 It used the word " maximum " every time it used the word " rate," as 
 though having in mind that fixing a specific rate which the railroad 
 could not vary for good and just reasons would be beyond the power 
 of the legislature. But the case is strongly suggestive along that line. 
 There is another phase of this matter which maj be suggested. It 
 may be said that under the commerce clause the United States Gov- 
 ernment has the power to acquire all the railroads in the country, and 
 that if it did that it would fix these rates and necessarily fix these 
 rates to the ports of New York and New Orleans. If, therefore, the 
 Government has the power to acquire railroads and fix the rates, why 
 can it not fix the rates without acquiring the railroads ? 
 
 It seems to me that there is a very marked distinction between those 
 two states of case. It may be that as an element of the power to regu- 
 late commerce Congress would have the power to acquire all the rail- 
 roads in the country. "WTien it did that, then a necessary incident to 
 the exercise of that power would be the fixing of specific rates, because 
 
SEVENTH DAY. 31 
 
 business could not be done in any other way. It would then not be 
 the direct purpose of fixing those specific rates to prefer one port over 
 another; it would be an essential and necessary result of the step 
 which Congress had taken. But when Congress does not take that 
 step, and leaves the railroads to be operated by private enterprise, 
 then the sole purpose of regulation of that sort is to give a preference 
 to one port over another — the only possible purpose it could have. 
 So it seems to me there is a valid basis of distinction between what 
 Congress could do as incidental to its power to acquire railroads and 
 what it can do in the regulation of railroads operated by private 
 enterprise. 
 
 Senator Ci.app. Let me ask you a question there in order to under- 
 stand your position for subsequent inquiry. Does that suggestion go 
 beyond the suggestion as it applies to differentials ? 
 
 Mr. HiNES. No. 
 
 Senator Clapp. That is all I wanted to know. 
 
 Mr. HiNES. I would like to explain that. Senator, to make it a little 
 clearer. 
 
 Of course the improper exercise of police power has come before 
 ' the Supreme Court much oftener with respect to the case of State 
 legislatures. The court has repeatedly indicated that there must be 
 bome legitimate object for the exercise of the police power; that if 
 it is purely arbitrary or without a legitimate object it is an improper 
 interference with the liberty of the citizen imder the fourteenth 
 amendment. 
 
 A-^Tiere a railroad charges unjustly high rates, or where it unjustly 
 discriminates between different points on its own line, that is a wrong- 
 ful act. That is a legitimate object of regulation, and I think the 
 courts would hold that Congress could do whatever was necessary 
 in the judgment of Congress to meet that situation, because it would 
 have a legitimate object toward which it was directing its action — 
 that is, the prevention of wrongful acts on the part of a railroad. 
 But when you come to the subject of differentials, and the object is 
 not to prevent a wrongful act on the part of a railroad, but to put a 
 limitation on the amount of enterprise a railroad shall employ in 
 serving the communities it reaches, then the object of the regulation 
 is entirely different; and it seems to me it would be open for the 
 court to say that this object has no legitimate relation to the police 
 power which Congress exercises under delegation from the States to 
 regulate interstate commerce. 
 
 Now, gentlemen, 1 have endeavored ia point out the numerous 
 mistakes that have been made in assigning reasons why this rate- 
 making power should be given— mistakes grooving out of errors as to 
 the history of the present law and the scope of the present law and its 
 purposes, and also growing out of the supposed scope of the rate- 
 making power — and I have endeavored also to refer to the mistaken 
 ideas that ha'^'e arisen as to the extent of the advance in rates and the 
 extent in railroad consolidations, and as to what was necessary to 
 cure the long and short haul evil, and as to what was necessary with 
 respect to differentials. I now want to take up another phase of the 
 subject, and that is the inherent diiRculties in the way of any Gov- 
 ernment tribunal undertaking to fix rates. 
 
 Of course if this were the only thing that could be done in order 
 to deal with a great public evil the inherent difficulties Avould have to 
 
32 SEVENTH DAY. 
 
 be mt up with as best thev could; but since it is so far from clear 
 that such a radical step is necessary, the fact that there are very 
 serious difficulties in its administration is a strong additional argu- 
 ment why the power should not be given. ^^ i ■ 
 
 In the first place, any tribunal that you can select is utterly in- 
 capable of dealing with the business which would be put in its hands 
 for administration under the rate-making power. The making of 
 rates will necessarilv be a general affair. Rates are so interdepend- 
 ent that even if the Commission tried to act on them one at a time in 
 the great majority of cases it would involve a vast number of rates— 
 probably rates that were not thought of at all when the Commission 
 acted. So that in the long run _ . , , 
 
 Senator Cullom. I want to ask you one question right there. You 
 say that if the Commission fixed a rate to take effect at some particu- 
 lar point that would necessarily affect the rates everywhere else? 
 
 Mr. HiNES. Very probably it would. 
 
 Senator Cullom. More or less ? 
 
 Mr. Hikes. Yes. 
 
 Senator Cullom. Now, suppose the Commission does not make the 
 rate, but it is submitted to a court and the court finds out that the 
 rate ought to be so and so and decides that such a rate would be rea- 
 sonable. What does that do ? 
 
 Mr. HiNES. If the court fixes a rate that is the permanent rate for 
 the future, there is just exactly the same objection to it as if it was 
 fixed by a commission. 
 
 Senator Culloji. I understand that, but, as I recollect it, Mr. 
 Morawetz argued that while they could not fix the rate exactly for the 
 future, yet, finding that such a rate would be reasonable, that could 
 perhaps be taken as the future rate. 
 
 Mr. HiNES. His position was, as I understood it, that it was con- 
 stitutional to put the matter in that shape ; but I did not understand 
 that he thought it expedient to do that. Moreover, he limited that by 
 saying that in any event, even if it were deemed expedient (which he 
 did not concede) , the rates should be effective in the future only under 
 substantially similar circumstances and conditions, leaving some 
 degree of elasticity. But any rate which a commission or a court 
 or any tribunal fixes which is a permanent i-ate for the future until 
 changed by that tribunal has elements of rigidity about it which are 
 wholly incompatible, in my judgment, with the commercial welfare 
 of the country, and on account of the fact that it affects so many 
 other rates it becomes entirely impracticable. 
 
 Senator Foraker. Mr. Chairman, before we leave this subject, I 
 think that what Mr. Morawetz said was that the action of the court 
 having been taken, he thought the railroads might conform to that — 
 they might make other rates conform. 
 
 The Chairman. Do you refer to an expression of opinion by the 
 court ? 
 
 Senator Foeakee. No; the court having expressed that opinion, 
 then the law might operate to say that that was a reasonable rate, and 
 then the railroads would have to make other rates conform in so far 
 as they might conflict. 
 
 Senator Cullom. That would be, however, the rate fixed by a com- 
 mission. 
 
 Senator Newlands. But he also said that a law could be passed 
 
SEVENTH DAY. 33 
 
 making the reasonable rate ascertained by the court in that particular 
 case the rate for the future. 
 
 Senator Fokakee. Certainly; but he said the railroads could then 
 conform to it if they were there to make rates, whereas, a commission 
 would have to go ahead, nobody would know to what extent, to change 
 other rates that would be affected by that one rate ; but if the whole 
 matter were left to the railroads they could easily make other rates 
 conform. That is the way I understood him. 
 
 Senator Cullom. Now, let us see. The Commission is called upon 
 to determine a rate at a given place, and it determines it. That 
 changes the rate, if it is different from what it was before they went 
 there. That affects the rates all along more or less. 
 
 Mr. HiNES. Yes. 
 
 Senator Cl'llom. Now, if the court should determine the same- 
 thing that would fix the rates all along just the same, would it not? 
 
 Mr. HiNES. Yes, sir. 
 
 Senator Cullom. Well, what are you going to do about it? Are 
 you going to say that the Commission shall not fix them, but that 
 the court may, while the same effect results from the court fixing 
 it as if the Commission had fixed it for the time being? 
 
 Mr. HiNES. That is not my position, though. My position is that 
 the principle of the present law is the correct one — that the court 
 can enjoin the continuance of a rate which is found unreasonable or 
 unjustly discriminatory. Of course that introduces a certain ele- 
 ment of rigidity, because the railroad has that restriction upon it 
 thereafter, that it must not charge that rate. As a practical matter, 
 the railroad will charge the rate which meets the views of the court 
 as proper. 
 
 Senator Cttllom. Yes; or meets the views of the Commission. 
 
 Mr. HiNES. Yes; but the difference is that in case conditions 
 change the railroad does not have to go to a tribunal and get its 
 permission to readjust the rate to changed conditions. That is the 
 vital distinction between the two methods, or one of the vital dis- 
 tinctions — that if you have a permanent rate fixed, affirmatively 
 specified by a commission or a court, which the railroad can not 
 vary except by permission of the commission or court, you have a 
 system of rigidity which is exceedingly unfortunate and which will 
 be very widespread because of the interdependence of rates. 
 
 An interesting illustration of that is the old Cincinnati and Chi- 
 cago-Rate Bureau case, where, in 1893 or 1894, the Commission 
 ordered radical reductions in the rates on the numbered classes of 
 freight from Chicago and Cincinnati to several of the important 
 cities of the South. As I pointed out the other day, the effect of 
 any such order at the outset would be to bring about corresponding 
 reductions from all points on the Ohio Eiver and from St. Louis, 
 not only to these same points, but corresponding reductions to all 
 other points. 
 
 If that had been a permanent order of the Commission, had been 
 lawful, if the Commission had been authorized to do that and these 
 rates had gone into effect, there would have been a condition of 
 inelasticity in that whole territory that would have been extremely 
 unfortunate. There was the Commission sitting in Washington, deal- 
 ing with an infinity of local conditions down there, a great many of 
 
 7 D — 05 M 3 
 
34 SEVENTH DAY. 
 
 which could not possibly have come to its attention, but which would 
 crop out from time to time as time went on and which -would from 
 time to tiine require readjustment and which that Commission never 
 would have had time to readjust. But there were other features of 
 that case and they would have come up very rapidly. 
 
 Cincinnati and Chicago in that particular matter were interested 
 in a fight against the eastern cities. Their interest was the same. 
 But if those rates had ever gone into effect, Cincinnati would have 
 discovered that its interest had been very materially affected by that 
 order, because under the existing rate adjustment there was an estab- 
 lished basis of difference between Chicago and Cincinnati to these 
 points in the South to which they were both selling. This order 
 changed that adjustment in several particulars in favor of Chicago 
 as against Cincinnati. There had been no hearing of the relative 
 rights of those two communities, no contest between them; but this 
 order changed it, and the thing would then have come up. As to 
 Meridian, Ala., the prior rates from Chicago on first-class matter 
 had been 12 cents higher than the rates from Cincinnati. This order 
 made them the same. That would have stirred up a row between 
 Chicago and Cincinnati. As to Selma, the rates before had been 30 
 cents higher from Chicago, and this made them 20 cents higher — a 
 10-cent reduction in favor of Chicago, which would have been very 
 imsatisfactory to Cincinnati. At Birmingham there was a change 
 in the differential from 30 cents to 24. All those points had not been 
 considered, but under such a bill as the Townsend bill these rates of 
 the Commission would have gone into effect in thirty days, before 
 they could possibly have been considered, and then the Commission 
 would have been besieged with demands to restore the old status 
 against which there had been no complaint; but on account of the 
 bigness of the subject, things of that sort would be inevitable. 
 
 Now, it did not stop there. These places in the South had an estab-, 
 lished status before that. For example, Atlanta and Eome had the 
 same rates both from Chicago and Cincinnati, and to the extent 
 that they operated in common territory their local business was on 
 that basis and continued until things adjusted themselves. 
 
 Senator Foeaker. Do you mean that Chicago and Cincinnati had 
 the same rates to Atlanta ? 
 
 Mr. HiNES. I do not mean that Chicago and Cincinnati had the 
 same rates. I mean that the rates to Rome and Atlanta were the 
 same before the order, although the Chicago and Cincinnati rates 
 were different; they were on an equal footing with respect to this 
 article. This order of the Commission gives Rome a 25-cent rate 
 and Atlanta an 86-cent rate. That is a very important difference. 
 
 Senator Cttllom. Does that come under the long and short haul? 
 
 Mr. HiNES. This order? 
 
 Senator Dollivee. The disdrimination in the order. 
 
 Mr. HiNES. It would come under the same authority that the whole 
 order did. 
 
 Senator Dollivee. "What was the professed basis of that differ- 
 ential ? 
 
 Mr. Hii^fEs. It is very hard to find, from the Commission's opin- 
 ion, just what basis it proceeded on. It indicated that it was pro- 
 ceedmg m a general way on a mileage basis, but it did not proceed on 
 
SEVENTH DAY. 35 
 
 a mileage basis. There was undoubtedly a very substantial amount 
 of guesswork in it, but no definite basis can be asserted. 
 
 Senator Dollivek. You think that order would have given great 
 rigidity to the commercial situation? 
 
 Mr. HiNES. After having been adopted. 
 
 Senator Dollivek. Has not every method of adjusting rates re- 
 sulted in very noticeable rigidity ? 
 
 Mr. HixES. I do not think so. They have always had the oppor- 
 tunity to reconsider. 
 
 Senator Dollivee. My recollection of the testimony taken by the 
 Commission is that pooling was fixed in 1870, before the Chicago 
 fire, at a time when Cincinnati and St. Louis were insignificant com- 
 mercial and industrial cities; that for thirty years they had made 
 efforts to get a hearing before the traffic managers, and that that 
 effort, lasting for thirty years, was without success. It was all right 
 originally, at the time Avtien Cincinnati, St. Louis, and Chicago were 
 not manufacturing cities, before the Chicago fire. But the whole 
 effort of these cities was ignored, and the schedule of rates left rigid 
 for thirty years by the roads themselves. 
 
 Mr. HiNES. I understand that in the seventies the eastern cities and 
 Ohio River points made an agreement that rates on manufactured 
 articles from the East should be low. 
 
 Senator Dollivee. The schedule indicates an agreement. 
 
 Mr. HiNES. No ; not after the reasons for the rates were fully ex- 
 plained to the Commission, and that they rested on entirely different 
 considerations. The impression created by the Commission was that 
 there was such an agreement, though that was absolutely without any 
 substantial foundation. The agreement in those early days was this : 
 It was found that a railroad, say, running from Louisville to Atlanta 
 and on to Augusta would, in combination with its connections, make 
 such low rates for articles manufactured in the East — not in the 
 West — that they could carry them clear to Louisville and down 
 through the South and almost, not quite, to the Atlantic coast and to 
 points along the coast in competition with direct lines. On the other 
 hand, these eastern lines would take the products of the farmers from 
 Lake Michigan and the West and carry them clear across to the Atlan- 
 tic and down along the coast, and, in connection with the southern 
 railroads, carry them inland almost back to the Mississippi Eiver. 
 
 There was an agreement made to avoid that absurd sort of circui- 
 tous competition, and that agreement had the purpose in view of con- 
 trolling the rates on manufactured articles from originating points, 
 Buffalo and Pittsburg, so as to prevent them from going west of 
 Buffalo and Pittsburg and coming back east ; preventing the products 
 of the farms of the West from being carried to the East and back 
 west at a corresponding loss, so as to let the traffic move along its 
 natural lines. But there was never a word said in the agreement 
 or in any discussion about manufactured products originating in the 
 West. The very language the Commission quotes shows that it re- 
 lated to manufactured articles shipped from eastern cities. The idea 
 of manufactured articles being transported from western points 
 was never in the minds of the railroad people. There was no lan- 
 ^age in the agreement which related to that traffic. There never 
 was at any time any sort of agreement, understanding, or pool to 
 prevent the growth of manufacturing enterprises in the West, or to 
 
3Q SEVENTH DAY. 
 
 interfere in any way with the carriage of these articles into the 
 Southeast. The very language used by the Commission, that there 
 should be a rate of 10 cents higher on manufactured articles shipped 
 by the way of the Ohio Eiver,'^has absolutely nothing to do with the 
 present basis of rates on that traffic. j. ^ ^i, ^ ^i, j. jj- 
 
 Senator Dolliver. But you do not deny the fact that that addi- 
 tional 10 cents on manufactured products was actually charged. 
 
 Mr. HiNES. No ; it wag not charged. . . 
 
 Senator Doluver. Do you deny that there was a discrimination 
 in manufactured articles as between New York and Chicago, for 
 
 instance? . ^ -^i .i ^ t i 
 
 Mr. Hikes. That 10 cents had nothing to do with that. • 1 do not 
 know how long it was established, but there was nothing in that con- 
 ference about that. The basis of it was, considering water competi- 
 tion along the Atlantic coast, M'hether the rates to Louisville from 
 Atlanta should be the same as from Atlanta to Baltimore. _ 
 
 Senator Doi.ltver. Is not that Avater competition now just as con- 
 trolling as it was then ? 
 
 Mr. HiNES. Of course it is there, and it is controlling now. 
 Senator Doli,iver. And if it was actually controlling, how does it 
 happen that these same railroads who were defendants in that case 
 have within the last few weeks agreed upon an entire readjustment of 
 that schedule '( 
 
 Mr. Hikes. Upon an entire readjustment? 
 
 Senator Dolliver. I have a copy of the St. Louis Globe-Democrat, 
 which purports to give a history of that matter and contains a very 
 enthusiastic editorial rejoicing in the fact that after forty years' 
 struggle St. Louis has been admitted into the pool by the railroads 
 themselves. 
 
 Mr. Hikes. That is as imaginative as the old pool itself was. As 
 I understand it, the basis of that Ohio Kiver order was that the rail- 
 roads north of the Ohio River should make reductions to the river, 
 which, of course, Avould have given an advantage to Chicago and 
 other points in the "West. But this general adjustment stays where 
 it has always stayed. 
 
 When I was in charge of traffic matters for the Louisville and 
 Nashville, that question came up at the instance of St. Louis and was 
 frequently discussed with other railroad people. But there never was 
 a suggestion made by anybody that there was or ever had been any 
 pool or any fixed adjustment. The question was simply a practical 
 business question as to the traffic, and these coast lines announced in 
 the most positive manner that they were losing traffic by reason of 
 the fact that these western cities were encroaching on the cities in the 
 South. 
 
 Senator Dolliver. "NAHiy should they not have encroached when 
 they Avere nearer in time and distance ? 
 
 Mr. Hikes. That was the position of these coast lines; they said 
 they were losing in that eastern traffic all the time. But there was no- 
 pretense by anybody that there ever had been any pool or agreement 
 with respect to that traffic. 
 
 Senator Fokaker. Do you mean us to understand that all this talk 
 that has been in the newspapers for the last three or four days, about 
 railroads having readjusted their rates as betAveen Cincinnati and 
 
SEVENTH DAT. 37 
 
 Chicago to the Southeast, is an error; that there has been no read- 
 justment ? 
 
 Mr. HixES. As I told Senator DoUiver this morning, I wanted to 
 make further inquiry, and the only adjustment I have heard of is a 
 reduction from Chicago arid St. Louis to the Ohio River, and those 
 rates were simply made to the east to establish rates from the Ohio 
 River. 
 
 Senator Dollivee. That would leave Cincinnati out entirely in her 
 effort to acquire the field at Atlanta, for instance? 
 
 Mr. HiNES. No; if they establish a proportionate- rate to the Ohio 
 River it would hurt Cincinnati and Louisville. 
 
 Senator Foraker. I was going to add that that would make it 
 easier for Chicago, but hard as against Cincinnati. 
 
 Mr. HiNES. Yes. 
 
 Senator Foraker. It is bad enough for me now ; when I go home I 
 hope it will not be worse. 
 
 Senator Dolliver. When a fight occurs between great cities, with 
 all its perplexities which the railroads themselves have not been able 
 to meet, ought there not be some authorized body with the power of 
 making an impartial initial definite order in respect to that situation ? 
 
 Mr. HixES. I do not think so. I do not believe that under the 
 Constitution Congress can prevent Xew York or Baltimore from get- 
 ting all the benefit they can from the competition of enterprising 
 lines serving those points. Nor do I think Congress could prevent 
 St. Louis and Chicago getting all the benefit they could from the 
 enterprise of those railroads. I thinlc this is a sectional matter. It 
 is a question of what is fair and just in a general commercial sense, 
 and it would be utterly impossible for any tribunal to say what it 
 was best to decide upon. It might just as well be said that Cincin- 
 nati should not give facilities in the southeast to more than a certain 
 amount, because if that were done it would deprive New York of her 
 chance to furnish those facilities. It might just as well be said that 
 Cincinnati should not send more than a certain number of traveling 
 salesmen into the southeast, because if she did it would deprive New 
 York of her chance. The lines serving certain cities, no matter how 
 low they make their rates, commit no wrong as against Cincinnati 
 and Chicago, because those cities did not have those commodities to 
 be transported. On the contrary, the lines from Chicago and St. 
 Louis to the southeast commit no wrong against the eastern cities by 
 making rates as low as they can afford. If thej' make them too high 
 then it becomes a question whefeher they are unreasonably high. But 
 there has never been anj'' pretense that they were too high, consider- 
 ing the character of the traffic in the South and the revenues of the 
 railroads. The Commission '\^'ould quote no figures, because the rates 
 would be left for Chicago and Cincinnati where they were before. 
 There would have had to be an amendment to the act to enable the 
 Commission to accomplish that purpose. But to amend the law so 
 as to enable the Commission to fix specific rates the same as are made 
 by the steamboat lines going to Jacksonville, and say you must not 
 charge less than a specific amount because we want to give Cincinnati 
 and Chicago more than they have now, I say would be contrary to 
 the Constitution of the United States. I say that those places are 
 entitled to all the enterprise of these land carriers that tfiey can give. 
 
 But going back to the complications that have arisen by virtue 
 
gg SEVENTH DAY. 
 
 of that order, as I sav. in these contests, up to that time there had 
 been no complaint against those they had adjusted; and through 
 inadvertence the law would have been changed by this order. The 
 ijoint is that there are always bound to be these inadvertencies when 
 a tribunal tries to deal with it, because even the most experienced 
 railroad men, when they come to meet and deal with new conditions, 
 find that something else crops up that calls for adjustment. So there 
 have to be exceptions to the tariff and changes made from time to 
 time to meet new conditions. The same thing would have happened, 
 only in a greater degree, with the Commission, because it had so 
 ]nuch less local knowledge than the railroads had, and would have 
 had so much less time in which to correct the many mistakes it would 
 have made. . . . 
 
 Take another illustration: The cities of Knoxville and Chatta- 
 nooga are both in Tennessee, both important distributing points. 
 For many years they had been on exactly the same basis as regards 
 freights from Cincinnati and Chicago, without any contest or claim 
 that there was an unjust discrimination as between them. The 
 Commission changed those rates and gave Knoxville the benefit of 
 7 cents on first-class freights and a corresponding benefit all the way 
 through. 
 
 The Chaieman. Was that acquiesced in? 
 
 Mr. HiNES. It never was observed. I am sure it never would have 
 lieen acquiesced in. 
 
 The Chairmax. Was that order of the Commis^sion appealed 
 from ? 
 
 Mr. HiNEs. That Avas the Maximum Eate Case. That illustrates 
 these difficulties that are bound to arise when a tribunal, without local 
 knowledge or experience, undertakes to decide such important ques- 
 tions ; and a Government tribunal never could have local experiencey 
 on account of the great extent of the country. 
 
 Senator Xewlands. I was away for a while, and did not hear all 
 of your statement this morning. Did you, during that time, cover 
 the question of the number of traffic managers? 
 
 ']\Ir. HiNES. I am coming to that. 
 
 Another proposition to be borne in mind is that any such commis- 
 sion will have a progressive amount of work on hand. It fixes an 
 adjustment; but that does not get the work off of his hands; it gets 
 other work on its hands. The conditions are all the time changing, 
 and with these conditions the Commission must deal. It is not get- 
 ting the work behind it; it is getting the work in front of it. The 
 work is piling up. Eveiy new adjustment it prescribes makes more 
 work. There is no less work being marked out for it to take care t)f, 
 because there are constant changes to be made even in the best esti- 
 mates of adjustment. While rates may have been generally acquiesced 
 in as being a near approximation to justice, yet there are, for instance, 
 an enormous number of commodity rates. There are a great many 
 commodity rates from Chicago and the Ohio River and St. Louis 
 which are relatively much lower in this part of the country than 
 corresponding rates from the East. Those things are dealt with as 
 they come up. So that there is a constant change of rates to meet 
 new conditions. If the Commission were given the rate-making- 
 power and Avere called upon to take hold of one of these difficulties, it 
 would still have to hold on to the other rates and try to make the 
 
SEVENTH DAY. 39 
 
 changes on a basis of right and equity for all. Of course, by degrees 
 all the important rates would come before the Commission. If you 
 gave it power to regulate differentials as between two places, one is 
 likely to think the Commission has treated the other one better than 
 it has been treated, and it lays a complaint before the Commission. 
 But a complaint is not confined to an aggrieved party; anybody 
 could take up the matter. I believe in one case the Commission 
 decided it had jurisdiction where a traveling salesman out West some- 
 where brought a case before the Commission. There the Commission 
 had to take hold of the case, under the law, just as if some commercial 
 responsible organization in a commercial city had brought complaint. 
 
 Upon entertaining a complaint then the Commission would be con- 
 fronted with the m.atter of testimony in trying to adjust these rigid 
 rates to changing commercial conditions. 
 
 It is a mistake to say that rates are made by a comparatively few 
 traffic officers. I have not. the figures for the entire United States, 
 but take the country east of the JMississippi and south of the Ohio 
 and the Potomac, which corresponds to groups Nos. 4 and 5 of inter- 
 state commerce classification of the territory of the United States, and 
 is the territory with which I have some familiarity. I exclude the 
 Illinois Central, not counting its general office, because some of it is 
 north of the Ohio River, while some of its territory is south. I think 
 probably half of her territory is in the South. I counted its southern 
 freight agents, but cut out its vice-president and assistant vice-presi- 
 dent in charge of traffic management, because those officers are located 
 at Chicago and have jurisdiction north of the river also. So leaving 
 out the Illinois Central, we have these as the important railroads of 
 the entire country: The Atlantic Coast Line, the Chesapeake and 
 Ohio, the Central of Georgia, the Florida East Coast, the Illinois 
 Central as to its southern traffic, the Louisville and • Nashville, the 
 Mobile and Ohio; the Nashville, Chattanooga and St. Louis; the 
 Norfolk and Western ; the Seaboard Air Line, and the Southern. 
 
 There is this situation. There are five ^ice-presidents devoting 
 themselves exclusively to traffic matters. Of course some do not have 
 vice-presidents in charge. AVith those 12 traffic managers and assist- 
 ant traffic managers there are 44 general freight agents and assistants, 
 and 5 foreign freight agents, making a total of 66 traffic officers con- 
 stantljr devoting themselves to the needs of the traffic in that territory. 
 It is also safe to say that there are 25 who, as chief rate clerks, are 
 also responsible traffic officers of the railroads and who attend meet- 
 ings of traffic managers to make changes of rates. So that, at a low 
 estimate, there are 100 responsible traffic officers in that territory 
 south of the Ohio and the Potomac and east of the Mississippi who 
 are continually engaged in studying the demands of the commerce 
 along their particular lines and iii adjusting rates to meet changing 
 conditions. 
 
 In addition to that there are probably 400 to 500 traveling freight 
 agents, soliciting agents, and commercial agents, who are in daily 
 and hourly touch with commercial demands, and who send reports 
 to their superior traffic officers, giving every detail that has a bearing 
 on the commercial necessities of the country. So that these people 
 have the best possible means of being kept advised as to what is 
 needed, and are in constant touch with those who, if possible, know 
 more about it than they do. 
 
40 SEVENTH DAY. 
 
 Senator CrLLOM. Do you Icnow about what salaries these people 
 
 ^Mv. HiNES. ISTo ; I do not. I do not think there is any recognized 
 rule on that subject. 
 
 Senator Neavlakds. Do those States j^ou mention constitute one 
 
 group? 
 Mr. HiNES. Groups four and five. tt •. -■ ox .■ . 
 
 Senator Xewlands. What proportion of the entire United btates i 
 Mr. HiNES. They have 17 per cent of the total mileage of the 
 
 United States and 12 per cent of gross earnings and of the volume of 
 
 ■f-pOTTlrt 
 
 Senator Newlands. Assuming that all these roads were consoU- 
 dated into one railway system, to what extent would these traffic 
 managers, general freight agents, and other officials you have named 
 be eliminated ? 
 
 Mr. Hines. Not to any great extent. 
 
 Senator Dollivee. Tom Watson, in the' April number of his maga- 
 zine, says they are now consolidated, and that there is really but one 
 railroad in the Southeast. 
 
 Senator Neavlands. But my inquiry was directed, not to the ques- 
 tion of the consolidation of action or cooperation of action. The ques- 
 tion is whether or not the number could be diminished, if there were 
 a general consolidation of the roads in those two groups, or whether 
 they would be required regardless of that, my idea being that this 
 very large number of officers must be necessary by reason of the 
 competition between the roads. 
 
 Mr. Hines. I do not think any very material reduction would be 
 made if the roads were all consolidated. It is a condition which I 
 can not imagine would exist, but if it did exist I do not believe there 
 would be any -very marked reduction in the number of these officers. 
 The most of these are subordinate officers dealing with restricted 
 territory, and they would have to be kept if the roads had to deal 
 with the entire country. 
 
 Senator NewlajS^ds. Why do you say you do not regard it as pos- 
 sible? Is not the tendency that way? Take France, for instance. 
 France has a railroad Du Nord and one Du Sud; and I believe in 
 England they have only three or four systems diverging in different 
 directions from a great center. 
 
 Mr. Hines. I think probably the area of this southern country is 
 larger than either France or England, although that is a mere gness. 
 But just looking at it, as to what would constitute the inducement to 
 operate all these systems in the Southwest as one, I can not see what 
 that inducement would be. It seems to me that the operating diffi- 
 culties would be such that there would be no sufficient inducement. 
 
 With about one-eighth of the volume of the traffic of the United 
 States, there are certainly in the neighborhood of 100 men in that 
 territory who are constantly engaged in dealing with rate questions 
 and adjusting rates to new conditions. 
 
 The Chairman. You said there were how many traffic managers? 
 
 Mr. Hines. Five vice-presidents and twelve traffic managers and 
 assistant traffic managers. 
 
 The CiiAiiur AN. Could not any one of those, if the matter were in 
 his jurisdiction, make a final order as to what rate should prevail in 
 his jurisdiction just as well as could these traffic managers, who would 
 
SEVENTH DAY. 41 
 
 necessarily have to refer to subordinates many of the matters brought 
 before them? 
 
 Mr. HiNES. Yes ; but he is not likely to do it. 
 
 The CHAiEMAiSr. But cotdd he nol do it? I know he is not 
 likely to. 
 
 Mr. HiNES. Yes. The general freight agents and traffic managers 
 have the same power by which they refer important matters to 
 superiors. That is another matter to be borne in mind, that if you 
 erect a Government tribunal that tribunal Avould have to do all this 
 work; it can not delegate discretionary power to its appointees or 
 subordinates, whereas railway officers have a good deal of this power 
 of referring niatters to subordinate officials who report as to what 
 they do. 
 
 The CHATRMAiSr. Would the Commission necessarily have to have 
 the same subordinates in that section that these five traffic managers 
 have? 
 
 Mr. HiNES. In my opinion, if it undertook to fix rates it would 
 make a great many mistakes. It would make a great many mistakes 
 anyhow, simply because it could not investigate so many subjects in- 
 volving so much detail. These traffic people, in the main, almost 
 always have been devoting their entire lives to traffic work, and are 
 thoroughly familiar with local conditions. They are brought in 
 daily contact with them and with shippers, and they know what the 
 shippers need and what the commerce of their section needs. 
 
 These estimates make no reference at all to the passenger traffic. 
 
 The presidents and vice-presidents are generally directly charged 
 with traffic matters, and in some cases the general managers have to 
 give attention to the larger traffic subjects from time to time in con- 
 nection with their other duties. As to the amount of work that has 
 to be done in the way of changing rates, some figures on that point 
 would probably be of value. 1 called the attention of the committee 
 yesterday to the facts in regard to the four calendar years from 1900 
 to 1903, inclusive. Take now the five calendar years from 1900 to 
 1904, both inclusive. The southern classification committee, which 
 has an office at Atlanta, and has charge of the classification, practi- 
 cally, I think, in this territory, of groups 4 and 5, had occasion to 
 make about 1,200 changes in "classifications, which were due to the 
 necessities of shippers. They found an exceptional number of in- 
 creases which gi-ew out of increased expenses, during the year 1900, 
 but that was the only year. In that five years there Avere about 1,100 
 or 1,200 changes of classification which had tO be made. 
 
 In addition to that, I think it is a conservative estimate to say 
 that there were probably 2,400 additions, items of classification with 
 other modifications. Every one of those was demanded by local con- 
 ditions, except the comparatively few advances which were made on 
 account of increased expense. 
 
 Senator Dollivee. You might give one illustration of that, so as to 
 get it in concrete shape. 
 
 Mr. HiNES. This classification committee has meetings every two or 
 three months, and it always has an inunense docket of suggestions. 
 One man dealing in one class of articles thinks that article should 
 have a lower rate than is thought proper by the railroad. He prob- 
 ably has some different method of packing that article, which he 
 thinks ought to take it into a different class. That matter is brought 
 
42 SEVENTH DAY. 
 
 before the committee and is discussed from a traffic standpoint, as to 
 what is reasonable and proper. The result is that there are probably 
 over aTiundred reductions per year — that is, where certain articles are 
 taken out of one class and put in a lower class. Matters of that sort 
 require the attention of these expert traffic officials, and they devote 
 a very large portion of their time to the consideration of such points. 
 A great many shippers attend these meetings in person and bring 
 the matters in which they are interested before the committee for at- 
 tention. In addition to that, there is a certain change in the condi- 
 tions of the traffic that has to be considered, as to its volume and what 
 articles ought to be put in different classes. Such, business comes 
 before the committee, reasons are assigned, those reasons are consid- 
 ered, and these changes result. 
 
 So in that territory, which represents only about one-eighth of the 
 entire traffic volume of the country, we find the classification commit- 
 tee dealing with that branch of it, probablj considering conditions 
 requiring changes of classification in the neighborhood to the extent 
 of 3,000 in five years, about 800 changes per year, and two or three 
 per working day. 
 
 If you assume that in the long run those matters would become 
 centralized in the Commission by reason of its taking hold of them 
 and making orders, its work would be almost without influence and 
 would lose its effect, if they made the many mistakes that they might 
 be expected to make, and so the Conunission might as well not make 
 the changes. You can readily see the enormous demands that would 
 be made upon its time. 
 
 The CHAiEMAif. Is not this change of classification easily capable 
 of abuse ? Are not preferences given ? 
 
 Mr. HiNES. Of course, it might be a source of abuse, but the law 
 prohibits any undue preferences. Power is given, but if there is any 
 abuse of it, it can be corrected. 
 
 Senator FoEAiiEE. How many classifications are there? 
 
 Mr. Hikes. There are in the United States three general classifi- 
 cations, one in the country south of the Potomac and Ohio, known as 
 the " southern classification." There are six numbered classes. 
 
 Senator Fokaker. You mean there are six classes in that classifi- 
 cation ? 
 
 Mr. Hines. Six numbered classes, from 1 to 6. There are also six 
 lettered classes, from A to F, as I recall. Boots and shoes and dry 
 goods are typical articles, and belong to the first class. I do not be- 
 lieve I could recall any single article in any other higher class. 
 They grade on down, according to importance. Five and six are 
 heavy groceries, and the like. " Coal has a special rate, being an 
 important article. Iron has a special rate. Iron ore has a special 
 commodity rate. 
 
 The Chatrmax. They fall under commodity rates? 
 
 I\Ir. HiNES. Yes, sir. 
 
 Senator Dolliver. A^'liat are these lettered classes? 
 
 Mr. HiNES. A ip cotton ties, bagging, and some other articles that 
 I do not recall.. B is packing-house products. C is flour in sacks. 
 D IS grain and hay. 
 
 Senator Ccllom. "^^liat is cotton in bales? 
 
 Mr. HiNES. Cotton in bales is given a special rate. I can elaborate 
 these classifications hereafter. I am not sure what Class E is. H is 
 
SEVENTH DAY. 43 
 
 ■whisky and liquors. F is flour in barrels. Of course the great 
 volume of traffic on a road is apt to be some few staples, and they 
 move by commodity rates. 
 
 Now, going beyond the change in classification which are called 
 for, as I explained this morning, about these two freight bureaus 
 in the South to preserve a record of changes of rates, the southeast 
 and Mississippi Valley is with respect to Mississippi, part of Ala- 
 bama, and possibly part of Georgia — I am not sure about that — the 
 Southeastern Freight Association^^is with respect to Georgia, Florida, 
 and part of Carolina. 
 
 There is another association farther east that I have never known 
 anything about, because it was entirely outside of the operations of 
 our road. 
 
 Those two freight bureaus cover certainly not over two-thirds of 
 the volume of traffic in these groups 4 and 5 — that is, territorially 
 cover it; they do not begin to cover the whole of that traffic, 
 because many important articles are not recorded in that at all, such 
 as iron, cotton, and coal ; they are not recorded there at all because 
 they are much simpler propositions, although many changes have 
 to he made. But those two bureaus, with their restricted territorial 
 jurisdiction and their restricted traffic jurisdiction, in the four years 
 beginning July 1, 1899, and ending June 30, 1903, had occasion to 
 make 12,451 changes in rates; 9,230 of these were reductions, and 
 3,216 were advances. 
 
 Senator Dolliver. A great many people claim that these rates are 
 in the nature of taxes, that these railroad people meet together and 
 assess them, and that these changing conditions you talk about are 
 in reality simply a demand at headquarters for revenue. I wanted to 
 get some illustration of the changed conditions that would require 
 a reclassification. 
 
 Mr. Htxes. The claim that railroad rates are taxes is of course a 
 mere fallacy. It must be remembered that the railroad has been built 
 and operated entirely by private capital; that the Government has 
 chosen to leave it to private initiative; and that the rate that is paid 
 is for the ser-sice rendered by the railroad. 
 
 Senator Dolliver. 1 am simply giving you the popular view — the 
 magazine view of it. 
 
 Mr. HiNES. Of course that is an entire fallacy. As to the charac- 
 ter of these changes, they come about in a great many ways. I will 
 cite an illustration that occurs to me. 
 
 Senator Dolliver. That is what I want. 
 
 !Mr. HixES. The question came up as to rates on Portland cement 
 from Mobile. A concern wanted to start a factory there, and the 
 question was to establish a rate for that. There were no Portland 
 cement manufactories at Mobile, and consequently no rate had been 
 put into effect there. 
 
 Senator Dolliver. Had cement been classified before? 
 
 ilr. Hikes. Yes, sir. But the classification of cement was when it 
 was shipped out in small quantities by grocers and small dealers in 
 the course of ordinary distribution, or where a wholesale concern will 
 ship perhaps a barrel in the course of a week or month. But that is 
 not a fair classificaiion for an industry that is going to ship several 
 thousand Ijarrels per day. That would be a matter deserving con- 
 sideration. That brought up an in-s'estigation of cement rates from 
 
44 SEVENTH DAY. 
 
 all points. The question was what would be a proper rate from 
 Mobile. The discussion of that question developed the fact that on 
 account of the charges made from time to time as to Portland cement 
 into the southeastern country from the various factories where it 
 was made, the natural cement which is made at Mobile had been left 
 out of line ; that the rates on this Portland cement liad been reduced 
 from time to time, but the other rates had not. So that when an 
 order became necessar.y to put the Mobile rate where it ought to be, on 
 the basis of free competition, it called for a reduction in the line of 
 natural cement from that territory. 
 
 Such things are constantly coming up and there is a constant effort 
 on the part of traffic officers of each line to see that the products to be 
 distributed on its luie are put on a fair basis of competition as 
 required by olher lines. 
 
 The theory that rates are put up simply to increase revenues is 
 entirely incorrect. It never was correct, unless it was in the early 
 part of 1900, when there had been the most remarkable advance in 
 prices of labor, materials, and fuel, and when the railroads were try- 
 ing to get a great deal of money in order to meet their expenses. 
 
 ■Another point that was considered then, as far as classification was 
 concerned : Of course there was no controlling of the subject at all 
 times, but it was considered. Certain articles had risen in price much 
 more than others and were worth much more than some other articles 
 were. Thej' were so classified that if put in a higher class they would 
 still be in line with articles of equal value. Of course value is one of 
 the elements of classifications. 
 
 But, aside from that, I do not know of any railroad traffic officers 
 having attempted to make any systematic increases in rates, or where 
 they had any idea of increasing what is called the taxes. The idea of 
 the traffic manager is to try to make the business profitable. If he 
 finds that the traffic is being discouraged by rates that are too high, 
 he changes them. It is very rarely the case that a rate is advanced. 
 There are about 3,000 advances here. But many of them came about 
 in making general changes. 
 
 Senator Foraker. Three thousand out of 12,000. 
 
 Mr. HiNES. Yes, sir. And even as to them, I doubt if there was 
 any specific purpose of trying to tax an article more. But it was 
 found that in the general revision and trying to shape up two systems 
 of rates from a point of distribution or from different points of dis- 
 tribution, some of the rates ought to be raised a little in order to 
 bring them in line with others. In the main all these changes arise 
 out of some commercial necessity. In those four j'ears there is the 
 record, which probably did not cover more than about half of that 
 territory, of about 12,000 changes which' were made by those 100 men 
 I spoke of. That is the work of those men, who are working con- 
 stantly hearing suggestions of shippers, studying the conditions on 
 other lines, with other shippers, and with its own shippers, and try- 
 ing to put their own commodities just as far away as they could in the 
 markets of the world. The result is the constant changing of rates, 
 even where they arfe supposed to be most stable. 
 
 As I say, the class rates apply to the ordinary classifications, but 
 commodities are being constantly changed, deiiianding changes of 
 rates, and the result of all is reductions. 
 
 These figures probably contain some duplications. The same rates 
 
SEVENTH DAY. 45 
 
 may have been recorded in both bureaus. But they show a very sig- 
 nificant amount of work that has been done for the business of the 
 country, which is to be promoted like it ought to be by the railroads. 
 If the Commission undertakes to fix these rates, it must be remem- 
 bered that they can not be changed until the Commission changes 
 them. All these matters have to go to the Commission. A great 
 many of them are very small as compared with the general volume 
 of business, but they are of supreme importance to some one shipper 
 or some one industry which wants quick action. These matters are 
 taken up ; in two or three months the necessary change is made, which 
 Avill continue in force for several years. The Commission would be 
 congested with that work and confronted with it if it had the rate- 
 making power. 
 
 Another proposition -that deserves consideration is this: It is fre- 
 quently assumed that because a State railroad commission manages 
 to deal with matters in its jurisdiction therefore the Interstate Com- 
 merce Conmiission could successfully deal with the needs of the inter- 
 state commerce of the United States. There is really no basis for 
 any reliable comparison. Not 6 per cent of the mileage of the, say, 
 212,000 mihis of railroads in the United States is in any one State. 
 Take the State commission of the biggest State, and it has to deal 
 with less than 6 per cent of the mileage that the Interstate Commerce 
 Commission would have to deal with. While there' are no statistics 
 in existence which would give the facts developed, from investiga- 
 tions I have had occasion to make in Kentucky and Alabama and 
 from the general expressions I have heard on the subject my conclu- 
 sion is that fully 75 per cent of all the business of the country, on the 
 average, is interstate business. I think it is about 80 per cent in Ken- 
 tucky and at least 75 in Alabama, although there is an enormous 
 local mineral traffic developed in that State. Assuming that figure 
 to be correct, that you have a State commission to deal with at the 
 most, say, one-fourth of the traffic and 6 per cent of the mileage of 
 the country, and you will see that it is out of the question to try to 
 compare what a State commission can do under those circumstances 
 with what would be practicable for the Interstate Commerce Com- 
 mission to do dealing with the whole country. 
 
 But there is another point probably of even more importance, and 
 that is, if the Commission gets the rate-making power one of its 
 principal duties — in fact its principal duty probably — is prescribing 
 differentials as between competing localities. Everybody will start 
 in with complaints to the Commission when it undertakes to regulate 
 those matters. That is a matter that the State railroad commissions 
 are practically relieved from. As a rule, these competing places of 
 manufacture are in different States, so that the rates are interstate, 
 but if they are in the same State it is still the interstate rates that 
 they are practically governed by. It is comparatively rare that a 
 State commission has occasion to consider any very serious contro- 
 versy as to the rates between different points, because they are out 
 of the jurisdiction of the State commission. So that the most im- 
 portant and most difficult class of cases which could a,rise, and the 
 one where this rigidity in rates can tell the most seriously, is the 
 class of cases that would not arise at all before State commissions, 
 but which would occupy nearly all the time of the Interstate Com- 
 
^g SEVENTH DAY. 
 
 merce Commission. So that for that reason also the comparison 
 with State commissions is worthless or misleading. 
 
 But, aside from that, I do not think any conclusions can be drawn 
 favorable to the successful operations of the Interstate Commerce 
 Commission from the actual experience of State commissions. As 
 a rule, I do not know that in the southern country they have ever 
 promoted commerce. Frequently in small matters, comparatively, 
 because they relate to State matters and sniall amounts of business, 
 vou encounter rigidity that you can not deal with. The Commission 
 is committed practically to the mileage basis. I suppose if it were 
 not, it could not explain its action to its constituents. It is the 
 easiest way to explain. -..^ n^- nm. cu j. 
 
 But for these reasons there are these difficulties, ihe tetate com- 
 mission adjustments are more or less in the way of prompt and ef- 
 ficient development of the commerce of the States. I have never 
 known of any eminently successful work that a State commission has 
 done, so far as concerns the promoting of the commerce of that State. 
 Of course, it reduces a great many rates, but so far as rate reduction 
 is concerned, when it is high it can be dealt with under the law. So 
 far as its influence on organizations is concerned, that has never been 
 favorable. Of course the Interstate Commerce Conimission in- 
 fluence would be infinitely more unfavorable because it has much 
 less familiarity with local conditions than local commissions have, 
 and has such a tremendous amount of work to perform which it 
 simply could not do, whereas the State commissions do manage to do 
 the work that comes before them. 
 
 Senator Cullom. Is your argument against any commission at 
 all? 
 
 Mr., HixES. No ; I say, for the rate-malcing power, you can not 
 assume that because a State commission can exercise it, therefore the 
 Interstate Commerce Commission, operating over about sixteen times 
 as much mileage and over four times as much traffic as all the State 
 commissions put together — you can not say that therefore the Inter- 
 state Commerce Commission could deal with the situation if it 
 undertook to make rates. 
 
 I want to mention another point in passing. I shall not undertake 
 to discuss it in detail. It has been frequently asserted that the 
 Interstate Commerce Commission's orders have only been overruled 
 on the law; that the courts have always upheld them on the facts. 
 That is a very great error. I hope it will be practicable for some 
 one to analyze those cases and bring the result before the committee, 
 because it would be very interesting. 
 
 Senator Dollivee. Could you file an analytical statement of the 
 matter ? 
 
 Mr. HiNES. I could do that, but it may be that some one is better 
 prepared than I am and can appear before j'^ou and state his results 
 orally. 
 
 Senator Dollivee. I doubt if anybody could state them orally. 
 
 Mr. HiNES. T do not want to undertake to deal with anything of 
 that kind now. But I imagine that in a very large number of the 
 orders of the Commission that have been appealed from, while the 
 courts may have found that there have been violations of law, they 
 have further found that the orders were unreasonable on the facts. 
 Take the Conmiission's order, take the opinion of ijjie court, and read 
 
SEVENTH DAY. 47 
 
 both, and I believe that nine times out of ten the conclusion will be 
 that it would have been a mistake, from the standpoint of public 
 welfare, if the Commission's order had been made effective. 
 
 Senator CuLnoM. I understand, Senator DoUiver, from Senator 
 Faulkner that all this statistical information you are inquiring about 
 will be brought before the committee. 
 
 Senator Dolliver. Very well. 
 
 Mr. HiNES. Another proposition that deserves verj^ serious con- 
 sideration, in any aspect of the case, whether the Commission is given 
 the rate-making power or not, is the incompatibility of the Commis- 
 sion's functions. To my mind that deserves very careful and serious 
 attention. The Commission under the present law is required to 
 keep itself advised as to how the carriers comply with the law. not 
 merely as to conditions and rates. The obligation rests upon it to 
 keep itself advised as to how the carriers comply with the law in 
 regard to safety appliances on the different railroads and everything 
 connected with traffic matters, also accidents; the Commission re- 
 ceives monthly reports of accidents. 
 
 In all these matters the Commission stands in the attitude of 
 inquisitor. That, in my opinion, is a very necessary function. In 
 order to enforce the law some one ought to stand in that attitude. My 
 point is that the tribunal which occupies that inquisitorial attitude 
 ought not to be charged with any functions of final character, either 
 legislative or judicial, with respect to railroad companies. 
 
 Beyond that it is recognized, and properly recognized, as virtually 
 the attorney for the complainants and as the representative of the 
 complainants in hearings before it. The Commission was created, 
 for the purpose of aiding complainants in their cases against rail- 
 roads. That is a proper attitude for the Commission to take. Some 
 tribunal will have to take it, in my opinion, if the law is to be 
 promptly executed. But the tribunal that represents the complainant 
 certainly can not with propriety exercise any sort of final powers. 
 Even if the Commission is left with power to make j)rima facie find- 
 ings, that ought to be taken away. It is not fair, in the case of a 
 Commission, which is virtually an inquisitorial body, whose duty it 
 is not only to prosecute all violations of law by the railroads, but for 
 its findings of fact to be prima facie evidence in the court. When a 
 court appoints a commissioner whose findings of facts are prima facie 
 evidence, it never appoints one of the. attorneys in the case ; it tries 
 to get an impartial man. It is not in human nature to expect a man 
 who is detective', prosecutor, grand jury, and complainant's attorney 
 to be sufficiently fair to have the court regard his findings of fact as 
 final, even though they ought to be prima facie correct. 
 
 But when you go beyond that, and propose to give the Commis- 
 sion power to make rates — that is, to deal with the most vital part of 
 the railroad business — it is not fair. It is the farthest possible removed 
 from fairness to say that a tribunal which acts as detective, prose- 
 cutor, and complainant's attorney, should have any final power at 
 all, or even make prima facie findings with respect to the matter of 
 railroad rates. Necessarily it is put m an attitude of hostility to the 
 railroad. 
 
 That has always been the case with State commissions. So I 
 apprehend it would be the case with the Interstate Commerce Com- 
 mission. And this is not by way of criticism of the members of the 
 
48 SEVENTH DAY. 
 
 Commission. It is just a limitation of human nature that you can 
 not put all these incompatible functions into one court or one body 
 of men and expect them to be fair and impartial between, perhaps, 
 two cities, with one or the other of which it is so closely identified. 
 
 I have had a good deal of experience myself with railroad com- 
 missions. All the State commissions have this same mixture of 
 functions. I have been impressed with that fact. They may be 
 perfectly fair men, of high character, of undoubted integrity and 
 wisdom, but it is not right to put all this power into the hands of 
 such a body of men. Not one man in a hundred would have the 
 remarkable judicial temperament that would enable him to exercise 
 such a power proijerly under such conditions. The consequence is 
 that the railroad, in dealing with such a commission, is always deal- 
 ing with the representative of the shipper, and not with a tribunal 
 qualified to deal fairly as between railroad and shipper. I say that is 
 not a fair condition "in which to put the Interstate Commerce Com- 
 mission. 
 
 Senator Dolliver. Whut would you say to creating a tribunal in 
 the nature of a commission of interstate commerce appeals from the 
 orders of this inquisitorial body ? 
 
 Mr. HiNES. In the interest of prompt and efficient action I should 
 think that would be undesirable. Besides, after the matter is initi- 
 ated, nothing is gained by transmitting it to such a commission. If 
 it is not to be an appeal for final decision, you lose time ; and besides 
 that, if you give any effect to the finding of such a commission, as 
 naturally I feel you should, there would remain the fact that you are 
 giving effect to the finding of a body so constituted as not likely to be 
 impartial. 
 
 Senator Dolliveh. Suppose the present Commission were given the 
 power to present a case to a commission of appeals clothed only with 
 the judicial function of deciding cases as separated from all these 
 preliminary matters, and let there be nothing before the higher body 
 except that presentation by the Commission. 
 
 Mr. HiNES. The point 1 make is that the Commission ought to be 
 purely and simply a prosecuting administrative body. 
 
 The Chairman. Is that all the duty you would give it? Would 
 you not give it poAver to settle disputes and reconcile differences ? 
 
 Mr. HiNES. An administrative body would have that power of 
 course ; that would be a natural incident. 
 
 Senator Cullgjx. "Would you create another commission to decide 
 these cases, or provide a court ? 
 
 Mr. HiNES. I think the courts should decide all controversies. I 
 do not see why such an important part of the property of the country 
 should be denied an opportunity to have its controversies tried in 
 court, as other people have. I believe the courts are equal to that. 
 
 The Chairman. You think, as to rate making and every thing aris- 
 ing under the interstate-commerce law, that would give expedition? 
 
 Mr. HiNES. Yes, sir. 
 
 Senator Foeakee. And that the judicial machinery we now have, 
 m the United States circuit courts, would be perhaps the most satis- 
 factory, would it not ? 
 
 Mr. HiNEs. I believe so. I was going to discuss those points more 
 in detail at the conclusion ; but I think so, decidedly. I have never 
 been able to rid my mind of the belief that it was entirely incompati- 
 
SEVENTH DAY. 49 
 
 ble with the spirit of republican government to have such a body as a 
 railroad commission with functions that are final to the extent of 
 being executive, legislative, and judicial. If the matter could be 
 presented an that shape to the Supreme Court of the United States, I 
 believe that the Supreme Court would hold that it is an unconstitu- 
 tional admixture of power. In the case of Kilbourn v. Thompson 
 (103 U. S., 168) the court said: ^ 
 
 It is believed to be one of the chief merits of the American system of written 
 constitutional law that all the powers intrusted to government, whether State 
 or national, are divided into the three grand departments— the executive the 
 legislative, and the judicial ; that the functions appropriate to each of these 
 branches of government shall be vested in a separate body of public servants 
 and that the perfection of the system requires that the lines which separate 
 and divide these departments shall be broadly and clearly defined. It is also 
 essential to the successful worldng of this system that the persons intrusted 
 with power in any one of these branches shall not be permitted to encroach 
 upon the powers confided to the others, but that each shall by the law of its 
 creation be limited to the exercise of the powers appropriate to' its own depart- • 
 ment and no other. 
 
 Senator Clapp. Has not the Supreme Court repeatedly, since that 
 decision, in considering cases from State commissions, distinctly 
 referred to the functions of the Interstate Commerce Commission as 
 combined administrative and judicial? 
 
 Mr. HiNES. The Supreme Court has held a number of times that 
 the question whether a State tribunal had an undue mixture of legis- 
 lative and judicial poAvers was not a question which could arise under 
 the fourteenth amendment to the Federal Constitution. 
 
 Senator Clapp. No, that is not what I refer to. Pardon the inter- 
 ruption. In discussing these commissions, where the action has been 
 sustained under constitutions that divide their powers, just as the 
 Federal Constitution does, has not the Supreme Court repeatedly 
 referred to the functions of the Commission as being combined ad- 
 ministrative and judicial and that without criticism? 
 
 Mr. HiNES. I do not recall any reference of that sort, but many 
 of the State commissions have been exactly of that sort. Still the 
 question was not presented to the Supreme Court and did not arise 
 for its decision. T am aware that the court has frequently stated that 
 this constitutional principle about the separation of powers of gov- 
 ernment into three separate departments did not require that in all 
 subordinate matters there must be absolute separation. It recog- 
 nizes that there may be a combination, but I think this is a case that 
 goes so far beyond that and is so manifestly unjust that it is' hot 
 necessarily controlled by these general expressions. 
 
 The Supreme Court has frequently, in dealing with the question 
 whether a person was deprived of his property without due process 
 of law by some administrative tribunal, such as a tax board, or some- 
 thing of that sort, held that it was not necessary that all these mat- 
 ters should be disposed of by judicial tribunals; that all that was 
 necessary was that there should be some tribunal that was fairly 
 adapted to the work to be done. I think it is an open question, 
 imder the Constitution of the United States, as to whether an Inter- 
 state Commerce Commission charged with all these incompatible 
 functions would be a body fairly adapted to making rates. 
 
 Senator Clapp. You will find it in the Maximum Rate Case. . 
 
 Senator Foeakbk. In our own State, our supreme court has held 
 that a, particular duty, when put upon a legislative body or put upon 
 
 7 D — 05 M i 
 
50 SEVENTH DAY. 
 
 a judicial body, may be regarded, if it be of identical character 
 standing alone, as legislative or judicial, according as it has been 
 imposed on the one or the other department of government; but it 
 has always been held to be the one or the other. 
 
 Senator Dolliver. I notice in the Maximum Eate case the Supreme 
 Court seems to have specifically decided that Congress might itself 
 prescribe the rate or it might commit to some subordinate tribunal 
 this duty. 
 
 JNIr. HiNES. Yes. 
 
 Senator Dolliver. Wiat do you say to such a dictum as that? 
 
 Mr. HiNES. It does not follow that it could properly commit to a 
 tribunal that was also the prosecutor of the railroads. 
 
 Senator Dolliver. But it seemed to have in mind the question of 
 whether that power had been committed to the present Interstate 
 Commerce Commission. 
 
 Mr. HiNES. All that dictum amounted to was that there might be 
 a, delegation pi that power. It did not undertake to suggest the 
 sort of tribunal which could properly exercise that power. 
 
 Senator Dolliver. But the court seems to have waded through 
 that case without intimating that Congress might not have conferred 
 that power on the existing Interstate Commerce Commission when 
 it was dealing with the question of whether or not it had actually 
 conferred it. 
 
 Mr. Hikes. Yes. That was, I think, considerably beyond the 
 length it had to go in that case. It was so plain that Congress had 
 not conferred the power that it did not have to discuss the nature 
 of the particular tribunal that was trying to exercise it. 
 
 Senator Dolliver. It would have been kind in it, though, to have 
 suggested thai this whole business would have been unconstitutional. 
 
 Mr. HiNES. I do not claim that the whole business would be un- 
 constitutional, but I do say that it is not fair and right, and I believe 
 it is an open constitutional question, whether it would be constitu- 
 tional to give the rate-making power to such a tribunal as the Inter- 
 state Commerce Commission, charged with the inquisitorial and 
 prosecuting and complaining functions that it has. 
 
 Senator Newlands. I do not understand that you contend that 
 the rate-making povv(>r is not a legislative power and is a judicial 
 power ? 
 
 Mr. HrNKS. No. 1' am not discussing that point. 
 
 Senator Newlanus. What you insist upon is that this body, inquis- 
 itorial and prosecuting as it is, should not exercise the quasi- judicial 
 function of determining between the shippers and the carriers as to 
 the rates ? 
 
 Mr. HiNES. Or the legislative function of rate making, either. 
 
 Senator Newlands. Which do you think would be preferable, then, 
 assuming the correctness of jour position as to that: To organize a 
 tribunal that would have none of these inquisitorial powers and none 
 of these prosecuting poAvers and of a legislative character, before 
 which the Interstate Commerce Commission, as an inquisitorial and 
 prosecuting body, could present its case and the case of the shippers, 
 or would you think it preferable to have that tribunal a court ? And 
 if the power is not a judicial power, how can you organize a court in 
 any way ? 
 
 Mr. HiNES. I think the Commission ought to be an administrative 
 tribunal, to enforce the law and conduct these matters before a court; 
 
SEVENTH DAY. 51 
 
 and I think the matter ought to be in such shape that it is a judicial 
 question. 
 
 Senator Xewlands. You think it %Tould be an improvement upon 
 the present system, do you not, to organize a tribunal, not a judicial 
 tribunal, before which the Interstate Commerce Commission could 
 prosecute these cases ? 
 
 Mr. HiNES. I would not say " not a judicial tribunal." I think it 
 ought to be a judicial tribunal to make decisions. 
 
 Senator Newlanus. But if we should conclude that that would not 
 be a wise thing to do, you would regard the creation of a tribunal 
 charged alone with the duty of rate making, and before which the 
 present Interstate Commerce Commission could present its prosecu- 
 tions, as preferable to the present system, would you not ? 
 
 Mr. Hikes. It would be decidedly less unfair than the system of 
 having the Avhole thing before one tribunal. Of course that would 
 not at all remove the practical difficulties in the way of Government 
 rate making. • 
 
 One of the most incompatible functions that the Commission has to 
 exercise, in my own opinion, is the duty conferred upon it by the in- 
 terstate act to recommend additional legislation. 
 The Chairjian. From time to time. 
 
 Mr. HiNES. Yes ; from time to time. I think the body which has 
 that power, and especially if it is a body which is so situated that it 
 can recommend additional power for itself, is subject to a very strong 
 influence to shape its action so as to prove the necessity for the addi- 
 tional legislation which it recommends. I think that is decidedly 
 incompatible with fair treatment of the property against which the 
 lemslation is to be recommended. 
 
 I wanted to discuss the subject of the judicial review of a rate- 
 making order by the Commission. Practically all the support for 
 the grant of rate-making power to the Interstate Commerce Commis- 
 sion has proceeded on the idea in the public mind that there would be 
 a thoroughgoing judicial review of what the Commission did. Of 
 course the layman does not draw the distinction. "When an advocate 
 of rate-making power for the Commission goes to a commercial or- 
 ganization and says, "AH we ask for is a rate-making power which 
 shall be subject to the control of the court, and the orders can be 
 appealed to the court," why, the layman understands that to mean 
 that the court can make a thoroughgoing review and can correct any 
 mistakes growing out of prejudice or erroneous information which 
 the Commission may have. I think it is very well recognized by the 
 advocates of the rate-making power, the ablest advocates that have 
 appeared before legislative committees, that that is not the case ; that 
 if the rate-making power is given to the Commission the power of 
 review which the court will possess will be substantially restricted. 
 Mr. Morawetz pointed that out at some length, and I will not under- 
 take to take up the time of the committee with it. 
 
 The court can not and will not go into the questions of wisdoni and 
 policy which the Commission may determine. The court will be 
 ]-)ractically confined to a decision whether the order so operates as to 
 deprive the carrier of its property without due process of law. Even 
 if the court could go beyond that, as a practical matter I do not be- 
 lieve it will do it. The court will say, as it has said in so many cases 
 of a similar character, that where the legislature selects a certain ad- 
 ministrative tribunal to decide things the decision of that tribunal is 
 
52 SEVENTH DAY. 
 
 final unless there is some palpable abuse of power or discretion or 
 some palpable mistake on the facts. 
 
 Senator Clapp. Was not that always m cases where there was no 
 appeal provided for, and the question was simply taken into the 
 courts to ascertain whether or not the act was the taking of property 
 Avithout due process of law ? ,, , • , 
 
 Mr. Hikes. As fas as I recall, that is true— that the expression has 
 been made in cases of that sort. 
 
 Senator Clapp. Yes. ., , ■ ^ i m ^i ^ 
 
 ilr Hikes. But where a tribunal is created tor the purpose of 
 dealing with a specific matter the courts will say, very naturally: 
 "That tribunal has expert knowledge on this subject; Congress 
 deemed it the proper tribunal to which should be submitted matters 
 of this kind ; we do not find that its findings are plainly wrong, and 
 therefore we do not feel justified in overruling those findings." So 
 that, as a practical matter, in my opinion, it will take a case of pal- 
 pable abuse of tfee Commission's power to get any relief from the 
 courts. There will, therefore, be a wide margin of discretion in 
 which the Commission will be practically free from judicial inter- 
 vention. Every mistake it makes is not going to be corrected by a 
 coutt. In my opinion, it ^^vill be only when it is a palpable mistake 
 or when its order is so plainly an interference with a reasonable re- 
 turn on the property as to be 'confiscatory within the meaning of the 
 term as used by the courts. 
 
 Senator Xewlands. "Will not that also be true when the court acts 
 regarding a rate that is claimed to be unreasonably high ? 
 
 Mr. HiNES. No. 
 
 Senator Xewlands. AVill it not fail in that case to give an ade- 
 quate remedy ? 
 
 Mr. Hikes. Xo; because there the court is not passing on the act 
 of a branch of the Government to whose judgment it feels it ought to 
 defer. It will be simply passing on the act of the railroad company, 
 and that has no special sanctity — no sanctity at all. The act of a 
 governmental tribunal, however, would have. 
 
 As a practical matter, therefore, I submit for the committee's con- 
 sideration that there is a very wide margin of discretion in which the 
 Commission will be absolutely free, no matter how much judicial 
 review you try to provide for, and that that is a substantial addi- 
 tional reason why no more power should be given to the Commission 
 than is absolutely necessary to deal with the situation that you are 
 attempting to deal with. 
 
 Beyond that, aside from the direct effect on the carriers' revenue 
 from a particular business involved, there is another very serious 
 objection, and that is that some of the most serious mistakes the Com- 
 mission may make may be of a general commercial character as 
 between communities. It may result that one community, by reason 
 of the Commission's order, Avill lose a great deal of business. Xow, 
 I do not see where you would get any basis for judicial review there. 
 There is no definite tangible property right for the courts to take 
 hold of. It is just a question of Avisdom and policy. If you give the 
 Commission the power to make differentials, for instance, that is a 
 question of policy as to what this governmental tribunal is going to 
 decide — how much business one city ought to do and how much the 
 other. As Mr. Morawetz explained to you, it is very clear from the 
 decision which he cited that the courts are not going into general 
 
SEVENTH DAY. 53 
 
 questions of business policy. They are going to leave those to the 
 tribunal that is created by Congress for the purpose of dealing with 
 them. So that, as to a very important phase of this matter, there is 
 not going to be an}- judicial review, no matter how clearly Congress 
 may attempt to provide for it. 
 
 In conclusion, on the inherent difficulties on rate making 
 
 Senator Dollivee. I want to ask a question, if you will let me, Mr. 
 Chairman. I want to get INlr. Hines's notion about this : If we give 
 this Commission the power to fix a rate subject to judicial review 
 upon complaint, could we, as a matter of law, clothe the circuit court 
 with a general equity power to consider the whole question, or the 
 whole matter as the interstate-commerce law expresses it, passing 
 upon the rate fixed by the railroad and passing upon the rate fixed by 
 the Commission, and if found proper and lawful, adjusting the mat- 
 ter by a fair compromise between the two rates ? 
 
 Senator Clapp. If the chairman will permit me 
 
 Senator Foeakek. I understand the question is Avhether or not the 
 court, in addition to finding whether the rate is reasonable, whether 
 too high or too low, may also find what is a reasonable rate; is that it? 
 
 Senator DoLLrvEE. Independent either of the action of the road or 
 the action of the Commission. 
 
 The Chaieman^. On an appeal, say ? 
 
 Mr. HiNES. Yes, sir; I had better state my understanding of the 
 question, so as to be sure that we are talking about the same thing. 
 As I understand the proposition, if the Commission should be given 
 the power to make a rate, then could the court on an appeal be em- 
 powered to decide, generally, as to whether that rate, fixed by the 
 Commission, is reasonable or not. taking into consideration all the 
 circumstances which the Commission could take into consideration? 
 
 Senator Cullom. And any other circumstances. 
 
 Mr. HiNES. And second, if the court disagrees with the Commis- 
 sion, can it fix a new rate ? It seems to me 
 
 Senator Foeakee. I do not understand that that is the question, if 
 you will allow me. It is not whether the court can be required to 
 fix a new rate, but whether the court can be required to say what, in 
 its opinion, is a new rate, and then it would be for us to determine 
 whether we can by legislation provide that that shall go into opera- 
 tion. Can we require the court to make a finding of fact, in addition 
 to deciding the case, and in connection with the decision of the case, 
 which would express its idea of what is a reasonable rate ? 
 
 Mr. HiNES. It is generally understood now that the making of a 
 rate for the future is a legislative function, and that Congress could 
 delegate at least a certain measure of the rate-making power for the 
 future to a conmiission. 
 
 Senator Ctjllom. But not to a court. 
 
 Mr. HiNES. As to whether Congress could authorize the court to 
 consider that question at large, and to decide all questions of policy 
 and all the circumstances that the Commission might consider in 
 originally fixing the rate, I am not entirely clear. The only case I 
 know of on that is the Minnesota case that Mr. Alorawetz called your 
 attention to, which directly held that no such thing can be required 
 of the court; that the only thing the court could consider was 
 whether the rate was confiscatory. The court would have a strong 
 inducement to hold that way, on account of the wish on its part not 
 to go into a difficult question of fact which had already been decided 
 
54 SEVENTH DAY. 
 
 by a tribunal of the Government, especially created by Congress for 
 deciding that point. I think it is quite probable that if that question 
 was presented, the court would restrict the review to the question of 
 confiscation. However, I do not say that at all dogmatically, because 
 1 know that the Supreme Court has recognized in a good many cases 
 that there is a certain margin of jurisdiction in questions even of 
 policy which Congress can give to the courts if it wants to. 
 
 Senator Foeakee. Is it not competent for the legislature to re- 
 quire the court to make a finding of fact as the basis of any judgment 
 or decree it may be called upon to enter. 
 
 Mr. HiNES. I was going to discuss that, in answering the second 
 part of that question, because I think it brings up that point. But, 
 as a practical matter, on this branch, I do not think the court will 
 go into all those details. If you get an order from a commission 
 making a rate, no matter how you word the power of the judicial 
 review, the court is not going into those facts an;^ further than is ' 
 necessary to protect the carrier from confiscation, in my judgment. 
 So, no matter how much right you might have theoretically to do 
 that, the matter is going to be left practically with the Commission 
 unless it palpablj^ abuses its discretion. 
 
 In the other branch, I do not see any way by which the court 
 could make a finding, could fix a rate for the future, which would 
 take effect by virtue of the court's declaration. I believe it would 
 be competent for Congress to require the court to find on the case 
 as made before it what is in that case a reasonable rate for that 
 service. 
 
 Senator Foraker. That was the point to which I was trying to 
 direct your attention. 
 
 Mr. HiNES. I think that would be a judicial function. 
 
 The Chaieman. When it finds that the rate is too high, incident- 
 ally, as a matter of fact, it would find what was a reasonable rate ? 
 
 Mr. HiNES. Yes. 
 
 The Chaieman. Incidentally, in getting at the solution of the 
 main question before it? 
 
 Mr. HiNES. Yes, sir. 
 
 The ChaietiIan. The court would find that this rate was too high, 
 and in reaching that conclusion would find that something else would 
 be a reasonable rate? 
 
 Mr. IIiNES. Yes. 
 
 The Chairman. And the court would merely state that as an 
 opinion ? 
 
 Mr. HiNES. Yes. 
 
 The Chaieman. Could the Commission, then, act upon that infor- 
 mation? Coidd that have the force of law, while it would be 
 merely an expression of opinion, and would not have the weight of a 
 judgment, as I understand? The judgment would be that the rate 
 is too high, and the other is simply leading up to that. 
 
 Senator Foeakek. A finding of fact, simply. 
 
 The Chairman. Yes ; leading up to the pronouncing of judgment. 
 In one case it would be a judgment and in the other it would be a 
 finding of fact, as I understand it. 
 
 Senator Foeakee. Is there any objection, after a fact has been 
 found, to a legal effect being given to that result by legislative enact- 
 ment ? That is, an act of Congress directing that a particular kind 
 of case shall be heard and that before any judgment is entered there 
 
SEVENTH DAY. 55 
 
 shall be a finding of facts, one fact being this particular fact; and 
 then a provision that whenever that fact has been found by a court, 
 effect shall be given to it as a rate that shall be observed until there 
 IS a change? 
 
 Mr. Hikes. I do not see any constitutional objection to the legisla- 
 ture declaring that the rate which the court finds to be reasonable 
 shall be observed in the future ; but, of course, there is a very grave 
 practical objection to making any unchangeable rate, or a rate you 
 would have to go to any tribunal to change to meet changing condi- 
 tions. 
 
 The Chaiemak. Would you suggest that the rate found should only 
 last a certain time, so that it would not remain in effect after condi- 
 tions had changed ? For instance, if the court found a certain rate, 
 should there not be a limitation of time for the existence of that rate 
 of one year or two years — that it should last one year only, say ? 
 
 Mr. HiNES. I firmly believe that the purely injunctive power is 
 ample to correct all these troubles. That leaves, of course, a much 
 greater degree of flexibility than a specific and certain rate that has 
 been put in force, even for a year or two years. 
 
 Senator Forakee. Have you discovered any difficulty in our power 
 to require a court to proceed summarily when the case is presented on 
 complaint by the Interstate Commerce Commission, for instance, to 
 determine whether or not a rate is reasonable ? 
 
 Mr. HiNES. I think the legislature has very wide power over courts' 
 procedure. It can prescribe a code of procedure, or that certain 
 classes of cases shall be advanced. I do not think that there would be 
 any difficulty in that direction. 
 
 Senator Dolliver. Could it abolish formal pleadings ? 
 
 Mr. HiNES. Oh, yes; they have done that in some of the States, you 
 know — -that is, the old common-law pleadings. They require what 
 might be called " informal pleadings " and abolish all the old com- 
 mon-law forms. That has been done in Kentucky, and the legislature 
 provides there that in certain cases the pleadings may be oral. I 
 think the legislature has a very wide power over judicial procedure. 
 
 With the committee's permission, I wanted to make some references 
 to the Townsend bill, which, of course, is the measure that passed the 
 House. In addition to being based on a great many errors, this 
 Townsend bill had the further error to support it that it was moder- 
 ate legislation. It was heralded everywhere that if that was not 
 adopted something drastic would be done. I have studied the State 
 laws of a good many States, some of them supposed to be as drastic 
 as unfriendly State legislatures could devise, and I have never found 
 any State law that exceeded the Townsend bill in being drastic. 
 
 The Chairman. You think it is sufficiently drastic, then? That 
 is your first observation ? 
 
 Mr. HiNES. I do not think it could be made more so for practical 
 purposes. 
 
 The bill provides that whenever upon complaint duly made, under 
 sectibn 13 of the act, the Commission shall, after full hearing and 
 investigation, make any finding or ruling declaring any existing rate 
 or regulation or practice affecting transportation of persons or prop- 
 erty to be unreasonable or unjustly discriminatory, the Commission 
 shall have the power and it shall be its duty to declare and order 
 what shall be a just and reasonable rate, practice, or regulation to be 
 charged, imposed, or followed in the future. 
 
56 SEVENTH DAY. 
 
 Under section 13 of the original act, anybody could complain, 
 whether having any interest or not. The Supreme Court has ex- 
 pressly held that it was the duty of the Commission to entertam any 
 complaint, no matter who complained, and the Commission can com- 
 plain itself. So that there was no limit upon the number of rates 
 that could be brought here by complaint or upon the character of com- 
 plaints. The sort of hearing was entirely m the discretion of the 
 Commission. For practical purposes, therefore, under the Town- 
 send bill, the Commission could and would have made rates just as 
 generally as any State commission. You may take ,a State commis- 
 sion and direct it to make rates. Now, it does not change the existing 
 rate unless it thinks the existing rate is unreasonable. That is just 
 what the Interstate Commerce Commission could have done under 
 this Townsend bill. The only difference is this: That some State 
 bills require the State commissions to make all the rates. This left 
 it optional with the Commission as to how many rates it would make. 
 And that, to my opinion, is the only distinction between this measure 
 and the most drastic State commission laws that are in existence in 
 this country. 
 
 Under this bill the Commission not only had that power to make 
 specific rates, but it had to make specific rates as I construe the law. 
 It could not make a maximum rate if it chose to do so. The bill says 
 that it shall make a rate " to be charged, imposed, or followed in the 
 future," and in section 2 it says : 
 
 That any rate wUicb may be llxed by the Commissiou under the provisions of 
 this act shall, for all purposes, be deemed the published rate of such carrier 
 under the Elkins law. 
 
 Consequently the rate fixed by the Commission could not have been 
 departed from. It was the published rate for all purposes under the 
 Elkins law, and if you say that under section 6 of the original act 
 that rate could have been lowered on three days' notice, by the same 
 argument it could have been raised on ten days' notice. So the only 
 rational construction of the Townsend bill is that the Conmiission 
 must fix specific rates which could not be departed from at all. 
 
 Of course it had full power over differentials. This general 
 rate-making power was given, and it Avoulcl have been required to 
 assume the responsibilitj^ for the apportionment of commerce when- 
 ever it undertook to decide a case of that sort. 
 
 It also had a power over all regulations and practices of the carrier 
 affecting the transportation of property. It is hard to say what, if 
 any, limitation there would be on that very general grant oi power. 
 
 The Chaiemax. Tell us now, as a lawyer, what those words mean. 
 How would vou construe that ? A^liat does it include ? Where is the 
 limit? 
 
 Mr. HiNBS. Taking the words in the ordinary meaning, they relate 
 practically to everything that .the railroad does.' 
 ' Senator Foraker. AVliat is the number of the Esch-Townsend bill, 
 if you can give it ? 
 
 Mr. HiNES. 1852S. 
 
 Senator Foraker. Go ahead. I do not want to delay you. 
 
 Mr. HiNEs. Tliose words ha\e no limitation in the act. Every 
 regulation or practice affecting the transportation of propertv would 
 have come within the language of the act. The only limitation that 
 
SE^^NTH DAY. 57 
 
 occurs to me is that it might have been regarded as limited by the 
 original act. 
 
 As an illustration, I should thinly under that power to prescribe 
 regulations and practices, if the Conamission had deemed that the 
 practice of a railroad in charging less on export traffic than on domes- 
 tic traffic was unjust or discriminatory, it could have made a general 
 order, would necessarily have done so, as affecting a great many ports, 
 that the railroads must not charge less on export traffic than on do- 
 mestic traffic. That was what it tried to do in the Import Rate Case 
 as to imports. I think that this language was so broad as to cover a 
 sweeping order of that sort. It is impossible to say whether there 
 would have been anj^ limitation on it. 
 
 As to the power of judicial review which the Townsend bill pro- 
 vided, section 1 says that — 
 
 At any time within sixty days from date of sucli notice any person or persons 
 directly affected by tlie order of tlie Commission, and deeming it to be contrary 
 to law, may institute proceedings in the court of transportation sitting as a 
 court of eouity, to have it reviewed, and its lawfulness, justness, or reasonable- 
 ness inquired into and determined. 
 
 That did not specify any procedure, did not seem to undertake to 
 prescribe the jurisdiction of the court. 
 
 In section 10 the court of transportation was given exclusive orig- 
 inal jurisdiction of all suits and proceedings of a civil nature in law 
 or equity brought in the name of the United States or the Interstate 
 Commerce Commission to enforce the provisions of this act and the 
 amendatory acts " and it shall also have exclusive original jurisdic- 
 tion of all suits and proceedings of a civil nature, in law or equity, 
 brought to enforce obedience to, or to restrain, enjoin, or otherwise 
 prevent the enforcement and operation of, any order, ruling, or re- 
 quirement made and promulgated by the Interstate Coimnerce Com- 
 mission." 
 
 That seems to be the only jurisdiction conferred upon the court of 
 transportation as to reviewing an order of the Commission — to re- 
 strain or enjoin it. In other words, it is very doubtful whether the 
 court would have had any power, except the ordinary power which it 
 would have had without any permission at all, to enjoin a confisca- 
 tory order. "Wliile section 1 referred to a review, it prescribed no 
 jurisdiction. Section 10 is the only section that does prescribe a 
 jurisdiction, and the only jurisdiction it prescribes is the power to 
 enjoin. 
 
 Senator Dollivee. Section 14 makes it a court of equity.- 
 
 Mr. HiNES. Yes ; and consequently it would have had the ordinary 
 power to enjoin a confiscatory rate; and I do not see that it would 
 have had any further power than that. 
 
 Senator Dollivee. Yes. The review not only refers to the lawful- 
 ness of the Commission's order, but to its justness and reasonable- 
 ness — that is to say, to its conformity to the interstate-commerce act. 
 
 Mr. HiNES. Well, that would be really covered under the question 
 of lawfulness. Of course, the Commission could not make an unlaw- 
 ful order. 
 
 Senator Dollivee. I think the general understanding is that the 
 lawfulness of an order refers to the invasion of property rights, the 
 confiscatory aspect of the order. I think the intention of the House 
 was to add to the jurisdiction of the court the right to judge of the 
 reasonableness and justness of it as a court of equity. 
 
58 SEVEXTH DAY. 
 
 ]Mr. HiNES. I would construe, Senator DoUiver, the word " lawful- 
 ness " to mean whether the order had been made in conformity with 
 the act, and the word " reasonableness " as to whether it was con- 
 fiscatory. I am afraid the court would be disposed to construe it 
 that way. 
 
 Senator Dollivee. A rate may be reasonable and just. I mean to 
 say there is a margin between reasonableness and justness and the 
 extreme of confiscation. 
 
 Mr. HiNES. Yes. I am afraid that margin, under the Townsend 
 bill, would have been entirely in the hands of the Commission, be- 
 cause the only specific jurisdiction conferred on this court was in 
 section 10, to enjoin an order. 
 
 The ordinary jurisdiction to enjoin an order is when the rate is 
 confiscatory — that is, when it is so unreasonable as to be confiscatory. 
 I certainly think, in view of the court's doubt of the court taking any 
 jurisdiction at all beyond that, that it ought to be given in the clearest 
 language, and that there is nothing here which would have necessi- 
 tated the court's going beyond determining the question of con- 
 fiscation. 
 
 Senator Foraker. In other words, if I understand you — and I only 
 interrupt you to see whether or not I do understand you — your state- 
 ment is that under the Esch-Townsend bill the Commission fixes the 
 rate when a controversy arises, and all the power that is given to the 
 court is a power to determine whether that is a reasonable rate or not, 
 and if it thinks it is not, then to enjoin it ? 
 
 ilr. HixES. Yes. 
 
 Senator Foraker. The court can not fix the rate at what it regards 
 as reasonable ? 
 
 ilr. HixES. Xo. No such power was given. 
 
 Senator Foraker. And then if that rate should be enjoined what 
 is to happen, according to this Esch-Townsend bill? 
 
 Mr. HiNES. If the rate is enjoined? 
 
 Senator Fokaker. Suppose the court enjoined it, where are they 
 then ? "\'\Tiat rate is in force ? • * 
 
 Mr. HijsTES. Of course I think that then the Commission could 
 establish a new rate if it chose to do so. 
 
 Senator Foraker. They would have to establish some other rate ? 
 
 !Mr. HiNES. Yes. 
 
 The Chairman. It does not say so in words, does it? 
 
 Mr. HiNES. No. 
 
 Senator Foraker. Could they establish another rate without hav- 
 ing another hearing, under this'bill ? 
 
 ^ :Mr. HiNES. That is doubtful. They say, " after full hearing." 
 They might say they had had a full hearing, and therefore go ahead 
 and establish another rate. That was a point that was not covered. 
 
 Senator Foraker. Suppose they had had before them the IMaximum 
 Rate Case, and the court had found, as a matter of fact, that Atlanta 
 and Rome or Macon, or whatever the other cities were that were in- 
 terested, had not had any hearing, arid that the rate fixed by the 
 Commission was unreasonable, and the other parties ought to" have 
 been heard; could there have been in that case, the injunction being 
 granted, any readjustment of rates Avithout another hearino- before 
 the Commission? 
 
 JMr. HiNES. Not ill a case of that sort. 
 
SEVENTH DAY. 59 
 
 Senator Foraker. In other words, is there anything at all in the 
 measure that the House loroposed that ^vould expedite the settlement 
 of a disputed rate question be3'ond what it is now ? 
 
 Mr. HiNES. Wh)', no. I thinlv it -would have rery much retarded 
 the prompt settlement of these things, because it would have given 
 the Commission so much Avork to do that it could not do. As I con- 
 strue the bill, the court -would have had no more jurisdiction than it 
 would have had if the question of review had not been mentioned in 
 the bill. That is, it then would have had the ordinary inherent juris- 
 diction of a court of equity to enjoin a rate which A:^as so unreasonable 
 as to be confiscatory in character; and I think it is very doubtful 
 whether the court would have taken any additional jurisdiction to 
 itself, assuming that it would have had, the constitutional power to 
 do so, by reason of the language of this bill. 
 
 Senator Dollivee. Would, an act be constitutional that did not 
 make a stagger to provide for a review in the courts ? 
 
 Mr. HiNES. The courts would have this power of review, whether 
 provided for or not. 
 
 Senator Dollivee. But if it was not provided for, would the courts 
 sustain its constitutionality ? 
 
 Mr. HiNES. I do not know about that. Of course, some of the State 
 commission bills do not provide for it. 
 
 Senator Dollivee. Did not the Supreme Court, in the Minnesota 
 case, decide that unless a provision was made for a revision of the 
 finding or decision the whole act was unconstitutional ? 
 
 Senator Clapp. They held that the act did not provide for a " day 
 in court," and was void. 
 
 Mr. HiNES. The supreme court of Minnesota held that the act was 
 designed to prevent any review in court. 
 
 Senator Clapp. The supreme court of Minnesota held that the order 
 was conclusive without any appeal ; and the Supreme Court of the 
 United States held that, that being the case, the act was void. 
 
 Mr. HiNES. Some of the State laws, I know, have not any provision 
 for review and have been upheld as not violating the fourteenth 
 amendment to the Constitution. The power of review would have ex- 
 isted inherently in the court of equity, and Congress could not have 
 prevented it. So I say that this bill, as far as the power of review is 
 concerned, was no better than the most drastic State measures, which 
 do not provide any power of review. 
 
 Again, the bill apparently tried to wipe out any power of review 
 unless instituted within sixty days, although a court of equity has a 
 continuing power to review an unreasonably low rate at any time. It 
 might become unreasonable after a while, and then a proceeding can 
 be instituted in court. But the Townsend bill seems to contemplate, 
 or to attempt to provide, that unless the carrier undertook to secure 
 a review of it in sixty days it could not get it at any time. 
 
 Senator Dollivee. Would that vitiate the constitutionality of it? 
 
 Mr. HiNES. I do not think that provision was constitutional. 
 
 Senator Dollivee. But would its efforts to take away, by_ posi- 
 tive enactment, this continuous right of securing a review in the 
 courts affect the constitutionality of the whole act? 
 
 Mr. HiNES. The court could have held that that -was a separable 
 provision, which could be dropped without invalidating the rest of 
 
60 SEVENTH DAY. 
 
 the act. Of course it is problematical as to what the court would 
 have held on that. 
 
 Senator Foeakee. One other question about the composition of 
 that court: Section 7 provides that it shall have full jurisdiction in 
 law and equity. Is that possible, under the provisions of this law? 
 In other words, is not its jurisdiction restricted, and to a very narrow 
 field of investigation and authority? 
 
 Mr. Hikes. I was just going to point out that the bill sought to 
 restrict the court to the evidence heard before the Commission and 
 to such other evidence as could not, with due diligence, have been 
 Iniown to the parties at the time of the hearing before the Commis- 
 sion. I think that was an effort to restrict very materially the juris- 
 diction of the court, and there is one striking feature about that, 
 that the hearing before the Commission was directed to whether the 
 railroad compan3''s rate was I'easonable, and the evidence was intro- 
 duced to meet that issue. Now, the Commission makes a rate, and 
 the railroad can not anticijoate how low a rate the Commission is 
 going to make or what adjustment it is going to make. When 
 the Commission makes a rate and then the railroad tries to enjoin 
 the Commission's rate, there is an entirely new issue that never 
 has been considered at all; and, as a practical matter, in the past, 
 when the Commission has tried to issue rate-making orders, and 
 even when it has not, it has been found that it has proceeded upon 
 some theory which the railroad company never anticipated at all 
 and to which it had not directed its proof, although it had physical 
 access to the proof, and its only lack of diligence was in failing to 
 anticipate the theory the Commission would adopt. 
 
 Senator Dollivee. Would the courts hold that that was a valid 
 limitation upon its jurisdiction? 
 
 Mr. Hiiv'ES. I do not believe they would. 
 
 Senator Dolltvee. Would the courts hold that an act containing 
 such a limitation was constitutional ? 
 
 Mr. Hikes. Well, the court goes so far in separating provisions of 
 this sort that they might, of course, hold that is was separable from 
 the rest of the act. Of course it is always doubtful as to what a court 
 will regard as separable and what as an inseparable element of an 
 act. That is always doubtful. They might have held the whole 
 thing void on- account of that provision. But it was a verv marked 
 attempt to restrict the ordinary equity jurisdiction that would have 
 existed under any state of case, and that does exist with respect to 
 the most drastic State commissions. 
 
 Another striking thing about the Townsend hill was that it made 
 no provision for any appeal from the decision of the court of trans- 
 portation m a suit brought bv the railroad comiianv to enjoin the 
 order. " ■^ 
 
 Now, as to appeal. Section 15 of the Townsend bill provided " that 
 in all cases affected by this act where, under the laws heretofore in 
 torce, an appeal or writ of error lav from the final order, judo^ment, 
 or decree of any circuit court of the United States to the Simreme 
 Court, an appeal or writ of error shall lie from the final order, judg- 
 
 ^^^\°\ *^'®*^^^*^® "* ^^^ '^'^^^^'^ °^ transportation to the Supreme Court, 
 and tha,t court only."' '- ■ 
 
 A suit to enjoin a rate-making order of the Commission was not 
 a case which existed under the law Iieretofore in force. Consequently 
 
SEVENTH DAY. 61 
 
 this right of appeal ^vhich was given by this language did not apply 
 to a suit to enjoin a rate-making order of the Commission; in other 
 words, to a suit to review the order of the Commission; and this act 
 made no provision for any appeal to the Supreme Court on behalf 
 of the carrier in such a case, or on behalf of the other party either, 
 nor did it make any provision for an oral hearing 
 
 Senator Dolliver. Does it not lie with Congress to do that ? 
 
 Mr. HiNES. The question of appeal is always for the legislature. 
 I should say, therefore, that I do not think any State law does or 
 can go any further than the Townsend bill did in the rate-making 
 direction, and none of them attempt to go so far in restricting the 
 ordinary power of a court of equity to review a rate-making order 
 of the Commission. So I want to repeat that the peculiar sentiment 
 that prevails that that was moderate, and not drastic, legislation had 
 absolutely no basis in the facts.. 
 
 Senator Dolliver. You are not afraid of any more extreme legis- 
 lation ? 
 
 Mr. Hjnes. Oh, no. No, indeed. But I am afraid enough of that. 
 
 There is another phase of the matter that comes up under the Town- 
 send bill concerning which, perhaps, the committee would not object 
 to suggestions, and that is about a judicial review. It was the 
 avowed purpose, I think, of the framers of the Townsend bill to put 
 the Commission's rate into effect and keep it in effect, if possible, 
 pending a judicial review. The President so indicated in his mes- 
 sage, and there was nothing in the language of the Townsend bill to 
 indicate any other purpose; and this effort to restrict the evidence 
 upon which the court could proceed would have had a very marked 
 tendency in that direction, because if that was constitutional and the 
 court had only to look at the evidence before the Commission, it is 
 not very likely that on an application for a temporary injunction, 
 simply looking at the evidence, the court would have said that that 
 order was so palpably wrong that it must suspend it pending the 
 hearing. The object of the bill was to prevent that. Now, I do not 
 believe that is just. Assuming that the rate-making power should be 
 given, it seems very unjust to depart from the ordinary judicial prac- 
 tice of preserving an existing status pending a final judicial decision. 
 
 Where a railroad company has been charging an existing rate, and 
 that rate is condemned and another rate substituted, to say that the 
 carrier has a right to a judicial review, but that the rate must go into 
 effect before it has that review, is a very unjust thing. The case might 
 be different if it was an advance in a rate, and an effort to stop the 
 advance. There it might be clearly just to preserve the existing 
 status by holding the old rate until a judicial determination. But 
 as most of these cases would be reductions of existing rates, it would 
 be very unjust to try to provide for the going irito effect of the new 
 rate before the court had passed upon the propriety of that rate. 
 There is no sufficient reason, from any standpoint that I can think 
 of, for subjecting the railroad property to that sort of injustice. 
 
 Of course the argument is that the Commission is presumed to be 
 right. But it is also presumed that the carrier needs or is entitled to 
 a judicial review^ and if it is a subject for judicial consideration, the 
 carrier ought not to be subjected to an irreparable loss in advance of 
 the judicial decision. 
 
 Senator Doi,liver. Would not they have the right, under the ordi- 
 
62 SEVENTH DAY. 
 
 nary equitj' procedure, to make an independent showing — that is to 
 say, a showing outside the record— as to the irreparable character of 
 their loss in case the rate was not suspended? 
 
 Mr. HiNES. Yes ; but T think if Congress should go to the extent 
 of prescribing a rate-making power it ought to say affirmatively, at 
 least AA-here it is a reduction of an existing rate, that it should be sus- 
 ])ended pending a judicial review, and then make all the provision it 
 can for a speedy review. But it ought not to put the courts in the 
 attitude of feeling that they are interfering with the settled purpose 
 of Congress to suspend that order pending final hearing. It is essen- 
 tially unjust, if a carrier is entitled to a right of judicial review, to 
 change its rate before it has that judicial review. 
 
 It is said that the claim is that if at the end of the judicial review 
 the court should decide that the Commission's rate was proper the 
 shippers would have lost the benefit of it during that time. On the 
 other hand, the railroad would have irreparably lost the amount of 
 the Induction if the rate was in effect pending the review. More than 
 that, as has been pointed out before the House committee — I do not 
 recollect whether it has been suggested here — aside from the direct 
 pecuniary loss, if the reduced rate goes into effect business conditions 
 might adjust themselves to that situation ; and if it has been in effect 
 several months or a year pending a judicial review, there'may be a 
 commercial inability on the part of the carrier to get away from that 
 reduced rate afterwards, even though the court should condenm it. 
 At any rate, it would be a very difficult thing to do from a commercial 
 standpoint. It is yevy, very easy for a railroad company to reduce 
 rates, but it is extremely hard for it to raise rates on any important 
 traffic. That is a point that is well worthy of consideration. 
 
 As a partial protection to the shipper, at least, you can compel the 
 carrier to give bond. It is said that that is of no value, because the 
 shipper or consignee passes the amount of the overcharge over to the 
 consumer, and that consequently the man who would recover on that 
 bond would not be the man who had to pay the rate. That has been 
 broadly stated, and has been regarded as a complete answer to any 
 suggestion about a bond. As a matter of fact, however, in most cases 
 I think you will find that the consumer does not pay the rate, and 
 especially the mere difference between the two rates, because it is 
 such an insignificant part of the price of the article that it remains 
 with th dalr and does not go to the consumer. 
 
 I have some illustrations of that that I thinlj are fairly typical, 
 and I have taken, because it was easier for me to get, the wholesale 
 price and the retail price in Louisville of the commodity and the rate 
 from Louisville to Atlanta. Of course, to be strictly correct, I would 
 have to take the wholesale price in Louisville and the retail price in 
 Atlanta, but for practical purposes these illustrate the point. 
 
 Taking a low grade of dry goods, check gingham, it weighs 7 yards 
 to the pound, and the rate from Louisville to Atlanta is 63 cents per 
 hundred pounds, equal to 0.63 of 1 cent per pound, equal to 0.09 of 1 
 cent per yard. A 10 per cent reduction in rate would be 0.009 of a 
 cent a yard. The prices in Louisville, wholesale, would be 4J to 5 
 cents, and retail, 5 to 6 cents per yard. The 10 per cent in reduction 
 mentioned is a pretty heavy reduction, because, as has been pointed 
 out, every reduction in rate comes out of the net income. If you were 
 to make that reduction all around, you would put the railroad com- 
 
SEVENTH DAY. 63 
 
 pany out of business. Of course, in the illustration given, the reduc- 
 tion in rate of 0.009 of a cent a yard would not be felt by the consumer. 
 It would remain with the shipper, or consignee, whichever one paid 
 the rate, and either one of them could recover on the bond. On a high 
 grade of dry goods the effect of the rate would be still less. 
 
 Take a very cheap grade of men's shoes. One pair weighs 3^ 
 pounds, and the rate is 98 cents per hundred pounds, equal to 0.98 of 
 ], cent per pound, equal to 3.27 cents per pair. A 10 per cent reduc- 
 tion would equal 3 mills per pair. The wholesale price is 90 cents 
 per pair and the retail price $1.25 per pair. Those figures relate to 
 a very low grade of men's shoes. There would be a 10 per cent reduc- 
 tion, which would amount to 3 mills. The man who pays $1.25 for 
 those shoes would not feel that and it would not come out of his 
 pocket. If the example related to higher priced shoes — and of course 
 most shoes are higher priced — the difference would be still smaller, 
 relatively. 
 
 Take common soap. A box contains GO bars and the rate is 2" 
 cents per hundred pounds, equal to 0.27 of 1 cent per pound, equal to 
 22.2 cents a box. A 10 per cent reduction would be 2.2 cents reduc- 
 tion per box, equal to 0.036 of a cent per bar. The wholesale price 
 is $2 per box and the retail price is $3 a box. Of course on the retail 
 price of $3 a box there would be no reduction on account of the 2.2 
 cents less rate. The consumer would never know about that reduc- 
 tion. 
 
 Senator Doi.t-tvee. Take a grain rate, where the rate is nearly equal 
 to the home price. 
 
 Mr. HiNES. In some things it makes a difference. I say this is not 
 complete, but to a very great extent the person who had to pay the 
 rate would be entitled to the recover}^ of the overcharge on the bond, 
 because they would actually lose it. 
 
 Take the case of sugar, with a rate of 52 cents per 100 pounds, 
 equal to 0.52 of a cent per pound. A 10 per cent reduction equals 
 0.052 of a cent per pound. The wholesale price is 6.3 cents per pound 
 and the retail price is 7 cents per pound. It would not be felt there. 
 Another illustration : Flour, with a rate of 22 cents per 100 pounds, 
 equal to 0.22 of a cent per pound, equal to 10.56 cents per 48-pound 
 sack. A 10 per cent reduction would be equal to 1.05 cents per sack. 
 The wholesale price per sack is $1.50 and the retail price $1.65. 
 
 Take a commodity like coal, where the rate is frequently more than 
 the price of the coal at the mine. The rate from North Jellico mine 
 to Louisville is 95 cents per ton. The wholesale price is $1.40 per 
 ton, and the retail price, less cartage, $3.10 per ton. The retailer's 
 profit is 75 cents per ton. A 10 per cent reduction in rate would 
 amount to 9.5 cents per ton. As a practical matter, the experience 
 has been out in Kentucky that a reduction of that much on coal is not 
 felt by the consumer. The consumers never know the difference in 
 a case of that kind. The retail dealers hold the difference them- 
 selves. That was made a matter of complaint to the State railroad 
 commission. The railroad had voluntarily reduced their rates on 
 coal, but the retail dealers had absorbed their reduction. That will 
 be true in most cases. In some things a party would stand the loss 
 who would not get the overcharge, but I believe in the great majority 
 of cases the other would be the fact. Certainly the general assump- 
 
64 SEVENTH DAY. 
 
 tion that has prevailed that the bond would be worthless is altogether 
 
 Senator Dolliver. In the case of grain and such things where the 
 shipper is a mere middleman, he would probably pass over the over- 
 charge to the market, would he not? 
 
 Mr. HiNES. As I say, it is true as to some things. 
 
 Senator Foraicek. Let us see how it would work out as to grain. 
 Take wheat, for example. Can you give us the rate from some 
 important point ? . 
 
 Mr. HiNES. I think the rate is 22 cents from Louisville to Atlanta 
 and I7i cents from Chicago to New York. That is probably 
 constant. 
 
 Senator Foraker. Take the rate from Chicago to New York, and 
 assume that it is 17^ cents. 
 
 Mr. HiNES. Yes. " The rate is 17-| cents a hundred pounds, which 
 would be 101 cents a bushel. A 10 per cent change in that rate 
 would be a cent and five one-hundredths. 
 
 Senator Dolliver. Do you not think that would find immediate 
 expression in every wheat station in the Northwest ? 
 
 Mr. HiNES. I will say this, Senator, on a commodity of that sort, 
 where the original producer or the ultimate consumer would not be 
 the shipper or the consignee, that if there were a substantial advance 
 in the rate it would be felt by the producer or the consumer. One or 
 the other would bear it. 
 
 Senator Dolliver. Both, possibly. 
 
 Mr. HiXES. But if there was a reduction in the rate I think the 
 middleman would hold on to it. That milk case you referred to this 
 morning worked a very large reduction in the rates on milk in New 
 York City, nnd after two years' experience the manager of the rail- 
 road — I forget which one it was — reported that he made an investi- 
 gation and that the farmers were getting the same for their milk at 
 the point of shipment ; that the consumers were paying more in New 
 York City, and that the railroad had lost several thousand dollars by 
 reason of the reduction. In other words, the milk dealers of New 
 York City had absorbed the reduction in the rates. You will find 
 that is true nearly always, even where an advance would be tacked on. 
 
 Senator Foraker. Whose report was that ? 
 
 Mr. Hjnes. It was the report of some officer of the railroad whose 
 rates on milk were reduced. The advances made were by the pur- 
 chasers or consumers, but they do not ordinarily get the benefit of 
 the reductions. 
 
 The Chairman. Have you finished what you desire to sav on the 
 Esch-Townsend bill ? 
 
 Mr. HixES. I want to say a few words about the antirebate feature 
 of the Townsend bill. 
 
 The Chairman. Is it the pleasure of the committee that we shall 
 proceed further at this time, or continue in the morning? 
 
 Senator Foraker. I move that the committee do now adjourn. 
 
 (Thereupon, at 4.45 o'clock p. m., the committee adjourned until 
 to-morrow, Thursday, April 27, 1905, at 11 o'clock a. m.) 
 
REGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 EIGHTH DAY. 
 
 Thursday, April 27, 1905. 
 The committee met pursuant to adjournment. 
 Present: Senators Elkins (chairman), Kean, Foraker, Clapp, Car- 
 mack, and Newlands. 
 
 CONTINUATION OF STATEMENT OF MR. WALKER D. HINES. 
 
 The Chairjiak. Mr. Hines, you may proceed. 
 
 Mr. Hines. Mr. Chairman, I was discussing yesterday the Town- 
 send bill. In addition to its drastic features, which were as strong 
 and far-reaching as any of the State commissions, the bill gave the 
 Interstate Commerce Commission a task that any commission would 
 have been utterly unable to cope with, on account of the great extent 
 of the country, and the great extent of interstate traffic which is sub- 
 ject to Federal regulation; it proposes to charge the Commission with 
 all the incompatible' functions it has heretofore had, and in that re- 
 spect was like all the State commissions. Every rate which the Com- 
 mission fixed would have been the specific rate to be charged by the 
 carriers thereafter, and therefore would have had to be perpetually 
 administered by the Commission, after once fixed, so that by degrees 
 all the important rate adjustments of the country would have come 
 under its control, and there would have been a state of rigidity in 
 railroad tariffs which would have been very disastrous to the busi- 
 ness interests of the country. 
 
 The Townsend bill was habitually referred to in the public press 
 as the antirebate bill, and, as I said at the beginning of my statement, 
 the principal sentiment back of the demand for railroad legislation 
 was the sentiment prompted hy the belief that such rebates were com- 
 mon and ought to be stopped. The Townsend bill, however, made 
 no provision whatever which looked to the prevention of rebates. It 
 provided that the Commission should fix rates, but there would have 
 been substantially the same facilities and the same inducements to 
 cut the rates made l:)y the Commission as to cut the rates established 
 by the railroads. There was nothing whatever in the Townsend bill 
 which made any pretense of dealing with the evil of rebates. , 
 
 On the other hand, there were a great many features of that bill 
 which would have had a tendency to encourage rather than to dis- 
 courage rebates. The very fact that it imposed upon the Commission 
 such an extensive and impracticable set of duties in the making of 
 tariff rates would ]ia\'e made the Commission less able than ever to 
 
 8 D— 05 M 1 . 1 
 
 H. T. NEWCOMB, 
 
 LAWYER 
 BOND BUILDING. WASHINGTON, . D. C. 
 
EIGHTH DAY. 
 
 deal ^vith the prosecuting function which it is supposed to exercise 
 under the law, and which it is absolutely necessary for somebody to 
 exercise in order to see that i-ebates are prevented. 
 
 Ao-ain, it has been recognized since the passage of the Elkins Act 
 that°one of the most efficient means of preventing rebates is by suits 
 for injunction. These suits, under the Elkins Act, can be maintained 
 in any circuit court of the United States. All civil jurisdiction, by 
 the Townsend bill, in all cases to enforce the interstate-commerce act, 
 was vested in this court of transportation, which sat at Washington. 
 Manifestly it would he much more difficult for a single court to grant 
 and administer injunctions against secret rate cutting throughout the 
 United States than for the circuit courts to grant and administer these 
 injunctions in their respective jurisdictions. 
 
 If it were claimed that a railroad in California were giving secret 
 rebates, and it were desired to take advantage of the provisions of 
 the Elkins law to enjoin those rebates, manifestly the circuit court 
 of the United States in California could deal with that situation 
 much more effectively and see to the proper enforcement of the in- 
 junctions than a court in Washington. 
 
 Senator Fokaker. And at much less expense and trouble ? 
 
 Mr. HiNES. Yes, at much less expense, and it would be far more 
 effective. As a matter of fact, the Townsend bill compels the Com- 
 mission to make these specific rates. As I have pointed out, this 
 made it difficult, and -would have made it impracticable in many cases, 
 to reduce those rates in accordance with conmiercial conditions, 
 whereas under the present system the railroad, if the conditions re- 
 quire a reduced rate, lAay publish a rate which would be. open and 
 alike to all. Under the i:)roposed system those conditions might be 
 very powerful, and the Commission would not -have time to grant 
 reductions in rates or to change a specific rate fixed. Therefore these 
 commercial conditions would have constituted a much greater tempta- 
 tion to cut the rates of the Commission than to cut the rates made by 
 the railroads, because the published rates of the railroads can be 
 changed on short- notice, whereas the specific rates of the Commission 
 could probably not be changed for years, on account of the extensive 
 duties the Commission had to perform. 
 
 And again, while the specific evils of discrimination, which were 
 referred to in the President's message and which were persistently 
 discussed in the press, were the evils connected with private car lines 
 and terminal tracks, the Townsend bill made no reference whatever 
 to them, did not clear up the law on this point, and did not give any 
 additional light as to how to proceed in those cases. So that it wholly 
 failed to deal with the real subject that seemed to be needing atten- 
 tion. 
 
 Further than that, there was another very important respect in 
 which the Townsend bill would have made rebates more common. 
 It gave the Commission power to establish joint rates, and it gave the 
 Commission power to establish regulations and practices affecting the 
 transportation of property. Manifestly one of the most important 
 regulations a carrier may make is as to routing the traffic originating 
 along its line and going to a connecting line. It is habitual now for 
 the carrier on which traffic originates to have the right to specify the 
 routing when it goes to connecting lines, and, in my opinion, it has a 
 
EIGHTH DAY. 3 
 
 clear right to do that under the present law. That gives the carrier 
 on which the freight originated a very forcible method of preventing 
 rebates being given by its connections. They can say to a connecting 
 line, " If you violate the law and cut through rates we will quit rout- 
 ing by your line, and that A'l'ill withdraw through rates from you." 
 Therefore it makes each railroad company which is endeavoring to 
 obey the law a policeman to make its connections obey the law, but 
 under the provisions of the Townsend bill the Commission would have 
 the right to prevent railroads from routing traffic. It has always 
 been the attitude of the Commission that it ought to be left to the 
 shipper, and therefore a connecting line could make arrangements 
 with the shippers to control the routing. In other words, that would 
 have been a very marked source of additional abuses and departures 
 from published rates. 
 
 Senator Keak. Are not rebates given at present tlirough these 
 freight bureaus ? 
 
 Mr. HiNES. Yes, sir. A good many years ago the cotton rates 
 from Memphis to the East became very badly demoralized because 
 the roads leading out of Memphis were making private arrangements 
 with consignees, which they could only malie by a comprehensive 
 control of the routing. The railroads at Memphis therefore took the 
 routing into their own hands, and the consequence was that the prac- 
 tice of giving rebates was broken up, because, while the shipper might 
 make his contract, yet he coald not be sure that the traffic would pass 
 OA'er that line. Therefore that gave the initial road the power to 
 prevent these violations of law. Under the Townsend bill that power 
 would have been taken away from them. 
 
 The Townsend bill would have presented a very difficult constitu- 
 lional question for decision, and, in mj' opinion, would have thrown 
 the whole subject into new uncertainty for many years to come, 
 whereas the principles of the present law have noAV been pretty clearly 
 established. Any system which follows the present law can be car- 
 ried out with very much less uncertainty as to the legal status of the 
 provisions that are adopted. But this system of the Townsend bill 
 was entirely ne^^' and a complete departure from anj-thing ever con- 
 templated by the Constitution, and would have raised a great many 
 uncertain questions, and would have really postponed effective rail- 
 road regulation. 
 
 Inasmuch as the question of rebates is the one in which the public 
 takes the most interest, I thought it would be of value to the commit- 
 tee to discuss that subject separately. 
 
 It is clear that any revision of the law that is made ought to have 
 in view the best methods of absolutely preventing rebates, and not 
 only of stopping them now, but keeping them stopped. The Senate 
 select committee in 1886 declared that such abuses were— 
 
 the most flagrant and reprehensible form of arbitrary discrimination, and con- 
 stituted the greatest evil of the transportation system of the United States. 
 
 It was very plain from the report of that committee, as well as from 
 the provisions of the interstate-commerce act itself, that the preven- 
 tion of secret rebates was the most important ptirpose of that act. 
 That was what that committee had most in mind in formulating that 
 measure. The Interstate Commerce Commission has very graphic- 
 ally and effectively described the disastrous economic effects of these 
 
4 EIGHTH DAY. 
 
 evils, showing very clearly that, from a public standpoint, they are 
 the most serious evils with which the Government has to deal. 
 In the Commission's annu^d report for 1898 it said : 
 
 The general public gets little benefit from these reductions, for the reduc- 
 tions are merely confined to the heavy shippers. All this augments the advan- 
 tage of large capital and tends to the injury and often to the ruin of the small 
 dealers. These are not only matters of the gi'avest menace to business all over 
 the country, but they concern in no less degree the higher public morals. 
 
 In its report for 1900 the Commission said : 
 
 And what is most unfortunate of all, these discriminations favor the few and 
 place the many at a disadvantage; they aid the strong who have no need of 
 assistance, and" handicap the weak with burdens which by comparison are always 
 unjust and often destructive. 
 
 In its report for 1901 the Commission gave particulars and pointed 
 out how such rebates gave the large packing houses enormous advan- 
 tage over their smaller competitors, saying : 
 
 Already these compe'titors have in the main ceased to exist. We find in these 
 disclosures a pregnant illustration of the manner in which secret concessions 
 are tending to build up great trusts and monopolies at the expense of the small 
 independent operator. 
 
 The Commission also pointed out that rebates on shipments of 
 grain gave some one firm or individual the ability to purchase sub- 
 stantially all the grain handled by a given railway, thus driving the 
 small buyers out of the business and putting the millers out of the 
 market as independeiat competitors. 
 
 President Roosevelt dwelt upon these evils in his annual message of 
 1901, and again in his message to the last session of Congress, saying: 
 
 Abo^-e all else, we must strive to keep the highways of commerce open to all 
 on equal terms, and to do this it is necessary to put a complete stop to all rebates. 
 
 There can not be any phase of railroad regulation which is of 
 greater importance. Of course, I have no desire to minimize at all 
 the importance of securing to the public tariff rates which are reason- 
 able; but no matter how important that is, it is far more important 
 to insure to the public the same rates for the same service, so that 
 every member of the public can get the benefit of the same rate, and 
 so that no one will be driven out of business by some discrimination 
 made in favor of another. 
 
 As a matter of fact, with respect to a very large part of the traffic 
 of the country the rate is a verj^ insignificant element of the price, so 
 that the actual rate charged is not felt so seriously by any party to 
 the transaction from the time the article is first produced until it is 
 finally sold for consumption. But it is of vital importance that all the 
 persons dealing in those articles shall have an opportunity to do so on 
 equal terms, which they can not do as long as secret rebates are 
 permitted. 
 
 Another point which is probably worthy of consideration is that 
 the general theory on which it is supposed that railroads are given 
 extortionate lates is that thejr are so much more powerful than the 
 shippers. That theory does not operate to anything like the extent 
 that is supposed. But to the extent that it has any operation it is 
 negatived by the fact that these verj^ large industrial combinations 
 are as powerful as the railroads. There is no danger at all that the 
 railroads are going to impose upon them. Consequently the impor- 
 tant matter is to see that rebates are prevented, so that the general 
 
EIGHTH DAY. 5 
 
 public ca'n get the benefit of rates which these large industrial combi- 
 nations, by reason of their power, will see to it that the railroad gives 
 them, and it will furnish a self -regulating method of securing reason- 
 able rates and make them all subject to like charges for the same 
 services. 
 
 The Chaie31an. I believe everybody is agreed on that point of 
 rebates. 
 
 Mr. Hii^ES. The present conditions as to rebates are probably com- 
 paratively very satisfactory. The Interstate Commerce Commission 
 in its more recent reports has stated that there were comparative^ 
 few violations of law of this character. 
 
 It should be borne in mind that the motive on the part of the ship- 
 per to secure rebates is a continuing motive and a very powerful one, 
 and the fact that they are temporarily stopped is no "proof that they 
 will be permanently stopped. It is therefore necessary, in any re- 
 vision of the law, to insure the most persistent and continuing super- 
 vision of that branch of regulation, in order to make sure that the 
 shipping public Avhich strives to get rebates will not be encouraged by 
 any apparent laxity on the part of the executive power which is sup- 
 posed to enforce the law. 
 
 "When the original interstate-commerce act was passed rebates 
 stopped for two or three years. But gradually the shipping public 
 got the impression that the law was not going to be enforced in that 
 respect, and therefore rebates began to creep m. There is danger of 
 the same thing happening again unless very clear and sufficient pro- 
 vision is made to insure the constant enforcement of the law and 
 constant investigation of these matters. 
 
 There is nothing that so deters a shipper from seeking a rebate as 
 the fear that there is going to be some prompt investigation of the 
 matter, and possibly prosecution. Of course, it has the same de- 
 terring effect on the railroad which is willing to give rebates. If it 
 feels that nobodj^ is going to inquire about it or to enforce the law, 
 the probability of such violations of law is far greater than if it is 
 understood everywhere that there is an effective tribunal constantly 
 looking into the matter and prepared to act promptly whenever any 
 violation of the law is discovered. 
 
 Senator Forakek. In a word, how does the present practice of 
 giving rebates compare with what it was before the passage of the 
 Elkins law ? , 
 
 Mr. HiNES. As indicated in the Commission's reports and in other 
 sources of information on the subject, it seems that much fewer 
 rebates are given now than before the passage of the Elkins law. 
 But I suggest that there is danger of that being a temporary condi- 
 tion, like that which existed in 1887, when the giving of rebates was 
 stopped for a short time after the law was passed ; but after a time, 
 when it seemed that nobody was trying to enforce the law, it began 
 again. 
 
 Senator Forakee. Can you suggest, in that connection, what the 
 Commission say in their last report? I can not find it. 
 
 Mr. HiNES. i have not the quotation from the report of the Com- 
 mission, but I will locate that in a moment. 
 
 Senator Foraker. At another time. I thought you might have it. 
 
 The Chairman. Th&t section of the report can be inserted at this 
 point. 
 
g EIGHTH DAY. 
 
 The following extract from pages 7 and 8 of the eighteenth annual 
 report of the Interstate Commerce Commission, for 1904, is here 
 iTisprtjGcl < 
 
 In the fixing of rates upon all commodities for carriage in all directions and 
 between all points reached by railroads It is inevitable that much mjustice, 
 unflirness, unreasonableness, preference, and discrimination will be practiced, 
 notwithstanding the greatest care and ripest judgment may be exercised by the 
 railway officials charged with the duty of rate making. These errors of judg- 
 ment on the part of railway officials, many of them occurring in the hasty 
 exercise of the rate-making function or in the effort to press on to the discharge 
 of other urgent duties, constitute the reason for Federal regulation and the 
 basis of the present widespread demand for an amendment to the existing 
 statute which will enable their speedy correction when the results of such 
 errors are felt by the commercial public. . , , . 
 
 It seems appropriate to allude to what seems to us persistent misrepresenta- 
 tion on the part of many who are interested in opposing this legislation, that 
 the amendments desired would confer upon this Commission the power to 
 arbitrarily initiate or malce rates for the railways, and that it would be most 
 dangerous to place this vast autliority in the hands of five men, especially 
 five men who have had no experience as railway traffic managers. No such 
 power has been asked by or is seriously sought to be conferred upon the Com- 
 mission. Though the popular demand may eventually take that form under the 
 stress of continued delay in remedying ascertained defects in the present plan 
 of regulation, the amendment heretofore and now recommended by the Com- 
 mission, as to authority to prescribe the reasonable rate upon complaint and 
 after hearing, would confer in substance the same power that was actually 
 exercised by the Commission from the date of its organization up to May, 
 1897, when the United States Supreme Court held that such power was not 
 expressed in the statute. What the Commission could do if the authority so 
 denied should be definitely conferred by the Congress is this : After service 
 of complaint upon the carrier or carriers, after full hearing of each carrier 
 and shipper interested, and after careful investigation, a report and opinion 
 would be rendered, and if the decision should be against the carrier, an order 
 would be entered directing it to cease and desist from charging the rate com- 
 plained of, and to substitute therefor a rate found, upon the evidence before 
 the Commission, to be reasonable and just. This procedure is essentially 
 judicial in character and form and bears no resemblance in any degree to the 
 arbitrary administrative action which would result under the authority to make 
 tariffs of rates absolutely for the railways, either in the first Instance or after 
 some form of hearing or investigation. 
 
 jMr. HixES. Considering what it is necessarj'^ to do to secure the 
 constant iDrevention of secret rebates, it is necessary to refer to the 
 present law and to consider ^^hat has been the attitude of the tribu- 
 nal charged with the enforcement of the law, that branch of it which 
 seeks to prohibit secret rebates. 
 
 Section 11 of the act creates the Interstate Commerce Commission. 
 
 Section 12 requires the Commission " to keep itself informed as to 
 the manner and method in which * * * the business of all com- 
 mon carriers subject to the provisions of the act " is conducted. And 
 the Commission is " authorized and required to execute and enforce 
 the provisions of the act." Thus a duty of the broadest, most far- 
 reaching, find exacting character is imposed upon the Commission. 
 The railroad mileage of this country now exceeds 210,000 miles, with 
 a volume and variety of interstate traffic carried under conditions of 
 such diversity and complexity as to be almost beyond definite calcu- 
 lation or expression. The important and tremendously difficult task 
 of seeing that all of this traffic is always carried only at published 
 rates, and that unreasonable rat<?s and unjust discriminations are cor- 
 rected, is left with the Commission. No other department, tribunal, 
 or officer of the Government is specificially charged Avith any duty in 
 this respect. 
 
EIGHTH DAY. 7 
 
 To insure the adeqiiate and successful performance of its vitally- 
 important duties the widest powers of investigation are conferred 
 upon the Commission. 
 
 By section 12 the Commission is given the power to require " the 
 attendance and testimony of witnesses, and the production of all 
 books, papers, tariffs, contracts, agreements, and documents relating 
 to any matter under investigation." 
 
 Section 12 also provides that the circuit courts of the United 
 States shall compel obedience to the Commission's demands for the 
 production of evidence. The constitutionality of this provision was 
 denied on the ground that the court could not be required to exercise 
 its judicial powers merely in aid of a discriminative tribunal, but the 
 Supreme Court of the United States emphatically denied this con- 
 tention, and fully upheld this provision in Interstate Commerce Com- 
 mission V. Brimson (154: U. S., 447). 
 
 By an act of February 11, 1893, no person shall be excused from 
 testifying or producing contracts, papers, tariffs, agreements, and 
 documents before the Commission, or in obedience to its subpoena, 
 in any cause or proceeding, criminal or otherwise, based upon the 
 interstate-commerce act on any ground for incrimination, but full 
 immunity is guaranteed such person from any prosecution on account 
 of things concerning which he may testify. This act was assailed on 
 the ground that it was unconstitutional, Ijut the Supreme Court de- 
 clared it constitutional in Brown v. Walker. (161 U. S., 591.) 
 
 The Supreme Court has further declared that the Commission 
 should be given the liberal and hearty cooperation of the courts in its 
 investigations, saying in Interstate Commerce Commission v. Baird 
 (194 U. S., 25) : 
 
 The inquiry of a board of the character of the Interstate Commerce Commis- 
 sion should not be too narrowly constrained by technical rules as to the admSis- 
 sibility of proof. Its function is largely one of investigation, and it should not 
 be hampered in making inquiry pertinent to the Interstate Commerce Commis- 
 sion by those narrow rules which prevail in trials at common law where a strict 
 correspondence is required between allegations and proof. 
 
 And again : 
 
 To unreasonably hamper the Commission by narrowing its field of inquiry 
 beyond the requirements for the production of rates * * * will be to 
 seriously impair its usefulness and prevent the realization of the salutary pur- 
 pose for which it was established by Congress. 
 
 Thus, in obtaining information as a basis for enforcing the act the 
 Commission is given the broadest powers, which have been upheld 
 in the most complete way by the Supreme Court of the United States. 
 The original inter.state-commerce act of 1887 expressly prohibits 
 departures from tariff rates, as well as unjust discriminations between 
 shippers, and provided a heaw^' penalty for violations of the law. 
 
 In that connection it may be proper to call the attention of the 
 committee to the fact- that it was frequently contended during the 
 earlier years of the law that its enforcement was embarrassed by the 
 imposition of the penalty of imprisonment. As a matter of fact, the 
 offense of charging a different rate from that published by the carrier 
 was never punishable by imprisonment. It was punishable by a fine 
 not exceeding $5,000 for each offense. The offense of unjust discrim- 
 ination was punishable by imprisonment, but the other offense, which 
 directly covered the departure from published tariff rates, was never 
 punishable by imprisonment at any time. 
 
8 EIGHTH DAY. 
 
 I say the Senate select committee's report clearly showed that the 
 prevention of secret rates was the paramount purpose of the inter- 
 state-commerce act. It was that committee which made the provi- 
 sion for a Commission, and in explaining the necessity for the Com- 
 mission the committee in its report said : 
 
 What is everybody's business is nobody's business, and tlie conclusion seems 
 irresistible that specific enactments must undoubtedly fail to remedy the evils 
 which they are designed to cure unless an executive board be organized for 
 the special purpose of securing their enforcement. 
 
 Then they quoted from the testimony of one of the advocates of 
 railroad regulation who appeared before the committee, and indorsed 
 his statement, as follows : 
 
 We need first a specific prohibition of practices generally admitted to be 
 wrong, together with an executive to see that the laws are executed. Laws 
 without a police force or a police without laws are equally useless. 
 
 So that when the interstate-commerce act began its operation its 
 principal purpose was to prevent rebates. The Commission was 
 created for the purpose of enforcing the law, was given extensive 
 powers to secure the facts and was given every facility to enforce the 
 law, and then it was authorized by the amendment of 1889 to call 
 upon the district attorneys to prosecute all persons who might \'iolate 
 the law. 
 
 I think it will be of interest to the committee to refer to the annual 
 reports of the Commission, beginning at the beginning, in order 
 that the committee may see what the attitude of this executive tri- 
 bunal has been, so that it may determine what, if any, provisions are 
 necessary in addition in order to make sure that this branch of the 
 law is enforced. 
 
 In its first annual report, for 1887, the Commission declared that 
 special and secret rebates had almost ceased to exist, and that " no 
 provision in the act to regulate commerce is more important than that 
 which forbids them." 
 
 In its third annual report, for 1889, the Commission stated: 
 
 It was- believed that, at the outset at least and until the leading principles are 
 firmly settled, it would be more profitable for the Commission for the most part 
 to lay down rules of conduct for the present, and, after opportunity for frequent 
 conference and intercourse with the managers, to have those rules observed, than 
 to devote its time mainly to the institution and conduct of penal and criminal 
 prosecutions. 
 
 The Commission further said : 
 
 It is not in any way to be implied that official prosecutions should not be insti- 
 tuted directly by the Connnission. The enforcement of the law by the method.s 
 provided for in the act is part, and merely part, of its duty, and ijrosecutions 
 constitute one of those methods. It is only meant that prosecutions in the 
 courts, inaugurated and carried on by the Commission, would necessarily have 
 to supersede other duties that are more useful and apparently more important. 
 The preparation and conduct of prosecutions, if made the main duty, would 
 inevitably occupy nearly the whole time of the Commission and leave little oppor- 
 tunity for other matters. 
 
 The Commission proceeded to point out difficulties in the way of 
 securing evidence of rebates, and added : 
 
 These observations indicate in a general way the considerations that for a 
 time have governed the action of the Commission. The time has come, however, 
 when more aggressh'e steps can properly be taken. No excuse can longer be 
 made that the law is not understood or th;it sufficient time has not elapsed to 
 give the carriers opportunity to conform their methods to its requirements. 
 
EIGHTH DAY. 9 
 
 If I may be permitted to express an opinion contrary to that ex- 
 pressed here as the duty of the Commission, it seems to me that, as 
 indicated in that report, it began at that very time to take an incor- 
 rect attitude as to the law. "^\Tien it assumed that it had other duties 
 that were of more benefit and more importance than the prevention 
 of secret rebates I think it made a mistake. That was the most 
 important part of the law, and it was the very part of the law where 
 police powers were most needed to establish the enforcement of the 
 law. 
 
 In its fourth annual report, for 1890, the Commission said : 
 
 There Is every reason to believe that the provisions which were intended to 
 preserve uniformity of rates and prevent unjust discriminations have been 
 very directly disobeyed or evaded in a great number of cases and in all sections 
 of the country when competition between the carriers was active and severe 
 and not held in restraint by the railway associations. 
 
 I think that was the natural outgrowth of the position which the 
 Commission had announced — that it had other duties to perform more 
 important than the prevention of secret rebates; that it could not 
 devote itself mainly to the prevention of rebates, because if it did it 
 would take so much time from other duties. That was the most 
 important duty it had to perform — one that, in the interest of the 
 public, there was most need of being discharged. 
 
 We find in the third annufil report a declaration that it is not so, 
 and the fourth declaring that the rebates are open and notorious. 
 
 In this same report there is rather a lengthy extract which I think 
 might be of interest to the committee as showing the difficulties really 
 in the way of eflEective supervision of these rates, and therefore the 
 importance of making it clear that the tribunal charged with the 
 enforcement of the law must devote enough time to that subject to 
 prevent those rebates. 
 
 In its fourth annual report, for 1890, the Commission said : 
 
 When the question arises, as it often must, why obedience to the law is not 
 more completely secvired, it is in part answered by the very magnitude of the 
 country and of its enormous railway mileage, equal to many times that of any 
 other country, and considerably exceeding that of all Europe combined. 
 
 The railway mileage of this country in round numbers is about 160,000 miles. 
 The number of railway employees exceeds 700,000, and adding to these the 
 number connected with railroad transportation in various capacities, such as 
 officials of roads, officers and employees of associations, traffic solicitors, legal 
 advisers, and others, the aggregate is not far from a million, or nearly one- 
 twelfth of the adult male population of the country. The business done includes 
 the carriage of 540,000,000 tons of freight and 472,000,000 passengers. The 
 enormous extent of the subject-matters of regulation is shown by these state- 
 ments. Any criticism of the efficiency of regulation would obviously be defect- 
 ive if it falied to take note of the vast number of persons and the extent of the 
 business to be regulated. The extent of the country is also of vast importance. 
 Railway regulation in a small and compact country, where all the carriers are 
 easily kept under observation, and where the circumstances of carriage in all 
 parts are substantially alike, is a small matter compared with the regulation 
 in a country so extensive as this, where the transportation is subject to such 
 variety of circumstances and where differences in conditions of carriage in the 
 different sections are so striking and so peculiar. That which may be a simple 
 task to a regulating commission in any other country is obviously a far more 
 complicated and difficult undertaking in the United States, and one that calls 
 for ceaseless exercise of vigilance and exacting labor. A commission in this 
 country has a field of jurisdiction of enormous extent, necessarily giving rise to 
 a great variety of duties demanding daily attention, ilatters of importance 
 frequently require prompt action in various parts of the country at the same 
 time. A performance of such imperative duties as to make investigations, to 
 
10 EIGHTH DAY. 
 
 keep watch over the filing ami publication of taritfs, to examine and revise 
 classifleation and rates, to collect and tabulate statistics, and to prepare deci- 
 sions upon conti'ovei-ted questions, leaves little if any opportunity for the com- 
 missioners personally to do more than to lay down general rules for the regula- 
 tion of the business" under the la\v. I'rosecution of ofl'enders for violations of 
 the laAv are undoubtedly necessary and important means for the effectual 
 enforcement of its provisions, and several i^rosecutions of this character have 
 been instituted and carried on at the instance of the Commission. But the 
 enforcement of the rules laid d(rtvn, iuid especially of the penal provisions of the 
 statute, must largely be left to the parties injured by their violations, or to the 
 public authorities in the sections where the violations occur. Had the Com- 
 mission the power, which has been asked for heretofore, to make and conduct 
 investigations through agents clothed with the authority t(j call for the records 
 and papers of the carriers when the published rates are believed not to be 
 observed, or when in any other particular there is reason to suspect that the law 
 is being disobeyed, it would then have in its hands a means of enforcement 
 which at this time does not exist. 
 
 And yet the Commission took the position — although tliat was the 
 jDrincipal evil then existing, and although it was the evil sought to be 
 jDrevented by the courts, and although it was the tribunal established 
 to enforce the law — that so much of its time w&s taken up in laying 
 down general rules that it had no time to enforce the law in these 
 l^articiilars, and that that must be left to the parties injured or to the 
 public officials. As a verj' natural outgrowth of that attitude on the 
 part of the Commission, it was called upon to say, in the same report : 
 
 The act to regulate coiiimerce is jierhaps most often disregarded in the giving 
 of rebates or the granting of special rates for the transportation of property of 
 large shippers. 
 
 It is perhaps not an essential part of the line of argument I am 
 now pursuing, but it is an interesting fact that the annual report for 
 1892 shows that it had begun an investigation as to whether a claun 
 that a certain line of railway formerly belonging to the Illinois Steel 
 Company, at Chicago, and leading from its plant, had been placed 
 under the control of a nominally separate corporation whose stock 
 was all owned by the steel company, and that this nominal corpora- 
 tion had then united in a joint through rate with one of the trunk 
 lines from the East, receiving as its share of the through rate an 
 amount grossly large in proportion to the service rendered, which 
 amount really and ultimately went into the treasury of the steel com- 
 pany, and virtually giving it a preference. 
 
 Thus in 1892 it took up the investigation of the very switch 
 terminal proposition that the public is interested in to-day. It was 
 in that case that Brimson refused to testify. That case went to the 
 Supreme Court, and that court held that he must testify. But from 
 my examination of the reports of the Commission I have not found 
 that anything further was done in that case. Of course, it maj"^ have 
 been carried to an effective conclusion, but I have not been able to find 
 that anything was done after that time. Still, the same controversy 
 exists, and, so far as I know, no definite action has resulted in any 
 decision by a court as to how far the law can prevent that sort of 
 undue preference. 
 
 In its seventh annual report, for 1893, the Commission pointed out 
 that it must be evident, upon reflection, that the only effective mode 
 of dealing with the discriminations between individuals, which are 
 effected by departure from the public rate, is to place them in tho 
 category of criminal misdemeanors, and showed that the statute had 
 
EIGHTH DAY. 11 
 
 characterized all such departures as misdemeanors. This report then 
 proceeded : 
 
 If such offenses escape detection and punishment, it is not because of struc- 
 tural defect or wealsness in the criminal machinery provided for that purpose, 
 but because those charged with the administration of the criminal law are 
 unable or unwilling to enforce it against this class of offenders. 
 
 This report then proceeded : 
 
 In this connection it should be observed that the Commission created under 
 the act to regulate commerce is wholly without authority as respects those dis- 
 criminations between individuals which are made misdemeanors by that enact- 
 ment. True, the Commission is charged with the general duty of enforcing and 
 executing the provisions of the act, but it is denied that it has any of the func- 
 tions pertaining to the detection and punishment of delinquents, except such 
 functions as may be exercised by private citizens. It has no special means of 
 discovering offenders and subjecting them to the disgrace of exposure ; mucli 
 less can ' It institute criminal proceedings, conduct trials against persons, or 
 inflict penalties upon the convicted. 
 
 It seems to me that that shows a remarkable growth on the part of 
 the Commission of the idea that its duty under the law was to lay- 
 down general rules and that it was not part of its duty to enforce 
 the law. The law plainly says it is the Commission's duty to enforce 
 it, and requires district attorneys, upon the request of the Commission, 
 to institute prosecutions, and gives the Commission the fullest possible 
 powers of investigation for that purpose. It seems to me remarkable 
 that the Commission, by reason of this gradual development of the 
 contrary theory, should get to a point where it would announce that 
 the Commission " is wholly without authority as respects those dis- 
 criminations between individuals which are made misdemeanors by 
 that enactment," and to deny " that it has any of the functions per- 
 taining to the detection and punishment of delinquents, except such 
 functions as may be exercised by private citizens." 
 
 The Commission further said, m that report : 
 
 " No amendment of this statute, therefore, is necessary or suitable, 
 with the view of giving greater power to the Commission in enforc- 
 ing its penal provisions. If immunity is secured from these demor- 
 alizing influences, if the notorious and intolerable practices which the 
 present law condemns are effectual^ dealt with, it will be through 
 greater vigilance and more vigorous effort on the part of those who 
 are charged with the duty of executing the criminal laws, aided it 
 may be by enactments which tend to diminish the inducements to 
 such transgressions." 
 
 The Commission seemed to lose sight of the fact that it was the 
 tribunal to exercise that greater vigilance and to make the more vig- 
 orous effort. And the Commission added, in the same report, that 
 discriminations are still sufficiently prevalent to cause much misgiv- 
 ing, and further added : 
 
 '' To attempt the extermination of illegal preferences by executing 
 the penal provisions of the act, to ferret out the vast number of con- 
 demned transactions, to discover the parties who participate in them, 
 to secure legal evidence of guilt, to prosecute them to conviction and 
 punishment, and by such means to enforce obedience to the rule of 
 equality is, of course, a difficult undertaking." 
 
 That is the very work that some specific tribunal will have to do if 
 the law is continually enforced against rebates ; and that is the work 
 
12 EIGHTH DAY. 
 
 which the Commission, as it construed the law, felt that it was not 
 
 required to do. ^. ,■ x .1 n j. 
 
 In the same report (I called the committee's attention to the tact 
 iust now) the Commission declared that it was not necessary or suit- 
 able to give it any greater power to enforce the provisions of the law 
 against secret rate cutting; but in that report it called upon Congress 
 to give it ample authority to correct ascertained excesses and enforce 
 the observance of relative justice. 
 
 That, within certain limits, is, of course, an important function; 
 but it is not nearly so important from the public standpoint as the 
 prevention of secret discriminations. And the Commission pro- 
 ceeded to state that the great and permanent work of public regula- 
 tion was " to give each community the rightful benefits of location, 
 to keep different conxmodities on an equal footing so that each should 
 circulate in natural volume, and to prescribe schedule rates which 
 shall be reasonably just to both shipper and carrier." 
 
 But the greatest and paramount work which Congress attempted 
 to put on the Commission was the practical work of preventing secret 
 discriminations. 
 
 Further in the Commission's seventh annual report it pointed 
 out that under the twelfth section of the act the extent and duty im- 
 posed upon it with respect to the duty of enforcing the penal clauses 
 was to report such violations '" as may come to its knowledge " to the 
 Department of Justice and request the institution of proper proceed- 
 ings, adding: 
 
 " The intention of the law was to relieve the Commission of the 
 control and direction of the criminal proceedings which might be 
 instituted." 
 
 I think it made a mistake there; the intention of the law was to 
 put that responsibility on the Commission. 
 
 In its eighth annual report, for 1894, the Commission said : 
 
 " Considerable public discontent has been manifested on account 
 of the nonenforcement of tlie penal provisions of the act to regulate 
 commerce, and the expression of this feeling has included some 
 thoughtless criticism of the Commission." 
 
 In explanation the Commission said that under the provisions of 
 the twelfth section it had always considered reports to the Depart- 
 ment of Justice of the facts concerning alleged violations of the penal 
 provisions of the act to be one of its duties, and added : 
 
 " But it should be borne in mind that this does not impress upon 
 the Commission the duties of a detective bureau. It means that the 
 Commission shall keep' itself informed of the business practices of 
 any carriers, and wherever facts come to its knowledge which appear 
 to warrant action that it shall request the institution of criminal pro- 
 ceedings by the Department of Justice to that end. This is neither 
 a detective nor prosecuting function — it is rather the result of that 
 continuous investigation into the transportation business of the coun- 
 try which the act to regulate commerce specifically requires of this 
 Commission." 
 
 The Commission further said in this connection : 
 
 " If, then, in the course of such general and continuing investiga- 
 tion the Commission shall become apprised of facts which appear to 
 warrant their presentation to the officers of the Government charged 
 with the prosecution of criminal offenses, it is clearly required to 
 
EIGHTH DAY. 13 
 
 further the execution and enforcement of the law by reporting such 
 facts to the Department of Justice and requesting tlie institution of 
 proper proceedings." 
 
 The Commission further said: 
 
 " The civil side of the law presents a wholly different aspect. 
 Under tlie requirements of the statute the Commission is continually- 
 engaged in a general investigation as above described, and such con- 
 tinuous inquiry results in many special investigations instituted by 
 the Commission upon its own motion, as well as upon formal com- 
 plaint brought by shippers and others under various provisions of 
 the statutes." 
 
 The Commission further added : 
 
 " These statements are made for the purpose of setting out as 
 clearly as possible the difference between criminal and civil pro- 
 cedure under the act, and describe generally the intentions of the 
 Commission in civil matters as distinguished from its duty or power 
 in relation to criminal violations of the statute." 
 
 In the same report the Commission said : 
 
 " It is thought, and it has been openly charged, that rebates are 
 made to shippers by some railroads in disobedience of the law in a 
 degree sufficient to amount to millions of dollars per annum." 
 
 So that this eighth annual report is additional evidence of what 
 seems to me the mistaken conception the Commission had as to the 
 scope of its duties. It assumed that its principal work was to conduct 
 these general investigations as to the relation of rates all over the coun- 
 try and to attempt to secure relative justice in tariff rates, and to hold 
 extensive investigations for that purpose ; and then, if in the course of 
 such investigations any information of secret rebates happened to 
 come to the Commission's attention, it was proper for it to turn those 
 matters over to the Department of Justice. But it repudiated en- 
 tirely the idea that it was its business to find out these secret rebates 
 and to see that they were persistently and effectively prosecuted. 
 And I think it is a very natural consequence that the same report dis- 
 closes the fact that rebates are made to shippers by some railroads in 
 disobedience of the law in a degree sufficient to amount to millions of 
 dollars per annum. 
 
 Senator Caemack. AVould there be any harm in making the law so 
 plain that there could be no misunderstanding about it in that 
 respect ? 
 
 Mr. Hikes. That is the point I wanted to impress upon the com- 
 mittee — that it ought to be made so clear that there could be no mis- 
 understanding. There must be some tribunal that will make it its 
 special business to see that the law against rebates is enforced. 
 
 Senator Caemack. And provide all necessary facilities? 
 
 Mr. HiNES. Yes ; all necessary facilities. 
 
 Senator Newlands. Has the Commission been provided with a suf- 
 ficient fund to enable it to do all the detective work and inquisition 
 and investigation that is necessary to expose this system of rebates and 
 discriminations ? 
 
 Mr. HiNES. I should think that a thoroughly effective supervision 
 of that matter would require a larger force than the Commission 
 has — a very much larger force. 
 
 Senator Newlands. It would be something in the nature of a de- 
 tective force, would it not ? 
 
14 EIGHTH DAY. 
 
 Mr. Hikes. Yes ; necessarily. 
 
 Senator Newlands. Has the Commission any such force ? 
 
 Mr. Hikes. It has some force of that sort, I think. I know it has 
 with respect to safety appliances. 
 
 Senator Newlands. Yes. Do you know what the appropriation 
 for that purpose is ? 
 
 Mr. HiNES. I do not Imow what it is. 
 
 Senator Kean. Here it is, in this report — the total expenditures. 
 
 Senator Caemack. The Commission is right about its not having 
 power to do that. It may have the authority under the law, but it 
 has not the facilities. 
 
 Mr. HiNES. It has, of course, some facilities; but it used all the 
 facilities it had and took up the time of its own members with these 
 other matters which were relatively not so important. 
 
 Senator Kean. The amount of the appropriation is given on page 
 117 of the report. 
 
 Mr. HiNES. In the Commission's ninth annual report, for 1895, it 
 said : 
 
 " In many quarters it weems to be assumed that the principal pur- 
 pose of the law is to ferret out the individual instances of rate cutting 
 and other secret devices, hy which in A-arious ways one shipper gets 
 an advantage ovei- another, and that the sijecial .object of the statute 
 as well as the chief duties imposed upon the Commission are to see 
 to it that railroad cari-iers observe their public schedules. That such 
 a theory is superficial and deceptive appears plainly upon a little 
 reflection." 
 
 I think that was a radical error upon the part of the Commission. 
 I think the whole history of the law and the terms of the law show 
 that one of its principal purposes was to see to it that railroad car- 
 riers observed their piil^lic schedules. 
 
 The Commission further said in this report: 
 
 " Discriminations between individuals in the same locality, by rate 
 cutting and like practices, can be reached and prevented only by 
 treating them as criminal misdemeanors, and when the law gives 
 them this character they must be detected and punished in the same 
 manner and by the same agencies as other criminal offenses. With 
 reference to their prevention and the methods whereby those ^^ho 
 commit them may be convicted and punished, they differ in no impor- 
 tant respect from petit larceny or any other misconduct which the 
 law characterizes as a crime. In the nature of the case the provisions 
 of the statute in this regard are mainly incidental to its greater 
 purpose." 
 
 If you gentlemen will read the report of the Senate select com- 
 mittee, you will see that that was its paramount purpose — ^to insure 
 the observance of public rates. Yet the Commission, by this errone- 
 ous attitude, got to the point where it announced that that was simply 
 incidental to its greater purpose. 
 
 Discussing the question as to the advisability of punishment and 
 imprisonment for violators of the law, the Commission said : 
 
 "As to the merits of this question the Commission has no means of 
 forming a more intelligent judgment than have members of the legis- 
 lative branch of the Government. We are not furnished by observa- 
 tion or experience with any special grounds for a satisfactory con- 
 
EIGHTH DAY. 15 
 
 elusion as to which mode of piinisliment is best calculated to redress 
 the evils and restrain the nusconduct made penal by the statute." 
 
 It would seem that the tribunal Avhich is expressly created for the 
 purpose of enforcing the la^v ought to have especially good oppor- 
 tunities for deciding what were the best sort of penalties to enforce 
 it; and that is simply an additional illustration of the attitude that 
 the Commission has taken as to its own relation to the law. ' 
 
 In its tenth annual report, for 189G, the Commission said : 
 
 " This decision " — the decision in the case of Brown v. Walker, 
 to which I called the conmaittee's attention j ust now — ^" seems to have 
 effectually removed the embarrassments hitherto encountered in 
 obtaining the testimony of unwilling witnesses in penal cases, while 
 under it and the ruling of the Supreme Court in 1894 in the Brimson 
 case little difficulty is now experienced in securing the attendance 
 and testimony of such witnesses in proceedings before the Com- 
 mission. It is worthj^ of mention that the power and authority 
 affirmed by these decisions is so fully recognized that in the course 
 of recent investigations by the Commission no attempt has been 
 discovered to conceal the facts pertinent to an inquiry or to prevent 
 the disclosure of any desired information." 
 
 That was in the Commission's tenth animal report, for 1896. 
 
 In its eleventh annual report, for 1897, the Commission said : 
 
 " We are constrained to believe that one of the worst features in 
 the present situation arises from a departure from published rates 
 in favor of particular shippers." 
 
 In the same report the Conomission said : 
 
 " Whatever acts are declared to be criminal offenses, and whatever 
 criminal remedies may be applied to their correction, are matters 
 which pertain almost wholly to the functions of the Federal courts 
 and the various district attorneys of the United States." 
 
 Senator Newlands. Eight there, do you claim that it was the duty 
 of the Conunission to make thorough investigation regarding these 
 rebates and discriminations, and to make up the case and submit it 
 to the Attorney-General or the district attorneys, or did they have 
 the power under the act to commence proceedings themselves ? 
 
 Mr. HiNES. The act gave them the right to call upon the district 
 attorneys to prosecute for all violations of the law. 
 
 Senator Newlands. Directly upon the district attorneys ? 
 
 Mr. Hikes. Yes ; who, of course, conducted the proceedings, how- 
 ever, under the direction of the Attorney-General. 
 
 Senator Newlands. And they were expected to present the case, 
 were they, to the district attorney ? 
 
 Mr. HiNES. I draw that conclusion from the act — that they were 
 to execute and see that the law was executed and enforced, and were 
 to keep themselves adAdsed as to the acts of carriers, and were given 
 the fullest possible means of getting information on that subject, 
 and were authorized to call upon the district attorneys to institute 
 all necessary prosecutions. 
 
 Senator Newlands. But the executive department seems to have 
 interpreted the law substantially as they themselves have interpreted 
 it, because I believe the uniform custom has been to put jiidges and 
 lawyers upon this Commission; whereas your interpretation of the 
 law would indicate that it ought to be more in the shape of a secret- 
 service inquiry. 
 
16 EIGHTH DAY. 
 
 Mr. HiNES. I think it is clear from the report of the Senate com- 
 mittee and from the language of the act that that tribunal was 
 designed to enforce the law and wiis given inquisitorial functions to 
 enable it to ascertain violations of the law and to see to their prosecu- 
 tion and prevention ; and the point I Avas making was not by way of 
 criticism of the Commission or of any department of the Government 
 for the construction that is put on it, but that in any revision of the 
 law it would be important to see that it was clearly understood that 
 there was some executive tribunal whose business it was to do these 
 things. 
 
 In this same report— that is, the report of 1897— the Commission 
 said that the law was undoubtedly designed to punish giving favored 
 persons lower rates than those in the published schedules, but that 
 the law had been so construed as to require not only proof of a rate 
 lower than the published rate, but also that some other person or 
 persons had actually paid the higher rate for like contemporaneous 
 services. 
 
 The law had been construed that way only with reference to an 
 indictment for unjust discrimination. One of the district courts 
 held that where there was an indictment for unjust discrimination 
 it must lie pro\'ed that the party had been discriminated against as 
 well as that a Jiartj' had gotten a lower rate. But there was another 
 provision of tlie law, which was not involved at all in that case, 
 which prohibited every departure from the tariff rates and made it 
 punisl^able by a fine of not more than $5,000, which did not require 
 any jsroof of anything except that the tariff rate had been departed 
 from in a single instance. 
 
 In its twelfth annual report, for 1898, the Commission said : 
 
 " Tariffs are disregarded, discriminations constantly occur, the 
 price at which transijortation can be obtained is fluctuating and 
 uncertain. Railroad managers are distrustful of each other and 
 shippers all the while in doubt as to the rates secured by their com- 
 petitors. The volume of traffic is so unusual as to frequently exceed 
 the capacity of equipment, yet the contest for tonnage seems never 
 relaxed. Enormous sums are spent in purchasing business and secret 
 rates accorded far below the standard of published charges. The 
 general public gets little benefit from tliese reductions, for conces- 
 sions are mainly confined to the heavier shippers. All this augments 
 the advantages of large capital and tends to the injury and often to 
 the ruin of smaller dealei'S. These are not only matters of gravest 
 consequence to the business welfare of the country, but they concern 
 in no less degree the higher interests of public morality."' 
 
 They said, again: 
 
 " We are satisfied from investigations conducted during the past 
 year and referred to in another portion of this report, as well as from 
 information which is perfectly convincing to a moral intent, that a 
 large part of the business at the present time is transacted upon illegal 
 rates. Indeed, so general has this rule become that in certain quar- 
 ters the exaction of the published rate is the exception." 
 
 Senator Kean. "What report was that? 
 
 Mr. HiNES. That was the report for 1898. 
 
 I think it is entirely legitimate to dra\v the conclusion that that 
 unfortunate condition was largely due to the fact that the shippers 
 that were seeking rebates and the railroads that w-ere yielding to that 
 
EIGHTH DAY. 17 
 
 pressure all felt that nobody was looking after the enforcement of 
 the law and that that condition had been realized which the Senate 
 .select committee tried to guard against — that what was everybody's 
 business was nobody's business. 
 
 Senator Caemack. And such conditions are likely to be unless there 
 is a rigid enforcement of the law ? 
 
 Mr. HiNES. I think so. I think it is likely to return, because, as 
 I think I stated before you came in, there is, of course, a continuing 
 and a powerful inducement on the part of a shipper at all times to 
 get a secret rebate, if he thinks he is not going to get into trouble on 
 account of trying to get it, and on account of getting it if he can. 
 
 In the Commission's fifteenth annual report, for 1901, it again 
 referred to the widespread prevalence of secret rebates and to the 
 unfortunate economic effects of that condition, and in that report it 
 also said : 
 
 " The act requires carriers to publish interstate rates and adhere to 
 such published tariffs. But the tenth section, as construed by the 
 courts, does not punish, otherwise than by a, possibly nominal fine, a 
 departure from the published tariff, unless there is actual di: crimina- 
 tion between shippers. To convict for unjust discrimination it is 
 necessary to show not merely that the railway company paid a rebate 
 to a particular shipper, but it must also be shown that it did not pay 
 the same rebate to some other shipper with respect to the same kind 
 of traffic moving at the same time under similar conditions." 
 
 As I say, a district court had held that as to the offense of unjust 
 discrimination; but there was an entirely separate offense under the 
 original interstate-commerce act, whei'eby any departure from the 
 tariff rate was a misdemeanor and was punishable by a fine of not 
 exceeding $5,000. With respect to that offense, all you had to prove 
 was that one man got less than the published rate. You did not have 
 to go further and prove that somebody else paid the published rate 
 under substantially similar circumstances and conditions. 
 
 The Commibriion dismissed that offense of charging less than the 
 published rate and characterized it as " punishable by a possibly 
 nominal fine." Well, the fine was " not exceeding $5,000." Of 
 course it might possibly be nominal, but it might possibly be very im- 
 portant; and as every separate departure from the tariff rate would 
 be a separate offense, that would have constituted a very big penalty 
 in the long run if a number of cases had been instituted and prose- 
 cuted to a successful conclusion under that part of the law. That, 
 of course, was before the ado^jtion of the Elkins Act. 
 
 I think as early as 1892 or 1893 the Commission called on a dis- 
 trict attorney out in Kansas to institute a suit against the Missouri 
 Pacific to enjoin it from discriminating in its tariff' rates between 
 Wichita and some other point which I do not now remember. 
 
 Senator Fokakee. Omaha ? 
 
 Mr. HixES. Omaha. The position taken \^as that under the lan- 
 guage of section 12 the Commission did not have to have a prelimi- 
 nary hearing, but could call on the district attorney of the United 
 States to file a suit for an injunction to prevent any violation of the 
 law. In the spring of 1902 the Commission for the first time adopted 
 that procedure to prevent a secret rebate, and it proved exceedingly 
 efficacious out at Chicago and at Kansas City. There was some ques- 
 8 D — 05 M 2 
 
18 EIGHTH DAY. 
 
 tion as to whether that was Avithin the scope of the act, but it was not 
 tried until 1902. In 1903 the Elkins Law Avas passecl, which ex- 
 pressly applied that procedure for the pre\^ention of either rebates 
 or discrimiinations in tariff rates. In Alareh, 1903, the Supreme 
 Court held that before the Elkins Act tliat procedure, at least as to 
 tariff rates, was not authorized, but the question was never made until 
 fifteen years after the act was passed in a case seeking to prevent 
 secret rebates. 
 
 Since the passage of the Elkins Act there has been, as is shown by 
 the reports of the Commission, a very marked improvement in the 
 conditions as to secret rebates : but, as I pointed out, there was that 
 same improvement immediately after the passage of the original act, 
 but in a few years it began to seem that nobody was looking after 
 that branch of the law, a'nd there came about a generally lax condi- 
 tion as to its observaiice. And there is danger of that same thing 
 recurring, in vie^v of the constant temptation on the part of shippers 
 to get the advantage which they can get by a secret rebate and of the 
 pressure which they can and will bring to bear on the railroads if 
 there is not a general fear of a persistent and efficient investigation 
 and enforcement of the law. 
 
 As suggestions on the question of rebates, I would saj', in the first 
 place, that the law ought to be made so plain that there would be no 
 opportunitj^ for a misunderstanding as to what it means, and that 
 some tribunal Avill understand that a paramount purpose of the law 
 is to prevent secret rebates, and that the paramount purpose of the 
 existence of the tribunal is to see that that law is enforced. 
 
 I should think that it would be helpful to give the Commission 
 the power, through its experts, to investigate the books and papers 
 and vouchers of the carriers and shippers with respect to shipments 
 of interstate commerce. The Commission itself has the power now 
 to call for those things, but of course it could be exercised with a 
 great deal more facility if it had the power to send an expert to 
 examine these things without having them actually produced at a 
 session of the Commission. 
 
 I would suggest also that it ought to be made clear that the dis- 
 trict attorneys shall act directly in response to the request of the 
 Commission, withottt waiting for instructions from the Attorney- 
 General. 
 
 The Chairman. And on their own motion, too? 
 
 Mr. Hikes. And on their own motion. 
 
 The Chairman. "Without any reference to the Commission, if 
 they find the law has been violated? 
 
 Mr. Hines. Yes. 
 
 Senator Carmack. They are not going to act without conferring 
 with the Attorney-General, whether you give them authority to do 
 it or not, unless you give the power to the Commission to direct them 
 to do it. 
 
 Mr. Hines. I should think, as the Attorney-General is bound to 
 have a general control of the Department of Justice, that the law 
 ought to show that he would have the right to intervene in any way 
 he Avanted; but it ought to be clear that the district attorney should 
 go ahead on the instructions of the Commission. 
 
 The Chairman. Do you not think it would be wise to provide that 
 the district attorneys in the various districts shall enforce all of 
 
EIGHTH DAY. 19 
 
 these laws as well as any other laws where they find there are 
 violations? 
 
 Mr. HiNES. I do not see any objection to that. 
 
 The Chairman. That has been the usual rule in enforcing the 
 laws of the United States. 
 
 Mr. HiNES. This is a peculiar branch of the law, however, Avhich 
 it seems to me needs a special tribunal to enforce it : and one danger 
 is, if you go and provide that some other set of officers has an inde- 
 pendent duty to enforce it, you will probably have tnere a division 
 of responsibility; whereas if you center the responsibility right on 
 t the Commission or on some one tribunal, there is then no excuse for 
 saying that " somebody else ought to do this," or " they are as much 
 required to do it as I am." 
 
 Another important point, in my opinicn, is to remove from tlie 
 (Commission all appearance of duty to hold i:)roloni;'ed hearings as 
 a court, and to render opinions on general relative jiistice, or any- 
 thing of that sort. I think that Avhenever it is satisfied from its 
 own investigation or from its own knowledge of the subject that 
 tariff rates are unreasonably high or unjustly discriminatory, it 
 ought to be authorized to proceed before some other tribunal to have 
 those matters corrected ; but do not have the time of an adminis- 
 trative tribunal taken up ^vith extensive investigations and the 
 formulation of rules and doctrines. Let all that be done by an inde- 
 pendent tribunal which is properly adapted to deal with the prop- 
 erty rights that are involved, and avhich is not charged with the 
 incompatible functions of being a detective and a prosecutor. 
 
 Another very important thing in the prevention of secret rebates 
 is to preserve to the fullest extent compatible with the public wel- 
 fare flexibility in rates. Commercial conditions are alwa3's changing, 
 and the very pressure of commercial conditions malres it exceedinglj' 
 important from time to time for & railroad to readjust rates. If those 
 rates are crystallized into Government rates which can not be clianged 
 except by the intervention of some (government tribunal, there will be 
 in that way a temptation to depart from the published rate and^the 
 lawful rate in order to meet some overpowering commercial condition ; 
 whereas if the railroad had the right to take the initiative and to 
 change its rates, it could publish its rate, and then it would be open 
 to all alike. Of course the trouble is that if there is some overpower- 
 ing temptation to depart from the law in some particular, if it is done 
 it simply paves the way for other departures where there would be 
 less justification and' a great deal more public injury. So, as far as 
 it can be done consistently with the public interest, flexibility ought 
 to be preserved in railroad rates, so that published rates may be 
 changed to meet changing conditions. 
 
 As to the prevention or correction of unlawful tariff rates I would 
 suggest, as I have just done, that the useless delay incident to pro- 
 longed hearings before a tribunal which has no final power over the 
 matter ought to be eliminated. I thinlc that as a matter of fair 
 protection to the railroads it ought to be treated as a purely judicial 
 question, and that in order to secure the flexibility which is necessary 
 in commercial affairs the remedy ought to be simply to enjoin the 
 continuance of a rate which is unreasonably high or unjustly dis- 
 criminatory. As a practical inatter the railroad will substantially 
 comply with the spirit of any such injunction, and at the same time, 
 
20 EIGHTH DAY. 
 
 if conditions do change, it will be free to make a change in its pates 
 to meet that ch;nio-e in conditions, being at all times subject to the 
 prompt intervention of the tribunal to prevent that change if it is not 
 justified by the change in conditions, or if it is unjust to the public 
 or anv part of the public. 
 
 I think it is also important to continue the present provision that 
 in case of any appeal from the judicial tribunal of first instance 
 that passes on this matter the decree of that tribunal shall not be 
 suspended by the appeal— leaving it, of course, to that tribunal to 
 decide as to Vhat is just in that particular case, whether it will sus- 
 pend it or enforce it pending the appeal, and to put the carrier which ■ 
 appeals on such terms as it sees fit. 
 
 One general aspect of this matter which I think it is important 
 for the committee to bear in mind is that the carriers, over all other 
 large enterprises in this country, are subject to the largest measure 
 of public control, both national. State, municipal, and purely local. 
 The property of a railroad is always localized right in the com- 
 munity which its acts affect, and it is regulated in more ways and 
 subject to more scrutiny and criticism than any other sort of property 
 in the country. That is an important element in increasing the 
 sense of responsibility on the part of a railroad to the public. The 
 public has so many ways in which it can retaliate for any wrongful 
 action on the part of a railroad company which it does not have 
 with reference to other large aggregations of capital that railroads 
 are very much more sensitive to public opinion, and, therefore, that 
 is an additional reason why the extremest measure of public control 
 is not necessary, or, at any rate, ought not to be resorted to without 
 giving a fair trial to a less Jiieasure of control which leaves more 
 flexibility with the railroad company. 
 
 It should be borne in mind all the time that, after all is said, the 
 railroads are built by private capital, in the main, and are run by 
 private enterprise; and that the railroad business is a severely 
 practical business, one of extreme difficulty, and one requiring con- 
 stant adjustments to new conditions. While it is necessary to adopt 
 the*fullest measure of control to secure protection to the public, it is 
 equally important not to adopt any more control than is necessary 
 to that end ; because when you do adopt more control, you are inter- 
 fering with a strictly business enterprise which has to run on busi- 
 ness principles ; and the Government is not adapted in its machinery, 
 and on account of the extent of the country, to running the business 
 for the railroad company. It should leave the railroad as free as 
 is compatible with the public welfare to take the initiative in run- 
 ning its business. That is important not only for the protection of 
 the railroad property and the protection of its legitimate revenues, 
 but it is really important to the public welfare, for one of the most 
 important phases of railroad work is its development of business 
 and its development of the communities it serves. It is bound to 
 have a very large measure of initiative to do that; and if the Gov- 
 ernment undertakes an undue interference with the business side of 
 railroads it not only unnecessarily and injuriously interferes with 
 the revenue of the railroad, but it interferes injuriously with the com- 
 mercial development of the country. 
 
 One thing to be borne in mind at all times is that whenever a polit- 
 ical tribunal is given a wide arbitrary power in the matter of rates — , 
 
EIGHTH DAY. 21 
 
 and the Commission would have a very wide arbitrary power, be- 
 cause it would ha-s^e a margin of discretion with which the courts 
 would not interfere — there is a constant tendencv to exercise it, and 
 to cut down rates (because that, of course, is the popular thing to do) . 
 and to make rules and regulations, and to try to substitute its judg- 
 ment for the independent judgment of the railroads. The result of 
 that would be a constant tendency to cut oif railroad revenues — 
 maybe a little at a time, maybe a great deal at a time— but in wavs 
 that the courts could not reach, and a constant undermining of the 
 legitimate value of railroad securities, and also of the ability of the 
 railroad to keep its property up to the high condition which 'is neces- 
 sary for the public interest and of the ability of the railroad to pay 
 the ^^■ages which it could and would otherwise pay; because while 
 the prices of materials are largety controlled by general market con- 
 ditions the prices of labor are more nearly controlled by the condition 
 of the individual railroad. And that will be one item of operating 
 expenses which would be brought down by the unfortunate results 
 of a Government tribunal interfering more than the public interest 
 requires with the operation of the railroad business. 
 
 There is just one other point that I want to impress on the com- 
 Haittee, and that is that it is a mistake, in my opinion, to assume that 
 the creation of the rate-making power is necessary to prevent Gov- 
 ernment ownership. 
 
 In mj' opinion, when you once cross the line between leaving a 
 railroad to regulate its property, subject to full control to prevent 
 its doing unlawful things, and substitute for that method of doing 
 business the method of having a Government tribunal do the busi- 
 ness for the railroad, that is not only not getting away from Gov- 
 ernment ownership, but is going a long way toward it. My obser- 
 vation has been, in States where they have the most paternalistic 
 railroad commissions and where they are most actite, that there is 
 most discontent with railroad conditions and most additional demand 
 for a new assumption of governmental control over the railroads. 
 And it seems to me to be simply a step toward instead of away from 
 Government ownership to attempt to put the business side of rail- 
 roads into the hands of the Federal Government. 
 
 I believe that is all that I will undertake to impose on the com- 
 mittee. 
 
 The Chair:man. Mr. Hines, in going over your statement there, 
 as you will, I feel, for myself (and I think I speak for the other 
 members of the committee) , that I would be glad if you would just 
 sum up — first, second, and third, and so on — in what respects the law 
 should be amended to correct present abuses, and then likewise state 
 your objections as you have given them. You have done this in 
 your statement generally; but just state briefly, by ^points, your 
 objections to the fixing of rates by a tribunal or commission, or any 
 other body than the railroads. If you would put that in directly 
 following' your statement, by way of summing up your statement, 
 I think it would be helpful. 
 
 Mr. Hikes. Do you wish me to make that orally, or to put it in 
 writing? 
 
 The Chairman. Xo : just put it in writing, directly following your 
 statement. 
 
 Mr. Hines. I would be very glad to do it. 
 
22 EIGHTH DAY. 
 
 The Chairman. Just say " I conclude as follows," or something like 
 that, and then say " First, my objections are," and so on. _ 
 
 Mr. HixES. A sort of recapitulation of what I have said? 
 
 The CiiAiRiiAN. Yes, a recapitulation — that is it —as briefly as you 
 can, so that we can see at once the points you make, without liaving to 
 go over the entire body of your remarks. 
 
 ]Mr. HiNES. Yes. 
 
 Senator Caejiack. Sum up those points, and in conclusion 
 
 The Chairman. Yes; sum up all of those matters, you know — 
 first, your objections, and then, secondly, in what respects you would 
 amend the law, and how, as briefly as you can. 
 
 Mr. HiNES. I will be very glad to do that. 
 
 The Chairman*. You have done that during your statement, but 
 that would enable us to see at once just what your opinion is. 
 
 Mr. HiNES. Yes ; I Avill be very glad to do that. 
 
 The Chairmax. Did you state how many suits for excessive rates 
 had been instituted under section 16 ? I believe you did, did you not? 
 
 Mr. HiNES. The only definite statistics I had were for the five years 
 from 1900 to 1905, both inclusive. 
 
 The Chaiejian. Could there be any amendment to the g^resent 
 law — and if you think of any such amendment, state it in this reca- 
 pitulation — that would strengthen the laAv to prevent an excessive 
 rate? 
 
 Mr. HiNES. I think the only thing that is necessary or desirable in 
 that direction is to expedite the decisions of the courts. 
 
 The CHAIR:^^AN. Is it your judgment that the commission or tri- 
 bunal that may have powers conferred upon it to enforce the law 
 should just be clothed with power to settle, if possible, the disputes 
 arising between the carrier and the shipper, and in case they can not 
 be settled in that way then to bring the complaint directlv into the 
 circuit court, and not have a hearing by the Commission? Is that 
 your opinion? 
 
 ]\Ir. HiNEs. I think that would greatly expedite the decision of the 
 matter. 
 
 The Chairman. After a court should decide on the complaint of a 
 shipper or of the Commission that a rate was too high, how long a 
 time would you suggest that the railroad be given in wliich to name 
 a new rate ? "Within how many days ? 
 
 Mr. HiNES. I should think that could be left to the court's decree. 
 Some conditions might be such 
 
 The Chatemax. Can you not state " not exceeding " a certain num- 
 ber of days ? Have you given that matter any thought ? 
 
 Mr. HiNEs. I had not given that matter thought. I do not think 
 that would be a practical difficulty that would ever arise; and the 
 court could adjust that to the exigencies of the case. If it were deal- 
 ing with quite a number of rates, it would take much longer to put in 
 a readjustment than if it was only a single rate, affecting a single 
 commodity, probably ; and in the one case it might make it effective 
 m twenty or thirty days, and in the other a longer time misht be 
 required in order to readjust things to the court's view. 
 
 The Chairman. In the interest of expedition I thought possibly 
 ten clays would be sufficient. The railroads would have thought aU 
 over the subject, their counsel would have argued the matter, and so 
 
EIGHTH DAY. 23 
 
 on ; and how would it do to say tliat tliey should be required to name 
 a rate within ten days ? 
 
 Mr. HiNES. I do not think that in any event a court would feel 
 justified in giving a railroad as short a time as ten days, because new 
 tariffs have to be prepared and printed and distributed, and that is a 
 very short time in which to do work of that character. 
 
 The Chairman. Have the large shippers in the United States gen- 
 erally, or in particular instances, made complaint, so far as you know, 
 that rates are too high? 
 Mr. HiNES. They have not, as far as I know. 
 The Chairman. In jonv section and elsewhere? 
 Mr. HiNES. As far as I know, they have not made that complaint. 
 The Chaieiman. I believe yon stated that changing or reducing the 
 through rate would necessarily affect a great many other rates like- 
 wise and compel a reduction in them ? 
 Mr. HiNES. Ordinarily it would cause a general readjustment. 
 The Chairman. Would the reducing of rates necessarily rediioe 
 e}i;])enses ? 
 
 Mr. HiNES. jSTot at all; except that if a railroad's earning power 
 shoul^ be materially impaired the question of wages would nece'^- 
 sarily come up for readjustment, because that is one item of operating 
 expenses upon which gross earnings or the net revenue of a railioad 
 company probably has a distinct bearing. 
 
 The Ci-iairiman. Speaking about the power to fix rates, how would 
 the exercise of this power of complaint work? Would it not work to 
 reduce the rate and not fix it. but always to reduce it? 
 
 Mr. Htnes. It would work to reduce it. and fix it at the reduced 
 figure. 
 
 The Chairman. Always; because it is supposed that the railroad 
 named a rite high enough ? 
 Mr. HiNES. Yes. 
 
 The Chairman. So that the exercise of this power would always 
 be in the direction of reducing a rate ? 
 Mr. HiNE3. Yes. 
 
 The Chaiijuan. And you say that the reduction of rates would tend 
 to compel rojds to reduce their expenses? 
 
 Mr. HiNES I do not know of any expenses that they could reduce 
 except by dininishing their service — the number of trains — and, in 
 case of a marked decrease in revenue, a decrease in wages. 
 
 The Chairjlan. I mean a reduction in wages would impair effi- 
 ciency ? 
 ^Ir. HiNES. Yes ; I think it would. 
 The Chairman. And affect securities? ^ 
 
 Mr. ITiNES. I think they are the two ways m which expenses could 
 be reduced. 
 
 The Chairman. And it would indirectly affect the securities of the 
 road? 
 
 Mr. TIiNES. I: would very directly affect the securities of the road. 
 I want to say ir that connection. Senator Elkins, that I do not recall 
 any instance in my experience Avith State railroad commissions 
 where they havt ever allowed a rate to be increased,^ no matter how 
 imperative the onditions might be which seemed to justify it. 
 
 The Chaiemaj. Under the resolution under which we are haying 
 these hearings tie committee is required to consider what legisla- 
 
24 EIGHTH DAY. 
 
 tion should be enacted in relation to the liability of railroad com- 
 panies engaged in interstate traffic or operating lines in any Terri- 
 tory of the United States for injuries received by their employees 
 when in the discharge of duty. You know what that means, I think, 
 as well as anybody here. What do you think about that ? I want to 
 ask you about this part of the resolution. 
 
 Mr. HiNES. I have devoted my thought and my investigation en- 
 tirely to the other branch of the matter and had not given that part 
 of it any attention. If the committee wants an expression of opinion 
 from me, I would like to have an opportunity to look into the sub- 
 ject a little, because that is a branch of legislation that I have never 
 had any occasion to investigate. 
 
 The Chairman. I sent you a copy of the resolution, and I sup- 
 posed your attention was drawn to that. 
 
 Mr. 'FI:ni:s. Yes; but I was engaged on thi.s other branch of Jt, and 
 had not gone into that phase of the matter. I will be very glad to 
 go into it if the committee Avi^hes me to. 
 
 The Chaikjiax. Have you any knowledge that will enable you to 
 make any suggestions about the refrigerator ears, or private car sys- 
 tem, and -to correct alleged alju^^es growing out of the system of 
 private cars ? 
 
 Mr. IIiNES. "\^liile I Avas connected with the Louisville and Xash- 
 ville Railroad there \Aas no complaint that was ever brought to my 
 attention of any abuses connected with the use of private refrigerator 
 cars on tliat system; and all I have seen about those abuses has been 
 in newspapers. Of course the ne'.vspaper statements are not entirely 
 reliable on a question of fact of that sort. 
 
 The Chairman. Generally, is it not the ride for railroads to trj' to 
 build up the localities in the territories their lines and br»nch lines 
 traverse, as again-^t the localities in territory occupied b^ other or 
 competing ri\'al lines? 
 
 Mr. HiNES. That is the invariable tendencj', so far as;I have ob- 
 served. ' 
 
 The Chair.max. And that is one of the sources, if not the chief 
 source, of complaint — locality against localitj'? 
 
 Mr. HiNES. I think so. 
 
 The CiiAiiniAN. That one locality is getting an advantage over 
 another 'i 
 
 Mr. ITiNES. 1 think so. 
 
 The Chaie:man. And do you think that a commisiion would be 
 enabled to settle that mutter better than the railroads. or as well; or 
 could it do it at all ? 
 
 Mr. Hin::s. I do not think it could do it at all. In the first place, 
 I do not believe it would be constitutional for it to jiit a limitation 
 on the enterprise that a railroad might wish to devot? to the service 
 of its commttnities. ; 
 
 The Chairman. You said something to the effect ihat in your lo- 
 cality it tooJv about a hundred employees to look aftoi rate and traffic 
 matters. Have you given thought to the subject of low many men, 
 how many employees, are engaged throughout the United States in 
 fixing rates? 
 
 Mr. I-Lnes. No; I did not undertake to investigatt that matter be- 
 yond that section, because 1 was familiar with that i and of course I 
 
EIGHTH DAY. 25 
 
 Ihink it would be fair to judge that by the relative amount of traffic 
 there is in that section as compared with the whole countr^•. 
 
 The Chairman. Could you approximate that and add it to your 
 statement — that it is your judgment that there are about so many 
 hundred or thousand ? 
 
 Mr. HiNES. I would say this : That there is about 12 per cent of 
 the traffic of the country in that section — that is, about one-eighth 
 of the total traffic — and if it were in the same proportion that would 
 be 800. 
 
 The Chairman. Eight hundred men ? 
 
 Mr. HiNES. Yes. That is probably an excessive estimate, though, 
 because there may be more men in proportion to the amount of traffic 
 in the South than elsewhere. 
 
 The Chairjian. Constantlj'- employed. And is this power to fix 
 these rates and make these rules and regulations derived entirely, do 
 you think, from the provision in the Constitution giving Congress 
 power to regulate commerce ? 
 
 Mr. HiNES. I think it is. 
 
 The Chairman. Do j'ou not think that power exists outside of 
 that clause, under the power to regulate highways and what is con- 
 ducted on the highways? Do you not think it exists outside, now. 
 of this article of the Constitution ; and if so, does not that make the 
 power of the Government broader ? 
 
 Mr. HiNES. I think it has been generally assumed by the Supreme 
 Court itself, in dealing with this subject, that Congress was acting 
 under the commerce clause, and I do not think of any other clause 
 which would justify an interference with the general commercial 
 relations of the people and the railroads. 
 
 The Chair3ian. Not an inherent power in the Government to take 
 care of the highways and regulate them? 
 
 Mr. HiNES. No. The Supreme Court has said, for example, that 
 this old Cumberland road, that was built by the Government, was 
 built in the exercise of the power to regulate commerce. 
 
 The Chairman. They put it on that gxound? 
 
 Mr. HiNES. It was in a dictum that I read. It suggested that as 
 an exercise of the commercial power. 
 
 The Chairman. Outside of this clause of the Constitution ? 
 
 Senator Foraker. What was that — the Cumberland road; the 
 National road ? 
 
 Mr. HiNES. The National road. 
 
 Senator Foraker. That was on the further ground of facilitating 
 military operations 
 
 Mr. HiNES. Yes. 
 
 Senator Foraker. And providing post-roads. 
 
 Mr. HiNES. Yes. Well, of course, neither- 
 
 The Chairman. Outside of this power of regulating commerce, 
 that the power is in the Government to control and regulate all high- 
 ways and all channels of commerce on land and sea. 
 
 Mr. HiNES. I have found that the Supreme Court is disposed to 
 attribute all of these regulations of navigation to the commerce clause. 
 I do not think of any clause which could be regarded as a distinct 
 basis of power in Congress. 
 
 Senator Foraker. For what? 
 
26 EIGHTH DAY. 
 
 Mr. Hikes. For regulating interstate rates, aside from the com- 
 
 Senator Foeakek. No; under the power to regidate inter.state 
 commerce ? 
 
 Mr. HiNES. Yes. 
 
 Senator Fokakek. That is the power, I suppose. 
 
 Senator CAESiACK. Is not the general-welfare clause • 
 
 Senator Foeakee. The general-welfare clause has been held to mean 
 nothing— to be a glittering generality. 
 
 The Chaibman. Well, as Senator Foraker suggested, to facilitate 
 the movement of armies and other things, you know, the highways 
 have got to be kept open and regulated. 
 
 Mr.' Hikes. Yes ; but the regulation of rates as between shippers 
 and the railroads -^vould have no reasonable relation to that object on 
 the part of the Government. 
 
 The Chaiemax. Do you thin)?: that if they went as far as they 
 did in the Sherman Act, and put a new construction upon that, they 
 could find it there? In the Sherman Act, I say, they found a new 
 meaning. 
 
 Mr. Hikes. ^A^ell, I am not prophesying what the court may hold. 
 
 The Chaiemax. One more question only. Your idea is that fixing 
 rates means reduction of rates, and that would necessarily work a 
 reduction of expenses, which would affect wages ; and if wages were 
 disturbed on the railroads, that would go so far as to disturb the 
 general wage condition of the country ? 
 
 Mr. HixES. What I mean l^y that is this : Of course, the ordinary 
 materials that a railroad buys have their prices determined by the 
 general laws of supply a,nd demand throughout the country, and a 
 railroad could not reduce the price it paid for rails or anything else 
 on account of the fact that its revenue was reduced by the act of the 
 Commission. It could reduce the amount of improvements that it 
 made, or the amount of repairs that it made, if its earning capacity 
 was seriously interfered with. 
 
 '\ATien you come to the c|uestion of Avages, you Avill find that the 
 relation between employees of a big corporation and the corporation 
 itself is to a considerable extent determined by what they regard the 
 corporation as making. If times get hard, the men recognize the 
 propriety of a reduction in their wages, and submit to it. When tlie 
 corporations begin to make much more money, they insist upon an 
 advance in wages, and generally get it. So that is one element of 
 expense which would be influenced by a marked reduction in earning 
 power. 
 
 The other would be the cutting off of everything that could be cut 
 oft' in the way of repairs and the reduction of the number of trains, so 
 that in those two general ways, I think, expenses might respond to a 
 reduction in earning power of the railroads. 
 
 The CHAiB:\rAx. And would not that affect the wage condition 
 generally, too, in a community? 
 
 Mr. HiNios. Of course the prosperity of the railroad would very 
 vitally affect the condition of the railroads generally. Since 1900 
 a very large part of the prosperity of this couiitry has been due to the 
 enormous purchases the railroads were making of supplies — the enor- 
 mous improvements they were malving. 
 
 The CiiAiEJiAx. Mr. Kean. 
 
EIGHTH DAY. 27 
 
 Senator Kean. I have no questions. I think Mr. Hines has gone 
 over the gronnd vevy fully. 
 
 Senator Forakee. I have no questions. I think, too, that the wit- 
 ness has covered the ground pretty thoroughly. 
 
 Senator Clapp. Mr. Hines, to summarize this matter, independent 
 of any statutory regulation, carriers have been considered the subject 
 of control as to rates, ha^e they not? 
 
 Mr. HixE.s. Yes; they have been subject to the common-law rule 
 that the rates of a common carrier should be just and reasonable. 
 
 Senator Clapp. Yes; and that rule would be enforced, in its last 
 analysis, of course, in the courts in the absence of legislation. 
 
 Mr. Hines. Yes. 
 
 Senator Clapp. Before we began legislating in this country the 
 American courts had practically reached the point that the relation 
 of the carrier to the public was such that equality in rates should be 
 observed, had they not? 
 
 Mr. Hines. Yes; I think they generally applied the common law 
 in that way. 
 
 Senator Clapp. You would concede, then, that both as to discrimi- 
 nation and as to the regulation of rates it Avould be proper to exer- 
 cise the authority of the Government ? 
 
 Mr. Hines. Yes; I do not deny that.at all. 
 
 Senator Clapp. You would concede further that the relation is 
 such that that would be a necessity, would you not? 
 
 Mr. Hines. It is certainly very desirable. 
 
 Senator Clapp. Yes. So that, then, the question narrows down as 
 to how far and in what manner the regulation should be secured ? 
 
 Mr. Hines. Yes. 
 
 Senator Clapp. The present law not only prohibits unreasonable 
 rates, but is a declaration of the common-law principle that rates 
 shall be reasonable, is it not ? 
 
 Mr. Hines. Yes. 
 
 Senator Clapp. To bring about the enforcement of that law as to 
 reasonableness of rates, Avhile you have covered it in different portions 
 of your statement, will you not briefly summarize your views as to 
 what is necessary? 
 
 Mr. Hixes. I think that a complete practical remedy to insiire 
 reasonable rates is for the court to condemn and enjoin the contin- 
 uance of any rate that it finds unreasonable. 
 
 Senator Clapp. Then obedience to that decree of the court would 
 involve a substantial change as a compliance, would it not? 
 
 ilr. Hines. Yes: as a practical matter. 
 
 Senator Clapp. That is. you would not say that a mere infinitesimal 
 change would be a compliance with the order? 
 
 Mr. Hines. Oh, no; as a practical matter, I am satisfied the rail- 
 roads would comply in a very substantial way with any such in- 
 junction. 
 
 Senator Clapp. They would have to, would they not ? 
 
 Mr. Hines. I think so. 
 
 Senator Clapp. Xow, the reduction of a rate by operation of an 
 injunctional order would carry with it incidentally the possibility of 
 the modification of a great many rate? ? 
 
 Mr. Hines. Yes; that is very likely. 
 
 Senator Clapp. And the reduction of a rate in response to an in- 
 
28 • EIGHTH DAY. 
 
 junctional order would, to the extent of the effect of the changed 
 rate, carry with it all the consequences, in a measure, of reduction of 
 revenue that a change by any other process of a similar amount would 
 bring about ; would it not ? 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. So that except as to the degree of modification in- 
 volved in the modification of an existing rate, and the degree as to 
 reduction of income and consequent effect of the same, the effect 
 would be the same whether the rate was changed in response to an 
 injunctional order or in response to bome direct order fixing the new 
 rate; would it not? 
 
 Mr. HiNEiS. Yes. As I undertook to point out, the injunctive power 
 of a court would be a very substantial control over the railroad rates, 
 and to that extent its effect would be the same as control in any other 
 way. 
 
 Senator Clapp. Then, the court having by injunction enjoined an 
 existing rate, and the carrier having in response thereto made a sub- 
 stantial compliance with that order by a substantial reduction, what 
 would be the status of the I'oad under your plan as to its ability to 
 change that rate by increasing it? 
 
 Mr. Hi>;es. As a practical matter the railroad would not undertake 
 to increase it unless there was some substantial change in conditions. 
 Then it would go ahead and change it, subject, of course, to the inter- 
 vention of the court, if anybody wished to set the court machinery 
 in motion as against that change. 
 
 Senator Clapp. But the company would not think of changing that 
 rate except upon such changed conditions as would lead the company 
 to believe that the court in passing upon another motion to enjoin its 
 effect would sustain the change, would it I 
 
 Mr. HixES. Xo: I do not think it would. 
 
 Senator Clapp. So that if a law vested in the Commission the 
 2D0wer to fix a rate, subject, of course, to judicial review, or to be so 
 framed as to clothe the court with power to fix a I'ate, and that law 
 should provide' that when a rate was once fixed the carrier should 
 obey it until the conditions would warrant a change, which the car- 
 rier was at liberty to initiate upon its own motion, subject again to 
 review by a connnission or court, as the case might be, it would have 
 the same elesticity that your plan had, would it not? 
 
 Mr. HiNES. It would be practically the same in effect, it seems to 
 me, except that any rate-making power conferred on a commission 
 would likely carry with it the power to fix specific rates. Of course 
 if it fixed a specific rate, the carrier could not even reduce it. 
 
 Senator Clapp. You do not understand my question. You would 
 not contemplate the fixing of a rate that never could be changed, 
 under any form of law ? It is not likely that such a law would be 
 passed, is if? 
 
 Mr. HiNES. No; but the Townsend bill, for practical purposes, 
 meant that, I think. 
 
 Senator Clapp. I am not speaking of the Townsend bill. Now, 
 I say, assuming that the law provided that the rate fixed by the 
 Commission— or by the court, as the case might be— should go into 
 effect subject to change upon changed conditions, allowing the carrier 
 to initiate the change, subject of course to the power of the Commis- 
 sion m the one case and the court in the other to also pass upon that 
 
EIGHTH DAY. 29 
 
 as they did vipon the first rate, it would leave the process as elastic 
 as your plan. 
 
 Mr. HixES. In the matter of flexibility it seems to me it would be 
 the same. 
 
 Senator Clapp. Yes ; it would be the same. Xow, the courts have 
 repeatedly used the expression that the po-\^er to fix rates for the 
 future is a legislative power and not a- judicial power? 
 
 Mr. HixES. Yes. 
 
 Senator Clapp. And you have no question but what, as a part of 
 the exercise of that power, Congress could authorize some tribunal 
 to exercise the function of determining what is a reasonable rate, 
 have you ? 
 
 Mr. HixES. Do you mean of fixing a reasonable rate for the 
 future ? 
 
 Senator Clapp. Yes. 
 
 ilr. HiNES. ]Mr. Morawetz pointed out a basis for a distinction 
 that I think is worthy of consideration — that it was doubtful — at 
 least it was going further than any decision of the Supreme Court 
 had gone, to say that Congress could delegate to a commission the 
 power to decide questions of business policy, and, on its own judgment 
 as to what was good policy, fix a rate anywhere between the two 
 limits of an unreasonably high rate on the one hand and a confisca- 
 tory rate on the other; but he recognized — and I think there is no 
 doubt about that — that at least a commission could be empowered 
 to fix the maximum rate which could be charged without charging 
 a rate that was unreasonably high. 
 
 Senator Clapp. Congress could declare, as they have already de- 
 clared in the interstate-commerce act, that all rates should be reason- 
 able? 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. Is there any question in your mind but what they 
 could then authorize the Commission to ascertain and declare the 
 specific rate that should be reasonable ? 
 
 Mr. HiNES. I think it is clear that they could authorize the Com- 
 mission to declare a reasonable maximum rate. Now, I am not at 
 all sure about fixing a specific rate. Mr. Morawetz pointed out the 
 distinction there, and I think it is worthy of consideration. 
 
 Senator Clapp. I meant to use the word " specific " as, of course, 
 a maximum rate. 
 
 Mr. HiNES. Yes ; yes. 
 
 Senator Cl.4.pp. The question of whether they could fix a minimum 
 rate might involve another inquiry, of course. 
 
 Mr. Sines. Yes. 
 
 Senator Clapp. We will understand it in that sense. 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. You have no question of their power to do that? 
 
 Mr. HiNES. No — to fix a reasonable maximum rate. 
 
 Senator Clapp. Now, the ascertainment of what a reasonable rate 
 would be would not in itself constitute a legislative act? 
 
 Mr. HiNES. No ; the ascertainment of what is reasonable upon an 
 existing state of case is a judicial act. 
 
 Senator Clapp. A^Tiat do you say, then,, to the suggestion that the 
 court could be authorized, upon an existing state of facts, upon a 
 
30 EIGHTH DAY. 
 
 suit brought by the Commission, to determine what should be a 
 reasonable rate? 
 
 Mr. HiNES. I think the court would have that power. 
 
 Senator Clapp. Have you any doubt but what Congress could so 
 frame a law that that declaration of judgment Avould, by force of 
 the law, itself operate to establish a continuing rate? Do I make 
 that plain? 
 
 Mr. HiNES. Yes; I believe Congress would have that j)ower. 
 
 Senator Clapp. So that in that way, between the decision of the 
 court upon a given existing condition and the operation, of that 
 decision under the law, the court could fix a specific — and, to guard 
 against your criticism, I will say '' maximum " — rate ? 
 
 Mr. HiNES. Yes. 
 
 Senator Foeaker. That is, a court could do that in the w^y of 
 finding the fact ? 
 
 Mr. HiNES. Passing on the existing state of case. 
 
 Senator Foraker. In passing on the question whether or not a 
 rate that the Commission brought suit about was reasonable, it 
 could in its finding of fact set forth what in its judgment was the 
 maximum rate that should be charged in that case? 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. That is not the point to which I am directing 
 inquirj'. 
 
 Senator Foraker. I thought it was. It was the point I understood 
 him to be answering about, but I had some doubt about it, and I just 
 wanted to make it clear. 
 
 Mr. HiNES. I went further, and stated that I believed an act of 
 Congress could give a future effect to that decision of the court. 
 
 Senator Foraker. Yes; so I understood. I asked my question 
 with that in mind. 
 
 Senator Clapp. Mr. Hines, I think that either Senator Foraker or 
 myself must misunderstand your position in reference to my last in- 
 quiry. Is it not your opinion that the court would have jurisdiction 
 if the law made provision to pass upon a present controversy and 
 decide — not merely express an opinion or finding of fact leading to 
 the decision, but decide what would be a reasonable rate ? 
 
 Senator Caemack. For the future ? 
 
 Senator Clapp. No. 
 
 Mr. Hines. I think the court would have that power. 
 
 Senator Clapp. Independently of the other suggestion, made yes- 
 terday and to-day by Senator Foraker, of merely finding a given 
 rate to be reasonable or unreasonable; and if unreasonable, inciden- 
 tally expressing an opinion as to what a reasonable rate would be. 
 Do I make that plain ? 
 
 Mr. Hines. Yes. I do not see any distinction between those two 
 statements of the case, though. I think the court would have juris- 
 diction to decide what is a reasonable rate under existing conditions. 
 
 Senator Clapp. An absolute decision? 
 
 Mr. Hines. Yes. 
 
 Senator Clapp. And then that, by operation of law, if the law 
 were properly framed, could be made a continuing rule as to that par- 
 ticular rate ? 
 
 Mr. Hines. Yes; I think there would be no constitutional objection 
 
 to that. ^ 
 
EIGHTH DAY. 31 
 
 Senator Clapp. That is what I mean. 
 
 Senator Caemack. "VVlien you say a reasonable rate, do you mean 
 simply a rate that is not either confiscatory or extortionate? 
 
 Mr. Bjnes. I should have used the word " maximum " to express 
 clearly what I mean. I think the court would have the right to 
 decide the point of a maximum rate the carrier could charge without 
 being guilty of charging a rate unreasonably high. I think that 
 would be a judicial question that the court would have a right to 
 decide. 
 
 Senator Clapp. That would seem to involve us again in a little 
 obscurity. There is no question, and of course never has been any 
 question, but that the courts, either on review or as an initiative prop- 
 osition, could decide that a given rate was unreasonable. 
 
 Mr. HiNES. No ; that has always been understood. 
 
 Senator Clapp. What I am getting at now is whether, in addition 
 to that, in a controversy as to existing i-j.tes complained of by the 
 Commission, the court could not also declare what was a reasonable 
 rate — not simply prohibiting or sustaining the ]:)rohibition of a rate 
 by the Commission's order, but saving that on this state of facts such 
 and such a rate is a reasonable rate — call it maximum, if you please. 
 
 Mr. HiNES. Yes, I think the court has the power to say on an exist- 
 ing stated case what is a reasonable maximum rate the carrier has a 
 right to charge. 
 
 Senator Clapp. Under the Constitution tliat would be a case 
 brought under the laws of the United States and involving a con- 
 (roversy, which would give the court jurisdiction ? 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. In the notable Heyburn case 1 think one of the 
 reasons which the court urged for not taking jurisdiction was that 
 there would be no force to its decision. 
 
 Mr. HijVes. I have been looking to see if I had a memorandum to 
 show clearly what was involved in that Hej'burn case, but I do not 
 find it. 
 
 Senator Clapp. That was the case where Congress directed the 
 court to ascertain the facts in relation to pension matters growing 
 out of the Revolution. It was a very early case, in 2 Dallas. 
 
 Mr. IIiNES. I have a reference to it, but it does not show clearly 
 what was involved in the statute. 
 
 Senator Clapp. I think you, as a lawj^er, will grant that if a law 
 which sought to get the decision of a court failed to give that de- 
 cision any force that would be a vei-y strong reason why the court 
 would decline to act under it. 
 
 Air. HiNES. Yes. The Supreme Court has held that statutes that 
 called upon the court for a merelj^ advisory decision were unconsti- 
 tutional. 
 
 Senator Clapp. And consequently, if it ^\ as intended to place this 
 power at the outset in the court, it would go 'further, to free it from 
 any doubt as to jurisdiction, and provide that the decision should be 
 binding and have eifect rather than to provide for a court merely to 
 find some advisory fact or some fact in an advisorj^ character, would 
 it not? ' . 
 
 Mr. PIiNLS. I do not think that that case would be open to that 
 objection. Of course if the court passes on an existing rate and 
 condemns it as unreasonable and orders its discontinuance, a very 
 
32 EIGHTH DAY. 
 
 natural and almost necessary part of this order would b6 to say what 
 jp a reasonable rate. I think it would be just as competent for Con- 
 gress to sav that the decision of the court should specify what is a 
 maximum rate or what would be reasonable, whether that is given 
 actual binding effect or not, as it would be to specify any other inci- 
 dent to court procedure. In some States the legislature provides 
 that the ojninons of the courts shall be in writing. _ I think the re- 
 quirement by Congress that the decision of a court, in an actual con- 
 troversy arising under the laws of the United States, should state a 
 specific fact -which it was really necessary for the court to decide in 
 order to arrive at its conclusion, would not be unconstitutional, even 
 though the act did not give any separate and independent effect to 
 that statement of fact. 
 
 Senator Clapp. While we can confer jurisdiction and submit con- 
 troversies, are you clear that we could confer upon a court authority 
 simply to find a fact which in itself would be only advisory? Could 
 we control the judgment of the court, in other words? 
 
 ]Mr. HiNES. If that vrcre the sole effect of the decision I do not be- 
 lieve you could. But the j)oint I make is that the controversy before 
 the courts is jDrimarily as to the existing rate, whether reasonable or 
 more unreasonable, and the court has power to hold that it is unrea- 
 sonable and order its discontinuance, and to give effect to that decree. 
 I think it is a perfectly legitimate exercise of the legislative power 
 to say that the court, as an incident to that, shall state the fact, which 
 is necessarily the basis of its decision as to what would be a reasonable 
 rate at the present time, and to make that constitutional it is unneces- 
 sary to give independent effect to that finding of fact. If the pro- 
 ceeding were essentially advisory it would be' different. The primary 
 proceeding is to enjoin the existing rate. If effect is to be given to 
 the court's decision, this other element is an important and necessary 
 incident to it. The court has to have that idea in its mind, whether 
 it expresses it or not. I do not think it would be incompetent for 
 Congress to require it to be expressed. 
 
 Senator Clapp. Do you think the court could be required not to 
 express its ultimate decision, but to express in detail the processes of 
 reasoning by Avhich it reached its final decision? 
 
 Mr. HiNES. I think that is in the power of the legislature. The 
 legislature can require that a jury shall make a special finding. 
 
 Senator Clapp. Upon any question submitted to it? 
 
 Mr. Hikes. Yes. Or it can require that the opinions of the court 
 shall be in writing and that the reasons shall be stated. 
 
 Senator Clapp. How can it control as to the detail of the expression 
 of those reasons ? 
 
 Mr. HiNES. It can not say what reasons shall be given, but I think 
 it could say that there should, be a finding upon a specific element 
 necessarily involved in the controversy. There is a very clear dis- 
 tinction, to my mind, between the case I have presented and the cases 
 where the Supreme Court has held that the courts could not be 
 required to engage in purely advisory functions. 
 
 Senator Clapp. Then you think that such an act would be within 
 the purview of the Constitution, even though it did not provide that 
 such incidental things should have the force of law bv virtue of the 
 Congressional enactment itself? 
 
 Mr. HiNES. I think so. 
 
EIGHTH DAY. 38 
 
 Senator Clapp. Then you -would certainly have no doubt of the 
 power to vest that authority in the court if it did have that effect ? 
 
 Mr. HiNES. No : I think there is no constitutional objection to giv- 
 ing it future effect by legislative enactment. 
 
 Senator Clapp. What reason would you give for adopting the 
 injunctional plan as against the plan of the Commission bringing suit 
 to determine this rate, either through the expression of opinion to 
 have practical force, or coupled with a previous provision of the stat- 
 ute to have absolute legal effect, provided that that same law, after 
 the rate was established, authorized the carrier, when conditions 
 changed, such as would warrant change of rate, to initiate the change, 
 subject again to review by the Commission or the court, as the case 
 might be. 
 
 Mr. HiNES. I think one important reason why the purely injunc- 
 tional method would be preferable is because that is a clearly estab- 
 lished jurisdiction now ; and, while we might see no obpection to the 
 other plan, still it is a novel method, and it seems to me that the 
 settled and established method is preferable to a novel method, if the 
 injunctional plan substantially accomplished the result. 
 
 Senator Clapp. That objection would apply to the injunctional 
 procedure if the object were to secure in the proceeding not only the 
 condemnation of the rate complained of, but the establishment of a 
 distinctive rate, would it not ? 
 
 Mr. HiNES. That would be the novel fea'ture of it. I think the 
 purely injunctional method that is now provided by the interstate- 
 commerce act is ample, especially after making such improvement as 
 is possible in the method of procedure so as to save time. 
 
 Senator Clapp. Suppose it were determined that the condition 
 could only be met practically by fixing a rate, to use a very common 
 phrase. Then the injunctional method would be open to the same 
 charge of novelty as the other proceeding, would it not ? 
 
 Mr. HiNES. I do not understand that it would be novel; it is the 
 existing proceeding. 
 
 Senator Clapp. 'No ; I think you do not understand my question. 
 Your criticism against bringing a rate directly into court for its 
 establishment was that it was novel. Now, assuming that it is deter- 
 mined that this law should provide for fixing a definite rate, instead 
 of merely condemning an existing rate, then the injunctional pro- 
 ceeding would be open to the same charge of novelty as the proceeding 
 by going into court? 
 ' Mr. HiNES. It would to the extent that it provided for the court 
 fixing the specific maximum rate ; it would be novel to that extent. 
 
 Senator Clapp. And especially open to the same criticism. What, 
 other reasons are there, in your opinion, why the injimctional method 
 should be adopted instead of a suit to ascertain and enforce, assum- 
 ing, of course, in both cases that the changing of a rate in the 
 initiative would be in the carrier, subject to review? 
 
 Mr. HiNES. It is difficult to see any difference in the practical effect 
 between the court enjoining the continuance of a rate which is unrea- 
 sonably high and going further and affirmatively declaring what is 
 the maximum rate which would be reasonable. 
 
 Senator Clj^pp. Assuming that the change of rate, in response tg 
 changing conditions, should in its initiative be with the carrier, sub- 
 
 8 D— 05 M 3 
 
34 EIGHTH DAY. 
 
 ject to review, what would be your point of distinction between accom- 
 plishing this result in either case by an injunction or a proceeding 
 directly in court — of course in a reasonable case, relatively speaJcing— 
 and the rate being fixed in the first instance by the Comrnission ? 
 
 Mr. HiNES. As I understand it, the question is, "What is the differ- 
 ence between letting the court deal in the first instance with the rate 
 fixed by the railroad and with the rate fixed by the Commission? 
 
 Senator Clapp. No ; what is the practical difference between letting 
 the court, under authority of its judicial procedure, deal in the 
 first instance with the rate, and the Commission dealing Avith it in 
 the first instance ? 
 
 Mr. HiNES. I think there is a very important distinction there. I 
 do not see why the railroad property, which is a very important part 
 of the wealth of the country, should be denied the advantage of ordi- 
 nary methods of judicial procedure, when the matter is so vital to 
 its very existence as the matter of fixing rates. I do not see why it 
 should be allowed to be determined by a mere Government bureau 
 which has not the functions or the safeguards of a court. If it is 
 fixed by a commission, even subject to judicial review, the practical 
 result is to give a very considerable measure of finality to the act of 
 that commission, or at least to attach to it ;i very strong presumption 
 of correctness. No matter how you shape a mere governmental 
 bureau, it is not going to be as fair-minded as a court, and I do not 
 see why this important property should be depri\-ed of the ordinary 
 protection that is given to other properties. 
 
 Senator Clapp. Do you think it would place the carrier at an 
 unfair advantage first to have the rate fixed by the Commission and 
 then reviewed, no matter how broad the power of the court on review 
 might be ? 
 
 Mr. HiNES. Of course, it can not be assumed, at least theoretically, 
 that in all cases the Commission would be unfair to the carrier. 
 "What I do say is that, in the nature of things, it would not he an 
 impartial tribunal. But courts are the result of long experience in 
 affording due process of law, and, in my opinion, would be more fair 
 to both sides than any sort of governmental bureau 3'ou could estab- 
 lish, and their finding would have very strong weight, even in the 
 mind of whichever party was prejudiced by that .decision. 
 
 Senator Clapp. Would not that, then, be largely obviated if the 
 Commission were relieved of the contradictory duties that devolve 
 upon it at present, as inquisitor, advocate, and judge, the functions 
 of inquisitor and advocate to be lodged somewhere else, and the Com- 
 mission left simply to decide upon cases brought before it regularly, 
 as before any other tribimal ? 
 
 Mr. HiNES. In a measure some of those objections would be re- 
 moved. I do not think they would be entirely removed, any more 
 than if you were to establish a bureau without any functions of that 
 sort to pass upon any other property rights. I do not think litigants 
 in general would regard that as satisfactory as to go before estab- 
 lished courts. 
 
 Senator Clapp. Then your idea would be, in either case, when it 
 came to fixing a rate, that the first step should be in the court ? 
 
 Mr. HiNES. I think that any necessary amount of correction of 
 unlawful rates ought to be in the courts in the first instance. 
 
 Senator Carmack. Take the case M'here a court, in determining 
 
EIGHTH DAY. 35 
 
 whether a rate was unreasonable, expresses an opinion as to what was 
 a reasonable rate ; could that be made effective by Congress ? 
 
 Mr. Htxes. I do not think, as a matter of expediency, that that 
 ought to be done; but as a matter of constitutional law it could be 
 done, I think. 
 
 Senator Clapp. What would be the practical difference between 
 doing that and letting the court make a finding which, in itself, 
 would be observed by the roads absolutely (because unless they are 
 going to observe it you would not suggest its being made) until 
 conditions might so change as to warrant the court in allowing an- 
 other rate? 
 
 Mr. Hikes. Of course to make them even approximately the same 
 you would have to provide that the carrier should take the initiative 
 in varying the rate embraced in the court's finding. 
 
 Senator Clapp. Yes. 
 
 Mr. HiNES. To my mind, the principal, if not the only, objection 
 to that is that you are adopting a novel procedure, one that would 
 raise questions in the legal mind generally, instead of a perfectly 
 plain and established procedure which, I think, is fully equal to the 
 situation and would have the same practical effect. 
 
 Senator Clapp. Do you think that the court would be less likely 
 to take jurisdiction where the law made that finding a finality than 
 it M'ould where it simply made it advisory ? 
 
 Mr. HiNES. I would not provide even that. I would simply let 
 the law in that respect stand as it is, that the court should enjoin 
 the continuance of the rate that was unreasonable. That is an estab- 
 lished jurisdiction that the courts recognize and which I think is 
 ample. I do not think it is necessary to require the court to make a 
 finding as to what a reasonable maximum rate is. I believe it would 
 be constitutional, but it is a novel proposition, and I say, in my opin- 
 ion, I see no reason for abandoning a perfectly well-established and 
 recognized method of procedure for one that has that novelty. 
 
 Senator Ci-app. Mr. Hines, would you not get more of certainty 
 in the administi-ation of the law, whatever procedure were provided, 
 by pointing out plainly what the reasonable rate should be than if 
 you were to leave it to the court to determine, at your own risk, 
 whether a given modification of a prohibited rate would be construed 
 as a substantial compliance with the order? 
 
 Mr. Hines. There has been no sort of difficulty of that sort in the 
 past. "\\Tien the Commission has ordered the discontinuance of a 
 rate, the decision has invariably afforded sufficient light for the car- 
 riers to go by to enable them to meet substantially the wishes of 
 the Commission. As a practical matter, I do not anticipate any 
 uncertainty as to the result of that. But, as I say, I believe the other 
 method would be constitutional. The objectioji I have to it is that 
 it is an unnecessary novelty put in the law. 
 
 Senator Clapp.' But surely the fixing of rates would not be a 
 novelty, subject to the carrier talking the initiative and changing the 
 rates to fit changed conditions. 
 
 Mr. Hines. Oh, the rate-making power is no novelty in this coun- 
 try, in a commission. 
 
 Senator Clapp. Xow, I would liice to get your views a little more 
 concisely, perhaps, than they are in the record on another question, 
 and that is this question of giving preferences to ports. What is the 
 
36 EIGHTH DAY. 
 
 difference now in the rate between Chicaoo and New York and 
 Chicajyo and Baltimore? 
 
 MrrtliNES. T thijik the established differential on export grain to 
 Baltimore is 3 cents less than the rate from Chicago to New York. 
 
 Senator Clapp. Is there anything in the present laM' that would 
 prevent the Commission and the court, if tlie court saw fit to support 
 it, prohibiting that differential? 
 
 Mr. I-IiNES. As I understand it, that differential is an adjustment 
 which was established at a time when the carriers serving Baltimore 
 had no interest in those other ports — some of them, at least; and they 
 were the carriers that forced tha.t adjustment. Now, no matter what 
 you may think of that adjustment, as ^^■^se or unwise, that being the 
 way it was established, I do not see that you could find any basis of a 
 wrongful act on anybody's part to correct. The carrier serving Bal- 
 timore may have insisted on and enforced such a large differential in 
 its favor as to have had an unfavorable effect on New York; but if 
 the carrier serving Baltimore had no interest in New York that was 
 no wrong on its part of which New York could complain, and I do 
 not see any basis for either legislative or judicial action in regard to 
 that. 
 
 If it was the same road, if the same railroad served all those places, 
 and was responsible for a deliberate adjustment which was not 
 affected by conditions which it could not control, or, in other words, 
 if it could and did absolutely control the adjustment and made one 
 which hurt one point to the benefit of another, then that would be a 
 wrongful act on the part of that carrier which the legislature could 
 provide against or which the court could provide against under the 
 present law. That is the distinction I make. Of course a clearer 
 case is as between New Orleans and Ne^^■ York, where the carriers are 
 entirely different. 
 
 Senator Clapp. Yes. 
 
 Mr. Hii^^ES. No matter how much advantage the lines to New 
 Orleans may gi\e that port, it can not be said that they are doing 
 anything that is unlawful as against New York, because they owe no 
 duty to New York. If they went to Mow York and controlled the 
 situation at both points, then they would be under a different situa- 
 tion, and would be boimd not to undidy prefer one of those ports over 
 the other. 
 
 Senator Clapp. I doubt whether I made the question plain, per- 
 haps. 
 
 Mr. HiNES. I am afraid. Senator, I have not made my answer com- 
 plete. Now, assuming (as I do assume and believe to be the fact) 
 that that differential in favor of Baltimore is due to conditions which 
 are independent of those that can be controlled by the carrier reach- 
 ijig New York, my opinion is that the court could not now prohibit 
 that, and that the legislature could not provide against it. 
 
 Senator Clapp. What would vour remedy be, though, if the court 
 did? " .r . » > 
 
 Mr. HiNES. How is that? 
 
 Senator Clapp. AVhat would your remedy be if the court did pro- 
 vide against it ? 
 
 Mr. I-IiNES. I say it can not jn-ovide against it. in my opinion. 
 
 Senator Ci-app. But, I say, if the court did, what would your 
 remedy be ? 
 
EIGHTH DAY. 37 
 
 Mr. HiNES. Why, the only way in the world to deal with a situa- 
 tion of that sort, where there are different carriers involved, is to fix 
 the specific rates for the future, which must be charged to both 
 ports 
 
 Senator Clapp. Yes. 
 
 Mr. PIiKES. And to say that neither port shall have the property 
 hauled at less than that specific rate, neither less nor more. 
 
 Senator Ci.app. Under the law now the Commission and the court 
 combined can prohibit any given rate between Chicago and New 
 York on the one hand and Chicago and Baltimore on the other, can 
 they not? 
 
 Mr. HiNES. Yes ; if it is unreasonably high. 
 
 Senator Ci.app. IVell, it is for them to decide. I say the Commis- 
 sion and the court combined can prohibit any given rate? 
 
 Mr. HiNES. But they are limited, of course, to this — they can not 
 prohibit it unless it is a violation of the law. 
 
 Senator Clapp. No; but if the court violates the law there is no 
 remedy, so there is no use in discussing that. I say, again, that the 
 Commission and the court together can to-day prohibit any rate be- 
 tween New York and Chicago and Baltimore and Chicago, can they 
 not? 
 
 Mr. Hikes. They can prohibit the continuance of a rate between 
 Chicago and New York. 
 
 Senator Clapp. Yes. 
 
 Mr. Hjnes. That would require a reduction in that rate. 
 
 Senator Clapp. Exactly. 
 
 Mr. Hikes. They could prohibit the continuance of a rate between 
 Chicago and Baltimore. That would require a reduction in that 
 rate. 
 
 Senator Clapp. And by this prohibition, within the limit of a sub- 
 stantial reduction, they can practically fix the rate, can they not? 
 
 Mr. HiNES. They can fix a maximum rate. 
 
 Senator Clapp. Yes. That is what I am talking about. 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. Does the fact that they can do that in any way 
 suggest the unconstitutionality of the present act, in view of the pro- 
 vision of the Constitution which prohibits preference in conunerce 
 regulations between the ports of different States ? 
 
 Mr. HiNES. No ; the power to prescribe a maximum rate of course 
 is very different from the power to control differentials, because you 
 can not control them by prescribing a maxifiium rate. I will explain 
 what I mean : 
 
 Assuming that the rate on export grain from Chicago to New York 
 is 17^ cents, and to Baltimore is 144 cents, under the present law the 
 courts could hold that the rate to New York of 17J- cents was un- 
 reasonably high, and ought to be reduced 2 cents. It might in the 
 same proceeding hold that the rate from New York to Baltimore was 
 not unreasonably high, and need not be reduced. But if the carrier 
 from Chicago to New York reduced that rate 2 cents, to 15|, that 
 decision of the court would not prevent the carrier to Baltimore re- 
 ducing its rate 2 cents also, although the court said it need not do it. 
 The court could not tell it it should not do it; and if it did not tell 
 it that, the differential of 2 cents could and would be preserved. 
 
 Senator Clapp. Now, we will take that very line ; for illustration. 
 
38 EIGHTH DAY. 
 
 we AYill sav the rates are 17 and 14. Of course on this rate from 
 Baltimore to Chicago there would be a limit in reduction where a 
 road practically could go no lower, would there not ? 
 
 Mr. HtNES. 'Yes; as a business matter. 
 
 Senator Clapp. As a business matter ; and there would be a point ■ 
 where that would be as absolute a prohibition against reducing the 
 rate as any legal prohibition could be, if a legal prohibition could be 
 enforced; would there not? 
 
 Mr. HiNES. Looking at it for a long time, there would : of course 
 a temporary reduction could be made to a very low figure. 
 
 Senator Clapp. A slight reduction? 
 
 Mr. HiNES. A considerable one, temporarily. 
 
 Senator Clapp. Yes. Xow, the Commission and the court com- 
 bined could reduce this l7-cent rate to a point where practically a 
 railroad could not reduce the rate from Chicago to Baltimore suffi- 
 ciently to still maintain the differential, could it not? 
 
 JNIr. HixEs. Of course j'ou have to presume that the court will ob- 
 serve the law; it would have no right to reduce that rate from Chi- 
 cago to New York except upon the ground that it was unreasonably 
 high. If it pretended to reduce it on that ground, but was really re- 
 ducing it for the purpose of changing the differential with Baltimore, 
 as you say, that might be something that the carrier would be help- 
 less about ; but the fact that the court might find some way to evade 
 the law and evade the Constitution would be no reason why that 
 would be a constitutional process. 
 
 Senator Clapp. No; but 
 
 Senator Cahmack. It is not to be supposed that they would do it. 
 
 Mr. HiNES. No ; it is not to be presumed that they would do it. 
 
 Senator Clapp. I am not supposing a case, Mr. Hines, Avhere the 
 Commission and the court go to work with the ultimate view of 
 eliminating differentials; but I am supposing this case, and I ask 
 you again as a lawyer if it is not a fact — that the Commission and 
 the court combined could reduce that rate from Chicago to New 
 York to a point Avhere no railroad could carry from Chicago to Bal- 
 timore at a rate 2 cents less? 
 
 Mr. HiNES. I think that is more of a practical than a legal ques- 
 tion. If you assume, in the first place, that the court follows the 
 law and makes only such reduction as is necessary to prevent the 
 rata from Chicago to New York being unreasonably high, then as a 
 practical matter they could certainly charge 3 cents less and carry 
 grain to Baltimore, and probably would do it, in order to preserve 
 a given basis ; because if the road to Baltimore was going to lose the 
 traffic unless it could do that, it could very well afford to do it 
 rather than lose an immense amount of traffic and shut up its port. 
 
 Senator Clapp. Let us go back to the first principle again. There 
 is, of course, no review of the action of the court itself "on the ques- 
 tion of whether a reduction is reasonable or not; when the court 
 has sustained it, it is in law reasonable? 
 
 Mr. Hines. Yes. 
 
 Senator Clapp. Yes. So that any reduction which the Commis- 
 sion made and which the court sustained on review between Chicago 
 and New York would be a reasonable reduction, legally? 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. And could be made, under the Constitution ? Now, 
 
EIGHTH DAY. 39 
 
 it follows, then, that they might, in the exercise of that power, as to 
 the rate from Chicago to New York, reach the point where the rail- 
 roads could not for any length of time maintain a differential in 
 favor of Baltimore. There is no escape from that conclusion, is 
 there? 
 
 Mr. HiNES. I think the only way that conclusion follows is to 
 assume as a practical matter that the court would make an injustly 
 low rate between Chicago and New York. 
 
 Senator Clapp. But when the court has made a rate, legally that 
 that is a just rate and a reasonable rate? 
 
 Mr. HiNES. Of course by the same line of reasoning. Senator 
 Clapp, you could say that the court could reduce a rate so low as to 
 drive a railroad out of business. It might do that — just absolutely 
 paralyze it. 
 
 Senator Clapp. It could ? 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. And could it not? 
 
 Mr. HixES. But that does not prove that that is constitutional. 
 
 Senator Clapp. No, no; but does it affect the constitutionality of 
 an act because a court, under that act, may reach such a result? 
 
 Mr. HiNES. No. 
 
 Senator Clapp. In other words, then, to get back to our origina,! 
 question, the fact that the Commission and the court combined may 
 by the process of prohibition eventually reach a rate between Chicago 
 and New York which would be a practical prohibition to a differ- 
 ential to'Baltimore does not affect the constitutionality of the inter- 
 state-commerce law, does it ? 
 
 ilr. HiNES. Oh, the Supreme Court has frequently held that the 
 mere possibility of unjust or preposterous consequences does not 
 defeat the constitutionality of an act. 
 
 Senator Clapp. Yes. Now, then, would adding to the interstate- 
 commerce law the other factor — ^that not only by the process of 
 repeated prohibitions, but by the process of the declaration of a defi- 
 nite rate, a rate could be fixed — change that question as to its consti- 
 tutional aspect ? 
 
 Mr. HiNES. I think it would. 
 
 Senator Clapp. In what respect ? 
 
 Mr. Hikes. The only way that the process that you have suggested 
 could be accomjalished would be by a pretense on the part of the 
 court that it was trying to do one thing while it was actually doing 
 another. If Congress should give the Commission or any other tri- 
 bunal the power to fix specific rates as between different ports, to 
 control differentials, that would be a power which would undeniably 
 be exercised for the sole purpose of controlling that fact ; that is, its 
 direct object and its necessary effect would be to establish a prefer- 
 ence between two ports. 
 
 Senator Clapp. Mr. Hines, when we concede that by the process of 
 prohibition repeatedly exercised a given rate may be reached, does 
 putting into the law a process by which that definite rate can be 
 reached at the outset in itself confer authority so palpably to deal 
 with differentials as to bring it within the constitutional objection? 
 That is what I want to get at. 
 
 Mr. Hines. I think that it would make it perfectly plain on the 
 
40 EIGHTH DAY. 
 
 face of the law that the object was to control differentials, and that 
 that wonld make it unconstitutional. 
 
 Senator Clapp. You think that merely reading into that law a 
 provision whereby the Commission may not only find what is an 
 unreasonable rate— or, if we had a new law, a court — but may also, 
 in lieu thereof, declare what should be the reasonable rate, would 
 carry the implication of a direct effort to deal with differentials? 
 
 Mr. HiNES. I do not mean that it would invalidate the whole law, 
 but I mean an exercise of it to establish differentials would be invalid. 
 Suppose the Commission, under such a power, should fix a rate to New 
 Orleans and a rate to New York, neither of which rates could be 
 varied by the carriers ; and suppose, for the sake of illustration, that 
 New Orleans should claim that the result was to drive the grain 
 business away from that port. The mere fact that the fixing of that 
 rate says to the port of New Orleans — " beyond this point you shall 
 not enjoy any advantages the railroads are willing to give you; you 
 shall not have a lower rate if they are willing to give it " — consti- 
 tutes a direct preference of the port of New York over the port of 
 New Orleans, and it would, therefore, be invalid. I do not mean 
 that the general power conferred by Congress would necessarily be 
 void, because it might be utilized in that way, but that utilization 
 of it would be void. It would be a regulation of Congress preferring 
 the ports of one State over those of another. 
 
 Senator Clapp. Then, in your opinion, this suggestion that has 
 been made from time to time of a constitutional prohibition against 
 giving preferences to the ports of different States would osly arise 
 in the particular instance where it was sought to accomplish that 
 in the administration of the law.? 
 
 Mr. HiNES. Yes. 
 
 Senator Clapp. And would not constitute any objection whatever 
 to broadly either giving the Commission power to fix a rate or giving 
 the court power to fix it ? 
 
 Mr. HiNES. I do not think it would render absolutely void the 
 scheme of regulation. 
 
 Senator Clapp. I understood that that was your suggestion and 
 Mr. Morawetz's suggestion that it would. I think that is all I wish 
 to ask. 
 
 Senator Carmack. First, in regard to the injunctional method 
 of proceeding of which you were speaking a while ago, and what 
 could be accomplished under it constitutionally: Is it necessary to 
 determine with precision what is a reasonable rate in order to deter- 
 mine that a particular rate is unreasonable? For instance, might 
 it not be very manifest that a particular rate was unreasonable, 
 while the question of what is or what would be a reasonable rate 
 would be a matter of very serious doubt, and a court might properly 
 say, " We will not pass upon that question ? " 
 
 Mr. HiNES. Yes ; there is a distinction there, of course. 
 
 Senator Carmack. Could you then require the court to declare 
 what was a reasonable rate, if it was not necessary to the decision of 
 the question that was before the court? 
 
 Mr. HiNES. It seems to me that it would be so connected with the 
 case that was before it that it would not be an improper thing to 
 require of it. 
 
 Senator CAinrACK. Mr. Hines, in the present state of the law hare 
 
EIGHTH DAY. 41 
 
 the railroads the legal power to charge an unreasonable rate — just 
 considering the state of the law? 
 
 Mr. HixES. The act prohibits every unreasonable charge, and of 
 course the railroad has no right to violate the law. 
 
 Senator Carmack. Is there any effective legal way to prohibit an 
 unreasonable rate except by imposing a reasonable rate? 
 
 Mr. HiNES. I am satisfied that a perfectly effective way is simply 
 to enjoin the railroad from continuing to impose the unreasonably- 
 high charge which the court condemns. • 
 
 Senator Caemack. You thinli that is effective in practice ? 
 • Mr. HiNES. Yes. 
 
 Senator Carjeack. But, T say, is it legally effective? 
 
 Mr. HiNES. Wh}\ I think so. 
 
 Senator CARjrACK. As a matter of fact, a particular rate may be 
 abandoned without the substitution of a reasonable rate. May it not ? 
 
 Mr. HiNES. There might be a mere technical compliance with the 
 injunction — that is, a very insignificant reduction. 
 
 Senator Carmack. I am speaking now simply of the state of the 
 law as it is. 
 
 Mr. HiNES. Yes. 
 
 Senator Carmack. There is no legal was now to enforce a reason- 
 able rate, is there ? 
 
 Mr. Hikes. Yes ; there would be a legal way, if no other way, that 
 you could forthwitli enjoin the continuance of the new rate that 
 was established. The court, by the process of injunction, could cut 
 the rate down as much as it chose. 
 
 Senator CAEMAcii. But it would' require, of course, an indefinite 
 number of laAvsuits to bring that about*? 
 
 Mr. Hi:nes. That method would, yes; but, as a matter of practice, 
 it would never have to be resorted to. 
 
 Senator Carji.ack. If a railroad does impose an unreasonable rate, 
 what kind of suit can be brought, and what would be the judgment of 
 the court? What judgment can be given? 
 
 Mr. I-iiNES. Under the present interstate-commerce act the Com- 
 mission would investigate that rate, find it to be unreasonable, and 
 order the carrier to cease and desist from continuing to charge that 
 rate. If the carrier did not comply with that order, the Commission 
 would file a suit in the United States circuit court, and, unless the 
 court found that order to be unlawful or unreasonable on the facts, it 
 would enter a decree requiring the carrier to cease and desist from 
 continuing to charge the rate that it condemned. 
 
 Senator" Cakmack. That particular rate. The only judgment that 
 could be given, in the present state of the law, would be a discontinu- 
 ance of that particular rate? 
 
 Mr. HixES. Yes. 
 
 Senator Carmack. You say that the railroads have, in most of the 
 cases where the Interstate Coimnerce Commission has passed upon 
 rates, not only abandoned the rate declared to be unreasonable, but 
 have substituted the rate suggested or recommended by the Commis- 
 sion ? 
 
 Mr. HiNES. Yes. 
 
 Senator Carmack. They have done that in most of the cases? 
 
 Mr. HiNES. The period that I undertook to cover in that comiec- 
 tion consisted of the five years from 1900 to 1905, because they are the 
 
42 EIGHTH DAY. 
 
 only ones as to which I had complete information. But I think that 
 is true since 1897 and up to 1900 as well. Of course before 1897 the 
 situation ^\as different, because the Commission was then making: 
 rate-making orders. « 
 
 Senator Cakmack. But in effect they did the same thing by their 
 recommendations, did they not? 
 
 Mr. HiNES. Yes; only their order was lawful, because they con- 
 fined the order to the discontinuance of the original rate. 
 
 Senator Carmack. So thatj according to your statements, the Com- 
 mission had practically accomplished as much as if it had possessed 
 the rate-making power ? 
 
 Mr. HiNKS. Well, the point to be considered, of course, is the extent 
 ■to which the Commission has been active under the present power and 
 the extent to which it would have been active. Yes; it has accom- 
 plished very substantial results. 
 
 Senator Cakmack. And the railroads, by complying with the sug- 
 gestions or recommendations of the Commission, have shown that 
 even in their own judgment they would not have suffered materially 
 if the Commission had actually possessed the power to fix the rates? 
 
 Mr. HiNES. No; that does not follow. If the Commission had 
 fixed those rates, then no matter what change there might have been 
 in conditions the railroads would have had to stick to those rates until 
 they could get a new affirmati^'e action from the Commission. 'Under 
 the present system they have that degree of flexibility that if condi- 
 tions change they can change those rates — subject, of course, to new 
 action bj' the Commission. 
 
 Senator Carmack. Under the present state of the law, then, the 
 railroads may change their rate in accordance with the findings or 
 the recommendations of the Commission, and regard the recommenda- 
 tions of the Commission just as long as they think proper, and then 
 change the rate back? 
 
 Mr. HiNES. Of course they are the judges, in the first instance, of 
 any change in conditions ; and that is all done subject to the oppor- 
 tunity on the part of the Commission to intervene speedily and pre- 
 vent that change if it sees fit to do so. 
 
 Senator Carmack. In some of the cases you have mentioned — those 
 thirteen cases — the railroads did not follow the recommendations 
 of the Commission altogether, but made partial reductions ? 
 
 Mr. HiNES. Yes. 
 
 Senator Carmack. In the case of the arbitrary $80 a carload on 
 I^eaches ? 
 
 Mr. HiNES. Yes. 
 
 Senator Carmack. The reduction Avas recommended to $50, and 
 was made to $65 ; so in the case mentioned here of the rate of $1.90 
 per ton on coal from Indian Territory to a point in Texas, the Com- 
 mission recommended a reduction to $1.25, and a reduction was made 
 to $1.50? 
 
 Mr. HiNES. Yes. 
 
 Senator Carmack. Now, you say that if the Commission thought 
 this was not enough it could have entered another order. Would 
 the railroads have respected an order of that kind, do you thinlt, 
 Avhere they had disregarded the first order ? 
 
 Mr. HiNES. The courts could have made them respect it. If the 
 
EIGHTH DAY. 43 
 
 f 
 
 railroads were convinced that the Commission's order was unreason- 
 able on the facts the matter could have been taken to the court. 
 
 Senator Caemack. The courts could have done this — they could 
 have decided that the rate was unreasonable; but of course the 
 courts could not have compelled them to reduce it to $50? 
 
 Mr. HiNES. Xo, but 
 
 Senator Carmack. They might have reduced it to $64 ? 
 
 Mr. HiNES. They would not have done that, though. As a prac- 
 tical matter they would not have done that. The very natural con- 
 clusion to be drawn from that is that the railroads were very well 
 satisfied that the Commission had ordered an unreasonably great 
 reduction, and th'ey were perfectly willing to submit the matter to 
 the court on the $65 basis. That is the way I look at it. 
 
 Senator Caemack. And in the other cases they thought that the 
 Commission had made a reasonable reduction ? 
 
 Mr. HiNES. Yes. You see it is the court, in the last instance, under 
 the present system, that passes on that. It is not the carrier. 
 
 Senator Caemack. Well, then, it just amounts to this : That where 
 the railroad itself thinks that it has been charging too much — charg- 
 ing an unreasonable rate — it respects the finding of the Commission^ 
 and where it does not it does not ? 
 
 Mr. HiNES. There is this distinction to be borne in mind there: 
 That these orders are the orders of the Commission, and that they can 
 not be enforced except through the court. If that order had been 
 made in the first instance by the court, or a suggestion to that effect 
 had come from the court, of course, the railroad would have made the 
 full reduction, because there would have been no sense in its inviting 
 a new suit, realizing that the same court would of course make the 
 same finding. 
 
 Senator Caemack. But the court would not make such a suggestion^ 
 would it? 
 
 Mr. HiNES. I think very probably it would. At any rate, there 
 would be no difficulty in the carrier understanding with substantial 
 clearness what reduction it would have to make to meet the views of 
 the court; and, in the last analysis, that is what the carrier has to do. 
 The Commission's order has no independent effect, and was not in- 
 tended to have a:ny, under the present act, and the fact that the rail- 
 roads did not adopt the full recommendation of the Commission in 
 those two cases out of the eleven, or two cases out of ten, does not 
 show that they would have adopted that attitude even with respect 
 to a court if the court had passed on it instead of the Commission,, 
 because the action of the court would have been final. That would 
 be the last of it. 
 
 Senator Caemack. You refer here to one case — the hay case ; that 
 was a case, was it not, where railroads north of the Potomac and Ohio 
 rivers and east of the Mississippi, by concerted action, advanced the 
 rates on hay from 1 to 6 cents a hundred ? Was that the case ? 
 
 Mr. HiNES. They changed the classification from sixth class to 
 fifth class, which, of course, involved an advance in the rate. 
 
 Senator Caemack. From 1 to 6 cents a hundred, was it not ? 
 
 Mr. HiNES. I do not know how much it was. 
 
 Senator Caemack. It was stated that they had increased the 
 amount paid for transportation of this article in that territory about 
 $2,000,000 per annum. 
 
44 EIGHTH DAT. 
 
 Mr Hixi:s. AVas that the statement in Senate Document 257'? 
 
 Senator Caumack. I thmk so. I ha^-e not seen it for some time 
 but I think that was about the statement. At least I have seen it 
 somewhere ; I had it in my mind. Do you not thmk there should be 
 some way in which the reasonableness of such an advance as that 
 could be determined, and adequate relief given if the advance was 
 found to be unreasonable ? 
 
 Mr. Hikes. I think it can be under the present law. 
 
 Senator Carmack. But there is no legal way, except by an indefi- 
 nite number of lawsuits, bv which you could have compelled a reduc- 
 tion in that case from 6 cents back to 1 cent ; or is there ? 
 
 Mr. Hi.xF.s. But for practical purposes it is a complete remedy, in 
 my opinion, Senator Carmack. 
 
 Senator Caemack. If the raili'oads thought that they were justi- 
 fied in making the advance from 1 to 6 cents, they would not have 
 reduced it back to 1, would they, because the Commission recom- 
 mended it ? . . 
 
 Mr. Hi:<ES. Probably not because the Commission recommended 
 it; but if a court passed on that question and sustained that finding. 
 I am satisfied thev would. You see, there is that distinction to be 
 borne in mind alwavs under the present law— that the Commission's 
 fihding is recommeiidaturv. while the court's finding is compulsory. 
 
 Senator Gakmack. I know. The court, though, as I understand 
 it, only decides that a given advance is reasonable or unreasonable. 
 
 Mr. HixES. Yes. 
 
 Senator Cakmack. In that case they Avould not have undertaken 
 to say that 1 cent would be a reasonable rate instead of 6 cents, would 
 they? They would ha\'e just said whether that advance was a rea- 
 sonable advance or not ? 
 
 Mr. HiNES. As a matter of fact, a case of that sort would not go 
 through the courts without the railroad learning what the court 
 thought about the merits of the case. I think in any opinion the 
 court could frame it would express that view, or the railroad would 
 know what was meant. Eailroads know hoAv to keep out of litiga- 
 tion, and it would Icnow what it would have to do to avoid that kind 
 of a suit. 
 
 I want to make this suggestion. Senator, about the proposition that 
 there is no legal effect to the injunction: There is exactly an analo- 
 gous proceeding Avhen a State railroad commission fixes rates that 
 are confiscatory in character. The relief of the carrier is to get an 
 injunction in a court. All that that injunction says is that the Cora- 
 mission must not enforce those rates, because they are confiscatory. 
 Now, for practical purposes that is a remedy to the carrier against 
 confiscatory rates. The courts do not undertake to fix rates for the 
 future; they expressly state that they would not do that. They 
 confine their injunction to the purely preventive form that it has to 
 take; and yet no one disputes that that injunction has legal effect, 
 and that to the extent the rates would be confiscatory that is a sub- 
 stantial remedy to tlie carrier. 
 
 The case is exactljr the same where the shipper, or the Commission 
 for the shipper, is suing to enjoin the railroad company against main- 
 taining a rate that is unreasonably high. The actual injunction stops 
 there, also, with a purely preventive form — that the carrier must cease 
 
EIGHTH DAY. 45 
 
 charging that rate. But the legal effect is the same in both cases, and 
 the practical effect would be the same in both cai^es. 
 
 There is another feature — that when the court is considering rates 
 fixed by a State commission there are two propositions that govern 
 its views of it. One is that the rates will not be enjoined at all unless 
 they are clearly confiscatory, and the other is that every presumption 
 will be resolved in favor of the correctness of the action of the State 
 commission. For those reasons those injunctions can not be obtained 
 except in extreme cases. Neither of those reasons would operate in 
 a suit by the Commission to enjoin a rate fixed by a railroad company. 
 But looking at it simply as to the character and effect of the relief, 
 it is the same; it is purely injunctive in both cases, but each has a 
 legal effect. 
 
 Senator Carmack. The power can not be given to the courts to 
 determine what rates shall apply in future, because that is not a 
 judicial function? 
 
 Mr. HiNES. That is recognized. 
 
 Senator Caemack. Such a power could be given to a commission? 
 
 Mr. Hikes. Yes — at least, to prescribe maximum rates. 
 
 Senator Cabmack. That rates shall not be extortionate or confis- 
 catory ? 
 
 ilr. HiNES. Yes. 
 
 Senator Caejiack. VThx is not a commission of competent men con- 
 tinually engaged in the hearing and study of such matters competent 
 to pass upon questions of this sort, assuming that proper care has been 
 taken in the selection of men for that purpose ? Take the case of this 
 advance in hay. What was there in that question that a commission 
 composed of competent men could not deal with intelligently? * 
 
 Mr. HiNES. Why, I think the ordinary courts were equally fitted to 
 deal with it, and much better fitted, because of the fact that they have 
 the safeguards that attend courts: and no commission I have ever 
 seen has those safeguards. 
 
 Senator Caemack. I am speaking now about fixing — not only stop- 
 ping an unreasonable rate, but fixing and enforcing a reasonable rate 
 for the future. 
 
 Mr. HiNES. I have devoted a good part of my statement to trying 
 to show that a commission in a country of this size is utterly unequal 
 to the task of prescribing rates for the future. I am thoroughly con- 
 vinced that no commission, no matter how carefully you select it or 
 how you separate it from other functions which would be incompati- 
 ble, has the necessary capacity to deal with the complex rate situa- 
 tions of this country as a whole. 
 
 Senator Cae:\iack. Have you given any study to the operation of 
 the Canadian law. passed about a year ago, I believe ? 
 
 Mr. HixES. Xo ; I am not even familiar with the terms of the law, 
 and do not know anything about its actual operation. 
 
 Senator Cabmack. I believe that law gives a board of railroad com- 
 missioners (T believe that is what it is called) power to correct all 
 railroad rates and even to prescribe regulations for the operation of 
 trains. Do you know whether the application of this law has inter- 
 fered with the operation of Canadian railways or has seriously 
 affected their revenues ? Have you heard of any complaint ? 
 
 ilr. HixES. ]Mr. Tuttle said the other day that it never had been 
 
46 EIGHTH DAY. 
 
 applied at all, but that is the only information I have on the subject. 
 I have not observed its operation at all. 
 
 Senator Carmaok. I will ask you the question I asked Mr. Tuttle 
 the other day. Do you think it is impossible to fix any definite rule 
 for railwav rates involving any scientific system? Is it absolutely 
 necessary that the making of a rate should be conducted without any 
 rules or system ? 
 
 Mr. HiNES. I do not think it is possible to provide any fixed rules. 
 It could hardly be said that it is conducted now without rules or sys- 
 tem, but certainly is not and can not be conducted according to fixed 
 and unchangeable rules unless the commerce of the country is to suffer 
 very seriously, as well as the business of the railroads. 
 
 Senator Carmack. WTiat do you think of the rule as proposed by 
 Mr. Stickney in his book on Railway Problems as to what ought 
 to have been the rule in the beginning — that is, to make certain termi- 
 nal charges both for the long and the short haul and then a mileage 
 rate? 
 
 Mr. HiNES. I think such a rule would have a very disastrous effect 
 on the commerce of the country. 
 
 Senator CAR:\rACiv. As it is now, but I mean if we had started with 
 a rule of that sort. 
 
 Mr. Hix]:s. I think the connnerce that rule Avould hurt now would 
 never have been in existence if it had existed from the beginning — at 
 least, not as it is now. Of coxirse a great man}? places in the United 
 States have the advantage of water competition. There commercial 
 conditions ha^'e free play in the fixing of rates, and whether it is arti- 
 ficial or natural, they clo not fix rates on a mileage basis; they fix 
 them on a basis to move the business and get the business to move. 
 But on any such system as that the places having access by water to 
 important markets would have had an infinitely greater advantage 
 than they now have over places that do not have the same access by 
 water. 
 
 Senator C'armack. Do you think it has been the policy of the rail- 
 roads to build up cities at the end of their lines, so as to give them- 
 selves the advantage of the long haul ? 
 
 Mr. HiNES. I do not think it has been. I think it is to the interest 
 of the railroads to foster the short-haul business. 
 
 Senator Carmack. Mr. Sticldey saj's that it has been or was the 
 policy, of the roads to build up the business of the terminals of the 
 road, so as to give themselves the advantage of the long haul. 
 
 Mr. HiNES. I do not agree with him on that as to the part of the 
 country I am familiar with. I know it is not the policy now in the 
 South. That is the only section I am familiar with. 
 
 Senator Carmack. That is all. 
 
 The Chairman. Mr. Hines, the committee is very much obliged to 
 you for your statement, the care you have given, and the time you 
 have given to tlie committee in making your statement. We feel that 
 it has been of value in giving us information. 
 
 Mr. Hines. I am very much obliged to the committee for such a 
 patient hearing as they have given me. 
 
 Senator Foraker. Mr. Chairman, in tlie last report of the Inter- 
 state Commerce Commission I find, at the foot of page '24, this para- 
 graph : 
 
 " As a result of one of these periods of conflict and demoralization 
 
EIGHTH DAY. 47 
 
 the celebrated extra-legal tribunal of arbitration, consisting of Messrs. 
 Allen G. Thurman, E. B. Washburne, and Thomas M. Oooley, was 
 called into being, and, after hearing a large volume of testimon}' and 
 weighing the arguments presented by the representatives of the dif- 
 ferent ports, rendered its decision on July 20, 1882, sustaining, with 
 regard to the circumstances and conditions of that period, the differ- 
 entials then in force."' 
 
 They are discussing there the diflerentials that the witness has just 
 been discussing, between New York, Boston, Philadelphia, and Balti- 
 more. I sent for that report — it is practically out of print — and I 
 got a copy of it from the Interstate Commerce Commission ; and they 
 discuss this whole subject. They are very eminent men, and I think 
 the discussion is a very interesting one, and I would like to embody it 
 in the record, if there is no objection. 
 
 The Chairman. Just let it follow at the close of this session. 
 
 (The document above referred to, which was directed by the com- 
 mittee to be embodied in the i-ecord, as above stated, will be found 
 at the end of this clay's proceedings.) 
 
 STATEMENT OF MR. P. B. YATES. 
 
 The Ciiaiejman. Please state your name, occupation, and place of 
 residence. 
 
 Mr. Yates. Mj name is P. B. Yates ; my residence is Beloit, "Wis. : 
 T am a manufacturer of machinery. 1 do not know just your mode of 
 procedure, but my objection to the rate commission is more in a gen- 
 eral way, for two reasons : 
 
 I think a commission, to be able to handle this question, would be 
 very complex — in fact, so much so that before any correction of an 
 unjust rate could be made there would be serious delay, which would 
 be quite expensive to the shipper. On the other hand, I would seri- 
 oush' object to a rate per mile for many reasons, the principal of 
 which would be that it would tend to centralize and to narrow or 
 congest the sphere of business for the different factories ; partieularly 
 so in the Middle '\Vest, where we have no water competition to aid 
 in correcting an unjust railroad rate. 
 
 My particular business is the one, of course, that T know most 
 about; and I believe that a rate per mile would be a serious loss to 
 us, particularly because of our trade being largely in the lumber 
 districts, which are in the South and the far "West. A rate per mile 
 from the seacoast to the lumber districts of the South would mean 
 that the manufacturers in our line in the coast cities could probably 
 get a very low water rate to places like New Orleans, for instance, 
 and then add to that the small cost of freight due to the rate per 
 mile, and they would then really be in position to shut out the manu- 
 facturers in our section, which is in the neighborhood of Chicago. 
 
 I do not know that I can say much more. This is the whole thing 
 in a nutshell. 
 
 The Chairjiax. You say you are a manufacturer of what? 
 
 Mr. Yates. Machinery, which we sell largely-- — 
 
 The CiiAiRaEAN. What is the extent of your business? How many 
 shipments do you make in a year — how many carloads? 
 
 Mr. Yates. I do not know that I can tell you that. Our freight 
 is something in excess of $125,000. 
 
48 EIGHTH DAY. 
 
 Senator Forakee. That is, you mean the freight you pa}'? 
 
 Mr. Yates. The freights we pay — j^es; Ave pay some freight out, or 
 sell some goods delivered. In fact, that is quite a practice in the 
 South, just on account of the eastern competition. 
 
 The Chairman. As a shipper, do you complain of excessive rates 
 or high rates'? 
 
 Mr. Yates. No ; I do not. Of course I suppose Ave would all like 
 better rates. I suppose we would all want better rates, no matter 
 what we had. 
 
 The Chairman. But, as a rule, are the rates too high, in your 
 judgment ? 
 
 Mr. Yates. No ; I do not think they are. 
 
 The Chairman. In your business or in any other business that you 
 know of in your section of the country ? 
 
 Mr. Yates. Well, we go for relief, of course, to our local railroads ; 
 and they are very generous in giving us audience and looking the 
 matter up and correcting any evils that it is in their power to do, 
 consistently. We have no complaints to make in that line. 
 
 The Chairman. You have not. Have j'ou heard, of any? 
 
 Mr. Yates. No ; I mean myself. I have not heard of any among 
 the manufacturers. 
 
 Senator Foeaker. What kind of machinery do you manufacture? 
 
 Mr. Yates. It is called woodworking machinery. We sell it to the 
 lumbermen — heavy iron machinery for the working up of lumber. 
 
 Senator Foraker. Where do you sell it, principally ? 
 
 Mr. Yates. The world is the market, principally ; of course there is 
 no particular locality. 
 
 Senator Foraker. Do you ship in all directions over this country ? 
 
 Mr. Yates. Yes ; largely to the South and the West. 
 
 Senator Foraker. To the South and the West ? 
 
 Mr. Yates. The South and West ; yes, sir. 
 
 Senator Foraker. That is, you mean down into the Southeastern 
 States? 
 
 Mr. Yates. I mean the coast States, where the lumber is. 
 
 Senator Foraker. East of the Mississippi Kiver ? 
 
 Mr. Yates. Yes, sir ; Georgia, Florida, Alabama, Mississippi, Loui- 
 siana, and Texas. 
 
 Senator I* oraker. And you reach those points entirely by rail ? 
 
 Mr. Yatp:s. AVe have to ; yes, sir. 
 
 Senator Foraker. By all-rail shipments ? 
 
 Mr. Yates. Yes, sir. 
 
 Senator Foraker. And you would come into competition there with 
 the water transportation ? • ' 
 
 Mr. Yates. Y^es, sir. 
 
 Senator Foeaker. From the Northeast ? 
 
 Mr. Yati<:s. Yes, sir. 
 
 Senator Forakee. Have you competitors doing business in the 
 northeastern part of the country ? 
 
 Mr. Yates. Yes, sir. 
 
 Senator Forakee. ^lanufacturing and ^hijaping from there? 
 
 \h\ Yates. Yes, sir. 
 
 Senator Foraker. And you think that if freiglit Avns charged by 
 the mile, so much per ton per mile, that would place you at a disad- 
 vantage? 
 
EIGHTH DAY. 49 
 
 Mr. Yates. Yes, sii-. For instance, in the southeast we have — I 
 do not know what the railroads would term it — we have a special 
 rate; or, rather, a rate that applies to the Ohio River for points be- 
 yond the Ohio Eiver, Avhich lets us in on a low rate on that section. 
 
 Senator Foeakee. Yes. Do you export machinery ? 
 
 Mr. Yates. Yes, sir. 
 
 Senator Foeakee. Where do you export it to; what part of the 
 world, chiefly? 
 
 Mr. Yates. Principally Germany and England. 
 
 Senator Foeakee. And is your rate fixed for export to Germany 
 or England by the road on which it originates? 
 
 Mr. Yates. Xo, sir. 
 
 Senator Foeakee. Where is that rate fixed ? 
 
 ilr. Yatks. Our export business is done entirely through the Euro- 
 pean dealers; we deliver the goods at Xew York for so much. 
 
 Senator Foeakee. Yes ; you simply ship to New York ? 
 
 Mr. Yates. Yes, sir. 
 
 Senator Foeakee. And they ship it from there ? 
 
 Mr. Yates. Yes, sir. 
 
 Senator Foeakee. They arrange the ocean transportation? 
 
 Mr. Yates. Yes, sir. 
 
 Senator Foeakee. You have nothing to do with that? 
 
 Mr. Yates. Our export business, of course, is a small proportion 
 of the whole. 
 
 Senator Foeakee. Have you had any experience with rebates? 
 
 Mr. Yates. No, sir. 
 
 Senator Foeakee. Do you know whether or not rebates are being 
 allowed now by the roads as in former years ? 
 
 yir. Yates. I do not; no, sir. 
 
 Senator Fokakee. And you think the rates that are now charged 
 are reasonable ? 
 
 Mr. Yates. Under present conditions they are ; yes, sir. 
 
 Senator Foeakee. Have you any specific complaints to make at all ? 
 
 Mr. Yates. No. 
 
 Senator Foeakee. You do not come here, then, to urge any change 
 in the law? 
 
 Mr. Yates. No, sir; I would prefer to leave it in the care of the 
 railroads. 
 
 Senator Foeakee. You do not think it would be of advantage to 
 you to have the rate-making power conferred on the Interstate Com- 
 merce Commission ? 
 
 Mr. Yates. Decidedly not ; no, sir. 
 
 Senator Foeakee. You would rather have the railroads control that 
 matter ? 
 
 Mr. Yates. By far. 
 
 Senator Foeakee. Can you tell us what the impression or feeling 
 is in that respect among shippers situated as you are, generally ? 
 
 Mr. Yates. You know, I am not in a city, and I do not come across 
 a great many of the shippers ; but such as I do feel as I do. 
 
 Senator Foeakee. What is the aggregate amount of your business, 
 annually ? 
 
 Mr. Yates. A million and a quarter. 
 
 Senator Foeakee. A million and a quarter dollars ? 
 
 8 D— 05 M i 
 
50 EIGHTH DAY. 
 
 Mr. Yates. Yes, sir. 
 
 Senator Forakee. How long have you been engaged in business at 
 Beloit? 
 
 Mr. Yates. Since 1888, at Beloit. 
 
 Senator Foraicer. What is the population of Beloit ? 
 
 Mr. Yates. Fifteen thousand, approximately. 
 
 Senator Foeaker. On what road or roads are you situated there ? 
 
 Mr. Yates. The Chicago and Northwestern, and the Chicago, Mil- 
 waukee and St. Paul. 
 
 Senator Foeaker. I think that is all. 
 
 The Chairman. We will excuse you, Mr. Yates. 
 
 STATEMENT OF MR. JAMES C. LINCOLN. 
 
 The Chairjian. Mr. Lincoln, state your name, occupation, place of 
 residence, and business, please. 
 
 Mr. Lincoln. My name is James C. Lincoln; I am at present the 
 general freight agent of the Missouri Pacific Railway, the St. Louis, 
 Iron Mountain and Southern Railway, and several allied, leased, and 
 operated lines embraced in what is known as the Missouri Pacific 
 Railway System. 
 
 The Chairman. Living in St. Louis ? , 
 
 Mr. Lincoln. With headquarters in St. Louis; yes, sir. 
 
 I entered the railway service in the car-ser-\'ice department in 1876, 
 passing through the transportation and operating departments into 
 the traffic department. I have been in the traffic department of the 
 Missouri Pacific Railway Company since 1889, and my duties have 
 been in connection with traffic and tariff work. 
 
 The Chairman. Do you wish to make any particular statement? 
 
 Mr. LiNt'OLN. I ha\ e an outline of statements ijrepared, Mr. Chair- 
 man, on the points that I desire to cover. 
 
 The Chairman. Very well ; make your statement to the committee. 
 
 Mr. Lincoln. In regard to rebates and discriminations, the honest 
 railroad and the honest shipper will be satisfied with any legislative 
 enactment that will suppress rebates, discriminations, or any device 
 that will give one shipper or class of shippers an advantage over 
 another shipi^er or class of shippers; that will prevent dishonest rail- 
 roads, through questionable devices, from controlling traffic in compe- 
 tition with lines that wish to conform to the law; that will secure 
 reasonable and stable rates without at the same time fixing arbitrary 
 rates; that will not take away the right of control of rates which is 
 now vested in the carriers so long as no discriminative or unjust rates 
 are made. 
 
 Nothing should be done that will prevent the carriers from meeting 
 commercial conditions, arising, as they do, so often, or that will pre- 
 vent rates being of a flexible character, which can not obtain under 
 governmental control of rates. 
 
 Speaking of the average rates (a matter that has been spoken of a 
 number of times in previous discussions), I will make the statement 
 that by reason of competition unrestrained by Government control 
 the carriers, acting in their individual cajiacity, and owing to im- 
 proved and modern methods, betterments as to tracks, terminal facili- 
 ties, increased power, larger equipment, and increased tonnage, due 
 to the development of the country, have steadily reduced their charges 
 
EIGHTH DAY. 51 
 
 for transportation from year to _year almost without exception. The 
 free competition between the carriers under the conditions which at 
 present obtain will no doubt continue under the American method of 
 constant improvement in facilities and economical methods for the 
 handling of the vast traffic of the country. 
 
 If restraint is placed upon the carrier fixing arbitrarily its rates, 
 the incentive to economize in the way of operation through improved 
 scientific methods will not obtain, as the competition will not be so 
 keen, and the fixing of rates gradually will result in the maximum 
 rates becoming the mininnmi rates. 
 
 As showing the decline in the rate per ton per mile 
 
 Senator Clapp. Let me interrupt you there, simply to get an under- 
 standing of your terms. You use the words " arbitrary rates " and 
 '• arbitrarily fixing rates." Do you mean by that a rate "fixed by gov- 
 ernmental supervision or a rate that can not be raised or lowered ? 
 
 'Sir. LiNCOLx. I mean a rate that is fixed bj^ a legislative enactment 
 or by an order of the Commission practically becomes the rate : you 
 can not exceed it. 
 
 Senator Clapp. AA'ell, that would be the maximum? 
 
 Mr. LixcoLx. It would be the maximum ; and as they are fixed 
 from time to time, it would result also in their being the minimum 
 rates. 
 
 Taking the Missouri Pacific Railway, which is a system embracing 
 between 6,500 and 7,000 miles, occupying the States of Missouri, Kan- 
 sas, Nebraska, Colorado, Arkansas, Indian Territory, and Louisiana, 
 we find that in 1897 the average rate per ton per mile was 8 mills and 
 four-tenths, or 0.84. In 1898 it was 0.84. (I am sorry I have not the 
 figures for 1899; I was not able to obtain them, but I will file them a 
 little later.) In 1900 it was 0.85; in 1901, 0.82-: in 1902 it was 0.80, 
 or 0.8 of a cent per ton per mile; in 190.3 it was 0.82; for 1904 the 
 earnings per ton revenue, freight, -were $1.95; in 1903 they were. 
 $2.02, showing a decrease oi 3.9 per cent in the average rate revenue 
 per ton for the year 1904 as compared with 1903. 
 
 Touching upon the average rates per ton per mile, they can be 
 varied very materially through different seasons — when I say ma- 
 terially I take into consideration the fact that a small fraction in an 
 average varies the tonliage very materially, dependent upon the com- 
 modities that are moving. 
 
 As an illustration in that connection, the gross earnings of the Mis- 
 souri Pacific Railway for the year 1904, as compared with 1903, 
 increased about $600,000. The operating expenses increased about a 
 million. The net earnings decreased in round figures $200,000. 
 
 Senator Foeakee. It should be $400,000, according to the figures 
 you give, should it not ? 
 
 Mr. Lincoln. The increase in gross earnings was about $600,000 
 in round figures, and the increase in operating expenses about 
 $1,000,000. I am comparing 1904 with 1903. 
 
 Senator Forakee. Yes ; I understand. 
 
 Mr. Lincoln. The increase in the operating expenses was about a 
 million dollars, and the decrease in net earnings of 1904 as compared 
 with 1903 was about $400,000. 
 
 Senator Forakee. Yes; $400,000. You said $200,000 before. 
 
 Mr. Lincoln. As showing how these averages may be changed, 
 take the traffic of the Missouri Pacific system for the year 1904 as 
 
52 EIGHTH DAY. 
 
 compared with 1903, and lumber increased from 20 per cent to 20.8 
 per cent, or an increase of nearly 1 per cent. Animals and animal 
 products increased from 4.9 to 5.1 per cent. Agricultural products, 
 such as grain, flour, cotton, and other articles of agriculture de- 
 creased from 22 per cent down to 19.1 per cent. Manufactures and 
 merchandise increased from 16.6 to 17.6 per cent. Coal increased 
 from 19.1 to 20.8 per cent. Miscellaneous freight was decreased 
 from 17 to 16 per cent. Now, the increases were m the merchandise 
 line, which pays the higher rate, but in connection with which the 
 operating expenses are greater. The tonnage for grain and grain 
 products decreased, and the revenue per ton per mile should naturally 
 increase with the decrease in your lower class tonnage. I have this 
 statement compiled by years from 1897 to 1904, showing the com- 
 modities entering into the tonnage and their percentage relations. 
 
 The Chairman. Let that go right into the hearing. 
 
 Mr. Lincoln. All right, sir. I have also the statement of gross 
 earnings, operating expenses, and net earnings for the years 1897 to 
 1904. In 1897 the percentage of expenses to gross earnings was 70.3 
 per cent. In 1901 it decreased to C4.4 per cent. In the year 1904 
 it increased again to 69.6 per cent. 
 
 The Chairman. Let those tables go in at the end of your statement. 
 
 Mr. Lincoln. Yes, sir. 
 
 'With reference to the fixing of rates, in fixing rates upon any com- 
 modity it is impossible to follow any set rale or to make the rates 
 by a scale, nor is it possible to take into account the capitalization of 
 the road, the actual amount invested in the property, or the exact 
 profit to be derived from any particular rate upon any particular 
 commodity. Rates are made by evolution and the elements entering 
 into the making of a rate to be considered are competition as be- 
 tween carriers, competition between markets served by rival carriers, 
 comparison with other rates, the necessity of finding a market for the 
 surplus of any commodity produced in_ any particular territory or 
 finding a place -for supplying a deficiency in such commodities of 
 which there is a surplus in another territory, the question of empty 
 and loaded car movement, the equalization of tonnage movement in 
 both directions so as to secure the benefit of your power, equipment 
 and labor, and also what the traffic will stand. By that I do not 
 mean what we can squeeze out of the business, but whether certain 
 business can be handled with any profit to the shipper and the car- 
 rier, and if not to the carrier, what are the compensating results 
 from the marketing of such traffic. 
 
 In connection with that we have, in considering grain rates, to 
 consider the amount of surplus from the country, the marketing of it 
 and what we get in exchange for it. We have to take ores to smelters. 
 Zinc ore moves to smelters at very low rates, to furnish the raw mate- 
 rial to the smelter, and there is compensation in getting the out-bound 
 tonnage. It is also the practice in the Iron Mountain and the South 
 to take lumber and logs to the mill, to be manufactured and reshipped. 
 In dealing with the movement of raw .materials we have to handle 
 it on the very lowest basis possible, probably at a loss in certain cases, 
 and in other cases at a profit; and the compensating results are the 
 profits on the manufactured product. 
 
 We know at the end of the year whether we have made or lost 
 money and in the event of a loss, if it is attributable to the rates,. 
 
EIGHTH DAY. 53 
 
 investigation then has to be carefully made as to the advisabilit)- or 
 possibility of adjusting rates to meet the losses, or whether the losses 
 shall be compensated for by a reduction in the expenses of operating 
 the road, by discontinuing betterments, the reducing of the number of 
 employees, and the scaling down of wages. 
 
 The next point I want to deal wi,th is the question of differentials, 
 or differences, between communities and localities. 
 
 In the territory served by the Missouri Pacific Railway Compan}' 
 there is a differential or arbitrary difference in the rates from Chicago 
 versus St. Louis to what is known as Missouri River territory and 
 all of the country beyond; also to Arkansas, Louisiana, and Texas. 
 There are also differentials or differences between the rates from 
 Chicago, St. Louis, and Kansas City to the territory west of the 
 Missouri River and in the Southwest. There is no fixed or arbitrary 
 rule upon which these differentials or differences were established or 
 by which changes can be made therein. They have grown out of 
 conditions due to certain lines operating westwardly from Chicago in 
 competition with lines operating westwardly from St. Louis, and 
 are also due to certain lines terminating on the Missouri River while 
 other roads commence at the Missouri River. 
 
 In the movement of business from Chicago to the Missouri River 
 there are lines such as the Chicago and Great Western, Chicago, Mil- 
 waukee and St. Paul, "Chicago and Xorthwestern, and formerly the 
 Chicago, Rock Island and Pacific, Avhich have no rails from St. 
 Louis. The bulk of business in the merchandizing line originates in 
 the East. It goes to St. Louis and Chicago, or through those gate- 
 ways. Lines like the Missouri Pacific, St. Louis and San Francisco, 
 and the M., K. and D* operate from St. Louis to the Missouri River 
 and Missouri River territory in competition with those lines running 
 westward from Chicago. Naturally, there is a struggle between 
 fines competing for this Missouri River traffic to get it over their 
 own rails. If an advantage lies with the Chicago lines, the St. Louis 
 lines could not hope to compete, or vice versa. Resulting from that 
 competition we gradually arrive at a difference, and also we are gov- 
 erned in that by the differences in the rates from the East up to Chi- 
 cago and the Mississippi River. 
 
 The creation of differentials as between Chicago, St. Louis, and the 
 Missouri River is occasioned, or was occasioned — and this goes back 
 into history — ^by the fact that the Union Pacific road runs west- 
 wardly from the Missouri River, and naturally it desires to handle 
 the business from the Missouri River. The Atchison, Topeka and 
 Santa Fe, until it acquired a line into Chicago, was a strictly west of 
 the Missouri River line. And probably fifteen years ago there was 
 quite a struggle between the Frisco and the Missouri Pacific on the 
 one hand, serving St. Louis, and the Santa Fe on the other hand, 
 ■serving Kansas Citv, in an effort to have the rates adjusted on the 
 Missouri River so that they could compete as against the through 
 fines— that is, so that business could go to Kansas City and be re- 
 distributed from there by jobbers, as against jobbers located in St. 
 Louis or Chicago. It was a very extended war, and practically re- 
 sulted in through rates being made on somewhat of a mileage basis. 
 
 These differentials or differences were created by conditions which 
 were very acute at first and some of which are still very acute. They 
 result from carriers serving different sources of supply or serving 
 
54 EIGHTH DAY. 
 
 different markets trying to bring their particular market or source 
 of supply in control of the business so that the particular line can 
 enjoy the transportation thereof, or, as frequently expressed, its share 
 of the business. And, by the way, when two or more lines are dis- 
 puting, each claiming a certain percentage of the business, if you 
 total up what each claims, it will always amount to more than 100 
 per cent of the business. This competition results in a difference 
 being found which approximately represents the average difference 
 in prices and is established as a differential. It is almost invariably 
 established as the result of severe rate wars, during the pendency 
 of which the transportation of the commodities involved was at a 
 loss and without material benefit to the shipper or producer. These 
 differences arising between commercial centers will continue from 
 time to time as the roads are constructed into the new territorj', 
 creating new markets and new transportation routes, and so long as 
 commercialism, peculiar to the American people, claims the right 
 that all the markets of this country, and, in fact, of the world, should 
 be free and open to all. The differential freight rate is therefore 
 the result of this policy on the part of the carriers to serve the com- 
 munities they represent, and no other policy can prevail so long as 
 the carriers are dependent upon the territory they occupy for traffic, 
 which makes both the carrier and the shipper dependent upon each 
 other. 
 
 We have had these controversies in regard to differentials fre- 
 quently. We had them in Arkansas, with Memphis, a large commer- 
 cial center, on the one hand, and T^ittle Rock on the other, and St. 
 Louis — practically a three-sided affair. All claimed that they should 
 have the privilege to do the business in Arkansas. Each was repre- 
 sented by a commercial freight road and each was seeking to serve its 
 own market. Those are some of the problems with which the railroads 
 are confronted to-day. Some of these points are served by one line, 
 and another point is served by the same line, and that is what the 
 differentials or differences grow out of. You never can absolutely 
 satisfy any community. 
 
 We had the same difficulty in the West in regard to the sugar rates. 
 1 presume the sugar adjustment from New Orleans to Kansas City 
 and Wichita has been more prominently before the western railroads 
 than any other one rate, the jobbers located in the interior demanding 
 certain adjustments, on the one hand, and the jobbers located at Kan- 
 sas City and St. Joe, Atchison, and Leavenworth demanding cer- 
 tain others, on the other hand. The railroad could never satisfy 
 the parties involved in that issue absolutely. That is one of the 
 cases that has been recently decided by the Interstate Commerce 
 Commission, in which all parties in interest Avere heard — the car- 
 riers, the Missouri liiver jobbers, and the Wichita jobbers — and they 
 decided upon what would be a fair adjustment relatively without 
 fixing the rate, and that adjustment was immediately put in force 
 by the lines. 
 ' The Chairma>! . It was acquiesced in by all the parties 'i 
 
 Mr. Lincoln. Yes, sir; it was acquiesced in by all the parties. 
 
 Senator (Yapp. How long, approximately, had this sugar contro- 
 versy existed before this submission to arbitration ? 
 
 Mr. Lincoln. ^Vell, the sugar controversy has existed in some form 
 or other since 1888 or ISSiT. The interior jobbers first presented 
 
EIGHTH DAY. 55 
 
 their comp)laint to the Kansas railroad comhiissioners, and the rail- 
 road commissioners established a rate from Atchison, Kans. ; Leav- 
 enworth, _Kans., and Fort Scott, Kans., to what are known as the 
 interior jobbing points, the effect of which rate did reduce the 
 through rate to points in Kansas materially by reason of the combina- 
 tion of locals ; and then they have had it up with the roads. It Avas 
 before the Interstate Commerce Conmiission incidentally, and not 
 properly for a decision, in a dry-goods complaint known as the 
 Johnson-Larrimore case. I'here was no decision rendered ;is to sugar 
 iit that time. 
 
 In regard to changes in rates, the filing of innumerable tariffs with 
 the Interstate Commerce Commission each day shows the constant 
 shifting of commercial conditions requiring changes in rates, and 
 showing new problems which are being solved and which of neces- 
 sity require that the rate-making 230wer shall be elastic to meet new 
 commercial conditions constantly arising. Transportation is the only 
 commodity the carriers have for sale, and it should not be surrounded 
 with hard and fast rules. The shipping public does not want it, as 
 a rate fixed by a governmental tribunal would have to remain until 
 set aside by the same tribunal. In the event of new commercial con- 
 ditions arising or a new industry developing requiring an adjustment 
 of rates which could not be foreseen, before any action could be taken, 
 that all parties in interest might be properly serA'^ed, hearings would 
 have to be had so that the shipper and the carrier might present their 
 respective sides of the case. This would entail an endless delay in 
 the adjustment of rates, and would operate as a damper upon the 
 establishment of new industries or the development of new business. 
 If rates were made hard and fast, and depression should set in, ton- 
 nage become slack, and the roads were required to adjust their affairs 
 so as to meet this condition it would have to accomplish same, the 
 power not being vested with them to change the rates, by reducing 
 the number of employees, cutting wages here and there, do less track 
 work, and discontinue betterments. 
 
 Is it not better for all, provided that only just and reasonable rates 
 are assessed, to let the burden fall upon the many, in order to secure 
 the necessary compensation from the traffic, than reduce the wages 
 of the individual, thus affecting each employee and the families de- 
 pendent upon them ? Generally a slight increase in the rate does not 
 enter as a factor in the cost thereof and is not felt -by the individual 
 consumer. It is during depression that the traffic manager is con- 
 fronted with these problems, and during such depressions the traffic 
 man must try to equalize its losses by creating tonnage to keep the 
 wheels moving, increasing, where the least felt, its rate ; or it devolves' 
 upon the operating and transportation department to reduce ex- 
 penses. At a recent hearing before the railroad commissioners of 
 Missouri and also before the Missouri legislature, pertaining to a 
 reduction in rates, there was an almost unanimous protest on the part 
 of the employees of the transportation lines against any reduction, 
 as from past experience they knew that a reduction in revenue must 
 be offset by a reduction in force and in wages. 
 
 I stated. that there are a great many commodities, particularly those 
 embraced in what are known as the first four classes, or less than 
 carload classes, where the rate do*s not enter as a serious factor, and 
 
56 EIGHTH DAY. 
 
 any slight change in those rates would not affect the consumer or the 
 jobber. 
 
 In the grocery line, as I developed in the sugar case, there are more 
 than 100 commodities on which the price at Kansas City and Wichita 
 was the same, notwithstanding the difference in rates. They are 
 known as " combination goods. 
 
 Senator Foeaker. How much difference in rates is there? 
 
 Mr. Lincoln. The rate to Wichita develops the rate to Kansas City 
 from the Mississippi River. 
 
 Senator Foraker. And still it made no difference in the price to the 
 consumer ? 
 
 Mr. Lincoln. It made no difference in the price to the consumer. 
 A great many articles in the grocery line are put up in packages. 
 They sell for 15 cents a package or 25 cents a package, and that is the 
 price. They do not go above it or below it. It makes no difference 
 what it cost to make them, and the freight cuts no figure. You could 
 not find the freight in a case like that. 
 
 Now, in regard to classification. 
 
 The classification of freight is the basis of all rates, and the rela- 
 tion which the various articles entering into transportation should 
 have one to the other should be set forth in the classification. In 
 considering the classification of articles one must have regard for the 
 volume of any particular commodity and its relation to public neces- 
 sity, the space occupied in the car, its value, and the risk of transpor- 
 tation. It is publii; necessitj' or requirements that removes an article 
 from its legitimate place in the classification to the list of commodity 
 rates, and it is through the peculiar conditions surrounding such item 
 that the connnodity tiiriffs obtain. Cotton in Dakota should not 
 take the same classification as cotton in Texas and Georgia. Wheat 
 in Minnesota and Kansas should not take the same classification rate 
 as wheat in Louisiana and Xew ^Mexico. Ore in Colorado should 
 not take the same rating as ore in Florida. Oranges in California 
 require a different rating than when handled in Maine. Corn in 
 Iowa and Nebraska should be treated differently from corn in Colo- 
 rado and New Mexico. Uniformity of classification under such con- 
 ditions as I have enumerated can not possibly obtain. In official 
 classification territory the density of less than carload freight is 
 greater when in Kansas, Colorado, or Utah; therefore, less than 
 carload ratings should be mare closely related to the carload ratings in 
 the eastern territories. 
 
 At eastern points, like New York, Baltimore, Philadelphia, and 
 important distributing points, when they make up L. C. L. freight, it 
 makes up into almost solid carloads and it moves west. "\Miereas in 
 the West the demand is so much smaller that we have to make up 
 light cars for handling L. C. L. freight. We can not accumulate and 
 get them into a single car and get the tonnage into it. I presume 
 the eastern lines' tonnage of merchandise ■ cars will run 25,000 to 
 30,000, whereas on the western lines they \Yill run from ten to 
 twelve thousand, up to 18,000 pounds. 
 
 In western classification territory, except in the case of short hauls, 
 it is largely a carload proposition, hence the necessity of greater 
 spread between the carload and less than carload rates. In southern 
 classification territory the lines have water competition to contend 
 with. The water-route system of classification is based upon space 
 
EIGHTH DAY. 57 
 
 occupied and bulk, involving the classification of the rail carriers. 
 I doubt whether a uniform classification -without a great* many 
 exceptions, placing articles peculiar to certain localities in a coni- 
 modity list, can be accomplished. Unquestionably a uniform classi- 
 fication covering the interstate traffic can not be' arrived at so long 
 as individual States make separate and distinct classifications on 
 purely State traffic, for the reason that some lines in the handling of 
 business between points in the same State pass out of the borders of 
 the State, thereby becoming interstate carriers. 
 
 Take business moving from St. Louis to St. Joseph, Mo., passing 
 over the Missouri Pacific Eailway. It passes through a portion of 
 Kansas, and thereby would become interstate traffic; whereas, mov- 
 ing over the Burlington and Wabash it would move entirely within 
 the State of Missouri. 
 
 The Chairman. From points on the Missouri and Burlington? 
 
 Mr. Lincoln. From St. Louis and Kansas City. 
 
 The Chairman. Yes ; from St. Louis. 
 
 Mr. Lincoln. And those conditions obtain everywhere where one 
 line will have to pass outside of the State in order to pass between 
 two points in the State, whereas other lines will be handling the busi- 
 ness entirely within the State. 
 
 The Chairman. Which line has the advantage there? 
 
 _Mr. Lincoln. It depends upon local regulations, as to State com- 
 mission regulations, whether they are stringent or not. At some 
 points they are very stringent. ^ 
 
 The Chairman. Wliich can make the better rates in Missouri — the 
 lines north of the river or south of the river ? 
 
 Mr. Lincoln. Which line ? 
 
 The Chairman. Yes — the one north of the river or the one south 
 oi> the river ? 
 
 Mr. Lincoln. The rates are the same over all the lines. 
 
 The Chairman. But which has the advantage under the regula- 
 tions — the ones under the interstate-commerce law or those under the 
 State law? 
 
 Mr. Lincoln. They are both in Missouri, operating pra;ctically 
 along the same lines. In Arkansas the rates are fixed by the Arkan- 
 sas commission and have to be approved, so that before you can make 
 any change in the way of advances or reductions you must go to the 
 commission. 
 
 Senator Foraker. Do you have much difficulty there in making 
 changes in rates ? . 
 
 Mr. Lincoln. We do not apply to them very much for changes in 
 rates. We can not make advances, and we do not want to make 
 reductions, of course. 
 
 Senator Foraker. So that when a rate is fixed by the Arkansas 
 commission it generally stands ? 
 
 Mr. Lincoln. It stands ; yes, sir. 
 
 Senator Foraker. Indefinitely? 
 
 Mr. Lincoln. On State traffic, yes, sir. 
 
 Senator Foraker. Of course they do not fix it on interstate 
 traffic? 
 
 Mr. Lincoln. No, sir ; they do not fix it on interstate traffic. 
 
 Senator Kean. How long have those rates been fixed in Arkansas ? 
 
 Mr. Lincoln. They were established five or six years ago. 
 
58 EIGHTH DAY. 
 
 Senator Fokaker. They have remained practically nnchanged dur- 
 ing all* that time? 
 
 Mr. Lij^coLM. No: there have been changes made in Arkansas. 
 
 Senator Keax. A few? 
 
 Mr. Lincoln. Some few, yes. 
 
 Senator Fokaker. How does the nnmber that have actually been 
 made compare with the number that probably would have been made, 
 judging by your general experience, if there had been no such fixing 
 of rates by the Coirnnission ? 
 
 Mr. Lincoln. Why, I believe that the railroads would have made 
 more changes than were made under the operation of the Commission 
 there. 
 
 Senator Forakek. Have you any positive opinion about that? 
 
 Mr. Lincoln. That is my opinion and judgment. Our line runs 
 in that territory. "We do not Avish to ask for changes because of the 
 effect they'would have upon our interstate traffic. It is affecting the 
 manufacturing interests of the State of Arkansas. 
 
 Senator Foraker. It is affecting the manufacturing interests of 
 the State of Arkansas? In what way — prejudicially, or otherwise? 
 
 Mr. Lincoln. They can not go to the more remote points. They 
 are all right near home, but when they want to go to the farther 
 points in the State, as all of our rates in the State would be affected, 
 why we prefer to stand on the Commissioners' rates, which are on a 
 mileage scale. 
 
 Senator Foraker. Let me understand that. That is a very impor- 
 tant statement, and with the chairman's permission I will ask you 
 further in regard to it. It affects the manufacturing industries 
 within the State, as to markets within the State? 
 
 Mr. Lincoln. As to markets within the State, yes. 
 
 Senator Foraker. Not as to markets outside the State? 
 
 Mr. Lincoln. Oh, no, sir. 
 
 Senator Foraker. The rates fixed by the Arkansas commission 
 uijon shipments within the State are not observed by you in regard 
 to shipments to go out of the State ? 
 
 Mr. Lincoln. No, sir. 
 
 Senator Foraker. But manufacturers within the State can not 
 reach markets within the State with the same facility, as I under- 
 stand you, that they could if you made the rates? 
 
 Mr. Lincoln. I do not think so. 
 
 Senator Foraker. Because of the rigidity of these rates? 
 
 Mr. Lincoln. Yes. It is a mileage scale. If we reduce a rate for 
 the long haul we would ajso haA'e to reduce the rate for the shorter 
 haul, where there is no necessity for it. 
 
 Senator Foraker. Do you observe strictly the long and short haul 
 provision there? Are you required to? 
 
 Mr. Lincoln. Between points in the State? Yes, sir; we do. 
 
 Senator Foraker. Do you charge b}^ the mile? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Foraker. So much per mile for a long or a short haul as 
 long as j'ou stay within the State ? 
 
 Mr. Lincoln. It is on a mileage scale; yes. 
 
 Senator Kean. Can you change the rate without the consent of the 
 Commission ? 
 
 Mr. Lincoln. We can not. 
 
EIGHTH DAY. 59 
 
 Senator Keax. That is, you can not reduce a rate, even? 
 Mr. Lincoln. Not locally in the State. 
 
 The Chaiejian. On the whole, you think this discourages and im- 
 pairs the manufacturing interests in the State? 
 
 Mr. Lincoln. I do ; yes, sir ; in Arkansas, where there is a mileage 
 scale. That is my experience and observation. 
 
 Senator Forakeh. How do you acquire that knowledge ? Through 
 complaint made by manufacturers within the State of Arkansas that 
 they are being prejudicially affected by the rates ? 
 
 Mr. Lincoln. Yes, sir ; that is one way of getting at it. I speak, 
 further, from my observation. 
 
 Senator Forakeh. Have they made complaints? 
 
 Mr. Lincoln. Oh, yes. We get complaints, or rather we get peti- 
 tions for lower rates, to enable them to meet certain competition at the 
 more remote points in the State ; and, as it would affect other traffic 
 as well as the particular traffic that they have in mind, we hesitate 
 to make those changes, whereas we might not hesitate under other 
 conditions, as it would give us tonnage to that particular point that 
 they are applying for that we might not otherwise get. 
 
 Senator Kean. If you reduce a rate to any one place, it is effective 
 on every other mile of track in the State ? 
 
 Mr. LcNCOLN. It is effective for like distances; yes, sir. The com- 
 mission of Arkansas has held that they could not make a specific rate 
 between two points, as that would be discrimination ; that they must 
 deal between all parties in the State, and therefore when they estab- 
 lish a rate it must be on a mileage basis, so that any other point could 
 get the benefit of the same rate for a like distance. 
 
 Senator I'oraker. They fix specific rates, not maximum rates? 
 
 Mr. Lincoln. They are fixing specific rates in Arkansas; yes, sir. 
 
 Senator Foeaker. They do not sa,j you shall not charge to exceed 
 so much per mile ? 
 
 Mr. Lincoln. Well, now, I do not want to make the absolute state- 
 ment here. I may have confused it somewhat with regulations in 
 another State, but"in one of the States you can not make any change, 
 either in the way of an advance or a reduction, without the approval 
 of the commission, and as I recall it now, the Arkansas commission 
 fixes maximum rates, and you can not reduce those rates except by 
 applying to the commission for authority to do so. 
 
 The Chairman. Why does this Arliansas commission feel obliged 
 to adopt a mileage basis ? Can they not make some other rule about 
 that matter? 
 
 Mr. Lincoln. That is a legal question that I can not answer, Mr. 
 Chairman. 
 
 The Chairsian. Do they do it in order to say that they are not 
 making any discriminations and are putting everybody on the same 
 footing ? Is that the idea ? 
 
 Mr. Lincoln. I understand that in taking that position they have 
 acted under legal advice that they could not make a rate between two 
 specific points, and that they must, when they make rates, make them 
 on a mileage scale, so that all points enjoying the same mileage shall 
 have the benefit of the same rate. 
 
 Senator Foeaker. If they fix the rate on a mileage basis, I suppose 
 they do that by just one blanket order covering all rates in the State? 
 
 Mr. Lincoln. Covering all rates in the State; yes. 
 
 b 
 
60 EIGHTH DAY. 
 
 The CHAiR]srA>r. So that all fare alike ? 
 
 Mr. Lincoln. Yes. 
 
 Senator Forakee. Can you furnish us with a copy of that order 
 fixing rates in Arkansas, or how could we get it? 
 
 Mr. Lincoln. Well, the Arkansas commission 
 
 Senator Foraker. T do not want to interrupt you further now 
 about it, though. 
 
 The Chairman. Proceed, Mr. Lincoln. 
 
 Mr. Lincoln. Under the head of " Classification " I wanted to call 
 attention to the western classification because of remarks I have 
 noticed as to the changes made in the official classification. 
 
 The western classification covers the territory west of Chicago and 
 the Mississippi River, New Orleans and the West, St. Louis, Mem- 
 phis, Chicago, and the Mississippi River to the Pacific coast. It is 
 in use by about TO lines ; in fact, all the lines west of Chicago and the 
 Mississippi River. The western classification committee is composed 
 of representatives of the lines, all of whom should be there to discuss 
 any changes in classification, as it afi'ects all joint as well as local 
 traffic. There is a subcommittee of 16, which is usually selected to 
 represent as many dift'erent communities served by the railroads as 
 possible. For example, they will have a man on the subcommittee 
 from St. Paul, one from Chicago, one from St. Louis, one from Kan- 
 sas City, one from Denver and the Pacific coast, making the compo- 
 sition of that committee just as broad as they can, so that individual 
 ideas can not prevail, and any action must be the result of the gen- 
 eral idea of the committee. 
 
 The Chairman. Do they cooperate with the roads — the traffic 
 managers ? 
 
 Mr. Lincoln. These are the traffic men. 
 
 The Chairman. You stated that they were committees from these 
 various cities. 
 
 Mr. Lincoln. They are appointed in that way from the traffic men 
 of those cities. 
 
 The Chairman. Oh, yes. 
 
 Mr. Lincoln. They send out their dockets considerably in advance, 
 and desire and ask the shippers to be with them in considering any 
 subject as to changes in classification, and they are very largely 
 attended. 
 
 In 1900 there were 162 changes, of which 109 were new items, not 
 previously provided for. There were 37 reductions and 16 advances. 
 In 1901 there were 570 changes, 277 being new items, 168 advances, 
 and 125 reductions. In 1902 there were 456 changes, 180 being new 
 items, 103 reductions, and 173 advances. In 1903 there were 345 
 changes, of which 195 were new items, 45 were advances, and 105 
 reductions. In 1904 there were 396 changes, of which 214 were new 
 items, 64 advances, and 118 reductions. 
 
 Senator Foraker. What do you mean by " changes "' there — changes 
 in the rate or changes in the classification ? 
 
 Mr. Lincoln. Changes in the classification, which of course would 
 mean a higher or a lower rate. These are all classification changes. 
 
 Senator Foraker. You mean that there was that very laro-e number 
 of items of commodities that had not before been classified in any 
 way? 
 
EIGHTH DAY. 61 
 
 Mr. Lincoln. Yes, sir ; what I call " new items " are items that 
 have not been classified. 
 
 Senator Foeakek. That had never before been classified ? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Foeakek. What are those items ? / 
 
 Mr. Lincoln. New items of trade, which are coming up every day. 
 
 Senator Foeakek. New products? 
 
 Mr. Lincoln. A stock food, for example, or some new agricultural 
 implement. Whenever anything new comes out that is not provided 
 for in the classification, we are asked to make a rating on it, to pro- 
 vide for it. 
 
 Resuming the statement which I was making : In 1905, up to April 
 1, there were 46 reductions, 29 advances, and 53 new items, making a 
 total of 128. During the period mentioned there were 534 reductions 
 and 495 advances. There were a great many advances made in 1902. 
 
 Senator Forakek. Was that just on the Missouri Pacific system ? 
 
 Mr. Lincoln. No ; on all lines west of Chicago and the Mississippi 
 Eiver using the western classification. 
 
 Senator Foeakek. How far west? 
 
 Mr. Lincoln. To the Pacific coast. 
 
 Senator Forakee. All the way ? 
 
 Mr. Lincoln. Yea, sir ; comprising sixty-odd lines — 67, 1 think it is. 
 
 I will now take up the subject of export rates. 
 
 In the making of rates upon grain for export the following has 
 to be taken into consideration : The surplus of grain in this country 
 for which a foreign market must be found ; value of the grain in the 
 foreign market; the competition with other foreign countries. The 
 through rate upon Avhich the grain can be moved having been ascer- 
 tained, it is then necessary to ascertain the ocean rate from the va- 
 rious ports. Certain lines serve the Gulf ports exclusively; other 
 lines serve Atlantic ports. For those lines serving the Gulf ports 
 rates have to be established which will equalize with the rate made 
 through the Atlantic ports, or vice versa. Another consideration is 
 ear movement — that is, in which direction the empty cars are mov- 
 ing, where cars are required. The Western grain carrier has also to 
 take into consideration the value of the grain in Kansas and Ne- 
 braska as compared with Iowa and Illinois. Rates must be estab- 
 lished which will move the grain from the States referred to, afford- 
 ing some profit to the grower ; for if the surplus grain was left in the 
 country it would depress agricultural pursuits and would deprive 
 the carriers of their better paying and more important but smaller 
 traffic. 
 
 If the Government were to control the rate-making power on ex- 
 port rates and determine the rate which should obtain to any given 
 port, it might, and no doubt would, establish rates which might prove 
 too low as applied to some of the lines. It might punish the weak to 
 the advantage of the strong. Conditions determine whether a hne 
 • can engage in the export traffic. Seasons also have their influence, 
 as has the contemporaneous movement of merchandise and the class 
 of cars wanted in a particular district. i i, j- 
 
 Take the Missouri Pacific road, serving a very large minber dis- 
 trict in Arkansas and Louisiana. Last fall, in the early fall and 
 during the wheat season, it was impossible to export wheat or corn 
 at the early stages of the year. At that same time there was a very 
 
62 EIGHTH DAY. 
 
 urgent demand for cars to be loaded with lumber from that immediate 
 vicinity to the northern territory. Our company, I know, handled 
 in one lot 600 empty cars right from the grain fields of Kansas to 
 Louisiana to be loaded with lumber, and we handled about 2,000 
 cars empty into that territory before the grain crop could be moved. 
 The lumber could not wait. 
 
 Now, had the grain — ^the wheat particularly, as that was the season 
 we wished our cars south — been upon an export basis, which it was 
 not, we could have moved those cars under load to the South within 
 186 miles of where we needed the cars for lumber ; so that under those 
 conditions we could have carried that grain south at a lower rate 
 than we could if we had not had the lumber to come back in that 
 equipment. I am just pointing to that as one of the features which 
 we have to consider in the adjustment of rates on exports, and which 
 should be considered. 
 
 There is a surplus of grain raised in Kansas and Nebraska, and 
 we have to find a market for it regardless of rates, you might say, 
 because if it is left in the country it injures the farming community. 
 
 Senator Foeaker. Do you charge a higher rate on the lumber 
 that you bring north when you have no gram to take south than you 
 do when you have freight both ways ? 
 
 Mr. Lincoln. Our lumber rate, being a domestic traffic, does not 
 fluctuate to the same extent that the export grain rate does. The 
 domestic grain rate does not fluctuate. It is the surplus that we must 
 take' care of by getting it out of the country, upon which the rates 
 fluctuate, just as they do on an import proposition. 
 
 Taking up the subject of consolidations: 
 
 The consolidation of small lines with trunk lines tends to reduce 
 the general average of rates rather than increase. Taking the com- 
 pany that I represent, we haw recently acquired the ownership or 
 control of such lines as the Eldorado and Bastrop, the Farmersville 
 and Southern, the New Orleans and Xorthwestern, the Mississippi 
 River, Hamburg and "Western, the Coal Belt Railway, the Arkansas 
 Southwestern, and a number of otlier smaU lines in order to reach 
 the territory served by such lines. Rates were formerly made prac- 
 tically on the combination of local rates through the junction point, 
 but are now made on the basis of through rates, conforming with 
 existing through rates along the main line, or as found to exist in the 
 competitive territory served by such small lines. It has been repre^ 
 sented that a few men who may control the financial interests of the 
 carriers also control the rate-making power. This is untrue, as the 
 executive head of the railroads can not assume the responsibility or 
 burden of rate making. In fact, the rate-making power is, and of 
 necessity has to be, vested with innumerable traffic representatives for 
 the proper adjustment of rates. The traffic man has to be in daily 
 contact with the situation; acquainted with local conditions; must 
 have a personal acquaintance with shippers, so that the development^ 
 of new traffic can be fully investigated and the result determined' 
 upon. 
 
 I have four assistants whose duty it is to be in close touch with the 
 territory assigned to them, and under mj? supervision and authority 
 they are daily making rates. New industries and new business have to 
 be dealt with almost daily. I call to mind on the Missouri Pacific Rail- 
 way the smelter business, the glass manufacturing business, the iron 
 
EIGHTH DAY. 63 
 
 business. As these new industries are established, creating new and 
 unlooked-for tonnage, rates have to be prepared to place such indus- 
 tries on a competitive basis with other commercial or manufacturing- 
 centers. This could not be accomplished through the medium of 
 governmental control without a ^'ery great delay. The rates for these 
 new industries as originally established are largely experimental, 
 being based upon assurances of a given amount of tonnage, which 
 may not be fulfilled or which may have- been underestimated, and 
 thus requiring, owing to the conditions that are developed, readjust- 
 ments from time to time. 
 
 The development of the gas belt in Kansas brought to Kansas quite 
 a number of glass manufacturers from Indiana and Ohio, particu- 
 larly Indiana. The fruit-bottle business at Coffeyville and the ordi- 
 nary bottle business at Independence, Kans., are examples. There is 
 quite a glass manufacturing business now in that territory. Hereto- 
 fore it was an unknown business, and we had no rate on it, you might 
 say, other than the ordinary distance tariff or class rates. The estab- 
 lishment of those plants brought to the lines a new population. It 
 brought in raAv material that we had never hauled and never could 
 have hauled without the plants there, and the production of those 
 plants was, of course, a great deal larger than could be consumed in 
 the immediate territory of the lines upon which they were located. 
 It became necessary, therefore, to look out as to the competition, what 
 rates were obtained from other territory, and to establish rates upon 
 which business could be moved, having in mind, of course, the 
 handling of it with some profit. We have to find, along with the 
 goods, a market for their sur23lus. Some of the rates are probably at 
 cost, and in regard to others we make good money on them. 
 
 As to the smelters in that same district, showing the necessity of 
 having a flexible rate, they have moved three times, some of them. 
 The district has moved at least three times. The smelters y^ere 
 originally at Kich Hill and Nevada, Mo. Nevada is a junction point 
 between the M. P. & T. and the Missouri Pacific. At that point they 
 had to ship in the coal as well as the ore. At Eich Hill the smelter 
 was established to get the fuel, the ore being shipped in to the smelter 
 point. There are other smelters established where the ore is, and the 
 coal is shipped in. "With the development of the gas field smelters 
 were established at Gas, lola, Caney, and Laharpe, Kans., and Neo- 
 desha, Kans. They had to bring the ore in to those smelter points. 
 They went there for the cheap fuel, and the ore is shipped quite a 
 distance to reach the smelting point, and necessarily has to be han- 
 dled on a low basis. 
 
 Senator Kean. Is it zinc and lead ore ? 
 
 Mr. Lincoln. That is all zinc ore around there. 
 
 I want to say something in regard to the advance in lumber rates. 
 
 In speaking for the St. Louis, Iron Mountain and Southern Rail- 
 Avay, which serves the lumber district of Missouri, Arkansas, and 
 Louisiana, and of whose tonnage lumber embraces about 25 per cent, 
 Avould state that originally for the purpose of encouraging the manu- 
 facturing of lumber in the South, the fostering^ of the business in 
 competition with the white pine lumber of the North, and owing to 
 the prejudice against yellow pine lumber due to the immature meth- 
 ods employed in the manufacture thereof, the rates upon lumber were 
 made very low, experimentally, to Kansas City, St. Louis, and Cairo, 
 
64 EIGHTH DAY. 
 
 and were not advanced, although originally established for the pur- 
 pose of encouraging the business and enabling the manufacturers to 
 become established' on a firm basis, until threatened in 1903 "with a 
 depression in the general business of the country. In that country 
 fifteen years ago you could hardly get anyone to use yellow pine lum- 
 ber. It was difficult to get them "to take that lumber as against white 
 jjine. owing in part to the immature methods employed in the manu- 
 facture of it. Another reason was that yellow pine is harder than the 
 white pine to treat by the carpenter. Twenty years ago you would 
 hear a lumberman say that if he bought a carload of yellow pine he 
 v^ould have to weight it down for fear it would move out on the 
 prairie during the night, because it warps so. However, all that has 
 been overcome, now that they have modern methods, and they make 
 just as good lumber as anybody. 
 
 The rates of 1903 were only partially advanced and did not involve 
 nearly as large a traffic as set forth in the statement made by Mr. 
 Gardner before the House committee. We advanced the rates in our 
 territory from Cairo and St. Louis. It did advance the rate to some 
 extent on business going into Illinois, Ohio, Iowa, Wisconsin, Minne- 
 sota, and Indiana. 
 
 The Chairman. The lumber rate? 
 
 Mr. Lincoln. Yes. sir. We did not, however, advance at that 
 time the rates to the Atlantic seaboard, or what is known as the 
 " trunk-line "' territory, and we did not advance the rates to a very 
 large intermediate territory, or to the South. With our line we 
 moved considerable lumber to the Gulf. Other lines — like the Kansas 
 City and Southern, for example — move a great deal more than we 
 do, as their lumber district is nearer the Gulf than that of the Iron 
 Jlountain's. But there was no such percentage of advance in lumber 
 as is rather indicated in some of the discussion here. 
 
 The Chairman. You did make an advance in the lumber rate? 
 
 Mr. Lincoln. In 1903 — yes, sir. 
 
 Under present conditions the lumber is more expensive to secure; 
 longer hauls are employed, while in the early days the lumber was 
 located immediately adjacent to the carrier's line. At the present 
 time they have to employ the cooperation of logging roads, to whom 
 an allowance has to be made for service rendered in order to bring 
 the timber of the South to the markets of the country, and while it 
 may be claimed that the present rates are higher than has obtained 
 for many years past, antedating 1903, it is nevertheless true that the 
 principal carriers are obtaining a very much less rate per ton per mile 
 for their services than formerly, owing to these longer hauls, and 
 having to go out, by reason of cheap ^ines or logging roads, to accu- 
 mulate the timber and bring it to the main lines. The main lines 
 can not afford to operate those spurs. They can not abandon them 
 if they constructed them, and they are operated by separate corpora- 
 tions. , , . 
 
 The Chairman. Were there complaints made when you advanced 
 this rate the last time, and how general were they ? 
 
 Mr. Lincoln. There was complaint made as to the advance in rates 
 by the manufacturers east of the Mississippi Eiver, but we had no 
 complaint from our own people. 
 
 The Chairman. From your shippers? 
 
EIGHTH DAY. 65 
 
 Mr. Lincoln. From our shippers we had no complaints to speak ol 
 We had some complaints, but no material complaints. 
 
 The Chairbian. Did you make this advance as much as the roads 
 east of the Mississippi River-? 
 
 Mr. Lincoln. In a part of our territory the advance was the same 
 as that made by the lines east of the Mississippi. In a part of the 
 territory we did not advance our rates at all. 
 
 The Chairman. You said the manufacturers receiving this lumber 
 made some complaints— the ones who bought it, but not the shippers? 
 
 Mr. Lincoln. You are speaking of the lumber rate adjustment in 
 general? 
 
 The Chairman. Yes ; generally. 
 
 Mr. Lincoln. I say the shippers east of the Mississippi River did 
 complain, and very forcibly so. 
 
 The Chairman. But those west of the Mississippi did.not? 
 
 Mr. Lincoln. Those located on the Iron Mountain Road, or west 
 of the Mississippi River, did not complain of the advances in rates. 
 There were a few, but no general complaints. 
 
 The Chair3ian. There was a case brought in that connection, was 
 there not? 
 
 Mr. Lincoln. There was a case brought before the Commission- 
 brought into the courts and laid before the Commission. 
 
 The Chairman. What was the result ? 
 
 Mr. Lincoln. A decision was rendered in February saying that the 
 advance was unreasonable. I do not know what action has been taken 
 as to that case. There was no case brought against our company. 
 
 The Chairman. You do not know what the result was ? 
 _ Mr. Lincoln. I do not know what action they have taken on these 
 side lines. 
 
 Proceeding now to the consideration of rates fixed by legislative 
 action : 
 
 Where a maximum rate is fixed by legislative action which in itself 
 is construed to be a fair and reasonable rate, owing to the lack of 
 elasticity such rate invariably becomes the minimum rate, and as 
 these rates could not be changed except upon review it would be neces- 
 sary, although urgent commercial or operating conditions might 
 arise, to have a hearing that all parties in interest might be heard, and 
 with such delay the necessity for the rate may have passed, to the 
 detriment of business and the loss of tonnage. 
 
 In that connection, as to the fixing of rates by legislative enact- 
 ment, in Iowa the roads are operating under a maximum rate which 
 fixes the rate on a mileage basis. There are very few changes made 
 on rates locally in the State of Iowa. They can reduce rates, but 
 having reduced them they become the rates for that distance and can 
 not be advanced without the consent of the Iowa commissioners. 
 Operating under a mileage scale of rates, it localizes business. It 
 makes any commercial or jobbing center dependent on the territory 
 in the immediate vicinity. It can not reach out to other territory, 
 because it immediately trespasses upon somebody's territory. 
 
 The Chairman. Is it an advantage to build up the local or near-by 
 points, or not ? 
 
 Mr. Lincoln. I do not think that a mileage scale or rate is an ad- 
 vantage to anyone, to the shipper or to the carrier. 
 8 D — 05 M 5 
 
66 EIGHTH DAY. 
 
 ■ The Ci-iAiraiAx. Well, does it build up the near-by points? 
 
 Mr. Lincoln. It does not build them up, except to a certain ex- 
 tent, and then their growth stops ; they can only build t9 the extent 
 that their immediate territory admits of. For example, in the State 
 of loAva there are very few manufacturing interests in that State. 
 There are very few large jobbing houses in that Statej and I attribute 
 it to the Iowa distance-tariff rates. The same thing is true in Texas. 
 
 Senator Foraker. Do you not think that very likely coal and iron 
 ore has a good deal to do" with that lack of development? 
 
 Mr. Lincoln. No, sir; I do not. We have more manufacturing 
 in Kansas than they have in Iowa, and it should not be the case. 
 They have cheap coal in Iowa. They can get coal cheaper in Iowa 
 than they can in Kansas. 
 
 Senator Foraker. It is really not a very good coal, though? 
 
 Mr. LiNcoi^N. They can get an Illinois coal cheap ; their fuel will 
 cost the manufacturers in Iowa less than coal costs manufacturers in 
 Kansas. 
 
 Senator Foraker. TMiere does Kansas get her coal? 
 
 Mr. Lincoln. She produces it, and gets it from Colorado and Ar- 
 kansas and Indian Territory. 
 
 Senator Foraker. They do not take aiiy coal from Illinois? 
 
 Mr. Lincoln. No, sir ; "Kansas does not. There is a little doniestic 
 coal that comes in there, but none for steam purposes. 
 
 The Chairman. You attribute this want of manufacturing to 
 this mileage basis of rates, do you ? 
 
 Mr. Lincoln. Yes, sir; I do. I think so. 
 
 The Chairman. What do the people of Iowa attribute it to ? 
 
 Mr. Lincoln. Well, I could not say as to that. 
 
 The Chairman. This is your individual opinion ? 
 
 Mr. Lincoln. My own individual opinion, yes ; and the result of 
 observation as to manufacturing. 
 
 The next point I wish to discuss is the subject of live-stock rates. 
 ' Owing to lack of time and the necessary statistical information, I 
 will not undertake, in the discussion of the live-stock situation, to 
 cover the territory embraced in the remarks made by Mr. Cowan 
 before the Senate committee, but, as fairly representative of the 
 live-stock situation, will call attention to the following facts : 
 
 Live stock does not carry its proper portion of transportation 
 charges, and is given preferential treatment by the carriers in the 
 adjustment of their rates, and, in my judgment, it is more frequently 
 carried at a loss than almost any other commodity handled by the 
 carriers. 
 
 The Chairman. Why is that? Is it because there is competition, 
 or because of the expense ? 
 
 Mr. Lincoln. There is more competition in connection with the 
 handling of live stock than there is in connection with the handling 
 of any other commodity. 
 
 The Chairman. How is it as to expense? 
 
 Mr. Lincoln. It is more expensive, for reasons which I will state. 
 
 The Chairman. Yes ; go ahead. 
 
 Mr. Lincoln. And it has been given preferential rates owing to 
 the competition and the fact that stock can walk. I am merely giv- 
 ing an illustration of one section of our stock business, which will 
 apply very properly to all of our stock business. I did not have time 
 
EIGHTH DAY. 67 
 
 to cover Texas, Dakota, and all of the territory embraced in Mr. 
 Cowan's remarks, some of wMch I heard in Chicago. 
 
 For the proper handling of cattle, originating in Colorado and 
 west thereof, from' Pueblo to Kansas City, oiae of the principal 
 markets served by the Missouri Pacific Railway', it became necessary 
 for this company to establish at Pueblo stock j^ards facilities for the 
 proper conduct of the stock business, at a cost of $125,000, where the 
 cattle could be rested and fed before proceeding on to final market. 
 
 Pueblo is the terminal point and also the yardage point on cattle 
 ■originating m Colorado, Utah, and New :Mexico. 
 
 The expense of operating this yard is approximately $1,200 per 
 month. The only expense to the shipper for the use of the yard is 
 for feed, and th^ plant has been operated at a loss of about $400 per 
 month. When the stock is loaded at Pueblo for Kansas Citv, the 
 nearest market, it is impossible for us to reach that market within the 
 28-hour limit fixed by the Government, longer than which it is not 
 permissible to hold cattle in cars without feed and water. It, there- 
 fore, requires the construction of additional stock pens and feeding 
 points with the same facilities, and acconmiodatioiis at the same 
 •cost, at intermediate points between Pueblo and Kansas City. 
 
 No sucli condition obtains as to any other traffic. Grain moves 
 without hindrance or interruption. 
 
 "We have established three such yards— one at Council Grove, Kans., 
 where cattle are usually fed and watered and rested before proceed- 
 ing to Kansas City; one at Miller, Kans., for the grazing of cattle 
 and sheep. The grazing lands are secured by the company by lease 
 and for the use thereof the nominal charge of 75 cents per car per day 
 is made on sheep and $1 per car per day on cattle. At Leeds, Kans., 
 a yard is maintained for the handling of sheep in order that they 
 may be put into condition for the market, and for the further pur- 
 pose of permitting the sheep to be run into Kansas City as the market 
 requirements demand. The sheep are moved into Leeds in trainload 
 Ibts, but they are placed upon the market in three to five car lots, a 
 greater quantity having the effect of breaking the market. 
 
 In other words, the sheep come in in large lots. You can not run 
 sheep in train-load lots in any market. A large quantity of sheep 
 thrown even on the Chicago market would break the market. There- 
 fore places are kept outside, within a reasonable distance of the mar- 
 ket, so that they can run the sheep in as wanted, three, five, or seven 
 cars at a time, every few days. That stop-over is all at the expense 
 of the carrier. 
 
 In order to serve these various :^eding and resting stations which 
 are not'usually at division points, extra or double runs are necessary 
 in connection with the train service, thus making extra time for 
 crews, extra expense in connection with switching cars in and out of 
 the feed lots, and extra expense for loading and unloading. In the 
 handling of live stock business cars suitable for that purpose have 
 to be constructed, and these cars are not^ usually available for the 
 handling of other traffic, and as there is a light movement in the 
 direction where the stock originates, the cars invariably have to 
 be run empty from Kansas City to Pueblo, and in handling of 
 the empty cars the most expeditious movement must be employed. 
 In the furnishing of cars shippers usually designate the number 
 of cars required and the date upon which shipment will be 
 
68 EIGHTH DAY. 
 
 made. Unfortunately in nine cases out of ten very little notice is 
 given of such requirements. That is why we are required to give 
 these expeditious movements even in the handling of empties. And 
 in many cases, after the cars are placed as ordered, the shippers,, 
 owing to a decline at the market or for other causes, refrain from 
 shipping their cattle, thus making it necessary to move the cars to 
 other points to await other business. 
 
 In the handling of live stock we have to employ the very best power. 
 Our live-stock trains have the right of way over all other classes of 
 trains except passenger. Owing to quarantine regulations the cars 
 all have to be thoroughly cleaned when the stock is unloaded there- 
 from at the market points before they can be available for the han- 
 dling of other stock. To comply with these regixlations the cars are 
 washed thoroughly, steamed, and then whitewashed with a solution 
 of lime and then bedded with fresh bedding, all of which service has 
 to be rendered upon a track set aside for said purpose, entailing 
 thereby a switching of the empty equipment at an expense to the car- 
 rier. 
 
 Operating under the 28-hour law, trains containing live stock, 
 where difficulties are experienced ahead, by reason of washouts, 
 breakdowns in trains, or other causes interfering with the movement 
 of the traffic, the stock has to be held and unloaded at the nearest 
 feeding and resting point to comply with the 28-hour restriction, 
 thus frequently resulting in the engine and crew finishing the divi- 
 sion without any traffic in its train. It is our judgment that the rates 
 upon live stock are unreasonably low, and a discrimination, if any- 
 thing, exists in favor of the live-stock shippers as against the shippers 
 of otiier commodities. 
 
 In connection with that statement there in regard to the 28-hour 
 law, I have a telegram which just reached me since I have been in 
 AVashington, from our general live-stock agent. It says : 
 P. E. Hull : 
 
 Will route balance cattle 26 cars originating Amarillo Group via Santa Fe 
 unless feed bill accruing on recent train unloacled Wichita be assumed. 
 
 That is to say, this was a shipment of stock delivered to us at 
 Kiowa, Kans., by the Santa Fe road, going to a feeding" point, Eeece, 
 Ivans., on the Missouri Pacific. After the stock reached us it had 
 been in transit some time, and it could not reach the destination 
 vi'ithin the twenty-eight hours, and we had to unload it at Wichita,, 
 and the feed bill accumulated there, which the shipper had to pay, 
 and he says he can not give us any more business because he can get 
 through by a shorter route. . 
 
 Senator Keax. If you gave him that feed bill, would that be a 
 rebate ? 
 
 Mr. Lincoln. I think it would be practically the same thing. I 
 think if we paid the feed bill ^ve would not have anvthing left', any 
 way. 
 
 hoM', as a comparison -of rates, showing how cattle rates compare 
 with other rates, from Kiowa to St. Louis^ estimating a car of corn at 
 50,000 pounds, which is a low estimate — they usually load to the 
 capacity of the car-— we would earn $110 from a carload of corn. 
 
 The Ci-iArRJMAN. Gross? 
 
 Mr. Lincoln. Gross. On a C!»x;load of cattle, estimating the weight 
 
EIGHTH DAY. 69 
 
 at 25,000 pounds, which is a fair estimate for a 36-foot car, we would 
 earn $i 1.87 : showing that the stock is getting a lower rate and better 
 treatment even than grain. From Wichita to Kansas Citj^— and I 
 have these comparisons drawn out here, but I will read just a few of 
 them at present— we earn on a carload of corn $60— that is, a car of 
 corn of 50,000 pounds— and on a carload of cattle, :>5,000 pounds— 
 that IS all thej' can load in— $.37.50. From Pueblo to Kansas Citv, on 
 a shipment forwarded from Pueblo proper, we would earn on corn- 
 on all gram, in fact— $125 for a 50,000-pound car, and on stock $74.40. 
 From Amarillo, Tex., to Kansas City— Amarillo is one of the points 
 complamed of particularly as to the advance in live-stock rates, and it 
 has been placed in -the testimony in the statement before the Senate 
 -committee — we would earn on a carload of corn $147.50, while on a 
 ■ -carload of stock from Amarillo to Kansas City we would earn $86.25. 
 
 From Kansas City to Fort Worth, on grain we would earn $112.50, 
 and on cattle from Fort Worth to Kansas City we would earn 
 $91.25. On export grain, even under a standard condition of rates, 
 the rates that have obtained for some time, except during this recent 
 rate war, we Avould earn from Kansas City to New Orleans on a 
 carload of wheat $114, on corn S100.20 a car, while we earn on 
 horses $110 a car. I place this estimate as to grain on the weight of 
 the car at 60,000 pounds, but I will safely say that the average 
 weight will run in excess of that, because they load the cars up to the 
 full capacity, as it moves out of elevators and into elevators, when 
 going for export; but I am using 60,000 pounds as a basis. I inci- 
 ■dentally mention this as showing comparisons in the revenue between 
 live stock and the other kinds of freight. 
 
 Another incident in connection with the transportation of live 
 stock is the fact that the carriers, on the assumption that the shipper 
 will look after his stock and care for the same while in transit, issues 
 free transportation in both directions to shippers with every two cars 
 of stock and one way A^ith each single car of stock. To the traffic 
 managers of the country it is well known that this live-stock trans- 
 portation is manipulated to the depletion of the carrier's earnings 
 on passenger traffic. It is also well known that the transportation 
 falls into the hands of parties ostensibly the agents of the shippers, 
 who are thoroughly incompetent to care for the stock while on the 
 road, and who in many instances do not even take the trouble of look- 
 ing after the stock, the transportation being given to lawyers, mer- 
 chants, and clerks as a matter of accommodation, to enable them to 
 make trips to the larger cities. These alleged attendants, and, for 
 that matter, regular live-stock attendants, are not familiar with the 
 operation of trains and with the j'ards and switches, and are therefore 
 much more liable to personal injury through their ignorance. By 
 reason of this transportation the carriers are called upon frequently 
 ^to pay large personal-injury claims, which should be construed as a 
 factor in connection with the revenues derived from the transporta- 
 tion of live stock. 
 
 The Chairman. How does that transportation get in there? 
 
 Mr. Lincoln. We issue stock contracts. 
 
 The CiiAiEJtAN. What do you do it for? ^¥h.J do you not stop it? 
 
 Mr. Lincoln. Nearly every State has a requirement by law on the 
 subject. 
 
70 EIGHTH DAi. 
 
 The Chairman. Does the State of Kansas and the State of Texas 
 require j'ou to give these passes? 
 
 j\fr. Lincoln. On State business Kansas does, and Missouri and 
 Nebraska do. 
 
 The CifAiEMAN. Not on interstate business? 
 
 Mr. Lincoln. No, sir; there is no requirement of that kind on 
 interstate business; but it has been a custom so long that when we 
 undertooli the discontinuance of return transportation it brought up 
 protests from the most powerful organization in the West — the Na- 
 tional Live Stock Association. That is the reason why we are getting 
 so much legislation on other matters at the hands of these people. 
 They do not wish to be denied anything ; and I beljeve that the great- 
 est complaint from the West has come from the National Live Stock 
 Association. ' 
 
 The Chairjian. If the free transportation leads to personal injury 
 and large damage suits, it seems to me the railroads would put a stop 
 to it. 
 
 Senator Fokakek. But somebody must accompany the stock, I sup- 
 pose? 
 
 Mr. Lincoln. That is the theory on which the transportation is 
 given — to have the man go along and look after the stock. 
 The CiiAiEJiAN. He does not do the unloading of the cars, does he? 
 Mr. Lincoln. Oh, no: he just goes along with the train while in 
 transit, and it is supposed that when the cattle get down he will see 
 that they are punched so as to make them get up, and that he will 
 look after being watered, and so forth. 
 
 The Ci-iAjRjtAN. He could pay his fare, could he not ? 
 Mr. Lincoln. I think he is better off the train than on it. 
 The Chairman. If he does go on the train, he could pay his fare. 
 There is no law against that, is there? 
 Mr. Lincoln. Oh, no, sir. No, sir. 
 
 Senntor Forakee. Who unloads the cattle when, on account of 
 wrecks or vrnshouts, or something like that, you are compelled to 
 delay cattle at a place where you have no feeding arrangements? 
 Mr. Ll^•c()LN. Our trainmen, assisted Ijy these "men. 
 Senator Forakee. Assisted by these lawyers and clerks traveling 
 on free passes ? 
 
 Mr. Lincoln. No; assisted by the stock owner. The others are 
 out in the woods. 
 
 From September 1, 1903, to September 1, 1904, there was filed 
 through the office of our general live-stock agent at Kansa« City, 
 which represents claims on business moving practically to Kansas 
 City only, 1,06-4 loss and damage claims, amounting to"^ $125,398.31. 
 The number of cars shipped dining that period into Kansas City 
 was approximately 19,000, thus representing a claim, if each individ- 
 ual claim represented a single car, on each 19 cars shiijoed, but as 
 many of the claims embrace a number of cars I can safely estimate 
 that there is a claim on at least each 1-2 cars handled. As illustra- 
 tive of the alleged lialnlUy of the carrier, would refer to the follow- 
 ing claim; A car of show hogs was forwarded from Archie, j\fo to 
 Kansas City, a distance of about (iO miles, for exhibition at the Kan- 
 sas City Fat Stock Show. This ear lot of hoo-s was delivered at the 
 place specially provided bv the Fat Stock Sliow manao-oment The 
 stock show was out at the edge of the city there, and tliL^v had to pro- 
 
EIGHTH DAY. 71 
 
 vide for a special place to unload this fat stock for the show, instead 
 of taking it into town to the stock yards. The hogs Mere shown and 
 returned to Archie, Mo., no charge being made for the return move- 
 ment. After arri-^al home the hogs developed cholersi. Suit was 
 brought against the company for $4,494, and judgment ^^as rendered, 
 because it w as alleged that the hogs became infected with the cholera 
 while in possession of the carrier. 
 
 J. H. Richards, of Texas, had three train loads of stock for Reece, 
 Kans., which were to be placed upon pastures at that point, the cattle 
 being delivered to the Missouri Pacific Raikoad at Argonia, Kans., 
 by the Santa Fe Railroad. Wiile the stock was en route to destina- 
 tion, and just before arrival thereat, a long trestle was struck by 
 lightning and burned. The trains were held for about eight hours 
 awaiting repairs to the trestle. This was stock going on to pasture. 
 It was not fat cattle ; it was thin stock. 
 
 For this delay and the loss resulting therefrom we were sued and 
 a judgment rendered against the company for $10,800, which was 
 
 Senator Fokakeb. Was that the fault of the company that light- 
 ning struck the trestle and burned it up ? 
 
 Mr. LiNCOLX. Xo, sir ; it was not. 
 
 Senator Fokakee. Have you finished j'our statement ? 
 
 Mr. LiJfC'OLx. There i^ only one other point that I wanted to touch 
 upon, and that is the long and short haul clause. 
 
 The disregard of the long and short haul clause as to the territory 
 served by the Missouri Facific Railway is practically onlj' pr^alent 
 to the Mississippi Valley, in Arkansas, and Louisiana, where water 
 competition obtains, and where such communities as Vicksburg, Miss., 
 Munroe, La., and Shreveport, La., and others that I might mention, 
 have been built xip by reason of the waterwaj's. To apply the long 
 and short haul clause to such communities would be a serious blow to 
 their industrial developinent, as the carriers could not profitably 
 continue the low rates made these main points, where the volume of 
 business is large and the competition is acute, if thereby all of the 
 local intermediate territory was involved. Furthermore, the appli- 
 cation of the long and short haul clause in such territory would have 
 the effect of ruining, or seriously embarrassing, communities in that 
 section built up by reason of the advantage of waterway and their 
 natural location to the territory which they serve in the distribution 
 of food products and the necessities of life. It would have the effect 
 of diverting to other markets the business they have so long enjoyed. 
 
 The boat lines, which are not subject to the control of the Inter- 
 state Commerce Commission, are the controlling factors in making 
 the rates to these water points. If, however, the business proves 
 unproductive or insufficient the boat lines can, after practically fix- 
 ing the measure of the rail rates, withdraw entirely from the trade 
 and remove their boats to other points. The carrier, however, is 
 not permitted to abandon its lines or refrain under the law as com- 
 mon carriers from taking business. 
 
 My idea is that water rates should be made just as much subject to 
 the interstate-commerce act as any others. 
 
 That is all of my statement. 
 
 Senator Ke.ax. "NAliat is the gross amount of the cattle business of 
 the Missouri Pacific? 
 
72 EIGHTH DAY. 
 
 Mr. Lincoln. As to revenue? 
 
 Senator Kean. The total amount of the cattle business? 
 
 Mr. Lincoln. Well, 1 can not give you the figures, but our live- 
 stock business represented, in the year 1904, 4.4 per cent of our total 
 tonnage. Our total revenue was $43,693,616.50 for the year 1904. 
 
 Senator Kean. How much was derived from the cattle business? 
 
 Mr. Lincoln. I say the cattle business bore a percentage to the 
 total tonnage of 4.4 per cent. 
 
 Mr. Kean. Yet your company is one of the greatest shippers of 
 cattle in the United States, is it not? 
 
 Mr. Lincoln. No, sir ; we are not. I have instructed all of our men 
 in Texas not to solicit any cattle business. If it is offered to us, we 
 will take it, but we do not solicit it. 
 
 Senator Kean. "\^Tien you contract to carry cattle, you insure its 
 delivery, do you not, practically? 
 
 Mr. Lincoln. We practically insure it; yes, sir. If a steer gets 
 down in the car and a claim is made, we alw^aj's get a judgment 
 against us if we go into court. We do not want to go into court. 
 We prefer to compromise those claims, because, since the business is 
 usually competitive, if we do not do it somebody else will haul it. 
 
 Senator Kean. Therefore the rate is made to cover that? 
 
 Mr. Lincoln. The rate does cover it, although it is not supposed 
 to cover it. The carrying of the man in charge of the stock is_ sup- 
 posed to prevent any injury to the stock, but if they do get injured 
 we are invariably held responsible. 
 
 Senator Kean. The only part of the country from which com- 
 plaint was received in regard to the 28-hour law was from Texas, 
 was it not? 
 
 Mr. Lincoln. The 28-hour law will apply to the long-haul busi- 
 ness. Of course that includes cattle from Texas, Xew Mexico, and 
 Colorado, as far as our road is concerned. 
 
 Senator Kean. Are not the people in Texas the only ones who 
 have complained about the 28-hour laAv? 
 
 Mr. Lincoln. I think the Texas people are about the only ones 
 that have complained of it; yes, sir. We have been asked to run 
 farther, and they complain of the 28-hour laAv. 
 
 Senator Kean. T know that several bills have come here on that 
 subject. The people in the other parts of the country are entirely 
 satisfied with the 28-hour law, are the}'' not ? 
 
 Mr. Lincoln. I could not answer for the Dakotas. I have not 
 seen any complaint. The only ones I have seen are the Texas com- 
 plaints and applications. 
 
 Senator Fouakee. Plow long has the 28-hour law been in force; 
 do you remember? 
 
 Mr. Lincoln. I do not like to guess. It has been several years; 
 a number of years. 
 
 Senator Foeakek. Just one more question, so that you can get the 
 information overnight, if necessary. At page 274 of 189 U. S. is 
 reported the case of the Missouri Pacific Railway against the United 
 States. It appears to have been a suit brought to enjoin the Mis- 
 souri Pacific from charging a higher rate to Wichita, 458 miles from 
 St. Louis, than it charged from St. Louis to Omaha, a distance of 
 501 miles. The case was decided below in favor of the company, on 
 the ground that there was no authority under the statute at the time 
 
EIGHTH DAY. 73 
 
 when the suit was brought, and the decision rendered to institute 
 such a proceeding; but it was heard in the Supreme Court of the 
 United States shortly after the Elkins law was passed, and the 
 Supreme Court held that that law modified the law previously in 
 force and applied to pending cases, and it reversed the court below 
 and remanded the case with directions to proceed in the circuit court 
 under the Elkins law. Do you know what became of that case? 
 
 Mr. Lincoln. I do not, Senator. It is in the hands of the legal 
 department. 
 
 Senator Forakee. It was made the duty of the Interstate Com- 
 'merce Commission under the Elkins law to prosecute all such cases 
 as that, if they are to be prosecuted at all, and I wanted to Imow 
 whether, after the Supreme Court had held that the Elkins law' 
 applied and that this proceeding could be maintained, they had been 
 proceeding with it. The suit was originally brought under the direc- 
 tion of the Interstate Commerce Commission by the district attorney 
 for Kansas. 
 
 j\Jr. Lincoln. It was, under their direction. 
 
 Senator Foeakek. You do not know whether anything has been 
 done with that case or not? 
 
 Mr. Lincoln. I do not know what shape it is in now. 
 
 Senator Forakee. Could you ascertain that and advise us to- 
 morrow ? 
 
 Mr. Lincoln. Yes, sir ; I will wire and find out about it. 
 
 (Thereupon, at 5.05 o'clock p. m., the committee adjourned until 
 to-morrow, Friday, April 28, 1905, at 11 o'clock a. m.) 
 
 •The document referred to by Senator Foraker at the conclusion of 
 Mr. Hines's statement, which was directed by the committee to be 
 embodied in the record, is as follows : 
 
 REPORT OF MESSRS. THURMAN, WASHBURNE, AND COOLEY, CON- 
 STITUTING AN ADVISORY COMMISSION ON DIFFERENTIAL 
 RATES BY RAILROADS BETWEEN THE WEST AND THE SEA- 
 BOARD. 
 
 PEELIMINAEY. 
 
 In January, 1882, the undersigned were notified that they had been 
 selected by the New York Central & Hudson Eiver Railroad Com- 
 pany, W. H. Vanderbilt, President; the New York, Lake Erie & 
 Western Railroad Cojnpany, H. J. Jewett, President; the Pennsyl- 
 vania Railroad Company, G. B. Roberts, President, and the Balti- 
 more & Ohio Railroad Company, John W. Garrett, President, to act 
 as an Advisory Commission upon " the differences in rates that 
 should exist, both east-nardly and westwardly, upon all classes of 
 freights between the several "terminal Atlantic ports," and to report 
 upon the same. 
 
 Accepting the appointment, the undersigned met and organized 
 as a Commission, at the City of New York, on February 13, 1882, by 
 designating Mr. I'hurman to act as Chairman and selecting Mr. 
 Thomas C. Moore, of Indianapolis, as Secretary. On conferring 
 with Mr. Albert Fink, who on that occasion represented the several 
 railroads named, we were informed that it was not the purpose or 
 desire of the railroad managers to take part in the proposed inquiry 
 
74. EIGHTH DAY. 
 
 after s(4ting- it on foot; but that thev proposed to leave it exclusively 
 in our hand's, in the expectation, however, that other parties interested 
 in the problems of railroad transportation would make before us a 
 full shoAving of the facts supposed to have a bearing upon the ques- 
 tion, and that we would then express our opinion, uninfluenced by the 
 wishes or interests of the railroad companies. The managers in- 
 forjned us, hoAvever, that they held themselves ready to furnish any 
 such information as might be peculiarly within their knowledge, at 
 any time when we miglit call for it. 
 
 Having this understanding of our commission, and desirous of 
 acting intelligently and with full information, we caused circulars ' 
 to be sent to all the commercial organizations of the cities of Xew 
 York, Philadelphia, Baltimore and Boston^ and to such like organiza- 
 tions in the interior as it was thought would be inclined to respond, 
 inviting them to appear before the Commission and present their 
 views ; and whenever a desire to be heard was expressed by any one 
 of them, time and place were designated for the purpose. 
 
 From the I'roduce Exchange, the Board of Trade and Transporta- 
 tion, and the Chamber of Commerce, of the City of New york. and 
 from the corresponding organizations of the cities of Philadelphia 
 and Baltimore, letters expressive of a desire to be heard were re- 
 ceived, and public meetings were accordingly held in those cities, at 
 which the question referred to us was very fully considered and dis- 
 cussed. For the purposes of such discussion, we found that in every 
 instance careful and thoughtful preparation had been made, and the 
 arguments, either in full or in substance, were put in print for our 
 subsequent review. Statistics were also collected for us, so far as 
 was thought important. Under the guidance of the commercial 
 bodies. a\i' also visited and inspected the railroad terminal facilities, 
 under circumstances most favorable to a full understanding of the 
 manner in which they concerned the general subject. , 
 
 The loading commercial organizations of St. Louis, Louisville and 
 Toledo also appeared before us at public sittings held in those cities 
 res]3ectively, and presented their views in print, supplementing them 
 with oral arguments and explanations. 
 
 AVe were also favored at Philadelphia with discussions by repre- 
 sentatives of the Board of Trade of Newark, Xew Jersey, and at St. 
 Louis with the views of the Board of Trade of Lidianapolis, pre- 
 sented by one of its members. The Chamber of Commerce of Cin- 
 cinnati communicated its views to us in formal resolutions, without 
 deeming it necessary to request ])ublic sittings in that city, and single 
 individuals, not representing any formal organizations, have also in 
 some cases Ijeeii lieard. "We have also sought and obtained informa- 
 tion independently whereA'er we have found it available, and have 
 made use of the published reports of the railroad companies for that 
 purpose. Our endeavor has been to view the subject from the stand- 
 points of the various interests concerned, and to reach a conclusion 
 that overlooked the just claims of no interest and no locality. 
 
 THE QUESTION. 
 
 The subject referred to us is that commonly spoken of under the 
 designation of Differential Eates. In the reference, however and in 
 the paper which follows, the term is made use of in a somewhat 
 
EIGHTH DAY. 75 
 
 restricted sense, being applied not to the differences in rates generally, 
 or as betweenthe several classes of freight as they are arranged in the 
 tariffs of freight charges, but to the differences in rates which are 
 made by the railroad companies as between the several Atlantic sea- 
 port cities, and the interior points where the freights are taken up or 
 delivered. It_ appears that the four railroad companies mentioned, 
 and which, with the Grand Trunk of Canada, are commonly called 
 the Trunk Line roads, have generally been accustomed to make higher 
 charges for the transportation of freights between New York and 
 Boston, as eastern termini, and the leading towns of the interior, than 
 between Philadelphia and Baltimore and the like towns; and that 
 at the present time they seem to agree in the policy and propriety of 
 making these differences. An idea of the extent of the differences 
 is indicated by the statement that, taking the charges for the transpor- 
 tation of eastward bound freights from Chicago to New York as the 
 standard, the charges to Boston are made the same, and those to 
 Philadelphia two cents, and to Baltimore three cents per hundred 
 pounds less. On westward bound freights the differences are not 
 uniform, but are made higher in the case of those classes of property 
 which are rated highest in the freight tariffs. As between the sea- 
 board cities and St. Louis, Cincinnati, Toledo and other Western 
 towns, the rates are proportioned to the Chicago rate according to 
 mileage. This is the existing rule or practice. 
 
 "Whether it is right or proper to make any such discrimination in 
 the charges for the transportation of property between the Atlantic 
 cities and the cities of the interior, and if so, to Avhat extent, is the 
 question that we understand was referred to us, and nothing more. 
 We, therefore, limit our discussion to that question, and pass by many 
 subjects of interest in railroad transportation that were more or less 
 touched upon in tfie public discussions which took place in our hear- 
 ing, but which can interest us only as private citizens. Whatever 
 opinions we or any of us may have respecting controverted questions 
 in railroad policy and railroad management, which do not fall within 
 the scope of our present inquiry, it would not become us to intrude 
 them into this discussion. 
 
 THE PARTIES CONCEKNED. 
 
 Although the invitation to us came from the Trunk Line railroad 
 companies, we have not understood that this was because the subject 
 was one over which they had rightfully any exclusive authority. It 
 is, indeed, a subject with which they, first of all, are called uponto 
 deal, for they and their affiliated roads enforce the charges which 
 come under consideration, and establish the differentials if any are 
 established at all. But the railroads constitute a single class only of 
 the many whose interests may be affected, and it may appear, perhaps, 
 that they are not the class most largely concerned. In all the discus- 
 sions before us it has been assumed that the people of Boston, New 
 York, Philadelphia and Baltimore, and especially all those who are 
 engaged in the exchange of commodities with the interior and with 
 foreign countries, are largely interested, and that their prosperity is 
 to some extent involved in the relative adjustment of rates. The rail- 
 roads of the interior, which act as feeders to the Trunk Lines, and 
 divide with them the charges on freights moved between the interior 
 
76 EIGHTH DAY. 
 
 and the seaboard, are also interested to the extent that the differentials 
 affect their proportion of the charges. We have found also that the 
 people of the interior consider their interests to some extent involved 
 in the question; and they certainly are concerned in having such 
 tariffs of charges upon the roads over -srhich their traffic is conducted 
 as will give them the advantages of any and all the Atlantic markets, 
 without subjecting their dealings with any one of them to unfair 
 conditions or burdens. It is therefore evident that the question is 
 one of very general interest ; and it may almost be said that the ques- 
 tion of relative equality of rates, as between Chicago and the Atlantic 
 ports, when those between the other Western towns and the same ports 
 are measured by them, is one of national rather than of local concern. 
 
 THE SITUATION. 
 
 Three distinct views of the differential rates were taken and urged 
 before us, which may be shortly stated as follows: The New York 
 view, that the differences made in the rates in favor of Baltimore and 
 Philadelphia were wholly wrong and should be abrogated ; the Balti- 
 more view, that the differentials were right in principle, but if any- 
 thing too small ; the Philadelphia vieAv, that the differentials should 
 continue, but that they ought not to discriminate as between Philadel- 
 phia and Baltimore. In the interior Ave encountered much difference 
 in opinion, but no views distinctively peculiar. 
 
 The discussion was opened at New York, where it seemed to be 
 assumed that the parties chiefly concerned were the three cities of 
 New York, Philadelphia and Baltimore, and that the differentials 
 operated to build up the business of the two last to the prejudice of 
 that of New York. On this assumption it was then said they were 
 unjust, and that it was the duty of the New York railroads to force 
 their abrogation. It was also assumed that two of the Trunk Line 
 railroads were peculiarly New York roads, whose managers ought to 
 be expected to labor especially in the New York interest, and to enter 
 into the rivalries of that city, so far, at least, as might be necessary to 
 protect the commerce of New York against injury through the more 
 favorable rates which might be offered by the Philadelphia and Balti- 
 more roads to the people of those cities respectively. At Philadelphia 
 a somewhat similar view was taken of the obligation of the Pennsyl- 
 vania Railroad to protect Philadelphia interests, and at Baltimore a 
 corresponding protection appeared to be looked for at the hands of 
 the Baltimore & Ohio Railroad. Thus the several Trunk Line rail- 
 roads were spoken of as New York, Philadelphia and Baltimore roads 
 respectively, and claims of a local nature were made upon them as 
 being such roads. 
 
 Nothing, however, in our investigation of the subject has struck 
 us more forcibly than the fact tliat the growth of railroad business 
 has been such as to take from the several Trunk Line roads nearly all 
 of purely local character which they formerly possessed. The time 
 appears to have gone by when the interests of "any one of them can be 
 concentrated upon and bound up indissolubly with the interests of 
 any one city, so as to constitute it either the dependent or the cham- 
 pion of that city as against the rest of the Union, or even as against 
 any other commercial centre of the Union. The arms of every one of 
 these roads reach out in every direction to embrace and gather in the 
 
EIGHTH DAY. 77 
 
 business of the country, and to distribute impartially according to 
 need and demand. States and cities have called particular railroads 
 into being, but they cannot circumscribe their operations, or make 
 exclusJA'e appropriation of their benefits. Once constructed, they 
 belong to a public which pays little regard in business matters to 
 State lines, and business reasons, vihich have general influence and 
 force, control their operations, in spite of local sympathies or desires. 
 It is true that two of the Trunk Line railroads— the New York Cen- 
 tral & Hudson River, and the New York, Lake Erie & Western- 
 hereinafter spoken of as the Central and' the Erie respectively — find 
 the largest share of -"A-hat is called their through business directed to 
 or originating at the City of New York, and it may be that their man- 
 agers desire to bring to that city all the business they can control. In 
 common parlance, there is certainly nothing misleading in speaking 
 of these two as New York roads; for the major part of their inter- 
 ests centre in New ^'ork. and whatever benefits or injures the business 
 of New York, must, to some extent, benefit or injure them also. But 
 these roads do not refuse freights to Baltimore, Philadelphia or Bos- 
 ton; on the contrary, they enter into competition for them, and 
 through the assistance of affiliated roads, endeavor to make it for the 
 interest of the people of those cities to avail themselves of their facili- 
 ties in the transportation of goods and supplies. They thus make 
 themselves part of a system of competitive roads, which offers to the 
 business community of every Atlantic seaport a choice of traffic routes 
 and traffic agencies, and they solicit business on the necessary under- 
 standing that thej'^ shall respect the .just rights and claims of all 
 localities, and not sacrifice to New York the interests which are con- 
 fided to them elsewhere. 
 
 It is also not misleading to speak of the Baltimore & Ohio Rail- 
 road as a Baltimore road, for its interests, in the main, centre in the 
 City of Baltimore; its bonds and stocks are supposed to be mainly 
 held or controlled there, and its traffic is mainly between that city 
 and the interior. But this road, no more than the New York roads, 
 consents to stand apart from the railroad system of the country, as 
 a road limiting its business to a single Atlantic terminus, and declin- 
 ing general competition. On the contrary, it solicits business at the 
 seaports to the north of Baltimore ; and that its efforts in that direc- 
 tion have a fair measure of success is evidenced by the fact that in 
 the year 1880 it carried of the westward bound freight moved by the 
 Trunk Line roads from New York more than eight per cent., from 
 Philadelphia more than nine per cent., and from Boston about five 
 per cent., and these proportions are fairly representative of the 
 general run of its traffic. These facts are sufficient to show that 
 neither the New York roads nor the Baltimore road are so exclusively 
 linked to the business interests of those cities respectively as to be 
 either unable or unwilling to share in or contribute to the prosperity 
 of rival cities. And it is now publicly said and seems to be understood 
 that the Baltimore & Ohio is seeking to obtain an independent line 
 into New York, that it may make its competition at that point still 
 more active and efficient. i- i • • 
 
 It certainly cannot be claimed, with much appearance of plausi- 
 bility, that the Pennsvlvania Railroad is the road of any particular 
 city. The company which owns it is indeed a Pennsylvania corpora- 
 tion, its offices are in the City of Philadelphia, its stocks and bonds 
 
78 EIGHTH DAY. 
 
 are largely held there, and perhaps not largely held elsewhere in this 
 country, and it is not improbable that the reelings and sympathies of 
 those who manage its concerns would incline them to desire specially 
 the growth and prosperity of Philadelphia above other places. But 
 the road has its eastern terminus, not at Philadelphia, but on the 
 harbor of Xew York, where it has made large and costly prepara- 
 tions to compete with the Central and the Erie for New York busi- 
 ness. That it does compete with those roads successfully is shown 
 by the enormous amount of freight which it moves from and carries 
 into that city, and by the fact that the merchants of New York have 
 come to look upon it, with entire justice, as one of their most impor- 
 tant channels of communication with the West. In the year 1880 this 
 road took out of New York twent3'-six per cent, of the westbound 
 freight carried by- the Trunk roads, and delivered to it nearly twenty 
 per cent, of the eastbound. "\"\liile thus successfully bidding for the 
 custom and favor of New York, it is plain that the Pennsylvania 
 Raih'oad cannot antagonize the interests of New York unfairly, and 
 ir_u:,t refrain from any attempt to subordinate them to the rival inter- 
 ests which it also endeavors to serve. It is a necessary condition of 
 its competition for the trade of New York, that it shall make its 
 services beneficial, and that it shall ofFer facilities which are not sur- 
 passed by those offered by other roads. But the Pennsylvania also, 
 through its association with the Northern Central, competes with 
 marked success for the trade of Baltimore, and took away from that 
 city in the year 1880 twenty-three per cent, of the westbound freight 
 carried by the American Trunk Line roads. Its share in the east- 
 bound freight was still more considerable, being forty per cent. What 
 is said of its relations to New York business may therefore with equal 
 truth be said of its relations to the business of Baltimore: it must 
 hold itself above the rivalries of locality, and assume the attitude of 
 an impartial carrier, desirous of the favor and custom of the whole 
 country, and willing and anxious to serve all localities on such terms 
 as are relatively equal and substantially just. 
 
 It is not likely that this reaching out of all the Trunk Line roads 
 to compete with each other in the several Atlantic cities was con- 
 templated when the roads were originally constructed; but as the 
 several lines have pushed their connections in the West in competi- 
 tion, it has been found desirable for each to offer to its patrons the 
 advantages of as many markets as possible, and to carry for them, 
 without breaking bulk, whatever they have had for carriage in an 
 eastward or westward direction. Competition has thus made roads 
 national which were once local, and it is vain to expect that so im- 
 portant a subject as that of differential rates will be settled on the 
 local preferences or prejudices of those who may have authority in 
 railroad circles. It must, therefore, be settled either arbitrarily, by 
 the fiat or agreement of the transportation companies, or it must be 
 determined by some underlying principle. We agree with what was 
 said in the New York discussions and elsewhere, that any arbitrary 
 adjustments in disregard of such principles as would naturally influ- 
 ence prices of transportation when untrammelled, would not, could not, 
 and ought not to be upheld. There should be — and as we think there 
 must be — some principle by which to determine such a question, or 
 perhaps two or more principles acting ujjon and qualifying each other. 
 
 It has been assumed in the discussions Ave have listened to, that 
 
EIQHTH DAY. 79 
 
 business would be invited to a city hj low rates upon its railroad 
 lines, and that the prosperity of the city would bear some relation 
 to these rates. How far this assumption is likely to be well founded, 
 we, of course, have no more means of judging than has the general 
 public. But the fact that each of the Trunk Line roads has its rela- 
 tions to all the cities, and each city receives benefits from all the 
 roads, is sufficient to suggest some question, whether low relative rates 
 and large relative business will necessarily go together. Though it is 
 true, as we think and have said, all the roads which compete for the 
 business of a place must treat its interests fairly, and not subordinate 
 them to the interests of rival places; yet it must be expected that 
 they will at all times have primarily in ^dew their own interests, and 
 that their zeal to procure business will bear some proportion to the 
 anticipated profits. If New York business is most remunerative, it 
 will be sought most eagerly; if not, the railroad managers will 
 direct attention to that which is. Reducing the New York rates 
 relatively to those of Philadelphia and Baltimore, seems, therefore, 
 to invite the roads to favor particularly the business of the two cities 
 last named. Establishing differential rates in favor of Philadelphia 
 and Baltimore holds out inducements to the railroads to favor the 
 New York trade. The Pennsylvania Company may be expected to 
 desire to carry freights past Philadelphia to Xew York if it can be 
 paid for the additional haul, but to prefer to leave them in Phila- 
 delphia, if for the considerable distance from there to Xew York it 
 will be paid nothing for the transportation. Thus what each city 
 asks, appears to have some tendency to enlist the selfish interests of 
 the railroad companies against it. We mention this among other cir- 
 cumstances affecting the question, without deeming it necessary to 
 remark upon it further. 
 
 THE PRINCIPLES THAT SHOULD CONTROL. 
 
 It seemed to be taken for granted, in the arguments presented to 
 us, that the existing differentials had not been determined on any 
 principle, but that they were the result of a compromise between the 
 railroad companies, whereby they had purchased peace between them- 
 selves. Three different pfinciples, however, were suggested by differ- 
 ent parties, as those which should control, and these found advocates 
 ■in different localities, according as, it was thought, those localities 
 would be favored by their operation respectively. These three prin- 
 ciples may be designated respectively: the distance principle, the 
 cost principle, and the competitive principle. It is, however, proper 
 to say that those who advocated the first and the second of these 
 principles, generally agreed that the third should not be discarded ; 
 but that it had its legitimate place, and must have its legitimate influ- 
 ence also. Brief notice will be taken of these three principles 
 respectively. 
 
 THE DISTANCE PRINCIPLE. 
 
 It was contended by the commercial representatives of Philadel- 
 phia and Baltimore, that freight charges on like classes of freights 
 between the interior and the seaboard cities ought to be proportioned 
 to distance. We understood them to mean by this, that the shortest 
 line from Chicago to each of the Atlantic cities should be taken as 
 
80 
 
 EIGHTH DAY. 
 
 the Standard for measuring the freight charges between Chicago 
 and that citv, and that the charges for all the cities should then be 
 determined by the mileage. By referring to the accompanying note, 
 it will be seen that if the mileage standard were adopted, the freight 
 charges lietween New York and Chicago would be about ten per cent, 
 greater than those between Philadelphia and Chicago, and about 
 thirteen per cent, jnore than those between Baltimore and Chicago. 
 Those between New York and Cincinnati would be about twenty- 
 eight per cent, more than between Philadelphia and Cincinnati, 
 and about thirty-eight per cent, more than between lialtimore and 
 Cincinnati."^ According to the average rates on gram and pro- 
 visions this year, the differentials have only been about six and two 
 thirds per cent, in favor of Philadelphia, and ten per cent, in favor of 
 Baltimore; and the distance principle would, therefore, on an aver- 
 age, increase them greatly. It was urged that it was by this prin- 
 ciple that the several roads, constituting a competing line, are accus- 
 tomed to apportion their joint charges, and that these very Trunk 
 Lines adopt it in dividing the charges upon through freights with 
 the roads from which they receive the freight, or to which they 
 deliver it. The New York representatives,' on tlie other hand, con- 
 tended that the distance principle could not with any justice control, 
 for the reason that distance does not measure either the cost or the 
 value of the service; so that if adopted as the standard of charges, 
 it would be an arbitrary standard, and the element of equity in the 
 rates would be disregarded. 
 
 If there were between each of the Atlantic cities and the interior 
 towns only a single line of railroad communication, some of the diffi- 
 culties in the way of the application of the distance principle, which 
 are now obvious, would be wanting. But, as has been said already, 
 
 " Distances via the shortest rail routes. 
 
 From- 
 
 CMoago 
 
 Burlington, Iowa 
 
 Cincinnati-- 
 
 Columbus, Ohio-- 
 
 Cleveland 
 
 Detroit 
 
 Indianapolis 
 
 Kansas City 
 
 Louisville - 
 
 Memphis 
 
 Milwaukee 
 
 Omaha - 
 
 St. Louis 
 
 St. Paul 
 
 St. Joseph 
 
 Toledo 
 
 To— 
 
 Boston. 
 
 New York. 
 
 Philadel- 
 phia. 
 
 Baltimore. 
 
 1,0(19 
 
 900 
 
 823 
 
 802 
 
 1,216 
 
 1,106 
 
 1,030 
 
 995 
 
 927 
 
 743 
 
 667 
 
 576 
 
 807 
 
 623 
 
 547 
 
 512 
 
 671 
 
 580 
 
 504 
 
 483 
 
 724 
 
 673 
 
 682 
 
 661 
 
 951 
 
 810 
 
 735 
 
 700 
 
 1,487 
 
 1,324 
 
 1,248 
 
 1,192 
 
 1,161 
 
 870 
 
 794 
 
 706 
 
 1,438 
 
 .1,247 
 
 1,171 
 
 1,083 
 
 998 
 
 947 
 
 908 
 
 887 
 
 1,503 
 
 1,393 
 
 1,317 
 
 1,294 
 
 1,212 
 
 1,050 
 
 973 
 
 917 
 
 1,418 
 
 1,308 
 
 1,232 
 
 1,211 
 
 1,478 
 
 1,356 
 
 1,280 
 
 1,238 
 
 784 
 
 693 
 
 617 
 
 596 
 
 Taking Boston as the standard, New York averages twelve per cejit. nearer to 
 these towns, Philadelphia eighteen, and Baltimore twenty-two per cent, nearer. 
 
 Between >iew York and Chicago the line of the Pennsylvania Railroad is 
 forty-seven miles shorter than that by the Erie and its connections, fifty miles 
 shorter than that by the New York Central and Its connections, and one hun- 
 dred and fovirteen miles shorter than that by the Baltimore & Ohio and its con- 
 nections. 
 
EIGHTH DAY. 81 
 
 every one of those cities has several lines, and would be content A\ith 
 no less. The supposed distance principle ignoie> this fact: selecting 
 the shortest line to each cit\-, to the disregard of the lest, and estimat- 
 ing the charges in proportion to its length. It might thus happen 
 that the charges on freights from Chicago to the bcveral seaboard 
 cities, with all their roads taken into the account, A^ould bear no pro- 
 portion whatever to the distance; and it is certain that as between 
 the roads serving the same city, the supposed principle could not be 
 applied at all, for they, irrespective of distance, must conform to 
 ^the lowest rates. The distance apportionment would, therefore, not 
 be an ^Dportionment of principle, but only of expediency; and 
 whether expedient or not, must depend someA\'hat on other considera- 
 tions, which present themselves in the practical administration of 
 railroad affairs. 
 
 It cannot be said, however, that distance is a circumstance without 
 value in the determination of railroad tariffs ; it is, on the other hand, 
 one of much importance. Nearness to the producers and consumers 
 of the articles which it handles is a great advantage to any city ; and 
 so far as the rivals of New York are possessed of this advantage, 
 they are justified in expecting that it will be recognized. But the 
 value of this advantage is a question that must be determined with 
 many other things taken into the account, and can only be fully solved 
 in the tests of competition. The general fact now is that distance 
 does not determine railroad charges, and that where competition 
 is most active it influences them the least. The distance principle 
 does not, therefore, stand the test of competition, and so far as we 
 can perceive, there is no possibility of establishing it except by sub- 
 ordinating competition altogether to it. But to do this would require 
 an exercise of arbitrary authority which we do not understand those 
 who advocate the distance principle to advise or desire. We must 
 conclude, therefore, that distance cannot supply for us the controlling 
 principle, and that its proper influence upon transportation charges 
 cannot be determined either arbitrarily or as a matter of antecedent 
 computation or estimate. 
 
 THE COST PRINCIPLE. 
 
 New York parties who rejected the distance principle were in- 
 clined to favor the grading of rates by the cost of service; and if 
 this were done, they claimed that the differentials would disappear 
 altogether. Cost of service is here employed as synonymous with 
 the phrase cost of moving freight, which is most commonly used. 
 The latter phrase, however, is used in two very different senses, which 
 it may be important to distinguish in order to avoid misconception. 
 Kailroad compatiies use the phrase for their own purposes when mak- 
 ing reports to their stockholders or for the public under the require- 
 ments of State laws. In such reports cost of moving freight will 
 be understood to be the actual outlay by the railroad company in 
 moving its freight over a completed and equipped road. This out- 
 lay win embrace the cost of fuel, the compensation to the regular 
 freight agents, to freight solicitors, if any, to the servants employed 
 to handle the freight and govern and move the trains. It must also 
 embrace the necessary expense of keeping good the freight equip- 
 *8 D— 05 M 6 
 
82 EIGHTH DAY. 
 
 iiient, and it should' include a fair proportion of all such expenses 
 of the company as are incurred for the freight and passenger traffic 
 in common, such as repairs of track, taxes, official salaries, legal ex- 
 penses, office expenses, general advertising, etc. To all these must 
 be added the cost of insurance against losses to freight and freight 
 equipment by casualties of all descriptions, or of making good such 
 losses. If all these items are added together, and the sum total is 
 divided by the number of tons of freight moved one mile upon the 
 road, we have as the result the average cost of transporting a ton of 
 freight for one mile of distance. 
 
 The report which gives these items will also give others/that, as 
 between the railroad company and its patrons, must be understood 
 as constituting a part of the cost of service. If the company owes 
 debts, the interest paid upon these should be included; if it has 
 made dividends to its stockholders, the amount should be included 
 also. Indeed, it is generally conceded that the cost of service should 
 rightfully and equitably be made to include a fair return in interest 
 or dividends on the cost of the railroad investment; though as to 
 what return is fair and reasonable, differences in opinion are held 
 and expressed. But for our present purposes it is sufficient to leave 
 any such differences out of view, and to speak in general terms of 
 the cost principle as that which would measure the railroad charges 
 by the cost of service, and which would make the cost of service em- 
 brace the actual outlay of the railroad company as above explained, 
 and a fair return in interest or dividends on the cost of the road and 
 its equipment. 
 
 To show that the cost principle would be to the advantage of New 
 York, it became necessary to show that the cost of transporting 
 freight between New York and Chicago was or ought to be less than 
 the cost between Philadelphia and Chicago, or Baltimore and Chi- 
 cago, or at least that it was not greater. But upon this point, un- 
 fortunately, the information that was produced before us did not 
 appear to be very precise or very accurate. 
 
 The expressions of opinion were indeed clear and strong, but they 
 were generally supported by argument and inference rather than by 
 evidence. Our attention was not directed to official reports or fig- 
 ures, where or by which the actual cost was set forth, but rather to 
 the topographical features of the country between New York and the 
 head of Lake Michigan, which it was said offered admirable facilities 
 for the construction of railroads, which would be economical in origi- 
 nal outlay, and economical also in their operation. No such eco- 
 nomical road, it was said, had been or could be constructed further to 
 the south, and the unfavorable gradients and curvatures on the Penn- 
 sylvania and the Baltimore & Ohio roads more than deprive them of 
 all the advantages which they possess in shorter distance. It was 
 also urged that another important circumstance should be taken into 
 the account when the cost is being estimated. By far the lax-ger por- 
 tion of all the freight carried by the Trunk Lines is eastward bound. 
 "When cost is considered the probability of return freights must be 
 taken into the account, since to whatever extent the cars which con- 
 vey freight to the seaboard must be returned without loading, the 
 cost of the return must be reckoned as part of the cost of transport- 
 ing the eastbound freight. And it was confidently asserted tha^t the 
 
EIGHTH DAY. , 83 
 
 probability of obtaining remunerative return freights was much 
 greater at New York than elsewhere on the Atlantic coast. 
 
 To make out the case of more favorable lines and gradients be- 
 tween Chicago and New York, the route is required, after it leaves 
 the shore of Lake Erie, to follow substantially the course of the Erie 
 Canal to the Hudson, and thence down that river. By that route a 
 road has been constructed with few unfavorable grades and curves, 
 and this road no doubt is or can be operated with much greater econ- 
 omy than would be possible if its line were through a mountainous 
 region. But if we take this as the route for freight transportation 
 between New York and the interior, and compare it with the routes 
 to Philadelphia and Baltimore over the roads which carry most 
 freights to those cities respectively, we commit the mistake of direct- 
 ing our attention exclusively to the one road which possesses this 
 favorable line, and ignoring altogether the fact that New York has 
 other roads which it is desirable for its interest should live and pros- 
 per, and that over each of them the active and energetic merchants 
 and manufacturers of that city are seeking the business of the inte- 
 rior and inviting its custom. Every one of those roads brings to 
 New York a large amount of trade which would not be obtained 
 without its facilities; and it seems certain that New York cannot 
 ailord to ignore any one road, any more when it is settling its griev- 
 ances with rivals than when estimating advantages over them. If, 
 therefore, it be demonstrated that the ^few York Central and its con- 
 necting roads can transport western products from the interior to 
 New York as cheaply as the more southern roads can move them to 
 Baltimore or Philadelphia, it may not follow that the interest of 
 New York would be subserved by the adoption of the cost principle 
 and the bringing of the charges on freight transportation to and from 
 New York to the test of what the Central could afford. Prudence 
 would require that at least the probable consequences should be con- 
 sidered; and if among these consequences should be the possibility 
 of some other line to New York being found unable to endure the 
 test of the cost principle, this of itself ought to raise some doubt 
 whether the city of New York could be interested in establishing it. 
 Now, the very claim that is made in behalf of the New York Central 
 route, as one of remarkable economy, assumes that the Pennsylvania 
 route is less economical ; and the assertion that the Central can carry 
 from Chicago to New York as cheaply as the Pennsylvania can carry 
 from Chicago to Philadelphia, contains within it— since the less is 
 contained in the greater— that the Central can carry from Chicago to 
 New York cheaper than the Pennsylvania, which only reaches New 
 York by carrying past Philadelphia, can possibly do. The applica- 
 tion of the cost principle, if made under such circumstances, must 
 force the Pennsylvania to this alternative : that it must carry at rates 
 which will not give to the company a fair return in profits, or it must 
 give up competition for New York business; and the Erie, whose 
 line is also assumed to be less favorable than that of the Central, 
 might be compelled to face the same alternative. . n, i 
 
 It probably would not be contended that either the Grand Irunk 
 or the Baltimore & Ohio, whose lines to New York, through connect- 
 ing roads, are so much longer than those of the Pennsjdvania, could 
 compete at all for New York business under a strict application of 
 the cost principle. The natural tendency of its apphcation \Yould, 
 
84 EIGHTH DAY. 
 
 therefore, be in the direction of throwing upon one of the existin^^ 
 lines to New York the bullc of the New York business, to the destruc- 
 tion of the others, and to the final destruction of competition. It is 
 not to be assumed that this is what Xew York desires. Every great 
 city finds it conducive to its prosperity to secure as many of these 
 avenues of trade and travel as possible ; and it is certainly not more 
 important to gain a new line than to preserve one already m exist- 
 ence, and already equipped with all those powers of usefulness which 
 a new project can only promise at some time in the future. If, there- 
 fore, the cost principle were to be adopted for regulating the charges 
 as between the competing cities, it would seem, that New York ought 
 to bring into the calculation not one road only, and that the one mpst 
 economical in construction and operation, but all the roads which 
 contribute to its prosperity, and which it desires to retain. 
 
 At Philadelphia and Baltimore it is asserted with great confidence 
 that over no one of the New York roads can freights be conveyed as 
 cheaply, from Chicago to Xew York, as they can be over the Penn- 
 sylvania, and the Baltimore & Ohio roads to Philadelphia and Balti- 
 more respectively. For this confidence certain facts are stated which 
 are supposed to be sufficient to produce the result, and official reports 
 are cited as evidence that the result has followed. The favorable 
 lines of the New York Central, and its affiliated roads, are admitted; 
 but it is contended that all the advantage of these is more than neu- 
 tralized by greater distance and the greater cost of fuel to the New 
 Y'ork roads over those to the south of them. The Pennsylvania, and 
 the Baltimore & Ohio roads find the coal, which represents their 
 motive power, in beds at various points on their lines', and can take it 
 up for use at little more than the cost of handling ; while the New 
 York roads, on the other hand, and especially the Central, must trans- 
 port the coal for a long distance at a cost two or three times as great. 
 This cost constitutes a very considerable part of the total expense of 
 moving freight, and it cannot be overlooked or treated as of little 
 moment. 
 
 The official figures to which attention was called to show the greater 
 cost on the New York lines are to be found in the reports of the New 
 York Central, the Erie and the Pennsylvania, made by the directors 
 to the stockholders, to show the operation of the roads for the years 
 1880 and 1881. In those reports estimates are made of the cost to 
 the companies respectively of moving one ton of freight for one mile 
 of distance, omitting from the calculation the items of interest and 
 profits. The reports, as will be seen on referring to the note in the 
 margin, make a very unfaA'orable showing for ^ew York;" and if 
 the figures told the whole storj^, and if we could be assured that they 
 Avere made by each company on the same basis, they would go very 
 far toward justifying the other cities in the claims they make. But, 
 unfortunately, these reports are, for our purpose, of little value. 
 They cover too much in some respects, and too little in others, to give 
 us the information we need. 
 
 o Cost o( moving freight per tou for one mile of distance : 
 On the New York Central, 18S0, 5.41 mills ; 1881, .5.62 mills. 
 On the Erie, 1880, 5.34 mills; 1S81, 5.29 mills. 
 On the Penn.sylvama, 1880, 4.74 mills ; 1881, 4.37 mills. 
 
 No corresponding figures are given in the reports of the Baltimore & Ohio 
 R. R. Co. 
 
EIGHTH DAY. 85 
 
 1. The Trunk Line companies report the cost over their own roads 
 only, and do not inckide the cost over the feeder roads; but what we 
 ]ieed to know is the cost of transportation over the whole line from 
 western points to the seaboard. 
 
 2. The companies in their reports do not discriminate between the 
 cost of transporting local freight and through freight, but endeavor 
 only to give the average cost of moving both. But here the reports 
 embrace too much for our purposes, for on this inquiry we are inter- 
 ested only in the cost of moving through freight. 
 
 If the 'freights over all the roads were similar in kind, and if the 
 proportion of through freight to way freight were nearly the same on 
 all, the report of average cost might be accepted as indicating the 
 proportionate cost to each road of its through freights. But we Wist 
 take notice of the fact, which is matter of common knowledge, that 
 the character of local freight is exceedingly diverse on the different 
 roads, and that the cost of handling is far from being uniform. If 
 one company, for example, handles coal in large quantities as way 
 freight, loading a train completely at one station, and moving it to 
 another for complete unloading, the cost of such business would fur- 
 nish very unsafe and unreliable means of comparison with that of the 
 local freight of miscellaneous articles, which another road might pick 
 up in small quantities at many way' stations, and deliver at as many 
 more. But these railroad companies, unfortunately, have as yet 
 agreed upon no imiform method of keeping accounts, whereby they 
 may determine, by the same standards, the actual outlay of the roads 
 in moving their freights. It would seem that there ought to be no 
 differences in this particular; but the official reports sometimes dis- 
 close on examination that the diversities are very considerable, and 
 are not infrequently met with in the accounts of the same company. 
 One company, for example, when it is able to make such betterments 
 as station houses, warehouses and side tracks from its current receipts 
 without increasing its indebtedness, may charge the cost to operating 
 expenses, while another under similar circumstances would charge 
 them to construction account, and still another would include them 
 in operating expenses for the time being, and at the end of several 
 years perhaps transfer them to construction account for the purposes 
 of a new issue of stock. Evidences of these different methods of pro- 
 cedure appeared in reports of different companies, which were made 
 use of for their information or for the purposes of illustration before 
 us. It is no doubt undesirable that there should be this diversity in 
 practice; but while it exists it is necessary to take notice of it. If 
 concert of action among railroad managers could bring about a uni- 
 form system of accounts, so that the official reports based upon them, 
 which are made periodically for the information of shareholders, 
 might give valuable and reliable information and means of accurate 
 comparison to the public as well, the change in methods would be 
 likely to prevent many misconceptions and misconstructions of cor- 
 porate action which now arise in the public mind, and which lead to 
 both public and corporate annoyances. 
 
 For all the reasons assigned, we are without reliable information 
 by which to apply the cost principle in the regulation of charges of 
 transportation between the Atlantic cities and the interior, and we 
 cannot say that the application would be to the advantage of New 
 York. Prima facie the case seems to be against New York, especially 
 
86 EIGHTH DAY. 
 
 when the Pennsylvania Kailroad, which constitutes one of its most 
 important lines, is taken into the account. It is very manifest that 
 that railroad can leave freights at Philadelphia more cheaply 
 than it can transport them the additional eighty-seven miles to 
 New York, and probably it can deliver them for still less at Balti- 
 more, since the unfavorable grades of the road, to which much impor- 
 tance was attached in the New York arguments, are all passed before 
 Harrisburgh is reached, and from that point the line made use of by 
 the Pennsylvania to reach Baltimore, is shorter than the line to Phila- 
 delphia. 
 
 The favorable influence which the concentration of foreign com- 
 merce at New York ought to have upon railroad rates between that 
 city and the interior, may perhaps be something, for freight tariffs 
 ought to be, and will be, arranged with regard to the probability of 
 compensating freights in both directions. When a railroad company 
 can have freights in one direction only, and must return its cars 
 empty, it must necessarily make the freights pay for the cost of the 
 return. In the eastern and western transportation we have an illus- 
 tration of this state of things. It is matter of familiar knowledge, 
 that much the largest proportion of freight is eastward bound, and 
 that large numbers of unloaded cars are constantly being sent west 
 over all the roads. If the course of trade were such, that any one of 
 the Atlantic cities sent out by rail as much freight as it received, its 
 advantage over the others would be obviously very great. 
 
 Railroad companies could afford to make much better rates upon 
 all freights bound to the city from which they were certain of com- 
 pensating return loads. It is proper, therefore, that railroad com- 
 panies should take into consideration the condition of things in this 
 regard, and every participant in foreign commerce has a right to 
 expect that this will be done. We have therefore directed our own 
 attention to the differences in the freights received and those sent out 
 by the four leading Atlantic seaboard cities over the four American 
 Trunk Lines, and have given in a marginal note the aggregates for 
 the year 1880, which will be sufficient for the purposes of approxi- 
 mate comparison." The table shows that the proportion of freight 
 sent out from New York over these roads, when compared ,with that 
 which is received from them, is considerably greater than the pro- 
 portion at either Baltimore or Philadelphia, but it is nevertheless 
 only as one to four and a quarter, and it is manifest that not only 
 must a large proportion of all the cars which go loaded to New York 
 return without loads, but that a much more considerable number must 
 so return from New York than from either of the other cities. 
 
 li Freight tonnage l)y the four American trunk-line roads for the year 18S0. 
 
 
 Received. 
 
 Sent. 
 
 New York., 
 
 4,266,830 
 
 913,887 
 
 1,563,381 
 
 1,559,251 
 
 1,022,612 
 
 Boston 
 
 309,232 
 
 
 299,174 
 
 
 241,690 
 
 
 
 As the business with the Grand Trunk of Canada is not covered by this state- 
 ment, it will be readily understood that the statement is not so favorable to 
 Boston as it should be, as its business with the Grand Trunk is very large. 
 
EIGHTH DAY. g7 
 
 ^\Tiile, therefore, New York has an advantage over its rivals, in the 
 larger proportion of ^vestbollnd to eastbound freight, the advantage, 
 if estimated by the bulk, is not very great. And it must be tome 
 in mmd that these four cities do not by any means furnish to the 
 roads all their westbound freight, but that they take large quantities 
 from other towns along their line. It may be that .\^ew York west- 
 bound freights average highest in the freight tariffs, but even then 
 the relative advantage of Xew York will probably be less consider- 
 able than some of its advocates have supposed. And on a careful 
 examination of all the arguments advanced at New York, we are not 
 satished that a strict application of the cost principle, if it should be 
 found susceptible of application, would be likely to benefit the trade 
 of that city m its rivalry with the other Atlantic cities. 
 
 But if the exact cost of transporting freight by rail were attain- 
 able, could it be made the standard whereby to measure the charges 
 as between competing cities? AVe do not consider now what might 
 be just and right as between a railroad company and its patrons if 
 the case of any railroad company could be taken up and considered 
 by itself apart from all others, but of what is practicable in view of 
 existing facts. If the cost principle could be applied, we do not 
 see how the railroad companies of the country could justly com- 
 plain of it. If they could all receive for the transportation service 
 the cost of the service, as above explained, they would benefit their 
 average condition very greatly by accepting it, for they are not now 
 receiving on an average anything near the average legal interest of 
 the country on the cost of their investments." Manv of the com- 
 panies—perhaps the majority of them— in order to realize cost would 
 be conipelled to increase their charges very considerably, while others, 
 including perhaps some of these Trunk Lines, might be called upon for 
 a reduction. The general result would be, not a diminution of charges, 
 but an increase ; and it is hardly probable that the country at large 
 would be satisfied with the change, though it might affect particular 
 localities favorably. 
 
 Moreover, we are to consider that the question of the application of 
 the cost standard to railroad charges arises for discussion and settle- 
 ment after cities have been built, routes established, canals made 
 and railroads constructed; and that the solution of the question 
 may affect all these beneficially ^r otherwise to an extent that is be- 
 yond present calculation. We have not an unsettled country before 
 us to plan and make laws for, whose people when they select their 
 homes and places of business can calculate the result of existing 
 rules and regulations upon the towns they build, or the industries 
 they establish ; but the towns already exist, and have been created at 
 immense cost in view of advantages which were supposed to make 
 them attractive and desirable as locations for trade and commerce; 
 
 o In Poor's Manual the aggregate cost of the railroads of this country and their 
 equipment to 1881 is given at .f4,653,609,297. The railroad companies paid in 
 1880 in dividends $77,115,410, and for interest on bonded debt $107,866,328. 
 To 1882 the cost was $5,577,996,931. There was paid in 1881 in dividends 
 $93,344,200, and for interest $128,587,302. It will be seen that the dividends 
 and interest together are about four per cent on the cost of the roads and equip- 
 ment, the dividends being much the smaller part. No doubt there is much 
 '■ watered " stock, and a large allowance may be made therefor without affecting 
 the accuracy of the statement in the text. 
 
88 EIGHTH DAY. 
 
 and their existing importance as the homes of great numbers of 
 people, and as tlie centres of vast manufactures and immense ex- 
 changes gi^es them claims upon the country and upon those who 
 liavein any degree the material interests of the country in charge, 
 and gives them powers of defence also when assailed in the rivalry 
 of business which are not to be overlooked or lightly regarded. 
 
 These several towns, it is true, came into existence under circum- 
 stances which may be different from those which now surround them ; 
 and in view of act vantages, which in many cases have been rendered 
 comparatively unimportant by subsequent impro-s^ements and inven- 
 tions — as canal and river navigation in many parts of the country 
 has been rendered unimportant by the invention of the locomotive 
 and the iron road — but the toAvns themselves, their people and their 
 business, remain as great and sturdy facts, which neither the country 
 can overlook, nor the goverimient of the country, nor any of its public 
 agencies. The continued existence of these towns is to be assumed, 
 and their welfare is to be calculated for ^vhen laws are made, or regu- 
 lations having tlie feffect of laws are established. It would be as inad- 
 missible and as unjust deliberately to plan and arrange for the 
 gradual destruction of a great city through the slow laut certain 
 annihilation of its business, as it would be to bring destruction upon 
 it by fire or pestilence; and we are not to contemplate with compla- 
 cency an offence of that nature against organized society. While it 
 is not the province of government to build up cities for its people, 
 it is its plain duty to permit the cities the people build to live; and 
 it should so shape its own action as to allow every town, as far as 
 possible and reasonable, to avail itself of all^its natural and acquired 
 advantages in adding to the prosperity, happiness and comfort of 
 the local community. This seems too plain and indisputable a propo- 
 sition to be contested by any official authority or public agency. 
 
 In a certain sense railroad com25anies are public agencies, and in 
 some degree they exercise powers which are quasi governmental. 
 They make regulations for their business to which the general public 
 are expected to conform ; and these regulations are, in some respects, 
 as important as the jDolice laws established by the State itself. Among 
 these are the regulations resjDecting charges for railroad service. 
 According as these are heavy or light upon the traffic of a particular 
 locality, its trade is likely to decline or prosper, and so dependent is 
 commerce upon railroads that the growth of a town is likely to bear 
 some proportion to the extent of its railroad facilities, and the liber- 
 ality with which it is treated by railroad managers. 
 
 We should consider then what might be the effect of a strict appli- 
 cation of the cost principle as betweeia the competing Atlantic cities, 
 say, for illustration, tine cities of Baltimore and New York. Balti- 
 more is now a large and prosperous city ; it is the chief business centre 
 of a territory larger than any one of the States, and millions of people 
 find their business favored, and their prosperity and comforts en- 
 hanced by its existence. One of the most costly roads of the country, 
 with extensive connections and feeders, has been created with almost 
 exclusive regard to Baltimore business; and the road will prosper 
 if the city prospers, and lose its importance if the city decays. A 
 great number of private individuals and public and private corpora- 
 tions are interested in the stock and indebtedness of this railroad 
 company, and would be subjected to embarrassment or suffering if 
 
EIGHTH DAY. 89 
 
 it were to be forced into bankruptcy. For all these reasons the welfare 
 of Baltimore is a matter of national importance, and it is so con- 
 nected Avith the trade of the interior that its existence modifies bene- 
 llcially all the markets. But its relations to the foreign trade are also 
 such as to render it important to the whole civilized world. 
 
 But New York has some most decided advantages over Baltimore, 
 of which its people have availed themselves with great ability and 
 energy. The growth of that city has not been checked by the marvel- 
 ous prosperity of other towns, and its relative superiority in both 
 foreign and domestic commerce has been substantially maintained. 
 Though Baltimore is much nearer the grain fields of the West, New 
 York still draws to itself much the larger share of the harvests, and 
 it has done this in spite of the fact that, M'ith temporary and unim- 
 portant exceptions, the differential rates have at all times been 
 largely against that city. Suppose now tliat under an application 
 of the 'cost p]?inciple the differentials could be abrogated; what 
 would be the effect upon Baltimore? "Would it deprive that city of 
 the share in the trade of the country, which its location, its great 
 expenditures and the skill and enterprise of its people have hitherto 
 secured for it? Would it check the growth of the city, sap its pros- 
 perity, and bring ruin upon those everywhere whose business arrange- 
 ments and investments have been made with a view exclusively or 
 mainly to the trade of that city? And if so, would the result be 
 one that the country could contemplate with satisfaction as the just 
 result of the proper application of a sound principle, and that those 
 having influence in railroad affairs could justly and properly plan 
 for, labor for and shape their tariffs to accomplish? 
 
 On the other hand, suppose the strict application of the cost prin- 
 ciple should be found to require, that the differentials against New 
 York should be doubled; would it be admissible to double them 
 irrespective of all consequences to the trade and prosperity of that 
 city? That these consequences might prove disastrous if the prin- 
 ciple could be upheld and enforced, seems certain, for it would give 
 advantages to the town most favorably located for cheap commercial 
 intercourse for which the others could have no compensation. But 
 this very fact — if there Avere no other impediment^would render 
 the application of the principle impossible. A great city possesses 
 great powers of self protection, and it must exercise them to the 
 fullest extent when the need comes. Great railroad corporations 
 cannot, in their rivalrv with each other, accept principles of action 
 which must necessarilv impoverish them. If the Baltimore & Ohio 
 Railroad would lose its business under the application of the cost 
 principle as between it and the roads north of it, it must accept less 
 returns upon its business, and it must continue the struggle even 
 though no more than operating expenses be realized, rather than 
 submit to destruction without an effort at self preservation. This 
 or something like it must be the inevitable result; for neither cities 
 nor transportation companies can or will accept a principle which 
 it can be seen in advance must build up some on the rum o± the 
 
 others. • • , . ,i i 
 
 But when it comes to applving the cost principle to the several 
 lines which serve the same city, it is at once perceived that the 
 difficulties are insurmountable. The application must of course be 
 made on estimates of probable results, and the estimates will have 
 
90 EIGHTH DAY. 
 
 in view a pei'ceiitage of profits which it is exi^ected or hoped will be 
 realized. But with four or more lines of very different length com- 
 peting for the same business, it is evident that cost must have, when 
 applied to their business, very different meanings. If the shortest 
 and cheapest line makes its cliarges on a calculation of say ten per 
 cent, profit, the longest and most expensive must conform to the 
 charges, even though they be such as will insure no profit at all. 
 One company may then carry at a cost which includes ten per cent, 
 profit, another at a cost which includes say two per cent, profit, while 
 a third barely pays its operating expenses and repairs, but still 
 obtains the cost of moving the freight. Competition obliges the 
 companies to take what they can get, and to satisfy the demands 
 upon them from it; but when the cost standard is so uncertain and 
 elastic that it may include profits when they can be earned, and must 
 exclude them when they cannot be, it is evident that it cannot be a 
 standard of general or just application. It is impolsible that any- 
 thing can he a governing principle, which, in the nature of things, 
 cannot have the sa)ne meaning to the several parties who are to be 
 affected by its ajjplication. 
 
 That the cost to the roads themselves of moving their freights, 
 irrespective of profits to shareholders, has much to do in deter- 
 mining the charges is, we think, unquestionable. It certainly must 
 have influence so long as coinpetition between lines exists, for the 
 most economical line may fix rates on a consideration of what its 
 favorable circumstances will enable it to endure, and all others must 
 accept them whether they prove satisfactory or otherwise. One 
 cheap line may thus give to a town the benefits of cheap transporta- 
 tion, not as an application of the cost principle, but because its 
 favorable circumstances enable it to do so consistent with its own 
 interests. 
 
 The idea was not put forward in any of the arguments that the 
 application of the cost principle could be made universal, and that 
 every railroad company should apply it in its own business as between 
 the different kinds and classes of freight. The difficulty in doing 
 this as a mere matter of accounting would be very serious ; but there 
 would be other difficulties which would be more important to the 
 general public. The chief of these would be this: that very many 
 articles would not bear transportation for the very considerable 
 distances for which they are now carried, if the charges upon them 
 were graded strictly by the cost. If their bulk or weight is large in 
 proportion to their value, they must be carried cheaply or they cannot 
 be carried at all ; and freights are therefore classified in the tariffs so 
 that the lighter, but more valuable, articles are made to bear a 
 burden out of proportion to the cost of carriage, in order that the 
 roads which carry them may be enabled at the same time to serve the 
 public in the exchange of articles and products whose value will not 
 admit of like charges. Some discriminations of this sort are essen- 
 tial to enable railroads to answer the expectations and meet the 
 needs of the public. It must often happen, also, that where two or 
 more roads are competing for a particular business, one of them must 
 carry Avhat it gets of it without profit, and must find its profit else- 
 vv'here. If the competition ilnder such circumstances leads to the 
 road carrying one kind of traffic at a loss, which is made up by an 
 increase of burdens on the remainder, a wrong is done of which com- 
 
EIGHTH DAY. 91 
 
 plaint may justly be made; but there is no inherent wrong to any 
 one ma road conveying without profit, but also without loss, a busi- 
 ness which it must accept on those terms or decline altogether. 
 
 THE PRINCIPLE OF COMPETITION. 
 
 If neither distance nor cost gives us the governing principle, we 
 must next see whether we are to find it in competition. In nearly 
 every other kind of business the competition of those engaged in it 
 IS the great regulator of charges, and the operation of natural and 
 familiar laws of trade prevents extortion and brings about substan- 
 tial uniformity. Will competition do this in the business of trans- 
 porting property by rail? If so, is not the competitive principle the 
 true principle ? And will not the competitive principle make cost and 
 distance elements in the determination of rates, and allow to each its 
 just value, according to the circumstances? 
 
 We should be glad to feel able to give to these questions an unhesi- 
 tating answer in the affirmative. We have found, however, in the 
 course of our investigations, that a species of competition has pre- 
 vailed from time to time which has brought satisfaction to few per- 
 sons, if any, and which has resulted in inequalities and disorders 
 greatly detrimental to trade. Such competition exists when the rail- 
 road companies, or those who are permitted to solicit business and to 
 make contracts on their behalf, set out with the determination to 
 withdraw freights from their rivals, and secure them for themselves, 
 at all hazards, and regardless of gain or loss ; and when acting upon 
 this determination they throw to the winds all settled rates, and in the 
 desperate strife for business offer any inducement in their power 
 which will secure it. The country not long since had experience of 
 such a season, and everywhere we listened to complaints of the injury 
 which legitimate business suffered from it. It was said by parties 
 interested in transportation that the inauguration of such a strife 
 put an end for the time to all possibility of calculating from day to 
 day what would be the cost of carriage, and what could be safely 
 paid or wisely accepted for grain, provisions, or other articles, des- 
 tined to another market by rail. The control of railroad rates, and, 
 to a large extent, of all railrbad business, then passed out of the hands 
 of the legitimate and regular corporate managers into the hands of 
 solicitors for fast freight lines and other agents, who made from 
 day to day, and from hour to hour, such terms with those having 
 business as would secure it, but generally made secret terms— that 
 the bargain with one man might not prevent their driving a better 
 bargain with another, as they might find opportunity. 
 
 Under such circumstances persons were favored and localities were 
 favored, when the object to be immediately accomplished seemed to 
 require it— regardless of the just maxims of legitimate business, and 
 of the rules of the common law, which enjoin upon common carriers 
 that they shall deal with all customers upon principles of equity and 
 relative fairness. Legitimate business, it was said, necessarily passes 
 into an unsettled and speculative state while this condition of things 
 exists; safe and close calculations are impossible; transportation 
 becomes cheap, but neither producer nor consumer is certain to reap 
 the profit, for the middleman cannot calculate upon steadiness in low 
 rates, and as he takes the risk of their being raised upon him, so he is 
 
92 EIGHTH DAY. 
 
 in the best position to appropriate the benefit while they continue. 
 Meantime, railroad profits disappear, and dividends cease to be paid, 
 to the great distress of thousands who rely upon them for their living; 
 and every interest, in any degree dependent on railroad prosperity, 
 must participate in the depression and disaster which accompanies 
 the ownership of railroad shares. 
 
 The mere statement of these results is sufficient to show that this is 
 not what in other business is known and designated as competition. 
 Competition is the life of trade, but this is its destruction; competi- 
 tion brings health and vigor, and secures equality and fairness, but 
 this paralyzes strength, and makes contracts a matter of secrecy and 
 double dealing. In competition, the sound dealer, operating upon 
 his own capital and upon well established credit, has the best chance 
 of success; but in the sort of competition we have mentioned, it is 
 found that the bankrupt corporation has the advantage, for its mana- 
 gers, having nothing to lose, may offer rates which solvent roads can- 
 not meet without being dragged into bankruptcy Avith them. Rail- 
 road managers do not concede that this state of things is properly 
 designated competition, but they speak of it as an unnatural condi- 
 tion of railroad hostility; as unreasoning railroad warfare; as com- 
 petitive strife, rather than competition. It is a state of things that, 
 like a war between nations, from its very destructiveness, cannot be 
 a normal condition, but must speedily terminate in peace or in disas- 
 ter. It has usually been terminated by some common understanding 
 between railroad managers upon a tariff of rates. 
 
 But this common understanding, it is urged, in some quarters, 
 eliminates competition from the sphere of railroad business, and we 
 escape the evils of competitive strife by embracing those of monopoly. 
 This is denied by railroad managers, who insist that understandings 
 respecting the reasonable management of their business are not only 
 entirelj^ consistent with competition, but that they are the only means 
 whereby the excessive competition at some points can be prevented' 
 from operating oppressively at others. It is no doubt true that com- 
 petition tends to produce some great inequalities, and that care ought 
 to be taken to prevent this. It should never be forgotten that the 
 transportation of property and persons by railroad is not exclusively 
 a private business, but is carried on und^r franchises granted by the 
 State, which confer upon the oAvners functions of a semi-public nature, 
 and charge them Avith certain public duties. The railroad manager, 
 operating under such a franchise, must harmonize the interest of his 
 road with the public duty, and he cannot make self interest the exclu- 
 sive guide, as a merchant may, or a farmer. One of the chief of these 
 public duties is to make only reasonable charges, and to regulate and 
 apportion these among the customers of the road, on principles of 
 equity and relative equality. But the operation of competition is 
 perpetually in conflict Avith this duty ; it is felt unequally along rail- 
 road lines; it will be active at points Avhere several lines can compete; 
 it will be moderate at others where there is little to excite it, Avhile at 
 still others there can be no competition, because there is but a single 
 road. But the capital of a railroad company is planted on a certain 
 line ; it must be made aA^ailable to its owners tliere or nowhere ; it can- 
 not be remoA'^ed when found unprofitable, as a merchant may remove 
 his stock of goods; and the tendency of excessive competition is to 
 
EIGHTH DAY. 93 
 
 cast upon the business of non-competing points a cost for transpor- 
 tation which puts them to great relative disadvantage, and in extreme 
 cases may prove ruinous. 
 
 The local traffic is likely to experience this result most severely, 
 and the more completely any particular line occupies a territory, 
 the more is the local traffic exposed to peril. The New York Central 
 Railroad with no connections west of Buffalo, would be a mere local 
 road, and must find remunerative returns upon all its immense 
 investments from the local business; as a great through line, it is 
 enabled to cast upon through traffic a part of the burden which local 
 traffic must otlierwise bear; but if under the stress of unreasonable 
 and excessive strife for through freights that class of freights is car- 
 ried at a loss, this loss must either fall upon the corporate share- 
 holders, or it must be cast by the corporation- upon the shippers of 
 local freights. It must be assumed that railroad boards will always 
 seek to so arrange their tariffs of rates as to secure a satisfactory 
 net profit ; and if a part of the business pays too little, the remainder 
 may be made to pay too much. This is not a beneficial result of 
 competition, or one consistent with the obligations of the railroad 
 companies to the public. No one disputes or doubts that for the 
 general public the business of transportation by rail is in the most 
 desirable state when it is so conducted that the charges for moving 
 property are distributed with relative equality over all the business, 
 so that a moderate profit may be reaped from all, and the support 
 of the road, and profits to its owners, not be exacted wholly or mainly 
 from one portion of the business to the exemption of the remainder. 
 But it is only Avhen it is in that state that railroad companies are 
 complying with their common law obligation as carriers. If they 
 are sacrificing the interests of one class of shippers in the reckless 
 strife to obtain the business of another, it is plain that they cannot 
 be dealing impartially or making charges which are relatively just. 
 And certainly no city can be interested in having the trade which is 
 nearest to it, and which is the trade of the people constituting its 
 best and largest customers, sacrificed to the trade with the people 
 at a distance, who deal with it much less. 
 
 It is a fact of which the railroad companies are entitled to the 
 full benefit, that the charges for railroad service have steadily de- 
 clined, even when the railroads have been so conducted as to avoid 
 competitive strife. Mr. Poor, in his sumjnary of railroad operations 
 for the year 1881, prepared for his Manual, gives some striking fig- 
 ures on the subject of rates, and shows that within a quarter of a 
 century, the average charges for the transportation of property on 
 three of the great railroad lines of the country have been reduced 
 more than seventy per cent., and that the reduction has continued to 
 go on until the present day." Some of the reasons for the reduction 
 
 o " The internal commerce of the country, in all its vast magnitude, is a direct 
 creation of our railroads, through the reduction they have efiEected in the cost 
 of transportation. A good example of their method, and of its results, is 
 afforded by the operations of the New York Central & Hudson River Railroad. 
 In 1855, immediately after its consolidation, this road moved 670,-073 tons of 
 freight at a charge of $3,758,320, and at a cost of $1,539,912; the net being 
 $2,215,408. The tons moved one mile equalled 114,827,793; the charge was 
 3.270 cents ; the cost, 1.341 cents ; the net, 1.929 cents per ton per mile. 
 
 "In 1881 the same road moved 11,591,379 tons of freight at a charge of 
 $20,736,750, and at a cost of $14,913,213 ; the net being $5,823,537. The number 
 
94 EIGHTH DAY. 
 
 are traceable to competition and some not. The growth of railroad 
 business has kept pace with the reduction of the charges upon trans- 
 portation, and the two have acted and reacted upon each other as 
 cause and effect. When the merchandise or products of one section 
 of the country, for which there was a demand in another, would not 
 bear transportation at existing rates, the railroads have been com- 
 pelled to reduce the rates as a necessary condition to obtaining the 
 property for carriage: and the reductions which are made in some 
 cases from necessity are made in others from policy, because it is 
 found that they stimulate industry, build up manufactures, and 
 bring profits to the railroad companies in the great increase of btisi' 
 ness which is thereby prepared for them. 
 
 In all these cases the common interest of railroad companies 
 requires that thej;^ should yield to anj' public demand for the reduc- 
 tion of rates so long and so rapidly as they find they can do so with 
 justice to their shareholders; and they have generally found that the 
 net lesults were such as from a selfish standpoint would fully justify 
 the reductions. Common understandings between railroad companies 
 in many such cases might tend to equalize and steady the rates, but 
 would be grossly impolitic and unreasonable if they were directed to 
 the maintenance of such freight charges as would operate as a check 
 upon transportation, and therein' reduce their own net revenues. 
 
 of tons m(ivt-(l one mile eciuallerl 2,i!4('.,S14,O0.S; the cliarge was .780 cents; the 
 cost, .'jtV2 ceut.-i ; the net, .2ls cents per ton per mile. 
 
 "At the rate of IfS.'i.", the charge for moving a ton of wheat from Chicago to 
 New York, a distance of 900 miles, was ;??.1.3i); in 1881, $7.51. The actual 
 charge for the latter year for this kind of freight did not probably exceed $4 the 
 ton — the charge for freight in bulk on the long haul being much below the gen- 
 eral average. It is certain that each year the railroad charged the freight 
 tralfie over it all it would bear. It had to meet a most vigorous competition 
 from every Quarter. It had to meet the exigency of the farmers of the extreme 
 West, so that the \i'heat grower, first on the Jlississippi River and then on the 
 MisBoul'i, nearly 2,000 miles In the interior, could send, at remunerative rates, 
 his produce to market, foreign as well as domestic. Charges for transportation 
 had to be, as they always must be, in in^-erse ratio to distance, or a limit would 
 soon be reached beyond which freight, from excessive cost, could not be moved. 
 It is with railroads as with all other kinds of business, the charges and pMces 
 must be so graduated as to allow a profit on both sides, and they will always 
 be so graduated. Charges have been reduced to rates that wete believed to be 
 impossible a few years ago. In 1872 it cost the New York Central 1.129 cents 
 to move a ton of freight one mile, tn 1881 It received only .783 cents for a 
 similar service, or .34i3 cents less than the cost ten years before. Such is the 
 histor,y of railroad transportation, and such the methods by which the enor- 
 mous toimage, and with it the internal commerce of the country, now so colossal 
 in its proportions, has been created. In its reduction of charges the Central 
 Railroad onlv represents the entire sj-stem of the countrv. The New York, 
 I.nke lOrie & Westei'n Railroad, ih isn.l, moved 842,055 tons of fl-eight at a 
 cliarae of 2.424 cents, ahd at a cost of 1.155 cents per ton pep mile. In 1881 it 
 moved 1].()8(i,82.S tons at a charge of .805 cents, and at a cost of .529 cents per 
 ton j)er mile. Had it charged as much per mile in 1881 as it did in 1855, its 
 receipts from freight would have been .?47,101,S11, iu pjaee of $5,473,313, the 
 amount actually received. The Pennsylvania Railroad moved, in 1855, 865,006 
 tons of freight at a charge of 2.746 ceuts, and at a cost of 1,(502 cents per ton 
 per mile. In 1881 it moved lS,229,3bo tons at a charge of .799 ceiits, and at a 
 cost of .437 cents per ton per mile. Had it charged the same rates in 1881 that 
 It did in 1855, Its I'eceipts for the past year would have been $73 195 832, in 
 place of )P10,801,080, the amount actually recened. The charge in 1881 WJis 
 .87 cents less than llie cost of movement in 1872, The result of reduced charges 
 is seen In the eliormou.s Increase of freight and of income— quantitv making 
 up for reduced rate of profits." 
 
EIGHTH DAT. 95 
 
 But there are influences bearing upon the charges for the trans- 
 portation of property which are beyond the reach of the railroad 
 companies altogether^ and which no combination among them can 
 control. The transportation of the products and merchandise which 
 the different sections of the country exchange with each other is onlv 
 in part in railroad hands, and the carriers by rail are at all times sub- 
 jected to a competition which is not only active and vigilant, but is 
 possessed of some most important advantages. It will readily be 
 inferred that we allude here to the carriers by water. For the whole 
 distance from Chicago to New York the owners of boats on lake and 
 canal are bidding against the railroads for freights. Much of the 
 time they are offering rates which the railroads cannot meet without 
 loss, and during the season of water carriage they would take away 
 from the railroads nearly all the heavj^ freights, "if it were not that 
 the more rapid transit by rail has some advantages of which shippers 
 find it for their interest in many cases to a^-ail themselves. But even 
 with these advantages the railroads find themselves compelled to 
 make their charges approximate the charges of carriage by water, or 
 the great bulk of heavy freights will inevitably take the water route. 
 Thus the competition by water operates in reduction of railroad tar- 
 iffs, and no understanding among railroad managers can prevent it. 
 When the Erie canal is closed for the winter the railroad companies 
 are enabled to advance their charges; but even in the winter they 
 feel the competition of the water route ; for excessive charges will not 
 be paid, but grain, flour, provisions and other heavy articles, instead 
 of going forward by rail at what seem to shippers extortionate rates, 
 will be placed in store until the water route is again open. Xor is 
 the competition with the water route felt exclusively by the roads to 
 New York ; for unless the seaports to the south afford better markets 
 for western products than is found at Xew York, which they «eldom 
 or never do, the roads leading to them will be cut off from carrying 
 these products if their charges are made to exceed the charges to 
 New York. The favorable influence of the water route upon rates is 
 therefore felt all the way to the Ohio and the Potomac, and the maxi- 
 mum of rates is fixed for all the roads by the roads to New York, with 
 which the water route comes most directly and immediately into 
 competition. 
 
 Under the competitive principle, a maximum of rates is thus estab- 
 lished, and the railroad companies cannot prevent it, whatever may 
 be their desire. But distance, cost, and many other circumstances 
 may then come in to force still lower rates on the lines to the cities 
 south of New York. If it is found that the roads leading to Balti- 
 more will not obtain a reasonable share in the business without offer- 
 ing better rates than are given to New York, such rates will certainly 
 be offered. They will submit to the rates which give Ihe business to 
 other cities only until the trial proves the prejudicial operation. And 
 when they reduce their charges, it will be optional to the New 1 ork 
 roads to follow the Baltimore lead, and they may no doubt be relied 
 upon to do so if their interests appear to require it. . , , 
 
 But another most important factor in regulating freight charges 
 is the export trade. . ■ j: 
 
 The prices of the leading American products, in the carriage o± 
 which the railroads compete most actively, are fixed in European 
 markets. These products should net to the producer in the American 
 
96 EIGHTH DAY. 
 
 market the foreign price, less reasonable charges for transportation 
 and handling; and he is interested in having the trade open to the 
 competition of as many buyers, and the transportation to that of as 
 many carriers as possible. Of the Atlantic cities which compete for 
 this trade Baltimore and Philadelphia are nearest to the producer, 
 but New York and Boston are nearest to the foreign market. Much 
 is shipped to each of these cities for home consumption, but the 
 major part of all that they receive is destined to a foreign market. 
 Some of it passes from "Western towns on through bills of lading to 
 foreign ports, but the most of it is consigned to the merchants of the 
 Atlantic cities, and is reshipped by them. Except at Boston, it has 
 been found impracticable to distinguish between that intended for 
 home consumption and that for foreign shipment ; and, therefore, no 
 discrimination in freight charges is attempted, but all is charged as 
 if destined to a foreign market. But when so treated, the Atlantic 
 cities become merely so many points on so many through routes 
 between the interior of the country and the European ports, and the 
 charges on shipments must regard the whole lines and not parts of 
 them merely. On these several through lines, competing for the same 
 business between the same interior American towns and the foreign 
 ports, the whole charges, if the routes are equally favorable, must 
 be substantially the same, or the one giving the best rates would 
 obtain the business. The question of ocean rates must, therefore, have 
 an important bearing on the inland rates; for if the ocean rates are 
 greater from Baltimore to foreign ports than from New York to 
 the same ports, the inland rates to Baltimore must necessarily be 
 lower, or Baltimore will be excluded from the trade. Turning our 
 attention, then, to the ocean freights, we find that during the year 
 1881, from Baltimore to Liverpool by steam and sail, they averaged 
 nearly three cents per hundred pounds greater than from New York, 
 and from Philadelphia nearlj? two cents greater. This is not con- 
 clusive of what they might be in another year, but it is indicative of 
 a general condition of things. Besides this advantage in the ocean 
 freights the New York route has a further advantage in the somewhat 
 greater expedition. If, therefore, the railroads to Baltimore and 
 Philadelphia were to charge for the inland carriage the same that is 
 charged to New York, they must do so with the certain result of 
 losing their present participation in the export trade. They must, 
 therefore, of necessity, make their average inland rates at least as 
 much lower than the inland rates to New York as will offset the differ- 
 ences in the oce*n freights. This follows under the sway of competi- 
 tion from the same necessity which forces upon two merchants trading 
 side by side in the same articles a concurrence in the same prices. 
 Attempts by agreement or otherwise to counteract this law oi com- 
 petition would be of little avail, and of no avail whatever for any 
 great length of time. All the leading articles of eastern bound freight 
 would be affected by this principle, and this would be so large a pro- 
 portion of the whole as to govern the charges on all. 
 
 The differentials then appear to us to find their reason in competi- 
 tive forces. A brief reference to their history will show that com- 
 pact has not succeeded in controlling them. 
 
 In 1869 there was an agreed difference in favor of Baltimore in the 
 rates for the transportation of grain, of ten cents per hundred pounds. 
 
EIGHTH DAY. 97 
 
 But the effort to sustain this difference led to a war of rates, as a 
 result of which it was reduced one half. This lesser difference was 
 maintained until 1876, when an agreement was entered into by the 
 Trunk Line roads which based the rates on relative distances. But 
 at the end of a month and a half the Xew York roads withdrew from 
 this agreement, being satisfied that its operation was prejudicial to 
 their interests. Then followed another war of rates, ending after a 
 long struggle in the differentials now existing. The war of rates of 
 1880 was entered into to get rid of them, but it proved ineffectual, as 
 before stated. They appear, therefore, to abide the tests of competi- 
 tion, and they have come, as prices generally do, under the exigencies 
 of trade. 
 
 But it is, of course, possible that differentials may be just at one 
 time and unjust at another ; and it is insisted on behalf of New York 
 that, whatever may have been the case heretofore, the existing differ- 
 entials are no longer just to that city, and are no longer such as would 
 result from a competition not hampered and restrained by railroad 
 combinations. For evidence of the injustice, we are referred to sta- 
 tistics, which show that the growth of Baltimore and Philadelphia 
 trade, especially in grain and provisions, has in late years gained 
 rapidly on that of New York. This, it is said, is proof that the dif- 
 ferentials operate against New York interests, and the New York 
 roads ought to abolish them by reducing their own rates until they 
 conform to the rates on the lines leading to Baltimore and Philadel- 
 phia. This, it is insisted, is what fair competition requires. 
 
 It might, perhaps, be a sufficient answer to this demand, that the 
 attempts heretofore made to force equality of charges, though long 
 persisted in, with no small loss to the participants, proved unavail- 
 ing. But passing that fact without further remark, we direct our 
 attention to the cAddences that New York has suffered froni the differ- 
 entials. These we have not found of much weight. It is certainly 
 true that Baltimore and Philadelphia have now a larger share in the 
 grain and provision traffic than they had fifteen years ago; but it 
 remains to connect the fact with the existence of the differentials. 
 For a long time New York nearly monopolized that trade; but the 
 reasons were obvious in its better channels of communication with the 
 interior, and its greater preparations to accommodate it. When Bal- 
 timore and Philadelphia had extended their railroad systems, so as to 
 compete for the trade, and had provided elevators and other conven- 
 iences, they immediately took a share in the business; not because of 
 the differentials, but because they were then prepared for it. But no 
 evidences were produced before us that the Philadelphia and Balti- 
 more business, to which the differentials are applicable, is now increas- 
 ing more rapidlv in proportion than that of New York, or that the 
 growth of New York business is to any extent checked by them. On 
 the contrary, there is abundant evidence that New York is fully main- 
 taining its "present lead, and that its trade is enjoymg a growth so 
 healthy and vigorous, that its commercial classes can well afford to 
 regard, without enw or reeret, the prosperity of other places, and 
 may well concede to them, without repining, all the advantages which 
 have come to them as a result of competitive efforts. The accompany- 
 ing note will show the relative proportion of the total receipts ot 
 grain and flour at the four Atlantic ports which was received at each, 
 
 8 D — 05 M 7 
 
98 
 
 EIGHTH DAY. 
 
 and it will appear from the figures, that \ew York, during the last 
 eighteen months, has gained on the others."* How far ephemeral 
 causes have contributed to this gain we cannot know, but it is mani- 
 fest that the evidence that Ne\v York suffers from the differentials 
 does not yet appear. 
 
 As the' interior is interested in the subject of differential rates, and 
 as the sharpest competition in freights is encountered there, so that 
 its commercial classes are in favorable position to judge of the forces 
 affecting them, it has seemed to us no weak evidence of the justice 
 and necessity "of the differentials that the preponderating sentiment 
 in the interior was strong and decided that the differentials were just. 
 There was, indeed, some dissent, but this was the prevailing view. 
 
 In our discussion thus far, we have had but little to say of the case 
 of Boston, or of the westward bound freights. As to the latter, some 
 of the considerations above mentioned would not apply, but the differ- 
 ences are not sufficient, as we think, to relieve New York westward 
 bound freights from the differentials. We were not invited by the 
 commercial organizations of Boston to visit that city, and we re- 
 frained for that reason from doing so. We have reason to suppose 
 that the seeming want of interest in Boston in the subject referred 
 to us was due to the fact, that no one seemed disposed to make ^ny 
 controversy in respect to the rates to that city. Boston claims the 
 same rates with New York on the export trade, and the other cities 
 do not appear inclined to contest the claim. This makes the charges 
 less on foreign bound freights than upon those delivered in Boston 
 and other New England towns for home consumption; and to that 
 extent works an apj^arent injustice. If the low charges on foreign 
 bound goods have the- effect to increase the charges on freights for 
 home consumption, it is an injustice in fact; but if not, and the Bos- 
 ton roads consent to carry at the low rates as a necessary condition to 
 participation in the foreign trade, the other cities cannot well contest 
 their right to do so. As the ocean freights from Boston correspond 
 very closely to those from New York, the principle already stated is 
 applicable; and Ave have no occasion to consider the case of Boston 
 separately. 
 
 COXCLUSIOX. 
 
 It only remains for us to state that no evidence has been offered 
 before us that the existing differentials are unjust, or that they oper- 
 ate to the prejudice of either of the Atlantic seaport cities. Differ- 
 ential rates have come into existence under the operation of competi- 
 tive forces; thej' bear some relation to relative distance and relative 
 cost of service; they recognize as we think the relative advantages 
 of the several seaports; and they are subordinate to the great prin- 
 ciple which compels the carriers of property competing between the 
 
 
 1878. 
 
 1879. 
 
 1880. 
 
 1881. 
 
 1882(6 
 mo.). 
 
 a New York ,., 
 
 .56 
 10 
 16.7 
 17.8 
 
 52.6 
 10.6 
 1.5.3 
 21.5 
 
 53.5 
 11.7 
 15.6 
 19.2 
 
 56.5 
 14.3 
 
 n.7 
 
 17.5 
 
 62.9 
 
 
 IB 8 
 
 Philadelphia 
 
 11.6 
 
 
 8 7 
 
 
 
 
 100 
 
 100 
 
 iro 
 
 100 
 
 100 
 
EIGHTH DAY. 99 
 
 same points and offering equal facilities to their customers, to make 
 the same rates. We therefore cannot advise their being disturbed. 
 
 But we do not assume that the rates which are just to-day will be 
 just indefinitely. They have become established by the force of cir- 
 cumstances, and they ought to give way if future circumstances shall 
 be such as to render it right and proper. They constitute a tem- 
 porary arrangement only ; equitable, as we think,'for the present, but 
 which may become inequitable before the lapse of any considerable 
 time. Whenever they shall be found to operate unfairly, and to give 
 a forced or unnatural direction to trade, and whenever it shall appear 
 that they tend to deprive any one of the seaports affected by them of 
 the proportion of business that would naturally come to it "under the 
 operation of normal competition, the want of equity in the rates will 
 appear, and it will be right to modify, or, perhaps, abolish them. 
 
 Railroad problems assume such different phases from year to year, 
 and almost from day to day, that those who have authority in railroad 
 matters may justly be expected and required to give their earnest 
 attention and best efforts to making their franchises accomplish the 
 great ends of equal, fair, prompt and beneficial accommodation which 
 was intended in their grant. And those ends they should have in 
 view in determining upon the continued existence of differential rates. 
 Their observation of the general course of traffic from day to day and 
 from month to month ought to enable them to determine whether the 
 differentials are too large or too small; whether they are influencing 
 trade unfairly and unnaturally ; and whether they operate as an 
 improper restraint upon competition; and when the improper effect 
 is discovered, they ought to correct the wrong without hesitation or 
 delay. To enable them to judge fairly and with full understanding, 
 accurate statistics of tlieir business should be kept by each of them, 
 and submitted to the others or kept in some- common office ; and these 
 statistics ought to be periodically given to the public also. Publicity 
 is a great corrector of imaginary evils, and may be an important pre- 
 ventive' of evils, both imaginary and real. 
 
 We do not assume or believe that there exists in railroad official 
 circles any legitimate authority to determine the question of rates 
 arbitrarily. Large powers of self government have, undoubtedly, 
 been left by the law in railroad managers, but all their authority is 
 qualified bv dutv to the public; and it cannot be too often or too 
 pointedly asserted that the obligation on their part to serve the public 
 with relative fairness is of perpetual forcft In their future dealings 
 with the important question Avhich has been the occasion for our 
 coming together, the great Trunk Lines should be particularly careful 
 to give no occasion for just complaint, that they subject any one of 
 the seaboard cities to the operation of arbitrary or unfair regulations 
 or charges, or that they fail to observe towards any one of them, or 
 towards the people trading or desiring to trade with them, the man- 
 date of the common law— to deal justly and distribute fajrly the 
 benefits and burdens which are incident to their occupation. 
 
 Allen G. Thurman, 
 E. B. Washburne, 
 Thomas M. Cooley, 
 Xew York, July 20, 1882.. 
 
100 
 
 EIGHTH DAY. 
 
 By order of the committee the following tables are printed as part 
 of to-day's proceedings, in connection ■\^'ith the statement of Mr. 
 James C. Lincoln: 
 
 Western classification. 
 
 1900 
 
 1901 
 
 1902 
 
 1903 -- 
 
 1904.. 
 
 1905 (to Apr. 1) 
 
 Reduc- 
 tions. 
 
 Ad- 
 vances, 
 
 37 
 125 
 103 
 105 
 118 
 
 48 
 
 534 
 
 16 
 
 168 
 
 173 
 
 45 
 
 64 
 
 495 
 
 New. 
 
 109 
 277 
 180 
 195 
 214 
 53 
 
 1,028 
 
 Total. 
 
 168 
 
 670 
 
 345 
 396 
 128 
 
 2,057 
 
 Year. 
 
 Per cent of 
 expenses 
 to gross 
 earnings. 
 
 Gross earn- 
 ings. 
 
 Operating 
 expenses. 
 
 Net earn- 
 ings. 
 
 1904. 
 1903. 
 1902. 
 1901. 
 1900. 
 1899. 
 1898. 
 1897. 
 
 69.6 
 68.3 
 66.8 
 64.4 
 65.7 
 69.9 
 71.7 
 70.3 
 
 143,693,616.56 
 43,09.5,768.60 
 37,495,687.62 
 36,661,093.56 
 32,292,287.05 
 28,079,820,14 
 26,744,822.56 
 24,805,4,51.21 
 
 $30,406,040.78 
 29,415,003.76 
 26,043,190.81 
 23,615,514.52 
 21,203,394.33 
 19,632,113.30 
 19, 172,. 568. 26 
 17,454,111.84 
 
 $13,287,575.78 
 13,680,764.84 
 12,452,496.81 
 13,045,579.04 
 11,088,892.72 
 8,447,706.84 
 7.572,264.30 
 7,351,3:«.37 
 
 1904 
 
 Average rate pci 
 
 ton per mile. 
 
 (a) 
 
 1903 
 
 
 
 , 0. S22 
 
 1902 
 
 
 
 .807 
 
 1901 _ 
 
 
 
 .82.5 
 
 1900 
 
 
 
 . S,-i4 
 
 1899 
 
 1898 
 
 
 
 .844 
 
 1897 ___ _-_ 
 
 
 
 .843 
 
 Percentages of the freight tonnage. 
 
 Commodity. 
 
 1904. 
 
 1903. 
 
 1902. 
 
 1901. 
 
 1900. 
 
 1899. 
 
 1898. 
 
 1897. 
 
 Product of forest; 
 
 13.9 
 6.9 
 
 13.9 
 6.1 
 
 13.2 
 6.2 
 
 13.8 
 6.7 
 
 13.5 
 7.6 
 
 
 13.5 
 8.3 
 
 13.2 
 
 
 8.6 
 
 
 
 Total 
 
 20.8 
 
 20.0 
 
 19.4 
 
 20.5 
 
 21.1 
 
 
 21.8 
 
 21.8 
 
 
 
 Animals and animal products: 
 
 4.4 
 
 .7 
 
 4.2 
 
 .7 
 
 4.3 
 
 .8 
 
 SI 
 
 5.5 
 1.3 
 
 
 6.2 
 2.0 
 
 7.2 
 
 other articles 
 
 2.0 
 
 
 
 Total : 
 
 5.1 
 
 4.9 
 
 5.1 
 
 5.8 
 
 6.8 
 
 
 8.2 
 
 9.2 
 
 
 
 Agricultural products: 
 
 11.3 
 1.5 
 6.3 
 
 14.0 
 1.6 
 6.4 
 
 12.9 
 1.9 
 6.9 
 
 16.3 
 1.8 
 5.8 
 
 16.6 
 1.9 
 5.9 
 
 
 15.2 
 2.6 
 
 5.7 
 
 17.7 
 
 Cotton ^ 
 
 2.5 
 
 Other Articles 
 
 6.0 
 
 
 
 Total... 
 
 19.1 
 17.6 
 20.8 
 16.6 
 
 22.0 
 16.8 
 19.1 
 17.4 
 
 21.7 
 16.6 
 19.9 
 17.3 
 
 23.4 
 
 11.8 
 17.8 
 20.7 
 
 24.4 
 10.7 
 17.2 
 19.8 
 
 
 23.5 
 
 12.1 
 18.4 
 16.0 
 
 26.2 
 
 
 11.9 
 
 Coal 
 
 17.6 
 
 Miscellaneous . 
 
 13.3 
 
 
 
 a Earnings per ton revenue freight : 
 
 1904 - 1. 95032 
 
 1903 2. 02978 
 
 Decrease, 3.9 per cent. • 
 
EIGHTH DAY. 
 
 101 
 
 Eaniitiffs per carload in tranaportinri grain an compared irilli earnings in 
 
 transporting cattle. 
 
 Corn. 
 
 Wheat. 
 
 Cattle. 
 
 Kiowa to Kansas City 
 
 Kiowa to St. Louis 
 
 Wioliita to Kansas City 
 
 Wichita to St. Louis 
 
 Pueblo to Kansas City 
 
 Pueblo to St. Louis 
 
 Amorilla, Tex., to Kansas City 
 
 Amorilla, Tex., to St. Louis 
 
 Port Wortb, Tex., to Kansas City . 
 
 Fort Worth, Tex., to St. Louis 
 
 Prom Kansas City — 
 
 Grain to New Orleans 
 
 Horses to New Orleans 
 
 Cents. 
 U 
 22 
 12 
 20 
 25 
 33 
 29i 
 
 22i 
 
 $70.00 
 110.00 
 60.00 
 100.00 
 125.00 
 165.00 
 147.50 
 
 Cents. 
 76 
 25 
 
 Ml 
 
 25 
 34 
 
 112. .50 
 
 100.20 
 
 19 
 
 $80.00 
 125.00 
 72.50 
 117.50 
 125.00 
 170.00 
 
 Cents. 
 20 
 28J 
 15 
 
 31 
 33 
 341 
 
 42i 
 36l 
 42* 
 
 114.00 
 
 $50.00 
 71.87 
 37.50 
 59.37 
 74.40 
 79.20 
 86.25 
 
 91.25 
 
 110. TO 
 
KEGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 NINTH DAY. 
 
 Friday, April 28, 1905. 
 
 The committee met pursuant to adjournment. 
 
 Present : Senators Elkins (the chairman) , CuUom, Kean, Foraker, 
 Clapp, ^lillard, and Newlands. 
 
 Senator CtrLLOM. Mr. Chairman, Senator Dolliver is detained at 
 home b3' the very severe illness of his father. On that account he 
 can not be here this morning. 
 
 CONTINUATION OF STATEMENT OF MR, JAMES C. LINCOLN. 
 
 The_ CI-IAIR?^rA^^. You may proceed with what you have in hand, 
 Mr. Lincoln. 
 
 Mr. LiNC0L?f. In the notes that I left- with the secretary, under 
 the head of " Export rates," in the fifteenth line, the word " not " 
 should be eliminated, as it changes the sense entirely. 
 
 The Chairman. You will have a chance to correct your statement 
 if you desire. 
 
 Senator Clapp. I suggest, however, that before his testimony is 
 printed he gets the right word in the right place. 
 
 The Chairman. You can make that correction now if you desire. 
 
 Mr. Lincoln. That is th,e only correction I have to make. The 
 sentence should read : " Rates must be established which will move 
 the grain from the States referred to," the word " not " having been 
 eliminated. 
 
 Senator Kean. Senator Foraker asked you a question yesterday 
 in regard to a case that was before the Supreme Court of the United 
 States. 
 
 Mr. Lincoln. That inquiry was with relation to the case of the 
 
 Missouri Pacific Eailway v. The United States, and the response I 
 
 have received from our counsel who handled that case, Hon. J. H. 
 
 Richards, of Fort Scott, Kans., is as follows : 
 
 April 27, 1905. 
 
 I. C. LlNCOLl^, 
 
 General Freight Agent Missouri Pacific, Washington, D. C: 
 Tour message this date. The sole question, in the case referred to, being one 
 of jurisdiction under the law prior to the Elkins amendment, and the contention 
 of the Missouri Pacific Company that the court had no jurisdiction being by 
 the Supreme Court sustained, and the conditions having meantime changed, 
 the GoTernment has not attempted to take further action, and there remains 
 nothing for the defendant company to do. 
 
 J. H. RiCHAEDS. 
 
 9i^05M_i ^ J NEWCOMB, ' 
 
 LAWYER 
 
 WASHINGTON, ■ D. C. 
 
2 NIKTH DAY. 
 
 Senator Foraker. Who is J. H. Eichards? 
 
 Sfr. LiNCOLN^. He is general attorney of the Missouri Pacific Eail- 
 way in Kansas, his home being at Fort Scott, Kans. 
 
 Senator Foraker. I call attention to the fact that the courts below 
 held that there was no jurisdiction to entertain the proceeding that 
 had been instituted under the law as it stood at the time when the 
 suit was commenced. The Supreme Court agreed with the courts 
 below in that respect, but found that in the meanwhile the Elkins 
 law had j^assed ; that one provision of the Elkins law was that pend- 
 ing cases should '" be prosecuted to a conclusion and such rights 
 enforced in the manner heretofore provided by law and as modmed 
 by the provisions of this act," and they held that, under the provi- 
 sions of the P]lkins law, the suit, although not originally one that 
 the court had jurisdiction of, had become, by virtue of that law, one 
 proper to be prosecuted, and they ordered as follows: 
 
 The decree oi: the circuit 'court of appenls is rever.sed ; the decree of the 
 circuit court is also reversed, and the cause is remanded to the circuit court for 
 further proceedings in conformity with this opinion. 
 
 The " further proceedings in conformity with this opinion " would 
 be to inquire into the question of fact, whether or not there was a 
 discrimination that was unlawful in allowing a lower rate to Omaha 
 for a longer haul than was allowed to Wichita, the shorter haul; 
 and I supposed when the case went back with that order from the 
 Supreme Court it would be proceeded with, but, as I understand, 
 nothing has been done. 
 
 Assuming now that the case is at an end, as this telegram indi- 
 cates, can you tell me what the trouble was about rates from St. 
 Louis to Wichita and St. Louis to Omaha, respectively? 
 
 Mr. Lincoln. I can only state in a general way mj understanding 
 of the case. 
 
 The traffic department was not brought into the case, because it 
 was being taken up along legal lines only, as to jurisdiction and 
 other questions of law, in which our department would not be in- 
 volved. But the particular complaint was to the effect that the 
 Missouri Pacific Railway Company was charging higher rates from 
 St. Louis to Wichita, Kans., than they were charging contemporane- 
 ously from St. Louis to Omaha, Nebr., and, as I recall, it was based 
 upon the third section of the interstate-commerce act, as to discrimi- 
 nations between localities, the allegation being that cost of service 
 and transportation and the general conditions as to the carriage of 
 property were very similar in movement from St. Louis to Omaha 
 as compared with the movement from St. Louis to Wichita. It 
 would have been necessary for the company to show that the service 
 was different, also that there were dissimilar circumstances and con- 
 ditions surrounding the movement of the business to the two points. 
 
 I do not know whether you want at this time an expression from 
 me on that point — as to the reason ^v\\J we did it. 
 
 Senator Foraker. I suppose it is an established fact that nothing 
 was done, although the finding of the court, to use its own language, 
 was that- 
 Very much higher rates were charged from St. Louis to Wichita, a distance 
 of 4.58 miles, than were charged by the same company over the same line from 
 St. Louis to Omaha, a distance of 501 miles. 
 
NINTH DAY. 3 
 
 In Other words, there was the long and short haul question. Can 
 you tell us why that was? I speak of that because it is a reported 
 •case, one upon which the court has passed, and an explanation of 
 that apparent discrimination may reflect some light on the question 
 we are investigating. 
 
 Mr. Lincoln. The long and short haul clause was not really in- 
 volved m the Wichita case, because the lines diverge. Traffic handled 
 by the Missouri Pacific from St. Louis will pass over the same line 
 as far as Pleasant Hill, Mo., or as far as what is known as •' Kansas 
 City Junction, Mo.," just outside of Kansas City. There the 
 traffic will diverge. In going to Wichita it goes to the southwest, 
 but m going to Omaha it passes through Kansas City, Atchison, and 
 up the Missouri River a little west of north. 
 
 Senator Foeakee. But the diverging lines belong to the Missouri 
 Pacific. 
 
 Mr. Lincoln. It is all Missouri Pacific service. 
 
 Senator Cullom. Let me ask, for information. Did the Commis- 
 sion have any control of this case after it was decided by the Supreme 
 ■Court, or had control passed from the Commission entirely ? 
 
 Senator Foeakee. The suit Avas brought by the United States dis- 
 trict attorney for the State of Kansas, upon the request of the Inter- 
 state Commerce Commission, and upon the charge that there was an 
 unlawful discrimination in making a higher charge for carrying 
 -freight from St. Louis to Wichita than for carrying«freight from St. 
 Louis to Omaha. 
 
 Senator Culloji. The case then had passed out of the hands of the 
 Commission into the hands of the court ? 
 
 Senator Foeakee. Yes; the district attorney took charge of it. 
 But the point I had in mind about the matter, and ^^hich it seems to 
 me it is proper to make if the case is to receive any further considera- 
 tion, is that under the Elkins laAv, after the Supreme Court held'that 
 that law ap]3lied to the case and that the court had jurisdiction under 
 this law to prescribe this identical proceeding, and sent it back for 
 that purpose, either the Commission or somebody else, if there was a 
 wrong being committed, should have gone on Avith the prosecution of 
 the case. Mr. Richards says in the telegram, I believe, that conditions 
 liad changed. Plare the rates been changed? "^^^lat is meant by 
 that? 
 
 Mr. Lincoln. I had intended to say something about that par- 
 ticular case further along. But I will say now that that case was 
 really 'instigated by the city of ^Vichita. The people of that city 
 were complaining of the rates into Wichita as compared with the rate 
 to Omaha under the third section. Since then, and in fact before 
 that time, decisions have been rendered Avhich recognize dissimilar 
 circumstances and conditions. The Missouri Pacific Piailway Com- 
 pany, in operating from St. Louis to Omaha, does operate through 
 Kansas City, Atchison, and jobbing points located on the Missouri 
 River. The Missouri River is the basing line, as is the Mississippi 
 River, on nearly all the traffic passing from the East to the West. 
 The Missouri Pacific is the long line from St. Louis to Omaha, the 
 short line being the Wabash, the Burlington being next, figuring from 
 St. Louis. But the rates from Port Madison, Davenport, Clifton, and 
 Burlington are the same to Omaha as from Mississippi River points. 
 In other words, the rates from the Mississippi River cities, from St. 
 
NINTH DAY. 
 
 Louis on the scuth to Davenport on the north, are the same to Omaha 
 and Kansas City. They have to Ije the same because certain lines,, 
 starting from Davenport and going to Kansas City, in handling 
 business from the East, have to come m competition with lines operat- 
 ing through St. Louis. ATe might withdraw the Missouri Pacific- 
 road entirely from the Omaha traffic and the rates would be there just 
 the same. In adopting the rates, they are the rates that have been 
 established by other lines over che shorter hauls across the State of 
 Iowa. The distance really that we have to contend with is the short 
 line from Davenport to Council Bluffs. 
 
 Senator Foeakek. I understand that. There are only two points 
 I wanted to find out about : One was whether or not anything what- 
 ever had been done in the case after it was remanded, and I under- 
 stand now that nothing has been done; and, secondly, whether the 
 rates had in fact been changed. This telegram says, " The conditions 
 having in the meantime changed." Was there any change in the rate? 
 
 ]Mr. L;:s-coLN. I think Judge Ilichard, in his telegram, does not 
 refer to rates. I think he refers to other conditions. The general 
 rates complained of have not changed materially since that suit was 
 brought. 
 
 Sen;) tor Foraker. Assuming that to be true, are they still com- 
 plaining, or are the people of Wichita satisfied? 
 
 jlr. LixcxiLN. Thoy are not entirely satisfied. They have not com- 
 plained reeentlj'of the through rates. Thej' have complained of the 
 rates on some commodities, but they have asked and they have been 
 undertaking to secure readjustments in the wa}' of jobbing rates out 
 of Wichita rather tjian rates into Wichita, and noAV the sugar case 
 I referred to. 
 
 Senator For^vker. Ha^'e thej' been renewing this particular com- 
 jplaint ? 
 
 Mr. L1NC01.N. Xo, sir; they have not. They did bring up the 
 sugar case; that was brought in November of 1904. That sugar 
 adjustment was involved in that particular case, but they brought 
 suit with relation to the commodity of sugar onlj- . 
 
 Senator Foraker. "\A'e will pass that. Hoav many States in which 
 your system operates have railroad commissions that fix rates or 
 regulate or supervise the fixing of rates ? 
 
 Mr. Lincoln. In Kansas there is a railroad commission that has 
 jurisdiction over rates on complaint being filed. That commission 
 gives hearings and decides what, in their judgment, is a reasonable 
 rate. They do not, however, establish mileage rates or maximum 
 rates. 
 
 Senator Foeakee. How do they proceed? Do they go beyond 
 merely finding whether a rate practically established is a reasonable 
 rate and say what shall be the specific rate? 
 
 Mr. LiJs'COLN. On specific complaint they state what the rate 
 should be. 
 
 Senator Foraker. Are you required to conform to that ? 
 
 Mr. Lincoln. We conform to it ; yes. We file the case. 
 
 Senator Foeakee. Have you had much controversy of that kind 
 with the commissioners? 
 
 Mr. Lincoln. We have had a great deal of controversy with the 
 shippers in Kansas before the Kansas commissions. Xot, however, 
 very much in the last three years. 
 
NINTH DAY. 5 
 
 Senator Foeakek. The rates they supervise are simply the rate^ of 
 Toads within the State itself ? 
 
 INIr. LixcoLx. Within the State. That is all thev have jurisdic- 
 tion of. 
 
 Senator Forakee. Why, during the last three years, has there been 
 less than formerly ? 
 
 Mr. LiNCOLx. In my judgment— I can onlv give mv own judgment 
 •on that point— the reason is that many of the complaints made bv 
 the shippers in Kansas— and it was confined almost entirely to five 
 jobbing points in Kansas— was due to new conditions of the country, 
 new lines coming in, to the opening of Oklahoma Territory, and the 
 establishment of jobbing points in that territory which cut oil' from 
 them a. trade which they had previously enjoyed. We were in a 
 -changing state with the opening of the country and those ne^v lines. 
 When the rate adjustment gets down to a normal basis I think the 
 people will be better satisfied and the railroads themselves -svill be 
 better satisfied. 
 
 _ Senator Forakee. What has been the general efTect of this regula- 
 tion of rates within th» State of Kansas, so far as you have been aljle 
 to observe or ascertain? 
 
 Mr. LiJy-conN. By " effect " you mean as to changes ? 
 
 Senator Forakee. What has been the particular effect on railroad 
 traffic and the accommodation of the public ? Has their supervision 
 been beneficial or otherwise? 
 
 Mr. Lincoln. I think their supervision is beneficial ; yes. 
 
 Senator Forakee. I am prompted to ask the question by what you 
 said as to the work of the commission in the State of Arkansas. 
 Has it been similar or dissimilar? 
 
 Mr. Lincoln. It is dissimilar in the State of Arkansas. I was 
 intending to say something about all the States \^liere we are engaged 
 in business. 
 
 Senator Foraker. I wish you would tell us your experiejice in 
 each one of the States in which your road operates. You have 
 ^po&en of Iowa, Kansas, and Arkansas as having these State com- 
 missions. 
 
 Mr. Lincoln. I was speaking of Kansas. Before leaving the Kan- 
 sas situation I will state that in 1891 or 1892 — the exact year, I pre- 
 sume, is immaterial — the jobbers of interior Kansas, at Salina, Hutch- 
 inson, and Wichita, brought complaint before the Kansas commis- 
 sioners in the matter of their rates out of those cities. After an 
 -extended hearing the commission established jobbing rates from those 
 points — that is, a jobbers' distance tariff — to be applied on business 
 to be shipped from those particular points. 
 
 Senator Foraker. "When you say " established rates," in order that 
 we may understand each other, do you mean maximum rates or 
 •specific rates ? 
 
 Mr. LiNCX)LN. They established a mileage scale of rates to be ap- 
 plied from these particular points. 
 
 Senator Forakee. Do you mean so much per ton per mile ? 
 
 Mr. Lincoln. So much per hundred pounds per mile. 
 
 Senator Foraker. The same for every railroad? 
 
 Mr. LixcoLN. Twenty miles for each road ; yes. They were maxi- 
 mum rates, however, in Kansas, but a railroad could go lower than 
 those rates in Kansas. So from time to time other communities have 
 
Q NINTH DAY. 
 
 applied to the commission for the same scale of rates, and invariabljr 
 the commission ordered the establishment of those rates for those- 
 oommunilies. without any hearing, their contention being that they 
 con not discriminate as between localities; that if each point in the 
 State were to apply for relief against the jobbers' scale of rates it 
 would then become a maximum mileage scale of rates all over the 
 State. In my judgment — and it is admitted by the jobbers— if that 
 were applied' as alnileage scale of rates on all business moving be 
 tween all points in the State, it would deprive them of the very ad- 
 vantage they had secured by getting a special rate at particular 
 points. 
 
 The commission has changed, as it does change about every four 
 years lu that State, and our attorney was asking me last fall if we 
 wanted to contest that mileage scale, saying that if we did and wanted 
 to have adopted a uniform mileage scale, he was satisfied the commis- 
 sion, if we wanted to protest, would hold that it was irregular, that 
 it was class legislation — legislation in favor of one community as- 
 against another. I did not care to contest it. 
 
 Senator Foeakei;. To establish a uniform )»ate all over the State? 
 
 Mr. LtxcoLx. I ^vas asked whether I wanted to establish that. AVe- 
 did not do it. I only point to that to show that if you have a uniform 
 mileage scale a.l over the State it will deprive these commercial 
 points — the jobbing points — of an advantage which they obtained 
 under that scale and would localize their business and keep them in 
 a limited territory. 
 
 Senator Foeakee. Is not that advantage which they have acquired 
 a purely arbitrary one, fixed by the commission, not due to natural 
 conditions ? 
 
 Mr. LixcuLN. It is in part due to natural conditions, because a 
 mileage scale of rates will be departed from where business is in 
 larger \'olunie, where there is a concentration of business. 
 
 Senator Foeakee. They will feel at liberty to depart from it. 
 
 ^Ir. LixcoLx. Yes. 
 
 Senator P^oeakee. Xow go on with the other States. 
 
 ^ir. Lincoln. In ^Missouri there were established in 1879 by the- 
 legislature certain maximum rates on commodities, such aa grain, 
 lumber, live stock, agricultui'al implements, and coal, and possibly 
 one or two others I do not recall. 
 
 '■•enator P^oeakee. For all roads in the State? 
 
 ]Mr. Lincoln. For all lines within the State a maximum scale of 
 rates. 
 
 Senator Clai'p. I'ardon me for the interruption. Do you know 
 when the Arkansas law was passed? 
 
 Mr. Lincoln. No; I do not recall the date ; but it was some five or 
 six years ago. 
 
 Those maximum statutory rates remained in effect continuously 
 from that time until two years ago. Two years ago the ^Missouri 
 legislature had before it a new maximum scale of rates upon certain 
 commodities, and also a commission bill vesting in the comnussion 
 authority to investigate and fix upon a new distance tariff to be- 
 applied to points in Missouri. 
 
 Senator Foeakee. Specific rates? 
 
 Mr. Lincoln. They weie to fix specific maximum rates. The legis- 
 lature passed the senate bill which provided for the commission. Th& 
 
NINTH DAY. 7 
 
 commission did hold hearings in the fall following that enactment, at 
 various points in the State, at Mhich they had present railroads 
 through the representatives of their operating and traffic departments, 
 and also the shippers. As the result of their investigation they de- 
 termined upon a new distance tariff rate to be applied between points 
 in Missouri. That went into effect Jlarch 1, 190i. 
 
 The legislature which has just adjourned had the question up again 
 of establishing maximum rates, not embracing all commodities, but 
 a few of the leading commodities. Such a bill was passed and will 
 become a law, I believe, about July 1. At the same time there was 
 pending before the legislature a bill to iDractically take away from 
 the commission all powers beyond the ordinary police regulations, all 
 rate matters standing under maximum rates. That, however, did not 
 pass. They simply passed a maximum-rate bill and left the powers 
 with the commission they had had under previous legislation. 
 
 While these matters were pending before the legislature the rail- 
 road commissioners were also discussing the adoption of new maxi- 
 mum rates, lower schedule distance tariff rates, and they had hearings 
 at Kansas City, St. Joseph, St. Louis, Springfield, Joplin, and 
 Sedalia, and possibly one or two other points. The result of their 
 deliberations and of the evidence given them was that they decided 
 that there should be no change in the maximum rates as they had 
 been established the year previous ; that if there were readjustments 
 they should be upon complaint as to specific rates. 
 That is about the situation in Missouri. 
 Senator Foeakek. That is, the railroads decided that? 
 Mr. Lincoln. Xo ; the railroad commissioners decided that under 
 the law of two years previous they also had the power to adjust rates. 
 The Chairman. Do you regard the maximimi scale of rates as just 
 and fair? 
 
 Mr. Lincoln. Reasonalile maximum rates are just; yes. There 
 should be a limit beyond which the railroads should not go. I think 
 the present maximum rates in Missouri are fair — not the one that 
 has just passed the legislature, but the one already in existence. 
 
 The Chaikman. Can the Jlissouri Pacific charge up to the maxi- 
 mum at all points in Missouri? 
 
 Mr. LiNCi/iLN. We do not. Generally our rates are a little below, 
 txcept at points where there is very little business. 
 
 The CHAipaiAN. If you find a rate too low can you ask the Com- 
 mission to change it ? . 
 
 Mr. Lincoln. We could do it. but so far we have not done it. 
 When the maximum rate was considered reasonable, when the change 
 up and down followed those figures, we might establish a rate much 
 lower than the maximum rate, ^ye might advance, but not to exceed 
 the maximum rate. ■ ■ u 
 
 The Chaimian. Are there no cases where the <^onnnission has re- 
 duced the rate lower than I'ou thought be.,t or proper ? 
 
 Air LiNCC.T,N. Speaking for the Mis>ouri Pacific Company, they 
 have made several orders involving rates that we thought were rather 
 too low. ^ye have ne\er contested their orders, but have always 
 
 obeyed them. „ , , r. • . . i. u j 
 
 The Chairman. Under the provisions of the Missouri statute had 
 you the right to go before the Commission and make a showing and 
 ask that the rate be changed ? 
 
8 NINTH DAY. ' 
 
 Mr. Lincoln. Yes ; we can appear before them on petition. 
 
 The Chaieman. But you have never done it ? 
 
 Mr. Lincoln. Xo, sir. 
 
 The Chairman. If it is a fair question to ask, why did you not 
 doit? 
 
 Mr. Lincoln. We have the privilege of changing our rates so long 
 as we do not exceed the maximum rates. We feel that the maximum 
 rates established are fair. I would not go before them and ask them 
 to go above that scale. 1 think they are fair. 
 
 Senator Foeakee. You think they ;ire fair in Kansas, also, as I 
 understand? 
 
 Mr. Lincoln. There is no maximum scale of rates in Kansas; there 
 is no mileage scale fixed by the Commissioners: they only deal with 
 specific rates and upon complaint. 
 
 Sent! tor Foeakee. And they have not undertaken to extend the 
 mileage s-y'stem of rates to the whole State ? 
 
 Mr. Lincoln. Xo, sir. They have never changed the jobbers' 
 mileage scale of rates when application has been made. 
 
 Senator Foeakee. I understood you to say that you thought the 
 scale of rates in Arkansas high enough; that the only evil effect of 
 their rates was the effect upon the markets. 
 
 Mr. Lincoln. I was just coming back to the Arkansas situation. 
 In Arkansas the rates are established by the commissioners. The 
 power was vested in them to fix maximum rates, which they have 
 done. They have issued what is known as the commissioners' dis- 
 tance tariff rates applying (with the exception of short distances 
 of less than 40 miles) on all lines operating within the State. It 
 is our judgment that in many instances those rates are too low. 
 We have always felt so; and while we have not in anj- instance 
 ignored their rates, we have only appealed against some of their 
 orders in the case of joi'nt rates, where they desired to establish their 
 rates over joint lines. Their rates are on the mileage basis, and 
 they apply alike between points in the State, applying to the maxi- 
 mum as Avell as to the minimum rates. Under the action heretofore 
 they have felt that they could not deal, except upon the mileage 
 basis, with the rates and comply with the law to the letter. 
 
 Senator Foeakee. I understand that all these rates fixed in Kan- 
 sas, Missouri, and Arkansas are on the mileage basis? 
 
 Mr. Lincoln. Xo, sir; Kansas has fixed specific rates between 
 specific points. 
 
 Senator Foeakee. I understand ; but it is the mileage basis. 
 
 Mr. Lincoln. Xo, sir. The jobbers' rate was fixed as a mileage 
 scale of rates over some jobbing points. That is the only mileage 
 scale they ha-s^e fixed on. 
 
 S.enator Foeakee. The question propounded to you was whether 
 or not you had objection to that being extended all over the State. 
 
 Mr. Lincoln. It applied generally all over the State. 
 
 Senator Foeakee. How is it in loAva ? Have they a maximum 
 mileage rate there, or how do they fix that ? 
 
 Mr. Lincoln. My information as to Iowa is all hearsay. I be- 
 lieve Mr. Hyler can speak as to the Iowa situation. We have not a 
 toot of rail in Iowa. 
 
 Senator Foeakee. In what other States huve they railway com- 
 missions ? 
 
NINTH DAY. 9 
 
 Mr. LiNCOLx. A^'e have no commission in Colorado. There is 
 one in Louisiana, but I have not kept in very close touch with the 
 methods of the Louisiana commission, because all of our business is 
 interstate business. 
 
 Senator Cullom. How about Texas? 
 
 Mr. Lincoln. Our line does not go to Texas. They have a com- 
 mission in Texas which is a very powerful one. 
 
 The Chairman. Have you read the statement made by Mr. Cowan 
 in regard to excessive charges and advancing rates on live stock ? 
 
 Mr. Lincoln. Yes; I read his statement. 
 
 The Chairican. On page 5J- of his testimony, speaking of the $55 
 rate which had been advanced, he says : 
 
 That $55 rate, however, was in force only one year. Then it was .fn."), then 
 $70, and has been advanced graduallj- to $100; and to-day a representative of 
 the Santa Fe and Colorado Southern, as has been proven by the testimony of 
 witnesses before the Interstate Conunerce Commission in our case before 
 them, has agreed that they will not solicit any business. 
 
 Is that an accurate statement? 
 
 Mr. Lincoln. We do not participate in anj' of that stock or cactle 
 movement referred to from Texas, A7yoming, and the Dakotas. 
 
 The Chairjian. Do you not take some from CDimecting lines? 
 
 Mr. Lincoln. Xo, sir. Our line goes up the Missouri Rivei', while 
 this stock generally ino's'es througli interior points. "We have not 
 a feasible and practicable route- for handling cattle from Texas to 
 the gxazing grounds in the Dakotas. 
 
 The Chairman. You know nothing about that? 
 
 Mr. LiNCOL?v. I could only testify from hearsay. 
 
 The CiTAiRjiAN. He says also on page 5*') : 
 
 There was an advance of 21 cents per hundredweight made about the latter 
 part of 1808, to take effect the first of 1899, and the first of 1900 there was au 
 advance of S cents per Imndredweight o^er previoiis rates. 
 
 I believe that was the Santa Fe and Eock Island. 
 
 Mr. Lincoln. If it was the Texas rate he was referi-ing to, the 
 rates from Texas to St. Louis and Kansas City were ad^^anced at that 
 time. Our line does participate in that traffic, but your first inquiry 
 was with reference to the feeders going up to the northwest. 
 
 The Chair3ian. The line from Fort Worth to Kansas City is your 
 line, is it not ? 
 
 Mr. Lincoln. We handle stock from Fort AA'orth to St. Louis, but 
 not to Kansas City. 
 
 The CnAiR;MAN. Mr. Cowan says, on page '>('>: 
 
 At that time that rate was 2oi cents, and they have advanced it 2i cents and 
 3 cents, so that to-day it is '2i<] cents. * '■' * The freight rate from Port 
 Worth to Kansas City is 3Ci. 
 
 Mr. Lincoln. That is right. Thirty-six and one-half cents is the 
 correct rate. 
 
 The Chairman. That is a 500-mile haul, too. 
 
 Mr. Lincoln. Five hundred miles. 
 
 The Chair3ian. To Omaha it is 29 cents, is it not? 
 
 Mr. Lincoln. Xo. 
 
 The Chairman. That is Cheyenne. There would be a very con- 
 siderable advance of rates. 
 
 Mr. Lincoln. The rate,-, on live stock from Colorado, Texas, and 
 
10 NINTH DAY. 
 
 in the long-haul -western movement were advanced gencfrally in 1900 
 and 1901. 
 
 The Cii.ur:\[ax. Was it a greater advance than xipon other com- 
 modities ? 
 
 :Mr. LIJ^coLX. It Avas greater on live stock than on any other com- 
 modities, yes. The necessities required it. 
 
 The CiiAiRJiAx. What required" that advance over other commodi- 
 ties ? 
 
 Mr. TjIncoln. The rates, in our judgment, were too low. 
 
 The Chairman. As to operating expenses ? 
 
 Mr. Lincoln. And the expenses incurred in handling. They had 
 become too low in consequence of excessive competition in the han- 
 dling of live stock, and down to a basic point where there was no 
 profit to the carriers in handling the business. We desired to get 
 more money, a fair revenue, out of that business, which is so expensive 
 to handle. 
 
 The Chairman. On yesterday you made a comparison between the 
 grain rate and the live-stock rate, showing that the grain rate paid 
 better. 
 
 Mr. Lincoln. Paid better per car. 
 
 The Chairman. Upon what was your estimate based? 
 
 Mr. Lincoln. Upon the present rates on which the advanced rates 
 are based, and it was also based upon the per car rate and not per 
 hundredweight. 
 
 The Chaiesfan. These verj^ considerable advances in the live-stock 
 rate seemed to be the greatest cause of complaint and were complained 
 of as too high, greater than any that had been brought to the atten- 
 tion of the committee. 
 
 Mr. Lincoln. No doubt they were, and due in part to the fact that 
 the live-stock rates were advanced more than other rates were. 
 
 The Chaieiman. You do not think they are too high? 
 
 Mr. Lincoln. I think they are lov? to-daj' — very low. 
 
 Senator Cullom. How do they compare with what they had been 
 before you got them so low by competition ? Were they high before 
 that? 
 
 Mr. Lincoln. That is going back some time. I would not want 
 to say without going into statistics. I can speak as to Kansas rates. 
 The rates in Kansas were very much higher than they are to-day. 
 They were reduced to a very low basis, and then advanced contem- 
 poraneously with the advances from Colorado to Mexico and Texas. 
 
 The Chairman. There was an advance in the lumber rate. Did I 
 understand you to say that was in the Southwest, but on the east side 
 of the Mississippi ? 
 
 Mr. Lincoln. The inquiry made of me as to the advance of lumber 
 rates was as to the extent of the advance. I said the advance was 
 greater, possibly, from the Mississippi River. But, so far as the 
 Iron Mountain Road was concerned, we did advance our rates from 
 a portion of the territory, and from another portion there was no 
 advance. Possibly I should have explained that . a little further. 
 The Iron Mountain Road serves two lumber districts, one known as 
 " the short-leaf pine," located in Arkansas, and in Louisiana north 
 of the D., S. and P. Railroad; then the other territory is known as 
 " the long-leaf pine," located in southern Louisiana, between Monroe 
 and Alexandria. When the lumber rates were changed we advanced 
 
NINTH DAY. 11 
 
 our rates from Arkansas and northern Louisiana, but not from 
 southern Louisiana, where as the east-side lines agreed, according to 
 my understanding and best recollection, to advance their rates from 
 all their producing points. 
 
 The Chair:siax. I have that clear now. I did not have it yester- 
 day. Have your fruit and vegetable rates from St. Louis aiid Ar- 
 kansas advanced, or do you maintain them at about what they have 
 been for the last five years ? 
 
 Mr. Lincoln. I could not answer that without referring to statis- 
 tics. 
 
 The Chairman. What about the private car system, refrigerator 
 cars of your own on the Missouri Pacific? What have you to say as 
 to that ? 
 
 Mr. Lincoln. The i\lissouri Pacific Company has no refrigerator 
 cars of its own, operated as its own. It is interested in the A. K. T. 
 system, which is a refrigerator car line. 
 
 The Chairman. Is the Missouri Pacific a stockholder in that line? 
 
 ;Mr. Lincoln. It is a stockholder in that line. 
 
 The Chairman. Please give the name, instead of the initials. 
 
 ilr. Lincoln. The American Eefrigerator Transit Company. 
 
 The Chairman. How many cars has it? 
 
 Mr. Lincoln. I could not answer that. 
 
 The CiiAiKJiAN. You do not know how many ? 
 
 Mr. Lincoln. Xo, sir ; I do not. It is operated as a separate busi- 
 ness. 
 
 The Chairman. How is it operated on your line? 
 
 ^Mr. Lincoln. I could not answer that question definitely, Senator. 
 
 The Chairman. Do you think you have as many as 500 cars of the 
 A. E. T. Company? 
 
 ilr. Lincoln. They have over 4,000 cars. 
 
 The Chair3ian. On your lines ? 
 
 Mr. Lincoln. Their cars are in use all over the country, on all 
 the lines. 
 
 The Chairman. But I mean on your lines. 
 
 Mr. Lincoln. Xone of their cars are assigned to the Missouri Pa- 
 cific for its use. Their cars are moving constantly between all points 
 in the United States and over all lines. 
 
 The CiiAiRJtAN. You do not know how many of their cars the Mis- 
 souri Pacific employs ? 
 
 ilr. Lincoln. "We only take them as they come to us. 
 
 The Chairman. AMio makes the rates on the private cars, this A. 
 R. T., or the Armour lines '. 
 
 Mr. Lincoln. The A. R. T. Company. 
 
 The Chairman. The Missouri Pacific does not make the rates ? 
 
 ilr. Lincoln-. Xo; the Missouri l^acific does not make the rates — - 
 that is, for the refrigeration and for the use of the cars. We pay 
 the A. R. T. Company for the service. 
 
 The Chairman. Is' that all you do — to pay for the service? 
 
 ilr. Lincoln. .To pay for the service. 
 
 The CiiAiRjiAx. You do not know what the mileage is? 
 
 Mr. Lincoln. I am not sure whether it is handled on the mileage 
 basis or on the percentage basis. 
 
 The Chairman. The A. R. T. Company, as you understand the 
 law, is not subject to the interstate-commerce law as a carrier? 
 
12 NINTH DAY. 
 
 Mr. Lincoln. It is niv understanding it is not. 
 
 The Chair-Man. "V^Tiich is the carrier in that State — the A. R. T. 
 Company or the Missouri Pacific? Which do you regard as the 
 carrier? 
 
 Mr. LiNCOLX. The carrier, as to the freight charged by the road, 
 would be the company, I presume. 
 
 The CiiAiKMAX. You mean the Missouri Pacific Company. 
 
 Mr. Lincoln. But we have no control over the charges assessed by 
 the A. E. T. Company for the icing, refrigeration, and other equip- 
 ment. 
 
 The Chairman. You hire the cars; they make the routes and rates 
 and regulations ? 
 
 Mr. Lincoln. Xo; they do not make the freight rates. 
 
 The Chairman. Do you make those freight rates ? 
 
 Mr. Lincoln. We make the freight rates. We charge the shipper 
 for handling that property outside of refrigeration. 
 
 The Chairman. What does the A. R. T. Company charge for? 
 
 Mr. Lincoln. For the refrigeration and looking after the business, 
 the icing, and all that. 
 
 The Chairman. Is that all ? Is there nothing else ? 
 
 Mr. Lincoln. They have their cold-storage places. 
 
 The Chairsian. Does the Missouri Pacific Railroad Company make 
 the rate that the A. II. T. Company charges the shipper ? 
 
 Mr. Lincoln. Yes. 
 
 The Chair-vfan. Are you sure of that ? 
 
 Mr. Lincoln. Yes. \Ve make the freight rates for the transporta- 
 tion of the property over the line. 
 
 Senator Clapp. Senator Ellkins says the rate which the A. R. T. 
 Company makes the shipper. Does the A. R. T. Company make the 
 rate to the shipper, now, or the rate for refrigeration? 
 
 Mr. Lincoln. That is all thej^ make — the refrigeration. They 
 charge for refrigeration and for services rendered in that connection. 
 
 Senator Foraker. What other services besides icing? 
 
 Mr. Lincoln. The private car lines secure' from the carriers mile- 
 age or some other compensation. 
 
 Senator Culloji. "\'\Tio does the icing of the private cars ? 
 
 Mr. Lincoln. In the case of the A. R. T. Company, they have 
 plants at Chicago and St. Louis and various other pomts. 
 
 Senator Cullo3i. That is for the purpose of icing along the route? 
 
 Mr. LiNcoi,N. Yes. They have plants established along the differ- 
 ent roads. 
 
 Senator Cullojm. Who does that ? 
 
 Mr. Lincoln. In the case of the A. R. T. they do it. 
 
 Senator Cullom. Does the railroad have anything to do with it? 
 
 Mr. Lincoln. Not for the icing of those private cars. We have 
 icing points where Ave ice any other private cars under instructions, 
 and where we ice our own cars. 
 
 Senator Cullom. Who sees to the amount of ice that goes into the 
 cars? 
 
 Mr. Lincoln. In the case of the A. R. T. Company the railroads 
 see to it, through their storage plants and ice houses. In the case of 
 ■other equipment passing over our lines we attend to the icing at our 
 icing points where we are instructed to do so. In some cases we 
 
NINTH DAY. 13 
 
 receive those instructions from the railroad company, and in other 
 cases from the represei^tatives of the private cars. 
 
 Senator Ccllom. At the end of the line, who makes the total charge 
 for the icing — say, for instance, from Chicago, St. Louis, and Kansas 
 City to Boston ? 
 
 ]\Ir. LI^-coL^f. The icing is carried on tlie expense bill as an item 
 separate from transportation where the icing is charged to the road. 
 
 Senator Ci:llom. And all collected by the railroad? 
 
 Mr. Lincoln'. All collected by the railroad. 
 
 The Chairman. Does the Missouri Pacific own a majority of the 
 stock of the A. E. T. Company ? 
 
 Mr. Lincoln. I could not answer that. 
 
 The Chairjiax. Being a large stockholder, do they, by reason of 
 being interested in the A. R. T. Company, controhrates, or do they do 
 it as a matter of right belonging to the railroad ? 
 
 Mr. Lincoln. I have no desire not to answer any of these questions, 
 but I am not familiar enough with the A. E. T. business and the 
 operation of its cars to answer this question. That could be better 
 answered by a representative of the operative department. 
 
 The Chaikjian. Do you know an3'thing about the terms of the 
 contract between the A. E. T. Company and the Missouri Pacific? 
 
 Mr. Lincoln. I do not. I have not examined. 
 
 Senator Keax. You have icing plants and the refrigerator coni- 
 panj' has icing plants. Are the charges made by you the same as 
 those made by the refrigerator company, or are they different? 
 
 Mr. Lincoln. They are different in some cases. 
 
 Senator Kean. Do you charge more or less? 
 
 Mr. Lincoln. We charge more in some cases and less in others. It 
 depends largely on the territor)' we are in. But we charge usually 
 what the ice costs lis. 
 
 Senator Foeaker. Plave you stated that the Missouri Pacific is a 
 large stockholder in the American Eef rigerator Transit Company ? 
 
 Mr. Lincoln. That is my understanding^ and belief. 
 
 The Chaiejean. The Missouri Pacific Company, as a corporation, 
 has no refrigerator cars of its own ? 
 
 Mr. Lincoln. It has no refrigerator cars of its own. 
 
 Senator Forakee. But it is interested as a stockholder in a. com- 
 pany that does own refrigerator cars ? 
 
 Mr. Lincoln. Yes. 
 
 Senator Foeaker. Do you know whether these refrigerator car 
 companies make any excessive charges for the expense of icing and 
 service ? 
 
 Mr. Lincoln. I have heard of complaints made against their 
 charges, particularly in connection with the movement of straw- 
 berries. 
 
 Senator Foraker. What is the nature of these complaints? 
 
 Mr. Lincoln. That the charge is too high for looking after the 
 icing and refrigeration. 
 
 Senator Foeakee. Can you give us any instances or facts ? 
 
 Mr. Lincoln. I could not; no, sir. My information is just general. 
 
 Senator Foeakee. I was told by a gentleman the other day that on 
 a carload of fruit shipped from Florida to Cincinnati there was $15 
 worth of ice used, but the charge was $60. Have you heard of any 
 cases similar to that ? 
 
14 NINTH DAY. 
 
 Mr. Lincoln. I have not. 
 
 Senator Foeaker. They say that is quite a common occurrence; 
 that a charge is seldom, if ever, in any just proportion to what is sup- 
 posed to be the actual cost of the icing or for the service of furnishing 
 the ice to the car. Have you heard of any complaint like that on 
 your system ? 
 
 Mr. Lincoln. No, sir; I have not. 
 
 The Chaiejian. Do you or not think that these private car lines or 
 companies should be subject to all the provisions of the interstate- 
 commerce act, as a carrier ? 
 
 Mr. Lincoln. I think they should be under control in some way : 
 just how, I do not know. 
 
 The Chairman. Do you care to explain the reason for the advance 
 of live-stock rates, further than to say it is the cost of operation ? Do 
 you wish to make any further explanation ? 
 
 Mr. Lincoln. So iar as our company is concerned, we have been 
 anxious to get higher rates on cattle for a number of years. We, of 
 course, can not charge any higher rate than can be obtained simulta- 
 neously by another line. We have been confronted with so many 
 claims on cattle and so many complaints as to service that when we 
 analyze them we find that cattle are the most expensive things we 
 have to handle. We have to give them more attention in their move- 
 ment over the lines; we have to get trains out of the way of cattle 
 trains in order that they maj' get through to their destination ; and 
 we are subject to so many claims which we can not, in competing for 
 traffic, refuse to pay, that, taking all things together, we find the 
 tralRc very costly. 
 
 The Chairjian. Have you sent out solicitors and tried to get that 
 business ? 
 
 5'Ir. Lincoln. During 1904 I gave all of our representatives in 
 Texas instructions not to solicit any cattle business. We would only 
 take such of the cattle business as came to us as a common carrier — 
 i^uch as was brought to us for transportation, and which we could 
 not refuse. 
 
 As an evidence of the effect of our instructions in regard to the 
 movement of live stock on the Central and Iron Mountain and South- 
 ern in 1904 — I am speaking now of the percentage of stock, not the 
 whole movement — our falling off in stoclr was 20 per cent; that is, 
 we had 20 per cent less stoclc in 1904 than we had in 1903, and were 
 very glad of it. 
 
 Senator Clapp. In regard to the private car matter. Aside from 
 the icing charges, is there any difference in what the shipper has to 
 pay where the A. R. T. car is used or where any other refrigerator 
 car happens to be used? There was some confusion in the chair- 
 man's questions as to rates, and that is what I want to bring out. 
 The expression was used, I think, somewhat indifferently, that the 
 freight rate is fixed by the railroad. 
 
 Mr. Lincoln. The freight rate is the same with all of them. 
 
 Senator Clapp. Independent of whose cars you use? 
 
 Mr. Lincoln. Yes. The freight rate is the same, no matter whose 
 car is used. A certain car line is organized for the business of han- 
 dliiio- perishable freight, nnd advertises what it will charge for icing 
 *nnii looking after the freight and seeing that it is properly cared for. 
 
NINTH DAY. 15 
 
 Those charges, I presume, vary with different companies, but it is 
 not so with the carrier. 
 
 Senator Keax. The question Senator Clapp asked vou, as I under- 
 stood, was if a preference was not giAen on the Missouri Pacific road 
 to the refrigerator cars of the American Refrigerating Company. 
 
 Senator Clapp. I was coming to that. Xow, is the A. E. T. Com- 
 pany interested in the production and distribution of products:' 
 
 Mr. Lincoln. Xo, sir; not to my Imowledge. 
 
 Senator Clapp. Xot to your knowledge? 
 
 Mr. LijsrcoLx. Xo, sir. 
 
 Senator Clapp. Does the road with which you are connected give 
 any preference to the cars of the A. E. T. Company? 
 
 Mr. Lincoln. TVe prefer to furnish those cars rather than cars 
 operated by anybody else or by other lines. 
 
 Senator Clapp. Why? 
 
 Mr. Lincolx. Owing to the interest of the Missouri Pacific in 
 those cars. 
 
 Senator Forakee. As a stockholder? 
 
 Mr. Lincoln. As a stockholder. 
 
 Senator Clapp. You say that complaints have been made regarding 
 the icing charges by the A. E. T. Company. Has there, Ijeen com'^ 
 plaint as to the icing charges made directly by your railroad com- 
 pany ? 
 
 Mr. Lincoln. ^Ye have in the last three or four years had some 
 complaints as to the charge assessed by our company in the icing of 
 meats going to Colorado. It was claimed that we charged or assessed 
 them too high ; that we were paying too much for the ice. "\A"e onlj- 
 charged them what the ice cost us. That is the only complaint we 
 have had. 
 
 Senator Clapp. You charged them just what the ice cost you ? 
 
 Mr. Lincoln. Yes. 
 
 Senator Clapp. The complaint is quite general, is it not, as to the 
 icing charges made by these private car companies ? 
 
 Mr. Lincoln. None of those complaints reach my ears direct. 
 
 Senator Clapp. Do you know, from your standiDoint with relation 
 to the road, whether in the main the charges for icing or what you 
 have called refrigeration charges, are higher by the A. E. T. Com- 
 pany than where other refrigerator cars happen to be along the line 
 of your road and the refrigeration is done by your company ? 
 
 Mr. Lincoln. There is a distinction between the tivo. 
 
 Senator Clapp. That is what we want explained. 
 
 Mr. Lincoln. The A. E. T. equipment, where the icing comes in, 
 and the cold storage, is very largely in connection with the fruit 
 business, vegetables and perishable freight. ^Ye are practically only 
 handling in refrigerator cars the packing-house products, fresh meats, 
 where it is only a question of icing the cars and not of rendering any 
 storage; and our charges on such traffic are usually, as nearly as we 
 can approximate it, the actual cost of the ice and the salt used in the 
 oar ; whereas the A. E. T. Company for their services in looking after 
 the freight at the delivering point and receiving point and handling 
 it through their cold-storage plant, make somewhat larger charge. 
 They take into consideration their service in connection with their 
 charges. ^ 
 
 Senator Clapp. Is it not a fact, Mr. Lincoln, that as to the private 
 
16 NINTH DAY. 
 
 car companies, aside from the rental— if that is the proper railroad 
 term — or the mileage, perhaps, is the better term 
 
 Mr. Lincoln. Mileage or rental. 
 
 Senator Clapp (continuing). ^ATiich the railroad pays the private 
 car owner, the refrigeration service, icing, and so forth, is designed to 
 be distinctively and to quite an extent an element of profit, whereas 
 m the operation by the railroad of either its own refrigerator cars, 
 if it has them, or indifferently refrigerator cars that come onto its 
 line, the icing and refrigeration charges, so called, are in the main 
 designed to about meet the cost, and are not looked upon as specif- 
 ically and essentially an element of profit to the company ? 
 
 Mr. Lincoln. The carriers do not look upon it as an element of 
 profit. 
 
 Senator Clapp. And the private car owners do, do they not? 
 
 Mr. Lincoln. They aim to make some profit out of it. That is 
 my judgment. Those like the A. R. T. Company do. 
 
 Senator Clapp. Xow, has the A. R. T. Company icing plants at 
 the same points where your railroad has them? That is, are the 
 icing facilities duplicated? 
 
 Mr. Lincoln. No, sir; they hare more of them than the railroad 
 company has. They, have them distributed over the country very 
 well in the fruit district. 
 
 Senator Clapp. I understand that, but they are not duplicated ? 
 
 Mr. Lincoln. Xo, sir. 
 
 Senator Clapp. Yesterday the question came up, and I think you 
 said that the commission in Arkansas applies a mileage rate. 
 
 Mr. Lincoln. Their rates are made on the mileage basis ; yes, sir. 
 
 Senator Clapp. And the question came up whether they were 
 obliged under the law to do that, or whether it was their judgment 
 as to the best way to reach the question; and in that connection it 
 may be proper to put in the record the fact that the law fails to show 
 that they are required to adopt that plan. 
 
 ivow, outside of Arkansas, your relations with these State regu- 
 lations has not brought any serious enjbarrassment to the business of 
 your companj^, has it? That is, the exercise of the power conferred 
 upon those various commissions has not resulted in any serious 
 embarrassment or interference with your business? I am asking for 
 your opinion. I do not mean to p'rej udge your answer. 
 
 Mr. Lincoln. It has embarrassed us somewhat; but I can not say 
 that it has embarrassed us seriously, because of the fact that the local 
 business of the State is such a small proportion of our total business. 
 The interstate business predominates so much more largely. 
 
 Senator Clapp. You used the words •' specific rate."" "V^^iat do 
 you mean by that? 
 
 Mr. LiNcoi,N. A^Tien a rate is established between two points and 
 the actual rate is named, it becomes a specific rate. 
 
 Senator Clapp. Would you use that term if vou were permitted 
 under the law to reduce that rate at your own will ? 
 
 Mr. Lincoln. Xo ; I would use the term " maximum rate,'' where 
 you can deviate from it by reduction, and only by reduction. 
 
 Senator Clapp. In how many of these States is the rate a specific 
 rate as fixed by the Commission ? 
 
 Mr. Lincoln. Well, in none of the States in which we go is there 
 
NINTH DAY. ]^7 
 
 Lfftt^? -^-^ ^T^ i^y the Commission, except in Arkansas. We 
 hold that It IS a fixed rate there, as we do not depart from it. We 
 can not depart from it without affecting other business, as thev have 
 been operating I do not Imow what views the next board o'f com- 
 missioners of Arkansas may have, but the views of the present board 
 Sale o^theTate? """^ ""^^ *^^^ ""^^^^ without involving the mileage 
 Senator Cl'app. Outside of Arkansas you have not experienced 
 any serious inconvenience or embarrassment by reason of the State- 
 regulation ? 
 
 Mr LiNCOLX. Xo, sir; we have not, for the reasons that I haver 
 stated. 
 
 Senator Clapp. And in some of those States you charge less than 
 the maximum rate fixed by the Commission ? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Clapp. ^Yha.t criticisms would you make, if any, upon the 
 existing interstate-commerce law, with its various amendments, so 
 far as the practical operation of that law has come to your knowledge ? 
 
 Mr. Lincoln. In my judgment the present law is ample, and it 
 permits the Commission to designate what is a reasonable rate, upon 
 complaint being filed with them; and we have usually complied 
 with their orders — in fact, we have always done so. 
 
 Senator Neavlands. You say you have always complied with their 
 orders ? 
 
 Mr. Lincoln. I said usually, and then always. We have invari- 
 ably complied with their orders. 
 
 Senator Clapp. You say you think it is sufficient. Are there ob- 
 jectionable features of the law which interfere with the management 
 and the development of transportation ? If so, point them out. 
 
 Mr. Lincoln. I do not see any particular objection to the present 
 law. 
 
 Senator Clapp. You do not see any particular objection to it? 
 
 Mr. LixcoLX. Xo, sir; as we have been operating. 
 
 Senator Clapp. It has not, then, in your judgment, tended to re- 
 tard the development and free management of the transportation 
 question in this country ? 
 
 Mr. Lincoln. It has not. 
 
 Senator Clapp. You would concede. I presume, that the relation 
 AA'hieh the carrier sustains to the public is such as to require some 
 sort of supervision and regulation of rates, would you not ? 
 
 ilr. Lincoln. We do. We think it is a good thing, and should be 
 done. We have no objection to it. 
 
 Senator Clapp. And that conclusion is reached in view of all the 
 effects which changed rates — changed by operation of the law — 
 would have ? 
 
 'Sir. Lincoln. ]My conclusion is that way. yes, sir ; based upon the 
 past. 
 
 Senator Clapp. In other words, a rate reduced by operation of the 
 existing law might and probably would entail a readjustment of 
 existing rates that were not the subject of the complaint or order? 
 
 Mr. Lincoln. Almost invariably they do require the readjustment 
 of other rates that are not in the dispute or in controversy. 
 
 Senator Clapp. Under the existing law the Commission to-day 
 9 D — 05 M 2 
 
18 NINTH DAY.. 
 
 could deal with a rate from Chicago and New York on firain, could 
 it not? 
 
 Mr. Lincoln. Yes, sir. i i i n 
 
 Senator Clapp. And if the determination reached by the Commis- 
 sion ^Yas sustained by the courts it would effectuate a modification m 
 that rate^ 
 
 Mr. Lincoln. Of that and all dependent rates : yes, sir. 
 Senator Ci.app. They could then deal with the rate oh lumber from 
 Chicago to Buft'alo in the same way? 
 Mr. Lincoln. They could. 
 
 Senator Clapp. Li other words, subject to the limitation of time, 
 under existing laws, the railroad commission, so far as their orders 
 might be sanctioned by the courts, could deal with all existing rates? 
 Mr. Lincoln. That is my judgment. 
 
 Senator Clapp. You say it is your judgment ? You could not 
 clothe a commission with power to fix a rate that was challenged 
 without, under similar circumstances, going down the line, could yon? 
 Mr. Lincoln. Well, I do not know as to that. 
 
 Senator Clapp. 1 do not think you understand my question, as you 
 hesitate. 
 
 >h-. Lincoln. I do not know that I do understand the question. 
 Sen;it<)r Clapp. If they can fix one rate, on complaint, they can fix 
 any rate '. 
 
 Nir. Lincoln. They can fix any rate on complaint. 
 Senator Clapp. And all rates; 
 Mr. Lincoln, '^'es, sir. 
 
 Senator Clai'p. That is the point; and with that condition exist- 
 ing, the possibility of no legal limitation existing as to the number 
 of rates, and the etl'ect which the adjustment of one rate has upon 
 other rates, there is no practical objection to-day to the interstate- 
 commerce law, witli its amendments? 
 
 ^[r. Lincoln. Not as we have it to-day; no, sir. 
 Senator Clapp. If tlie Commission were clothed with power to not 
 only condemn a rate as unreasonabl.\, but in addition declare what 
 rate should l>e substituted in lieu thereof, the consequence of the estab- 
 lishment of a rate as to the fact that the fixing of one rate would 
 necessitate a modification in other rates, and that the power to fix 
 one rate when challenged would involve the power to fix any and all 
 rates challenged would still ajiply ? 
 ^Ir. Lincoln. Yes. 
 
 Senator Clapp. That being the case, so far as involving rates gen- 
 erally in the fixing of one rate is concerned, or the fixing of many 
 rates under a power to fix any rate when challenged, it would simply 
 be a question of degree, depending on the activity of the Commission ? 
 Mr. Lincoln. Well, very largely dependent ' upon their activity. 
 They might pass upon all rates in that Avay. 
 
 Senator Clapp. They can do that now. Under the existing law, if 
 the Commission condemned a rate you would feel, if you were dis- 
 posed to obey that order instead of challenging it, that you were 
 obliged to discontinue that rate and put in effect another rate which 
 would be a practical, substantial modification? 
 
 Mr. Lincoln. In cases in which I have been interested thev have 
 usually designated what they thought would be a reasonable rate, 
 and we have obeyed them. We have complied with their suggestions 
 
NINTH DAT. 19 
 
 Senator Clapp. You would feel, under the existing law, that if they 
 condemned a given rate and suggested a reasonable rate, you would 
 have to make a practical, substantial reduction, as a compliance Avith 
 a prohibitory order, or the process could be set in motion again? 
 
 Mr. LixcoLX. Well, they usually outline the rates, as I say, but 
 they are not always sijbstantial reductions. Sometimes they have 
 suggested very moderate reductions. 
 
 Senator Clapp. I laiow; but I am not speaking of their sugges- 
 tions. 
 
 Mr. Lincoln. You are speaking of Avhat our action would be ? 
 
 Senator Clapp. You would not, as a railroad man, assume that a 
 mere technical modification would be a substantial compliance ? 
 
 Mr. Lincoln. No, sir. 
 
 Senator Clapp. And, practically, you would feel obliged, if you 
 recognized that order at all, to make a substantial reduction? 
 
 Mr. Lincoln. Yes, sir; to make a substantial change in the rates, 
 if we recognized it at all. 
 
 Senator Clapp. And when the rate was thus changed, under exist- 
 ing law, would there be any effort in any manner to again restore 
 that rate ? 
 
 Mr. Lincoln. Oh, I think it could be restored under existing con- 
 ditions, if the lines could show that there had been great changes in 
 the conditions. They do do it. 
 
 Senator Clapp. In other words, if there was such a change in con- 
 ditions as to have warranted the Commission and the court in pass- 
 ing upon the question to have sustained the rate which you would 
 propose to restore? Do I make that plain? 
 
 Mr. Lincoln. If the conditions continued to obtain under which 
 they made their order ? 
 
 Senator Clapp. No, sir. An order is made condemning a dollar 
 charge and they suggest a charge of 80 cents, and you do not chal- 
 lenge their proceeding, but accept their determination and make a 
 rate of 80 cents. 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Clapp. Now, you would not think of raising that rate 
 again until conditions had so changed that they would, in your judg- 
 ment, lead the Commission to recognize as an initiative the rate yori 
 desired to change to? 
 
 Mr. Lincoln, ^^'e would not change it unless the conditions very 
 materially changed, so that we could show just cause for it. 
 
 Senator Newlands. And do you make the change without consult- 
 ing the Commission, under those circumstances ? 
 
 Mr. Lincoln. Vi^e have made some changes in the past, which they 
 have sustained. 
 
 Senator Ne-\^lands. The law does not compel you to apply to the 
 Commission ? 
 
 Mr. Lincoln. Xo, sir ; we do not have to apply to the Commission 
 at alk Take the case of what is known as the Johnson-Larrimore 
 case at Wichita. The Interstate Commerce Commission rendered a 
 decision in connection with that case, and in the sugar case of Wichita 
 they set aside their previous order. 
 
 Senator Clapp. State specifically your objections, in view of the 
 discussion, to giving the Commission this additional authority. 
 
20 NINTH DAY. 
 
 Mr. Lincoln. I undertook to cover that yesterday, and I will again 
 to-day. Placing the absolute power of making rates with the Com- 
 mission and fixing all rates by them does not give elasticity enough 
 to the rates. You can not meet changing conditions that are arising 
 everj' day in some locality or another, that arise every year. The 
 Commission having fixed a rate or having adjudged that the present 
 rate is the rate, you can not change it; the process of making a 
 change would be slow, and so slow that you could not do business 
 under such a process. 
 
 Senator Clafp. Yes. Now, if the Commission were clothed with 
 this additional authority under a law which provided, in the illus- 
 tration that I have taken, of a dollar rate reduced to 80 cents, that the 
 railroad company might raise that rate when the conditions changed 
 ' so as to warrant a higher rate as a reasonable rate, you would then, 
 so far as elasticity is concerned, be practically where you are now, 
 would you not ? 
 
 Mr. Lincoln. Why, if they do not change our methods of raising 
 rates or lowering rates we would be just where we are now ; yes, sir. 
 
 Senator Clapp. Under the law now, between the Commission and 
 the court, the rate can get down to 80 cents ? 
 
 Mr. Lincoln. On a complaint, when they adjudge the rates too 
 high, they may say 80 cents is a proper rate. They can make an 80- 
 cent rate. 
 
 Senator Clapp. The rates can get down to 80 cents ? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Clapp. Then, when the conditions change, you can raise 
 that rate to 90 cents, under the existing law ? 
 
 Mr. Lincoln. Under existing laws we can. 
 
 Senator Clapp. Subject again to complaint and action by the Com- 
 mission ? 
 
 Mr. Lincoln. Y^es, sir. 
 
 Senator Clapp. 'W^'ell, then, if instead of the Commission merely 
 recommending 80 cents, arid you adopting it under such an inflexible 
 rule that you could not change it unless conditions warranted your 
 taking the chance of review again by the Commission, the Commis- 
 sion should fix the rate at 80 cents, authorizing you in your judgment 
 to raise it to 90 cents, subject to review, would not one process be as 
 elastic as the other? 
 
 Mr. Lincoln. Why, it would in that way, yes; if you proceeded in 
 that way. 
 
 Senator Clapp. These discussions seem to proceed upon the theory 
 that while under the existing law the company has the initiative in 
 raising a rate subject to review, under a law giving the Commission 
 added power to substitute a definite rate in the place of a suggestion, 
 somehow or other there will not be any initiative left with the carrier. 
 Now, if that initiative should be left as it is now. the elasticity would 
 be practically the same, would it not ? 
 
 Mr. Lincoln. Yes; but if you fix it the other way the initiative 
 could not be left Avith the carrier. 
 
 Senator Clapp. Could not a law be passed which should say that 
 when a given rate is challenged, if the Commission finds it unreason- 
 able they may condemn that rate and in addition make an order as to 
 what rate shall be a reasonable rate in lieu thereof, subject of course 
 to the right to go to the courts in all these things, and that that 
 
KINTH DAY. 21 
 
 should be the rate subject to the right of the railroad companies to ini- 
 tiate its modification — that act, in turn, being subject to the 
 
 Mr. Lincoln. Being subject to the review of the courts. 
 
 Senator Clapp. Well, being subject to review first bj' the Commis- 
 sion and the court, as it is now. In other words, does merely adding 
 to the present law power to not only condemn a given rate but say 
 what shall be in lieu thereof necessarily involve taking from the rail- 
 road company the initiative which it has now ? Possibly this involves 
 a legal point 
 
 Mr. Lincoln. I was going to speak about that. I look upon it as 
 a legal point, upon which I would not be qualified to speak. 
 
 Senator Newlands. As I understand, your objection to giving the 
 Interstate Commerce Commission the power to fix a rate is that that 
 rate then remains permanent, and that removes the elasticity of the 
 present system? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Nbwlands. But if the law should be so changed as to per- 
 mit you after that rate is fixed to change it when conditions altered 
 according to your judgment, leaving the Interstate Commerce Com- 
 mission then to act upon your new rate, would you have the same 
 objection? 
 
 Mr. Lincoln. Well, I do not know that I would. It would be a 
 verj' great mistake though, I think, to require that tedious way of 
 arriving at it. 
 
 Senator Xewlands. Your objection certainly would not be so 
 strong ? 
 
 Mr. Lincoln. Not so strong as where authority Avould be given to 
 the Commission to fix a rate absolutely. 
 
 Senator Cullom. Plow would you be able to change a rate after it 
 was fixed by the Commission ? 
 
 Senator Newlands. If the statute permitted it. 
 
 Senator Clapp. Just as they are changed now. 
 
 Senator Cullom. How would the statute permit it? By saying 
 that when they get a rate that they think is too high they can 
 change it ? 
 
 Senator Xewlands. They could permit the carrier, upon a change 
 of conditions, to change the rate, leaving the justifiability of the 
 change to be determined by the Interstate Commerce Commission. 
 
 Senator Clapp. Under the existing law, the Commission and the 
 court combined, coupled with the railroad's judgment of a substantial 
 compliance, fixes a rate of 80 cents. 
 
 Senator Cullom. Yes. 
 
 Senator Clapp. The railroad at any time after that, if it believes 
 the conditions have changed, can, under the existing law, initiate a 
 change, can it not? 
 
 Senator Cullom. It can violate the order and take the chances on 
 being sustained. That is about all there is to it. 
 
 Senator Clapp. It would not necessarily be violating the order, if 
 the conditions had changed. 
 
 Senator Cullom. They might say the conditions had changed and 
 the Commission might say they had not. 
 
 Senator Clapp. That would be a subject for evidence that they had 
 not, and consequently that no change was permissible. 
 
 Senator Cullom. It simply leaves the shipper to do what he thinks 
 
22 NINTH DAY. 
 
 is right about it, or as he pleases, aAcl talie the chance on being 
 brought down again. 
 
 Senator Newlands. You mean the carrier ? 
 
 Senator Cullom. Yes. 
 
 Mr. Lincoln. Is not that very similar to the long and short haul 
 clause? They would do it at their peril. You must justify it, of 
 course. We have justified that. The carriers to-day are ignoring 
 the long and short haul clause, and do so at their peril. They must 
 decide whether they have a right to do it or not. They are da,ily 
 ignoring the long and short haul clause. It would be the same thing 
 in this other proposition. If we thought we had a right to advance 
 a rate, we would probably do it. 
 
 Senator Foraker. I want to ask one question if you will permit me, 
 Mr. Chairman, concerning a point which has been brought out since 
 I interrogated the witness. 
 
 I want to ask you, in view of the statement you have made on the 
 subject, what is the capital stock of the A. E. T. Company, as you 
 call it? 
 
 Mr. Lincoln. Senator, I could not answer that ; I believe Mr. Bird 
 is to appear before this committee, and Mr. Bird is an officer of that 
 company. 
 
 Senator Foraker. Can you say how much of it the Missouri Pacific 
 owns? Poor's Mamial shows, at page 490, that there is $93,000 of 
 the capital stock of that company owned by the Missouri Pacific 
 Company. I want to ask you also what dividends have be«n paid on 
 this stock, if you know ? 
 
 Mr. Lincoln. I could not answer that. 
 
 Senator Foraker. You can not tell us about that ? 
 
 Mr. Lincoln. I can give you no information about the financial 
 matters of the A. R. T. Company. 
 
 Senator Foraker. Can you tell whether it has been making any 
 surplus ? 
 
 Mr. Lincoln. I understand that Mr. Bird is to apjiear here. He 
 is an officer of the comjjany and will be able to tell you about those 
 matters. 
 
 Senator Foraker. Very well. I will not ask any further ques- 
 tions, then. 
 
 Senator Kean. I was going to ask the witness about this. In 
 Poor's Manual, the amount of dividends paid on the American Ee- 
 frigerating Company stock was $26,559.25, on an investment of 
 $93,000. Also in Poor's Manual I see, bearing upon your statement, 
 as I understood it, that the Missouri Pacific owned very few refrig- 
 erating cars 
 
 Mr. Lincoln. Yes ; what we call refrigerating cars. 
 
 Senator Kean. According to the statement in Poor's INIanual you 
 had in 1903 on the Missouri Pacific Eailroad 366 refrigerating cars 
 and 297 on the St. Louis and Iron Mountain, or a total of 663. 
 
 The Chairman. Private cars? 
 
 Senator Kean. No, sir; refrigerator cars. 
 
 Senator Foraker. Do you use, on the Missouri Pacific, the refrig- 
 erator cars of any other line than this A. E. T. Companj'^ ? 
 
 Mr. Lincoln. Oh, we use all refrigerator lines. 
 
 Senator Cullom. Any that come along? 
 
 Mr. Lincoln. Everybody's. 
 
NINTH DAY. 23 
 
 Senator Forakek. IIow many lines are there ?- 
 
 Mr. Lincoln. Well, there are the Armour lines and the different 
 packing houses own ear lines — everybody's cars run on our lines. 
 
 Senator Keax. Do you not own these refrigerating cars now ? 
 
 Mr. LixcoLx. Xo, sir ; they may be leased and turned over to the 
 A. E. T. Company to run. 
 
 Senator Keax. They mn~t have been turned over, then, since 1903 
 to the A. R. T. Company. 
 
 Mr. Lixc;oLN. I never looked upon any refrigerator equipment as 
 our own. 
 
 Senator CuLLcpi. You say that the law in Missouri is a maximum- 
 rate law ? I believe I understood you to say that. 
 
 Mr. Lincoln. There are two. 
 
 Senator Cullom. Two statutes ? 
 
 Mr. Lincoln. There are the conlmissioners" rates and also the maxi- 
 mum rates upon certain commodities that were fixed by statute — that 
 is, by the legislature. The commissioners a few years ago were in- 
 structed to go into the question of new maximum rates on all classes, 
 which they established on the 1st of March, 1904. 
 
 Senator CxTLLO^r. I wanted to ask simply how that sort of a law 
 worked. You find no fault with that, as I understood you to say. 
 
 Mr. Lincoln. "We have foimd no fault with the laAv in Missouri. 
 
 Senator Culloii. And you obey it all the time, in every instance? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator CtiLLOir. Do the people of Missouri find any fault with it ? 
 
 Mr. Lincoln. We have had remarkably few complaints in the State 
 of Missouri before the commission. 
 
 Senator Cijlloji. The maximum rate is put sufficiently high to be 
 regarded by the carrier as fair ? 
 
 Mr. Lincoln. As fair, yes, sir, to all lines in the State. Most of 
 the lines operate under lower rates than the maximum rates. 
 
 Senator Ci llom. Does the Interstate Commerce Commission go 
 into your State much or interfere with your transportation lines ? 
 
 Mr. Lincoln. No; we have not had very much trouble before the 
 Interstate Commerce Commission outside of the live-stock cases and 
 the Wichita cases. 
 
 Senator Ccllom. You have had no great trouble with either State 
 commerce regulation or interstate-commerce regulation ? 
 
 Mr. Lincoln. Xothing serious at all. 
 ■ Senator Clllom. But'vou aim to obey the law and the regulations 
 of both? 
 
 Mr. Lincoln. We aim to obey them both ; yes, sir. And we some- 
 times do things that we think a little hard upon us in our desire to 
 comply with the law, or their interpretation of the law, and to follow 
 their orders. 
 
 Senator Ci llo^i. It has been stated by Mr. Hines, I believe, and 
 Mr. Morawetz, and I do not know but by a gentleman who will follow 
 you as a witness, that the question of rebates is a thing of the past. 
 
 Mr. Lincoln. I think it is ; yes, sir. It is, so far as our company 
 is concerned. 
 
 Senator Culloji. Do you know that it is on your road? 
 
 Mr. Lincoln. Yes, sir. It has been a thing of the past since the 
 injunction 
 
24 NINTH DAY. 
 
 Senator Cullom. There is nothing of that sort being done now at 
 
 all? . , 
 
 Mr. Lincoln. I believe there is very little of it, if any, being done. 
 
 Senator Cullom. How about discriminations? 
 
 Senator Newlands. I would like to ask one question right there 
 about injunctions. You speak of an injunction — is the injunction 
 operating now ? 
 
 Mr. Lincoln. Judge Grosscup's injunction; yes. 
 
 Senator Newlands. Preventing them from giving rebates ? 
 ' Mr. Lincoln. Yes, sir. 
 
 Senator Newlands. And that is operative for all time? 
 
 Mr. Lincoln. It has not been set aside yet. 
 
 Senator Newlands. And that is in force in addition to the law ? 
 
 Mr. Lincoln. Yes, sir; on these lines against which the injunction 
 was issued. 
 
 Senator Foeaker. There is no strenuous effort being made to 
 dissolve that injunction on the part of the railroads? 
 
 Mr. Lincoln. No, sir. 
 
 Senator Newlands. The injunction takes the place of the law, 
 practically. 
 
 Senator Cullom. Have any injunctions been issued in your State 
 by any of the courts ? 
 
 Mr. Lincoln. Over State or interstate commerce? 
 
 Senator Cullom. Over interstate commerce. 
 
 Mr. Lincoln. No, sir ; we have had no injunctions against us. 
 
 Senator Cullom. None have been issued in your State at all against 
 any of the railroads ? 
 
 Mr. Lincoln. None against anj' of our roads; the roads that I 
 represent. 
 
 Senator Cullom. You anticipate that if you violated the law by 
 issuing rebates there would be injunctions issued, I suppose? 
 
 Mr. Lincoln. "Well, I spoke of injunctions on rebates. I supposed 
 you were speaking about rebates. There was an injunction granted 
 against the Missouri Pacific, the Iron Mountain, and quite a number 
 of lines operating in and out of Chicago and in and out of St. Louis 
 by Judge Grosscup. 
 
 Senator Cullom. So that, in your judgment, from your observation 
 as a traffic man — are you ? 
 
 Mr. Lincoln. Yes, sir : I am a traffic man only. 
 
 Senator Cullom (continuing). There have been less violations of 
 the law within the last year or two than there were before ? 
 
 Mr. Lincoln. Unquestionably; yes, sir. 
 
 Senator Cullom. And largely growing out of the fact that the 
 injunctions could be issued and were issued in many instances? 
 
 Mr. Lincoln. Well, growing out of that and the recent amendment 
 to the interstate-commerce act. 
 
 Senator Foeakee. The Elkins law ? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Cullom. So that, in your judgment, the law as it stands, 
 the original act and the amendments, including the Elkins law so- 
 called, is good enough. Is that your idea ? 
 
 Mr. Lincoln. It is my judgment that it is ample remedy, and it 
 gives all the opportunity to the shippers that they could ask for and 
 all that the carriers can ask. 
 
NINTH DAY. 
 
 25 
 
 The CiiAiEMAX. What officer has charge of the refrigerator car 
 system on your line ? * 
 
 Mr. Lincoln. '\'\Tiat officer ? 
 
 The Chairman. You say you have not charge of it« 
 
 Mr. Lincoln. Speaking of the refrigerator cars in the employ 
 of our company, that are owned by our company, I said I have never 
 used them. 
 
 The Chairman. In whose department would that cflfcie? 
 
 Mr. Lincoln. The superintendent of transportation. 
 
 The Chairman. What is his name? 
 
 Mr. Lincoln. W. S. Wattress. He has charge of the cars. 
 
 The CHAiKiiAN. Who is the president of this A. E. T. Company? 
 
 Mr. Lincoln. A. C. Bird. ' 
 
 The Chairman. Where does he live? 
 
 Mr. Lincoln. Chicago, 111. He is the ^dee-president. 
 
 The Chairman. And who is the man in your system having charge 
 of that matter? "• 
 
 Mr. Lincoln. The general manager of the A. E. T. Company is 
 A. L. Kerr, at St. Louis. . 
 
 The Chairman. I want to find out who has control of the private 
 cars in the Missouri Pacific system. 
 
 Mr. Lincoln. In the Missouri Pacific system? Those are not pri- 
 vate cars. Those are refrigerator cars. "Mr. Bird is the executive 
 officer of the American Eefrigerator Transportation Company. 
 
 The Chairjian. Of that company? 
 
 Mr. LiNcor,N. Yes. 
 
 The Chairjian. With whom does he deal? 
 
 Mr. Lincoln. He is also vice-president in charge of traffic of the 
 Missouri Pacific Company. 
 
 The.CH.-MRJiAN. Does he deal with himself, between the two com- 
 panies ? 
 
 Mr. Lincoln. Xo — yes ; he would. 
 
 The Chairman. That is all I wanted to know. 
 
 Mr. Lincoln. Mr. Bird can testify about all those things. 
 
 Senator Cullom. My attention is called to the fact that the orig- 
 inal injunction issued by Judge Grosscup was under the original 
 law, before the Elkins law was pap,sed. 
 
 Mr. Lincoln. It was under that original law against rebates. 
 
 Senator Cullom. Yes. I had forgotten that. 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Elkins. Now proceed, Senator Newlands. I am sorry- to 
 have delayed you. 
 
 Senator Newlands. JMr. Lincoln, which do you regard as most 
 potential in preventing rebates, the summary punishment resulting 
 from violation of the injunction, or the prosecution of the proceed- 
 ings provided for by the EUiins law ? 
 
 Mr. Lincoln. We do not fear either one, because we are comply- 
 ing with both. 
 
 Senator Newlands. I understand; but which do you regard as 
 most potential in the suppression of rebates? 
 
 Mr. Lincoln. Oh. I think the Elkins bill has had more to do 
 with it than anything else. 
 
 Senator Newlands. In how many States does your system operate ? 
 
26 NINTH DAY. 
 
 Mr. LiNfOLX. In Nebraska, Kansas, Colorado, Missouri, Arkansas, 
 Louisiana, Illinois, and Indian Territory. 
 
 The Chairman. Not in Oklahoma? 
 
 Mr. Lincoln. No, sir. 
 
 The Chairman. You do not get in there? 
 
 Mr. Lincoln. No, sir. 
 
 Senator Newlands. In seven or eight States? 
 
 Mr. Lincoln. Yes, sir. 
 
 Senator Newlands. In what State is the Missouri Pacific incor- 
 2:)orated ? ...» 
 
 Mr. Lincoln. It is incorporated in Missouri. 
 
 Senator ^'ewlaxds. How much mileage has that system? 
 
 Air. Lincoln. The system embraces between 6,-1-00 and 6,800 miles 
 at the present time. There are over 6,400 miles in operation at the 
 present time. 
 
 Senator Newlands. How is it that the Missouri Pacific operates in 
 these other States — under what management? Does it operate under 
 charters from those States, or by leasing trackage, or what ? 
 
 Mr. Lincoln. I could not answer those questions definitely relating 
 to the executive and legal branches of the company. I have only 
 dealt with the traffic dejjartment. 
 
 Senator Newlands. You are not able, then, to state the capitaliza- 
 tion or the bond issues and stock issues, etc., of the company? 
 
 Mr. Lincoln. No, sir; I have not given those any consideration. 
 
 Senator Nea\lands. How many ditferent roads are in the Missouri 
 Pacific system ? • 
 
 Mr. Lincoln. AVhat is known as the Missouri Pacific Railway Com- 
 pany embraces — I might put this annual report in? 
 
 Senator Newlands. Oh, no. 
 
 Mr. Lincoln. There ai'e four main lines, I might say. There is the 
 Missouri Pacific Railway: there is the central branch of the Union 
 Pacific Railroad ; there is the St. Louis, Iron Mountain and Southern 
 Railroad ; and the Missouri Pacific controls by a lease or ownership 
 what may be known as the Fort Scott, Wichita and Western, the Red 
 River Valley Railway, and numerous other smaller companies. It is 
 the same way with the St. Louis, Iron Mountain and Southern. 
 
 Senator Newlands. Can you state what the method of control is? 
 
 Mr. Lincoln. I could not. 
 
 Senator Newlands. What official of your company could make that 
 statement ? 
 
 Mr. Lincoln. The accounting officer, ]\Ir. S. B. Schuyler, general 
 auditor, or the vice-president, Mr. Clark, or Mr. Gould, the president. 
 
 Senator Newlands. What are Mr. Clark's initials? 
 
 Mr. Lincoln. C. S. Clark. 
 
 Senator Newlands. AVhere is his headquarters? 
 
 Mr. Lincoln. St. Louis, Mo.; C. S. Clark, vice-president, St. 
 Louis, Mo. 
 
 Senator Newlands. Do you make very many changes in the taril? 
 of your system ? 
 
 Mr. Lincoln. Oh, changes are being made every day; yes, sir. 
 
 Senator Neavlands. In the past year how many changes do you 
 think have been made ? 
 
 Mr. Lincoln. Well, there have been 1,500 tariffs issued during the 
 past year, embracing some changes in each of those issues. 
 
NINTH DAY. 27 
 
 Senator Xewlands. "Whenever you make a change do you issue an 
 entirely new tariff? 
 
 Mr. L1NC01.N. Xo, sir : we correct the tariffs by supplement or 
 amendment. 
 
 Senator Xewlaxds. AMien you do that, you call it issuing a new 
 tariff, do you? 
 
 Mr. LiNCOLx. "Well, I would call that an issue of a nevr tariff, 
 where it modifies it. 
 
 Senator Xewl.-vxds. When you say that there have been 1,.500 new 
 tariffs issued 
 
 Mr. LixcoLN. We have issued about 1,500 new tariffs thir, vear. 
 We have in existence now 6,000 tariffs, in force over our systeni."^ 
 
 Senator X'ewlaxds. Six thousand tariffs that are in force? 
 
 Mr. LixcoLx. Yes, sir ; that we are parties to, governing rates. 
 
 Senator Xewlaxds. AMiat is it that necessitates these frequent 
 changes in the rates ? 
 
 ilr. LixcoLX. Extensions of lines, new territory opening up, new 
 business that is developed, the necessity of creating or finding n:arkets 
 for surplus business in any particular territory, etc. The reason 
 for the innmnerable tariffs on our line is thnt we are a party, for 
 example, to nearly every tariff that is issued from a point in tlie 
 Xew England States going to the Pacific coast, or from I Colorado 
 going to the South, and our rates are affected by a change in condi- 
 tions in Utah. Locally, its rates do not change very much. 
 
 Senator Xewlaxds. The most of these changes are caused by condi- 
 tions external to your system ? 
 
 Mr. Lincoln. Yes, sir; most of them are; and ^vhore ihe change 
 takes place on our system, why. it will affect other lines in the same 
 way. 
 
 Senator Xewlaxds. Yes; of course. 
 
 Mr. Lincoln. We to-day are constructing the AVhite River branch 
 of the Iron ^Mountain road which will make a shorter line from Mem- 
 phis to the West, through Carthage, Mo., to that western territory, 
 and it will involve a change of our own tariffs, and in turn will 
 involve the tariffs of nearly every line in the West. The Union Pa- 
 cific will have to make changes in their rates ; the Santa Fe will have 
 to make changes in their rates; the Rock Island will ha\-e to make 
 changes in their rates, the Oregon Short Line the same, and so on. 
 
 Senator Xewlaxds. Assume that all the roads of the country were 
 under Government ownership; would it be necessary then, in order to 
 conduct the transportation business, to make as many changes as are 
 made under existing conditions ? 
 
 Mr. Lincoln. I think it would. 
 
 Senator Xbwlands. Why? 
 
 Mr. LixcoLX\ To properly take care of the business. It might not 
 run through so many publications, but it would in\olve and affect 
 just as many points and involve just as much territory. By tlie con- 
 solidation of issues it probably would not make as many publications 
 necessary. 
 
 Senator Xe\\t.axds. But you think the number of changes would 
 be as great, and that the changes would be as frequent? 
 
 Mr. LixcoLX. Well, possibly not so many, where the control of the 
 rates might lie with one party as it would where the control is dis- 
 tributed as it is now. 
 
28 ISriNTH DAY. 
 
 Senator Newlands. Assume that these roads are under Government 
 ownership, and you were the traffic manager of the entire railroad 
 system of the country, with as many subordinates under you as you 
 needed to conduct that business. Do you tliink you would have to 
 make as many changes as are made now ? 
 
 Mr. LjNCOLN. Oh, in a situation of that kind, where there is one 
 head, possibly there would- not be as many changes as there are now, 
 where there are so many people involved in the handling of the 
 traffic; but there would be a very great many changes, because the 
 power to make rates and meet conditions existing iia different sec- 
 tions of the country would have to be lodged with the man in that 
 territory, who would see those conditions. 
 
 Senator Newlands. Would there not be a tendency to greater 
 stability of rates, though? 
 
 Mr. Lincoln. To some degree there would be; yes, sir. 
 
 Senator Newlands. Are not these changes largely controlled, in 
 some instances, by the inability of the traffic to stand a certain rate, 
 and in other instances by the disposition of /the carrier to increase 
 the rates when he finds that the tariff will bear a higher rate ? 
 
 Mr. Lincoln. Those things influence some changes — a great many 
 changes. 
 
 Senator Newlands. Do they not influence almost all of them— 
 those two causes? 
 
 Mr. Lincoln. No ; I think not. 
 
 Senator Newlands. I have observed that throughout the testimony 
 the traffic managers seem to have a paternal control over the traffic, 
 with a view to developing business within their area, and getting rid 
 of the surplus, etc. Xow, does not that lead largely to these changes? 
 
 Mr. Lincoln. It does; and those conditions would have to con- 
 tinue to develop the business, to create the tonnage, to find markets 
 for the surplus of any territory that you have developed. 
 
 Senator Newlands. Under Government ownership that condition 
 would not exist, would it? 
 
 Mr. Lincoln. It should exist. 
 
 Senator Newlands. Would you regard it as the duty of the Gov- 
 ernment, under those conditions, when traffic was unable to bear a 
 certain rate to reduce that rate, and then when it was able to bear a 
 higher rate to raise it ? 
 
 Mr. Lincoln. It would be the duty of the Government to improve 
 conditions, just as much as it is with the individual carrier; more so, 
 because we want to develop the countrj': we must take care of the 
 people in our country: we must try to find markets for the manu- 
 facturers. 
 
 Senator Newlands. So that these rates would all vary according 
 to the economic conditions of the different localities and. the different 
 enterprises ? 
 
 Mr. Lincoln. They certainly Avould have to, in my judgment. 
 
 (The committee thereupon took the usual noon recess.) 
 
 AFTER recess. 
 
 STATEMENT OF MR. GEORGE R. PECK. 
 
 The Chairman. Mr. Peck, if you are read^' to proceed, you may 
 state your name, place of residence, and occupation. 
 
NINTH DAY. 29 
 
 ;Mr. Peck. My name is George R. Peck : iny residence is Chicago ; 
 my occupation is general counsel of the Chicago, Milwaukee and St. 
 Paul Railway Company. 
 
 The Chairman. Have you a .statement prepared? 
 Mr. Peck. I have. 
 
 The Chairmax. Proceed in your own way. Mr. Peck. 
 Mr. Peck. ilr. Chairman and gentleman, the object of intelligent 
 legislation is to cure some existing evil. The assumption must always 
 be that there is something wrong in the body politic, and that the 
 proposed measure will afford the remedy, either in whole or in part. 
 Diagnosis must always precede treatment; and therefore legislators 
 do not, or at least ought not to, prescribe medicine without a full 
 consideration and a reasonably certain knowledge of the disease. 
 Above all, it is important that the ministrations of the healer should 
 be based' upon a fairly reasonable certainty that there really is a 
 disease which may be relieved by some proper antidote. For evils 
 which are inherent in human nature or in natural laws wise men 
 have always believed that there is more danger from overtreatment 
 than from undertreatment ; more peril from too much than from 
 too little reliance upon the healing craft. It is certainly not prac- 
 ticable, even if it were wise, to endeavor by legislation to eliminate 
 the acti^-ities which lie at the basis of commerce, trade, and traffic, 
 and to substitute the rigid control and regulation of a paternal gov- 
 ernment. That is the Chinese method. But it is not, never has- 
 been, and I trust never ^vlll be the American method. Men will 
 ahvays strive for their own advantage, and out of this strife all 
 human progress — certainly all commercial progress — has come. 
 
 Before legislation, therefore, a preliminary question always arises, 
 namelv. Is there an existing situation which ought to be changed? 
 
 Tha"t commerce carried on without any governmental regulation 
 or control would best serve the public I do not believe. And yet it 
 does not follow that it should be subjected to the minute and, if I 
 may say so, meddlesome interference of a body of men who, in the 
 nature of things, can not grasp its needs and its requirements and the 
 needs and requirements of the public. 
 
 I recognize the abilitv and high character of the gentlemen com- 
 posing the Interstate Commerce Commission. They have done their 
 best in the performance of the duties imposed upon them by the mter- 
 state-commerce. act. Thev have from time to time confessed their 
 failure to accomplish what -nas expected of them. This undoubt- 
 edly is true, but in my opinion it is true not because, as they have 
 frequentlv alleged, the act did not confer upon them as much power 
 as it ouglit, but because it loaded them down with more power than 
 anv five men can efficiently and satisfactorily exercise. 
 
 Coming to the actual situation to-day, I propound the questions 
 suggested in the beginning : 
 First. What is the alleged disease? 
 Secondly. What is the proposed medicine ? 
 My answer is : 
 
 First. The alleged disease is — 
 
 1. That interstate carriers discriminate between shippers, com- 
 munities, and interests by the payment of rebates and by giving pref- 
 erences which are legally and morally wrong. 
 
30 NINTH DAY. 
 
 2. That interstate carriers charge unreasonable rates to their cus- 
 tomers for the transportation of their commoditie-. , , .,i ■ ^ 
 
 Secondly. The panacea offered by the Esch-Townsend bill is the 
 vesting of the rate-malting power in the Interstate Commerce Com- 
 mission. 
 
 THE WROMfiS COjMPLAJN'ED OF. 
 
 No one will deny that the first duty of the common carrier is to 
 treat all its patrons alike. Otherwise,' while it might be a carrier, it 
 would not be a " common " carrier. Whatever may be the rule at 
 common law it is certain that in the legislation of Congress interstate 
 carriers are bound to maintain a legally perfect equality among ship- 
 pers and to eschew all unfair or imreasonable preferences and dis- 
 criminations. This was, as is well known, the principal motive 
 imdcrlying the interstate -commerce act. It was the great evil which 
 that act proponed to destroy. Aided by an enlightened public senti- 
 ment, it did destroy it. It was a grievous wrong, but it is a past 
 wrong. By the concurrent testimony of the Interstate Commerce 
 Commission, of shippers, and of the railways no legislation is needed 
 on the rebate question, certainly none in addition to that which now 
 exists for its suppression. It died hard, but it died. The best wit- 
 nesses as to the fact of its extinction are the Interstate Commerce 
 Commission themselves. The able chairman of that body, Hon. Mar- 
 tin A. Knapp, stated before a committee of the Senate in 1903, 
 " Rebates have practically ceased to exist." Hon. Charles A. Prouty. 
 a member of the Commission, stated the same thing in a public speech 
 Ijefore the Union League Club of Chicago on the 12th day of this 
 month, and Hon. Judson C. Clements, another Interstate "Commis- 
 sioner, in his testimony before the House committee on January 25 
 of this year, nsed the following language: 
 
 " It is the universal testimony', not only of railroad men, but ship- 
 jjers, that since those in^'cstigations and disclosures, and the publicity 
 which was given to tiiem through the press and otherwise, and the 
 injunction proceedings were instituted and maintained, that that prac- 
 tice of directly cutting the rate or paying rebates has very largely dis- 
 appeared. It has been corrected, and that is the universal testimony; 
 there is no doubt about it." 
 
 I may be permitted to say. therefore, in the language of Mr. 
 Clements, " There is no doubt about it." 
 
 It is, of course, possible that some violations of the law prohibiting 
 rebates are still sporadically practiced, but, as Mr. Clements very 
 sagely remarked — 
 
 " l" do not mean to say that there are no violations of the law 
 liere and there, as there are violations of other laws, and as there 
 always will be. \ou have never been able to suppress counterfeiting 
 or theft or any other crime entirely, but Avith great effect and success 
 tliese practices of paying rebates and shipping at cut rates — devia- 
 tions from the published rate — have disappeared.'' 
 
 Then what can be said about the rebate disease, except that it has 
 citlier died out or been stamped out? 
 
 Mr. Clements states, and, I think, correctly, that the extinction of 
 rebates is principally due. to the efforts of the Interstate Commerce 
 Commission in securing injunctions against a large number of roads' 
 but the result of his argument is not that the interstate-commerce act 
 
NINTH DAY. 31 
 
 should be strengthened or changed or enlarged in respect to rebates, 
 but that it is already sufficient to extinguish them. I do not recall 
 another instance in legislative history where after an evil has been 
 suppressed its former existence has been used as an argument in favor 
 of changing the law against it. It has been shown that the existing 
 law is entirely adequate, and has been shown to be so by the testi- 
 mony of the Interstate Commerce Commissioners themselves. 
 
 If rebates have ceased to exist, why do the.advocates of the present 
 bill continue to talk about rebates ? And, still more pertinently, may I 
 inquire, why is nothing said in the Esch-Townsend bill about "rebates ? 
 The sum and sul)^tance of it is that an evil which has ceased to exist 
 is to be killed again by a bill which does iiot even mention it. This, 
 of cour.se, is an utter absurditj', and I feel sure this committee 
 understands it, and understands also that it has no relation whatever 
 to the proposed bill. After the overwhelming te.stimony that rebates* 
 have ceased to exist and that the law as it now stands is ample to 
 crush them out, I say, with due respect, that the talk about rebates is 
 far removed from the real question at issue. I believe this is gen- 
 erally known, but we shall probably not hear the last'of rebates until 
 the bill has gone one way or the other to its final destination. 
 
 Knowing the fallibility of human judgment, I shovdd hesitate to 
 discuss these great questions if I did not feel a steadfast confidence 
 that the proposed legislation now before your honorable committee 
 is fraught "with intinite danger to our Avelfare as a growing, pro- 
 gressive, and self-reliant people. Undoubtedly we have been a pro- 
 gressive nation, but it does not follow that everything proposed as a 
 measure of reform is so in fact. Indeed, the history of legislation 
 shows that y\'e are saved from disaster much more frequently by the 
 rejection than by the adoption of proposed legislation. 
 
 It is never wise to do any great act — particularly a great legislative 
 act which becomes a permanent rule of conduct — simply on the 
 ground that " something must be done." Before any such step is 
 taken, the question must be answered. Ought something to be done? 
 and, a further question, Is the thing proposed to be done the riglit 
 one? , 
 
 Discrimination is a general term irhich includes the payment of 
 rebates and various other devices by which the rule of equality was 
 subverted. The original mterstate-commerce act contained many 
 provisions for the detection and punishment of discriminations, and 
 the Elkins bill supplemented the original act ; and between the two the 
 Interstate Commerce Commission possesses ample powers, and the 
 (jOA-ernment ample remedies. And yet it was not by the drastic penal 
 provisions of the interstate-commerce act that the payment of rebates 
 was suppressed. It was a civil writ that broke down the practic", an 
 injunction sued out in the Federal courts at Chicago and Kansas 
 City. The original interstate-commerce act contained no provision 
 for' injunctions in aid of the law, and the first injunctions were ob- 
 tained without anything like certainty that an injunction was tlie 
 proper remedy ; and I think the Interstate Commerce Commission is 
 entitled to great credit for courageously invoking the remedy, al- 
 though it was largely an experiment. A year later— or something 
 less than a vear— the Elkins bill provided for injunctions to prevent 
 discriminations ; and thus it happened— as it has often happened be- 
 
32 NINTH DAY. 
 
 fore— that the mere order of a court was more efficacious in destroy- 
 ing an evil jDractice than the pains and penalties of the criminal law. 
 
 The advantage of an injunction over a criminal prosecution is that 
 it is speedy, and reaches directly to the heart of the wrong complained 
 of, and it subjects the corporation enjoined to such punishment as the 
 court may deem proper for disobeying its writ. Thus it happens that 
 as the law stands to-day the whole power of the Government may 
 be invoked against an offending carrier, without the delays of crimi- 
 nal prosecutions and the uncertainties of jury trials. The remedy is ' 
 more easih' invoked than by criminal prosecution, for if the Govern- 
 ment has sufficient evidence to indict and convict, it certainly has 
 sufficient evidence to secure a temporary and a permanent injunction. 
 There is no doubt whatever that the average American citizen, who 
 is forbidden to do any particular act under criminal penalties, will 
 niisregard the terrors of a criminal prosecution much sooner than he 
 will risk the punishment of a court for disobeying the mandate of an 
 injunction. The criminal remedies against discrimination still exist 
 in the law, but, as everyone knows, it is the civil writ of injunction 
 which accomplishes what grand juries and criminal prosecutions 
 never could secure. 
 
 As I have stated, the payment of rebates has practically ceased, 
 and in so far as the Esch-Townsend bill seeks to break down the pay- 
 ment of rebates it is pursuing a mere phantom, a ghost of something 
 which once was living but now is dead. 
 
 THE EFFECT OF GOVERNMENT- MADE RATES UPON REBATES. 
 
 If, for tlje sake of the argument, it should be admitted that the 
 practices of paying rebates and charging unreasonable rates still 
 exist, no remedy has ever been suggested which is so far removed 
 from the right one as that of conferring the rate-making power upon 
 a commission. This is so easily demonstrable that one may be ex- 
 cused for discussing it very briefly. Is it necessary to point out that 
 a raihvay company can cut a rate made by a conunission as easily as 
 it can cut a rate made by itself ? flaking a rate is one thing, cutting 
 a rate is anoThei-, and they have no possible relation to each other. 
 If rates had been made by a Government commission for the last 
 twenty years it is perfect^ plain that the rebate system would have 
 grown and flourished as it did under a system which allowed railways 
 to make their o^^'n rates. Indeed, in the course of considerable read- 
 ing upon this subject, I have never yet seen a reason given why a 
 Government-made rate can not as easily be cut as a railway-made 
 rate. 
 
 Speaking for my oAvn company, and in a sense for many other 
 companies, I have only to say that they will welcome any legislation, 
 criminal or remedial, which can in any degree make the payment of 
 rebates more difficult and increase the certaintj- of detection and of 
 punishment. 
 
 The theory of the Esch-Townsend bill is that rebates are paid, and„ 
 incidentally, that unreasonable rates are sometimes charged, and 
 that both these alleged evils can be cured b^^ conferring upon the 
 Interstate Commerce Commission power to fix" and establish the rates 
 upon every interstate railway in the country. But if the o-entlemen 
 composing this committee have supposed that the payment of rebates^ 
 
NINTH DAY. 33 
 
 can be suppressed by giving to the Commission the power to fix rates, 
 I beg to suggest to them that such a result is absolutely impossible. 
 The payment of rebates has been suppressed by a very simple and very 
 sensible proceeding. An injunction against a dozen or more roads, 
 and the possibility of an injunction against a great many others, have 
 accomplished that result. The question about rebates is to-day a 
 mere academic one, as has been declared by the members of the 
 Interstate Commerce Commission themselves, and I pass, therefore, 
 to one which has a practical bearing upon transportation in the 
 United States, and upon its orderly conduct as one of the great 
 elements making up what is termed in the Constitution "commerce 
 among the States." 
 
 This being the result of the examination of the allegation as to 
 rebates, how is it with the remaining accusation against the carriers, 
 for which the new bill is proposed as a remedy, viz., that interstate 
 carriers charge unreasonable rates ; that is, unreasonably high rates. 
 
 This is in substance the allegation that the men who manage the 
 railways share the universal desire of men for property. There is 
 no new discovery in this. It was declared to be an ailment of 
 the carriers long ago. The first section of the interstate commerce 
 act of 1887 dealt with it thus : 
 
 " All charges made for any service rendered or to be rendered 
 * * * shall be reasonable and just; and every unjust and un- 
 reasonable charge for such service is prohibited and declared to be 
 unlawful." 
 
 The remaining sections of the act provided remedies for the 
 enforcement of this prohibition, including complaints and hearings 
 before the Commission; orders hj the Commission which were made 
 prima facie evidence of the facts found therein; applications by the 
 Commission to the courts of the United States to enforce their 
 orders; judgments (and by subsequent acts now in force), injunc- 
 tions, and " other proper process, mandatory or otherwise, to restrain 
 such carrier from further continuing such violation or disobedience 
 of such order or requirement of said Commission, and enjoining 
 obedience to the same," together with writs of attachment, fines for 
 disobedience to the extent of $500 per day of continuing offense; 
 writs of execution and final decrees in personam (i. e., decrees 
 enforceable by imprisonment), and orders for costs and counsel 
 fees. 
 
 It is difficult to see wherein the Esch-Townsend bill improves this 
 list of remedies; and certainly the delegation to the Commission 
 of the legislative power to make future rates will not add to the 
 remedies for violation of existing law. 
 
 "A careful examination of the records of the Commission and the 
 courts from March 4, 1887, to March 4, 1905 — eighteen years— shows 
 that it is only in less than 2 per cent of the cases of alleged injustice 
 which have been brought to the attention of the Commission that the 
 record discloses that it has not succeeded in doing that which it has 
 attempted. A part of this 2 per cent of all the cases has gone to 
 the courts, and in all but three instances the courts have, for one 
 reason or another, concluded that the Commission has acted 
 illegally." 
 
 9 D — 05 M 3 
 
34 NINTH DAY. 
 
 FIXING RATES BY THE GOVERNMENT. 
 
 The original interstate-commerce act gave to the Commission 
 power to decide \yhether a given rate made by the carrier was a rea- 
 sonable rate. That was a judicial act. or at least a quasi-judicial act, 
 but whatever name you give it, it is the exercise of the judicial 
 functions. The Supreme Court has called it a purely judicial act; 
 but whether purely judicial or simply approaching the judicial 
 function, it certainly is not legislative or executive. If it be not 
 judicial it is nothing. The original interstate-commerce act pro- 
 vided for the exercise of this function, and it has never been taken 
 away from the Commission. The Commission, therefore, is in 
 respect to the reasonableness of existing rates a judicial body. The 
 distinction between judicial and quasi judicial amounts to nothing. 
 If the power of the Commission to decide upon the reasonableness 
 of a rate is not a judicial power, what is it? Certainly it is not 
 legislative nor executive, and all there is of it is simply the exercise 
 of judgment upon an existing condition. "\^'hen we speculate upon 
 the distinction between the purely judicial and quasi judicial, we 
 inevitably follow judicial lines which lead to judicial determina- 
 tions. If a rate be attacked as unreasonable, the decision of that 
 question involves the exercise of every faculty of a judge. It in- 
 volves the consideration of evidence — credibility, interest, and relia- 
 bility of witnesses. The determination of the questions involves 
 purely and simply the exercise of judicial attributes, so that it is 
 entirely immatei-ial whether it be called judicial or quasi judicial. 
 The Supreme Court calls it judicial, and everybody knows that it 
 involves the decision of a controversy, and therefore involves the 
 judicial function. 
 
 A CONSOLIDATED DELEGATION OF POWERS. 
 
 The interstate-commerce act, after conferring the judicial or quasi- 
 judicial power of determining upon the reasonableness of an existing 
 irate, halted before taking the next step ; it did not go forward as the 
 Esch-Townsend bill does and confer upon the Commission legisla- 
 tive powers. You will see at once the difficulties which confront us. 
 It is something of a step — perhaps forward, more likely to be back- 
 ward — to confer upon any tribunal, except a court of the United 
 States, any portion of the judicial power of the United States. That 
 power was created by the Constitution and was carefully defined 
 and limited. Let the question of the imposition of judicial power 
 upon the Commission be waived; it probably was unconstitutional, 
 but something might be said in favor of it as a mere judicial insti-u- 
 nientality. 
 
 The Esch-Townsend bill, by vesting the I'ate-making poAver in the 
 Commission, clearly delegates a legislative power. That would be 
 bad enough if it stood alone ; but when united with the judicial power, 
 it is probably unconstitutional, and certainly violative of the funda- 
 mental principles of free government. There can be no possible 
 excuse in such a Government as ours for such an open, flagrant, and 
 reckless disregard of fundamental principles as is proposed in the 
 Esch-Townsend bill. Locke, Montesquieu, and the writers upon the 
 philosophy of government all condemn the union of the different 
 
NINTH DAY. 35 
 
 powers of government in a single body. Our Constitution recognizes 
 this philosophical principle by enumerating the powers of Govern- 
 ment and separating them into coordinate branches. If the Constitu- 
 tion does not formally forbid their union in the same bocjy, it cer- 
 tainly gives a clear rule of action, binding upon all charged with the 
 duty of administering the Goverimient. 
 
 If the Esch-Townsend bill blends and mingles these governmental 
 powers it may or may not violate the Constitution, but it certainly 
 violates the fundamental principle of government as laid down by 
 the great thinkers who have made constitutional government a reality 
 instead of a mere dream. 
 
 Before proceeding further I must call your attention to the curious 
 mingling of governmental powers in the Commissioii under the orig- 
 inal act, the supplemental acts, and the Esch-Townsend bill. The 
 gentlemen composing the Commission, acting as a governmental body, 
 are to have, first, the executive power, to wit, of investigation and 
 prosecution; secondly, the power of determination, and, thirdly, un- 
 der the Esch-Townsend bill, the strictly legislative power of fixing 
 future rates. 
 
 I do not think anyone can suppose for a moment that such an 
 aggregation of powers can rightfully be vested in any single tribunal. 
 I? I am wrong, and all of these things can be done, it is time that 
 statesmen should halt before exercising so dangerous a power. No 
 one, I think, will claim that the Constitution ever intended to vest 
 in Congress such an unlimited prerogative as is proposed in this 
 bill ; much less did the Constitution intend to enable Congress to vest 
 such prerogative in a subordinate body of its own creation. Whether 
 the Constitution in its careful enumeration of the powers of govern- 
 ment has so separated them as to prohibit their union -in any gingle 
 body is one question, but whether statesmen intrusted with the great 
 power of making laws can properly disregard that enumeration and 
 distribution of powers is another. 
 
 These fundamental principles, which are plamly recognized m the 
 Constitution and which have been sedulously adhered to by all 
 branches of our Government in the past, forbid this centralization of 
 legislative, executive, and judicial powers in any single body of nien. 
 In considering great measures of public policy when powers are being 
 intrusted to individuals wisdom dictates a limit, not upon what they 
 will do, but upon what they may do. The Esch-Townsend bill 
 beyond any question confers a greater power upon the Interstate 
 Commerce Commission than was ever intrusted by any law in any 
 government upon anv body of men. 
 
 The rate-making power upon any railway is the power ot commer- 
 cial life and death. It is, under the Constitution, clearly a property 
 right-subject, of course, to the regulating power of the btate which 
 created it, and as to interstate business, of the United States. AH 
 property rights in this country are protected by the Federal Constitu- 
 tion, and in the great amendments which protect life, liberty, and 
 proT^rty the term " libertv " means not simply the physical privilege 
 of being out of jail, but the right freely to carry on ones business, 
 using and enjoying one's faculties and liberties according to the law 
 
 of the land. „ ... , ■ , 
 
 Placing all of these in the hands of a commission is certainly wrong 
 
 and probably unconstitutional. 
 
36 NINTH DAY. 
 
 The Esch-Townsend bill not only subjects all these rights_ to the 
 caprice of a body of men claiming executive, judicial, and legislative 
 powers, but confers upon that body an implied — and perhaps an ex- 
 press — power to repeal any regulations which Congress may have 
 heretofore made. 
 
 The first section of that bill provides : 
 
 " That whenever upon complaint * * * the Interstate Com- 
 merce Commission shall after full hearing make any finding or ruling 
 declaring any existing rate for the transportation of persons or prop- 
 erty or any regulation or practice whatsoever, affecting the transpor- 
 tation of persons or property to be unreasonable or unjustly dis- 
 criminatory, the Commission shall have power and it shall be its 
 dutj' to declare and order what shall be a just and reasonable rate, 
 practice, or regulation to be charged, imposed, or followed in the 
 future." 
 
 Every statute heretofore passed by Congress regulating interstate 
 commerce is embraced within the terms of this act as a " regulation or 
 practice affecting the transjoortation of persons or property." 
 
 The Commission is vested with power by this bill to determine that 
 any regulations which previously may have been enacted by Congress 
 are unreasonable, and to enact its own regulations in their place. 
 
 The antilottery legislation of Congress, to which I shall refer again, 
 is illustrative of this proposition. It is said by the friends of the 
 bill that while it gives power to the Commission to make rates, it is 
 a power they may only exercise upon complaint, and that carriers 
 will be left comparatively free to make rates, as they now do. The 
 trouble with this argument is that when a complaint is made, and the 
 Commission has decided an existing rate, rule, or regulation to be 
 unreasonable, they are authorized and required to make the proper 
 rate, rule, or regulation. Xow, it is well understood that all rates 
 are so related that when one is made or changed many others are 
 affected and have to be changed, so that it is plain that when the 
 Commission starts out making rates there is no halting place. The 
 interrelation of rates is such that it is not within the power of the 
 Commission, if it once starts making rates, to stop. A rate from 
 St. Louis to Kansas City, which is purely a local rate, would affect 
 j)ractically all the transcontinental rates from the British Columbia 
 line to the Mexican line. 
 
 That was illustrated by Mr. Lincoln this morning, as to how a rate 
 from the Mississippi to the Missouri immediatelv affects all the 
 rates — the transcontinental rates and all others. I heard a traffic 
 man declare, as to the local tariff in Missouri, which goes into effect 
 July 1, that when it goes into effect every rate from as far as Detroit 
 and Grand Eapids on the east, to Butte, Mont., on the west, will 
 necessarily be affected by it. 
 
 As was said a few years ago by an eminent traffic manager in speak- 
 ing of this subject, " If you touch the button at Duluth, the bell will 
 ring at Galveston." 
 
 No commission of five or seven men sitting in Washington can 
 understand this interrelation of rates as do men who have devoted 
 their lives to it and who have a personal interest in the properties 
 with which they are connected. The cold indifference of mere com- 
 missions and of official bureaus never have built up and never can 
 build up great commercial and public interests. It can not be neces- 
 
NINTH DAY. 37 
 
 sary to point out to men of experience that it is much better that the 
 management of properties— corporate or private— should be in the 
 hands of the owners or of people who are personally interested. 
 
 The Commission has never been composed of 'railroad men. I 
 think every member of the Commission, from its organization to its 
 present moment, has been a lawyer, with but one exception. Their 
 education, their training, have not given them expert knowledge 
 which is attained by practical experience. "With 215,000 miles of 
 railway under the jurisdiction of seven lawyers the situation is strik- 
 ingly unreasonable on the face of it, and when it is remembered that 
 the Esch-Townsend bill proposes to give the Commission not only 
 authority to make rates, but to make rules and regulations, the un- 
 reasonableness becomes absolutely grotesque. The rules and regu- 
 lations provided for in the bill seem to be practically unlimited and 
 reach not only questions of traffic, but of the operation of trains, 
 regulations of tracks and bridges, and the infinite number of details 
 which may be managed and controlled by the Commission. 
 
 TO WHAT EXTENT CA^^ THE LEGISLATIVE POWER OE CONGRESS 0\'ER 
 INTERSTATE COMMERCE BE DELEGATED? 
 
 "Whatever power Congress may have over interstate commerce is a 
 delegated power. It is found alone in the Constitution, and outside 
 of the Constitution it does not exist, except to such an extent as may 
 be necessary to carry out the constitutional grant. The States have 
 an original sovereignty, and by virtue thereof may and do exercise 
 visitorial power over the corporations of their own creation and also 
 over the commerce in which they are engaged — that is to say, the 
 control by the States of their own domestic commerce is original and 
 inherent, while the control of interstate coimnerce by the Federal 
 Government is delegated and limited. The States do not hold dele- 
 gated powers. They are themselves the original repositories of 
 power. The Federal Government, on the contrary, is possessed only 
 of such powers as are delegated and confided to it. The power to 
 regulate interstate commerce is itself a delegated and confided power. 
 
 The States which, prior to the Constitution, possessed the power 
 to regulate their own commerce, in their own way, gave up the 
 power of regulation among themselves — -that is to say, between their 
 own people and the people of the other States. 
 
 Congressional powers being thus only enumerated or delegated 
 powers. Congress may well pause in its consideration of great ques- 
 tions and deliberate before it assumes to do anything which it is not 
 clear may rightfully be done under its grant. 
 
 Judge Cooley, one of the greatest constitutional lawyers our coun- 
 try has produced, and himself the first chairman of the Interstate 
 Commerce Commission, has said this: 
 
 " One of the settled maxims in constitutional law is that the power 
 conferred upon the legislature to make laws can not be delegated by 
 that department to any other body or authority. Where the sov- 
 ereign power of the State has located the authority, there it must re- 
 main; and by the constitutional agency alone* the laws must be 
 made until the constitution (*117) itself is changed. The pdwer to 
 whose judgment, wisdom, and patriotism this high prerogative has 
 been intrusted can not relieve itself of the responsibihty by choosing 
 
38 NINTH DAY. 
 
 other agencies upon which the power shall be devolved, nor can it 
 substitute the judgment, wisdom, and patriotism of any other body 
 for those to which alone the people have seen fit to confide this sov- 
 ereign trust." (Cooley's Constitutional Limitations, 141, 4th edi- 
 tion.) 
 
 This being the fundamental rule as to the States in general which 
 have inherent power, much more is it the rule as to Congress, which 
 has received the power from the States. Congress, holding this 
 power as the agency of the States, can not pass it on to a new agency 
 of its own creation. 
 
 In Field v. Clark (143 U. S., 649), the Supreme Court, speaking 
 by Mr. Justice Harlan, said : 
 
 " That Congress can not delegate legislative power to the President 
 is a principle universally recognized as vital to the integrity and 
 maintenance of the svstem of government ordained by the Constitu- 
 tion" (p. 692). 
 
 In that case the question decided was upon the constitutionality of 
 the tariff act of October 1, 1890, and that act was sustained upon the 
 following ground as stated by the court : 
 
 " For the purpose of securing reciprocal trade with countries pro- 
 ducing and exporting sugar, molasses, coffee, tea, and hides. Congress 
 itself determined that the provisions of the act of October 1, 1890, 
 permitting the free introduction of such articles should be suspended 
 as to any country producing and exporting them that imposed ex- 
 actions and duties on the agricultural and other products of the 
 United States which the President deemed — that is, which he found — 
 to be reciprocally unequal and unreasonable. Congress itself pre- 
 scribed, in advance, the duties to be levied, collected, and paid on 
 sugar, molasses, coffee, tea, or hides produced by or exported from 
 such designated country while the suspension lasted. Nothing in- 
 volving the expediency or the just operation of such legislation was 
 left to the determination of the President." (143 U. S., pp. 692 and 
 693.) ■ 
 
 Precisely these elements of legislative power which were not so 
 left to the determination of the President by that. act are proposed 
 to be left to the determination of the Interstate Commerce Commis- 
 sion by the Esch-Townsend bill. 
 
 In the tariff-reciprocity act Congress recognized the necessity 
 which might arise for suspending the duties levied thereby in the 
 case of unreasonable and unequal reciprocal duties laid by a foreign 
 government upon American commerce. 
 
 Recognizing this necessity it invested the President with the power 
 to suspend those duties, and it provided a new schedule to go into 
 effect during the period of such suspension. But this new schedule 
 was provided by Congress itself and not by the President, or any 
 commission, or subordinate tribunal. It was this very fact, that 
 Congress provided the secondary schedule as well as the primary 
 schedule, that saved the act from the fatal vice of making an uncon- 
 stitutional delegation of power. 
 
 The Esch-Townsend bill proposes to make the Interstate Commerce 
 Commission the ultimate repository of power in the matter of rates, 
 rules and regulations. The same reasoning which sustained the tariff- 
 reciprocitv act of 1890 defeats the operation of the Esch-Townsend 
 bill. 
 
HINTH DAT. 39 
 
 THE PREFERENCE CLAUSE OF THE CONSTITUTION. 
 
 Thei'e has been considerable discussion before your honorable com- 
 mittee arid elsewhere as to the relation of the Esch-Townsend bill 
 to the preference clause of the Constitution. The bill, undoubtedly, 
 proposes a comprehensive system of rate making by the Commission. 
 It is the goal of their ambition, and if it becomes a law I do not 
 hesitate to saj'^ that the strongest, most powerful body of men in the 
 world will be the Interstate Commerce Commission of the United 
 States. 
 
 There are nearlj^ 21.5,000 miles of railway in the ITnited States, 
 and the principal business of most of them is interstate. Even the 
 smallest local lines do more or less interstate business. The mileage 
 which the Esch-Townsend bill proposes to put imder the care of the 
 Interstate Commerce Commission exceeds that of all Europe com- 
 bined and amounts to nearly half of all the mileage of the world. 
 The United States long since became a great exporting nation; at 
 first it was principally" agricultural, but we have gradually passed 
 other nations until our exports of manufactured articles lead the 
 world. 
 
 Clause 6 of section 9, Article I, of the Constitution, contains this 
 provision : 
 
 " No preference shall be given by any regulation of commerce or 
 revenue to the ports of one State over those of another." 
 
 Nobody will dispute that when the Government makes a rate, 
 either by direct act of Congress or through the agency of the Inter- 
 F.tate Commerce Commission, it is making a regulation of commerce, 
 which regulation necessarily must be subject to all the limitations 
 imposed by our Constitution. 
 
 The question which we have to meet is : Can the Interstate Com- 
 merce Commission— which, under the Esch-Townsend bill, will stand 
 in the place of Congress, certainly with no more powers than Con- 
 gress would have— make any preferences in its regulations ol the 
 ports of one State over those of another? 
 
 If the constitutional provision applies and is binding upon the 
 Interstate Commerce Commission they can not make preferences; but 
 if, on the other hand— as they themselves insist— they wiU not be 
 governed by this constitutional provision in the making o± rates, 
 then, I submit, the power should never be given to them. It is an 
 open question to-day which would be the greater calamity to the 
 people of the United States, to have the constitutional provision 
 applied so that only distance tariffs could be made to the ports of 
 competitive States, or to have it held that the constitutional provi- 
 sion does not apply and may be disregarded. In either case the evil 
 consequences would be far beyond calculation. 
 
 I have had the pleasure of reading an opinion recently submitted 
 to this committee by the Interstate Commerce Commission, in which 
 that body advises you that the Constitution would not stand m the 
 way of their making rates, rules, and regulations (as Proposed m the 
 Esch-Townsend bill), fixing differentials, and equalizing natural ad- 
 vantages and disadvantages. . . n„^^4„a^^T, i= 
 It seems very plain to me that the opinion of the Commission is 
 entireTy^^on7 But it seems equally plain that if their views are 
 somid they infite the people of the Untted States to accept them as 
 the supreme arbiters of the commercial destinies of the nation. 
 
40 NINTH DAY. 
 
 The Commission refer to voluntarj' acts of the carriers themselves 
 in 1882 in making difi'erentials, as a precedent for the Government to 
 enact differentials by law, and add : 
 
 " To say that the carriers themselves may do what the Government 
 could not permit is simply begging the question." 
 
 The answer to this is that the constitutional prohibition of prefer- 
 ences is not directed against carriers, but against regulation of com- 
 merce by the Government. As the Supreme Court said in Munn v. 
 Illinois, 94 U. S. (4 Otto) , 113 : 
 
 " This provision operates only as a limitation of the powers of 
 Congress." 
 
 It is, therefore, incumbent upon the Interstate Commerce Commis- 
 sion to explain whether the Supreme Court of the United States has 
 also " begged the question." 
 
 Citizens may often freely do what the Government is forbidden to 
 do. For example : 
 
 " Congress shall make no law respecting an establishment of re- 
 ligion." (First amendment to the Constitution.) 
 
 But no one would claim that each individual might not freely 
 establish his own religion. Apparently it would seem to the Inter- 
 state Commerce Conunission to " lead to absurd consequences." 
 
 This last assertation of power by the Commission embraces not 
 only all the powers of legislative, the executive, and the judicial de- 
 partments combined so far as relates to interstate commerce, but 
 finally adds the power of the owners of the property themselves, and 
 asserts the possession of all this power unlimited by the restrictions 
 of the Constitution. 
 
 The Commission seems to think that the proposition that in mak- 
 ing rates, rules, and regulations they would be governed by the Cou; 
 stitution would lead " to absurd consequences ; " and they declare 
 that " it strikes them as very singular that this question, if it has any 
 merit, has not been raised heretofore." Of course it has not been 
 raised before them, because they have had, up to this time, nothing to 
 do with it, they not having the rate-making power. 
 
 They must have observed, however, that as soon as it was proposed 
 to give them the rate-making power — that is to say, the power to regu- 
 late commerce — it was raised, and it was shown that this constitu- 
 tional provision is applicable to any regulation of commerce by or 
 xmder the authority of Congress, affecting the ports of the United 
 States. 
 
 The opinion of the Commission expressly admits that " to estab- 
 lish the same rates from a given point to all ports would obviously, 
 as it seems to us, prefer the most distant port, other things being 
 equal." The alternatives are two — one the distance rate, and the other 
 the making of differentials to overcome natural differences. The 
 Commission thereupon contends that " to establish rates on a uniform 
 mileage basis, so that distance alone determined the relation of rates, 
 would in many, if not most cases, result as a practical matter in the 
 actual preference of one port over another," the answer to which is 
 that the " actual preference " in such case is made by nature itself. 
 The plain intent of the constitutional prohibition is that natural 
 advantages shall not be overturned by regulation or interference by 
 a Commission, or by act of Congress itself. 
 
NINTH DAY, 
 
 41 
 
 Thi¥lt*nl f ^"^ f^^.^^'n *° ^^ '^ possession of advance sheets of 
 liie l.aw o± Interstate Commerce, by Hon. F. N. Judson of St 
 Loms a recognized authority upon th^at subject. I hope tSe Ster." 
 state Commerce Commission wiU not say that he also^is "beJnff 
 the question" or that his construction Q-'f the Constitution "wS 
 
 he oSr,Sr.'?i''^''''nrV . ^^' *^*^ i^' «« f^r as I have seen 
 !5.!.T 11 f l^T^y^P' t^^ Interstate Conmierce Commission stands 
 practically alone in its view of the constitutional provision prohibit- 
 mg a preference of ports of different States. This is what Mr. 
 Judson says, in speaking of the regulation of rates by Congress or 
 by a Commission : j s, ^ ° "j- 
 
 J' ^^5"® exercise of this power Congress, or any Commission under 
 the authority of Congress, is restrained by the provision that ' no 
 prelerence shall be given by any regulation of commerce or revenue 
 to the ports of one State over those of another.' " (See sec. 56 ) 
 
 benator Newlands. Your contention, then, is that the equalization 
 01 rates IS really a preference? 
 
 Mr. Peck. By a differential. It seems to me to be very clear, and 
 it seems to Mr. Judson also to be very clear. If the ports are of dif- 
 ferent States, it IS to equalize the States and not the particular ports. 
 
 Senator Newlands. Yes. 
 
 Mr. Peck. There is not any way that a port can be preferred over 
 another so easily, so successfully, and so disastrously to the port as 
 by making different rates between them. 
 
 When the States gave up to Congress the power to regulate com- 
 merce among the several States, the smaller States insisted, as a con- 
 dition of granting that power, that this equality between ports of 
 different States be preserved ; they feared that the large States and 
 the ports of the large States would be preferred over those of the 
 smaller. This provision was introduced by Mr. Carroll and Mr. 
 Luther Martin, of Maryland. (See Elliott Debates, 266; Madison 
 Journal, 5th ed., Elliott, 4789.) It was considered in detail by a 
 special committee of one member from each State, and was reported 
 by this committee (Sherman, chairman) in its present form (ibid., 
 270; 5th ibid., 483). It was adopted by a special vote taken by 
 States (ibid., 502). It was inadvertently omitted from the draft 
 by the committee on revision and style (ibid., 298), and thereupon, 
 on September 14, the day before the close of the convention, was 
 unanimously reinstated into the Constitution. (1 Elliott, 310; Madi- 
 son Journal, 5th Elliott, 545.) The authorship of it was expressly 
 claimed as a measure of protection to Maryland and the smaller 
 States by Hon. Luther Martin in his address to the Maryland legis- 
 lature January 27, 1788 (1 Elliott, 375-376), and he regretted even 
 that this provision of protection for the smaller States had not been 
 more extensive and minute. 
 
 It was one of the compromises of the Constitution, first, that Con- 
 gress should have the power to regulate commerce among the States, 
 and, secondly, that in so doing it should never prefer the ports of one 
 State over those of another. That was the price they had to pay for 
 the commerce clause of the Constitution. 
 
 In the Wheeling Bridge case, to which the opinion of the Commis- 
 sion makes reference, it was held that regulations of commerce which 
 had no such object or intention, but which indirectly and incidentally 
 
42 NINTH DAY. 
 
 micht have the effect to give one port an advantage over another, 
 were not within the prohibition, but that the clause, in ternis, imports 
 a prohibition aeainst positive legislation by Congress to this effect. 
 
 The committee will permit me to illustrate the effect of natural 
 differences of competing States upon the business of their ports. 
 
 Mississippi, Georgia, and Texas are great cotton-producing States. 
 Cotton is exported from the Gulf ports and the ports of the Atlantic 
 seaboard, and, as is well known, the trade with the Orient through 
 vhe Pacific ports is increasing with great rapidity. It is conceivable 
 that San Diego, San Francisco, and Seattle may become rivals in the 
 export cotton trade. Their distance from the cotton-producing re- 
 gions is greater than is the distance from the Atlantic and the Gulf 
 ports. Let the Commission attempt to equalize shipments to the 
 various ports by their system of differentials and they will learn that 
 the ports of every State have equal rights with the ports of every 
 other State to whatever natural advantages they may have. 
 
 Take the two great orange-producing regions, California and Flor- 
 ida. There can be no doubt that every port which wishes to compete 
 in the orange trade has a constitutional right to do so which can not 
 be curtailed or abridged by any regulation of commerce. 
 
 While Congress, or a commission empowered to regulate commerce, 
 can make no regulation which shall give preference to the ports of 
 one State over those of another, no such obstacles stand in the way 
 of the development of trade by the enlightened and proper action of 
 carriers under the great law of competition. Stimulated by their 
 desire to build up the ports and commercial centers which they reach, 
 they have succeeded in largely counteracting natural advantages and 
 gave to the people what governmental regulation never could give. 
 As Judge Payne, of the supreme court of Wisconsin, said many years 
 ago: 
 
 " They bring to every part of the United States the product of 
 every other part. Th6y have enabled the public to anticipate and 
 prolong the seasons." 
 
 It may be said, and certainly with truth, that the primary motive 
 governing railway management is a selfish one; but it is equally 
 true that all human activities, certainly all commercial activities, rest 
 upon selfishness. 
 
 Your honorable committee is doubtless familiar with the great con- 
 troversy between the Gulf ports and the Atlantic ports. One branch 
 of that controversy is in relation to grain rates from the Middle West. 
 Omaha and Kansas City, which are the gathering places for the prod- 
 ucts of the great States of Nebraska and Kansas, are to-day enjoy- 
 ing competitive rates to the Gulf of Mexico and Atlantic seaboard, 
 although each is several hundred miles nearer the Gulf than the 
 Atlantic ports. 
 
 It is not the fostering care of a paternal government which gives 
 these great producing areas the benefit of competition, but the en- 
 lightened selfishness of the transportation corporations struggling for 
 the business which is obtainable by competition untrammeled by 
 legislative interference. 
 
 Is it not plain that if New York is given the same rate upon the 
 1,600-mile haul from Omaha that is paid on the 1,200-mile haul to 
 
NINTH DAY. 43 
 
 Galveston, a preference is shown to the port oi: New York over the 
 port of Galveston ? 
 
 When the Constitution was adopted railroads were unknown, but 
 so also were steamboats and the great agencies of modern commerce. 
 The framers of the Constitution did not have them in view ; but it is 
 well understood that the Constitution adapts itself to new conditions 
 as they arise. No one could have supposed when the Constitution 
 was adopted that the time would come when the new form of trans- 
 portation by steam would cover the country with highways greater 
 and more important than any which had existed before. " Eegula- 
 tion of commerce " meant very much less than it does now, but no one 
 can say that the limitation upon this regulation found in the prefer- 
 ence clause "is less important now than it was then. On the con- 
 trary, it is more important. With out great seaboards — the Atlantic, 
 Pacific, and Gulf — -with our commerce reaching out to the uttermost 
 limits of the world, it is plainly of the greatest importance that the 
 different ports be left free to compete with each other under natural 
 conditions and not under the arbitrary control of either Congress 
 or an Interstate Commerce Commission. There certainly could be no 
 way of preferring one port over another which could be so effectual 
 and certain in its results as by malring preferential rates to one over 
 those given to another, or by making rules and regulations which 
 should be more favorable to one than another. What the Interstate 
 Commerce Commission in its opinion «alls " absurdity " is simply 
 the application of plain common sense to a commercial situation. If 
 the fiiterstate Commerce Commission establishes a rate it thereby 
 regulates commerce, for otherwise it would have no power to estab- 
 lish the rate. It is only as a regulation of commerce that it can be 
 permitted to make a rate at all. 
 
 If the power to make rates is conferred upon the Interstate Com- 
 merce Commission that body Avill be immediately confronted with the 
 responsibility of making rates to and from every port in the United 
 States. If it makes a rate to or from Philadelphia, in the State of 
 Pennsylvania, it must not give any preference to that port over Bal- 
 timore, in the State of ISIaryland, or any of the numerous ports upon 
 the Atlantic seaboard in other States than Pennsylvania. More than 
 this, no rate established by the Commission to or from any port of 
 the United States in the East, the South, or the West, or elsewhere 
 can be permitted to give preference to the ports of one State over 
 those of another. And of course the ports would see to it. If the 
 power to make rates should be vested in the Interstate Commerce 
 Commission, they can not fail to immediately get up a great conflict 
 between the different ports, each one claiming that it was discrimi- 
 nated against. 
 
 The Interstate Commerce Commission, however, insisting that the 
 preference clause of the Constitution is not applicable, boldly takes 
 the logical step of asking that they be permitted in making rates to 
 establish differentials, and that they be trusted by this great commer- 
 cial nation with the power to preserve harmony between all the ports 
 and commercial centers of the United States. If the Interstate Com- 
 merce Commission were gifted with superhuman knowledge and a 
 superhuman sense of justice and fair dealing, they could not do what 
 they are asking Congress to permit them to do. 
 
44 NINTH DAY. 
 
 THE COMMISSIOISr AS THE REPOSITOET OF GENERAL POWER OF REGULA- 
 TION — AVHAT IT MEANS — PHYSICAL REGULATION SUMPTUARY REGU- 
 LATION — THE COaiMISSION AS THE ARBITER OF MORALS. 
 
 The Esch-I'ownsend bill, among other things, provides that — 
 
 " Whenever * * * the Interstate Commerce Commission shall 
 * * * make any finding or ruling declaring any * * * regu- 
 lation or practice whatsoever affecting the transportation of persons 
 or property to be unreasonable * * * the Commission shall have 
 power and it shall be its duty to declare and order what shall be a 
 just and reasonable * * *" practice or regulation to be * * * 
 imposed or followed in the future in place of that found to be un- 
 reasonable * * *." 
 
 This puts the entire power to regulate such commerce into the 
 keeping of the Conunission. The scope and extent of this power in 
 other directions than those which relate merely to the making of rates 
 and charges can be estimated from such illustrations as the safety- 
 appliance act and the lottery-ticket act. These are regulations of' 
 interstate commerce, and are valid only because of the constitutional 
 power of Congress to regulate interstate commerce. Congress has 
 no general power to protect the morals of the community, but it has 
 the power to prescribe reasonable regulations of interstate commerce, 
 both in relation to morals and safety, as well as to the cost and 
 charges of transportation. * 
 
 In the case of the lotteries the general consensus of opinion in 
 America has undergone a marked change in the last century. Less 
 than a century ago Congress itself authorized the city of Washington 
 to conduct a lotterv for the purpose of aiding in paving and improv- 
 ing the city. (Act of May 4, 1812; Cohens v. Va., 6 "VMieat., 276.) 
 During the Eevolution the Continental Congress promoted a lottery 
 to raise funds for the American Government. (Johnson's Cyc, 
 " Lotteries.") About the same time Harvard College conducted a 
 lottery to raise money for college buildings. (New Internat. Encyc.) 
 Gradually the opinion gained the ascendancy that lotteries were 
 immoral and pernicious ; alid churches, local communities, and States 
 legislated against them. Congress and the United States postal 
 authorities united in excluding lottery tickets from the United States 
 mails. The lottery companies easily escaped the consequences by 
 sending their lottery tickets by express ; thereupon Congress enacted 
 the act of March 2, 1895, which forbade lottery tickets to be carried 
 as objects of interstate commerce, and this was applied to carriage 
 by express companies. (28 Stat. L., 9C3; 188 U. S., 321.) 
 
 This illustration of carrying lottery tickets is one of the existing 
 i-egulations or practices which, by the bill, would become subject to 
 the judgment and decision of the Commission. It proposes to give 
 the Commission power to declare existing regulations and practices 
 unreasonable and to enact some new regulation or practice in its 
 place.. The language of the bill goes so far on the face of it that 
 it gives the Commission power to make a new regulation, even to 
 take the place of one directly established by act of Congress. 
 
 This is a fair construction of the bill — that by the Esch-Townsend 
 bill the Commission can find and declare that the safety-appliance 
 act or the lottery-ticket act is an unreasonable regulation and make 
 
NINTH DAY. 45 
 
 a new one, because the bill fails to make anv reservation as to rules 
 and regulations already made by Congress itself. 
 
 The Chairman. But did it not evidently mean rules and regu- 
 lations practiced by railroads — common carriers? 
 
 Mr. Peck. I should hope so ; and I am only speaking of what the 
 law is. 
 
 The Chairman. Yes. . 
 
 Mr. Peck. It shows the looseness with which it is drawn, and the 
 perfect willingness there was in whoever drew the bill to confer all 
 power on the Interstate Commerce Commission. 
 
 I go on, Mr. Chairman, to say that this is a fair construction of the 
 bUl, from its language ; and, even if it should be held that an act like 
 the safety-appliance act or the act prohibiting the carrying of lottery 
 tickets by common carriers could not be changed by the Commission 
 and a new regulation established in its place, nevertheless, as to any 
 matter of interstate commerce which Congress has not acted upon the 
 Commission may act. In other words, if Congress had not acted at 
 all on the subject of lotteries, the Commission would have authority to 
 do so under the Esch-Townsend bill. Clearly, also, the Commission, 
 with the whole power of Congress to make rules and regulations, can 
 enter, at any time, upon the realm of interstate morality. It could 
 make a rule or regulation that cigarettes, playing cards, objectionable 
 books and such as are likely to contaminate the public morals, shall 
 not be transported by common carriers. Congress has not acted on 
 any of those, I believe. There is no legal or constitutional reason why 
 lottery tickets should be under a ban, while other immoral subjects 
 or practices are left free and untrammeled. The Supreme Court has 
 decided that it is within the constitutional power of Congress to pro- 
 hibit the transportation of lottery tickets, and solely upon the ground 
 that it is a regulation of commerce. 
 
 The powers of Congress to make rules and regulations are dele- 
 gated by this bill to the Commission so that the power to regulate 
 morality is clearly vested in them, within the decision of the Supreme 
 Court of the United States in the lottery case. 
 
 Now, it can not be denied that the Esch-Townsend bill seeks to 
 transfer to the Commission whatever power Congress may exercise 
 upon the subject; and, therefore, the Commission may, in pursuance 
 of its authority, make rules and regulations supervising the morals 
 of the country. A more dangerous power was never lodged in any 
 body of men by American law or a semblance of law. . 
 
 It is the rule now, I assume, that anything is accepted for trans- 
 portation that is fit to be transported, and the modus operandi of get- 
 ting a new rule would be for somebody having views about books or 
 pictures or cards or liquor to complain of a road as carrying them, 
 whereupon the jurisdiction would be open for the Interstate Com- 
 merce Commission to make a rule or regulation shutting them all out 
 of transportation. 
 
 Our friends may say that in each of these cases the court of trans- 
 portation would, on appeal, set aside the rule or regulation of the 
 Commission, but it is little answer to a tyrannical and despotic asser- 
 tion of power to say that those who are to suffer by it may have relief 
 in the courts. Litigation is an expensive luxury, and it has never 
 been claimed that the fact that one may obtain relief m court is any 
 justification for enacting vicious and dangerous laws. 
 
46 NINTH DAY. 
 
 Besides, it is a most serious question whether the court of transpor- 
 tation or any other Federal court under the Constitution can be vested 
 with the power of making or passing upon mere administrative 
 duties or the direction of mere matters of business policy. It is, in 
 my judgment, very certain that judges can not be compelled to assume 
 such duties. Undoubtedly the court can decide upon the reasonable- 
 ness of a rate, because that is a judicial question, but to vest jurisdic- 
 tion in a court to pass upon errors of policy of administration is an 
 entirely different i-iroposition. 
 
 So the Wilson Act, adopting (with regard to intoxicating liquors 
 as objects of interstate commerce) the liquor laws of the respective 
 States into which such liquors are transported (act of August 8, 1890, 
 ch. 728; 26 Stat. L., 313), is an existing "regulation " which the 
 Commission would have power to set aside, and for it they could sub- 
 stitute new regulations of their own making. This proposed grant 
 of power has no limit except the future Commission's own views of 
 what is reasonable. They could easily procure a complaint to be 
 made of any existing " practice," whether it has ever been the subject 
 of previous" Congressional enactment or not, and with the complaint 
 once before them could find the existing " practice " all wrong and 
 enact and enforce a new " practice " as all right. The only limits are 
 the reason and judgment of the Commission itself. This would vio- 
 late that fundamental principle that American government is a gov- 
 ernment of laws and not of men. It would be emphatically a substi- 
 tution of the judgment of commissioners for the law of the land. 
 Anything which thej' deemed against the morals of the States they 
 could forbid to be transported, or any book which in the opinion of 
 the Commission was unfit to be carried through the mails and there- 
 fore unfit to be carried in a freight train. The power which Congress 
 had in the matter would be transferred to the Commission, and all 
 these objects of commerce would be subject to regulations, just as lot- 
 tery tickets were. A more dangerous power was never lodged in any 
 body of men by any American law or semblance of law . 
 
 (Senator Foraker here announced the death of the father of Sena- 
 tor DoUiver, and moved that, as a mark of respect, the committee 
 adjourn until to-morrow morning at 11 o'clock. The motion was car- 
 ried, and the committee adjourned, as stated.) 
 
REGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 TESTTH DAY. 
 
 Saturday, April 29, 1905. 
 The committee met pursuant to adjonrmnent. 
 
 STATEMENT OF MR. JAMES H. HILAND. 
 
 The Chairman'. Mr. Hiland, please state your name and your busi- 
 ness. 
 
 Mr. Hiland. My name is .James H. Hiland; I am third vice- 
 president of the Chicago, Milwauliee and St. Paul Eailway, in charge 
 of traffic. 
 
 Mr. Chairman, I shall proceed, without any preface whatever, 
 to state my objections to the proposed measure, and as I shall not 
 occupy very much of your time I should like the privilege of read- 
 ing them through, and then if there are any questions that any mem- 
 bers of the committee desire to ask in regard to the points made, I 
 shall be glad to answer them. I think this method!^ will expedite, 
 matters both for the committee as well as myself. 
 
 The Chairman. Proceed in j^our own way, Mr. Hiland. 
 
 Mr. Hiland. Some of the objections to placing the rate-making 
 power in the hands of the Interstate Commerce Commission are: 
 
 It gives the Commission power to limit the earning capacity of the 
 railways by investing it with authority to make rates without provid- 
 ing means that will prevent nullification of the Commission's order 
 by relative reductions on the part of competing ' railways, thereby 
 maintaining the correlation of rates originally complained of, thus 
 compelling reductions in revenue without resulting in corresponding 
 benefit to the complainants. 
 
 It will change the railway geography and destroy niuch of the 
 wealth created by the energy and business activity of individuals, 
 firms, and communities that have built up trade and industrial cen- 
 ters, by destroying the correlation of rates established by long years 
 of experience and development. 
 
 I do not believe that it is possible for any commission to establish 
 interstate rates in all parts of the United States in an equitable nian- 
 ner without practical experience and knowledge of the conditions 
 in the localities where relief is demanded. As a rule, the traffic 
 officers consider the commercial and physical conditions, the density 
 of traffic, and the competition of one locality as against another; 
 
 10 D— 05 M 1 1 
 
 H. T. NEWCOMB, 
 
 LAV/YE R 
 BUILDING. WASHINGTON, • D. C 
 
2 TENTH DAY. 
 
 SO that these considerations further emphasize the statement that it 
 would curtail and limit the earning capacity of the railroads that 
 have now overcome disabilities as to location in both commercial 
 and natural geographical conditions. 
 
 If the Coimnission is invested with power to make rates it must use 
 a mileage basis in order to maintain a consistent defense of the rates 
 finally determined upon. 
 
 The railway freight agent or traffic manager is almost invariably 
 confronted by the argument that rates are so and so for a given dis- 
 tance on like commodities between given points; and, that being the 
 case, it is urged that, as the railway has in effect, voluntarily, a rate 
 for a much longer distance and for what appears to the applicant at 
 least to be as great if not greater service, it is unreasonable to exact as 
 high a rate on the commodity for which he desires the reductions; 
 and it is frequently necessary to go into the matter and analyze con- 
 ditions so as to convince him that there is no injustice in the adjudi- 
 cation of .rates that may be finally agreed to and accepted as mutually 
 satisfactory by the railroad and the applicant for the reduced or 
 modified rate, so that, if these conditions are recognized almost every 
 day with the patrons of the railroads in small communities, it must 
 necessarily follow that the same conditions will prevail when relief 
 is demanded of a national board that has been invested with the 
 power of making rates and compelling the adoption of such rates 
 until the tedious process of a final decision as to reasonableness may 
 be made by the courts. 
 
 As an illustration, I would like to draw your attention to the 
 manufacturing district of Fox River, Wis., where there are various 
 articles manufactured from the raw material brought in by the 
 railroads and the product shipped out in conrpetition with manu- 
 factures located in other parts of the State of Wisconsin. 
 
 Take the group of manufacturing towns in the Fox River Valley,' 
 40 miles west of the ports of Sheboygan and Manitowoc, on Lake 
 Michigan, where the rate on coal for the distance carried is 75 cents 
 per ton. There are industries on the Chicago, Milwaukee and St. 
 Paul Railway, located on the line running in what is known as the 
 " Wisconsin River district," and situated from 150 to 200 miles from 
 Lake Michigan ports, that require coal for precisely the same pur- 
 pose as the industries located in the Fox River district, and it is 
 necessary to consider the commercial conditions in making rates to the 
 more remote industries from Lake Michigan, so as to enable them to 
 compete in the delivery of their manufactured product in the markets 
 at Milwaukee, Chicago, St. Louis, and all points west of the Missis- 
 sippi River. 
 
 This equalization is not all accomplished in any one article of raw 
 material, but also by making rates on the manufactured article. The 
 rates in nearly every case are the same from the Wisconsin Valley 
 district that they are from the Fox River district, and these rates 
 can only be so made by reason of the proper adjustment of rates on 
 the raw material in, and the manufactured product out, so as to 
 place the industries on a commercial parity in both localities. 
 
 The lumber rates are fixed in like manner. The logs are hauled at 
 various prices, and the manufactured article is delivered at destina- 
 tion, so that the lumber manufactured at sawmills near the timber 
 
TENTH DAY. 3 
 
 finaUy reaches the markets on nearly if not an absolute parity with 
 mills located farther from the timber. 
 
 Anticipating a suggestion for explanation of this, it mav be stated 
 that the mills now located remotely from the timber were^ originally 
 «stabhshed when the timber was near at hand, and as it was gradu- 
 ally cut oiT the mills went farther away for their logs. 
 
 In order to preserve the communities and also the manufacturing 
 properties that were built up and established when the timber was 
 near at hand, an adjustment of rates has from time to time been made, 
 whicl^ has proven satisfactory to all concerned. 
 
 To make another illustration of the injustice that may be done in 
 the making of rates by a commission appointed with such arbitrary 
 power, I might state that an inquiry was recently made of me why it 
 was that a rate of 50 cents per 100 pounds was considered fair and 
 reasonable on lumber from the Pacific coast to Chicago, a distance of 
 2,240 miles, while a rate of 28 cents per 100 pounds was charged on 
 lumber from Ferguson, S. C, a distance of only a little over 700 miles. 
 
 I must confess that I was unable to answer, to the satisfaction of 
 the inquirer or myself, why there should be such a disparity in the 
 rates, because I did not have any knowledge in regard to the condi- 
 tions that surrounded the making of the rate from the South to 
 Chicago. 
 
 It may be, and I have no doubt it is, a fact that for the lumber 
 manufactured at Ferguson there is a market at near-by points which 
 jdelds, relatively, a much greater revenue to the railway company 
 than any rate which could be paid on the long haul to Chicago. 
 Therefore, if they were obliged to fix the rates from the Pacific coast 
 or Ferguson to Chicago by comparison with the service performed, the 
 railways would necessarily be compelled to sacrifice participation in 
 the transportation of the lumber from either one point or the other ; 
 and this, in my judgment, is one of the most convincing arguments 
 that the rate-maldng power, without a full knowledge of all the condi- 
 tions, is the most destructive measure that can be devised for elimi- 
 nating competition. 
 
 Now, Mr. Chairman, I have simply given that as an illustration of 
 an actual inquiry that was made of me the day before I started to 
 come to Washington. I cite that as an instance to support the conten- 
 tion I am making, that it requires some knowledge of all the condi- 
 tions that surround the making of rates in order intelligently to do so. 
 For that reason I want to emphasize the fact that it requires a prac- 
 tical knowledge not only of the theory of rate making, but also of the 
 factors that influence the rates. 
 
 Another illustration of this arbitrary and destructive form of rate 
 making is the case brought by the Chamber of Commerce of the city 
 of Milwaukee against the various railroads in the Northwest, com- 
 plaining of unjust rates charged on wheat and other grain from 
 points of shipment in Iowa, Minnesota, and South Dakota to Mil- 
 waukee, as compared with rates on like grain to Minneapolis. 
 
 This case was really the result of an adjustment in rates between 
 the Minneapolis and the Duluth markets which had previously been 
 made in line with the recommendation or decision of the Interstate 
 Commerce Commission by compromise agreement which, as I recall 
 it, was acceptable to both the Interstate Commerce Commission and 
 the complainant. 
 
4 TENTH DAY. 
 
 When the Milwaukee Chamber of Commerce case was presented 
 and a ruling made by the Commission, an effort was made to comply 
 literally with their order; but there were so many difficulties en- 
 countered in the adjustment at various points that a representative 
 of the Chamber of Commei'ce at Minneapolis and a representative of 
 the Chamber of Commerce at Milwaukee were delegated to confer with 
 the various railroad interests and establish, as nearly as possible, the 
 rates recommended and decided by the Commission as proper and 
 reasonable from the various points of shipment to the markets in 
 question. 
 
 A compromise was made that was acceptable to the Commission 
 and to the Minneapolis Chamber of Commerce and, in many respects 
 also to the Milwaukee Chamber of Commerce, but there were some 
 points where to have complied with the demands made by the Mil- 
 waukee Chamber of Commerce would have resulted in neutralizing 
 the correlation that had been established by the decision and compro- 
 mise agreement suggested. 
 
 This never was satisfactory to the representative of the Milwaukee 
 Chamber of Commerce, and he insisted that we should continue to 
 follow to a conclusion the rates a.s outlined in the Interstate Com- 
 merce Commission's ruling, regardless of the protests of the lines 
 that had it in their power to prevent any adjustment of rates by con- 
 tinuing the correlation originally complained of. 
 
 Senator Culloji. "Who was that representative of the Milwaukee 
 Chamber of Commerce? 
 
 Mr. HiLAND. Mr. E. P. Bacon. 
 
 The Chairman. Who is Mr. Bacon? 
 
 Mr. HiLAND. He was the gentleman who was delegated as one of 
 the Milwaukee committee to confer with the railroads and with the 
 Minneapolis Chamber of Commerce committee, in order to try to 
 bring about a compromise agreement that would be acceptable to the 
 Minneapolis Chamber of Commerce, the Milwaukee Chamber of Com- 
 merce, and the railway's. 
 
 We succeeded in reaching a practical solution for pretty nearly all 
 the territory; there was a small portion of the territory that was 
 left out and upon which we never could reach an agreement. So 
 that we did not make the reduction in the small area that Mr. Bacon 
 was contending for, and we never have made it. It affected only 
 half a dozen stations or more, and the benefits accruing to the gen- 
 eral territory up there were so much greater by the final tariff that 
 we did adopt that we ignored the small territory that Mr. Bacon was 
 contending for, and made the other. 
 
 Senator Cullom. I believe Mr. Bacon is a large business man in 
 Milwaukee, is he not ? He was here much of the past winter, and I 
 understand he is a pretty large trader and business man. 
 md^iflr.rHii^ND. I do not so understand. Pie is what we now call a 
 daMtcedd i^hilaQthMmist. 
 
 Senatoisi(DBjflairail3rbittciia a^good business. 
 nsMxtsfisBteroniHfflaimltealfiBgrHifter the. business of other people. 
 na^ifi^m/^Ms'nrifofiulll^rtepilaaiiEdriariAifctoa party who insisted upon 
 «bB^^aitib^»IfeaBoad(DediIb6^^^6trffiitiub(ftrb[aTfiI»^ was that the 
 
 SKsJKa^p^Hafiflwkdesainiaii^fe 3iimb'j%dlwai5dsh0i*kJnfig(l5i'5 i^tait, .aad 
 fch«t noisBiidiimoQiiElaiaradnallteaitortestflausvffi^^ tiie9kM3te9j»tf iiatH^^ 
 would be nothing left for transportation to the one iMffiffH^ilcaffidoo^ 
 
TENTH DAT. 5 
 
 a small amount to the other. Even then relative conditions would 
 have remained the same as between the two markets. 
 
 What I have stated in the foregoing relates entirely to the wisdom 
 or expediency of investing the Commission with power and authority 
 to fix, arbitrarily, the rates for transportation from the Atlantic to 
 the Pacific and from the Gulf of Mexico to the northern boundary of 
 the United States, a territory greatly diversified in both production 
 and consumption, without being governed entirely by the application 
 of a distance tariff system. A. distance tariff principle, which ap- 
 pears to be the only one that could be safely adopted by a commis- 
 sion, would, the farther you get from consuming markets, work in- 
 creasing hardship on the development of the country. 
 
 It would stem the tide of immigration and stop the investment of 
 capital in the development of agriculture, forestry, mining, or any 
 other natural resource. So that the making of rates should be left 
 entirely in the hands of the men in charge of the traffic of the rail- 
 roads, who are familiar with the conditions and necessities of the 
 localities served by them and who are brought in daily contact with 
 the patrons whose interests are mutual in increasing and developing 
 the volume of traffic on the one hand and in the sale of the goods and 
 products' on the other. 
 
 Without this daily contact it is not possible to keep in touch with 
 the conditions which are necessary for the establishment of a fair, 
 equitable, and just transportation charge. 
 
 The making of rates depends entirely upon conditions that exist in 
 the localities where the freight originates and the destination to which 
 the railway company is required to carry it. These conditions vary 
 according to the resources and character of commodities shipped to 
 and from various parts of the United States. So that the governing 
 influence in the making of rates on particular commodities in one 
 part of the coimtry would not necessarily govern in another. 
 
 Preponderance or density of traffic as well as the physical condition 
 of the railroads and the manufacturing conditions of the various 
 communities must be considered or rates can not be made that will 
 yield a satisfactory return on the investment on the part of the rail- 
 road or enable the business of the merchants to grow or expand be- 
 yond prescribed limitations. 
 
 It can readily be seen that if any system is applied to the making 
 of rates other than a strict distance basis, applications for relief 
 and redress will be multiplied to such an extent that it will require 
 an army of clerks to handle such correspondence; and when it is 
 considered how difficult it is for traffic officers to conduct the business 
 with which they are brought in daily contact, and to which they 
 have devoted a lifetime, it is not within the bounds of reasonable 
 probability that a tribunal, located so far away and with so httle 
 laiowledge of the actual conditions, will be able to satisfy the de- 
 mands that will be made for an adjustment of rates to fit every case 
 
 The western country, particularly, would suffer because the 
 greater the distance west from the Mississippi River the more 
 sparsely settled is the countrv and, necessarily, the more limited the 
 volume of tonnage. So that while a distance tariff rule in certam 
 sections of the country, particularly the States of Pennsylvania, 
 Ohio, and perhaps some of the other Eastern States, might be applied 
 
6 TENTH DAT. 
 
 with less hardship than in the "Western States, it would be a very 
 serious matter, if not a calamity, to the Avestem country, in the 
 development of any of its resources, to apply a distance tariff ruling, 
 and there appears to be no other basis that a commission can rea- 
 sonably adopt without themselves being charged with discrimination. 
 
 The' tendency of the Western States at the present time is to 
 create commissions and grant them the rate-making power, and in 
 some of the AVestern States such commissions have been created.. 
 This is not so difficult a question to deal with, although it is bad 
 enough, because the railway representatives and the commissioners 
 appointed to serve the State are in position to familiarize themselves 
 with conditions so as to enable them to form an intelligent under- 
 standing; and, furthermore, the volume of business actually con- 
 trolled and subject to such legislation is so small, even in the most 
 productive States of the West, compared with the interstate traffic, 
 that it is not such a serious matter as the placing of the rate-making^ 
 power on interstate traffic in the hands of an interstate commission. 
 
 It must, however, be very clear to the mind of everyone that, the 
 State authorities having the rate-making power, the granting of 
 similar power to the Interstate Commerce Commission would in- 
 evitably produce confusion and contention that must result disas- 
 trously to all commercial and industrial pursuits. 
 
 Ninety-nine per cent of the complaints that are made to the traffic 
 officers of the various railroads are not that the rates in themselves 
 are unreasonable or unjust, but that discrimination and preference 
 are shown, and that is what should be regulated, and the law enforced 
 so as to prevent the granting in any form, directly or indirectly, of 
 preferential rates for communities or individuals. 
 
 If the present law is enforced and transportation companies are 
 compelled to exact and retain the published tariffs, there would not 
 be any grounds for a general reduction in rates or placing in a com- 
 mission the power of making arbitrary rates for transportation com- 
 panies. Competition, under natural laws of trade and commerce 
 and transportation, will regulate and govern as conditions and devel- 
 opment require and justify. 
 
 The difficulty heretofore in maintaining a parity and equitable 
 correlation of rates was the fact that, while maximum rates have 
 been made, either by court decisions or natural laws of competition, 
 no remedy has yet been adopted and applied for establishing mini- 
 mum rates that will prevent the nullifying of such court decisions, 
 or any adjustment that may be agreed to as between the complainants 
 and the railroads desiring to make proper adjustment of inequalities 
 or discriminations. 
 
 The Chairman. How many miles of railroad are there in your 
 system ? 
 
 Mr. HiLAND. In round numbers, 7,000. 
 
 The Chairman. In how many States? 
 
 Mr. HiLAND. Wisconsin, Minnesota, North and South Dakota, 
 Iowa, Missouri, and Illinois. I think I have gone around the circle. 
 
 The Chairman. In the shipment of grain can you always calculate 
 on return freight, or do you sometimes have to haul empty cars back? 
 
 Mr. HiLAND. It depends a great deal on the season and on the mar- 
 kets to which the grain goes, as well as upon the time when it is 
 
TENTH DAT. 7 
 
 moved. Grain does not always move promptly after harvest, and it 
 does not always move in like volumes to the same markets. 
 
 The Chaiejcak. When you can not get return freight, is the grain 
 rate higher? 
 
 Mr. HiLAND. Xo, sir ; there has been very little change in the grain 
 rates for several years. 
 
 The Chairman. But when you get return freight, you can make 
 a lower rate than if you do not get return freight, can you not? 
 
 Mr. HiLAND. If we could carry loaded cars in both directions, have 
 assurance of it,' we could certainly adjust our rates so as to make a 
 reduction and still leave a greater profit to the railroad. 
 
 The Chairman. It would have a tendency to lower rates both 
 ways? 
 
 Mr. HiLAXD. Xo doubt about that. 
 
 The Chairman. For instance, on the Great Northern and the 
 Northern Pacific I understand they send flour to the Pacific coast at a 
 very low rate, that being partly due to the fact that at the present time 
 lumber is moving from the Pacific coast eastward, thus affording 
 return freight, as I understand. 
 
 Mr. HiLAND. I think in the case you cite, without being closely 
 familiar with it, except in a general way, that by the preponderance 
 of the loads toAvard the western Pacific coast they make rates for the 
 return loads as low as they can afford and move the stuff. That is, 
 the tendency is to reduce the rates on the products they find on the 
 western coast to a point that will enable them to load as many cars 
 as they can find a market for in the East as to that" particular stuff. 
 
 The Chairman. What is the distance from Chicago to Galveston 
 and New Orleans, and what are the distances from Chicago to New 
 York, Philadelphia, and Baltimore? Are you familiar with those 
 distances ? 
 
 Mr. HiLAND. I would not attempt to answer that question in a gen- 
 eral way. I think there is a difference in favor of New Orleans from 
 Chicago, though very slight. From Chicago to Galveston it strikes 
 me that the distance is much greater. I know the short-line distance 
 from Chicago to New York is 938 miles, and, in round numbers, it is 
 about 1,000 miles from Chicago to New Orleans. 
 
 The Chairman. Are you familiar with differentials maintained 
 from interior points to the Gulf ports and the Atlantic seaboard ? 
 
 Mr. HiLAND. There is no established differential. There are differ- 
 entials that are assumed and taken, or that have been agreed to by 
 the lines running from the Missouri Eiver to the Gulf of Mexico or to 
 the Atlantic seaboard. When the lines running to the Gulf of Mexico 
 found it to their interest to move any grain to the Gulf of Mexico they 
 were a law unto themselves, and they went in and took it. If they did 
 not get it at one rate thev took it at another rate. Apparently there 
 was an outside understanding as to what the difference should be; but 
 if there was it was never put practically into effect, for nobody ever 
 regarded it as what migKt be termed a permanent and fixed differ- 
 ential. . • -J! 
 
 The Chairman. Yet it exists and has ended contention and strife 
 between different lines. 
 
 Mr. HiLAND. It exists. 
 
 The Chairman. It exists by common consent? 
 
8 TENTH DAY. 
 
 Mr. HiLAND. Yes. It is varying. To get down to fjresent condi- 
 tions, the rate on corn from Chicago to the Gulf of Mexico or to New 
 Orleans is 18 cents per 100 pounds; the rate on com to Baltimore is 
 22| cents per 100 pounds. There is a diilerence of 4^ cents a hundred 
 pounds. Neither the lines running to the Gulf of Mexico nor the 
 lines running to Baltimore are satisfied. Neither one nor the other 
 is satisfied with those differentials as they exist by tariffs at the 
 present day. There is an effort about to be made to see if a differ- 
 ential can not be found that will enable corn to move from the Mis- 
 souri Eiver to foreign ports — take Liverpool, for exahiple — that will 
 enable the port of Baltimore to export corn from Omaha to Liverpool 
 on the same basis of delivery and cost of transportation as through 
 the Gulf of Mexico. 
 
 There are many factors necessary to ascertain what will be a fair 
 differential. Outside of the question of mere physical or natural 
 advantage in distance, the cost of handling at the ports, the difference 
 in the ocean rates, and all those things have to be taken into account. 
 Some of the men who have been engaged in investigating that ques- 
 tion do not believe that a period of thirty or sixty days is a fair 
 assumption on a rate for the division of business as between the two 
 ports, but that a period running through what you might call a crop 
 year would strike a general average, because, while one port may 
 through a few months in the year carry apparently an excess of ton- 
 nage, during other periods of the year the other ports would carry it, 
 and so a general average based on the handling of the crop would 
 finally be reached that would reasonably satisfy all lines who partici- 
 pate in that traffic or want to participate in it, both through the 
 Atlantic and the Gulf ports. 
 
 The Chairman. The differential is a sort of truce or armed neu- 
 trality? 
 
 Mr. HiLAND. Yes. 
 
 The Chairmax. It seems so to me. 
 
 Mr. HiLANP. You are absolutely correct. 
 
 The Chairbian . TVTiat would happen if all these differentials were 
 simply wiped out — abolished — on a given day? What would follow 
 in the railroad world, the commercial world, or transportation world? 
 I mean to say, would there be confusions ? "VVhat would be the result? 
 
 Mr. HiLAND. Do yoi.1 mean to have me understand that there should 
 be no differentials as between any of the ports ? 
 
 The Chairman. Of any kind. 
 
 Mr. Hiland. That, in my judgment, would simply result in con- 
 centrating the export business through the ports that were enabled, 
 first, to handle the business cheapest, and, secondly, to obtain the low- 
 est ocean freights ; and in obtaining the lowest ocean freights it would 
 naturally follow that those rates would be obtained through the port 
 that is able to supply the greatest amount of tonnage. If you should 
 ask me what port that would be, I would naturally say — I do not 
 know this absolutely — but I would say, naturally, New York is the 
 greatest port we have in America now. 
 
 The Chairman. That is not governed entirely by distance, but by 
 other conditions. For instance, freight to and from, ocean rates, and 
 readiness of vessels, as I understand. 
 
 Mr. Hiland. Yes; and elevator facilities, as well as methods of 
 
TENTH DAY. 9 
 
 handling grain, as to which few people realize the changes that have 
 been going on, even in the last one or two years. 
 
 The Chairman. Chances for return freight, also. 
 
 Mr. HiLAND. All that sort of thing enters in. 
 
 The Chjueman. Is it your judgment that if a commission were 
 vested with the power asked, that commission being the creation of 
 Congress and in effect the agent of Congress, it could fix a given rate 
 or many rates that would be as definitely fixed as if they had been 
 prescribed by Congress itself ? 
 
 Mr. HiLAND. I do not think so. I think they would necessarily be 
 obliged to fix rates with reference to the distance to destination from 
 ■ the point where the cargo is offered for shipment. 
 
 The Chairman. Then that would necessarily, all other things being 
 considered, build up one city rather than another? 
 
 Mr. HJLAisrD. Yes, sir. 
 
 The Chairman. The city of Xew York, for instance, as against 
 other Atlantic seaboard and Gulf cities — Philadelphia, Baltimore, 
 Boston, Norfolk, New Orleans, and Galveston? 
 
 Mr. HiLAND. Yes, sir. 
 
 The Chairman. That is your opinion from careful consideration of 
 this subject and as a traffic man ? 
 
 Mr. HiLAND. Yes, sir. That follows in the interior, just the same. 
 
 The Chairman. This is the practical result, without going into the 
 question whether it would be giving a preference to one port over 
 another, which is a legal question. 
 
 Mr. HniAND. Yes, sir. The legality I have no opinion about. 
 
 The Chairman. The law that is asked for simply contemplates 
 that when a rate is complained of it may be changed. It is claimed, 
 further, that there is no disposition or desire in the framing of a law 
 to meet the popular demand, as it is called, to give a general rate- 
 making power to the Commission, but simply on complaint in a given 
 case. Now, I want to ask you, as a practical question. Would the 
 fixing of a rate in a given case and under certain conditions lead to 
 such disturbance that other rates would have to be fixed? Suppose 
 a rate were reduced, we will say on an important line between Chicago 
 and New York or Baltimore, probably how many other rates would 
 have to be changed after that ? What I want to get at is, assume that 
 the law confers upon the Commission to fix one definite rate; but 
 after the Commission fixes that, would not the Commission or some- 
 body else have to fix a number of other rates? 
 
 Mr. HiLAND. I would rather you would apply that, if you will 
 
 The Chairman. Answer it in your own way. 
 
 Mr. HiLAND. I would rather you would reverse it and make it from 
 Chicago to St. Paul or Kansas City, and then I can answer it. 
 
 The Chairman. Make it in any way you desire. 
 
 Mr. HiLAND. My answer to that would be, then, applying it to the 
 Milwaukee and St. Paul Eailroad from a given point, say, Chicago, 
 as I imderstand the law it would fix the rate, and we could not depart 
 from that rate after it was published and legally adopted. We have 
 a territory where Chicago rates apply. It covers a distance of 150 
 miles north of Milwaukee, as far as Green Bay. There are a number 
 of manufacturing and distributing points between Chicago and Green 
 Bay, Milwaukee being one distributing point. There are also various 
 
10 TENTH. DAY. 
 
 manufacturing points — Kenosha, Eacine, and so on — all the way up. 
 If the rate is fixed by the Milwaukee and St. Paul Railroad they can 
 not depart from that rate from Chicago to St. Paul or to Minne- 
 apolis. That is the legal rate, as I understand, until it is changed by 
 the Commission. But there is nothing to prevent the railroads run- 
 ning to the Gulf from those various points I have mentioned estab- 
 lishing a lower rate, and in the meantime depriving the Milwaukee 
 and St. Paul Railroad from participation in that traffic. 
 
 The Chairman. Possibly you did not get my nieaning. Suppose 
 that the Interstate Commerce Commission determines that the rate 
 is too high, and reduces it, say, from 100 to 95 or 90. How many 
 rates would have to be fixed from Green Bay to the South? Some of 
 the rates would have to be changed, would they, or not ? Would not 
 those other lines have to meet that condition ? 
 
 Mr. HiLAND. Wliat relief would be granted then? 
 
 The Chairman. I am asking, would it follow or not? 
 
 Mr. Hiland. The rates would undoubtedly be the rates of the other 
 lines. 
 
 The Chairman. Then, as I understand, this power claimed under 
 the Esch-Townsend bill to fix a given rate in a given case would nec- 
 essarily of itself, if the rate is reduced and fixed, lead to the changing 
 of a great many other rates ? 
 
 Mr. Hiland. Yes, sir ; there is no doubt about that. 
 
 The Chairman. In fixing these other rates affected by this change, 
 would the Commission have to consider all the other conditions, or 
 would they decide one rate and leave it there ? Would the railroads, 
 of themselves, have to reduce the rate, or would the Commission have 
 to reduce it ? 
 
 Mr. Hiland. The railroads themselves probably would reduce. 
 
 The Chairman. That would be, in effect, the Commission not only 
 fixing the rate in the given case, but in other cases also ? 
 
 Mr. Hiland. That is so. 
 
 The Chairman. I believe Mr. Peck said from British Columbia to 
 the Gulf — something like that — or, if not British Columbia, some 
 other country pretty near there. 
 
 Mr. Hiland. Let me give you a clear understanding of changing 
 what is known as the " Chicago rates." The Chicago rates would 
 apply through Illinois and Wisconsin, and in some cases as far north 
 as Menominee, Mich., and Green Bay, Wis. It covers a very wide ter- 
 ritory. "When you come to changing the Chicago rates and if you ask 
 me the number of rates it would change, I would not pretend to make 
 even a gaiess at it. 
 
 The Chairman. How many freight rates or schedules are there in 
 force in the United States, or do you know ? 
 
 Mr. Hiland. I do not knoAV. 
 
 The Chairman. Senator CuUom, have you any questions to ask? 
 
 Senator Cullom. As Senator Clapp is from the same region of 
 country as Mr. Hiland, I wish he would ask the witness such ques- 
 tions as he desires. 
 
 Senator Clapp. You are familiar in a general way with the present 
 interstate-commerce law ? 
 
 Mr. Hiland. Oh, yes ; I am. There may be some things in it that 
 I do not know. 
 
TENTH DAY. 11 
 
 Senator Clapp. You understand that under that law if complaint 
 is made and the Interstate Commerce Commission deems the rate 
 unreasonably high the Commission makes an order prohibiting the 
 continuance of that rate; that if that order is not obeyed the Com- 
 mission can bring an action in the courts to enforce it; and that in 
 that action the court can say whether or not the order should stand. 
 In your practical operations under the existing laws, what, if any, 
 embarrassments do you encounter? I am speaking now of the Fed- 
 eral law, of course. 
 
 Mr. HiLAND. The embarrassments we encounter now in carrying 
 out the orders of the Interstate Commerce Commission are by rea- 
 son of the fact that we are prevented at times from carrying out 
 their orders, owing to our inability to maintain the parity of rates 
 that they seek to establish. I mean now the correlative parity of 
 rates. If you will permit me I will just make one illustration where 
 we attempted to adopt their rates, but had to abandon them. Several 
 years ago the Eau Claire lumbermen, in what is known as the " Eau 
 Claire case,", brought complaint before the Interstate Commerce 
 Commission for a reduction in the rates from Eau Claire, Chippewa 
 Falls, -and that particular group of manufacturing lumber points. 
 The Commission prescribed what the rates should be to the Missouri 
 Eiver, which involved a reduction of 2 cents a hundred pounds. 
 The Milwaukee and St. Paul Eailroad— the case was known as " the 
 Milwaukee and St. Paul case "—established and put into effect the 
 order of the Commission. Immediately the other lines interested 
 in the movement of luraber reduced the rates from Wisconsin and 
 Minnesota and all the Mississippi Eiver points, so that the redress 
 or relief that was asked for by the Eau Claire lumbermen was en- 
 tirely neutralized, and they were left exactly where they started m 
 when the complaint was made. After laboring for some time to 
 have the Commission's order made effective, we found there had been 
 no complaint as to the reasonableness of the rates themselves from 
 these other points, and we then returned to the original tariff. JNo 
 suit, so far as I remember, has ever been brought by the Commis- 
 sion, but we thought we had a good defense, anyway, it they did. 
 We made an honest effort, but were defeated. That illustration wiU 
 answer probably 95 per cent of the failures on the part of the railroads 
 to comply with the recommendations or decisions of the Interstate 
 Commerce Commission's orders. , t-, u ^+,.^1 ^r. 
 
 Senator Clapp. Do you think that there should be any control or 
 regulationof rates by the Government? ..,.-. j. j: +u„ 
 
 Mr HiLAND. I believe that the Government, m the interest of the 
 railroads, as well as of its patrons, should have supervision of the 
 charges and tariffs made for the transportation of freight. 
 
 Senator Clapp. That is really a proper exercise of governmental 
 authority under existing conditions, is it not< 
 
 S^ena?or™p?Under this interstate-commerce law, as it stands 
 to-dTy?he Commission may deal with a rate upon one of two 
 ground^-either that it involves discrimination, or that the rate 
 itself is too high, may it not? 
 
 s'enator'cTipIlsSme that it is the proper Wtion of the Gov- 
 ernment to exercise supervisory control over rates, that would, of 
 
12 TENTH DAY. 
 
 necessity, if it amounts to anything, amount to the Government some- 
 where placing a final restriction upon rates, would it not ? 
 
 Mr. HiLAND. I would like to know just what you are trying to 
 find out. By that do you mean that it is a restriction on the rates in 
 one direction, or in both directions, up and down ? 
 
 Senator Clapp. No; I mean could there be control or regulation 
 without ultimately affecting the rates positively, definitely, and 
 legally ? I am not speaking of one rate. I am speaking of the exer- 
 cise of governmental control over rates. Could there be such a thing 
 without the Government somewhere finally exercising definite author- 
 ity which would result in fixing the rat« ? To illustrate : Suppose a 
 given rate is complained of as too high. You say there should be 
 Government control over this subject somewhere. In order to con- 
 stitute control it would involve the fixing at least of a limit, above 
 which the company could not charge, would it not ? 
 Mr. HiLAND. Yes, sir. 
 
 Senator Clapp. That is the point. You joeople recognize that prin- 
 ciple of the existing law which authorizes the prohibition of unrea- 
 sonable rates ? 
 Mr. HrLAND. Yes, sir. 
 
 Senator Clapp. Take a given rate, and the Commission finds, in its 
 opinion, that that rate is unreasonable ; that decision is confirmed by 
 the courts; under your theory of the function of Government and 
 under the law, that would necessitate the reduction of that rate by 
 the carrier? 
 Mr. HiLAND. Yes, sir. 
 
 Senator Clapp. And I take it you would concede that that reduc- 
 tion would have to be a substantial reduction; that is, not a mere 
 technical reduction of a small amount ? 
 
 Mr. HiLAND. If a reduction were demonstrated to be necessary in 
 the minds of the Commission, whatever they had concluded was a 
 proger and reasonable rate in substitution for the unreasonable rate, 
 leaving the railroad company to make a substantial reduction, as you 
 say, I do not think there is any question but that they would do it, 
 and they would come very near to fixing what might be determined 
 to be the rate in itself reasonable and just. They would not under- 
 take to fix it by making a reduction of half or quarter of a cent per 
 hundred pounds. They would fix a reduction justified by the facts 
 as presented. 
 
 If, on the other hand, the Commission decided that the reduction 
 should be below the judgment of the men in charge of the traffic, 
 then the carriers would undoubtedly resist a rate below what they 
 thought was reasonable for the service to be performed. 
 
 Senator Clapp. We can simplify it by treating an order as the 
 ultimate decision of the court. 
 Mr. HiLAND. Yes. 
 
 Senator Clapp. After the Commission has condemned a given rate, 
 and after that order has been sustained by the court, the carrier, as a 
 practical matter, would be. required to make a substantial reduction? 
 Mr. HiLAND. Yes, sir. 
 
 Senator Ci-app. If they did not, of course the same machinery 
 could be put in operation again. 
 Mr. HiLAND. Yes, sir. 
 Senator Clapp. So that practically, under the law as it is to-day, 
 
TENTH DAY. 13 
 
 when the Commission took up a rate and condemned it, the rate that 
 is finally established is practically fixed by the Commission? 
 
 Mr. HiLAND. Yes, sir. 
 
 Senator Clapp. Of course that process necessarily involves more 
 or less modification of other rates ? 
 
 Mr. HiLAND. Yes, sir. 
 
 Senator Clapp. And that process could go on under existing law 
 to cover as many rates in the country as the time of the Commission 
 would permit? 
 
 Mr. Hiland. Yes, sir. 
 
 Senator Clapp. In other words, the objection to the fixing of rates, 
 so far as it involves the adjustment of other rates, and the continued 
 fixing of rates by the Commission, so far as those two principles are 
 involved, apply with equal force to the existing law as to a law which 
 went a step further and allowed the Commission, in condemning one 
 rate, to prescribe a rate in lieu thereof ? 
 
 Mr. HhiAnd. I presume that is true. 
 
 Senator Clapp. I do not at this time desire or intend to go into the 
 technicalities of the matter, but only into the. practical workings. 
 Under the existing law if the Commission condemns a rate, and that 
 is either acquiesced in or has to be taken to the court, and the court 
 sustains the rate, you would still feel at liberty, if conditions changed, 
 to change that rate, subject, of course, to review by the Commission 
 and the court? 
 
 Mr. Hiland. Yes, sir. 
 • Senator Clapp. Then if, in addition to the existing law, there were 
 a provision that not only could the Commission condemn a given 
 rate — the Commission being sustained, of course, in all this — but 
 ihight also state what rate should take effect in lieu thereof, and it 
 were still left to the carrier to determine when conditions, in the 
 opinion of the carrier, warranted a cha;iged rate (subject again to 
 review), the facilities with which rates could be changed would be 
 just as they are now, would they not? 
 
 Mr. Hiland. They would. But I do not know whether I quite 
 clearly catch your question, and I would like to answer according to 
 the way I interpret it. 
 
 Senator Clapp. Certainly, in all instances. 
 
 Mr. Hiland. Answering your particular question as to the facility 
 for returning to the other rate, I would unqualifiedly state "yes" 
 were it not for this fact: That the change in the rate and the change 
 in conditions might be recognized, but unfortunately there might 
 be half a dozen railroads that were involved in the return to or rais- 
 ing of a rate. One railroad can reduce a rate; it takes every one 
 of them to raise it. So that the relief that is proposed could not be 
 obtained in that way. It ought to be. I would answer your ques- 
 tion " yes " in that respect. If the railroad thought it necessary to 
 change" the conditions, and the conditions actually were changed, 
 there would be no legal obstruction ; but the perverseness of human 
 nature would prevent it. 
 
 Senator Clapp. Does not that argument apply with equal force to 
 a rate which is finally secured under the existing law, in reference 
 to changing the rate ? 
 
 Mr. Hiland. That is true, and therefore we never raise rates. 
 
14 TENTH DAT. 
 
 Senator Ci.app. No; but the reason I ask these questions is that 
 it is frequently claimed that there would be a lack of that elasticity 
 necessary for the development of commerce if the Commission, in- 
 stead of simply condemning a rate, could also say what a given rate 
 should be, my suggestion being that if it was left to the railroad to 
 take its chances as to whether the conditions had so changed as to 
 warrant a change in the rate there would be the same elasticity under 
 that plan as under the present plan. 
 
 Mr. HiLAND. Oh, yes ; there is no doubt about that. 
 
 Senator Clapp. No doubt about that ? 
 
 Mr. HiLAND. I wanted to make that explanation as to the theo- 
 retical and 23ractical operation of such a system ; that is the point I 
 am getting at. , 
 
 Senator Clapp. Yes. I think you suggested that' if the Commis- 
 sion was clothed with power to fix a rate that would of necessity 
 drive the Commission to the adoption of a mileage basis. I do not 
 know whether I correctly understood you or not. 
 
 Mr. HiLAND. Yes, sir; a mileage basis, unless they adopted- the 
 principles governing rate making now ; and as an alternative I sug- 
 gested that it was physically impossible for the Commission to do 
 that all over this country. That is the point I wanted to make in 
 that regard. It is either one or the other, and the simpler way 
 would be the mileage basis. They would be driven to it ; they could 
 not help it. 
 
 Senator Clapp. Does that condition pertain any more to a rate 
 fixed by a declaration of a substituted rate than to a rate fixed unde# 
 the existing law by prohibiting a given rate and the company recog- 
 nizing the substantial change? In other words, would the mere 
 adding to the Commission's power of the power to at the outset say 
 what should be the substituted rate, instead of getting at the rate as 
 Tve do now, by an order condemning it, confirmed, we will say, by the 
 court and recognized by the railroad in a substantial modification, 
 force the Commission to the mileage basis any more than under the 
 existing law ? 
 
 Mr. HiLAND. No ; I do not know that it would. 
 
 Senator Clapp. No. Then, really, when we get this thing to this 
 point, so far as the principles go, all the conditions that follow the fix- 
 ing of a rate by a direct order in the first instance follow the fixing of 
 a rate by the joint action of the Conunission, confirmed by the court, 
 and substantially modified by the railroad ? 
 
 Mr. HiLAND. Yes. 
 
 Senator Clapp. I think that is all. 
 
 Senator Cullom. You are familiar with railroad operations, and 
 especially with traffic; and I will ask you what you would put in 
 the place of a conunission with power to do what it has the power 
 to do now — simply to determine whether the rate is unreasonable 
 and then let it go to the court to be decided by the court? Would 
 you get rid of the law as it is, or are you simply afraid that we may 
 give the Commission greater power as to fixing rates hereafter to 
 take effect in the future, instead of simply determining whether the 
 rate that now exists, for instance, is unreasonable ? 
 
 Mr. HiLAisD. My judgment is, Senator, that the law that now 
 exists, if enforced, will accomplish all that the public require^, and 
 
TENTH DAY. 15 
 
 that the railroads are only too glad and cheerful to comply with 
 if they can. 
 
 Senator Culloji. Has your road ever had any difficulty with the 
 ■Commission — any contention about rates, or anything of that sort ? 
 ]Mr. HiLAXD. We never have had any contention whatever. 
 
 Senator Culloji. So far as you have observed their action, have 
 they seemed to l?e trying to be fair ; to Jind out exactly what the merits 
 of the case were ? 
 
 Mr. HiLAXD. I have never seen anything to the contrary on the 
 part of the Commission. 
 
 Senator Culloji. In case there should not be any Commission given 
 any power at all to fix rates — even, I mean to say, to determine 
 whether a rate is reasonable or not — if we should take away that 
 power, what do you think ought to be done in place of that ? 
 
 Mr. HiLAND. ^Vhy, I do not think it is necessary to do anything. 
 I think that if the present law is enforced it will accomplish all that 
 can reasonably be required of the railroads, and grant to any com- 
 plainant all that should be given ; all that he could reasonably expect 
 or ask. I think the law is wide enough in its scope now, as it exists 
 at the present time, if enforced. 
 
 Senator Cullom. You would not believe that it would be best, or 
 would you, to abolish the Commission and rely upon the courts ex- 
 clusively ? 
 
 Mr. HiLAXD. I would not want to say as to that, because it involves 
 a legal question. I would rather confer with the legal department 
 before I ventured an opinion on that. 
 
 Senator Culloji. At any rate, so far as you are concerned, and from 
 your observation and experience, the Commission now is doing its 
 duty, and so far as you know there is no great ground of complaint ? 
 Is that your view ? 
 
 Mr. HiLAND. That is my view. 
 
 Senator Culloji. Do you concur with Mr. Peck here, for instance, 
 who, T believe, said that rebates were things of the past ? 
 
 Mr. HiLAXD. Yes, sir. 
 
 Senator Cullom. In other words, is there anything of that sort 
 going on now ? 
 
 Mr. HiLA>rD. There are no rebates, as such, going on. 
 
 Senator Cullom. Is there any subterfuge that enables them to 
 give a rebate without making it a rebate? 
 
 Mr. Hiland. There are subterfuges that can be adopted and made 
 the means and channels for concessions in rates. They are not 
 rebates. 
 
 Senator Cullom. Are they means of concessions that ought not to 
 be granted under the law ? Are the railroads, in other words, living 
 up to the law ? 
 
 Mr. Hn-AND. I would like to answer that. Senator, by saying that 
 they are concessions. Whether they are lawful concessions or not, 
 I do not know. 
 
 Senator Cullom. But you are familiar with the traffic on your 
 road, and you know whether or not you are giving concessions con- 
 trary to the law. 
 
 Mr. HiLAND. I know that we are not. 
 
 Senator Cullom. You are not doing that? 
 
\Q TENTH DAY. 
 
 Mr. Hn.AND. No, sir. 
 
 Senator Cullom. It does not make any difference it jou are abid- 
 ing by the law ; if you are doing that you are doing right, perhaps, 
 in granting concessions in special instances. But so far as your ob- 
 servation goes, unjust discriminations and rebates have ceased? 
 
 Mr. HiLAND. Yes, sir. , , . , 
 
 Senator Cullom. ^Vhat else is there that ought to be legislated 
 about in the interest of the people in connection with railroads? 
 
 Mr. HiLAND. I do not believe there is anything. 
 
 Senator Ctjllom. There is a good condition of things prevailing, 
 I should think, from your testimony and that of other gentlemen 
 who have been before us. 
 
 Mr. HiLAND. Yes, sir. 
 
 Senator Cullom. ^Yh.J is it that such an excitement has apparently 
 grown up within the last six or eight months, and the people appear 
 to believe that there is great injustice being practiced by railroads, 
 rebates being paid and discriminations being carried on, and all that? 
 That has seemed to seize upon the minds of the people as existing. 
 Now, what has produced it ? 
 
 Mr. HiLAND. That would be a pretty difficult thing to assign any 
 one particular cause for. , 
 
 Senator Cullom. Some of you must have been committing fraud 
 of one sort or another, surely, at some time within a few months, or 
 else the people were greatly niistalfen as to the true situation. 
 
 Mr. HiLAND. I thinli the people were greatly mistaken. It is an 
 epidemic that came on that nobody could trace to any particular 
 source; and yet it got into the minds and became a public clamor, as 
 it were, and went on from one wave to another. I think there has 
 been a great deal more made of it than actually existed in practice. 
 
 Senator Cullom. Certainly that would seem to be so from the 
 testimony that we have had before the committee here; and it has 
 been a puzzle to my mind to know just what started it — ^whether there 
 had been an effort made by railroads to violate the law in their own 
 interest, or whether it was started by other people. 
 
 Mr. HiLAND. Well, Senator, there is one thing that should be borne 
 in mind, and that is that concessions have from time to time been 
 made, and after the injunction that had been obtained a great many 
 of these, in fact all of them, had finally been wiped out of existence. 
 Now, I believe, myself — this is only my own individual opinion — 
 that a great many of these people, particularly the shippers who had 
 been enjoying advantages, made more of a fuss over this thing than 
 anybody else. I can not say that anj' one particular shipper has 
 done so; but it is like a prairie fire — you throw a match out, and it 
 gets going from one to the other, and finally it gets to be a conflagra- 
 tion. 
 
 Senator Cullom. Like wheat stacks. 
 
 Mr. HiLAND. Yes. 
 
 Senator Cullom. This committee, I am sure, only wants to find 
 out what the trouble is, if there is any, and what proper legislative 
 action Congress should take to cure whatever evil exists. Now, if 
 the law already on the statute book is sufficient to do that, there is no 
 ambition on the part of anybody here, so far as I know, to go any 
 further; but we want to be sure that we are doing what the public 
 
TENTH DAY. 17 
 
 interest requires. What do you know about private cars? Have 
 you hauled many private cars over your road? 
 
 Mr. HiLAND. Yes; we haul all kinds of private cars over our rail- 
 road. 
 
 Senator Cctllgm. How much do you pay ? 
 
 Mr. HiLAND. We pay the recognized prevailing standard. It 
 vanes from three-quarters of a cent to a cent. I do not know of 
 anything less than three-quarters on private cars. On interchange of 
 cars with railroads it is 20 cents per diem. 
 
 Senator Ctjulom. Which way do you haul these cars — west or east? 
 
 Mr. HiLAND. Oh, we haul them in both directions. We haul them 
 with packing-house products coming east, and naturally the cars have 
 to return west, either empty or loaded, for those products. 
 
 Senator CunLOM. Of course. You do not pay three-quarters of a 
 cent both ways, do you ? 
 
 Mr. HiLAND. Yes, sir ; we pay a cent on some mileage. 
 
 The Chairman. You do not pay it if they are empty, do you ? 
 
 Mr. HiLAND. Yes, sir ; we pay a cent a mile in both directions. 
 
 The Chaieman. The same as you pay the per diem of other cars ? 
 
 Mr. HiLAND. Yes, sir ; we pay every day the car is away. 
 
 Senator Cullom. It is alleged that by the use of these private cars 
 the public is getting cheated a good deal. What do vou know about 
 that? , ■" 
 
 Mr. HiLAND. I do not know how they are getting cheated. I do 
 not know, but I do not believe they are," myself. 
 
 Senator Cui.lom. When I say the public I mean 
 
 Mr. HiLAND. The shippers ; yes. 
 
 Senator Cullojx. You do not believe they are ? 
 
 Mr. HiLAND. There may be some isolated cases where an overcharge 
 or an apparent extortion may have been made, the same as in the case 
 of a shipment on a railroad. We frequently have, through errors 
 and otherwise, claims presented where the ordinary layman or man 
 who is not familiar with the conduct of business over railroads would 
 say that the railroad was guilty of extortion, but the moment that is 
 brought to the attention of the railroad company the matter is made 
 right and the money refunded. 
 
 Senator Cullom. All this talk about extraordinary amounts of ice 
 and all that — is that a common practice? 
 
 Mr. HiLAND. I do not know anything about the conduct of the 
 business as between the owner and operator of a private car line and 
 its shippers. We make a charge for our transportation service; we 
 pay to the owner of the private car a fixed rate per mile, and we pay 
 on all private cars or cars used in like service, whether private cars 
 or cars owned by railroads. 
 
 Senator Ctjllom. And these private cars, owned by private com- 
 panies or individuals, are not subject to the interstate-commerce act 
 now, are they ? 
 
 Mr. HiLAND. I believe they are not so regarded by the people who 
 operate them. So far as we are concerned they would be subject to 
 it, because we have nothing whatever to do except to make our legal 
 tax on the property that we carry under the provisions of the law 
 and our published tariifs. 
 
 Senator Ctjllom. AVould you or not think that all conveyances for 
 
 10 D— 05 M 2 
 
18 TENTH DAY. 
 
 the transportation of property on railroads ought to be under the 
 interstate-commerce act alike? 
 
 Mr. HiLAND. Well, that properly ought to, in my judgment, depend 
 on circumstances. If the owner of the private car has anything to 
 do with the fixing of the transportation charge, and it is used as an 
 inducement or influence in directing the movement of the traffic, I 
 should say yes, but if it yvas simply used as a private enterprise and 
 for the purpose of economy in assembling and handling perishable 
 products, personally and individually there is some question in my 
 mind as to whether it would be proper or not. I do not know. 
 
 Senator Culloji. But it would seem to me, and I think that it 
 ought to prevail, that all the conveyances by which property is moved 
 from one part of the country to another by railroad ought to be 
 under the control or subject to the regulation of interstate commerce, 
 just as any other train belonging to the railroad should be. 
 
 Mr. HiLAND. When you use the word '' railroad " I agree with you, 
 but the owners of private cars are not railroads. They are all sub- 
 ject now to the 
 
 Senator Cullom. They are all railroad cars, filled with property 
 of some sort, ordinarily, just as a car of your own might be filled with 
 wheat or dry goods or anything else; and it seems to me that if a 
 part of your train should be made up of private cars filled with a 
 particular kind of property, if you please, and the balance of your 
 train should be subject to the interstate-commerce act, w'ithout any 
 question it would produce a situation that might not be desirable, 
 and would probably not i-esult in the best and most plain, straight- 
 forward conduct of business. 
 
 Mr. HiLzVND. The handling of property in our trains is as described 
 by you in your question. There is no doubt but what the interstate 
 law should govern it. But wdien it comes to the question of the pack- 
 ages and vehicles and things of that kind that have no influence 
 whatever in giving any preference, that is a debatable question, in 
 my mind. 
 
 Senator Cullom. There are about 36,000 private cars, nearly all 
 of which are refrigerator cars, I believe? 
 
 Mr. HiLAND. Yes. 
 
 Senator Cullom. There are a lot of other cars of different kinds- 
 stock cars, and so on — but take these refrigerator cars, in which 
 dressed beef or meats of different Jiinds are carried from one part of 
 the country to the other ; as I understand it, they are not now regarded 
 as under interstate-commerce regulation. The question in my mind 
 is whether they ought not to be, all of them ? 
 
 Mr. HiLAND. Speaking for myself, so long as they are not used for 
 the purpose of influencing the traffic or making a preferential rate, 
 or as the medium of a concession, I think it is immaterial to the rail- 
 road company using them, except as a matter of economy. The Mil- 
 waukee and St. Paul Eailroad, in my opinion, handles 'the products 
 that it carries in many of the private ears more economically than 
 it could if it was obliged to provide the private cars, or the particular 
 class of cars, for that particular class of traffic. I say that because 
 we Avould have to build so many cars without any assurance of per- 
 manent service that the interest on the investment would be so great 
 that we could not afford to engage in it at all and we had better not 
 attempt to do it. 
 
TENTH DAY. 19 
 
 Senator Cullom. I am not suggesting that the railroad — the cor- 
 poration — own the cars itself; but if it is carrjdng them for anybody 
 they ought to be subject to the same law. 
 
 Mr. Hn.AND. I do not know that the railroad companies need neces- 
 sarily oppose that. So far as the railroad companies are concerned, 
 1 do not see any reason for opposing it. 
 
 Senator Cullom. Of course these private refrigerator cars were 
 built by the people who are running that business because they could 
 not get them in the beginning. The railroads could not furnish them, 
 and they got into the business and have come forward, and the serv- 
 ice has become very expensive. But there is a feeling among the 
 people, I think, that they ought to be under regulation, just as the 
 others are. 
 
 Mr. HiLAND. "We have a large number of our own cars used for 
 other service, you know, and various other railroads have, too, that 
 are used for other branches of perishable property. But we have 
 none that could be used for dressed beef or certain lines of fruit, that 
 not only require peculiar construction, but also require looking after 
 in transit by expert men who have a loiowledge of the conditions 
 that are necessary to preserve the cargo from the time it leaves the 
 point of shipment until it is delivered at destination. 
 
 The Chaiemax. AMio makes the freight rates on commodities in 
 refrigerator cars, in private cars? 
 
 Mr. ITiLAisTD. The owners of the private cars, if there are any made. 
 
 Senator Clapp. Do you make the rates? Does the railroad make 
 the rates, or does the private car company make rates on commodi- 
 ties carried in their cars? 
 
 The Chairmax. For carrying the commodity, you mean. 
 
 Mr. HiLAND. For carrying the commodity? 
 
 The Chairman. Yes. 
 
 Mr. HiLAND. Oh, we make the rates. 
 
 The Chairmax. How many private cars does your company own? 
 
 Mr. HiLAND. How many refrigerator cars? 
 
 The Chairman. Yes. 
 
 Mr. HiLAND. We own about 1,200 refrigerator cars ; I do not want 
 to he held down to the exact number. 
 
 The Chair3ian. No, but just approximately. 
 
 Mr. HiLAND. We own about 1,200 refrigerator cars, and, according 
 to the last statement that I have in mind, about 500 vegetable cars. 
 
 The Chairman. Seventeen hundred altogether. Do you own them 
 just as you own other cars, or do you own them through another cor- 
 poration ? 
 
 Mr. HiLAND. The same as our own equipment; the same as ordi- 
 nary box cars, furniture cars, or anything of that kind. 
 
 Senator Clapp. They are counted in your own equipment? 
 
 Mr. HiLAND. Yes, sir. , ^ . , 
 
 Senator Millard. Your company is not a stockholder m the pri- 
 vate car business, is it, as a company? Does your company own 
 stock in the private car lines? 
 
 Mr. HiLAND. I do not actually know, but I do not beheve it does. 
 
 Senator Millard. Do you know of any special complaints where 
 your road runs in regard to the conduct of the parties owning the 
 private cars, as to shipments ? 
 
20 TENTH DAY. 
 
 Mr. HiLAND. No; there is none in our locality. There is no com- 
 plaint. 
 
 The Chairjia-x. Do j'oii have a regular contract, say, with the Ar- 
 mour Company? 
 
 Mr. HiLAND. No, sir; no, sir; we have not. We have a uniform 
 charge of, as I have stated, so much per mile; and that applies to the 
 Armour cars, the A. R. T. cars, the Santa Fe refrigerator cars, or any 
 other cars; and we pay the same mileage no matter what the owner- 
 ship may be. 
 
 The Chairman. Then you have no arrangement or contract with 
 any of these private car companies that would give those companies 
 particularly a preference? 
 
 Mr. HiLAND. No, sir; but what I mean by that is that we have 
 no contract arrangements. We have an arrangement that runs dur- 
 ing the life of the prevailing rate that is fixed. 
 
 The CHAiRarAN. A.nd it is uniform and unvarying? 
 
 Mr. HiLAND. Uniform. 
 
 The Chairman. On your system? 
 
 Mr. HiLAND. Yes, sir. 
 
 Senator Millard. You collect the charge, I suppose, at the end 
 of the trip, and pay your regular part over to the private car owner? 
 
 Mr. HiLAND. Yes; whatever their charges are. 
 
 Senator Millard. Yes; you collect the freights. 
 
 Senator Ctjllom. How many pounds do they put in one of those 
 refrigerator cars? 
 
 Mr. HiLAND. They put in twenty-four to twenty-six thousand 
 pounds of meat and packing-house product, as a rule; that is about 
 the amount. 
 
 Senator Ctjllom. I saw some document that complained that there 
 was only about 20,000 pounds put in, and that afterwards there was 
 . a conference about it, or a contest, and it was agreed that they would 
 put in twenty- four. 
 
 Mr. Hii;AND. That happened quite a number of years ago, where 
 the rate was fixed on the basis of a 20,000-pound minimum. But you 
 are aware, I presume, that there has been .constant change in the con- 
 struction of cars which gives a greater cubic measurement inside, 
 and as we have increased the capacity we have increased the mini- 
 mum Aveight. That is all I know about any change. 
 
 Senator Cullom. The document that I referred to was, I think, 
 by Mr. Eidgeley. of Chicago. You know him, do you not? 
 
 Mr. HiLAND. Oh, I do, very well. 
 
 Senator Ctjllom. He complained a good deal of the use of private 
 cars as a means of cheating the people, by loading them lightly and 
 running them faster than any other trains, and anybody else's train 
 would have to get out of the way, and so on, giving the private car 
 party an advantage over other people. 
 
 The Chairman. What does the private car earn a day on your 
 line ; do you know ? 
 
 Mr. HiLAND. I do not. 
 
 The Chair:\ian. ~\'\Tiat is the average? How much do they make 
 a day? 
 
 Mr. HiLAND. I do not know. 
 
 The Chairman. Approximately? 
 
TENTH DAY. 21 
 
 Mr. HiLAND The only way that I can answer that so that vou can 
 lorm an intelligent idea is that the private cars are loaded at the 
 packing houses say, and we put those cars into Chicago in about 
 thirty hours. They leave at night, and about thirtv hours from that 
 time they are m Ohicagb. 
 
 Senator Cui.lom. From where ? 
 
 Mr. HiLAKD From Kansas City. That is a distance of 500 miles. 
 Ihat goes on from day to day. 
 
 The Chairmax. And that car gets, for going and returninp-, how 
 much from you? 
 
 Mr. HiLAND. It gets in the neighborhood of $10. 
 
 The Chairman. Five dollars coming and five going? 
 
 Mr. HiLAND. Yes, sir. 
 
 The Chairman. And that is your charge to the car? 
 
 Mr. HiLAND. That is what we pay in the way of rental. 
 
 The Chairman. That is what you pay, I mean ; the charge against 
 you ? 
 
 Mr. Hiland. Yes. 
 
 The Chairman. They make that $10 in sixty hours, if thev get 
 prompt retui-n ? 
 
 Mr. Hiland. Yes. Of course you have to calculate for del lys in 
 unloading, and so on. 
 
 The Chairman. Well, in the yard you pay no other charge? 
 
 Mr. Hiland. No other charge ; none whatever. 
 
 The Chairman. Xo per diem? 
 
 Mr. Hiland. No ; none whatever. 
 
 The Chairman. If it is detained there a week, you have no concern 
 about that ? 
 
 Mr. Hiland. No. 
 
 The Chairman. All they get is 500 miles one way and 500 the other, 
 which is about $10 ? 
 
 Mr. Hiland. Yes, sir. 
 
 Senator Millard. Have you any trouble, in reference to shipping 
 cattle, in fegard to unloading them at the 28-hour limit, or any fixed 
 time ? 
 
 Mr. Hiland. Personally I have not been brought in contact with 
 any of those complaints, although I heard indirectly within a recent 
 period that there had been some complaints made; but I really do 
 not know in what direction they originated, what the nature of them 
 was, or anything of the kind. 
 
 Senator Millard. I have heard quite a good deal of complaint in 
 regard to unloading the cars at the end of the twenty-eight hours, 
 when, perhaps, by keeping them in two hours or three hours they 
 . could have been landed at their destination. They had to unload ani 
 reload the cars, which it is claimed by the shippers gives them a. good 
 deal of trouble. I did not know whether you were familiar with that 
 or not. 
 
 Mr. Hiland. No ; I am not. 
 
 The Chairman. Are there any complaints now, or have there been 
 of late, in your jurisdiction or on your lines or connecting lines, of 
 rates being unreasonably high — ^railroad rates, charges ? 
 
 Mr. Hiland. Oh, no ; not as a general thing. 
 
 The Chairman. Do you have complaints reaching you, as the traf- 
 
22 TENTH DAY. 
 
 fic officer or traffic manager of your road, that the rates you are charg- 
 ing are too high ? 
 
 Mr. HiLAND. There is no change, no unusual complaints in regard 
 to the rates. 
 
 The Chairman. No complaints ? 
 
 Mr. H11.AND. No complaints whatever. 
 
 The Chairman. And there hare not been for how long ? 
 
 Mr. HiLAND. For several years. 
 
 The Chairman. The shippers on your 7,000 miles of line seem to be 
 satisfied with the rates, do they ? 
 
 Mr. HiLAND. Well, I can not say that. I can not say that any 
 shipper is satisfied with the rates ; but there is no general complaint. 
 
 The Chairman. No; they always want lower rates. We under- 
 stand that ; but I mean to say, are there complaints ? 
 
 Mr. HiLAND. Oh, no, no; there is nothing of a serious nature. 
 There is no general complaint. 
 
 The Chairman. No substantial complaint ? 
 
 Mr. HiLAND. There is no general hostility to the railroads in the 
 country that I know about — no general hostility to the railroads, I 
 believe. 
 
 The Chairman. On account of unreasonable rates ? 
 
 Mr. HiLAND. I think you hear an awful lot, but when you get right 
 down to the man who contributes the business, there are no com- 
 plaints. It is the people who are not shipping that complain. 
 
 The Chairman. You are in a position to hear these complaints 
 over and above any other officer of the road, are you not? 
 
 Mr. HiLAND. Well, when they get so bad that my subordinates can 
 not handle them, I usually get them. 
 
 The Chairman. Yes ; you are the one they come up to. 
 
 Senator MiLiiARD. I understood you to say that you did not know 
 just what created all this disturbance in the last six or eight months. 
 There seems to have been a quiet time in regard to railroad traffic 
 until within the last six or eight months. I understood you to say 
 you did not understand Avhat caused the disturbance since then? 
 
 Mr. Hilaxd. Well, no ; I do not recall now that I can fix my mind 
 on any particular thing that impressed me as the cause of it. 
 
 The Chairman. You have had large experience in connection with 
 the transportation of traffic. Are there any abuses of any kind 
 against the shipper and against the people generally by the railroads 
 that ought to be corrected by law, as far as you knmv ? 
 
 Mr. fliLAND. I do not know of am\ 
 
 The Chairman. I mean abuses practiced by the railroads against 
 the people that ought to be connected by law, any little abuses that 
 we laymen can not hear of, indirect ways of affecting the people 
 that Ave do not know about, and robbing them of their rights, or 
 imposing on them ? 
 
 Mr. HiLAND. Do you mean robbing the railroads or robbing the 
 people ? 
 
 The Chair:\ian. Robbing the people. 
 
 Mr. HiLAND. I do not know of anything that the railroads want in 
 that direction. 
 
 The CiiAiRiiAN. You do not know of anything the railroads can 
 do or are doing that directly or indirectly is cheating the people? 
 
 Mr. HiLAND. No. 
 
TENTH DAY. 23 
 
 The Chaiemax. Or giving a preference or an advantage to one 
 over another? 
 
 Mr. HiLAND. No, sir. 
 
 The Chairman. You do not know of any, and there is no disposi- 
 tion, as I understand 
 
 Mr. HiLAXD. Xo, sir. I think it would be like Marsliall Field 
 trying to rob one of his customers that came in to buy goods of him. 
 The railroad company is the seller of transportation. It wants to 
 be on good terms with all of its patrons. 
 
 The CHAiEiiAN. And if it cheated them you do not think it 
 would be ? 
 
 Mr. HiLAXD. Xo, sir. 
 
 The CHAiK:\rAN. Any more than the merchant? 
 
 Mr. HiLAND. That is right. 
 
 The Chairman. There is a prevailing opinion, as indicated by 
 my friend here on my right, that there is somewhere or somehow op- 
 pression, injustice; and I thought that if anybody would be likely to 
 know it would be a traffic manager, so I took the liberty of asking 
 you. But these complaints have been mainly directed to unreason- 
 able rates or rebates and abuses, and to the claim that fixing rates 
 would correct abuses. Do you think the power to fix a rate would 
 carry with it the power to correct abuses and discriminations, rebates, 
 and preferences and advantages ? 
 
 Mr. HiLAND. Xo; I do not believe that there is anything required 
 any niore than the railroads possess and the Government has already 
 established. 
 
 The Chairman. Do you think, if we were to give the power to fix 
 rates to a commission, that that power would correct abuses that are 
 complained of ? 
 
 Mr. HiLAND. I ^ might answer that by saying that I thought they 
 already had the power to do that. 
 
 The Chaiejian. Yes; but would it do it? Would it do it? Would 
 the power to fix a rate correct a rebate ? 
 
 Mr. HhxAnd. Oh, no ; no ! 
 • The Chairman. That is what I want to know. 
 
 Mr. HiLAND. Oh, no ! I can cut a rate or give a rebate on a rate 
 fixed by a commission just as easily as though I made the rate myself. 
 
 I would like to supplement the statement 1 have made by one thing 
 which occurred to me this morning, and that is, I notice that in the 
 Esch-Townsend bill it is proposed, where a joint rate is made between 
 two railroads and there is a failure on the part of the two roads to 
 agree upon a division of that rate, to autlK)rize the Commission to 
 fix the division of the rate. I think that is a very serious objection, 
 because the theory of division of rates is reciprocity; and I do not 
 believe any commission can understand and know the reciprocal rela- 
 tions that exist between, we will saj'', the Chicago and Northwestern 
 and the Chicago, IVHlwaukee and St. Paul railways. I do not believe 
 that the present plan results in sliij injustice to other railroads which 
 are not in position to give us, and we them, the same divisions or the 
 same interchange of traffic. In other words, I do not think that some 
 road that starts nowhere and goes nowhere should come in upon our 
 track and enjoy all of our terminal facilities at one given place and 
 be afforded the same conveniences that a railroad that interchanges 
 all its terminals with us would have. 
 
24 TENTH DAY. 
 
 I want to add that to what I have already said in my other state- 
 ment as an objection to passing this bill that is supposed to put that 
 power in the hands of the Commission. 
 
 Senator Cullom. Do you have any difficulty in settling those things 
 among yourselves ? 
 
 Mr. HiLAND. Oh, no ; not as a rule. 
 
 The Chairman. Where connecting railroads can not agree on 
 through rates, how would you regulate that? Wliere one railroad 
 would not agree with another railroad, with a connecting or branch 
 line, on a through rate that was just and fair in the mind of the con- 
 necting or branch line, should there not be some power to fix that ? 
 
 Mr. HiLANu. The statement that I have just made is applicable 
 to the terms of the bill proposed, which make it compulsory to estab- 
 lish those divisions until Ave can go to the courts and have them re- 
 versed or changed. At the present time 1 presume the railroad 
 itself probably could compel us to give it justice, if we were disposed, 
 for no good reason, to deal unfairly with it. But I do not know of 
 a single case where we have ever failed to deal fairly with a connec- 
 tion and where there has been any protest or remonstrance that re- 
 quired it to appeal to any court or any tribunal. 
 
 The Chairman. Have you many branch lines not owned by your 
 line — lateral and branch lines owned by other corporations? 
 
 Mr. HiLAND. We have none. We operate under one corporate 
 title. 
 
 The Chairman. But are there not branch lines coming into your 
 line owned by other roads ? 
 
 Mr. HiLAND. There are other connections; yes. 
 
 The Chairman. Long and short ones? 
 
 Mr. HiLAND. Long and short ones. ■ 
 
 The CuAiRsrAN. Do you generally agree on the through rates? 
 
 Mr. HiLAND. We always agree on the through rates; and, as I 
 say, we never have failed yet to agree upon a fair and equitable 
 division. Some lines want more than others. 
 
 The Chairman. Let me ask you this question : What do you allow 
 for originating freight to your branch lines? ■ • 
 
 Mr. HiLAND. To answer that so that you will clearly understand 
 my meaning 1 will say that we have a tacit understanding among 
 the so-called '' western trunk lines "' of a through rate per mile witE 
 a minimum of 25 per cent to the originating line. 
 
 The Chairman. Twenty-five per cent of the through rate? 
 
 Mr. HiLAND, TAventy-fi^e per cent of the through rate. . 
 
 The Ci-iAiRjiAN. You allow 25 per cent? 
 
 Mr. HiLAND. As a minimum ; but that is where the mileage through 
 rate Avould give them less. Where the mileage would give them in 
 excess of 25 per cent we give them a mileage basis; but where the 
 mileage is less, then we allow them, as a minimum, for their haul, 25 
 per cent of the through rate. 
 
 The Chairman. You allow them 25 per cent of the through rate, 
 no matter if the haul 
 
 Mr. HiLAND. Yes; but that through rate is always determined 
 before the percentage is applied. 
 
 The Chairman. Yes. 
 
 Mr. HiLAND. To illustrate, we have cases where we have a 600-mile 
 haul. We do not allow in all cases 25 per cent of that 600-mile haul, 
 
TENTH DAY. 25 
 
 but we fix a basing line, where it is 25 per cent of the haul, with a 
 maximum of 25 per cent on a fixed basis of rates. 
 
 The Chairman. Suppose a man had a lateral or branch line of 50 
 miles jommg your line, and your haul was GOO miles and his 60. 
 What would you allow him? 
 
 Mr. HiLAND. We would allow him, in a case of that kind, 25 per 
 cent, as a rule, unless there was some special reason 
 
 The Chairman. For the freight? 
 
 Mr. HiLAND. For the 500-mile haul that he would get. 
 
 The Chairman. Well, he would make the 50-mile haul. Would 
 you give him 25 per cent of the through rate? 
 
 Mr. HiLAND. Yes, sir. Now, there is a reciprocity in that. 
 
 The Chabrmax. Does that apply to all freights, or not ? 
 
 Mr. HiLAND. Oh, no. That happens to be customary in our part 
 of the country. 
 
 The Chairman. Yes ; but does it apply to all freights ? Suppose 
 there was coal up there on that connecting line ? 
 
 Mr. HiLAND. Sometimes we make an exception, and make an 
 arbitrary rate per ton on that. 
 
 The Chairman. An arbitrary rate per ton? 
 
 Mr. HiLAND. Yes ; and that varies. It varies all the way from 25 
 cents to 50 cents a ton. 
 
 The Chairman. Do you ever make these arrangements on a mileage 
 basis, on an arbitrary basis up to the point where you pro rate ? 
 
 Mr. HiLAND. Yes, sir. 
 
 The Chairman. What is the usual rule with your road and in 
 your country ? 
 
 Mr. HiLAND. We deduct the arbitrary rate, if there is an arbitrary 
 rate, and then we prorate the balance on the lines that I have sug- 
 gested to you. 
 
 The Chairman. Suppose, for instance, the connecting line of 50 
 miles hauls the freight only 2 miles, 5 miles, 10 miles, or 20 miles. 
 What do you allow as an arbitrary rate per mile ? 
 
 Mr. HiLAND. That depends on the character of the property in- 
 volved. It is not always confined to 25 per cent. Take the ordinary 
 interchange of merchandise, where the rates are on a higher plane. 
 We would allow, in that case, 25 per cent. 
 
 The Chairman. On lumber ? Would you do it on lumber, or coal ? 
 
 Mr. HiLAND. No; we would not do it on lumber. I was just 
 going to say we would not do it on lumber, coal, pig iron 
 
 The Chairman. "What would you allow it on ? 
 
 Mr. HiLAND. We would allow it on what we call the class freights. 
 
 The Chairman. Have you any arrangement with connecting lines 
 where you allow an arbitrary of 50 miles for originating the freight? 
 Do you know what I mean — an arbitrary of 50 miles ? 
 
 Mr. HiLAND. Oh, you mean that is constructive mileage? 
 
 The Chairman. Yes. 
 
 Mr. HiLAND. We have no such thing on our system as constructive 
 mileage, except on business west of the Missouri Eiver. The rates 
 and divisions there were established many years ago. probably 
 twenty-five A'ears ago, and there has been but very little change. 
 Railroad, up to a certain point, a mile and a half for their miles west, 
 as against the mileage of 1 mile east. Those divisions were estab- 
 lished long years ago, and there has been but very little change. 
 
26 TENTH DAY. 
 
 There have been some modifications since, but that has been by agree- 
 ment. I do not know of any other exception, except that. 
 
 The Ci-iAiEMAN. But your basis of allowance to the road originat- 
 ing the freight is on a percentage of the through rate ? 
 
 Mr. HiLAND. Yes, sir. 
 
 The Chairman. And 25 per cent is usual on ordinary freight? 
 
 Mr. TIiLAxi). Ordinary freight, with the lines with which we have 
 reciprocal relations. 
 
 The Ci-TAiRacAN. You have said there was a reciprocity in these 
 matters. What did you mean by that word, " reciprocity ? " 
 
 Mr. H]LAKD. I mean the interchange of freight and the access to 
 and from markets. 
 
 The Chairjiax. ¥ov instance, suppose your connecting line and 
 you could not agree — how would you do? Do you think the law is 
 competent to compel an agreement now? 
 
 ilr. Hilaxd. 1 would not want to answer that without looking the 
 lav-.' up; and as I stated in making my supplemental statement, my 
 attention was called to the proposed enforcement of this new law, 
 ajid that is why I wanted to add that as one of the objections to the 
 present law. 
 
 The CirArR:\tAN'. Do you allow connecting lines, short lateral aiid 
 branch lines, cars oil' of your road? 
 
 Mr. liiLAxu. Oh, we give them cars, if they have not money 
 enough to buy their own; when there is anything to move, of course 
 we more it just the same as -though it were our own railroad. 
 
 The Chaiejian. Do you have any rule, where they have some cars, 
 but not enough, that if they supply so many cars you will supply so 
 majiy ? 
 
 Mr. HiLAND. No; I do not recall any instance of that kind, Mr. 
 Chairman. 
 
 The Chairman. Do yOu have any connecting lines that have no 
 cars, and you supply the cars? 
 
 Mr. HiLAND. No, sir; not where they have no cars. 
 
 The Chairman. They all have some? 
 
 Mr. HiLAND. They all have some cars. 
 
 The Chairman. And when they are short of cars, as they are most 
 of the time, and all the time, you supply them, do you ? 
 
 Mr. HiLAND. Yes, sir. 
 
 The Chairman. Under the per diem arrangement? 
 
 Mr. HiLiiND. Yes, sir. 
 
 The Chairman. The committee is very much obliged to you for 
 j'our statement, Mr. Hiland. If you will be here Monday, possibly 
 some other questions will be asked by members of the committee who 
 are not present to-day. 
 
 The committee thereupon adjourned until Monday. May 1, 1905, 
 at 11 o'clock a. m. 
 
REGULATION OF KAIL WAT iLVTES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 ELEVEJSTTH DAY. 
 
 Monday, J/ ay 1. 1905. 
 The committee met pursuant to adjournment. 
 CONTINUATION OF STATEMENT OF MB. GEORGE R. PECK. 
 
 The Chairman. I believe. ^h\ Peck, you are entit]ecl to the floor 
 this morning. 
 
 ^Ir. Peck. Thank j'ou. 
 
 The Chairman. Are you familiar with the question- of differ- 
 entials ? 
 
 Mr. Peck. Xot particularly. I am not a traffic man, as you under- 
 stand. 
 
 The Chair3ian. Do you think that if the differentials that obtain 
 now by arrangement between roads and shippers were abolished 
 it would produce confusion in the railroad world, in the commercial 
 world ? 
 
 Mr. Peck. I think so ; yes. 
 
 The Chairman. If a commission were appointed that had power 
 to fix rates, do you think that that commission could successfully 
 deal with the question of differentials? 
 
 Mr. Peck. I do not. 
 
 The Chairsian. Please state your reasons. 
 
 Mr. Peck. As I understand it, differentials have grown up through 
 the efforts of traffic officials to adjust their systems to the public 
 necessities and the efforts of traffic officials to secure business for 
 their lines. It has not been, in the largest sense, a philanthropic 
 effort. Each company tries to serve the interests of its own centers 
 and towns and to secure business for itself. 
 
 The Chairman. Is it your opinion that the Commission, being the 
 agent of Congress, if it "undertook to adopt some plan or method of 
 fixing rates, would necessarily have to disregard the present differ- 
 entials; and that if they did that, would that interfere with section 
 9. Article I. of the Constitution? 
 
 Mr. Peck. I have no doubt myself that if a commission were vested 
 with the rate-making power and attempted to preserve existing 
 differentials, or to establish new ones, it would find itself face to 
 face with the preference clause of the Constitution. Perhaps I 
 should add that if it made a purely distance rate, leaving the ports 
 
 n^5M— 1 H. T. NEWCOMB, 
 
 LAWYER 
 
2 ELEVENTH DAY. 
 
 to their natural advantages, the constitutional provision would not be 
 violated. That is my opinion about it. But if they established 
 any differentials which preferred one port over another in a different 
 State, I think that clause would be violated. They must, however, 
 be ports of different States, as the preference which is forbidden is 
 not of one port over another if they both happen to be in the same 
 State, but of ports of different States. It was to preserve the 
 equilibrium of the States in their ports rather than the ports them- 
 selves. 
 
 The CHAiR;\rAN. You know there are 256 ports, a great many of 
 Tivhich, when the Constitution was adopted, were inland ports? 
 
 Mr. Peck. Yes, sir. 
 
 The Chairjian. Would this apply to the inland ports as well? 
 
 Mr. Peck. I am inclined to think it would, but I can not speak 
 authoritatively on that. There are ports in the United States which 
 are not upon any navigable waters, as you understand, and there are 
 ports where there are no waters, except perhaps of some creek — 
 practically upon no waters. But the Constitution uses the term 
 " port,"' and Congress has made many places ports that were not 
 originally ports ; so that perhaps the term " port " means more than 
 we generally understand by the common use of the word. 
 
 The Chairman. The inland ports are all created by act of Con- 
 gress and stand on the same footing. 
 
 Mr. Peck. I presume so, but there has been no decision to that 
 effect. I should say, however, that the Constitution adapts itself 
 to whatever situation has been created, by act of Congress or other- 
 wise. 
 
 The CHAiRiiAN. In case the differentials at present maintained by 
 railroads were abolished, in your opinion what port would get the 
 most of the business ? 
 
 Mr. Peck. I should suppose the port that is nearest to the point 
 of origin — to the initial point — would get it. If differentials were 
 abolished, either by act of Congress or by the voluntary act of the 
 railroads, there would be a struggle, the result of M^hich would be 
 that the port with best facilities, the port nearest to the point of 
 origin of shipment, of deepest water, and having all the natural ad- 
 vantages would get the most benefit. 
 
 The Chairman. Taldng into consideration the shipping facilities, 
 chances for return freight, readiness of ships to take on cargo, and 
 all those things, would not New York, all things being even, have 
 the advantage over the Gulf ports and the Atlantic ports of the 
 South? 
 
 Mr. Peck. I should think so very decidedly. It did have the 
 advantage, Avith differentials. But, without differentials, consider- 
 ing its location, the commodiousnfess of its harbor, the depth of 
 water, and the fact that it is the great financial and commercial cen- 
 ter of the United States — all those are distinct natural advantages 
 for New York. 
 
 The Chairjian. The Government, you think, through a commis- 
 sion, could not adopt any rule that would ignore these conditions, 
 but it would haA'e to let them have full play under the Constitution? 
 
 Mr. Peck. I should think go most decidedly. 
 
 The Chairman. I think you stated about the Commission adopt- 
 
ELEVENTH DAY. 3 
 
 ing a mileage basis in determining what wonld be a fair and rea- 
 sonable rate, did you not ? 
 
 Mr. Peck. Yes, sir. 
 
 The Chairman. And the Commission, in your judgment, would 
 have to fix a reasonable and fair rate ? 
 
 Mr. Peck. I think so. 
 
 The Chairman. Is there not anotlier basis besides the jnileage 
 basis? On that basis alone could the Commission adopt what would 
 be a fair return on investment in a railroad ? 
 
 Mr. Peck. I do not think that would be possible. 
 
 The Chairman. Can you give briefly your reasons ? 
 
 Mr. Peck. Yes, sir. 
 
 The Chairman. Let us have them. 
 
 Mr. Peck. It is so large a subject, that a commission in fixing a 
 large number of rates could not ascertain at any given time the cap- 
 italization, the return upon the investment, nor the net revenue that 
 would be derived from the rate. Those are subjects that constantly 
 fluctuate, and I believe that even if there were no preference clause in 
 the Constitution, it would be infinitely better for the country and 
 better for the railways to leave to the reasonable discretion of the rail- 
 way managers the question of what rates should be applied. If the 
 traffic manager of one road makes an unreasonably high rate, he will 
 be more likely to be corrected by his competitors than he will be by 
 any body of men sitting in Washington. 
 
 The Chairman. But in adopting the rule of fair return on capital 
 invested, one railroad might be highly capitalized, people think the 
 stocks are watered, and it might have a great bonded indebtedness, 
 while another road has neither the same amount of stocks nor the 
 same amount of bonds. In making an estimate of what would be a 
 fair return upon the capital invested, would not the road with the 
 lowest capitalization and the lowest amount of bonded indebtedness 
 be entitled to the greatest return ? 
 
 Mr. Peck. Just as you have competitors side by side, the one that 
 has advantage of location or of distance will make the rate for the 
 others to follow. I do not think railroads can ever be operated by a 
 mere comparison of the capitalization or indebtedness of the roads. 
 
 The Chairman. You think the Commission could not take into 
 account what would be a fair return on the investment ? 
 
 Mr. Peck. I do not think it could, because the roads that are com- 
 peting have different amounts of capitalization and different amounts 
 of bonds, and so they have got to have different rates. 
 
 The Chairman. You have been connected with railroads in one 
 way and another how long ? 
 
 Mr. Peck. Twenty-five years ; but not in the traffic departments, of 
 course. 
 
 The Chairman. I gathered from your statement that you thought 
 that the owners of railroads, having their money invested in them, 
 naturally and logically it belonged to them to fix the rates, as a busi- 
 ness proposition ? 
 
 Mr. Peck. Yes; primarily. 
 
 The Chairman. And primarily should remain with them ? 
 
 AT-p Pppir "yftS Sir 
 
 The Chairman. Do you think that to confer the power upon the 
 Commission to name rates would divide the responsibility of man- 
 
4 ELEVENTH DAY. 
 
 agement so that not only the earnings might be impaired, but the 
 service to the public might also be impaired? Do you think that 
 would divide the responsibility, or what Avoukl be the effect? 
 
 Mr. Peck. I think it would divide the resijonsibility and it ayouM 
 divide the control, the Commission or the Government taking the 
 great bulk of it. Under this Esch-Townsend bill, in the course of 
 time — and I should say not a very long time — the Commission, from 
 the very force of circumstances, would be controlling the rates, and 
 the control of rates is the control of the property. The bill also 
 gives the Commission power, upon complaint, to make rules and 
 regulations. That would give them the power to operate the trains, 
 to make innumerable rules and regulations, which I believe would 
 result almost disastrously, because it ought not to be necessary to 
 point out to an intelligent people, to business people, that a body of 
 men, however wise and just in their intentions, but inexiDerienced 
 in railway management, sitting in AVashington or Avherever it chose, 
 could not ha^'e that intelligent knowledge of the properties they were 
 operating that can be gained only by personal contact with and per- 
 sonal knowledge derived from experience. 
 
 The Ci-iAiEMAN. Do you think that necessarily the Commission 
 would have to eniploj^ a large body of railroad ex23erts, just as the 
 railroads do now ? 
 
 JMr. Peck. I should think they would .have to employ more, be- 
 cause they start out ]5resinnably without special knowledge and 
 expert knowledge of the business. 
 
 The Chaieman. ilr. Peck, are you fajniliar, since 1870, with the 
 reduction in freight rates up to the present time? 
 
 Mr. Peck. I am not personally familiar with it. I knoAv it is well 
 understood by railroad men and I ha"\'e seen the figures, which I 
 think, probably, are before the committee now, showing the almost 
 constant loweiing of rates without the action of a commission. 
 
 The Chair3[ak. The rates in 1870 were, on the average, 2 cents 
 per ton -pev mile, whereas now they are only about 0.76 cent per ton 
 per mile ui:)on the average. This is a material reduction. Do you 
 think that the jiresent conditions and natural forces at work in the 
 railroad world would reduce and diminish the rates of transporta- 
 tion for the future in anything like the same ratio that they have 
 been reduced in the last thirty years ? 
 
 JMr. Peck. Yes: I should think so. Of course no one can answer 
 that question with any certainty. The rates have been reduced by 
 natural causes. They have been reduced by competition. The enor- 
 mous number of miles of road built since 1870 has been a very large 
 and imixirtant factor. The growth and deA'elopment of the country 
 has been a factor. Whatever the reasons may be, it is well vmderstood 
 that the tendency has been downward. If in some cases there have 
 been only slight reductions, they have groAvn out of special reasons 
 and causes. It is well known to the committee, I presume, that there 
 has been in the la^t feA\- years a very large advance in practically 
 everything that a railroad use^ — in wages, materials, rails, and every- 
 thing that goes to make up the operating expenses of a railroad. ^ 
 That ought to justify an increase as much as the other conditions 
 justify or even clemand a decrease of rates. It ought to be reciprocal. 
 If a railroad company is called upon to reduce its rates because it has 
 
ELEVENTH DAY. 5 
 
 large earnings, if the scale turns and goes the other wav thev onght 
 to be enabliM I to increase their rates. 
 
 The Chairmax. In your systeiii. and in the section of country vou 
 represent generally, are there complaints of exorbitant or excessiye 
 rates by railroads? 
 
 ]Mr. Feci-:. Very seldom. 
 The CitAiKiMAN. And then in single cases? 
 
 Mr. Pec'k. T know of practically none. I will not sav that there 
 are none, but T recall none at the present moment. I do not recall 
 a single case against our company. 
 
 The Chairman. Do you think an excessiye and extortionate rate 
 can be restrained under the present law as efficiently as under any of 
 the la^ys proposed ? 
 ^Ir. Peck. Yes, sir. 
 
 The CiiAiRM \x. lender the injunction laws? 
 
 ]\Ir. Peck. As I stated the other day. I am yeiA- much in fayor of 
 the injunction method as a remedy for excessiye rates and as a 
 remedy for discriminations, tbo-e being the two eyils that are pro- 
 vided for by the present interstate-commerce act. 
 
 The Chair^iax. Has the pre-eiit Commission been enabled, so far 
 as your ob-eryation extends, to settle almost every dispute between 
 shipper and carrier that has come before it ? 
 ^Ir. Peck. Yes ; I think so. 
 
 Senator Xeavlands. Mr. Chairman, may I ask a question right 
 there in regard to injiuictions? 
 The Chairman. Yes. 
 
 Senator Xewlands. Do you understand that an injunction would 
 lie against a corporation to restrain it in the granting of rebates? 
 Mr. Peck. Yes; it has been so held. 
 
 Senator Xkwlaxds. "Was not the present injunction — I believe there 
 has been but one — against a nmnber of railroads going out of Chicago 
 an injunction against their conspiring together to grant rebates and 
 discriminations ? 
 
 Mr. Peck. Xo, '^ir; I think it was broader than that. I am quite 
 sure it was. Of course T have not the record here. 
 
 Senator Xewlaxds. My understanding is that that injunction is 
 against conspiracy and that there might be a question whether an 
 injunction would lie against an individual company to control it in 
 the matter of future violations of law. 
 
 Mr. Peck. This is my recollection. Senator: There were thirteen 
 ■different suits brought against thirteen diil;ereiit companies. It is 
 my recollection that conspiracy was not charged. I know that each 
 <;om23any was sued separately, Avhich would not be the case if it were 
 a conspiracy injunction, probably. Each decree does enjoin them 
 from conspiring with others, but if also distinctly enjoins them from 
 giving a better rate to one person under similar conditions than to 
 another. Those cases were brought in Chicago and in Kansas City. 
 I believe the two judges sat together, however, for convenience. The 
 suit against my company was brought in Kansas City, and there were 
 eight cases in Kansas Citj^ and five in Chicago, I believe. The Chi- 
 jcago cases were heard first, but Judge Phillips, of the western district 
 oi Missouri, sitting usually at Kansas City, came to Chicago and sat 
 with Judge (ilrosscup for convenience, as the questions before each 
 
6 
 
 ELEVENTH DAY. 
 
 of those judges were precisely the same, ;incl each company was sued 
 liy itself. 
 
 The CiiAiR:\rAM. Are those injunctions in force now? 
 
 Mr. Peck. Yes. sir. 
 
 The CiiAiEMAN. The railroads have never attempted to disturb 
 them 'i 
 
 ^h\ Peck. Xo, sir. A temporary injunction was awardedin eacli 
 case. The question of the power of the court to grant an injunction 
 was discussed at the hearing of the application for temporary injunc- 
 tion. At that time the Elk'ins law had not been passed, and of course 
 the most impoi-tant legal question involved was, under the interstate- 
 commerce act as it then stood and which did not specifically name 
 injunctions, but did name other criminal reraiedies, whether the civil 
 remedy by injunction Avonid lie. Rut the Interstate Commerce Com- 
 mission, through the Department of Justice, filed these bills and 
 applied for an injunction. The injunction was granted in each case. 
 That was, I believe, in April, and the following February the Elkins 
 bill became a law and specifically provided the remedy by injunction. 
 Senator Newlanmis. Against I'eliates? 
 
 Mr. Peok. Against rebates. I do not know just the exact lan- 
 guage. But I do not question at all that equity will relieve against 
 discriminations and against extortion or excessive and unreasonable 
 rates. I think it is a very excellent remedy, and, as I pointed out 
 the other day, it has been exceedingly effeetive, because it not only 
 restrained the companies which A\erc sued, but it very largely and 
 almost entirely siippre^^sed discriminations or rebates, "'rebates" 
 being the word that is used. 
 
 Senator Cakmack. Discrimination by rebates. 
 
 Ml'. Peck. Yes, sir; it suppressed them because the other compa- 
 nies understood perfectly well that if they paid rebates — violated the 
 law — they could be enjoined. 
 
 Senator XE^VLANDS. Mr. Peck, assuming that the exercise of equity 
 power by the court is beneficial in this particular matter, what puz- 
 zles me is where the limit of the injunction is. If it can be applied 
 in such cases, can it not be applied generally for the regulation of 
 everything in our social organization? 
 
 Mr. Peck. Probably it can. 
 
 Senator Newlands. I see no reason, then, for criminal laws, if 
 punishment can be inflicted summarily m that way. 
 
 Mr. Peck. I will tell you mv idea of criminal laws. The injunc- 
 tion usually has more terror in it than a criminal prosecution, be- 
 cause it carries with it a quasi-criminal remedv; that is to say, pro- 
 ceedings by contempt if you do not obey the injunction, and that is 
 what is called quasi criminal. 
 
 Senator Cult.om. Intolerably summary 
 
 Mr. Peck. The beauty of it "is that it "is summary. The court con- 
 ducts the investigation to see if the injunction has been violated; 
 then m its discretion applies the punishment by fine or imprisonment. 
 That IS a power that goes with equity for the violation of any decree. 
 
 1 he Chairman. After the passage of what is known as the Elkins 
 law the railroads that were enjoined submitted to and acquiesced 
 m these injunctions, and have ever since? 
 
 Mr. Peck. Yes, sir. 
 
ELEVENTH DAY. 7 
 
 The Chaiejian. They have become permanent ? 
 
 ilr. Peck. They have not been made permanent. 
 
 The CHAIR5IAN. 13ut they have never been disregarded? 
 
 Mr. Peck. IS'o. 1 do not recall what has been done since the pas- 
 sage ot tJie Elkms la^v. But it is certainlv well understood that there 
 are injunctions and that they can not be violated, and I do not 
 beheve they have been violated. There is one great advantatre: If 
 has a deterrent influence on other companies. We had to take the 
 medicine to cure their disease. 
 
 The Chairman. And you did it manfully. 
 
 Mr. Peck. Yes ; we did it. 
 
 The Chaieinian. I do not know whether vou used these figures — 
 I think it was Mr. Hines. Twenty-five cases went from the Com- 
 mission to the Supreme Court of the United States on appeal, and 
 twenty-two of those were reversed by the Supreme Court. 
 
 Mr. Peck. I can not give you the figTires. 
 
 The Chairman. You did not state them? 
 
 Mr. Peck. I did not state them, though I know that most of the 
 cases appealed from the Commission have been reversed. 
 
 The Chairman. That is, those cases were reversed that were based 
 upon complaints of excessive charges? 
 
 Mr. Peck. I believe so, though I think most of the cases were not 
 for excessive rates. 
 
 The Chairman. Are vou familiar with refrigerator and private car 
 systems in any of their workings ? 
 
 Mr. Peck. Not particularly. 
 
 The Chairman. From what you know, do you or not think they 
 should be subjected to the interstate-commerce law the same as com- 
 mon carriers? 
 
 Mr. Peck. They are not common carriers, I should say, but they are 
 engaged in commerce. As to the usefulness of refrigerator cars— that 
 they are owned by a railroad company itself or by an outside com- 
 pany there can be no question. A large portion of the traffic of the 
 country consists of perishable articles — meats, fruits, and other such 
 commodities, I presume — and those articles must have refrigeration. 
 I look upon these private refrigerator cars as, in a certain sense, 
 warehouses. Of course that would not be true in the legal sense, but 
 they are to provide the facilities for carrying on commerce in perish- 
 able articles. If by reason of refrigerator cars, or any other private 
 cars, rebates and discriminations are allowed, that is certainly a good 
 reason for destroying the rebates and discriminations. But it does 
 not follow that the private car system itself should be destroyed. 
 
 The Chairman. No ; not destroyed ; but I ask you could it be sub- 
 jected to the provisions of the interstate-commerce law the same as 
 other carriers ? 
 
 Mr. Peck. I do not know enough about it to state authoritatively. 
 But it is undoubtedly competent to subject them, or some of them, to 
 the interstate-commerce law. It could not be applied to private car 
 lines fully, it seems to me, though I am not an expert in such matters, 
 because they do not make the rate ; they do not charge a rate against 
 the public. 
 
 The Chairman. But abuses grow out of that system, it is said. 
 
8 ELEVENTH DAY. 
 
 Can .you, as an attorney, see any objection to subjecting them to the 
 provisions of the interstate-commerce law ? 
 
 Mr. Peck. I do not see any. 
 
 The Chairjian. Do you favor it? 
 
 Mr. Peck. I do not favor it nor oppose it. I do not understand 
 very accurately the method, although I heard it testified about the 
 other day here. I gathered from the testimony that the refrigerator 
 car lines' simply furnish cars for the railway companies. It is tike an 
 elevator. 
 
 The CiiAiRJiAx. Xow, jNIr. Peck, you stated that the lottery case 
 was decided under the interstate clause of the Constitution. Was the 
 Iowa Wilson bill sustained or overruled by the Supreme Court? 
 
 Mr. Peck. It was sustained. I can refer you to the case if you 
 desire. 
 
 The Chairman. Just give the volume and page. 
 
 Mr. Peck. I made an examination, and if you would like to have it 
 I have both of those cases right here. 
 
 Senator Cullo^i. Suppose you give the lottery case decision, so as 
 to show the committee exactly under what clause of the Constitution 
 the decision was rendered. 
 
 Mr. Peck. I would like to call attention to the fact, that it was 
 decided on the commerce clause alone. 
 
 Senator Ci'llom. The commerce clause of the Constitution? 
 
 Mr. Peck. Yes. Congress passed the act, excluding lotteries from 
 using express companies, on the ground, which was sixstained. that it 
 was a regulation of commerce. I will give you a reference to the case. 
 It is reported simply as the lottery case. There were two of those 
 cases argued — Champion ''. Ames and Francis /'. United States. 
 
 The Chairjian. I think Mr. Justice Harlan rendered the opinion, 
 did he not? 
 
 Mr. Peck'. I believe Judge Harlan did render the opinion, though 
 there were some dissenting opinions. It is rejDorted in ISS IT. S., 321. 
 The decision is put A-ery squarely on the commerce clause of the Con- 
 stitution. 
 
 Mr. Peck. The opening sentences of the opinion are: 
 
 The .".ppellaiit insists tliat tlie ciivvyiug of lottery ticliets from one Stnte to 
 another State liy an express company ensasecl in carrying freiglit and paolvases 
 from St:ite to State, althougli sucli ticlcets may lie contained in a box or package, 
 does not constitute, and can not by any act of Congress be legally made to con- 
 stitute, connnerce among the States within the meaning of the clause of the 
 Constitution of the United States jiroviding that Congress shall have power 
 "to regulate commerce with foi'oign nations, and among the several States, and 
 with the Indian tribes ; " consequently that Congress can not make it an offense 
 to cause such tickets to be carried from one State to another. 
 
 The Government insists that express companies, when engaged for hire in 
 the business nf transportation from one State to another, are instrumentalities 
 of commerce among the States ; that the carrying of lottery tickets from one 
 State to another is connnerce which Cop-gress may regulate : and that as a 
 means of executing the power to regulate interstate conmierce Congress may 
 make it an offense against the United States to cause lottery tickets to be carried 
 from one State to another. 
 
 Then follows 'an exhaustive discussion of the commerce clause of 
 the Constitution, and I believe no other authority for that act of 
 Congress is given than the commerce clause of the Constitution. It 
 is distinctly put upon the ground that lotteries are immoral, and 
 
ELEVENTH DAY. 9 
 
 therefore may be suppressed, and that Congress, under the com- 
 merce clause of the Constitution, may prohibit the carriage of lot- 
 tery tickets. 
 
 Senator Cullom. Are you familiar «ith the decision of the Su- 
 preme Court in the Iowa "Wilson liquor law ? 
 
 Mr. Peck. I know the case. I would like to read, unless you have 
 heard enough of this. 
 
 Senator Cullom. Go on. 
 
 Mr. Peck. I would like to read from it. because it rests so squarely 
 on the commerce clause. 
 
 Senator Cullom. You mean the lottery case? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Cullom. Read further, if you desire. 
 
 Mr. Peck. As some doubts were ex])reh.-ed the other dav as to 
 whether it was based upon that, I have In'ought the book here: 
 
 We have said that tlie cMrr.viiis from State to State of lottery tickets consti- 
 tutes commerce, and that the regulation tf such coiimierce is within the power 
 of Congress under the Constitution. Are we prepared to say that a provision 
 which is, in effect, a prohibition of the carriage of such articles from State 
 to State is not a tit or apirropriate mode for the regulation of that particular 
 1-ind of commerce? If lottery traffic, carried ua through insterstate commerce, 
 is a matter of which (.'on.ciress may talie cognizance and over which its power 
 may he exerted, can it lie possible that it musi tolerate the traffic and simply 
 regulate the manner in which it may be curried on? Or may not Congress, for 
 the protection of the people of all the States, and under the power to regulate 
 interstate cnmniene. devif-e such means, within the srope of the Constitution, 
 and not prohibited bv it, as will drive tlwt traitjc out of commerce among tlie 
 States? 
 
 I think that confirms what I said the other day, and goes much 
 further — that notwithstanding the regulation proposed amounts to 
 prohibition, it will be sustamed in the interest of morality and to 
 drive it out under that clause of the Constitution which is invoked 
 for so many things — the commerce clause. 
 
 Senator Cullo^i. Was the Iowa liquor case practically under the 
 same provision of the Constitution ? 
 
 ■Mr. Peck. That case is entitled " In re Rahrer " (140 U. S., 5-1.5). 
 
 I will read the syllabus : 
 
 The act of .\ugust 8. 1890 (2(:! Stat. U, 313, e. TiS), enacting "that all fer- 
 mented, distilled, or other intoxicating liquors or liquids transported into any 
 State or Territory, or remaining therein for use, consumption, sale, or storage 
 therein shall, upon arrival in such Stati' or Territory, be subject to the operation 
 sind effect :,t the laws of such State or Territory enacted in the exercise of its 
 police powers, to the sauie extent and in the same manner as though such 
 liquids or liquors had been produced in such State or Territory, and shall not be 
 exempt therefrom liv reason of being introduced therein in original packages or 
 otherwise," is a valid and constitutional exercise of the legislative power con- 
 ferred upon Congi-ess; and, after that act took effect, such liquors or liquids, 
 introduced into a State or Territory from another State, whether in original 
 packages or otherwise, became subject to the operation of such of its then 
 existing laws as had been properly enacted' in the exercise of its police powers, 
 among which was the statute in question as applied to the petitioner's ofCense. 
 
 Senator Culloji. The police powers. 
 
 Mr. Peck. The police powers of the State. 
 
 Senator Cullom. The police powers of the State could be invoked 
 for the suppression of anything which, in the opinion of the law- 
 making power of the State, was immoral, and they could make it 
 illegal. Congress simply takes up the subject, not to declare that it 
 
10 ELEVENTH DAY. 
 
 was originally illegal or immoral, but that it will so respect the feel- 
 ings of a State which has enacted a prohibitory law that it will make 
 it applicable to interstate commerce while that commerce is within 
 that State, and make such investigations as may enable it to reach a 
 conclusion as to whether there is probably just ground for com- 
 plaint ? 
 
 Mr. Peck. I think that is reasonable legislation. 
 
 Senator Foraker. And you think when it has made that much in- 
 vestigation, if it concludes that there is just ground for complaint, it 
 should then call the attention of the district attorney to the matter 
 and he should be required to bring the case before the court. Now, 
 have you any doubt about Congress having the constitutional power 
 to require the court to proceed summarily to hear such a complamt? 
 
 Mr. Peck. No, sir. 
 
 Senator Foraker. And postponing other business? 
 
 jSIr. Peck. No, sir ; I think Congress has that power. 
 
 Senator Foraker. So I understand. Now, have you any doubt, 
 either, as to the right of Congress to require the court to make a 
 finding of facts? When the court has heard the case, is there any 
 question, or can there be any question, of the power of Congress 
 to require the courts to make a finding of facts as the basis of the 
 decree or judgment it may enter or any order which it may enter? 
 
 jMr. Peck. I thinJc that may be done. It would become a rule of 
 practice, as I look at it. 
 
 Senator Foraker. Is it not true that in almost every State in the 
 Union the courts are required to make findings of fact when a jury 
 is dispensed with? 
 
 Mr. Peck. In many of them that I know of. 
 
 Senator Foraker. If the parties demand it? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Foraker. It is so in our State. 
 
 Mr. Peck. I think in most of the States that may be so. 
 
 Senator Foraker. That is a question upon which I would like to 
 have the benefit of your views, if you see fit to look it up and have 
 any clearer notion about it than you have now^ — whether we have 
 the right to require the court to make a finding of fact — that is, to 
 find what is a reasonable rate. 
 
 Senator Newlands. In that particular case? 
 
 Senator Foraker. Yes; the court must find whether or not the 
 rate complained of is unreasonable. 
 
 Senator Carmack. In other words, to provide that the court shall 
 then estate what, in its opinion, is a reasonable rate. 
 
 Senator Foraker. My proposition is that the court should make a 
 finding of fact that the rate is so much, and they will find, if they 
 should sustain the complaint, that that rate was unreasonable. Then 
 I want them to find what would be a reasonable rate — not that they 
 have the right to put a reasonable rate into operation, for they would 
 not have that power. 
 
 Mr. Peck. I do not think the court could, on the evidence in a 
 given case, safely say what a reasonable rate would be six months 
 from now ; and that is the theory of this rate making, and one of 
 the dangerous parts of it, that you are going to take an existing 
 state of facts, or a state of facts that has existed for a period, ana 
 say " that shows that you are now charging an unreasonable rate, 
 
ELEVENTH DAY. 11 
 
 and therefore you shall not charge more than a certain amount for 
 all time to come " — ^because it is permanent. 
 
 Senator Foeaker. Well, I will change that a little. 
 Mr. Peck. The circumstances may change. 
 
 Senator Foeakee. Eequire the court to state what would be a rea- 
 sonable maximum rate. I am only speaking now of our right to 
 require the court to make that kind of a finding of fact along with 
 the other findings of fact which clearly we could require it to make. 
 
 Mr. Peck. I should hardly think it could be done. It is a legisla- 
 tive act, not the recommendi-ng, perhaps, but if you let the court 
 find and establish a reasonable rate for the future I think you would 
 be running against the Constitution again. 
 
 Senator Foeakee. I am not asking the court to find anything for 
 the future. jVIy question is confined to this : Require the court to find 
 what is the rate being charged, whether or not that rate is unreason- 
 able, and all other facts necessary to an intelligent understanding of 
 the order they will make, including, among other requirements, a find- 
 ing of fact as to what, in view of the testimony offered in that case, is 
 a reasonable maximum rate for the road at that particular time to 
 charge. 
 
 Senator CAR:vrACK. Not meaning that that rate shall go into effect? 
 
 Senator Foeakee. Xo. Meaning that it shall not go into effect 
 simply because the court has found it. Xow, if we can require the 
 court to do that, then, assuming that we have so required it, is there 
 any objection to our providing by statute that when a court shall have 
 made that kind of a finding as to a reasonable maximum rate that 
 shall, by operation of the Act of Congress, go into effect until there is 
 further complaint of it ? Is there any objection to that ? 
 
 Mr. Peck. I am not prepared to say that you could not constitu- 
 tionally pass such an act, because, as I understand your question, you 
 are suggesting whether this act shall not itself, ipso facto, make that 
 rate. 
 
 Senator Foeakee. Yes; that is, the act will adopt what the court 
 has found, and then it will go into effect by operation of the statute 
 and not by operation of any order of the court. 
 
 Mr. Peck. I c:in not say whether that would be valid or not; that 
 is something like the 
 
 Senator Foratver (interrupting). The decision in the McKmley 
 reciprocity case — Field v. Clark (143 IT. S.). 
 
 Mr. Peck. Yes. 
 
 Senator Forakee. The President is there required to ascertam a 
 certain state of facts and to make a proclamation when he did ascer- 
 tain the certain state of facts, and then, by operation of the statute, 
 that became effective. 
 
 Mr. Peck. Yes. . , .^j, 
 
 Senator Carjiack. He Avas required to find whether a foreign tarill 
 rate was reasonable. 
 
 Senator Forakee. Yes. • -, ^ -r ^^ 
 
 Mr Peck. And the act provided that that secondary rate, as 1 call 
 it in my paper, should go into effect then by act of Congress and not 
 by finding of the President. . • .i,- 
 
 Senate? Forakee. What I want to direct your attention to is this, 
 Mr Peck : That the complaints that have come to us are that when 
 a rate is complained of the process to correct it is to go before the 
 
12 ELEVENTH DAY. 
 
 Interstate Corainerce Commission, which requires generally a long 
 period of time for investigation and a great deal of expense and 
 bother, and then, when they — the Commission — has made an order, it 
 does not go into eifect unless the road sees fit to adopt it, and so there 
 is more time consumed, and what is wanted is some correction of that 
 trouble. Noav, if we could have a mere preliminary investigation 
 by the Commission to ascertain whether or not there is probable 
 cause, and then complaint by the Commission, that W'Oulcl set the 
 court in oijeration. If it should be required to proceed at once, they 
 could get expeditiously a finding as to whether or not the rate in 
 question was a reasonable rate, and then, if the court could be re- 
 quired to make a finding as to what should be a maximum rate, our 
 statute coidd be made operative in the way indicated, and w^e could, 
 it seems to me, in that way give some relief over and above what is 
 given now. 
 
 Mr. Peck. Bnt the evidence which vrould be before the court, being 
 the record of the Interst;>.te Commerce Commission below, would 
 simply go to the question of the reasonableness of the existing 
 rate 
 
 Senator Foraker. Up to that date? 
 
 ^fr. Peck. Yes; and it would not afford sufficient evidence to the 
 court as to what would be a reasonable rate because it is a proce?ding 
 attacking an existing rate, not establishing a new one. 
 
 Senator Foraker. That is exactly true, but then the same objection 
 lies to wb.at is proposed as to the action to be taken by the Interstate 
 Commerce Commission, liecause, if they should name a rate to-day, 
 they would name it on account of conditions to-day existing and six 
 months from now it might be a wholly imreasonable rate. In either 
 case tlie rate would be likely to be changed on account of changes in 
 conditions. 
 
 Mi-. Peck. And, Mr. Senator, may I suggest if that course should 
 be adopted and the rate found to be reasonable by the court should by 
 act of Congress be made the rate then if conditions changed how' 
 would the cai-rier get authority to change the rate? The act of 
 Congress has fixed it ; where can there be any authority less than an 
 act of Congress to change it ? 
 
 Senator Foraker. Well, that is a difficulty. 
 
 Mr. Peck. That is a difficulty which seems to me to be almost 
 insuperable. 
 
 Senator Foraker. It is a difficulty unless we provide in our statute 
 that that rate shall continue until for some reason the carrier sees 
 fit to make a change; the carrier all the while making the change 
 subject to this liability to be called to summary account bv the same 
 kind of a proceeding being again instituted. The probabilities 
 Avould be, I should thmk, that the rate then arrived at, where both 
 parties had a hearing, Avould be accepted and would not be likely to 
 be departed from. 
 
 Mr. Peck. No, sir. 
 
 Senator Foraker. I only wanted to get A'our view, as a laAvyer, as 
 to the legal questions invoh'ed in the suggestion. 
 
 Mr. Peck. I shall examine that question, Mr. Senator. 
 
 Senator P'orakeu. I wish you would. 
 
 Mr. Peck. I see more practical difficulties the more I think of it. 
 It was new to me when you suggested it. 
 
ELEVENTH DAY. 13 
 
 Senator Foraker. I want to sisk you about the inland ports. Sen- 
 ator CuUom or Senator Elkins — one or the other — asked yon whether 
 you regarded them as in a constitutional ^ense the same as ports of 
 entrj' that are on the seacoast. I want to get your mind around to 
 what my mind is on by asking you a few kindergarten questions. 
 In the first place, why is it that any city wants to be made a port of 
 entry ( 
 
 Mr. PEfK. For the convenience of the public, as I understand it. 
 
 Scnatfir Foraker. I am a-kini;: you. to set it in the record. 
 
 ^Ir. Peck. ^ly under-tandiug is that these inland ports are so made 
 m order that instead of going through the custom-house and the 
 actual ports they can gi^'e a bond or have them brought and put into 
 a warehouse and released in the inland city upon paying the collector 
 of that port or the proper official at that city. 
 
 Senator Kean. Does the St. Paul road run to the British Columbia 
 line? 
 
 Mr. Peck. Xo, sir. 
 
 Senatin- Keax. It runs to ports on the lake? 
 
 Mr. Peck. Oh, many. 
 
 Senator Kean. I mean up to the line? 
 
 ]Mr. Peck. Xo. sir. 
 
 Senator Keax. It d(jes not touch the line anywhere? 
 
 Mr. Peck. Xo, sir. There iiro ports reached by the St. Paul road- 
 on Lake ^Michigan, on Lake Superior, and on the Mis>issippi River. 
 
 Senator Foraker. The truth is, as you Avere saying, that the in- 
 land ports of entry are made liecause it is supposed to be a com- 
 mercial advantage to importers to have their goods brought without 
 being broken to the place where they do business ? 
 
 Mr. Peck. That is my understanding. 
 
 Senator Foraiver. To have them imported in bond to their city? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Foraker. If a man lives at St. Louis or Cincinnati or In- 
 dianapolis he has that advantage if his city is made a port of entry, 
 and that is supi^osed to be helpful in buildipg up a place ? 
 
 ilr. Peck. That is my understanding of it. 
 
 Senator Foraker. Aiid to add to the desirability of business men 
 doing business at that particular place? 
 
 Mr. Peck. Yes : that is my imderstanding of it. 
 ■ Senator Foratcee. And that is supposed to help railroads if it 
 increases the business of the place? 
 
 ]Mr. Peck. Yes, sir. 
 
 Senator Foraker (continuing). Business coming and business 
 going? 
 
 Mr. Peck. Yes. 
 
 Senator Foraker. The purpose of the framers of the Constitution 
 in saying that there should be no discrimination in favor of the ports 
 of one State against the ports of another State was that all might 
 be treated fairly and given an opportunity to grow according to 
 their respective iaatural conditions? 
 
 M^r. Peck. Yes sir. 
 
 Senator FoRAiiER. Then would not a discrimination against Indian- 
 apolis, Cincinnati, St. Louis, or Chicago be just as much a discrimi- 
 nation within the purpose that the framers of the Constitution had 
 
14 ELEVENTH DAY. 
 
 in mifid, so far as we know their purpose, as to discriminate in favor 
 of A"ew York as against Baltimore or New Orleans ? 
 
 Mr. Peck. I see no reason to the contrary of that. I believe it is 
 a familiar rule of construction of statutes that you are always to 
 peek for the evil that was in the minds of the lawmakers when they 
 made it. 'When the Constitution was adopted it was in their minds, 
 I should judge, by that provision, that the ports of the United States 
 should be put upon an equal basis so far as any regulation of com- 
 merce should be concerned, and it would certainly include all of 
 these new jjorts that have been established since. 
 
 Senator Foeakee. Although at that time they perhaps did not 
 foresee that there would be any inland ports of entry ? 
 
 Mr. Peck. Let me give an illustration : Chicago is in clearances 
 iind arrivals of vessels, or was in 1893 or 1894, the greatest port in 
 the United States. In the Illinois Central case Justice Field, in his 
 opinion, stated that the clearances and arrivals of vessels in the port 
 of Chicago were greater than tliose in the port of New York, and 
 •equal to New York and Boston combined — that is, in number, not 
 in tonnage. It was a very surjorising thing, but it shows how im- 
 portant this provision is to ports outside of mere ocean ports. 
 
 Senator Forakee. It is just as important to them as it is to a city 
 that is on the seacoast, is it not ? 
 - Mr. Peck. I think so. 
 
 Senator Foeakee. I believe that is all, Mr. Peck, though I will 
 reserve the right, if the chairman will allow me, to ask one other 
 •question that I have in mind to ask, and which I would like to ask 
 later. 
 
 Senator Culloje. I would like, to ask one question which I neg- 
 lected to ask : Are you able to give the capital stock and the number 
 of employees of your railroad ? 
 
 Mr. Peck. I am, substantially. 
 
 Senator Cullom. I believe we are in the habit of asking that ques- 
 tion about corporations, and we Avould like to have the information 
 in regard to the Chicago, Milwaukee and St. Paul Railway. 
 
 Mr. Peck. The total number of shares of stock is 1,065,583. That 
 was in 1904, and none has been issued since that I know of. I have 
 the information for two years here. Senator — 1898 and 1904. Would 
 you like to have them both for purposes of comparison ? 
 
 Senator Cuilom. The last, at any rate. 
 
 Mr. Peck. I have given you the figures for 1904. 
 
 Senator Cullom. There is no objection to your giving both. 
 
 Mr. Peck. In 1898 there were 778,460 shares. This stock is in 
 shares of $100 each. 
 
 Senator Cullom. The face value of the stock would be how much? 
 
 Mr. Peck. One hundred times the number here. I am not enough 
 of a mathematician to give the total offhand. They are $100 a 
 share. There are two kinds — common and preferred. The number 
 of shareholders in 1898 was 5,526 ; in 1904, 6,237. Average holdings 
 per shareholder in 1898, 141 ; and in 1904, 171. Those are the hold- 
 ings by shares. Number of shares held abroad in 1898, 92,879; in 
 1904, 68,547. Number of shares held at home in 1898, 685,481 ; and 
 in 1904, 997,236, showing a very marked increase in the number of 
 shares held in our own country. Per cent of shares held abroad, 
 n.94 in 1898, and 6.41 in 1904. 
 
ELEVENTH DAY. 15 
 
 Senator Cullom. Do you know the number of your employees ? 
 Mr. Peck. Yes. Before that, however, finishing this table, the 
 shares held at home in 1898 were 88.6 per cent, and in 1904 the per- 
 centage of our stock held in this country was 93.59 per cent. 
 
 The number of employees June -30, 1904. was 29,585. It is prob- 
 ably something more than that now. 
 Senator Cutxojm. How many shareholders altogether were there? 
 The Chaiemak. Abroad and at home? 
 Senator CuLLOii. Yes. 
 
 Mr. Peck. The number of shareholders in 1898 was r>.."ii;() and in 
 1904. 6,237. 
 
 The CnA]R:MAX. That is the entire number? 
 
 ]\Ir. Peck. The entire number of shareholders; vps, sii-. 
 
 The Chate:'iax. Senator Clapp, it is your turn to interrogate the 
 witne-;s. 
 
 Senator Cr.AP!-. .Vs Senator Xewlands may not be able to be here 
 this afternoon, if agreeable to the committee I will waive the usual 
 order, so that he may que-tion the witnp'^s at this point. 
 
 Senator Forakei;!. Just one }n(iie question that I wanted to ask: 
 The road you represent is the Chicago, Milwauljee and St. Paul? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Fokaker. And your lines run both to Milwaukee and to 
 jNIinneapolis, do they not ? 
 
 Mr.- Peck. Yes, sir. 
 
 Senator Foraker. It has been stated before this committee, as I 
 am told — T was not ijresent when the witness testified that — that one 
 of the precipitating causes of all this trouble is a gross discrimination 
 in favor of Minneapolis as against Milwauliee. Can you tell us anj'- 
 thing about it ? 
 
 Mr. Peck. I can not. I was not with the company at the time, but 
 Mr. Hiland, the traffic man, is here. 
 
 The Ctiairmax. Mr. Hiland went over that Saturday, Senator 
 Toraker. 
 
 Senator Foeakek. I beg pardon, then. 
 
 Senator Xeavi.ands. Mr. Peck, in what State is the Chicago, Mil- 
 waukee and St. Paul incorporated ? 
 
 Mr. Peck. Wisconsin. 
 
 Senator Xeweaxds. In how many States does it operate? 
 
 Mr. Peck. Eight. 
 
 Senator Xewlaxds. "What States? 
 
 Mr. Peck. Illinois, Michigan, "Wisconsin. Iowa, Minnesota, X^orth 
 T)akota, and South Dakota. 
 
 Senator X'e^vi-ands. Then it is a domestic corporation of AVisconsin 
 and a foreign corporation as to the seven other States? 
 
 Mr. PECii. Yes, sir. 
 
 Senator X'ewlaxds. How nianv miles of track does it operate? 
 
 Mr. Peck. About 7,000. 
 
 Senator Xewlaxds. Does it own all this track or does it lease a 
 part of it ? 
 
 ]Mr. Peck. It owns it all, I believe. 
 
 Senator Xeaveands. Is this corporation authorized by the laws of 
 these seven other States to own tracks in those States? 
 
 Mr. Peck. Yes, sir ; they are operated in these other States by per- 
 
16 ELEVENTH DA.Y. 
 
 mission of the other States through, I think in a'll cases, the general 
 laws of the States. I do not recall any special act. 
 
 Senator Newlands. Is that corporation the owner of any stock of 
 any other railroad corporations? 
 
 Mv. Ppxk. I think it does own the stock of one corporation. If 
 that property has not been conveyed to the Chicago, Milwaukee and 
 St. Paul, it is to be ; and possibly the transfer has been consummated. 
 The laws of \Yisconsin authorize us to acquire stock in other roads 
 and to purchase the road outright, absolutely. 
 
 Senator Newiands. And to purchase and oi)erate roads in other 
 States ? 
 
 Mr. Peck. Yes. sir. 
 
 Senator Newlands. Is the Chicago, Milwaukee and St. Paul a 
 part of anj' group or system, through community of interests or 
 similar arrangements? 
 
 Mr. Peck. No. sir ; not that I know of. 
 
 Senator Newf.axrs. Assuming that it were a new question, and 
 considering your present system of incorporation under the laws of 
 one State Avith a power to own and operate in other States, that 
 power l)eing validated by these States as a matter of comity, would 
 you regard it as preferable to haAT the consolidation of those roads 
 under a national or a State charter, as a matter of convenience or 
 simplicity? 
 
 Mr. Peck. Well, as a matter of operation ? 
 
 Senator Newi.ands. Yes; and from any point of view\ 
 
 jMr. Peck. I am not an expert at all in operating or in traffic, but 
 I should suppose a single act of incorporation, provided it secured 
 all the rights now enjoyed and did not take away any of them by 
 State enactment, would be preferable. 
 
 Senator Newlands. All other things being equal? 
 
 Mr. Peck. Yes; but my opinion on those questions can not be 
 regarded as very unich. I should prefer a practical railroad man's 
 idea about it. 
 
 Senator Newlanus. Regarding your bond issues. "\Miat is the 
 total issue of bonds of this system? 
 
 Mr. Peck. I do not recall. It is 
 
 Senator Newlands. Approximately? 
 
 Mr. Peck. It is over one hundred millions. 
 
 Senator Newlands. Is that all one bond issue upon the entire sys- 
 tem, or does it consist of separate bond issues upon parts of the 
 system ? 
 
 Mr. Peck. It is mostly all a single bond issue. There is Avhat is 
 called our general mortgage, and there were on some of the roads that 
 ■were acquired mortgages, and the general mortgage provides for new 
 issue 'of bonds to take up the old issues. "\Ye can not take them all 
 up, because in old times they paid a higher rate of interest than they 
 do now ; but as fast as jthose mortgages become due, a new issue of 
 bonds is made to take them up. 
 
 Senator Newlands. Your aim being to have ultimately but one 
 mortgage and one issue? 
 
 Mr. Peck. Ultimateh^ to have one mortgage covering the entire 
 property. 
 
 Senator NewI;Ands. Now, regarding these States through which 
 
ELEVENTH DAy. i7 
 
 your road passes : Have all of them got commissions for the fixing of 
 rates for State purposes as to State commerce ? 
 
 Mr. Peck. No, sir. 
 
 Senator Xewlands. "What States have not? 
 
 3Ir. Peck. I think I should perhaps change that. Wisconsin does 
 not fix rates. Illinois has the power to fix rates. They have, how- 
 ever, a railway conmiissioner in Wisconsin with large powers. He 
 could not make a rate. There is no power in him to make rates ; but 
 there is in some of the other States. 
 
 Senator Neavlands. Is it so in the case of Illinois ? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Newlands. Is it so in the case of Michigan? 
 
 Mr. Peck. Well, I should have to look it up. 
 
 Senator Nbwlaxds. Is it so in the State of Iowa ? 
 
 Mr. Peck. Let me explain about Michigan. We have a small mile- 
 age there, up in the upper peninsula. 
 
 Senator Newlands. How about the State of Iowa? 
 
 Mr. Peck. The State of Iowa ha§ the rate-making power. 
 
 Senator Newlands. And Minnesota ? 
 
 Mr. Peck. It has. 
 
 Senator Newlaxds. And North Dakota? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Newlands. South Dakota ? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Newlands. Have you found this rate-making power exer- 
 cised by these State commissions to be exercised oppressively ? 
 
 Mr. Peck. In two instances we have litigated the question and in 
 both cases the courts set aside, the rates they made. 
 
 Senator Newlands. So that the exercise of the power by these 
 State commissions has not been disastrous or confiscatory to your 
 roads ? 
 
 Mr. Peck. It would have been confiscatory in those two States. 
 
 Senator Nevt-ands. If the courts had not given protection. 
 
 Mr. Peck. If the courts had not protected us by giving us a perma- 
 nent injimction against them. 
 
 Senator Newlands. I see. 
 
 Mr. Peck. In one of those cases we went to the Supreme Court. 
 In the other case we received a decision in our favor in the circuit 
 court. 
 
 Senator Clapp. '\^Tiat States were they ? 
 
 Mr. Peck. Those were the States of North and South Dakota. 
 
 Senator Newlands. Those are the only States in which oppressive 
 action was taken ? 
 
 Mr. Peck. Well, they were the only States in which action was 
 taken sufficiently oppressive to warrant litigation over that I know of. 
 I have only been with the Chicago, Milwaukee and St. Paul since the 
 fall of 1895. 
 
 Senator Neavlands. Have they not recently passed a new bill m 
 Wisconsin giving power to fix rates to some commission or body? 
 
 Air Peck No sir. ^ 
 
 Senator NewiInds. It is before the legislature? 
 
 Mr. Peck. One house has passed it and the other has not, as yet. 
 
 11 D— 05 M 2 
 
18 ELEVENTH DAY. 
 
 Senator Newlands. Eegarding your taxes. Is the system of taxa- 
 tion the same in all these States? 
 
 Mr. Peck. It is now on an ad valorem system in every State except 
 Minnesota. 
 
 Senator Newlands. And there? 
 
 Mr. Peck. It is on a percentage basis. 
 
 Senator Newlands. What percentage ? 
 
 Mr. Peck. Four per cent. 
 
 Senator Newlands. On the gross receipts ? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Newlands. Which system do you regard as the most cer- 
 tain, simple, and satisfactory? 
 
 Mr. Peck. Personally? You wish my opinion? 
 
 Senator Newla>;ds. Yes. 
 
 Mr. Peck. I think the gross-earnings system is preferable. 
 
 Senator Newlands. You think it is preferable from the standpoint 
 both of the State and of the railroad ? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Newlands. And I presmne that you regard it as preferable 
 because of the mathematical certainty of the tax ? 
 
 Mr. Peck. Because of the simplicity of it, its mathematical cer- 
 tainty, and the much less labor that is required. 
 
 Senator Newlands. In ascertaiiiing the tax ? 
 
 Mr. Peck. In ascertaining the values. 
 
 Senator Newlands. Yes. Now, in these other States where the 
 ad valorem tax is imposed you find great variation in the judgment 
 of men as to the value, do you not ? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Newlands. And as to the elements that compose value? 
 
 Mr. Peck. Yes, sir; where they are not fixed by statute. 
 
 Senator Newlands. And those opinions yavy ^^itli the men and 
 with the commission that acts upon them? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Newlands. If, then, there should be a national incorpora- 
 tion act for railways, and a tax imjDOsed intended to be in lieu of all 
 local taxation upon the assumption that as a national instrumentality 
 it could be exempted from all State taxation, you would regard a 
 percentage tax upon gross receipts as the best system of taxation, 
 would you? 
 
 Mr. Peck. I do consider that the best system. I should be glad to 
 see it everywhere. 
 
 Senator Newlands. Would you be prepared to give jour opinion 
 as to the power of the National Government to fix such a tax, except- 
 ing the railroads and their stocks and bonds from all local taxation 
 and providing for a distribution of this tax among the States by 
 some fair rule, according to trackage or volume of business, so that 
 their present revenue would not suffer? Would you be prepared to 
 give your opinion as to the constitutionality of such a provision? 
 
 Mr. Peck. I have never considered that question, but I must say 
 that my impressions are against it. Of course I am not prepared to 
 give an opinion or make an argument upon the question, but it 
 strikes me, perhaps because of its novelty, that it would not be prac- 
 tical. 
 
ELEVENTH DAT. 19 
 
 Senator Newlands. You are familiar with the case of McCuUoueh 
 f. Maryland ? * 
 
 Mr. Peck. Yes, sir; I know the case very well. 
 
 Senator Xewlands. There the State sought to impose a tax upon 
 the promissory notes of a bank, and the United States Supreme Court 
 held that the bank was a national instrumentality and that the State 
 could not tax its notes. However, I do not want to carry tou into 
 a legal discussion. You say you have not looked into the matter? 
 
 Mr. Peck. I have not examined it. 
 
 Senator Xewlands. I would be very glad if von would do so, and 
 give us your views regarding it. 
 
 Mr. Peck. I have read with a good deal of pleasure your speech 
 and your Xorth American Eeview article. 
 
 Senator Xewlands. I did not go elaborately there into the legal 
 question. 
 
 Mr. Peck. It would be a very diflScult question, I can see, States 
 now ha^ang the taxing power, to come in with an act of Congress and 
 take it away from them. I should doubt the power of Congress to 
 do it. 
 
 Senator Xewlands. As to the principles which should control rate 
 regulation. As I understand it, the Supreme Court of the United 
 States has determined that the principles that should control any 
 rate-fixing body should be the value of the road and a fair retm-n 
 upon it, tha,t value to be ascertained by considering the cost of the 
 road, what it would cost to reproduce it, its revenue, and other con- 
 siderations of that kind. Xovv-, assuming that the rate-fixing body 
 has got to consider and allow your operating expense, your taxes, and 
 the fixed charges in the shape of interest upon your bonds and main- 
 tenance of the road, the only other thing they would have to consider 
 would be the return upon j'our stock, would it not? 
 
 Mr. Peck. I do not think you have stated that exactly as Justice 
 Harlan did in Sinythe v. Ames, but you include most of the elements 
 that he named. You remember, however, that he concluded his 
 enumeration of the elements that enter into the rate-making power 
 with something like this : " We do not say that these are all the things 
 that may be considered, but we name them as things that should be 
 considered," or something like that. 
 
 Senator Xewlands. Could you name any others than those that I 
 have already stated ? 
 
 Mr. Peck. Yes. There are other things enumerated by Justice 
 Harlan. 
 
 Senator Xewlands. "Wliat other things? 
 
 Mr. Peck. "VATiat volume was that case in? I presume that volume 
 is here somewhere. 
 
 Senator Xe-\vlands. ''Alien you come to revise your remarks, can 
 you put in the quotation in regard to that ? 
 
 Mr. Peck. Yes ; I will include that quotation from Justice Harlan, 
 which is often used. I am quite familiar with it. 
 
 Senator Xewlands. Do that, if you please. 
 
 What return would you consider a fair return, in the exercise of the 
 rate-making power, upon that portion of the value of a railroad rep- 
 resented by the stock ? 
 
 Mr. Peck. Oh, Senator, I do not believe I could figure that very 
 well. 
 
20 ELEVENTH DAT. 
 
 Senator NE■^^■LA]s'DS. Have you had any contentions in court upon 
 those questions ? 
 
 Mr. Pecxc. Yes, sir. 
 
 Senator Newi.ands. And what contention did you muke there? 
 
 Mr. Peck. I haA'e tried two cases — one against the commission of 
 South Dakota and one against the commission of North Dakota. 
 ' Senator Xewla:\ds. Do you remember what your contention there 
 was ? 
 
 Mr. Peck. !■ remember contending for these items Avhich Justice 
 Harlan named. What else I contended for I can not tell from mem- 
 ory. One of the cases consumed a great deal of time and went into 
 all of these questions exhaustively. 
 
 Senator Newlands. Could you suggest 'any method of automatic 
 regulation of rates, through a control of the dividends allowed upon 
 stocks, so as to give the corporations the freest hand possible in the 
 management of their own aii'airs, with due regard, of course, to 
 equality of service and the absence of discrimination and rebates. 
 
 Mr. Peck. I do not think that there could be any automatic method 
 of arriving at what is a reasonable rate. That question depends so 
 much upon circumstances and conditions that I do not see how you 
 could make it automatic. If I understand what you mean by auto- 
 matic, you mean to have 
 
 Senator Newlands. I mean automatic regulation so far as the Gov- 
 ernment is concerned, so that it could fix a principle, leaving to the 
 corporation itself practically the fixing of its own rate, the public 
 being protected against impositions by some control over the gross 
 revenue or the net revenue of the company. 
 
 Mr. Peck. I am not able to work out such a problem. 
 
 Senator Newlaxos. 1 understand you to say that you have about 
 106 millions of capital, is it? 
 
 Mr. Peck. We have something over $100,000,000; I think more 
 than $106,000,000; perhaps $120,000,000; but I can not state defi- 
 nitely. 
 
 Senator N^ewlands. Part of that is preferred. How much of it is 
 preferred ? 
 
 Mr. Peck. Not quite half; something less than half of the entire 
 issue of stock. 
 
 Senator Newlands. What rate of interest-does that preferred stock 
 give? 
 
 Mr. Peck. Seven per cent. 
 
 Senator Newlands. Your common stock is about one-half; and 
 what does that pay ? 
 
 Mr. Peck. It pays what it earns. It is paying now 7 per cent. 
 
 Senator Newlands. What is the quotation of the preferred stock 
 in the market to-day ? 
 
 Mr. Peck. 1 do not know. 
 
 Senator Nb\\-lands. Or the common stock — do j^ou know? 
 
 Mr. Peck. I do not. It fluctuates. It is in the seventies or 
 eighties, I believe. I do not recollect what the quotation is. 
 
 Senator Newlands. What rate of interest do you pay upon your 
 bonds ? 
 
 Mr. Peck. Upon the present bonds— the general mortgage bonds— 
 Ave pay 4 per cent. 
 
ELEVENTH DAY. 21 
 
 Senator Newlands. But. some of the underlying bonds are run- 
 ning at a higher rate of interest, are they not? 
 
 Mr. Peck. There is one issue, I remember, that has 7 per cent. 
 That was m another age. We are waiting for that to mature. 
 
 Senator Newlands. Take this $106,000,000 of capital stock, pre- 
 ferred and common : Does all that represent money actually paid in, 
 or was a part of it issued in connection with bond"^ issues or the issue 
 of preferred stock without any particular compensation? 
 
 Mr. Peck. Well, of course, that was long before my day. There 
 was an issue of bonds in early times containing a provision that on 
 the happening of certain things the holder of the bond might ex- 
 change it for preferred stock. 
 
 Senator Neavlands. Yes. 
 
 Mr. Peck. And that option has been frequently exercised, as it is 
 obviously a good thing for the holder of the bonds, because they are 
 limited in time, while the preferred stock continues and is a 7 per 
 cent stock. 
 
 Senator Newlands. You pay, then, 4 per cent on your bonds on 
 the general issue ? 
 
 Mr. Peck. Yes. 
 
 Senator Ne\\'la]stds. And 7 per cent on your preferred stock, ajid 
 about 7 per cent on your common stock? 
 
 Mr. Peck. We are now paying 7 per cent on our common stock, 
 but from the beginning of the operations of the railroad there are 
 more years in which we have paid nothing than in which we have 
 paid anything. We have only paid 7 per cent for a couple of years, 
 I believe, and for many years we paid nothing. 
 
 Senator Newlands. Mr. Peck, regarding the ports: You -ay that 
 it would be unconstitutional for Congress to give any preference to 
 the ports of one State over those of another by its legislation? 
 
 Mr. Peck. That is my opinion. 
 
 Senator Newlands. That does not necessarily imply the adoption 
 of distance rates, does it ? Could not zone rates be adopted ? 
 
 Mr. Peck. I should think not, and I do not know of any method 
 of making rates by a commission to conform to that constitutional 
 provision except upon distance, and, of course, that might practically 
 work out to be a great preference, but it would not be an intentional 
 preference. 
 
 Senator Newlands. We will assume that there is a certain place 
 1,200 miles from the port of New York and 1,000 miles from the 
 port of Baltimore. Would you regard it as a violation of that con- 
 stitutional provision if the Interstate Commerce Commission, in the 
 exercise of this power, should fix the rate for wheat at the same 
 amount per ton for the entire distance between this point and those 
 two ports ? 
 
 Mr. Peck. It would seem so to me. 
 
 Senator Newlands. You would regard giving them the same rate 
 as a preference to one and a discrimination against the other, would 
 you? 
 
 Mr. Peck. I should, New York being 1,200 mile^s and Baltimore 
 1,000 miles; yes. To make the sanje rate would be to prefer Mew 
 York, it seems to me. 
 
 Senator Newlands. You would not regard it, then, as constitu- 
 
22 ELEVENTH DAY. 
 
 tional, under the exercise of this power, to provide that the same rate 
 on each commodity should exist throughout the United States, regard- 
 less of distance, just as in our postal service? 
 
 Mr. Peck. I should not think that would be legal or constitutional. 
 
 (At this point the committee took the usual noon recess.) 
 
 .\FTER RECESS. 
 
 STATEMENT OF MR. GEORGE R. PECK— Continued. 
 
 Senator Clapp. Taking up, first, the subject of differentials, you 
 do not consider the present law, so far as the constitutional clause 
 in regard to preferences is concerned, as objectionable in view of 
 the prohibition in the Constitution of preferences against the ports 
 of the different States? 
 
 Mr. Peck. T do not. 
 
 Senator Clapp. If there was read into the existing law a provision 
 that the Commission, after investigation, should not only find, if the 
 iiivestigation warranted it, that an existing rate was unreasonable, 
 but should find what, in its judgment, was a reasonable rate (subject, 
 of course, to review by the court) , that would not, in your judgment, 
 lay the law liable to any objection in view of the constitutional pro- 
 hibition against preferences? 
 
 Mr. Peck. I should think not. 
 
 Senator Clapp. With that provision added to the law, your sug- 
 gestion as to the possibility of constitutional prohibition being vio- 
 lated would go, of course, to the administration of the law ? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Clapp. I understood you to say this morning that you 
 believed there should be some govel-nmental control of rates ? 
 
 Mr. Peck. Yes. 
 
 Sensitor Clapp. And control means ultimately the establishing of 
 a rate, does it not ? 
 
 Mr. Peck. No, sir; not entirely. 
 
 Senator Clapp. Of what would control of a rate consist if it did 
 not lead ultimately to the establishment of a rate? 
 
 Mr. Peck. I should think it an entirely different matter to make 
 a rate for the future from that of declaring an existing rate to be 
 unreasonable. I might be in favor of one and not in favor of the 
 other provision. 
 
 Senator Clapp. Under the existing laAv the Commission, if it finds 
 that in its judgment a given rate is unreasonable, makes an order 
 discontinuing the rate and directing the carrier to discontinue that 
 rate? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Clapp. And the carrier must either obey that order or, 
 declining to obey, the Commission must take the case into court ? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Clapp. And if the court sustains the Commission, then 
 the carrier must obey that order to the extent of discontinuing that 
 rate? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Clapp. In discontinuing that rate the carrier practically 
 is required to make a substantial reduction of that rate, is he not? 
 
ELEVENTH DAY. 28 
 
 Mr. Peck. Yes, sir ; determining probably for itself what is a fair 
 and substantial reduction. 
 
 Senator Clapp. Otherwise the Commission could again proceed? 
 
 Mr. Peck. Yes, sir; and it could any way, I suppose. 
 
 Senator Clapp. So that, subject to the power of the Commission to 
 proceed again, the rate which the carrier substitutes is made upon 
 the theory that that rate would be considered, if not by the Commis- 
 sion, at least by the court upon review, as a reasonable rate? 
 
 Mr. Peck. Yes, sir. 
 
 Senator Clapp. So that practically, in the end, the Commission 
 now has the power to proceed, so far as the court will sanction it, 
 until the carrier puts in a rate which the Commission practically 
 fixes ? 
 
 Mr. Peck. No ; not practically fixes ; but a rate such as tlie car- 
 rier would assume to be satisfactory. 
 
 Senator Clapp. But the Commission may again proceed? 
 
 Mr. Peck. It may. 
 
 Senator Clapp. I think probably an illustration by figures will 
 make it plainer. There is a rate of $1, we will say, and the Commis- 
 sion condenans that rate; assuming that it is sustained by the court, 
 if it goes to the court, and the carrier puts in a rate of 90 cents. Now 
 the Commission can proceed again, upon the theory that 80 cents 
 would be a fair rate; and they can continue that process until they 
 either reach 80 cents, or until the court has said that some effort to 
 reduce the rate below the rate which has been reached is unreasonable. 
 
 Mr. Peck. That is true. 
 
 Senator Clapp. Is not that practically the power to fix a rate, in its 
 last analysis? 
 
 Mr. Peck. It is the power, in the last analysis, to condemn a rate ; 
 but it is not the power, as I look at it, to fix a rate for the future. 
 
 Senator Clapp. After the Commission has condemned a rate, and 
 that order has been approved by the court, the carrier must obey that 
 order by a substantial reduction ? 
 
 Mr. Peck. Yes. 
 
 Senator Clapp. That operates in the future, does it not, to this 
 extent: That the carrier may initiate an increased rate, but still sub- 
 ject to some review by the Commission and the court ? 
 
 Mr. Peck. Always. 
 
 Senator Clapp. Then, subject to this power of initiation and review, 
 it is practically the fixing of a rate for the future, is it not ? 
 
 Mr. Peck. I do not think it is. Senator. That is the very ques- 
 tion that was so much discussed, and the Supreme Court held that 
 there was no power to fix a rate. After a rate has been condemned 
 the carrier ought to have some discretion in fixing the new rate. It 
 is not riirht to trifle with the court by making so slight a reduction 
 as to amount to nothing, but at the same time it has a right, it seenis 
 me, to its opinion as to what woidd be a reasonable rate, and bring it 
 within the decision that had been made by the court. There is a 
 wide range between, sav. 90 cents and 80 cents. There are a great 
 many reductions of a rate of 1 cent or 2 cents that would not be un- 
 reasonable. Something would depend upon the testimony that had 
 been introduced showing the difi'erent elements of the case, and from 
 those elements the carrier might have one view, and a reasonable one, 
 and, an honest on-, as to how low the rate should go, r.nd the Commis- 
 
24 BLBVENTH DAT. 
 
 sion might have another. I think that all that is required of the 
 carrier iri good faith with the Commission and with the court. 
 
 Senator Clapp. That is true; but that point ha^dng been reached 
 under the present law, the carrier could not practically raise that rate 
 unless conditions had so changed as to warrant the carrier in believ- 
 ing that the Commission and the court would sustain the increased 
 rate. Is not that correct? 
 
 Mr. Peck. As a practical matter of administration, yes. 
 
 Senator Clapp. Then when that rate is finally reached by the pres- 
 ent process it is a rate to remain in effect in the future, subject, of 
 course, to modification if conditions change; but in the absence of 
 any changed conditions it practicallj' operates to remain in eflfect 
 in the future. 
 
 Mr. Peck. It practically operates to remain in effect in the future 
 unless the carrier, for good reasons, considers that it should be 
 changed. Of course the Commission can not fix a rate, and the 
 court can not fix a rate. The Commission can not fix a rate because, 
 under the law, it has not been delegated with that power, and the 
 court can not fix a rate because the court can not exercise legislative 
 functions. 
 
 Senator Clapp. Wq -will go back again to the illustration of the 
 dollar rate: Proceedings are instituted and the Commission con- 
 demns the dollar rate; the court sustains the action of the Commis- 
 sion; the carrier modifies that rate by putting a 90-cent rate into 
 efl'ect, upon the theory that that is a substantial modification of that 
 order, so substantial that the court will recognize it as a fair com- 
 pliance with the order. That rate then remains in effect until the 
 carrier changes it. Upon what conditions would the carrier assume 
 to change that rate? 
 
 Mr. Pecic. Upon conditions which had made it proper to change 
 it, is the only answer I can make to that. 
 
 Senator Clapp. Upon changed conditions. 
 
 Mr. Peck. Such change as, in the opinion of the carrier, would 
 justif J' it in increasing the rate. 
 
 Senator Clapp. Exactly. Then until those conditions change that 
 rate is the rate that takes effect and operates continuously ? 
 
 Mr. Peck. It takes effect because the carrier has put it in, not be- 
 cause the court has established it. The court has condemned the 
 original dollar rate, and the carrier makes it 90 cents. 
 
 Senator Clapp. ^^^y did not the carrier make it 95 cents ? 
 
 Mr. Peck. I do not know. Perhaps the conditions were such that 
 the carrier did not think it would be fair to make it 95 cents. But 
 conditions may arise in which the carrier would be of opinion that it 
 ought to increase it from 90 cents to 95. 
 
 Senator Clapp. I am speaking of the time before the rate is 
 changed. The Commission condemns the dollar rate and the carrier 
 makes it 90 cents. That is because the carrier believes that that is as 
 high a rate as it can establish in view of that prohibition of the dollar 
 rate, is it not ? 
 
 Mr. Peck. I presume it would be fair to say that. 
 
 Senator Clapp. Then that rate is fixed ? 
 
 Mr. Peck. It is not fixed by laAV ; it is fixed by the carrier. 
 
 Senator Clapp. It is fixed as the result of the action of the Com- 
 mission, recognized by the court ? 
 
ELEVENTH DAY. 25 
 
 Mr. Peck. Yes. sir. 
 
 Senator Clapp. That i^ what fixes it, is it not ? 
 
 ]Mr. Peck. Yes. sir. 
 
 Senator Clapp. That continues in force until conditions so change 
 us to warrant the carrier in believing that the Commission and court 
 Avould recognize the higher rate, does it not ? 
 
 :\[r. Peck. That might be so.' But all the time it is a rate fixed bv 
 the carrier. Lvery rate fixed by the carrier is subject to complaint. " 
 
 Senator Clai-p. Fixed by the carrier independentlv of anv outside 
 condition : 
 
 Mr. Peck. Yc'^. ^ir; except that the original rate having been con- 
 demned, it can not again fix that, not for a while, at least. It must 
 judge how far below the original rate it ought to oo. 
 
 Senator Clvpp. If tlie rate is ^1 and that rafe has been put into 
 effect by the carrier, presumably the carrier, left to its own motion, 
 will maintain a rate just as near $1 as the court will sustain as a com- 
 pliance with the order i 
 Mr. Peck. Ye'-:. 
 
 Penatcr Clapp. Consequently that rate is just as high as the order 
 of the Commission and the court, in the judgment of the carrier, will 
 warrant ? 
 Mr. Peck. Yes ; all conditions being considered. 
 Senator Clapp. All the facts which follow the reduction of a rate 
 brought abount under that process follow the same as if brought 
 about by direct order of the Commission ? 
 
 3Ir. Peck. I should think not. If the lower rate is established by 
 the_ Commission or the court, or by both, it becomes an inflexible rate 
 which the carrier would not assume to change. But if it was made 
 by the carrier itself, then it should be, and, in my opinion, would be, 
 just as flexible as if it had made it originally. 
 
 Senator Kean. And, in your opinion, it would be just exactly the 
 same thing, and they could complain of that rate just as often "as if 
 it were the original complaint ? 
 
 Mr. Peck. Undoubtedly, if it was made by the carrier; but if it 
 was made by law they could not complain of it. 
 Senator Kean. After it was fixed? 
 Mr. Peck. No. 
 
 Senator Kean. If fixed by the railroad it could always be com- 
 plained of ? 
 Mr. Peck. Yes, sir. 
 
 Senator Kean. But if fixed by law it could never be complained of? 
 
 Mr. Peck. I presume not. A provision could be inserted in the 
 
 law affording methods for complaining of the rate established by 
 
 the Commission or the court, but it would have to be by petition or 
 
 something of that sort. 
 
 Senator Clapp. Under existing law, is there any provision which 
 authorizes the carrier to take the initiative in seeking a change after 
 the company has put a rate into effect in obedience to the order ? 
 
 Mr. Peck. They do not put a rate into effect in obedience to an 
 order. The Commission may condemn a rate. Then the carrier may 
 fix a rate, but that is its own rate. It can change that rate by giving 
 notice, either by increasing it or reducing it. But it has to give 
 notice in either event. 
 Senator Clapp. You say they do not do it in obedience to any order. 
 
26 ELEVENTH DAY. 
 
 I do not understand that they are in the habit of doing it, unless an 
 order has been made. 
 
 Mr. Peck. Eates are reduced sometimes without order. But the 
 order was not to make a certain rate. The order was not to charge 
 the existing rate. Then the carrier has the wide range of making 
 such a rate as it deems proper and fair. But that is not a law-made 
 rate; it is a voluntary rate. 
 
 Senator Clapp. Let me ask you again why you do not make it 95 
 cents instead of 90 ? 
 
 Mr. Peck. I think 95 might be a very large reduction, one entirely 
 within the duty of the carrier. 
 
 Senator Clapp. Then you would make it 95 cents? 
 
 Mr. Peck. I would if I thought that 95 cents was a fair and rea- 
 sonable rate and would stand the test of further complaint. 
 
 Senator CLapp. But if you thought that nothing higher thon 95 
 cents would stand the test you would not make it above 95? 
 
 Mr. Peck: I presume not. 
 
 Senator Clapp. Then, do you not. make it in compliance with the 
 law? 
 
 Mr. Peck. If they discontinued the old rate in compliance with the 
 law, they might discontinue and go into court. But suppose, in obe- 
 dience to the order to discontinue that rate, it does discontinue it. 
 Then we are at liberty to put into existence a rate such as 7uay be 
 deemed just and fair by the carrier. The carrier can not make a rate 
 so slightly different from the first one as to be frivolous, as to trifle 
 with the Commission and the court. But the carrier still is the 
 original rate-making power, and ought to be. I think. 
 
 Senator Clapp. If a dollar rate is condemned, there must, of lieces- 
 sity, under the law, be some point below that above which you could 
 not go in compliance with the law. 
 
 Mr. Peck. You could not go above the rate that formerly (ixisted 
 and which has been discontinued by order. 
 
 Senator Clapp. Would you not have to go by that to complj' with 
 the order ? 
 
 Mr. Peck. Yes ; but the amount you can go below is still for the 
 carrier to determine. 
 
 Senator Clapp. If a dollar rate is condemned by the Commission — 
 and, to save time, we will assume in all these questions that such order 
 is sustained by the court — there is somewhere beloAV a dollar a limit 
 above which vou could not go in compliance with the order, is there 
 not? 
 
 Mr. Peck. Not without trifling with the decision. But you could ; 
 that is to say, it would not be illegal, and you could do it ; but, prac- 
 tically, it would be very foolish to make so slight a difference as to be 
 frivolous. 
 
 Senator Clapp. So that you reach under the existing law a point 
 above ^vhich you can not go in complying with an order which has 
 condemned a given rate ? 
 
 Mr. Peck. The point above which you can not go when the order 
 has been made is the rate that the order condemns — $1 or 95 cents or 
 90 cents, whatever it may be. But it can not be, it seems to me. that 
 under the law as it noAv stands the freedom of the carrier is to be 
 abridged to decide for itself, upon its. peril, what rate it will ostab- 
 
ELEVENTH DAY. 27 
 
 lish. You have started with the illustration of $1 and reduced the 
 rate to 90 or 95 cents. There are many rates where a reduction of 1 
 cent would involve thousands, and probably hundreds of thousands, 
 of dollars to the earnings of the carrier. 
 
 Senator Ci^app. I'ndoubtedly. 
 
 ;Mr. Peck. And it might not be trifling and frivolous to reduce 1 
 cent. It is a question that lias got to be answered bj' the carrier for 
 itself. 
 
 Senator Clapp. That is true as to the individual case, but as to the 
 operation of the existing law, with the power (repeatedly affirmed) 
 to put in motion its own orders, there is of necessity somewhere a 
 point above which the carrier could not go, and below the point 
 originally condemned by the order. 
 
 Mr. Peck. There is no such point. Senator. The carrier, after the 
 existing rate has been condemned, must determine what rate is fair 
 and reasonable, and it has no right to malce anj' other at any time, 
 either before o]- after hearing. It is bound by the first section of the 
 interstate-commerce act, which provides that all rates shall be just 
 and reasonable; and that was true at common law, besides. But if 
 you are going to leave discretion in the "carrier, not taking all rate- 
 making power away from it entirely, you have got to trust it to 
 establish the rate from time to time, and if it docs not act in good 
 faith it will, of course, be subject to the consequences. 
 
 Senator Clapp. It does not seem possible that you understand my 
 question. We start in with a dollar rate, which the Commission has 
 condemned ; you put \'our rate down 1 cent. 
 
 ]Mr. Peck. That might be a perfectly fair reduction. 
 
 Senator Clapp. It might be. 
 
 Mr. Peck. But not necessarily so. 
 
 Senator Clapp. You put your rate down 1 cent ; the Commission 
 says that is not a compliance, and they condemn 99 cents, and are 
 sustained by the court. You put it down another cent ; the Commis- 
 sion says that is not a substantial compliance, and that is sustained 
 by the court. So that it seems to me to follow as a logical sequence 
 that there must be some point below the $1 and above which the car- 
 rier can not go by force of the law and the action of the Commission 
 and the court. 
 
 Mr. Peck. Well, I can only repeat ^^<hat I have just said. Senator. 
 The carrier must have some liberty of action itself. 
 
 Senator Clapp. True. . . 
 
 :Mr. Peck. It must not treat the order of the Conunission or the 
 court— if it has gone to the court— with disrespect. But, like every 
 person, it has some libert^' of determination for itself. 
 
 Senator Clapp. But that must always be exercised m the light of 
 what the court will construe as a fair compliance with the order pro- 
 hibiting a given rate, must it not ? 
 
 Mr. Peck. Not as a matter of law, in my opinion. Every carrier 
 is bound, if the court has passed upon it, to reasonably and fairly and 
 honestlv comply with the order. But it is not bound to say it shaU 
 be 5 cents or i cents or 6 cents. It must have some liberty, ]ust as it 
 had in making the original rate. It made the original rate, and that 
 has been condemned. The new rate may be condemned. But there 
 is no cast-iron rule as to what the new rate shall be. 
 
28 ELEVENTH DAY. 
 
 Senator Clapp. I do not mean that there is a cast-iron rule. "What 
 i mean is that you (sxercise that discretion, subject, again, to the 
 power of the Commission and the court to review. 
 
 Mr. Peck. Undoubtedly, the same power that existed in the first 
 place. 
 
 Senator Clapp. That being true, there will come a time when the 
 law in its operation will fix a point abo'S'e which you could not go in 
 complying with the order condemning the original rate. 
 
 Mr. Peck. I do not think so. Senator. 
 
 Senator Clapp. Might they not condemn your modified rate as not 
 being a substantial compliance? 
 
 Mr. Peck. They might and might not; the law does not condemn 
 it before hearing. 
 
 Senator Clapp. Of course not before hearing. 
 
 Mr. Peck. Every rate the carrier establishes it establishes under 
 the law, which says it shall be reasonable. When it establishes a 
 rate, it declares, by establishing it, that it is reasonable. Sometimes 
 it is mistaken, and the court holds that it is not reasonable. But that 
 does not take away from the carrier its reasonable and fair discretion 
 to make the rate. 
 
 Senator Clapp. Certainly not. 
 
 Mr. Peck. So that there is no time when the law says, inexorably, 
 you shall not go above the rate unless it has so formally declared. 
 
 Senator Clapp. Certainlj' not unless it has formally so declared, 
 but, with this power to condemn the modified rate, if you reduce the 
 rate and the Commission feels that it is not a substantial compliance, 
 thev may proceed again? 
 
 ilr. Peck. Yes. 
 
 Senator Clapp. And the court can sustain the prohibition against 
 the rate which you put into effect as a substitution for the ori^nally 
 condemned rate? 
 
 Mr. Peck. Yes. 
 
 Senator Clapp. You may then put another rate into effect? 
 
 Mr. Peck. Yes. 
 
 Senator Clapp. And the court may sustain the condemnation of 
 that rate. 
 
 Mr. Peck. Yes. 
 
 Senator Clapp. So it follows, as a logical sequence, that under the 
 law there is a point which may be reached by the processes of the 
 law and the action of the Commission and the court, above which 
 you could not go in modifying a rate that has been condemned? 
 
 Mr. Peck. I should say a better word would be " would " — " would 
 not go," instead of " could not go." ' 
 
 Senator Clapp. The court may put it down. 
 
 Mr. Peck. Certainly. 
 
 Senator Clapp. You can not say that you can do a thing the court 
 will prohibit doing. 
 
 Mr. Peck. What has been done is the condemnation of a certain 
 rate, that is all. Good faith on the part of the carrier undoubtedly 
 means that you shall make such a reduction as will not be absurd, 
 ridiculous, or frivolous. But somebody has got to establish the rate 
 at its peril. The carrier should take the decision of the court and 
 conform to it. What will conform to it is a question it must decide 
 for itself. 
 
ELEVENTH DAY. 29 
 
 Senator Clapp. Subject 
 
 Mr. Peck. Subject to what? 
 
 Senator Clapp. Subject to the power of the Commission and the 
 court to condeinn that rate. 
 
 Mr. Peck. Certainly. It was always subject to that, undoubtedlj'. 
 It can not make a rate, and never has made a rate, that is not sub- 
 ject to the power of the Commission and the power of the United 
 States courts to condemn. But it does not follow, from that, that 
 the carrier can not initiate such a rate as it deems fair and rea- 
 sonable. 
 
 Senator Clapp. Why is it assumed all the time that if, in addition 
 to the present authority to condemn a rate, language were read into 
 the act it would not allow the Commission, in condemning one rate, 
 to declare what should be substituted ? 
 
 Mr. Peck. I do not think that power could be given to a court 
 originally. 
 
 Senator Clapp. I am speaking of the Commission, not the court. 
 Mr. Peck. The power could be given to the Commission, probably, 
 to make rates for the future. 
 
 Senator Clapp. That probably needs some explanation, in view of 
 one of your answers before noon. That could be read into the law 
 under such construction as would give the carrier the same right to 
 initiate rates after a rate had been thus established, subject to review 
 by the Commission and by the court, as the carrier has now, could it 
 not? 
 Mr. Peck. Yes. 
 
 Senator Clapp. And if so, so far as the principle applies, ot the 
 consequences of a rate established by the one plan or the other, the 
 principle would be the same, would it not? I am speaking of the 
 provision authorizing the Commission, when it found one rate 
 unreasonable, to state what should be substituted therefor. 
 Mr. Peck. The Commission? 
 
 Senator Clapp. Yes. , . , -r , it ^ 
 
 Mr. Peck. I suppose it could be. I think I have already answered 
 
 that. I suppose it could. j. j • 
 
 Senator Clapp. It follows, of course, that the power of reducing 
 the rate, so far as that affects other rates that are related to it, tol- 
 lows in the one case as in the other-that is, if a rate of $1 were 
 changed under the present process to 80 cents or changed by order i 
 Mr. Peck. Changed by the Commission or the carrier ( 
 Senator Clapp. By the Commission. ^ ., j. j. 
 
 Mr. Peck. That would assume that it had power to fix the future 
 
 '"''senator Clapp. Xo; you certainly do not understand my question 
 AYe will assume that under the existing law the rate of $1 is reduced 
 
 ^'^Mr'pECK. Reduced by the carrier in obedience to orders? You 
 do not mean that the Commission has fixed 80 cents? 
 
 Senator Clapp. K o ; I mean under the law as it now stands, i ate 
 the rate of $1; that is changed to 80 cents, and that rate is m opera- 
 tfnnOr the other hand the Commission, we will say, would be 
 
 oLd with powi in i^^ the dollar rate to niake an 80-cent 
 
 ratB sustained of course by the court on review '.^^^al that The 
 effect of that change, so far as it bears upon rates that are attected by 
 
30 
 
 ELEVENTH DAT. 
 
 the changed rate, would be precisely in the one case what it would 
 be in the other, would it not 1 
 
 Mr. Peck. If I understand your question, yes. 
 
 Senator Clapp. And the efJect of that rate thus changed upon the 
 revenues of the company would be the same? 
 
 Mr. Peciv. I presume so. 
 
 Senator Clapp. In other words, all the consequences that flow from 
 reducing a dollar rate to 80 cents would be the same if 80 cents were 
 really fixed as the rate f 
 
 Mr. Peciv. Perhaps that is so. That is a question that Mr. Hiland 
 or any of these traffic men can answer better than I can. When they 
 make a new rate themselws there may be something — I do not say 
 that there is — which would give it a different effect than if the rate 
 were made by the Commission, because the carrier in reducing this 
 rate to 80 cents might take action about other rates and protect itself. ' 
 
 Senator Ci.app. If the law provided for the Commission declaring 
 what rate should be .substituted for the rate condemned, subject to the 
 right of the carrier to initiate another rate when in the judgment 
 of the carrier the conditions had changed so as to warrant another 
 rate (subject again to review by the court) would it not be as elastic 
 a process as the existing one? 
 
 Mr. PECic. I can not answer that, Senator. If it were made by the 
 Commission and the court, the carrier 
 
 Senator Clapi'. You heard ilr. Hiland's testimony on Saturday? 
 
 Mr. Peck. No, sir; I was avxay from the committee room most of 
 the time. If it were made by the Commission and the court, and yet 
 the carrier had a right to make a change when it deeitied that the 
 conditions were different, that opens up a very great question of 
 what Mr. Hiland calls the correlation of rates. Those are questions 
 that traifio men can toll you better about than a man who does not 
 understand Hte technicalities of rate making. 
 
 Senator Clapp. I understood you to say this morning— but I think 
 you must have misunderstood the question, in view of what you have 
 said since — that the atithority to fix a rate could not be left to a com- 
 mission. You would not question the authority of Congress to pass a 
 law declaring that rates should be reasonable, and then authorizing a 
 commission to ascertain what a reasonable rate was and put that into 
 effect, subject always, of course, to review by the courts? 
 
 Mr. Peck. I do not think I said to the contrary this morning. If 
 I did it was a misapprehension. And yet I do not wish to be under- 
 stood as assuming that the rate-making power can be delegated to a 
 commission possessing also jtidicial powers and executive powers. 
 The power of investigation, sending out agents to investigate, and all 
 those matters of administration, I should put under the ex:ecutive 
 branch of the Government. 
 
 Senator Ceapp. You "know that in the IMaximum Rate Case the court 
 described the existing power of the Commission as judicial and 
 administrative i 
 
 Mr. Pecic. Yes. 
 
 Senator Ceapp. And appeared to do so without criticism. You 
 recall that ? 
 
 Mr. Pecis. I do ; yes. The question of whether the Commission can 
 be empowered to make rates has not been determined, to my knowl- 
 edge. If the original act had authorized them to make rates, as well 
 
ELEVEirrH DAY. • 31 
 
 as to pass upon the reasonableness of existing rates, the question would 
 have arisen whether it was within the competency of Congress to pass 
 such a law giving the power claimed l^y the Commission without hav- 
 ing anything in the law to authorize it. 
 
 Senator Clapp. What -would be the legal dilference in principle 
 between authorizing a commission to find what would be an unreason- 
 able rate under a statute prohibiting an unreasonable rate, and ascer- 
 taining what would be a reasonable rate under a statute prescribing a 
 reasonable rate ? In other words, if Congress could delegate it in the 
 one case, could it not in the other? 
 
 Mr. Peck. I am not prepared to say that it could or could not. 
 
 Senator Clapp. You do not question the power of Congress undei 
 the Constitution to pass a law prohibiting unreasonable rates, and 
 authorizing the Commission to ascertain what is an unreasonable 
 rate ? 
 
 ■Mr. Peck. No. I do not ; and yet I do not think it would be difficult 
 to find constitutional objections to giving a commission, constituted 
 as this one is, with the different powers that were given by the inter- 
 state-commerce act. 
 
 Senator Clapp. I do not want to direct the course of your answer. 
 I am dealing with a single ])rinciple. You would not qu.estion the 
 authority of Congress to pa ,3 a law prohibiting an unreasonable rate, 
 and then authorizing a commission to ascertain what was a reasonable 
 rate I 
 
 jNIr. Peck. Xo, I would not question it, although it is questionable. 
 It ha';- been exercised right along for years, undoubtedly. 
 
 Senator ClaPp. In all this early controversy over the creation of 
 State commissions, while of course the Federal courts accepted the 
 interpretations of the State courts as to the legal effect of the acts 
 of the State legislatures, is it not a fact that those constitutions sepa- 
 rate the three functions of government as plainly and clearly as the 
 Federal Constitution does ? 
 
 Mr. Peck. So far as I Icnow them, yes. 
 
 Senator Clapp. Is it not pretty thoroughly embedded to-day in 
 the jurisprudence of this country that that power can not be dele- 
 gated? . . 
 
 Mr. Peck. It is, so far as the State commissions are concerned. J 
 know no decision to the contrary, although there may be some. 
 
 Senator Clapp. Would there be any difference in the legal prmciple 
 involved — I am not speaking now of the practical effects of legisla- 
 tion—between Congress prohibiting an unreasonable rate and author- 
 izing the Commission to ascertain what was an unreasonable rate on 
 the one hand, and, on the other, of requiring' a reasonable rate and 
 authorizing a commission to ascertain what a reasonable rate was? 
 
 Mr Peck. I do not know that there is any. I do not say that 
 there is or is not. The right of Congress to delegate its powers is 
 not so clear as the right of the States to delegate their powers, al- 
 though it is a general principle that legislative bodies can not dele- 
 gate their powers and that judicial bodies can not delegate their 
 powers Executive functions may be delegated much more easily 
 than the other two powers of government. As a general proposition, 
 legislative powers can not be delegated, and yet the power of State 
 commissions to make rates has been sustained. ,,. . 
 
 Senator Clapp. And has not that rested practically upon this prm- 
 
32 
 
 ELEVENTH DAY. 
 
 ciple — that the power to declare the la^v rests with Congress or the 
 legislature, as the case may be ? 
 
 Mr. Peck. The power to declare what shall be the law ? 
 
 Senator Clapp. Does not this power to use a commission in adjust- 
 ing rates, we will say, to avoid any controversy, rest primarily upon 
 the principle that it is for the law-making power to declare A^hat the 
 law shall be? 
 
 Mr. Peck. What the law shall be in the future ? 
 
 Senator Clapp. And then that power can authorize another tri- 
 bunal to ascertain and determine whether the condition exists to 
 which the law shall attach and upon which it shall apply, as was done 
 in the tariff case, for instance ? 
 
 Mr. Peck. I do not think that Congress can delegate to any com- 
 mission its power to legislate. It doubtless can provide for commis- 
 sions to ascertain facts and report them to Congress. But I do not 
 believe, if the question should be raised and discussed,, that it would 
 be foimd to be the law that Congress can not only delegate to a 
 commission the power to investigate and look up the facts m a case, 
 but then pi'oceed to decide upon them to the extent of making rates 
 for the future. 
 
 Senator Clapp. Then, I understand that you question the authority 
 of Congress to pass a law prescribing that rates shall be reasonable 
 and authorize a commission to determine what is a reasonable rate 
 and give that the effect of law? 
 
 Mr. Peck. It could not give it the effect of law until an opportu- 
 nity had been had before a judicial body to have it determined. 
 
 Senator Clapp. I will withdraw that — or it can remain. Of 
 course all this discussion proceeds upon the theory that there must 
 be somewhere an oiiportunity to review. Assuming that an oppor- 
 tunity of review is given, do you question the power of Congress to 
 declare that rates shall be reasonable and then leave it to a commis- 
 sion to say what shall be a reasonable rate ? 
 
 ]SJr. Peck. I can not say that I question it, because it has been 
 exercised and has been before the court, although not directly on the 
 question of power; but the Supreme Court has assumed that Con- 
 gress can do it, and it is quite likely that the courts would hold it 
 within the power of Congress to do that much. 
 
 Senator Clapp. In the tariff case Congress provided that there 
 should be certain tariffs and authorized the President to ascertain 
 the conditions upon which one or the other of those tariffs should 
 take effect. IIow does that differ in principle from declaring that 
 rates shall be reasonable, and then authorizing a commission to ascer- 
 tain what is a reasonable rate ? 
 
 Mr. Peck. I have not read that case verj' recently ; but if I remem- 
 ber rightly it was a case where imder the act the President was au- 
 thorized to suspend certain tariff duties where he ascertained that 
 certain countries were not giving us reciprocal duties. Is not that it? 
 
 Senator Clapp. Yes; that is substantially the case. 
 
 Mr. Peck. But it did not authorize the President to fix the rate, 
 did it? 
 
 Senator Clapp. No ; but it did a.uthorize the President to do some- 
 thing in conjunction with it which the law itself, operating abso- 
 lutely, fixed. 
 
 Mr. Peck. Yes ; by Congress. 
 
ELEVENTH DAY. B3 
 
 Senator Clapp. Yes. 
 
 Mr. Peck. But it was Congress that did it— that fixed the duty 
 after the President had found certain facts— and it did authorize 
 him to suspend the act, I believe. 
 
 Senator Clapp. "Well, assume that Congress would declare that 
 rates shall be reasonable, and authorize the Commission to ascertain 
 the facts : Is not the ascertaimnent of the fact itself, of what is a 
 reasonable rate, really a judicial act ? 
 
 Mr. Peck. Very likely. 
 
 Senator Clapp. Yes. Did you read Mr. Morawetz's statement? 
 
 Mr. Peck. Xo, sir; I did not read it all. I saw simply the. report 
 of it in the papers. 
 
 Senator Clapp. And did you read Mr. Hines's statement? 
 
 Mr. Peck. Xo, sir. 
 
 Senator Clapp. Mr. Morawetz took this position: Broadly con- 
 ceding the authority of Congress to declare that rates should be 
 reasonable, and that then Congress could authorize the Commission 
 to ascertain what was a reasonable rate (subject, of course, to re- 
 view). He also took the position that Congress could authorize the 
 Coimnission to proceed against the continuance of an existing rate, 
 and in that proceeding condemn the existing rate, and state what, 
 in the opinion of the court, would have been sustained as a maximum 
 rate had such indicated maximum rate been in efPect. His position, 
 then, was that that of itself would have a practical effect upon the 
 carrier, and would be obeyed ; but he also conceded as a legal matter 
 that a law might be so framed as to make the rate thus established a 
 continuing rate. 
 
 Mr. Peck. But not by 
 
 Senator Clapp. Xot by the declaration of the court ; certainly not. 
 
 Mr. Peck. But by relating back to an act of Congress. 
 
 Senator Clapp. Yes. Mr. Hines took the position that the simpler 
 remedy would be to have the Commission file a bill in equity against 
 the continuing of a given rate, and in its decision the court could 
 indicate as a finding what would be, in its judgment, a reasonable 
 rate, and that that would have the practical effect of fixing the rate 
 for the carrier, he thinking that would go far enough, but ■ con- 
 ceding, if I recall his statement correctly, that the law could be so 
 framed as to operate upon that as continuing. 
 
 Mr. Peck. Yes. 
 
 Senator Clapp. Now, in response to some of the questions this 
 morning by one of the committee, I think you perhaps questioned 
 the validity of such a proceeding. If there is a present contro- 
 versy between a carrier and a shipper, and that controversy goes 
 into court, that controversy, of course, narrows itself down to the 
 determination by the court of what is a reasonable charge in that 
 transaction, does it not ? 
 
 Mr. Peck. It does ; that it all there is in it now. 
 
 Senator Ci^pp. Yes ; that is all. Now, instead of the shipper and 
 the carrier engaging in this controversy, I would like to ask you your 
 opinion as to the law providing for the Commission, acting for the 
 carrier, bringing an action to ascertain what a reasonable rate is upon 
 the subject-matter of that controversy. You would then have an 
 action under the Federal law (which is one of the requisites of juris- 
 .11 1>— 05 M 3 
 
34 ELEVENTH DAY. 
 
 diction) , and you would have a present controversy. Could such a 
 controversy be maintained under our Constitution, in your judg- 
 ment? 
 
 Mr. Peck. Perhaps it might. I have not considered it, but I see 
 practical objections to it. For instance, how can a commission file 
 a bill until it has investigated and found out the facts ? 
 
 Senator Ci.app. Oh, in general, I mean; that is all. 
 
 Mr. Peck. It could not file the bill at all. 
 
 Senator Clapp. Of course not. 
 
 Mr. Peck. It must know the situation ; it must know the evidence. 
 
 Senator Clapp. Yes. 
 
 Mr. Peck. And I do not think that an act authorizing the Com- 
 mission to file bills at the request of anybody who might apply to 
 them would be wise legislation, waiving the question of its constitu- 
 tionality. 
 
 Senator Clapp. Of course, it is assumed that this Commission would 
 investigate the matter and reach the conclusion that the proceeding 
 ought to be taken, and all those things. Those things being covered 
 by the law, the legal question is whether or not the court could be 
 given that jurisdiction. 
 
 Mr. Peck. I do not know but that it could. 
 
 Senator Clapp. Yes. 
 
 Mr. Peck. I do not see, now, why it could not. 
 
 Senator Clapp. Then could not the law provide that that deter- 
 mination should be a continuing rule, not by virtue of the decree of 
 the court itself, but by operation of the law under which it was 
 obtained ? 
 
 Mr. Peck. Yes. 
 
 Senator Clapp. Do you see any objection to that, from a legal 
 standpoint ? 
 
 Mr. Peck. I can not say that I do. At the same time, it seems to 
 me a cumbrous and roundabout way of getting at the question. 
 
 Senator Clapp. It was suggested by those gentlemen as expediting 
 and freeing the matter from complication. 
 
 Mr. Peck. It does not seem so to me. You have this preliminary 
 investigation, and the Commission must reach the conclusion that the 
 rate complained of is unreasonable. T&en it must file a bill and go 
 through a case in equity. Then the act of Congress attaches and 
 makes that the future rate, I believe. 
 
 Senator Clapp. Yes. It was suggested that under the existing 
 law the Commission first holds the investigation, and then condemns 
 a rate; and if the law was amendjed so as to include the substitution 
 of a rate, it would substitute the rate, and that in turn would all be 
 subject to judicial review. 
 
 Mr. Peck. Yes. 
 
 Senator Clapp. And it was suggested that it would expedite the 
 matter if it was brought primarily in the court. 
 
 Mr. Peck. I have not considered the question for a moment. It 
 might be as expeditious as the present arrangement; but it strikes me 
 at first blush that it is injecting a whole lot of new procedure. 
 
 Senator Ci-app. But you would see no legal difficulty in the way? 
 
 Mr. Peck. I do not see any legal difficulty, but there may be a 
 legal difficulty which I do not see just at this time. 
 
 Senator Clapp. I think that is all. 
 
ELEVENTH DAY. 35 
 
 Mr. Peck. It is not a question to be decided offhand, Senator. 
 Senator CtJLMM. If I understand Senator Clapp, the idea he is 
 pursuing just now is that here is a Commission still having power, 
 but mainly a power of investigation ; and they are charged with the 
 duty of ascertaining what railroad or what company is violating the 
 law, and undertaking to get that company to settle and cease from 
 violating the law. If they can not do it without going into court, 
 then they proceed at once to court, by whatever process the law 
 provides, bring suit, and force the corporation to abide by whatever 
 the decision may be as to whether they are violating the law or not. 
 Is that what you mean? 
 
 Senator Clapp. That was the idea. 
 
 Senator Ct:llot\[. There certainly can be no objection to that, can 
 there, so far as constitutional objection is concerned? 
 Mr. Peck. I do not see any objection. Senator. 
 
 Senator Cullom. 7\s the proceeding goes now, parties make com- 
 plaint that in this locality, for instance, the rates are too high. The 
 Commission hear the case, go upon the ground or hear the case 
 somewhere in a regular way — as some people say, they carry out the 
 forms of being a court — and they come to the conclusion that the 
 rate is too high, that it is unreasonable; and they change it, or 
 announce by order that the rate is unreasonable, and then the railroad 
 takes it into court. The only difference between what Senator Clapp 
 and I both have in our minds is tliat they informally investigate this 
 matter, and if they come to the conclusion that the railroad is charg- 
 ing unreasonable rates, they do not wait for a formal hearing, but, 
 unless the company will reduce its rate, proceed at once and test it 
 in court. 
 
 Mr. Peck. I do not think it would be judicious or fair legislation 
 to hold any informal investigations. If there is an investigation 
 going on, the party investigated ought to be present or have the 
 right to be present and hear it, I think. 
 
 The Chairman. Mr. Peck, I want to ask you one question more. 
 From what you have stated in answer to questions propounded to-day, 
 and from what you said in your statement on Friday, I gathered that 
 you think the right to fix rates logically and naturally belongs to the 
 carriers, and should be left to them as the most proper and suitable 
 persons to make them ? 
 
 Mr. Peck. I do, most certainly. 
 
 The Chairman. And in case the carriers fix an unreasonable and 
 excessive rate, then, on complaint, the courts may, by proper order, 
 cause such rate to cease and not be effective thereafter ? 
 
 Mr. Peck. Yes, sir. 
 
 The Chairman. Leaving it to the carriers to name another rate ? 
 
 Mr. Peck. Yes, sir. 
 
 The Chairman. That is your judgment? 
 
 Mr. Peck. That is my judgment. 
 
 The Chairman. And it is your judgment, further, that the pro- 
 ceeding to determine whether a rate is excessive and unreasonable 
 should begin immediately in the courts, without any reference to the 
 Commission, but on complaint of the Commission or the carrier itself? 
 
 Mr. Peck. I do not think it makes much difference, so that you 
 get into the courts. 
 
 The Chaiejian. At once ? 
 
36 BLEVENIH DAY. 
 
 Mr. Peck. Yes. 
 
 The Chairman. Would it not be in the interest of expedition to go 
 directly to the courts ? 
 
 Mr. Peck. I presume it would. ^ 
 
 The Chairman. You presume? Why have the Commission hear 
 it and appeal? Would you not let the "Commission prefer the com- 
 plaint ? 
 
 Mr. Peck. Xo; I should not prefer that. I think the shipper 
 should prefer the complaint; he is the one aggrieved. 
 
 The Chairman. Well, the shipper or the Commission, either one: 
 it would not make any difference. As I take it, the Commission 
 might be empowered to hear and settle disputes between the carrier 
 and the shipper ? 
 
 Mr. Peck. Yes, sir. 
 
 The Chairman. And as has been testified, there have been 1,500 
 of these differences settled. But in a case where the shipper and the 
 carrier could not agree, then let the Commission itself, or the shipper. 
 
 So immediately to the court and say the rate is too high and have it 
 etermined ? 
 
 Mr. Peok. I do not see any objection to that. 
 The Chairman. And would not that be in the interest of expedi- 
 tion, rather than having the hearing before the Commission, and then 
 an appeal — that is, not giving the Commission judicial powers, but 
 leaving them only administrative or police powers ? 
 
 Mr. Peck. T think undoubtedly it would be better to eliminate the 
 judicial power entirely from the Commission. That power belongs 
 in the courts. It is questionable whether it can be conferred upon 
 any other body. 
 
 The Chairman. Tliat is all I have to ask, Mr. Peck. Are there 
 any other questions? If not. you can be excused, Mr. Peck. On 
 behalf of the committee, I tender you the thanks of the committee for 
 your able statement and for the time you have given us without com- 
 jjlaint. 
 
 STATEMENT OF HUGH L. BOND, ESQ. 
 
 The Chairslan. Please state your name, residence, and occupation. 
 
 Mr. Bono. Hugh L. Bond ; Baltimore, Md. ; second vice-president 
 and general attorney of the Baltimore and Ohio Kailroad Company. 
 
 The Chairman. Mr. Bond, have you a statement prepared to make 
 to the committee on pending questions — the rate-malring power, etc. ? 
 If so, you can read it. 
 
 Mr. Bond. I have not a written statement. 
 
 The Chairman. If you are prepared to go on, then, please do so; 
 and at the end of your statement, according to the rule we have 
 adopted, the members will ask you questions. 
 
 Mr. Bond. At this stage of your hearings, Mr. Chairman and Sen- 
 ators, it is hardly to be expected that anyone can give you news on 
 this subject. The best that anyone can hope to do is to perhaps clear 
 up or make more clear some of the questions which are in your minds 
 by a fresh method of stating the propositions or arriving at the con- 
 clusions. 
 
 At the root of this whole inquiry is the question which your chair- 
 man put to me, among others, as to the power of Congress to dele- 
 
ELEVENTH DAY. 37 
 
 gate to a commission the poAver to fix rates. I think a good deal of 
 the discussion of this matter and the failure of the minds to meet on 
 these questions is due to a lack of 'accurate definition, for which, 
 probablj', the counsel are not altogether responsible, but which ex- 
 tends into the decisions of the courts — a lack of accurate use of terms 
 in many oases because the point which we have to discuss was not in 
 the mind of the court. 
 
 There can not be anything clearer in the Constitution of Ihe United 
 States than that the legislative power of Congress can not be dele- 
 gated at all in any degree. The provision of section 1 of Article T is 
 that " all legislative powers herein granted shall be vested in Con- 
 gress." That does not leave room for the delegation of any part of 
 those powers ; and so it has been held by the Supreme Court, from 
 the time of Chief Justice Marshall, where he laid down the proposi- 
 tion in Weyman v. Southard (10 Wheaton, 42), to the decision of the 
 court in 143 U. S., 649, Field v. Clark. So that to answer the propo- 
 sition as a broad proposition we would have to say " No." 
 
 On the other hand, we know that the State legislatures have em- 
 ployed commissions; we know that those laws have been before the 
 Supreme Court, and we Imow that in the Maximum Eate Case Mr. 
 Justice Bradley, delivering the opinion of the Supreme Court, men- 
 tioned the establishment of the commission as one method in which- 
 Congress might exercise its power to fix rates, which in that same de- 
 cision was described as a legislative power. While that seems con- 
 tradictory, I do not think there is any mystery about it. 
 
 The statement of the court that I refer to was that part of the de- 
 cision where Mr. Justice Brewer said that there were three dissimilar 
 courses open to Congress: First, to fix the rate itself; second. Con- 
 gress might itself prescribe the rates or it might commit to some sub- 
 ordinate tribunal this duty ; third, it might leave with the company 
 the right to fix rates, subject to regulations and restrictions, as well 
 as to that rule which is as old as the existence of the common law, 
 to wit, that rates must be reasonable. 
 
 There can be no question of the general proposition that Congress 
 can not delegate any part of its legislative power, yet the cases shoWi — 
 the case of Field v. Clark, among others — that that does not imply or 
 restrict the power of Congress, after enacting a law, to employ and 
 provide for the employment of the duties of an administrative body 
 in carrying out the law. I think the cases are cited in 143 U. S. ; 
 but it seems to me the best definition is that of a Pennsylvania court 
 there quoted. That definition was that the legislature can not dele- 
 gate its power to make a law, but it can make a law: to delegate a 
 power to determine some fact or state of things upon which the law 
 makes or intends to make its own action depend. To deny this would 
 be to stop the wheels of government. There are many things upon 
 which wise and useful legislation must depend which can not be 
 Imown to the law-making power, and must, therefore, be a subject of 
 inquiry and determination outside of the halls of legislation. That 
 is Locke's Appeal, 72 Pennsylvania State, 491. 
 
 So in the Minnesota case, in 134 U. S., Mr. Justice Bradley, m a 
 dissenting opinion, compares the action of the Commission under such 
 a statute to the work of a legislative committee in ascertaining the 
 facts on which an act could be based. 
 
 But there is one vital distinction between the situation of a legisla- 
 
38 ELEVENTH DAY. 
 
 tive committee and the situation of such a commission, and that is 
 this : The work of the legislative committee is merged afterwards in 
 the action of the legislature itself, and the action of the legislature 
 makes the law ; but in case of the Commission the work is done after 
 the passage of the law, and must be done in pursuance of that law 
 and under its authority; and beyond the authority, and except in 
 pursuance of the statute, the Commission can not act at all. 
 
 That brings us to the question — and it is the question which, I 
 think, has given the most trouble in this whole discussion — ^how accu- 
 rately, how definitely must the statute lay down the law which is to be 
 the guide of this Commission ? 
 
 It is perfectly clear, under the decisions, that the Interstate Com- 
 merce Commission, or any of these commissions (with the exception 
 of those that are established under constitutions which have been 
 amended .strictly for the purpose, like the constitution of Virginia), 
 the Interstate Commerce Commission as an administrative body or as 
 a body having judicial, quasi-judicial, and administrative powers 
 stands in no different or other position in regard to Congress than the 
 President stood in regard to Congress in the case in 143 U. S. That 
 j)roposition, I think, nobody can question. 
 
 Senator Clapp. AVill you not repeat that, please, or let the reporter 
 .repeat it? 
 
 Mr. Bond. My statement was that the situation of the Interstate 
 Commerce Commission in relation to Congress, as being able to act or 
 receive any delegation of power from Congress, does not differ in any 
 degree from the position that the President wias in in relation to 
 Congress under this tariff act which was in question in the case of 
 Field V. Clark (143 U. S.). That is, the Interstate Commerce 
 Commission has been decided to be an administrative body, ap- 
 pointed by the President with the advice and consent of the Senate, 
 like all other administrative bodies, and it is part of the administra- 
 tion, and certainly has no better position than the President. 
 
 In that case the question between the majority and the minority of 
 the court was as to whether the act of Congress was suiRciently specific 
 in defining the law not to leave in the President a discretionary power 
 which was part of the legislative power. That was the question on 
 which they split, and therefore that decision is interesting in this dis- 
 cussion. That is just the question that is at the root of this discus- 
 sion — how definitely must the legislature fix the law in the discharge 
 of its obligation to -make the law before it can leave it to the President 
 or to the Commission to go on and execute it ? 
 
 The majority of the court in that case, in Field v. Clark, decided 
 that the statute did not leave in the President a discretionarv power ; 
 that it left in him merely the duty to find a fact ; to find a fact after 
 an investigation; to find a fact by the exercise of the judgment of 
 his brain, at any rate, on what he learned by that investigation. 
 That, of course, is a familiar thing in finding'a fact; that nobody 
 could say invalidated it. But the question on which the court split 
 was as to whether the words " unequal and unreasonable " did not 
 leave in the President a discretionary power ; whether they were not 
 too indefinite to constitute an act of the legislature which excluded 
 the discretionary power in the President. 
 
 I say that it was a very close question, and I must say that I think 
 if the word " unequal " had not been in there with the word " unrea- 
 
ELEVENTH DAY. 39 
 
 sonable " the majority would have had to go with the minority. 
 They seem to have clang to the proposition that the law was that the 
 duties of other countries must be unequal and unreasonable, and 
 therefore there was a mathematical element which restricted the dis- 
 cretionary power of the President to find things according to his own 
 judgment. 
 
 That, I think, is an illuminating decision, just because it shows 
 that there was no difference of opinion between the majority and the 
 minority that Congress could not have vested in the President a dis- 
 cretionary power. They agreed on that, but they differed as to 
 whether that act did leave in the President any discretionary power. 
 
 Coming nearer to a subject similar to that that we are discussing 
 here, a reference to the railroad commission cases will show, I think, that 
 the court divided there on the same line. I think it was Mr. Justice 
 Harlan and Mr. Justice Field (I know it was Mr. Justice Field, and 
 I think it was Mr. Justice Harlan) who dissented in that case. The 
 dissent was based on the ground that the act of Tennessee or Ken- 
 tucky (whichever it was) establishing that commission was too indefi- 
 nite ; that it left the commission with indefinite powers to exercise the 
 regulating power of the legislature; and that therefore it was an 
 invalid act, not only because it was too great a delegation of the 
 power, but because it violated the rights of the company in the man- 
 agement of its property, which rights could only be controlled by a 
 legislative act. It was said that here was a commission which could 
 not exercise legislative powers given the right to do things which, 
 under the charter contract of the company, could only be done by the 
 legislature. 
 
 The majority (Chief Justice Waite delivering the opinion) sus- 
 tained that act, on the ground that it was primarily and in the first 
 place a maximum-rate law ; and that while it might be true that there 
 were things in thfe act which would enable the commission to do what 
 they ought not to do and what the legislature could not authorise 
 them to do, yet the Supreme Court would not undertake to invalidate 
 the whole law because of the possibility that there might be an abuse 
 of that kind, but would sustain the law and treat the abuse when it 
 came up in the particular case. Those cases were instituted before 
 the commission had organized or done anything; they were insti- 
 tuted to head off the organization of the commission at all. 
 
 That brings me to a distinction which I think you must bear in 
 mind, and which I think is quite important in this discussion, and 
 that is that where a State law establishing a commission has been 
 before the Supreme Court every intendment will be made to sustain 
 that law ; and although the Supreme Court may believe that in the 
 establishment of that commission the State legislature went further 
 than it had any right to do, and really clothed that commission with 
 legislative powers, yet, if the highest court of the State has sustained 
 the State statute, the Supreme Court is very slow to interfere and 
 will, as a rule, not interfere. That is, the mere mixing of those 
 powers is not necessarily a destruction of a republican form of gov- 
 ernment. . . , i ii • ■ 
 
 Further than that, not only the delegation of powers but the giving 
 
 of such a commission, a State commission, powers which they may 
 
 abuse— in other words, the failure to restrict them with sufficient 
 
 -strictness in the act of their creation so as to prevent their usurping 
 
40 ELBVElfrTH DAT. 
 
 legislative powers — would not, under that very decision in the rail- 
 road commission cases, be a ground on which the Supreme Court 
 would upset the whole commission law. But if you gentlem«n 
 undertake, not only to delegate a legislative power to this commission, 
 but if you pass an act that leaves that commission not sufficiently 
 restrained to prevent its exercising a legislative power, then your 
 act will be declared void. 
 
 That is a distinction which I think I can make clear as we go along. 
 
 Senator Clapp. Let me understand your statement. Do you mean 
 that the restraint must be an expressed restraint, or follow as the 
 exclusion of everything that is not granted to the commission ? 
 
 Mr. Bond. I will have to illustrate it as I go along, I think. Sena- 
 tor. It is an important distinction, but it is one which is very hard 
 to express in the absence of a specific case. I mean to say that your 
 act has got to be accurate — legally accurate — that your language 
 has got to be legally accurate ; that you can not leave loopholes 
 
 Senator Cullom. Do you mean the act of Congress ? 
 
 Mr. Bond. The act of Congress — that you can not leave loop- 
 holes that the Commission can get through, and, although not 
 authorized by the act, yet usurp legislative powers. I think it is 
 clear that that has been the case in almost every one of the State 
 commission acts, that they have usurped legislative powers; in fact, 
 there is no question that they have usurped legislative powers. The 
 Supreme Court of the United States have declared so over and over 
 again, practically. Where thej'^ find that a railroad commission that 
 has been instructed to establish a schedule of reasonable rates has 
 gone and established a schedule of confiscatory rates on the basis 
 of some theory of public policy, there they find as a matter of 
 law that the commission has usurped its legislative powers, and 
 it is notorious that they have done it even where they have not been 
 caught at it. It could not be proved on them. 
 
 Senator Newlands. Your contention is that thus far these cases 
 have only arisen where State commissions were concerned, and that 
 as to the statutes of a State the Supreme Court would be more reluc- 
 tant to declare it unconstitutional on the ground of usurpation of 
 legislative power where the State court had affirmed that constitu- 
 tionality than it would if acting in judgment upon a United States 
 statute passed by Congress. 
 
 Mr. Bond. Yes, sir. 
 
 Senator Neavlands. I understand, further, that your contention 
 is that the fixing of rates is a legislative act, and that if Congress 
 proposes to delegate that in any degree to a commission it must 
 accompany it with such restrictions as to make the rate fixing a matter 
 of mathematical certainty and not a matter of discretion or ]udgment. 
 Is that your contention ? 
 
 Mr. Bond. Not mathematical certainty; legal certainty. 
 
 Senator Newlands. You speak of legal certainty? 
 
 Mr. Bond. I will illustrate that. Senator. 
 
 Senator Newlands. I understand you to admit that if Congress, 
 in the act, lays down the principle which, by mathematical calcula- 
 tion, would result in a certain conclusion being reached by the Com- 
 mission, that would be within the power of Congress? 
 
 Mr. Bond. No ; that is not my proposition at all. 
 
ELEVENTH DAY. 41 
 
 (At this point, by direction of the committee, the stenographer 
 read aloud the proposition as originally stated by Mr. Bond.) 
 
 Mr. Bond. In other words, you can not put it in the power of the 
 Coirumssion, by the looseness of your act conferring power upon them, 
 to do things which it is the duty of the legislature to do; and I want 
 to illustrate that. 
 
 Take this act that was passed in 143 U. S.: The whole question 
 was not as to whether the President would, as a matter of fact, do 
 something or find an existing state of facts when they did not exist, 
 but whether the condition precedent on which this act was to take 
 effect was defined with legal accuracy as simply p, fact, and not the 
 discretionary act or discretionary power of some other body than 
 Congress. 
 
 The legislature has to make the law, has to prescribe the rnles of 
 law ; and that means that those rules must be prescribed with legal 
 accuracy, and that the language used must be used with legal 
 accuracy. 
 
 Take the language that is used in the present interstate commerce 
 act. We have the words " reasonable," unreasonable," " just " and 
 "unjust," " due " and " undue," " discrimination," " preference," and 
 similar words. Those words had, at the time they were used, and 
 have acquired since, a legal meaning. This act has been sustained 
 as being sufficiently definite in the use of those words. But you could 
 not take those words, and, simply because they have been used in this 
 act, use them in a new act in a different sense or in a different con- 
 nection where their legal meaning does not go with them, and make 
 an act which would be constitutional. That is, you would run the 
 risk of making an act that was not constitutional. 
 
 The word " reasonable," for instance, has acquired a definition by 
 reference not to the opinion of any one man, not to the discretion of 
 any one man or a body of men, but it has a meaning referable to the 
 decisions of the courts and based on facts. It is referable to some- 
 thing outside of anybody's discretion, and you have to keep it that 
 way. You have to use it that way in any act which you pass for the 
 establishment of a commission. If you use it in any way that gives 
 that commission a discretionary power to say what is reasonable — I 
 do not mean, as I will show you presently, the power simply to use 
 their brains and come to a decision, but a discretionary power, as to 
 choose between different things which are reasonable — then, I say, 
 you are on the danger line, and I believe you have gone beyond. 
 
 Let me illustrate that. You remember the language of the third 
 section of the act, that " it shall be unlawful for any carrier subject 
 to the provisions of this act to make or give any undue or unreason- 
 able preference or advantage to any particular person, company, firm, 
 corporation, or locality, or any particular description of traffic, in 
 any respect whatsoever, or subject any particular person," etc., " to 
 any undue or unreasonable prejudice or disadvantage in any respect 
 whatsoever." 
 
 That is a legally accurate description. Now, just assume that we 
 put in there, before the words " undue or unreasonable," in paren- 
 thesis, the words "in the opinion of the Commission," and then 
 assume that the Commission makes the finding in the import rate 
 case that was in question in 162 U. S., Texas Pacific Railway Com- 
 
42 BLBVEKTH DAY. 
 
 pany v. Interstate Commerce Commission (162 U. S., 197). There 
 they found that the import rates via the port of New Orleans were a 
 violation of this section, because they were a discrimination against 
 the traffic moving under the local rates from the port. 
 
 With that insertion in there that it was in their discretion as to 
 what was undue and unreasonable there could not be any question 
 that that was a sound proposition that they decided. But the 
 Supreme Court (in 142 U. S.) said that those orders passed by the 
 Commission in respect of that import traffic are instances of general 
 legislation, requiring an exercise of the lawmaking power, and 
 instead of being regulations calculated to promote commerce and 
 enforce the express provisions of the act are themselves laws of wide 
 import, destroying some branches of commerce that have long existed, 
 and undertaking to change the laws and customs of transportation in 
 the promotion of what is supposed to be public policy. 
 
 Now, what have we done? To sustain the orders which the 
 Supreme Court has said were laws in themselves, whereas in that 
 case the court held that those orders could not be sustained under the 
 act, we have simply vested in that Commission the discretionary 
 power to say what is the meaning, what is undue and unreasonable. 
 We have deprived the words " undue " and " unreasonable " of their 
 legal meaning, and we have given them a meaning not with reference 
 to the decisions of the courts and the facts, but a meaning with refer- 
 ence to what is in the mind of one man or a body of men. That is 
 destroying the meaning of those words; and when you do that you 
 vest or attempt to vest in those men, as appears by that decision, 
 the lawmaking power. 
 
 What is true of the third section is true of the first section. You 
 can not tamper with the words " reasonable " and " unreasonable " so 
 as to make those words have a meaning not their legal meaning, but 
 a meaning with reference to the minds, the discretionary judgment, 
 of some body of men, without giving a lack of accuracy to your law 
 which vests in the men who exercise that discretion the lawmaking 
 power. 
 
 It is perfectly clear, I think, that Congress can say that the rates 
 shall not be unreasonable, or that the rates shall be reasonable — ^it 
 means the same thing in that connection — without further explana- 
 tion, and can say that a body of men appointed by it can take any 
 existing rate and compare it with the legal standard and say what 
 changes must be made in the existing rate to bring it in line with 
 the legal standard, and that the legal standard may be defined by the 
 words " reasonable " and " unreasonable," provided always that you 
 leave those words with their legal meaning only, and that you do 
 not tamper with that meaning by making it referable to the dis- 
 cretion of the Commission. 
 
 That is, as I understand it, the basis of the distinction that was 
 stated to you by Mr. Morawetz. I have tried to state it in a little 
 different way, and I think it is clearer if you get it in that way. 
 Instead of repeating the words " reasonable rate " aU the time (which 
 is confusing), if you will just say, now, the reasonableness is the 
 standard, and what this Commission is to do is not to fix a new rate, 
 but to ascertain the difference between the existing rate and that 
 standard, and to make that change if it makes a rate, or to require 
 that change to be made by the carrier if it enforces the act — now, 
 
ELEVENTH DAY. 43 
 
 that is legal. I do not think there is any question about that. That 
 is the present law. Your standard is' reasonableness. The word 
 " reasonable " has a legal meaning, a fixed meaning — not a fixed 
 meaning, either, but a definite, legal meaning; a meaning which the 
 courts have themselves established, and which they say that it is a 
 peculiar judicial question to determine. 
 
 Senator Cullom. That the only duty of either the Commission or 
 the court is to determine whether the rate is reasonable ? 
 
 Mr. Bond. Yes. 
 
 Senator Cullom. The existing rate ? , 
 
 Mr. Bond. Yes, Senator; but we are always in danger of getting 
 mixed up in the double definitions of the word " reasonable." " Rea- 
 sonable " in law, with reference to the decisions of the courts, is one 
 thing. " Eeasonable " as it appeals to the mind of any one man — to 
 his reason — is another thing. 
 
 Senator Cullom. Yes ; but if there is any good to come out of any- 
 thing that is decided, it must be a decision that will reach the point 
 at issue — the trouble, the difficulty, the question. If a given rate is 
 charged, and the Commission think that it is an unreasonable rate, 
 and they look into it and finally determine th.e question and say that 
 it is an unreasonable rate or that it is a reasonable rate (whichever the 
 case may be), or if the case went to the court and the court should 
 say that it was a reasonable or an unreasonable rate, that would 
 have to be so understood; that it was, in the first instance, by the 
 Commission ; and if the case was appealed and then decided by the 
 court the same way, that would be simply settling the question, 
 would it not ? 
 
 Mr. Bond. Oh, I am not questioning the power to have a commis- 
 sion decide that difference, to bring a rate up to that standard; but 
 I am trying to point out that there is a distinction between that and 
 what is ordinarily called the " rate-making power." 
 
 Senator Cullom. I understand. 
 
 Mr. Bond. That that is not a rate-making power ; it is the power 
 of deciding the difference between what the legal standard is and 
 what the actual rate is, and that is a judicial power. 
 
 Senator Cullom. I am not claiming that the Commission have the 
 power to make a rate, or anything of that sort ; but under the law as 
 it is the Commission have the power to look into the question as to 
 whether a rate is reasonable and to decide, so far as they go, whether 
 it is reasonable, and if they decide that it is or is not, it stands unless 
 the case is appealed to the courts, does it not ^ 
 
 Mr. Bond. Yes ; oh, yes ; there is no question about the validity of 
 that. But compare with that an act which should provide in terms 
 that the lawful rates to be charged for the transportation of interstate 
 conmierce shall be those fixed from time to time by the Commission, 
 provided no such rates shall be unreasonably high as respects the pub- 
 lic or unreasonably low as respects the carrier. I say that would be 
 a void act. . 
 
 Senator Cullom. I am not raising any question on that. 
 
 Mr. Bond. I know. Senator; I am only trymg to illustrate my 
 point. 
 
 Senator Clapp. Has anybody suggested that form of act? 
 
 Mr. Bond. I think the Townsend-Esch bill was passed to be just 
 that form of an act; that was the absolute object of it, and if it is not 
 
44 ELEVENTH DAY. 
 
 that it is an absolute "gold brick " to its promoters. The whole con- 
 troversy here is to get jxist such an act. 
 
 Senator Clapp. Does not that act first declare that rates shall be 
 reasonable ? 
 
 Mr. Bond. No ; there is nothing of that kind. It leaves the exist- 
 ing law as it is, yes; but its object is to vest a discretionary power in 
 the Commission, and they think by using the words " shall prescribe 
 the rate for the future" that they have accomplished that. The 
 Interstate Commerce Commission think so, and they drew the lan- 
 guage for that purpose, oj: coiu-se. 
 
 Senator Clapp. Yes; but in your answer to Senator CuUom you 
 went on to say that " if a laAA' provided that a commission should fix 
 a rate, and the rate so fixed should be reasonable ;" you took that as 
 an illustration. Does that illustration comport with the Townsend 
 bill in the light of the interstate-commerce act ? 
 
 Mr. BoxD. You mean is tliat a correct legal construction of the re- 
 sult of the Townsend bill ? 
 
 Senator Clapp. No: is that a correct quotation of the language? 
 That is what I am asking. 
 
 Mr. Bond. Oh, no, no, no ! I was not attempting to quote the bill, 
 Senator. I was proposing an act ; I was not attempting to quote any 
 particiilar bill. I was simply doing it by way of illustration of the 
 difference between having a tribunal, either a court or a commission, 
 which determines the difference between what the law reqiiires and 
 what exists, and a body which makes a rate on general theories of 
 policy. That is really the difference we are trying to define. That 
 is really what we are trjdng to get at; and the trouble with the dis- 
 cussion is that we have to use the same words sometimes to describe 
 both things. We speak of both those propositions as " fixing a rate." 
 We speak of the decision of the Commission and the court as '' fixing 
 a rate." Well, it does fix a rate in a sense. It brings that rate, the 
 existing rate, up to a line with the legal maximum. But we also 
 speak of the railroad companies, in establishing a rate, as " fixing a 
 rate." Well, they also fix a rate; but they make a rate in a very 
 different sense from the sense in which a court fixes a rate or makes a 
 rate when it decides the relation of that rate to a legal maximum, and 
 what changes must be made in the rate to bring it in line with the 
 legal requirements. Those are two very different things — legally and 
 practically. 
 
 (At this point, by request of the comnoittee, Mr. Bond repeated the 
 following portion of his statement : 
 
 But compare with that an act which should provide in terms that the lawful 
 rates to be charged for the transportation of Interstate commerce shall be those 
 fixed from time to time by the Commission, provided no such rates shall be 
 unreasonably high as respects the public or unreasonably low as respects the 
 carrier. I say that would be a void act.) 
 
 The Chairman. You say such an act would be void? 
 
 Mr. Bond. I think so. 
 
 The Chairman. And you say that that is the intendment and effect 
 of the Esch-Townsend bill? 
 
 Mr. Bond. I have not the slightest doubt that it was the intention, 
 but I have a very serious doubt whether it has been the effect. It 
 could not have that effect if it is an illegal effect, because, of course, 
 the court would say that Congress could not have intended to pass 
 
ELEVENTH DAY. 45 
 
 an illegal bill, and therefore it did not mean that. But that it was 
 intended to mean by those who drew it I have not the slightest 
 doubt in the world. But of course if that is an unconstitutional 
 meaning it would never have that meaning, because the courts would 
 say that Congress could never have intended that. 
 
 Senator CtJLLOM. You do not suppose the men who drew it in- 
 tended to draw an act that would be absolutely absurd or void, do 
 jou? 
 
 Mr. Bond. The man who drew that act intended to draw an act 
 that would give the Commission the margin of discretion in fixing 
 the rates as between extortionate and confiscatory rates. That is 
 what he meant, and that is what the Commission have said over and 
 over again that they would get, and they have said it in hearings 
 before, I think, this committee — that if such an act was passed there 
 would be no power in the courts to control them, because they would 
 be clothed with just that discretionary power, and that was a power 
 that could not be controlled by a court. 
 
 Senator Cullom. What they reallv intended was to get an act 
 passed that would give the Commission power to do about as they 
 pleased ? 
 
 Mr. Bond. Yes, certainly : as far as the law allows. 
 The Chaiksian. But they provide in the same act a right of appeal 
 to a court of transportation from anything they might do, do they 
 not, in the Esch-Townsend bill ? 
 
 Mr. Bond. The right of appeal after a fashion, hedged in with 
 all manner of unconstitutional provisions. 
 
 Senator Kean. You evidently do not advocate the Esch-Townseiid 
 bill? 
 
 Mr. Bond. I am not so much opposed to it, because I do not think 
 it would ever stand. 
 
 The Chairman. Stand before the courts, you mean ? 
 Mr. Bond. Why, no. My great objection to it is that it would 
 ■confuse the subject for years, would lead to endless litigation, and 
 require at least two decisions of the Supreme Court, and perhaps 
 more, to find out what the law was. 
 
 Senator Ctillom. Your judgment is that if we are to have a law 
 at all we had better keep close to one that has been decided upon? 
 
 Mr. Bond. My idea is. Senator, that after a law has been m force 
 ' for eighteen years and has been construed over and over again by 
 the Supreme Court of the United States, you have somethmg of 
 value in the certainty of the law, and that to upset all that and throw 
 the whole subject into confusion again is bad public pohcy and bad 
 for everyone concerned — business men, railroad men, and every- 
 body; that the law (I hope to explain my views on that a little 
 later) is a valuable law; it has had a great work; it has done a great 
 work, and it is still capable, as it stands, of doing a great work in 
 the future; and to muddle the whole subject and let nobody— no 
 business man, no railroad, or anybody— know what the law is until 
 we can get two or three more decisions by the Supreme Court would 
 be simply putting everything backward. 
 
 Senator Cullom. Before you get through, then, I hope you will 
 take the law as it is, including the original act and the Elkins Act, 
 and teU us exactly what ought to be added to it m order to make it 
 a perfect law. 
 
46 ELEVENTH DAY. 
 
 Mr. Bond. I do not know that I could go quite that far. I will 
 give you my views, Senator, as to what would do it. 
 
 The Chairman. Eight here, do you want to make any further 
 explanation of section 100 of the Esch-Townsend bill? You declare 
 that what you have stated is the effect of it. I have the original 
 bill before me. 
 
 Mr. Bond. Why, I did not really intend to refer to the Esch- 
 Townsend bill particularly. Senator. I was rather stating a general 
 proposition, and I only referred to that because 
 
 The Chairman. Incidentally ? 
 
 Mr. Bond. Because Senator Clapp said that nobody had any such 
 proposition in mind. I think they have it in mind. Senator, but I do 
 not think they know how to do it. That is the situation. 
 
 I do not know that I can add anything further to the definition of 
 the powers of Congress to use a commission ; and the next matter 
 which seems to me to follow in importance to be considered is the 
 relation of the courts to anything which may be done by the Com- 
 mission. 
 
 In the first place, of course, it is well settled that no matter whether 
 the legislature itself or a commission undertakes to prescribe a maxi- 
 mum rate, the question of whether that maximum is just is one 
 which the courts will pass upon; and that if found not to be just, in 
 the interpretation of that word by the courts, it will be void law 
 as in violation of the fourteenth amendment. 
 
 Of course, the fifth amendment is even wider in its scope than 
 the fourteenth in this regard, in that it contains a provision that 
 Congress can not take property without just compensation, as well as 
 the provision that it can not deprive any person of his property 
 without due process of law. 
 
 So that any act of Congress or any other legislative body is sub- 
 ject to judicial review in a way; but when you come to use a com- 
 mission, you have an additional question there. I have tried to 
 state that you can only create a commission to do anything in con- 
 nection -with an act which will define the rules of law to govern the 
 subject on which the commission is to act. You can not leave the 
 commission free to make its own law. I'he legislature must make 
 the law, must make the rules, must make them sufficiently specific to 
 be a guide to the commission, and must not use language which, by 
 reference to the discretion of the commission, leaves them to make 
 the law. 
 
 That being so, under every commission act you have the question 
 as to whether the legislature was within its legislative authority; 
 and that is a question which the courts can pass on and will pass on. 
 And you can not, in piy judgment, make that commission above the 
 law by freeing it from the control of the courts ; because if you do, 
 if you say that the courts shall not pass on the question of whether 
 the commission exceeds its powers under the statute, you free it from 
 any rules of law. 
 
 That was the situation in Minnesota. The act of Minnesota 
 which was passed on in 134 U. S. prescribed reasonable rates — nobody 
 could object to that — and it appointed a commission to ascertain 
 reasonable rates. Nobody could complain of that. But the legis- 
 lature there undertook to say that that action of the commission 
 should be absolutely final, and that the commission should be above 
 
ELEVENTH DAY. 47 
 
 the restraint of the courts, and that if the commission said that a rate 
 was a reasonable rate, that was the end of it for all time. The 
 Supreme Court said that that whole thing was void, ft was not 
 due process of law. 
 
 Senator Clapp. Do you recall, in that connection, Judge Miller's 
 dissenting opinion ? 
 
 Mr. Bond. Yes; but it was not a dissenting opinion. It was a 
 concurring opinion on other grounds. Mr. Justice Bradley dissented. 
 
 Senator Clapp. Justice MiUer practically dissented. 
 
 Mr. Bond. No ; he did not. He said that 
 
 Senator Clapp. He acquiesed in the final decision of the court. 
 
 Mr. Bond. Yes. 
 
 Senator Clapp. But dissented from the 
 
 Mr. Bond. He acquiesced, I think, Senator, on that ground — that 
 the legislature tried to create something that was above the courts, 
 and they could not do it. The courts are bound to be there. 
 
 Senator Clapp. In comiection with his suggestion there, have you 
 examined the McCord case ? 
 
 Mr. Bond. No ; I do not think I have. 
 
 Senator Clapp. It seems to follow out the suggestion that Judge 
 Miller foreshadowed in his opinion, of reaching it by a bill in equity 
 instead of by an appeal, as it was reached there. 
 
 Mr. Bond. Oh, yes ; a matter of procedure ; it does not atfect the 
 question of right. 
 
 Senator Clapp. Yes; it goes right to the question of the validity 
 of the law without legal procedure provided for in the law itself to be 
 reached by a bill. That was the McCord case, was it not ? 
 
 Mr. HiNES. Yes. 
 
 Mr. Bond. I do not understand. Senator, that that was the decision 
 in the Minnesota case. 
 
 Senator Clapp. No; it was not the decision ; it was in Justice Mil- 
 ler's opinion. 
 
 Mr. Bond. Yes ; I understand ; but I mean it has been misquoted. 
 That Minnesota case has been misquoted upon the proposition that 
 any law must in itself provide a procedure. 
 
 Senator Clapp. That was the fact ; that was what they did decide 
 there. 
 
 Mr. Bond. No, they did not. I mean that may have been what 
 they decided there, but that is not the principle that they decided. 
 
 Senator Clapp. No, no; you do not understand me. I say your 
 statement is correct. That is what they did decide in that case — 
 that there being no hearing provided for, the law was void. 
 
 Mr. Bond. Yes. 
 
 Senator Clapp. I was confirming your statement as to what the real 
 decision of the Minnesota case was, in my last statement there. 
 
 Mr. Bond. I understand. 
 
 Senator Clapp. But I was pointing out Judge Miller's opinion 
 with reference to the McCord case, which is in line with that. 
 
 Mr. Bond. But the act which was in question in the Minnesota 
 case had been interpreted by the highest court of that State as abso- 
 lutely taking the question, when decided by the commission, out of 
 the jurisdiction of any court and every court. There was no ques- 
 tion as between law and equity, or in any other way. Of course, the 
 question arose on a petition for mandamus, because that was the only 
 
48 ELEVENTH DAY. 
 
 way in which it could arise. But they decided that it did not make 
 any diffefence how it might have been raised, the court could not 
 pass on the question. That practically amounted to saying that 
 you had a commission which had no law to bind it; and I think that 
 'in itself makes an unconstitutional arrangement. The commission 
 has to be bound by the law of its creation, or the law that is put there 
 to guide it ; and tlie courts have to have the power to keep it within 
 that law. If you try to free the commission from the restraint of 
 the court in that regard, you make an unconstitutional law. I call 
 attention to that point because I thinli that is another thing that is 
 attempted in the Townsend-Esch bill — certainly in some of the other 
 Ibills it was distinctly attempted — because when you have a court it 
 has to be a court free from any restraints that would prevent it 
 from administering justice. You can not abridge substantially the 
 right of the carrier to have a judicial determination ; and an attempt 
 (as was certainly attempted in the Esch-Townsend bill) to establish 
 a procedure under which the carrier must suffer an irreparable loss 
 before the judicial decision could be had would be an unconstitutional 
 attempt. 
 
 That brings us to this state of affairs : Any act which tries to give 
 this Commission discretionary power ought to be held void, and unless 
 it is more skillfully drawn than any act that has been yet proposed 
 it will be held void. If you can not give the Commission those 
 powers which it wants, although it did not at first ask for them, the 
 power which can be conferred upon it is simply this power to bring 
 the existing rate up to the legal standard; or, rather, down to the 
 legal standard. Then you have in the present act ample provision for 
 that, so far as the power goes. It is purely a question of procedure. 
 Now, as to the procedure, you can not get rid of the judicial review 
 without risking your whole act. At the same time, there is a claim 
 that the procedure ought to be improved and ought to be hastened; 
 that it ought to be shortened, expedited. There is one part of the 
 procedure that you can not get rid of — the judicial review. If you 
 have a thing composed of two parts, and you want to shorten it and 
 you can not get rid of one part, what do you do, if you are going to 
 shorten it at all? Why, you have got to get rid of the other part. 
 That seems to be common sense. It certainly is the only resort. 
 There is no legal objection to that, that I know of. We may all have 
 our tastes about it from a railroad standpoint, but there can be no 
 question as to the legality of anything that is done on that side, 
 shortening from that end; whereas almost everything that is 
 attempted on the other side is open to serious constitutional questions. 
 
 Perhaps the ground of the most just complaint that I have seen in 
 these proceedings, in the hearings before the House Committee, was 
 the complaint of the time and expense required in getting their cases 
 prepared and tried by the Commission. I refer to the matter of 
 expense because it is one which, in reading the statements of those 
 Avho have preceded me, does not seem to have been dwelt upon very 
 much; but I think it is one which has very great weight with those 
 who have been and who would like to be complainants before the 
 Commission. 
 
 (Thereupon, at 4.35 o'clock p. m., the committee adjourned until 
 to-morrow, May 2, 1905, at 11 o'clock a. m.) 
 
EEGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 TWELFTH DAY. 
 
 Tuesday, Mmj 2, 1905. 
 The committee met pursuant to adjournment. 
 
 COHTINUATIOH OF STATEMENT OF MR. HUGH L, BOND. 
 
 The Chaiemax. Mr. Bond, you may proceed. 
 
 Mr. Bond. Mr. Chairman, yesterday I tried to briefly state my 
 views on two points: First, as to the use by Congress of a railroad 
 commission, pointing out that under the Constitution no part of the 
 legislative power of Congress could be delegated, and that, as a corol- 
 lary from that proposition, it folloAved that Congress must in the 
 act establishing a commission define with legal accuracy the rules of 
 law by which the commission mxist be governed in the exercise of any 
 authority to decide questions of fact as to rates. 
 
 And as a further corollary, that the courts must be left free to 
 restrain the commission and keep the commission within the rules 
 laid down by Congress when the act was passed, and that, of course, 
 the authority of the court in this regarH could not be impaired or 
 abridged by provisions such as have been suggested in some of the 
 bills, restricting its right to take testimony or putting an alleged 
 illegal act of the commission into effect for any period of time before 
 the court should touch it. 
 
 Passing from the discussion of general propositions of law and 
 coming down to their ajopli cation to the interstate-commerce law of 
 Congress, I wish this morning to state briefly the present law, and 
 then discuss briefly the alleged improvements which are suggested 
 for the present law. 
 
 ^Vhenever the Supreme Court has found it necessary to epitomize the 
 act to regulate commerce, it has, I think, in every case gone back to 
 the statement of Mr. Justice Jackson, then Judge Jackson, in the case 
 of the Interstate Commerce Commision i\ The Baltimore and Ohio 
 Railroad Company, which was the first case under the act to regulate 
 commerce that went to the Supreme Court of the United States. 
 That statement, in brief, of the effect and intent of an act to regulate 
 commerce is this : 
 
 Subject to the two leading prohibitions ttiat their charges shall not be unjust 
 or unreasonable, and that they shall not unjustly discriminate so as to give 
 undue preference or disadvantage to persons or traffic similarly circumstanced, 
 
 12 D— 05 M 1 1 
 
5j twelfth day. 
 
 the act to regulate coimnerce leaves common carriers as tliey were at the com- 
 mon law, free to make special contracts looking to the increase of their busi- 
 ness, to classify their traffic, to ad.iust and apportion their rates so as to meet 
 the necessities of commerce ; and, generally, to manage their important inter- 
 ests upon the same principles which are regarded as sound and adopted in 
 other trades and pursuits. 
 
 That is the description of a broad-gauge la^Y, and the act to regu- 
 late commerce is such a, law. I have yet to find a lawyer who, if he 
 should be called upon to-day, after eighteen years of experience under 
 the act to regulate commerce, could draw a new act on lines substan- 
 tially ditferent. The act was in advance of its time. At the time of 
 the passage of that act the business men of this country regarded it 
 as a legitimate branch of enterprise and energy in their business to 
 get reduced rates by rebates or in any other way, and they resented 
 the act as an abridgment of their legitimate enterprise that the law 
 should seek to prevent their getting reduced rates from a railroad by 
 the exercise of push and energj' and pull. 
 
 That condition of affairs continued down until very near and re- 
 cent times. It was only in 1897 that the receivers of the Baltimore 
 and Ohio Railroad wrote an open letter to the Commission, and said 
 that, as receivers, they could not pay rebates, and they proposed to 
 see that their competitors were not allowed to pay rebates. It was 
 only as late as that that these traffic managers for the business 
 houses of the country — who compose the active men in these very 
 organizations that had been showering resolutions on Congress — ^that 
 those commercial agents in these same organizations got together and 
 threatened to boycott the Baltimore and Ohio Railroad for taking 
 any such position, and denounced the receivers as informers. 
 
 Senator Foraker. Who were these people — shippers, or representa- 
 tives of other roads? 
 Mr. Bond. Shippers. 
 
 Senator Foraker. I mean the men who threatened to boycott the 
 Baltimore and Ohio. 
 
 Mr. Bond. They were the shippers — the traffic managers of the 
 large houses, whose business it was then to get cut rates, and whose 
 business it is now to get the best rates by routing their traffic over the 
 most favored route. But they felt that their usefulness, and there- 
 fore their jobs, were threatened by the act to regulate commerce. 
 
 Another unfortunate thing in the original act was that in the 
 House it was loaded down with penalties. I venture to say that if 
 there had not been a single penalty prescribed by the act it would have 
 gone into practical effect years before it did. Those penalties were 
 an absolute obstruction to the enforcement of the act. The provi- 
 sions of the act could hare been enforced civilly bj^ injunction, un- 
 questionably, if it had not been for the penal clauses. It is only by 
 enforcement through civil remedies, and particularly by means of in- 
 junction, that the act can be effectually enforced at all. 
 
 That condition has been met by the Elkins Act. So that the expe- 
 rience of years has done away with the disability of the original act 
 to regulate commerce. 
 
 Senator Foraker. The imposition of penalties for offenses against 
 that law did not prohibit a resort to civil remedies, by injunction or 
 otherwise, as I understand. 
 Mr. Bond. It was so held by the courts. 
 
TWELFTH DAY. 3 
 
 Senator Foeaker. The injunction granted by Judge Grosscup, 
 which proved so effectual, \yas under that law before the Elkins law 
 had passed. 
 
 Mr. Bond. And yet Judge Grosscup had such serious doubts about 
 it that none of the defendants dared to demur. 
 
 Senator Foeaker. There were doubts simply as to whether the 
 civil remedy would lie. 
 
 Mr. Bond. Doubts based on the fact that the act prescribed penal 
 remedies, and that construction and that doubt delayed, to my 
 knowledge, for five years the attempt to get injunctions under that 
 act, because in 1897 Mr. Cowen, through me, offered to argue without 
 fee the case for the Interstate Commerce Commission if it would 
 attempt to get an injunction under the act. But the Attorney- 
 General, or the legal officer of the Government in charge of these 
 matters, was afraid to make the attempt. 
 
 Senator Kean. What year was that ? 
 
 Mr. Bond. That was in 1897 or 1898, as I recall. 
 
 Senator Forakee. I think you are right in saying that doubt ex- 
 isted ; _ and while doubt perhaps stood in the way of adopting legal 
 remedies, yet as a matter of fact the courts were open, and subse- 
 quently decisions, particularly Judge Grosscup's decisions, have 
 shown that that remedy could be resorted to, have they not ? 
 
 Mr. Bond. I could not say that, Senator. I think it was a very 
 serious question, although I personally believe that under certain sec- 
 tions of the act the injunction remedy could have been maintained. 
 I always believed that it could be maintained under the section re- 
 quiring the publication of tariffs and adherence to the published 
 rates. 
 
 Senator Foeakee. Is there any decision to the effect that the pro- 
 vision for penalties stood in the way of resort to civil remedies? I 
 do not know of any decision of any court to that effect. Is there any ? 
 
 Mr. Bond. Yes; or at least coming very nearly to it if not quite 
 up to it. I can not refer to it offhand though. Senator. 
 
 Senator Foeaker. Not by the Supreme Court, though, I suppose. 
 
 Mr. Bond. No, no ; not by the Supreme Court. 
 
 The point I want to make is that the present act is a good act, 
 tested by time and perfected by the Elkins law in the only serious 
 defect in the remedy that time has developed. 
 
 There are three points or heads which naturally present themselves 
 for discussion as to the enforcement of the law. 
 
 The first is as to discrimination between persons. That is abso- 
 lutely covered by the Elkins law in the only way that it can be 
 covered. It has been found practically impossible to enforce the 
 second section of the act, because under that section, having proved 
 one shipment, you had to prove another shipment substantially con- 
 temporaneously and under substantially similar conditions and cir- 
 cumstances in order to make out your case of discrimination between 
 the two shippers. That doubled the difficulty. 
 
 The Chairman. That was the second section of the old act. 
 
 Mr. Bond. Yes ; that doubled the difficulty of proving discrimina- 
 tion. But you can prove that the shipment was carried at a rate 
 which differed from the published rate, because that simply involves 
 the proving of the one shipment. The published rate proves itself, 
 and you reach equality between shippers through the mathematical 
 
4 TWELFTH DAY. 
 
 proposition that things that are equal to the same thing are equal to 
 each other ; and the rates to both shippers being equal to the published 
 rate, are of course equal to each other. 
 
 Further than that, under the Elkins law if the Commission has 
 reason to believe that any railroad carrier is making a practice of 
 departing from the published tariff, it has onljr to go into a court of 
 equity and got a civil injunction compelling the company to desist 
 and depart therefrom. 
 
 Thei-efore I say, as to discriminations between persons, it is impos- 
 sible to conceive of any procedure that could make the enforcement 
 of the act easier or more complete. 
 
 Now, as to discriminations between localities or descriptions of 
 traffic, under the tliird and fourth sections of the act : 
 
 Under the decisions of the Supreme Court interpreting the law the 
 controlling fact in deciding whether a difference in rates is justified 
 is the fact of commercial competition or the commercial circumstances 
 of the two cases. As to the ascertainment of that fact or state of 
 facts, the remedy since the passage of the Elkins law is complete. 
 It is as speedy a remedy as in a court. 
 
 In the greater number of those cases — all of those cases, yoii may 
 say — it is not merely the railroads that are interested on the one hand 
 and a particular shipper or locality interested on the other. It is in 
 every case, I believe, either, if it is a question of difference between 
 localities thei'e is another locality? interested, or if it is a difference 
 in the description of traffic — that is, as to classification of some ar- 
 ticle — there are always one or more competitive articles that are 
 interested as agfiinst the one that is claiming a particular classifica- 
 tion. 
 
 If there is an}- class of cases which require the most careful and 
 full investigation in the courts, it is cases of that class — to wit, of 
 alleged discriminations between localities and descriptions of traffic. 
 And yet I say that under the present act there is a complete and 
 speedy remedy. 
 
 The third chxss of cases are cases relating to reasonableness of rates. 
 The greater part of this discussion relates to that class, although 
 these other questions are brought in in a way in which they have no 
 right to come, because they ha\'e no bearing on the proposition. 
 
 As to the reasonableness of rates under the present law, the Elkins 
 Act has not changed the law. There is the old situation, that the 
 Commission investigates first and then goes into the courts and gets 
 an injunction restraining the carrier from charging the existing rate 
 if the existing rate is found extortionate or unreasonable. 
 
 What the Commission claimed to be able to do, under the Maximum 
 Rate Case, was that it could fix rates or make rates. There is no 
 justification whatever for the proposition that they ever claimed the 
 power to make rates in any true sense. What they did claim, as 
 shown by the decision in the Maximum Rate Case itself, was this: 
 That they could make an inquiry as to the reasonableness of a rate; 
 that when they had concluded that inquiry they could say that the 
 rate was unreasonable, and that it was unreasonable to such a degree 
 that it must be changed to such an extent as to become reasonable. It 
 was that proposition that was urged on the Supreme Court in the 
 Maximum Rate Case, and the Supreme Court, through Mr. Justice 
 
TWELFTH DAY. 5 
 
 Brewer, answered it by saying that it was getting by indirection 
 through the exercise of a power which Congress evidently did not 
 intend they should have at all. 
 
 Senator Culloji. At least Congress did not give it to the Com- 
 mission. 
 
 Mr. Bond. He said Congress not only did not give it to the Com- 
 mission, but that the language of the act shows the existence of the 
 absolute contrary. So, as it stands to-day, they have to stop at the 
 finding of whether the existing rate is reasonable or not, and they can 
 not say, so as to bind anybody, or so as to form the basis of an appli- 
 cation to the court — ^they can not say how far the existing rate is 
 unreasonable — that is to say, how far it exceeds the legal standard 
 under the law. 
 
 Senator Ouxlom. Do you think it would be a bad thing or a good 
 thing to make the law so that they could say that such a rate is 
 unreasonable and that such another rate would be reasonable? 
 
 Mr. Bond. I think that to put it in that way would be a decidedly 
 bad thing. Senator, for the reason, as I shall explain, that that form 
 of provision has been misconstrued and abused in almost every case 
 where it has been used in establishing State conunissions. What you 
 mean, I take it, by that is that when the Commission finds a rate 
 unreasonable it shall say how far that rate must be changed in order 
 to make it reasonable. 
 
 Senator Cutxom. Of course that is what I mean. 
 
 Mr. Bond. If you mean that, then say it ; but if you do not, say the 
 other thing. The provision will be subject to abuse at once. If the 
 Commission says a given rate is mireasonable, is it unreasonable to 
 give them power to say what the Commission thinks would be rea- 
 sonable? That is all there is in the case, as I understand it. That 
 is all there was in the case. Senator, when the case started. But now 
 that is a bagatelle in the case. 
 
 Senator Cullo:u. If the Commission can not do it now, what objec- 
 tion have you to making the law so that it can do it? 
 
 ]\Ir. Bond. Personally I have no objection to that proposition, but 
 I think that you will not benefit the public or really and substantially 
 improve the law by that, because you do not shorten the procedure. 
 ' Senator Cxjllom. Your idea is to go to court anyhow, and that you 
 mav as well go without that determination on the part of the shipper? 
 
 Mr. Bond. My idea is that you have a procedure composed of two 
 parts. One part is the judicial procedure, which you can not consti- . 
 tutionally abridge or abolish. If you want to shorten that procedure 
 what must you do ? The shortening must come out of the other part, 
 to deal with which you are perfectly free under the Constitution. 
 
 Senator Clapp. In order to understand your use of terms here, it 
 the Commission, in addition to its present power, had the power in 
 condemning one rate to say how much of a reduction should be made 
 in order to make it reasonable, Avould you consider that as a power to 
 fix rfltps " 
 
 Mr Bond. A"o, sir. That is a judicial power. It is a power to fix 
 rates in one sense, but this whole discussion has become thoroughly 
 mixed by using one term to mean two thmgs. It is not the fixing of 
 rates in the sense of making rates for the future, under the decisions 
 of the courts. It is a judicial act which is subject to review. 
 
6 TWELFTH DAY. 
 
 • 
 
 Senator Clapp. Certainly it is a judicial act subject to review. 
 
 Mr. Bond. But, on the other hand, if you give the Commission 
 power to establish what is a reasonable rate for the future-^ — 
 
 Senator Clapp. Would not that be subject to judicial review? 
 
 Mr. Bois^D. In a sense, yes; but not in the same sense. At least, 
 that seems to be the decision of the courts. It is a A'ery difficult sub- 
 ject when you get into that question. Senator. 
 
 Senator Clapp. It seems to me there is only one question, and we 
 may get down to it some day. 
 
 Mr. Bond. The alternatives as they stand to-day, as I understand, 
 are, first, on the one hand, a proposition to improve the present law 
 by increasing the powers of the Commission ; and, on the other hand, 
 the proposition is to improve the present law by leaving the powers 
 of the Commission where they are to-day, or, rather, changing its 
 functions somewhat, but by shortening the procedure as much as pos- 
 sible up to the point where you get a binding decision from a court. 
 
 Senator Cullom. Please state exactlj^ what you think ought to be 
 done to shorteii that procedure and improve the law the way you 
 want it. 
 
 JNIr. Bond. If you will permit me. Senator, I can explain the rea- 
 sons for that a little better if you will let me state first my objections 
 to the other. 
 
 Senator Cullom. All right. What I want to get at some time, if 
 I can, is to find out exactly what we ought to do here, as a committee, 
 in recommending new legislation or additional legislation on this 
 subject, if any. 
 
 Mr. Bond. My object. Senator, in making this statement is that, 
 and I want to say that when you ask me my personal views about a 
 thing I am not reflecting the views of any other railroad counsel, 
 or even my own executive. I am merely giving you what I think. 
 That is all I can do. 
 
 Senator Cullom. We do not want railroad views ; we want yours. 
 
 Mr. Bond. I want it understood that I am not committing any- 
 body else. 
 
 First, as to the proposition to increase the power of the Commis- 
 sion — let us have no flimflam about that. 
 
 Chairman Knapp, in 1892, when he appeared before the committee 
 in regard to the Corliss-Nelson bill, stated the proposition thus : 
 
 If, after complaint and notice and due hearing and opportunity for tlie car- 
 riers to show every fact upon the question presented, if those facts establish 
 with reasonable certaintj- that charges complained of are wrong, the question 
 is, Shall the Commission have authority- to say what the carriers are to do to 
 correct the wrong? That is all there is of it. 
 
 That is what Senator Cullom says — " that is all there is of it." 
 Now, that is not " all there is of it." It is simply flimflam to say 
 that. It is all there was of it in 1892, when Chairman Knapp made 
 that statement. It was all there was of it in the mind of Chairman 
 Knapp, but it is not all there is of it under the propositions that have 
 been made in any bill pending in any House of Congress, so far as 
 I have been able to see. 
 
 Let me say why I say that. I say that because I took particular 
 pains to say that the Hovise committee, for instance, was furnished 
 with a draft of a bill which did exactly what Chairman Knapp said. 
 There is no mistake about drawing a bill of that kind. All you have 
 
TWELFTH DAY. 7 
 
 to do is to adopt Chairman Knapp's language right there. But 
 that is not what they are trying to do. Th^t is not what they want 
 at all. What they want is to free the Commission from any control 
 by the courts, to give them discretionary power to make the law as 
 they go along, so as to meet the necessities of the case as they appear 
 to the Commission. 
 
 Senator Clapp. When you say " they," whom do you mean? 
 
 Mr. Bond. The members of' the Commission, with the exception 
 perhaps of Chairman Knapp. I mean the persons who are urging 
 this bill. 
 
 Senator Clapp. Which bill— the Esch-Townsend bill? 
 
 Mr. Bond. I mean the bill H. E. 18588. 
 
 Senator Clapp. That is what I want to get at. 
 
 Senator Cullo:m. The Esch-Townsend bill. » 
 
 Mr. Bond. Now, let us see what the language of that bill is, 
 just by way of illustration. I do not want to take any particular 
 bill, because they are all alike. The Hepburn bill is just as bad. 
 This bill provides that the Commission may — 
 
 make any finding or ruling, declaring any existing rate for tbe transportation of 
 persons or property, or any regulation or practice whatsoever affecting the 
 transportation of persons or propertj', to be unreasonable or unjustly discrim- 
 inatory. The Commission shall have power, and it shall be its duty, to declare 
 and order — 
 
 Declare and order what ? Not what change the carrier shall make, 
 but— 
 
 what shall be a just and reasonable rate, practice, or regulation to be charged, 
 imposed, or followed in the future in the place of that found to be unreasonable 
 or unjustly discriminatory, and the order of the Commission shall, of its own 
 force, take effect and become operative thirty days after notice thereof has been 
 given. 
 
 In subsequent sections of the act they speak of that as prescribing 
 a rate, thus getting themselves right within the expression of Mr. 
 Justice Brewer in the Maximum Eatt Case that, to decide whether a 
 rate that has been charged is unreasonable is a judicial question, but 
 that to prescribe a rate for the future is a legislative power. 
 
 Does anybody saj- that the person who drafted that bill had only 
 in mind what Chairman Knapp said — " that is all there is of it ? " 
 
 Let us see what he has done here, just by way of curiosity. 
 
 In the first place, he has tried to confer on the Commission t^ie 
 power to declare unreasonable or unjustly discriminatory any regu- 
 lation or practice Whatever affecting the transportation of persons or 
 property. That is a brand-new grant of power. Where is there 
 anything in the interstate-commerce act that covers that? 
 
 The Chaiejiax. How do you construe the Avords " regulations " and 
 "practices?" To what extent? 
 
 Mr. Bond. As they have ah\ays been in every prior bill. They 
 were regulations or practices affecting the rates. This is the first 
 time, so far as I knoAv — perhaps the Hepburn bill is the same way— 
 where the language is " regulations or practices affecting the trans- 
 portation of persons or property." That is a brand-new proposition. 
 
 Here we have an illustration of what I Avas talking about yesterday. 
 I told you yesterday that when you use the words " reasonable " and 
 "unreasonable" in an act establishing a commission you must use 
 those words in their legal sense, or otherwise the act would not have 
 
8 TWELFTH DAY. 
 
 that legal certainty which would deprive the Commission of the law- 
 making power. The drafter of this act has used the word " unrea- 
 sonable " as applying to regulations and practices affecting the trans- 
 portation of persons and property. There is not anything in the law 
 to define the meaning of the words " reasonable " or " unreasonable " 
 as applied to a regulation or practice affecting transportation. As 
 applied to a rate, it has an established legal meaning. As applied 
 to a regulation or practice of transportation, it has no legal meaning 
 and must be referred for its meaning only to the mind of the Inter- 
 state Commerce Commission. 
 
 There is a use of a word in a sense which is not its legal sense, and 
 in which it has no legal meaning, and it is such a use as to confer on 
 the Interstate Commerce Commission or any other body that is to 
 find t)ie reasonableness or unreasonableness, and that is a power of 
 legislation. 
 
 It is exactly the case of the tariff which was in question in Field v. 
 Clark. Suppose that act of Congress had said that the President 
 could issue his proclamation if he found the regulations of the for- 
 eign country to be " unreasonable " instead of " unequal and un- 
 reasonable." Do you think the majority of the court could then have 
 said that that did not vest in the President any discretion? Do you 
 think that they could then have said that he was merely finding a 
 fact? What meaning can you give to the word " reasonable " there 
 except the discretionary judgment of the President? What meaning 
 can you give to' the word " unreasonable " here except the discretion- 
 ary judgment of the Commission? If that is so, it makes this act in- 
 valid, as conferring the lawmaking power on the Commission, just 
 as it would have made that tariff act invalid as conferring the law- 
 making power on the President. The two cases are precisely parallel. 
 
 There is not anything in the present act to define what that word 
 " unreasonable " means. There is not anything in the present act 
 to define what the expression "unjustly discriminatory " means. If 
 that means undue preference. Congress should have said so. Then 
 it would have referred to the third section of the act. But they are 
 evidently trying to confer some new .power, to break through the 
 trammels of the act, and they do not know how to do it. 
 
 Going further, as I say. Congress gives the Commission the power 
 to declare and order a just and reasonable rate, practice, and regu- 
 lation. There, again, Congress is giving the Commission the power 
 to establish regulations of commerce, because transportation of inter- 
 state commerce is commerce itself, as the Supreme Court has held over 
 and over again. Congress is giving the Commission such power to 
 regulate commerce as they shall believe to be reasonable and just. 
 
 I say that to talk about that language of that bill and apply to it, 
 as the newspapers and its advocates have applied to it, and as it was 
 practically carried through the House on the proposition — to say that 
 that statement of Chairman Knapp's is " all there is to that bill " — I 
 say that is simply flimflam. 
 
 Now let me answer Senator CuUom's question. Suppose we did 
 want to treat it as Chairman Knapp says. 
 
 Senator Cullom. What was it that Mr. Knapp said? You are 
 connecting my name with Mr. Knapp's as though he and I were run- 
 ning the same machine. I do not know anything about it. I do not 
 
TWELFTH DAY. 9 
 
 know anything about the Esch-Townsend bill either. I want to 
 find out what sort of legislation we ought to enact, without any refer- 
 ence to the Esch-Townsend bill or any other bill. 
 
 Mr. Bond. You can not argue these matters without taking illus- 
 trations, and you can not make pertinent illustrations without taking 
 something in existence. 
 
 Senator Ctjllo^i. That is right. 
 
 Mr. Bond. If you presume your illustrations thej^ are like the point 
 made by the question Senator Clapp put to me yesterday — whoever 
 suggested such legislation? 
 
 What Chairman Knapp said was that — 
 
 If, after complaint and notice and due hearing and opportunity for tlie carriers 
 to show every fact upon the question presented, if those facts established with 
 reasonable certainty that the charges complained of are wrong, the question is. 
 Shall the Commission have authority to say what the carriers are to do to cor- 
 rect the wrong? That is all there is of it. 
 
 Senator Ctjllom. It would have to be what the wrong was, I should 
 think. 
 
 Mr. Bond. He was speaking more particularly about the question 
 of reasonable rates. 
 
 Senator Clapp. I do not think you Avant to be misunderstood, but 
 certainly a few moments ago, when criticising some of the provi- 
 sions of the Esch-Townsend bill, you followed that by saying, " and 
 that is all flimflam for Mr. Clapp to say that is all there is in the bill." 
 
 Mr. Bond. Oh, no, no. 
 
 Senator Clapp. You certainly made that statement. 
 
 Senator Cullom. He said : " That is all there was to it." 
 
 Senator Clapp. He connected Mr. Knapp's name with it in that 
 way. You will see it by a reference to it. 
 
 Senator Foeakek. I think he wanted to convey the impression that 
 there is a good deal more in this than appears. 
 
 Senator Clapp. He said that ]SIr. Knapp had said " That is all there 
 is to it." 
 
 Mr. Bond. Xo. This statement of Mr. Knapp was made in 1892, 
 before these bills were ever heard of. I am furthest in the world 
 from reflecting upon Chairman Knapp, whom I regard as one of my 
 personal friends. 
 
 Senator Clapp. I think you will see there is something in the record 
 you did not intend to get in. 
 
 Mr. Bond. If that is true, then I will try to get it out. 
 
 The Chairman. You have the right to review the notes after they 
 are in proof. . 
 
 I say, if you want to do what Mr. Knapp says is all there is to it, 
 the safe way to do it is to do it in just about the language that he has 
 stated it^-that the carriers should, in such a case, make a change 
 sufficient to bring the rates within the legal standard. 
 
 Senator Clapp. And to say what the change should be? 
 
 Mr. Bond. Yes. That is a very different thing m its practical 
 effect. While the legal intention may be the same, and while the 
 proper legal construction would be the same, it is a very different 
 thing in its practical effect from saying that thereupon the Commis- 
 sion shall declare and order a reasonable rate m the place ot that 
 condemned. , ,, , . , » , 
 
 Why do I say that? I say that because that second form ot grant 
 
10 TWELFTH DAY. 
 
 of power, although it has been no broader than you intend to make it, 
 has been abused in the case of almost every State railroad commis- 
 sion that has been established in this countrj^, and it will be abused 
 by any commission. 
 
 Senator Clapp. Not to interrupt you, but to get an understanding 
 as we go along, where you suggested that the Commission should 
 say what the change should be, did you mean then to give any force 
 or validity to that declaration ? 
 
 Mr. Bond. Yes. 
 
 Senator Ci^app. I supposed so, of course. 
 
 Mr. Bond. Give it any way you like. I mean, there are plenty of 
 ways to give it — not give it force such as they have attempted here 
 before it can be judicially examined, but when judicially passed on 
 it could be given validity ; yes. 
 
 Senator NE^^iiANDS. For the future ? 
 
 Mr. Bond. Effect in the future ; yes. 
 
 You may think that it is splitting hairs, but it is not splitting hairs. 
 It is a very substantial difference, practically. 
 
 When I say that this Commission or any commission can not be 
 trusted with a power which has any semblance of discretion,' I am 
 stating a fact that has simply been demonstrated by the history not 
 only of all the State commissions, but of the Interstate Commerce 
 Commission. Now, what is that history ? 
 
 In the very first case that went to the Supreme Court under this 
 act — the case of the Interstate Commerce Commission v. The Balti- 
 more and Ohio Railroad Company — the Interstate Commerce Com- 
 mission held that the railroad company could not sell a party-rate 
 ticket to parties of 10 or more at the rate of 2 cents a mile, because 
 that was an unjust discrimination against the first-class passengers, 
 who paid 3 cents a mile. 
 
 That was simply pursuant to a theory — I might without impro- 
 priety, perhaps, say a fad — of the Commission's that the passenger 
 rates of the countrj^ must be spread over the country evenly, so that 
 everj' passenger would pay the same '' tax," as they called it. That 
 was their idea of the meaning of this act, and it was that contention 
 that brought out the statement which I have read to you from Judge 
 Jackson (afterwards Mr. Justice Jackson), in which he pointed out 
 that, subject to the restrictions as to reasonableness and as to dis- 
 criminations, the act was intended to leave the carriers free to meet 
 the commercial conditions of the country and free to leave those 
 commercial conditions to have their full play. 
 
 Would not anyone have supposed that that decision would have 
 been sufficient to inform the Commission ; that it would have broad- 
 ened their views about commercial circumstances and conditions? 
 But, no. We find them, a short time afterwards, at the instance of 
 the Board of Trade and Transportation of New York, enjoining all 
 the railroad carriers of the country whose lines served the ports on 
 the Atlantic seaboard and the Gulf for making a less rate on import 
 merchandise than they did on the merchandise originating at their 
 respective ports — again a pure question of theory, ignoring the com- 
 mercial conditions. And that was carrying out, as they said — now, 
 imagine it — the tariff policy of Congress; that the tariff policy oi 
 Congress was to determine the meaning of the interstate-commerce 
 act. "VAIiat a pure theory ; what a fad ! And they had the port of 
 
TWELFTH DAY. 11 
 
 New Orleans shut up — and of course from the Baltimore standpoint 
 it is a great pity it was ever opened again ; but they had it shut up, 
 and they had it shut up for four years, from 1891 to" 1896. The New 
 York court agreed with them ; of course it did. 
 
 Senator Cullom. They wanted it shut up, too, did they? 
 
 Mr. Bond. Why, it is no secret that the trunk lines wanted it shut 
 up. We did not make any fight. 
 
 In that case the court again gave them the broadest interpretation 
 of the act, and showed them that they must regard the commercial 
 conditions as the controlling conditions in the railroad business as 
 in the other business of the country. But did that affect them ? Not 
 the least in the world. All these cases that they have ever lost in 
 the courts, or the great majority of them, have been due to the per- 
 sistent refusal of the Interstate Commerce Commission to heed the 
 construction put on the interstate-commerce act by the Supreme 
 Court of the United States in respect of the proposition that the 
 commercial conditions must be regarded under each of the sections 
 of the act except the second section. In the second section the courts 
 held that they had no play, but in the other sections of the act the 
 court has held over and over again that they did. Now, after the 
 Supreme Court had decided in one case that the commercial condi- 
 tions under the fourth clause of the act must control, that they did 
 furnish a differentiating circumstance which prevented the fourth 
 section from applying, the Commission went on and tried to distin- 
 guish one commercial condition from another commercial condition, 
 whether it was water competition or rail competition or market com- 
 petition. It took three decisions of the Supreme Court, one on each 
 of those kinds of commercial conditions, to convince the Commission 
 that the commercial conditions applied. 
 
 That was simply holding on to a theory. They did not see how 
 they were going to control the country if they let go of that theory. 
 They did not see how thev were going to regulate the transportation 
 of the country if they let go of that theory. It never occurred to 
 them that it is not their business to set the world right, even if it be 
 out of joint. . . 
 
 That is not peculiar to the Interstate Commerce Commission. It is 
 not peculiar to any other commission. It is just a characteristic of 
 the human mind, and it is incurable. And, further than that, the 
 stronger the men you get on a commission the more active their 
 minds, the more they study a subject of this kind and become 
 wrapped up in it the more apt they are to have theories and to adopt 
 
 them. . . , ■ n 
 
 Senator Cullosi. That sort of disease seizes a ]udge occasionally, 
 does it not? It is one of the frailties of human nature? 
 
 Mr Bond. Well, Senator, in speaking to one another as to those 
 of the bar who have been elevated to the bench, we sometimes inti- 
 mate to other lawyers that their views of public policy may atiect 
 their views of the law ; but, of course, that is not a proposition that 
 I should like to state in public. ■ ^ j:^ 
 
 Senator Forakek. These criticisms are generally spoken ]ust after 
 the lawyers have lost a case, are they not? -c ^ -u ^. t 
 
 Mr Bond. That is an appropriate time, Senator. But what I mean 
 to say is that it is no criticism of the personnel of any particular 
 person on the Commission; it has been so of this Commission, how- 
 
J 2 TWELFTH DAY. 
 
 ever it was constituted, from the beginning, after Judge Cooley left. 
 Judo'e Cooley was a very remarkable man, who had the power to 
 act as judge even in his own case, to decide on his own powers, and 
 to limit his own powers and his own decisions. But that is not tho 
 kind of men that von can depend on getting on commissions, and it 
 is not safe to pass any law that depends on a commission's construing 
 any act so as to limit themselves in any way. And if you do not 
 guard that, and keep them within absolutely definite limits in the law 
 of their creation, you can not depend on their putting any construc- 
 tion on the law that will limit their powers in any degree, because 
 they ^vill get up these theories of how the country ought to be run, 
 how the world ought to be run, and then they will attempt to carry 
 them out to the last, courts or no courts. 
 
 I say that is a fair matter to be considered in legislation. If we 
 are going to have practical legislation, if we are not going to give the 
 country a dangerous act, if we are not going to give them an act that 
 will lead to endless litigation, then that is a matter which ought to be 
 considered. And I want to urge on the committee that after we have 
 had a code of laws in effect for eighteen years, and we have all these 
 decisions by the Supreme Court, until at last we are finally getting 
 down to understand what the law is. and even the Commission is 
 getting down to understand what the law is, it would be little short 
 of a national misfortune to have an act passed that would begin the 
 litigation all over again, and would in the meantime throw the law 
 into chaos. 
 
 Kow let me refer to the alternative proposition, and that is to im- 
 prove the present law by an improvement of the remedies that are 
 open to anyone who considers himself aggrieved. As to that, it 
 really narrows itself down, I think, to a question of the remedies for 
 any grievance under the first section of the act; because, as I have 
 alreadj' stated, the remedies under the Elkins Act in the case of dis- 
 crimination, whether the discrimination be between persons or be- 
 tween localities, are so complete and so speedy that it is difficult to see 
 how it could be improved. But the same act does not apply to com- 
 plaints under the first section. 
 
 The proposition is, in short, instead of having this elaborate ex- 
 amination before the Commission, where the Commission sits with all 
 the seeming dignity of a court, but without the power to control the 
 inquiry or keep it within any reasonable bounds, not being governed 
 by the rules of evidence, and where the inquiry at the instance of 
 either party may be almost indefinitely extended, to shorten that pro- 
 cedure and to let the Commission, as soon as it becomes satisfied that 
 there is a reasonable ground of complaint that a rate is unreasonable, 
 go right into court and ask that that rate be restrained. 
 
 The Chairjiax. If, in their opinion, it is unreasonable ? 
 
 Mr. Bond. Yes; not requiring theni to come to a judgment such as 
 they come to now. 
 
 The Chaiesean. Xo ; but if a rate strikes them as unreasonable, on 
 complaint from a shipper, then to go directly to the court ? 
 
 Mr. Bond. Yes ; or even beyond that, on their own investigation. 
 
 The Chaiejian. Yes; either on their own investigation or on com- 
 plaint of the shipper, if they reach the conclusion that it is an un- 
 reasonable rate, to go immediately to the court in the interest of ex- 
 pedition ? 
 
TWELFTH DAY. 13 
 
 Mr. BoxD. Xot only in the interest of expedition, but in the interest 
 of the fellow Ayho is hurt if the rate is unreasonable. 
 
 Senator Cullom. You would not want them even to do that with- 
 out serious consideration and investigation and hearing, would you ? 
 
 Mr. Bond. Yes. 
 
 Senator Ctjllom. You would not want a Commissioner, if he got a 
 notion in his head that there ought to be a suit brought against some 
 railroad, to go and bring it without any serious inquiry and investi- 
 gation ? 
 
 Mr. Bond. Not a single Commissioner, Senator; but I would not be 
 afraid that the Commission as a body would act hastily in a case of 
 that kind. They would feel a pride, you know, in not bringing 
 frivolous suits. 
 
 Senator Cullosi. You say that they " sit around as a court." How 
 would you have them sit ? You want them to preserve order among 
 themselves in dealing with other people, and you want them to have a 
 stenographer, do you not, to take the hearings of Avitnesses, and you 
 want them to look serious, whether they are or not ? 
 
 Mr. Bond. I have not the slightest criticism to make on what they 
 do under the present act, because they can not do anything else ; but 
 the proposition is to relieve them of that embarrassing dignity. 
 
 Senator Foeakee. Under the present act they go into long hearings 
 that extend over months at a time, and then write long opinions that 
 require more tirne. 
 
 Mr. Bond. They do an immense amount of labor — an immense 
 amount of labor ; and I do not wonder that a commission that is re- 
 quired to do such an enormous amount of labor on a complaint 
 should feel aggrieved that after it has done it all its decision is said 
 to amount to nothing. Xow, I think it is perfectly natural that its 
 members should feel so, but I think that instead of trying to make 
 their opinion have more effect the thing to do is to relieve them of the 
 labor. It is useless labor. 
 
 Senator Foeakee. Is it your idea that, when they have sufficiently 
 investigated a matter of this kind to have a judgment or an opinion 
 based on their investigations that there ought to be a suit, then they 
 should be empowered to bring a suit without any more delay about it? 
 
 Mr. Bond. Certainly. 
 
 Senator Clapp. Now, Judge, assume that we have the suit brought. 
 What would you have eif ectuated by that suit, to get right down to it ? 
 
 Mr. Bond. I believe — ^now, I am going to get on dangerous ground 
 presentljr — I believe that you can ask the court in that suit not only 
 to enjoin the rate if it is found unreasonable, but to enjoin any rate 
 which they find would be unreasonable in that case. My own opin- 
 ion is that that can be done ; but you are getting on dangerous ground. 
 There is great confusion in the language of the courts in that regard. 
 The point is not perhaps directly raised, but there are dicta, you 
 know, both ways; and you are getting into confusion. I mean to 
 say, anybody can question my opinion on that point, and I can ques- 
 tion anybody's opinion to the contrary ; "and it would perhaps take 
 the decision of the Supreme Court to settle it. So that I think the 
 way to absolutely settle it is to say that the court shall do that, and 
 then say that the court's decision shall have effect — I mean, by virtue 
 of the act of Congress. Then I think you save any question that 
 can be made. 
 
14 TWELFTH DAY. 
 
 Senator C't.app. AA'ell, then, you have by that process gotten a maxi- 
 mum rate established ? 
 
 Mr. Bond. Yes — a maximum rate ; whether it is the rate the Com- 
 mission contends for or whether it is the rate that the railroad con- 
 tends for; it is the maximum rate that the court thinks is the legal 
 rate. 
 
 Senator Clapp. And you have a maximum rate established by that 
 process ? 
 
 Mr. Bond. Yes, sir. 
 
 Senator A^ewlands. And you think that in such a proceeding the 
 court could enjoin not simply the enforcement of the rate complained 
 of, but anything above the maximum rate found by the court to be a 
 reasonable rate? 
 
 Mr. Bond. I think it is a judicial question; the law having laid 
 down a standard, it is a judicial question to find the difference be- 
 tween the existing rate and that standard. That is clear; that is a 
 judicial question. Xow, that in the case of a court can be done only 
 under two conditions: First, that it be presented to the court in a 
 litigated case so as to come up in such a way that the machinery of 
 justice provided for that court can operate upon it. That is the first 
 essential condition. The second essential condition is that it should 
 not require the court to consider purely speculative things, or ques- 
 tions of policy. You have to have a case that is capable of reason- 
 ably legal proof. Your question has to be one as to which legal proof 
 can be offered, and which does not turn on a mere matter of opinion. 
 
 There is not any logical distinction that I can see between the 
 court's finding that a rate is too high and enjoining it, that operating 
 in the future 
 
 The Chairman. First enjoining it; then what? 
 
 Mr. Bond. I say, or finding that any rate above a certain point is 
 too high, and enjoining any rate aboA^e a certain point. I do not see 
 that there is any logical difference. In neither case does the court 
 undertake to decide the question of policy as to how the rates ought 
 to be framed for the future. It finds a right in a plaintiff, a right 
 conferred by law, that the rate should be reasonable. It then finds 
 that the rate is not reasonable, and it finds how far the rate is not 
 reasonable; and all it does, instead of awarding damages, is to pro- 
 tect that right in the future. 
 
 The Chaiejian. Xow, Mr. Bond, illustrate that by a given rate. 
 Suppose the rate complained of is 10 cents a hundred pounds, and the 
 court finds that unreasonable. I wish jovl would take that up, 
 starting with the rate complained of being 10 cents a hundred for a 
 certain distance, we will say. Kindly illustrate it, as you did just 
 now, and I think it will be better understood and we will understand 
 you better. Do you get my meaning? 
 Mr. Bond. Yes. 
 
 The Chairman. Assume that that 10-cent rate is the one com- 
 plained of, and the court finds that rate unreasonable and enjoins it. 
 Then show, just as you did" a while ago, how far the court can go to 
 reduce it, and what it could do. 
 
 Mr. Bond. We have a rate of 10 cents a himdred pounds. 
 The Chairman. Yes; we will say that, for a given distance, com- 
 plained of. 
 
 Mr. Bond. We will assiune that we have two sorts of complaints. 
 
TWELFTH DAY. 15 
 
 1 think. Senator, to illustrate it better. We have a rate of 10 cents a 
 hundred pounds, and a shipper who has paid that rate thinks that 
 that is unreasonable, and sues at law. The court and the jury be- 
 tween them (or the court, if no jury is demanded) go into the ques- 
 tion as to whether that rate is unreasonable and decide that question 
 first, and then decide that 5 cents would be the reasonable rate. 
 Thereupon that man is awarded a verdict of the difference betw,een 5 
 cents and 10 cents as his damages; that is, the amount of the extortion. 
 That verdict is only up to the date of suit, but in any subsequent 
 suit, in the absence of proof of a change in circumstances which 
 affects the justice of the charge, the decision in that suit is res adjudi- 
 cata against the railroad company. It operates in the future to that 
 extent. 
 
 Kow, instead of bringing his suit at law, the shipper files a bill in 
 equity to restrain the carrier from charging an unreasonable rate, 
 and alleges that the 10 cents is an unreasonable rate. In that case 
 the court finds that that is an unreasonable rate, and it enjoins it. 
 In the first place it simply enjoins that 10-cent rate. Now, that in- 
 junction which can be had under the act as it stands to-day determines 
 the maximum rate for the future. 
 
 The Chairman. It says that that rate is unreasonable. Now, can 
 the court go any further ? 
 
 Mr. Bond. When you say that rate is unreasonable you say that 
 10 cents and anything above 10 cents is unreasonable, do you not? 
 
 The Chairman, ifes ; but can the court go further and say, right 
 there, what a reasonable rate is — that 8 cents is reasonable, or 6 cents 
 is reasonable? 
 
 Mr. Bond. As far as its being a judicial question is concerned, I 
 
 say yes. Now, suppose a third suit. Suppose the man 
 
 The Chairman. Eight there let me ask this : The court, then, you 
 think, can go on and say that 8 cents is reasonable, and that shall be 
 the rate in that case? Would not that be the judicial body fixing 
 the rate? It could say 8 cents, you think, and then make that the 
 rate? 
 
 Mr. Bond. Let us take the third case 
 
 Senator Foraker. I think the third case is probably an answer to 
 that. , ^, . 
 
 Mr. Bond. After the suit at law in which the court and the jury 
 between them decide that 5 cents is the reasonable rate, and the differ- 
 ence between 5 and 10 cents must be refunded by the carrier, the 
 shipper goes into a court of equity and says: "I am suffering irre- 
 parable injury by reason of the extortion of this carrier, and 1 can 
 only get a remedy by a multiplicity of suits, and I want an injunc- 
 tion to restrain this carrier from charging more than 5 cents, 1 hav- 
 ing a judgment to the effect that 5 cents is a reasonable rate. i 
 am not altogether clear that the shipper could make out a case in 
 equity, as equity i^I mean it is a question of procedure; but there 
 is nothing in the nature of things that would prevent that shipper 
 from getting an injunction on that carrier if he could show that he 
 was sufferinl irreparable injury and had no adequate remedy at law 
 The trouble wouft be that he would have an adequate remedy at 
 law; but if he was given that special reme<iv ^n addition to his 
 remedy at law by statute, why could he not get that injunction? 
 Senator FoRAkEK. Now, Mr. Bond, elimmate the action at law 
 
16 TWELFTH DAY. 
 
 altogether from your illustrations: What is there in the nature of 
 things to prevent the institution of a proceeding in equity on the 
 ground that there is no adequate remedy at law because of a multi- 
 plicity of suits being necessary to enjoin the exaction of a higher 
 rate than any rate you may see fit in your petition to name ? 
 
 Senator Cullom. By injunction, in the first place? 
 
 Senator Foeaker. You can say that a reasonable rate is 5 centsj 
 but they are charging you as much as 10, and you may ask that the 
 carrier be enjoined from exacting more than 5 cents, which you 
 allege is a reasonable rate. Would not that, upon issue being joined, 
 be a tryable question before a court of equity? 
 
 Mr. Bond. I think so. It would be a judicial question, and be 
 presented in a form where the machinery of justice could take hold 
 of it. 
 
 Senator Foeaker. So that the court of equity would not only find 
 that the rate of 10 cents was unreasonable upon such an issue as that 
 being joined, but also what was a reasonable rate, from 5 cents up? 
 
 Mr. Bond. Exactly. I was trying to point out that the mere fact 
 that the effect of a decision of the court extended into the future did 
 not make it a legislative question. I mean that is not the test as 
 between what is a judicial question and what is a legislative question. 
 It is not the mere fact that it extends beyond the date of the judg- 
 ment, but the test is whether the court is called on to take into con- 
 sideration questions of policy and speculative questions as to what 
 the conditions in the future will be. 
 
 I know of no direct decision on the point; but what Judge Wal- 
 lace said in Canada Southern Railway Company . v. International 
 Bridge Company (8 Fed. Rep., 180) has, I think, never been contra- 
 dicted as the law. That was a question of reasonable compensation 
 for the use of a bridge by a railroad. He said there that the fact 
 that the decision protected a right in the future did not deprive the 
 judiciary of the right to make the decision. But all those decisions 
 are subject to the condition that when the circumstances on which 
 they are based change they cease to have a binding effect. That must 
 necessarily be the case. That must necessarily be the case of an 
 injunction under the act as it stands to-day. You could not say that 
 because a rate has been enjoined that that is binding forever and 
 ever. The railroad can not change it, except it can show that the 
 conditions have changed, and it has to do that at its own peril. 
 
 Senator Newlands. Would not the railroad in that case have to 
 apply to the court for a modification of the decree ? 
 
 Mr. Bond. I think not. I think it might be safer to do so. 
 
 Senator Newlands. You think that if the conditions changed, the 
 railroad could act upon the changed conditions, and then rely upon 
 the changed conditions as a defense if another suit were brought? 
 
 Mr. Bond. I doubt if any of us would do that, of course. 
 
 Senator Newlands. That would be a violation of the existing 
 injunction. 
 
 Mr. Bond. Well, that is a question ; I do not know. It has never 
 been decided. I think the general opinion of railroad counsel has 
 been that a change in conditions would relieve from the obligation 
 of the injunction, but I do not think they have ever said that you 
 would not have to go into court and tell the court that you so con- 
 
TWELFTH DAY. 17 
 
 sidered, and do something to keep yourself Jrom being peremptorily 
 hauled up for contempt. 
 
 Senator Clapp. Could not that be obviated, instead of using the 
 injunction proceeding, by simply bringing the suit, and in that suit 
 let the court determine the maximum rate ? Then, if the conditions 
 changed, and the carrier initiated the change, there would be no ques- 
 tion of contempt about it. 
 
 Mr. Bond. I think that that is the law, but T think that any 
 statute on the subject ought to say so. 
 
 _ Senator Newlands. Ought to provide for this injunction, to pro- 
 vide for a change in conditions ? 
 
 Mr. Bond. If you provide for an injunction. Of course. I do not 
 regard it as necessary that you provide for the injunction ; 1 am only 
 expressing my individual views about that. I have no doubt there 
 are other counsel that would not agree with me that the court could 
 go so far, and I would not 
 
 Senator Newlands. I must say that your suggestion is the most 
 complete one that T have Iteard as to the control of this thing through 
 the courts. It seems quite adequate. 
 
 Mr. Bond. I think if you will examine the Maximum Eate Case, 
 you will see that Judge Brewer did not say that the proceeding there 
 through the court was not a legal proceeding, but he said that Con- 
 gress had not authorized it or contemplated it. He said there dis- 
 tinctly that it would be presented as a judicial question if presented 
 in that way. But I would say that if that sort of an amendment 
 were contemplated, I would (if I were personally drafting the act), 
 provide that the court should go on and decree, providing in the 
 injunction that they were permitted to charge that rate, unless the 
 circumstances and conditions changed; and then, to make sure in 
 case that slipped up, I would provide in the act that the findings of 
 the court should be binding in future under the same circumstances 
 and conditions — that is, subject to change. 
 
 Senator Clapp. If the decree itself contemplated initiating changes 
 under changed conditions, might not that be objectionable as involv- 
 ing the judicial effort to fix rates for the future? 
 
 Mr. Bond. I have no definite draft or form of bill in my mind; 
 but I think myself that it will be absolutely necessary to have it so 
 that you will not have to go back to a court every time you want to 
 adjust a rate, because that is absolutely impracticable. 
 
 The Chairman. Let me see if I understand you clearly. Is it your 
 judgment that the court can not only enjoin a rate as being unrea- 
 sonable, but can say what a reasonable rate is? That is your opin- 
 ion, is it ? It would necessarily have to say, as I understand it. 
 
 Mr. Bond. That is one way of expressing it, Senator, and I have 
 no doubt you mean exactly what I mean; but I say the court can 
 find how far the existing rate differs from the legal standard, to wit, 
 a reasonable rate. 
 
 The Chairman. Yes, and suppose that is 8 cents. We will make 
 it eight. 
 
 Mr. Bond. Yes. 
 
 The Chairman. The court says that that is a reasonable rate. 
 Now, can that 
 
 12 D — 05 M — r-2 
 
18 TWELFTH DAY. 
 
 Mr. Bond. No, it does not say that is a reasonable rate; it says 
 any rate above that is unreasonable. 
 
 The Chairman. Above 8 cents? 
 
 Senator Forakee. Above whatever its finding is. 
 
 The Chairman. Well, suppose it says that anything above 8 
 cents is unreasonable. Then does that take from the railroad the 
 power to make any other rate in that case, under similar conditions, 
 and all that? 
 
 Mr. Bond. Under similar conditions it could not make a rate above 
 8 cents. 
 
 The Chairjian. Suppose, then, that was the law, and binding, 
 and that affected 500 other rates. If the rate on one road under given 
 conditions was made 8 cents, and there were five or ten other roads 
 charging 10 cents, would they not all have to change their rates, too, 
 or else this first road get all the business ? 
 
 Mr. Bond. Yes; but I take it that the proceeding would be as it 
 is now — that all those roads would be made parties. 
 
 The Ci-iairjian. All of them; and therefore this would be giving 
 the court the power, in effect, to fix these rates? 
 
 Mr. Bono. To fix a maximum rate. 
 
 The Chairman. Yes, sir. 
 
 Mr. Bond. The court has that power to-day, Senator. 
 
 Senator Kean. Absolutely. 
 
 Mr. Bond. If it is properly invoked, it has it all the time. 
 
 Senator Newi.ands. Has that power ever been invoked in any case 
 that you know of? 
 
 Mr. Bond. It has been attempted ; yes. 
 
 Senator 'Nea^lands. Have you ever laiown a case where an injunc- 
 tion suit was brought alleging that a certain rate was unreasonably 
 high, that the rate ought not to be higher than a certain sum, and 
 asking the court to enjoin the enforcement of any rate above this 
 reasonable sum ? 
 
 Mr. Bond. That suit would not lie in a court of equity, because the 
 man has a complete and adequate remedy at law. The court would 
 say: " You go and sue." 
 
 Senator Newlands. Yes. Then how do you propose to give such 
 a person a remedy ? 
 
 Senator Foraker. Has he an adequate remedy at law when he 
 must sue every time he makes a shipment, and perhaps he makes a 
 shipment every day, or of tener ? 
 
 Mr. Bond. Well, I have never examined into that question; but 
 I think he would have to get his judgment at law first. 
 
 Senator Newlands. Could we authorize such a suit? Could we en- 
 large 
 
 Mr. Bond. It Avould be very unwise to authorize such suits by 
 individual shippers. 
 
 Senator Newlands. Could we authorize such a suit bj' the Inter- 
 state Commerce Commission? 
 
 Mr. Bond. Yes ; I think so. 
 
 Senator Newlands. And if such a case does not at present come 
 within equity jurisdiction, we could by our statute bring it within 
 equity jurisdiction? Is that your position? 
 
 Mr. Bond. You can not tamper with equity jurisdiction beyond a 
 certain point; but I do not think this sort of a "remedy would be 
 
TWELFTH DAY. 19 
 
 ■doing that. I think it is a right which should be protected. It is a 
 continuing right, in other words. 
 
 Senator Newlands. As I understand, the purpose of giving the 
 Interstate Commerce Commission this power to commence this suit 
 for an injunction is to prevent a multiplicity of suits, and also because 
 •of the inadequacy of the relief sought in actions at law. Now, then, 
 •could we authorize the Interstate Commerce Commission to bring 
 such a suit and authorize the court to issue an injunction restraining 
 the collection, not simply of the rate complained of, but of any rate 
 over and above a certain maximum standard which the court declares 
 to be a reasonable standard ? 
 
 Mr. Bond. I do not see why not. 
 
 Senator Foeakee. The law now provides that the carrier shall not 
 charge beyond a reasonable rate. Suppose the Interstate Commerce 
 Commission were to bring a bill in a certain court of proper juris- 
 diction setting up that only 5 cents was a reasonable rate, and they 
 were exceeding that in the charges they were making, and asking the 
 court to enjoin them. Would not that make a perfect case within 
 the meaning of the statute, provided there was no adequate remedy at 
 law, as there would not be if there had to be a multiplicity of suits to 
 recover damages? 
 
 Mr. Bond. I do not think _there is anything inherently impossible 
 about that. 
 
 Senator Foeaeler. In other words, there is nothing in the case that 
 requires them to try whether or not a particular rate is unreasonable. 
 The question is whether or not anj' rate beyond a certain sum is un- 
 reasonable. They can certainly make that issue under the law ? 
 
 Mr. Bond. Of course, you have to guard the fact that that is only 
 con the case as presented ; that is, the present case, the existing facts. 
 
 Senator Foeakee. Of course. 
 
 Mr. Bond. It is not res adjudicata as to any future facts, and there- 
 fore the condition must attach to it that on a change of circumstances 
 the judgment may be changed. 
 
 Senator Newlands. But would it not be well in such a proceeding 
 "to provide that if a change in circumstances should occur the railroad 
 could apply to the court for a modification of the order? Would it 
 not nullify our legislation entirely if we should givethe railroad dis- 
 cretion to change the rate at any time when, in its judgment, condi- 
 tions varied ? ■ ■ ^ 
 
 Mr. Bond. You would not give them that discretion. Their judg- 
 ment would be exercised at their peril in that case. 
 
 Senator Newlands. At their peril; but there would be no real 
 peril. 
 
 Mr. Bond. Yes; there would. 
 
 Senator Newlands. It would be no teal peril, because another suit 
 would then have to be instituted, would it not, to enjoin them? 
 
 Mr. Bond. Yes; but that other suit would only take a very few- 
 days. They would have to go into court, and in their aiisAver they 
 would have to show a change of conditions. 
 
 Senator Foeakee. Is it not fair to assume that a court ot equity, 
 in making an order, would attach such conditions as would be equi- 
 table and just, providing for a change if there should be any ground 
 arising afterwards by reason of the changed conditions for a changed 
 rate? 
 
20 TWELFTH DAY. 
 
 jSIr. Boin^d. Well, Senator, you want to get beyond that; you want 
 to get in a position where it is not mere leave to apply for the modi- 
 fication of the injunction, because that would be an almost impossible 
 condition if you got many of these injunctions. 
 
 Senator Foraker. Why would it be impossible? The case has 
 been fully heard ; the court has all the testimony that was adduced 
 in the case that it disposed of ; it is perfectly familiar with the sub- 
 ject. A change occurs in conditions, on account of which the carrier 
 thinks it ought to have a higher rate than the order of the court 
 allows it to charge. It is not necessarily a troublesome matter, I 
 take it, to go to the court and state what that condition is, and to 
 let the court determine whether or not there is merit enough in the 
 request of the carrier for permission to charge a higher rate to justify 
 it. It would be about as expeditious a hearing as you could think 
 of, if there is to be any regulation of it at all by the courts. It would 
 be better, certainly, than having the carrier take the risk of getting 
 into contempt and being unable to justify its action. 
 
 ^Ir. Bond. I agree with you that if it were confined absolutely to 
 the question of the reasonableness of particular rates it might not be 
 absolutely impossible, although I think it would become increasingly 
 impossible. As years went on, and you built up these things, nobody 
 could keep track of them; and liow would you know? The law 
 department would have to be an adjunct of the traffic department 
 in order to tell them what the rates were that were adjudged, and 
 could not be disturbed. I think if you did that you would have to 
 limit the time in which anything of that kind would be effective. 
 
 On the other hand, if you should make such injunctions appli- 
 cable to the relati^-e rates between localities, and cases of that sort, 
 you would get a rigidity which it would be almost impossible to deal 
 with. 
 
 Senator Foraker. Those rates have to be quickly changed? 
 
 ^Ir. Bond. And the conditions change quickly from year to j^ear. 
 Before you could get the case presented in court of a change in con- 
 ditions, the conditions might have changed to something else. 
 
 The Chairsian. Do you not think it Avould be better just to leave 
 it to the court to enjoin the rate and say it is unreasonable, and leave 
 the railroads free to make another rate? 
 
 ]\Ir. Bond. It would be better ; yes, of course. 
 
 The Chairman. Do you not think that would be better ? 
 
 jNIr. Bond. Certainly. 
 
 The Chairman. And leave the rate-making power with the rail- 
 road, where it naturally belongs, and the power to restrain an unrea- 
 sonable or extortionate rate in the courts, in the interest of the 
 people ? 
 
 Mr. Bond. Do not misunderstand me. Senator. I was not discuss- 
 ing this as a recommendation on my part that you should go to this 
 extent. I Avas only discussing, as a legal proposition, what could 
 possiblj' be done ; that was all. 
 
 Senator Foraker. That is all we are trying to do by our questions — 
 to get the benefit of your views. 
 
 Mr. Bond. Yes. 
 
 Senator Foraker. We are not advocating any particular plan. 
 
 The Chairman. Then do you not think that the rate-malcing power 
 
TWELFTH DAY. 21 
 
 naturally, logically, and of right belongs to the railroad companies 
 as the owners of the railroads? 
 
 Mr. Bond. I think it is as important for the shippers as it is for 
 the railroads that the act should be left as the Supreme Court de- 
 scribes it in the quotation T have made, where they have quoted that 
 statement of Judge Jackson's not only with approval as a statement 
 of what the act is, but with approval as to what the law should be. 
 There can not be any question in the mind of anybody reading the 
 opinions of the court as to their views that the law should be left so 
 that commercial conditions should have their play, and that no 
 attempt should be made to attach artificial legal restrictions which 
 will conflict with or tend to bind down the commercial forces which 
 are at play all the time in the country. Any such attempt will meet 
 with disaster, and if you do it by restricting the methods of making 
 rates so as to produce rigidity in those methods, you will hurt the 
 country quite as much as you will hurt the railroads. 
 
 The Chairman. Under the law as it is. the courts have a power to 
 protect the people and shippers from extortionate and unreasonaljle 
 rates now ? ^ 
 
 ]Mr. Bond. Absolutely. 
 
 The Ci-iAiRjiAx. And the railroads have the power to make the 
 rates from time to time. A'ow, is it not better to leave the railroads 
 with the power to make the rates and change the rates from time to 
 time, and, under a decision of the court that a rate is unreasonable, 
 to name another rate, instead of allowing the court to name the rate 
 for the railroads? 
 
 ilr. Bond. Instead of the court going further and trying to decide? 
 I think so; and I think this: That if you once relieve the Commis- 
 sion and the public of the necessity of these elaborate hearings and 
 investigations and opinions you will get a procedure so much more 
 speedy and so much more eifective that the mere fact that you may 
 have to have more decisions of the court will not figure. I think, as I 
 have said, that the Commission have a right to feel aggrieved that 
 when they are required to go through all this labor and prepare these 
 elaborate opinions, they have not more weight. But I say the prac- 
 tical thing to do there is not to give them more weight and still con- 
 tinue that cumbersome process, but to relieve them of the burden of 
 those long hearings, and relieve the public of the expense which it is 
 put to in prosecuting those hearings. • 
 
 The Chaiejian. That is, if the Commission finds that it can not 
 settle a case — and I believe, incidentally, it is understood that they 
 have settled 1,500 cases — between the shipper and the carrier, then let 
 the Commission go directly to the court with its case ? 
 
 Mr. Bond. Yes, sir. 
 
 Senator Culloji. Just tell the committee, if you can, what the 
 Commission does with a case after it is taken to the courts; what 
 relation does it continue to bear to the case? 
 
 Mr. Bond. I can not tell you that. 
 
 Senator CuLLOii. Do they follow it up by their presence or by their 
 «ffort to secure witnesses or what, or do they do anything? 
 
 Mr. Bond. I presume that the law officer of the Government in 
 charge of the case consults them, and that they play about the same 
 part that the executive officers and traffic officers of a railroad would 
 play in relation to the law department of the railroad. 
 
22 TWELFTH DAY. 
 
 Senator Culloji. But apparently they have nothing to do with it 
 after the case is taken charge of by the United States attorney and 
 taken into court, have they? They have no active interest in the 
 matter? 
 
 ilr. Bond. I do not know that there is anything in the statute 
 about it. 
 
 Senator Cullo:\e. The evidence taken before them, as I understand 
 it, under the laAv, is sent forward to the court, is it not? 
 
 ]Mr. l)(ixD. Xo; their findings based on that evidence are prima 
 facie evidence. I do not see how anybody could ask more than that; 
 a man can not find the facts to support his opinions. "We would 
 regard that as quite an advantage in many cases. 
 
 Senator Cullom. Do you mean to say that they do not send for- 
 ward anything at all except the findings? 
 
 ]Mr. Bond. The findings and their order, as I understand it, are all 
 that go into court now. 
 
 Senator Cullom. What does their finding include? 
 
 j\Ir. Bond. Their findings include the facts on which they base their 
 order. They include their opinion and the facts on which it is based. 
 
 Senator CrLLOJi. AA'hich is based on the testimony before them? 
 
 JNIr. Bond. Yes, sir. 
 
 Senator Xewlands. I presume that testimony goes to the Attorney- 
 General, does it not? 
 
 M]-. Bond. I could not say. 
 
 Senator Xewlands. The case itself goes to the Attorney-General;- 
 he handles the case, does he not? The Commission itself has no- 
 direction of the case after it turns over its findings to the Attorney- 
 General ? 
 
 ]\Ir. Bond. Xo; I believe not. 
 
 Senator Xewlands. The Commission can not employ counsel and 
 prosecute the case itself? 
 
 ~Sh\ Bond. I think with the consent of the Attorney-General it can. 
 
 Senator Xe^\'lands. Xow, then, take a given district in which a 
 suit is brought. Is it brought there by the United States district 
 attorney, as a rule? Does he act as the counsel of record? 
 
 ;Mr. Bond. I think he appears perhaps alone originally, but gen- 
 erally, as I tmderstand it, with some assistant from the Attorney- 
 General's OlRce. 
 
 Senator Xewlands. "I'es; and as a rule does the Interstate Com- 
 merce Commission itself employ counsel ( You say that can be done 
 with the cou'^eut of the Attorney-Cieueral. As a rule, does it do it? 
 
 Senator Ci'llojl The Attorney-General does that. 
 
 ]Mr. Bond. I do not know. I ha^'e not familiarized myself with 
 that phase of the matter. 
 
 Senator XE-wr.ANi)s. There is one (jues'tion I would like to ask yon 
 in reference to injujietions. ITnder the suggestion as to the remedy 
 l)y injunction the Interstate Commerce' Conimissiou could not only 
 complain of a single rate in the bill filed, but could also complain 
 of all, could it not, and get judgment of the court upon all of them? 
 
 ]\Ir. Bond. As it stancls, yes. 
 
 Senator Xewlan'ds. Yes. So that if a railroad should make a 
 raise of ."> <ir ]0 or 15 jDer cent in all its rates, and the reasonable- 
 ness of that raise was questioned, inider the suggestion re<nu'dino" 
 
TWELFTH DAY. 23 
 
 an injunction the Intei-state Commerce Commission could go into 
 court and get the determination of the court upon all of those rates, 
 could it not ? 
 
 Mr. Bond. "Yes. 
 
 Senator Xewlands. That is pretty full. 
 
 ^Ir. Bo^-D. T think another thing accomjilished by relieving the 
 Commission of its judicial j^rocedure would be to give it the time 
 i and more of the disposition to enforce or secure the enforcement of 
 the Elkins Act against discriminations and prevent the secret cutting 
 of rates. T think Congress can fairly be charged "svifh the duty of 
 protecting a railroad carriei' that -wishes to obey the law. You have 
 absolutely 'tied that carrier's hands so that it can not protect itself; 
 it can not agree with its competitors about anything affecting com- 
 merce; it can not take any steps, practically, that will protect it 
 against any competitor that wants to cut the rate. The only pro- 
 tection it has is for the Interstate Commerce Commission to use the 
 procedure under the Elkins law and enjoin that competitor. Now, 
 it seems to me that the carriers of the country are entitled to ask 
 that the Commission be put in a por'tion to do that and be given 
 the disposition to do it, because it is tlie only thing in the world that 
 can prevent the demoralization that has existed in the past ; and if 
 it is once understood that that law will not be enforceil that demorali- 
 zation vS'ill recur again. 
 
 That is not the only place where the antitrust act affects the inter- 
 state-commerce law. I am not going to attemipt to go into this ques- 
 tion, but I just want to say this: The condition in which the rail- 
 roads — take the trunk lines, for example — find themselves to-day, of 
 not being able to agree about anything, not about pooling, but about 
 anything which, affects transportation or rates directly, piits all the 
 trunk lines in a position where they have got to take the interpreta- 
 tion of the law that is adopted by the carrier that adopts the most 
 lax interpretation of the law. Do I make myself clear ? If the law 
 department of any one of the trunk lines puts a construction on the 
 interstate-commerce act that is the most lax construction put on it by 
 any counsel for any one of the trunk lines, all the trunk lines have 
 got to adopt that construction, or, otherwise, they will have to go out 
 of business. 
 
 Senator Newlands. WhY do they have to go out of business? 
 How? 
 
 Mr. Bond. Why, because that means that the busniess will all go 
 Ijy that trunk line, unless something is done to stop it. We can not 
 agree ; we can not agree about the practical matters, and the lawyers 
 never can agree about the law ; so there you are. 
 
 Senator Cullom. In other words, the railroads have got to stand 
 together as a bodv? 
 
 Mr. Bond. We can not help it; we have got to stand together in the 
 interpretation of the interstate-commerce act as in everything else. 
 
 Senator Cullom. You will find an article by Judge Cooley referred 
 to in the report by myself, where he takes that ground strongly— 
 that the railroads have got to be controlled as a body by themselves. 
 
 Mr. Bond. I think the antitrust law, of course, ought to be entitled 
 "An act to encourage the organization of big corporations." 
 
 Senator Foeaker. As construed by the Supreme Court? 
 
 Mr Bond. As applied to railroads; its effect is distinctly to make 
 
24 TWELFTH DAY. 
 
 it advantageous to organize big corporations, and of course it has had 
 the effect of compelling the organization of big railroad corporations, 
 and organizations, too. But that process is one that can not be con- 
 tinued indefinitely. 
 
 Senator Newlands. Do you not think that process has been a bene- 
 cial one, so far? 
 
 Mr. Bond. Yes; I think it has. But I was only speaking of it 
 now as to its effect on the observance of the interstate-commerce act. 
 The only remedy we have now, unless we can get some modification 
 of the antitrust law, is to have the Interstate Commerce Commission 
 take such action in the courts as will get a speedy determination 
 of these disputed questions of the construction and application of 
 the interstate-commerce act; otherwise we would have to go along, 
 and, as I say, take the construction of the most lax companj^ 
 
 The Chairman. Do you not agree, and take the risk, too, every 
 day? 
 
 Mr. Bond. No ; we can not. 
 
 The Chairman. Do not the trunk lines agree about every daj' about 
 rates and other things? 
 
 Mr. Bond. Why, we have to agree, in a sense. I mean to say, we 
 have to come to an understanding as to Avhat each is going to do ; but 
 there is not any agreement. But suppose we undertook to agree as 
 to whether the railroad of one of these large industrial concerns was 
 a railroad in fact, or not — we would be simply threatened with prose- 
 cution, as we have been, under the antitrust act, and the prosecutor 
 would have a clear case ; it would be a violation of that act. 
 
 (At this point the committee took the usual noonday recess.) 
 
 AFTFR RECESS. 
 
 The Chairman. Mr. Bond, so far as you know, are there any gen- 
 eral complaints now against exorbitant or excessive rates charged 
 by the Baltimore and Ohio system ? 
 
 Mr. Bond. I know of none, and hare heard of none. I think the 
 situation on the Baltimore and Ohio system is the same as that of 
 other systems; certainly in the East — that the great necessity is to 
 obtain better^ facilities, especially in car supply, and that the rates 
 are comparatively insignificant. 
 
 The Chairjiax. The business of the country is increasing so rapidlv 
 that there is one estimate that in the next seven years the traffic of the 
 railroads will be doubled. The figures are eno"rmous. If that is to 
 be the case, or if it is even approximately true, will the railroads be 
 required to make large expenditures on their lines of road, on the 
 track, putting in other tracks, and providing equipment and facili- 
 ties to meet this increased business ? 
 
 Mr. Bond. It is my judgment that the railroads have hardly vet 
 made good the distance they had fallen behind between 1893 and 
 1900, and that the ability to meet all the growing needs of the country 
 is dependent both on the ability to borrow the money and the time to 
 spend it. ' ' 
 
 The Chairman. What is the estimate of what will be required by 
 the Baltimore and Ohio during the next ten ^ears to meet this in- 
 creased business? 
 
TWELFTH DAY. 25 
 
 Mr. Bond. I believe our engineers' plans call for an expenditure of 
 about $140,000,000. 
 
 The Chaiesian. And how are you going to get that money? 
 
 Mr. Bond. "We do not know. 
 
 The Chairman. You borrow from the public generally, do you not? 
 
 Mr. Bond. It would have to be obtained through the issue of bonds 
 or through the issue of stock. But without a basis of earnings we 
 can not borrow the money on either. 
 
 The Chairman. The power asked to be conferred upon the Inter- 
 state Commerce Commission (namely, the power to fix rates) would 
 be, in effect, the power to reduce a rate, would it not? The power 
 would always be exercised, because the railroad makes a rate that is 
 satisfactory to it, and if there is complaint made it would have to 
 ■come from the shipper that it is not satisfactory and that he wants 
 a lower rate. 
 
 Mr. Bond. Yes ; and further than that, experience with state com- 
 missions generally has been that the power was arljitrarily exercised. 
 
 The Chairman. And to reduce rates. A reduction of rates would 
 mean, generally and ordinarily, a reduction of expenses, would it not? 
 
 jMr. Bond. If you were going to make the two ends meet in this 
 way. 
 
 The Chairman. And that Avould affect wages, would it not? 
 
 Mr. Bond. Xecessarily. 
 
 The Chair^ian. That is one way of reducing expenses. 
 
 Mr. Bond. At one point, and not a very remote point, when it 
 comes to the question of wages. 
 
 The Chairman. Then the reduction of rates would affect likewise 
 the securities of a railroad, would it not? 
 
 Mr. Bond. If it proceeded far enough. But even if existing securi- 
 ties were protected, it would affect very speedily the ability of the 
 railroad to get additional capital on new stock and new bonds. 
 
 The Chairman. Might not that situation of state of facts affect 
 the power of the railroad to borrow money to put into these needed 
 improvements ? 
 
 Mr. Bond. I think any drastic power given to the Interstate Com- 
 merce Commisliion would unquestionably affect the power of the rail- 
 roads of the country to get monej' to make needed improvements to 
 carry the growing business. Personally, I believe it means a stop- 
 ping of the growth of this country. 
 
 The Cpiairman. And the discouragement of railroad building? 
 
 Mr. Bond. Through that, through depriving the railroads of the 
 ability to take care of the country; and that means that the country 
 must stop growing, because Avithout railroad facilities the country 
 can not grow. 
 
 Senator Clapp. I will ask you a few questions, perhaps more to 
 summarize your statement than otherwise. You have been somewhat 
 interrupted by the questions that have been put to you. 
 
 You have 'no doubt of the power of Congress to pass a law 
 requiring that rates shall be reasonable and authorizing a commis- 
 sion to ascertain what is a reasonable rate, have you? 
 
 Mr. Bond. No; not as a general proposition. 
 
 Senator Clapp. I call your attention to the commission cases, of 
 which you spoke vesterday, in which you suggested that certain opin- 
 ions were based upon the suggestion that the power given the State 
 
26 TWELFTH DAY. 
 
 commissions was a delegated power and subject to question, as I un- 
 derstood your analysis of the dissenting opinions in the so-called 
 railroad commission cases. 
 
 jMr. Bond. I do not know whether I expressed it just that way, 
 but I think it reaches the same thing. 
 
 Senator Clapp. I call your attention to the dissenting opinion of 
 Mr. Justice Harlan in which he discussed the question of how far 
 the com^janies were protected by their charters, and then he used this 
 language : 
 
 In expressing the foregoing views I would not be understood as denying the 
 Xjower of the State to establish a railroad commission, or to enforce regulations 
 (not inconsistent with the essential charter rights of the companies) in refer- 
 ence to the general conduct of their merely local business. 
 
 Senator Kean. "What are you reading from? 
 ■ Senator Clapp. The dissenting opinion of Mr. Justice Harlan in 
 the cdmmission cases (116 U. S., 307). 
 
 I also want to call attention to the dissenting opinion of Mr. 
 Justice Field in the same case. 
 
 I have no doubt that commissioners may, for many purposes, be appointed 
 by the legislature ; but I am not prepared to say that the direction and control 
 of the business of the company can, unless a cause of forfeiture or repeal of its 
 charter exists, be taken from it and confided to them, any more than its 
 business can be changed from transportation to manufacturing or banlving. 
 
 In other words, the suggestion that the power of the Commission 
 was a delegated power did not lead to or induce either of the dis- 
 senting judges to make their dissent. 
 
 Mr. Bond. I think you misunderstood me, Senator, if you thought 
 I gave that as the ground. 'Sly idea of the substance of both those 
 opinions wiis not, as they say, that the legislature can not use a com- 
 mission, but that that State act did not define with sufficient certainty 
 the law which the Commission was to follow. They said that the 
 Commission could, under that act, interfere in all sorts of ways with 
 the domestic affairs and the proper business management of those 
 corporations, and that was, I think, a statement that the law did not 
 sufficiently define the rig'hts; not that they based their idea on the 
 proposition that it was a delegation, but that the faili*'e to properly 
 restrict the commissions mider the acts establishing the commissions 
 was a failure to exercise the legislative power of regulation and of 
 amendment of the charters of those companies. I think you will find 
 that, as a general proposition, that gets back to the same thing — that 
 the leiiislature must lay doAvn the law when it establishes a commis- 
 sion; that is must establish the ruUvs of law. Tt must not leave it 
 open to the Commission to construe its own powers so as to make law. 
 
 Senator Clapp. 1 haA'e read those opinions again very carefully 
 since yesterday, and I think if you M'ill reread them you will find 
 that the dissenting opinions rest upon the jM-oposition that the legis- 
 lature could not invade the rights of the corporations; that those 
 rights were secured l)y their charters; and finally, after some twelve 
 years, in the case known as the Georgia Banking Company r. Smith 
 they finally declared that the difference of opinion which had run 
 through these Commission cases was based upon the fact that the 
 dissenting judges had held that the companies were protected by the 
 terms of their charters. Now, while the courts frequently use the 
 expression that the power to make rates is a legislative power, the fact 
 
TWELFTH DAY. 27 
 
 remains that the determining of what is an unreasonable rate or a 
 reasonable rate, as the case may be, is a judicial function, is it not? 
 Mr. Bond. I will not say that. 
 Senator Clapp. State it in your own words. 
 
 Mr. Bond. It is a question of fact : it is not necessarily a legislative 
 question. 
 
 Senator Clapp. The determination of a question of fact is prac- 
 tically a judicial function, is it not? 
 
 ]Mr. Bond. It depends on hoAV it is presented, how it comes up. 
 Senator Clapp, In the Maximum Rate Case the court referred to 
 the power of the Commission as a '' power to execute and enforce, not 
 to legislate; " as " partly judicial and partly executive and adminis- 
 trative, but not legislative." So that there is no question in your 
 mind whatever, is there, of the power of Congress, under our Consti- 
 tution, to provide that rates shall be reasonable on interstate traffic, 
 and to authorize a commission, or any other tribunal that it may 
 create or to whom it may refer the question, to determine the fact 
 whether a gi-^-en rate is unreasonable, and to determine the fact of 
 what rate is a reasonable rate ? 
 
 Mr. Bond. The fact of how far that rate must be changed to bring 
 it to the standard of reasonableness. 
 
 Senator Clapp. Exactly. Under existing law the Commission con- 
 demns a rate, and unless the rate is put in effect by the company and 
 
 action is brought before the court to enforce that rate 
 
 ]Mr. Bond. To enforce the prohibition ? 
 
 Senator Cl.vpp. Yes. There is no question in your mind of the 
 power of Congress to add to tliat law a provision to condemn that 
 rate and that the Commission may declare what would be a reason- 
 able rate? 
 
 Mr. Bo>;d. I think if you put in that language you get on danger- 
 ous ground. If by that you mean that the Commission may say how 
 far that rate must be changed to be brought to the standard of rea- 
 sonableness, A^es. 
 
 Senator Clapp. If the law declared that all rates should be reason- 
 able, and the rate was $1 and the Commission condemned it and said 
 that 80 cents Avould be a reasonable rate, that would be a legal exer- 
 cise of the power under the Constitution, would it not ? , v i 
 Mr. Bond. If by that finding they meant, and if they actually did 
 find, that the dollar rate was unreasonable by 10 cents, or that the 90- 
 cent rate was unreasonable by 10 cents, and therefore that it should 
 be brought to 80 cents— if that was the process of reasoning, if that is 
 what was done, if that is the thing that was accomplished under the 
 law, that was perfectly lawful, I think. , . -, -, xi 
 Senator. Clapp. Does the legality of the conclusion depend on the 
 
 process of reasoning ? , , ^ )) i • i i 
 
 ]\Ir Bond. If you use the words '• reasonable rate, which words 
 have two or three different senses, you get mixed up. I should think 
 you would avoid confusion if you were to picture in your mmd what 
 the Commission would have to determine as to what change would 
 have to be made in the existing rate in order to bring it to the gov- 
 ernment standard of reasonableness. It is not a discretionary de- 
 termination of anv reasonable rate. 
 
 Senator Clapp. ^ Is it any more discretionary, or any more the exer- 
 cise of discretion in terms, to say that the Commission could find that 
 
28 - TWELFTH DAY. 
 
 the dollar rate was unreasonable and that reducing it to 80 cents 
 would be a rea-(jnable reduction, than it would be to say that 80 
 cents would be a reasonable rate? Does it not involve a discretion 
 just as much in saying how much the given rate shall be reduced as 
 in saying in the initiative what is a reasonable rate? Is there any 
 less discretion in the one instance than in the other? 
 
 Mr. Bond. Yes ; I think there is. 
 
 Senator Clapp. I would like to have 3'ou explain it. 
 
 Mr. Bond. I do not mean to say that there ought to be, but I think 
 as a practical proposition in the one case 
 
 Senator Clapp. I am speaking of the legal exercise of the discre- 
 tion now. 
 
 Mr. Bond. I say in the one case you are controlled by the legisla- 
 tive standard, and the question is the variation from that standard. 
 In the other case the tendency has been by all these bodies to assume 
 that they are vested with a discretionary power to decide as to a 
 question of policy, how rates should be adjusted. I say there may be 
 an implication in the language, when you say that they shall decide 
 what' is a reasonable rate, that you vest them with discretion to 
 exercise a judgment as to the policy of how rates ought to be adjusted. 
 
 Senator Clapp. Would not every element that entered into the 
 reasons for reducing the rate or oiDerated as a limitation upon the 
 reduction of a rate apply with equal force where the Commission 
 should say, " We condemn the dollar rate and declare that to go above 
 80 cents is beyond a reasonable rate," as it would where they say that 
 80 cents is a reasonable rate"? 
 
 Mr. Bond. If the Commission were obeying the law 
 
 Senator Clapp. Would not every element have to be taken into 
 account as in the other case? 
 
 Mr. Bond. Legally, yes; but practically, that is the question. You 
 can not prove what they have done. 
 
 Senator Clapp. I am not discussing the practical effect. 
 
 Mr. Bond. I am only pointing out a practical distinction, not a 
 legal distinction. Legally, the same process ought to be gone through 
 in either case, and it is the theory of the law that it is gone through 
 in either case. ^^Tiere the Commission is established the theory of the 
 law is that thej' do the same thing, no matter which way you 
 express it. 
 
 Sena;tor Clapp. I tried very hard so to frame my question as to 
 suggest the legality or illegality of it under the Constitution. I am 
 speaking of conferring powers under the Constitution. 
 
 Mr. Bond. I think the legal effect ought to be the same in either 
 case. The only question is under the Federal Constitution whether, 
 it being notorious that that form of granting a power has been con- 
 fused, has been held by other commissions to authorize them to exer- 
 cise judgment about questions of public policy — whether Congress 
 should not have made a more accurate definition in dealing with this 
 subject. That is the only question. 
 
 Senator Clapp. How would a question of public policy cut any 
 more figure, under a law which in terms authorized a Commission to 
 fix a reasonable rate under conditions where a court would sustain 
 80 cents as a reasonable rate, than it would under a law which author- 
 ized the Commission to determine how much reduction should be 
 
TWELFTH DAY. 29 
 
 made in a dollar rate under conditions that would warrant them in 
 reducing it to 80 cents ? 
 
 Mr. Bond. As a legal proposition, or as a practical proposition? 
 
 Senator Clapp. As a legal proposition. That is what we are dis- 
 cussing. 
 
 ]Mr. Bond. I say, as a legal proposition, there would be the ques- 
 tion whether the form of language was suiFicienth' definite as to the 
 powers of the Commission, or whether it was intended to vest in 
 them a discretionary power to adopt rates based on ideas of public 
 policy such as Congress itself might adopt. 
 
 Senator Clapp. Then you concede that Congress could pass a law 
 prohibiting unreasonable rates and enjoining reasonable rates, and 
 could clothe the Commission with authorit}"- to condemn an existing 
 rate as unreasonable, and saj^ how much reduction should be made 
 from that rate ? 
 
 Mr. Bond. Yes. 
 
 Senator Ci-app. And that it is questionable whether the law should 
 authorize, in terms, the Commission to ascertain what was a reason- 
 able rate? 
 
 Mr. Bond. I think there would be danger in that form of grant of 
 power, because it is a question whether it would not be open to miscon- 
 struction. 
 
 Senator Clapp. I am speaking of the legality. You think there is 
 that difference? 
 
 Mr. Bond. I think they ought to have the same meaning, but the 
 court might say that they did not have the same meaning, and that 
 they ought to be more accurately defined. 
 
 Senator Clapp. Y^'ou would question the language ? 
 
 Mr. Bond. I would question the language. It is a question whether 
 you use that word " reasonable " Avith sufficient definiteness. 
 
 Senator Clapp. All the practical consequences which would flow 
 from the reduction of a rate from $1 to 80 cents under the one 
 process would flow from a similar reduction under the other, would 
 they not? 
 
 Mr. Bond. All the practical results; yes. 
 
 Senator Clapp. Under the existing law the Commission may con- 
 demn the dollar rate and suggest 80 cents, and the carrier may comply 
 with that suggestion, or, in obedience to the order, put m a 90-cent 
 rate, subject to renewed challenge on the part of the Commission? 
 
 Mr. Bond. That is the existing law. , 
 
 Senator Clapp. That is the existing law, and if the earner thought 
 that a renewed challenge would result in ajiother reduction the car- 
 rier would make the reduction in the first instance, of course ? 
 
 Mr. Bond. Yes. ■ i x 
 
 Senator Clapp. Noav, all the consequences of a practical nature 
 that would flow from a reduction so made would equally flow from a 
 reduction made bv giving the Commission power, if we could, to de- 
 clare what the reduced rate should be— the diminution of revenues, 
 the interference with the correlation of rates ; all the incidents would 
 flow in the one case as in the other? 
 
 Mr. Bond. I presume so. 
 
 Senator Clapp. You have no doubt of the power of Congress to pro- 
 vide by law that the Commission could bring an action upon an exist- 
 
30 TWELFTH DAY. 
 
 ing schedule on the ground that the rates were unreasonable and in 
 that action get a decision of the court as to what, under existing con- 
 ditiouK. ^Yas a reasonable rate? 
 
 Mr. BoxD. Under existing conditions ; yes. 
 
 Senator Clapp. Yon have no doubt, then, that a law could be so 
 framed that, upon the determination of that by the court, that should 
 then operate as a continuing rule until modified by some means pro- 
 vided by law ? 
 
 Mr. Bond. I think it would have to be limited to the continuance 
 of the conditions as a matter to be proved in the case. 
 
 Senator Clapp. P^xactly. 
 
 Mr. Bond. Of course it would be res adjudicata only as to what 
 was there; it could not be res adjudicata as to everything that might 
 happen. It is not like a question of title. 
 
 Senator Clapp. I will restate the question. You have no doubt, 
 then, in such case that the law might be so framed that such a decision 
 would continue as the rule of the reasonableness of that rate, subject 
 to be modified either by changed conditions brought to the attention 
 of the court or to a modification assumed by the carrier and based 
 upon the claim of changed conditions, and subject again to review by 
 the court ? 
 
 Mr. Bond. I have no doubt. 
 
 Senator Clapp. What is your relation to the Baltimore and Ohio 
 Bailroad Company? 
 
 Mr. Bond. 1 have been connected -^^ith the laAv department of that 
 company since 1882. I have been the general attorney since 1895, 
 and have been second vice-president since 1902, 1 think. 
 
 Senator Clapp. Your relation as second vice-president brings you 
 knowledge of the affairs of the railroad, I assume, outside of the dis- 
 tinctively legal department. 
 
 Mr. Bond. To some extent. 
 
 Senator Clapp. The building of \^hat might be called " trunk lines " 
 has somewhat ceased, has it not ? 
 
 Mr. Bond. Somewhat. 
 
 Senator Clapp. From the very nature of things, especially in the 
 East, there will probably be few, if any, more trunk lines constructed 
 in the near future? 
 
 Mr. Bond. It is getting increasingly difficult to get into the cities 
 and centers of population and manufacturing centers. 
 
 Senator Clapp. So that the development hereafter of railroad fa- 
 cilities, particularly in the East, will be limited largely to the con- 
 struction of branch and lateral lines, ^vill it not? 
 
 Mr. Bond. To that and to the duplication of the main tracks. 
 
 Senator Clapp. I mean in the extension of facilities, not increased 
 facilities. 
 
 Mr. Bond. Extension of facilities ; yes. 
 
 Senator Clapp. I should have used that word. So that it is im- 
 portant, so far as possible, to maintain a condition that will lead to 
 the development of branch and lateral lines, is it not? 
 
 Mr. Bond. Well, I do not exactly catch your meaning. Branch 
 and lateral lines are usually for the purpose of getting additional 
 traffic. The crying, need now of trunk lines is to handle all the 
 tralRc they have. But, of course, it is always important to a trunk 
 line to get more traffic, or to have it in sight at any rate. 
 
TWELFTH DAY. 31 
 
 _ Senator Clapp. I am not speaking so much with reference to what 
 IS desirable from the standpoint of the carrier as from the standpoint 
 o± the general development of industrial and commercial conditions. 
 in view ot the fact that it is becoming harder and harder to get trunk 
 lines built, the necessity for branch and lateral hnes increa-^e^ does 
 it not, with the extension of railroad facilities ? 
 
 Mr. Bono. Possibly you are right. I did not quite catch your 
 meaning. ■' 
 
 Senator Clapp. Do you know what the usual arrangement is be- 
 tween trunk lines alid branch and lateral lines as to the division of 
 rates ? 
 
 Mr. Bond. Wherever we can do it we make them divide or pro- 
 rate. 
 
 Senator Clapp. So you knoAv -what the basis is ? 
 
 Mr. Bond. That is a mxileage prorate. 
 
 Senator Clapp. Does that obtain in all cases? 
 
 Mr. Bond. Xo, Senator; it does not. 
 
 Senator Kkax. I imagine in vei-y few. 
 
 Senator Clapp. That "is what I thought. 
 
 Mr. Bond; That is an ideal condition. 
 
 Senator Clapp. That is an ideal condition from the standpoint of 
 the trunk lines. Are you familiar enough Avith the subject to ex- 
 press a view as to what would be an ideal condition from the stand- 
 point of the branch or lateral lines ? 
 
 Mr. BoxD. An arbitrary ; at least, that is their general opinion. 
 
 Senator Clapp. Do you recognize that in your relation to the 
 branch and lateral lines ? 
 
 Mr. Bond. We do not. I do not think any road does Avhen it can 
 help it, or Avhere there is not some special reason. By that I do not 
 mean that thej' do not add to a prorate an agreement for some mini- 
 mum to the branch line, because I think that is not uncommon — a 
 minimum which would be a switching charge. In case the rate got 
 so excessively thin as not to pay even a switching charge to the branch 
 line, then I think there would be an arbitrary minimum, which would 
 be equivalent to the switching charge. 
 
 Senator Clapp. Do you recognize constructive mileage in relation 
 to branch and lateral lines ? 
 
 Mr. Bond. At times. That is one way to give them an arbitrary. 
 
 Senator Clapp. Have you any recognized or general standard that 
 you adopt in providing for constructive mileage ? 
 
 Mr. Bond. No, sir ; that is standard, so far as I have knowledge. 
 
 Senator Clapp. Or general ? 
 
 Senator Clapp. Do you know whether there are complaints as to 
 not allowing a fair proportion to the branch and lateral lines ? 
 
 Mr. Bond. I do not think of any complaints exactly of that kind. 
 
 Senator Clapp. What are they ? 
 
 Mr. Bond. The complaints are rather that we will not agree to 
 enter into arrangements with people who want to build lateral lines 
 that we think need not or should not be built, and then they want to 
 come in on some sort of arbitrary arrangement. 
 
 Senator Clapp. Upon what ground do you base your judgment 
 that branch or lateral lines ought not to be built? If men are ready 
 to build them it would cost you nothing to have them built, but, of 
 course, they take the chances. 
 
32 TWELFTH DAY. 
 
 Mr. Bond. It costs us a great deal if we agree to handle their busi- 
 ness. It means an additional switching point; it means an additional 
 point where we have got to deliver equipment. Of course, we never 
 do refuse to take their traffic and handle the traffic to their line, nor 
 do we refuse to give them a physical connection. But what they 
 want is tliat we should make a prorate arrangement with them of 
 some kind, generally asking that we allow them an arbitrary; and 
 then, in addition to that, that we should give them a supply of cars 
 from our car supply. That is the way the proposition comes up, not 
 as a mere -connecting arrangement ; that we never refuse. 
 
 Senator Clapp. Under existing conditions cars are charged on the 
 per diem basis all over the country, are they not? 
 
 Mr. Bond. Attempted to be. 
 
 Senator Clapp. Except the private car lines. '\Vhere you have 
 branch and lateral lines, you give them cars upon the per diem basis, 
 the same as if some trunk line should be using your cars ? 
 
 Mr. Bond. Well, that is not the question. The question is whether 
 you have cars enough for the traffic on your own lines. And, as con- 
 ditions have been since 1901, no trunk line has had a sufficient number 
 of cars to supply its own customers located on its own line. That is 
 the objection. There is no general and permanent objection to hav- 
 ing a connection, but under pressure of traffic and lack of cars we can 
 not afford to do it. 
 
 Senator Clapp. AVhat does this lack of cars arise from? The con- 
 ditions to-day are very favorable for obtaining funds for the pur- 
 chase of cars and equipment, are they not? 
 
 Mr. Bond. They are ; but the conditions are very unfavorable for 
 getting cars, getting deliveries. 
 
 Senator Clapp. Getting them constructed as fast as they are 
 needed ? 
 
 Mr. Bond. Yes. 
 
 Senator Clapp. That has been the case since the revival of 1900, 
 say? 
 
 Mr. Bond. Xo, not continuously ; but most of the roads made very 
 large orders for cars, the delivery of which ran over several years, 
 certainly into 1903, and they had hoped that those cars were going to 
 be enough. Then there was a slackening of business, and it loolred 
 as though the cars were going to be a drug. But suddenly business 
 picked up again and cars became scarce. It is the difficulty of gaug- 
 ing until you get your equipment, of telling how much you want. Of 
 course you put in an order one year and you may not get deliveries 
 on that for a year ; they certainly will not be completed until into 
 the next year. 
 
 Senator Clapp. Ought not the trunk lines to be required, upon a 
 fair and reasonable basis, to recognize branch and lateral lines ? 
 
 Mr. Bond. And furnish equipment for them ? 
 
 Senator Clapp. Indifferently ; as you furnish equipment generally. 
 No, I would not say to proceed upon the theory that the branch line 
 should contemplate ownmg no cars at all, but just as you connect with 
 other lines. You use cars indiscriminately to-day upon a per diem 
 basis. Ought not the trunk lines to be required — especially in view 
 of the fact that existing conditions tend to discourage the building- 
 of trunk lines and that industries developed away from a railroad 
 
TWELFTH DAY. 33 
 
 can now only be obtained by constructing a branch or lateral line — 
 to treat such branch and lateral lines fairly and reasonably, and to 
 allow them the same latitude that is allowed now to other companies 
 . originating freight ? 
 
 Mr. Bond. I doubt, Senator, whether you could constitutionally 
 fix the terms of operating contracts between these companies. I think 
 the general interests of the trunk lines to get the traffic will induce 
 them to take it from branch lines when they can do it and furnish 
 the cars. But I do not see how you can make any rule of law that 
 will govern the case. We do not discriminate between them, of 
 course. 
 
 . Senator Clapp. Would not the law regulate the division of freight 
 rates over connecting lines ? 
 
 Mr. Bond. I do not think it could in a case of that kind. 
 
 Senator Clapp. " In a case of that kind." I am not speaking of " a 
 case of that kind;" I am speaking of the legal principle. 
 
 Mr. Bond. It has been decided that where two connecting carriers 
 enter into a prorate arrangement and make a through rate, that 
 through rate is subject to regulation, and incidentally to that regula- 
 tion the division of it may be prescribed in a way. But that is a 
 different proposition from yours, which is that these companies shall 
 enter into a prorating arrangement and exchange traffic on a par- 
 ticular basis. I do not think that Congress or any other legislative 
 body has a right to make such a contract. 
 
 Senator Clapp. No. Nobody even suggests that they could be 
 compelled to make such a contract. 
 
 Mr. Bond. That is the whole case. They want such a contract. 
 
 Senator Clapp. The question was whether the matter could not be 
 the subject of Congressional regulation — ^whether the rights or re- 
 quirements of the branch or lateral lines, that they should have fair 
 and reasonable treatment, could not be the subject of Congressional 
 legislation. 
 
 Mr. Bond. I do not see how you would make your legislation ef- 
 fective. Suppose you provide in an act that a branch line should 
 have fair and reasonable treatment; how would you make that act 
 enforceable. If you tried to clothe the Interstate Commerce Com- 
 mission with discretion to say what would be fair and reasonable 
 treatment, you would certainly be clothing that Commission with 
 legislative power. You have got to define it more accurately than 
 that. 
 
 Senator Clapp. Of course, you have to define it more accurately. 
 
 Mr. Bond. I do not say, Senator, that an act could not be drawn to 
 do almost anything, but I do not see at present how it could be in that 
 case. 
 
 Senator Clapp I am dealing with the legal principle whether it 
 would not be within the power of Congress to legislate legally upon 
 this subject of the relation of branch and lateral lines to the main 
 ]in&— whether that is not the subject of Congressional legislation. 
 That is the question I am asking. 
 
 Mr. Bond. The matter does not define itself with sufficient accuracy, 
 in my mind. In the first place, I do not know what the expression 
 " lateral lines " would cover. It is a distinction which, to my mind, 
 
 12 D— 05 M 3 
 
34 TWELFTH DAY. 
 
 is not distinct, and I could not say whether it could be made suffi- 
 ciently distinct to be the subject of legislation. Of course, it would 
 have to be defined somehow. 
 
 Senator Clapp. If it was defined as a connecting line, that would 
 bring it in contact with the other line. It strikes me, whether you 
 call it a branch or a lateral line would not be very important as long 
 as it was a connecting line. The question is as to the legal principle, 
 whether it would be the proper subject of Federal legislation as it 
 related to interstate traffic. 
 
 Mr. Bond. We have a provision now in the third section of the 
 law. I do not know how far you could go beyond that. I do not 
 thing that has gone anywhere, so far as I know. You can not force 4 
 physical connection. You can not force a contract relation. 
 
 Senator Clapp. No; you can not force a contract relation. 
 
 The Chaihman. The law already provides for a physical connec- 
 tion. 
 
 Mr. Bond. It provides that there shall not be breakage of bulk or 
 anything to break movement. It has not undertaken to go further 
 than that, and I do not know how it could. 
 
 The Chaieman. Your company has recently made a contract for 
 how many cars and engines in order to meet increased business ? 
 
 Mr. Bond. Two hundred and fifty locomotives and, say, 10,000 
 cars; I can not remember whether it is 10,000 or 11,000 cars. 
 
 The Chairman. Where the connecting line originates freight and 
 brings it to your system anywhere, does not your company make some 
 suitable provision in the way of an allowance to the connecting line 
 originating that freight? 
 
 Mr. Bond. We make arrangements, Senator, but sometimes it is a 
 question whether they are suitable or not. They are a little hard to 
 suit as between the parties. 
 
 The Chairman. You and I have had some experience in regard to 
 that. 
 
 Mr. Bond. I thought you hardly asked the question for your own 
 information. 
 
 The Chairman. I wanted to bring it out in that way. 
 
 Senator Newlands. How many miles of road has your system? 
 
 Mr. Bond. I believe the entire system on June 30, 1904, was 4,432.35 
 miles. 
 
 Senator Newlands. Under the laws of what State is your company 
 incorporated ? 
 
 Mr. Bond. The State of Maryland. 
 
 Senator Newlands. In how many States does it operate? And 
 name them, please. 
 
 Mr. Bond. Pennsylvania, Delaware, Maryland, District of Colum- 
 bia, Virginia, West Virginia, Ohio, Indiana, and Illinois. 
 
 Senator Newlands. About ten States. 
 
 Mr. Bond. I did not count them. 
 
 Senator Kean. Also New Jersey and New York. 
 
 Mr. Bond. Those are corporations belonging to the system, but I 
 could hardly say that the Baltimore and Ohio itself was operating 
 there. 
 
 Senator Newlands. In these various States to which you have 
 alluded, does the Baltimore and Ohio — the Maryland corporation — 
 
TWELFTH DAT. 35 
 
 own the track or does it lease the track, or how does it control its 
 trackage ? 
 
 Mr. Bond. In jNIaryland and West Virginia it owns the main line, 
 and holds other tracks under lease, and still other tracks through 
 operating contracts with companies in which it owns all the stock. 
 In Ohio and the other States, while there are some leases, they are 
 practically held under operating contracts with companies, the stock 
 of which the Baltimore and Ohio owns. The distinction I make 
 between an operating contract and a lease is that under these operat- 
 ing contracts there is no semblance of vesting title; they are not even 
 quite operating leases. 
 
 Senator Newlands. Ajid this trackage that you refer to as operated 
 in this way under lease and under operating companies, whose stock 
 your railroad controls, is a part of this 4,000 miles of track that you 
 refer to? 
 
 Mr. Bond. That also includes 455.74 miles of track operated by 
 independent companies, the majority of whose stock is owned by the 
 Baltimore and Ohio Railroad Company. They are included in the 
 system, but they are separately operated. 
 
 Senator Newlands. Can you state approximately how many dif- 
 ferent railroads have been consolidated under one management in 
 this way? 
 
 Mr. Bond. I can hardly tell you how many actual railroad com- 
 panies. There are about 200 companies altogether, but many of 
 those are onlj^ prospective lines. 
 
 Senator Newlands. Prospective ? 
 
 Mr. Bond. Charters for lines that have ne\'er been built. 
 
 Senator Newlands. A-s to all these States in which your railroad 
 operates, except the State of Maryland, your company is a foreign 
 corporation, is it not ? 
 
 Mr. Bond. It is. 
 
 Senator Newlands. And you operate in these various States 
 through the comity of those States ? 
 
 Mr. Bond. Yes. 
 
 Senator Newlands. Would it work greater convenience and sim- 
 plicity of operation if originally you had been able to organize the 
 Baltimore and Ohio system under a national charter, all other things 
 being equal ? 
 
 Mr. Bond. Of course the Baltimore and Ohio system, like all these 
 systems, is a growth. It might have simplified the situation in the 
 beginning to have been able to use a single charter. 
 
 Senator Newlands. Do you not think it more logical, inasmuch as 
 more than three-fourths of the business of your entire system, I 
 believe, i? interstate, to organize a corporation that would control tlus 
 entire system under the charter of a sovereignty that is as broad as 
 interstate commerce itself ? 
 
 Mr. Bon;d. I thinii a railroad is just as much a part of the com. 
 munity in which it does business as a bank. I think anything that 
 accentuates this personification -of the railroaid on the one side and the 
 public on the other is giving additional currency to a fallacy. Take 
 the Baltimore and OhiO- Eailroad. It was built with the aid of the 
 city of Baltimore and the State of Maryland. Until the seventies the 
 city and the State appointed a majority of the directors of the Balti- 
 
36 TWELFTH DAY; 
 
 more and Ohio Railroad Company. Until 1890 the city and State ap- 
 pointed 11 directors to the stockholders' 12; ai>d.;it was a State insti- 
 tution, in a way. It was gotten up by the merchants of Baltimore, 
 acting individually and through the city government, to endeavor to 
 preserve the interests of Baltimore in relation to the other coast cities 
 with respect to the western trade, trade with Ohio and across the 
 Ohio River, with West Virginia, and with Peiinsylvania — with old 
 Virginia it was then, of course. That is the way it grew. It was 
 part of that community, and it is yet. 
 
 In the case of these other lines we try to givelthem a local hold in 
 the communities where they are doing businesjs; not to take away 
 everything and concentrate it. It is important, we think, to keep in 
 touch with the localities. 
 
 Senator Newlands. And yet, as a matter of fact, it is. a Maryland 
 corporation that is operating this trackage in nine or ten other States, 
 is it not ? , 
 
 Mr. Bond. Yes ; but the people of those States do not know, from 
 anything that they see or anything that affects them, whether it is a 
 Maryland corporation or what it is. We try to keep them in touch 
 with our local organizations, and the only thing that grows out of 
 their being operated by the Maryland corporation is that they have 
 the use of that Maryland corporation's enormous equipment, which 
 the old local lines did not have. 
 
 Senator Newlands. Regarding the systems of taxation in these 
 various States, are they all the same ? 
 
 Mr. Bond. I think each is different. 
 
 Senator Newlands. In any of them does the system of percentage 
 tax upon gross receipts prevail ? 
 
 Mr. Bond. In Maryland. 
 
 Senator Newlands. What is that tax there ? 
 
 Mr. Bond. It is a graded tax, on the basis of earnings per mile. 
 Of course, in the case of the Baltimore and Ohio Railroad it is fixed 
 by contract at one-half per cent of the gross receipts in the State. 
 That was to that extent a modification of an original complete 
 exemption of the Baltimore and Ohio. 
 
 Senator Newlands. And in the case of the other roads in the State, 
 is it a percentage tax ? 
 
 Mr. Bond. It is a percentage tax, and it is graded on the earnings 
 per mile. 
 
 Senator Newlands. In the other States is the tax based upon the 
 values of the property ? 
 
 Mr. Bond. They are sometimes. The gros^-earnings tax is added 
 sometimes, and in other States you have to paiy on the property, too. 
 In Maryland, of course, the gross-receipts tax is only in lieu of State 
 taxes, not in lieu of local taxes. 
 
 Senator Newlands. Viewing your taxation as a whole, do you 
 regard these various systems of taxation as complex or simple in 
 their operation ? 
 
 Mr. Bond. Why, there is ho such thing as simple taxation that I 
 know of. 
 
 Senator Newlands. Then you would not regard a fixed tax upon 
 the gross receipts, in lieu of all other taxation, as a simple tax? 
 
 Mr. Bond. Well, it is simple in one way. 
 
TWELFTH DAY. S7 
 
 Senator Newlandb. It is easily ascertained, is it not ? 
 Mr. Bond. Yes. 
 
 Senator Newlands. And mathematically ascertained ? It does not 
 require the judgment or the discretion of anybody or the valuation of 
 anybody. The gross receipts are known and the percentage is known ; 
 and to ascertain a percentage tax requires a mere mathematical com- 
 putation, does it not ? 
 
 Mr. Bond. Yes. However, I think there are objections to it. One 
 objection, from the public standpoint, not from the railroad stand- 
 point, is that your income varies ; another is that you never can sat- 
 isfy the man whose property is taxed on the ad valorem basis that the 
 rate per cent is fair. Also, it is an inducement to extravagance on 
 the part of the State governments, because if they spend more than 
 their income all they have to do is to increase the percentage tax on 
 the railroads and get more to spend. 
 
 Senator Newlands. You have known of cases of that kind, have 
 you? 
 
 Mr. Bond. I think that is the daily experience in every State. 
 They spend their income and then they go and find some more. 
 
 Senator Newlands. I mean to say Where they fixed a percentage 
 tax? 
 
 Mr. Bond. Yes; I think that was the i'esult in Ohio. 
 
 Senator Neavlands. Regarding the capitalization of your road, 
 what is your capitalization in bonds and stock? 
 
 Mr. Bond. We have $184,244,811.81 in stock; $227,262,530 in 
 
 funded debt of the Baltimore and" Ohio Company ; $11,271,945.17 
 
 * Senator Newlands. Just give them in round numbers, please. 
 
 Mr. Bond (continuing). Of assumed debts of subsidiary lines and 
 such things, the capital liabilities, including stock and debts, mak- 
 ing a total of $422,779,286 as of June 30, 1904. 
 
 Senator NE^VLANDS. Can you give me the gross receipts of your 
 line during the past year ? 
 
 Mr. Bond. For the vear ending June 30, 1904, the gross receipts 
 ' were $65,071,080. 
 
 Senator NEw^,ANDS. And what taxes were paid by your road dur- 
 ing that time ? 
 
 Mr. Bond. I will find it presently. 
 ' Senator Neaaxands. I will not take your time now to do it. If 
 you will kindly just put in the record a statement of your gross re- 
 ceipts, vour operating expenses, your taxes, the interest upon your 
 debt, the net earnings, and your expenditures in the way of divi- 
 dends, I think that is all that I will ask, Mr. Bond. 
 
 Mr. Bond. Very weU, sir. ■, ■ ■. ^ 
 
 Senator Clapp. I would like to ask if you know anything about 
 the private car line business ? ^ -, i ^ 
 
 Mr. Bond. Very little. Our road does not have a great deal ol 
 
 fruit business. . j. ■ . 
 
 Senator Clapp. Do you operate, in the main, your own refrigerator 
 
 C3.rs ^ ^ 
 
 Mr. Bond. For dairy products and such business as that, but not 
 for California fruits and things of that kind. 
 
 Senator Cl.4.pp. Do you know the rate which your company allows 
 the private car owner ? You use more or less private cars, of course, 
 on vour line, do you not ? 
 
38 TWELFTH DAY. 
 
 Mr. Bond. Yes. 
 
 Senator Clapp. Do you know what rate you have allowed them ? 
 
 Mr. Bond. 1 had better not try to answer that, I think. The rate, 
 of course, is 6 mills, as a rule; but in the case of refrigerator cars 
 and cars requiring special expense and use that rate is varied. I 
 think it is three-quarters in the case of most of the refrigerator cars. 
 My testimony as to that would not have any very general interest; 
 
 Senator Clapp. Then I will not press it with youj 
 
 Mr. Bond. Because all our arrangements are either made with the 
 owner of the cars, who uses them simply for his own traffic, like 
 the brewers or the packers, or for this through business. 
 
 Senator Clapp. That does not come particularly under your juris- 
 diction ? 
 
 Mr. Bond. No. In this through business our arrangements are all 
 made with cars owned by connecting railroads. 
 
 Senator Clapp. I do not care to pursue the inquiry further unless 
 it is thoroughly within your own knowledge. 
 
 Senator Newlands. Do you have any preferred stock in your cor- 
 poration ? 
 
 Mr. Bond. Yes ; part of that I mentioned is preferred. 
 
 Senator Newlands. About how much ? 
 
 Mr. Bond. Approximately sixty millions of the stock is preferred. 
 
 Senator Newlands. And the total issue is how much? 
 
 Mr. Bond. One hundred and eighty- four millions. 
 
 Senator Newlands. And what does the preferred stock pay ? 
 
 Mr. Bond. Four per cent. 
 
 Senator Newlands. And what does the common stock pay ? 
 
 Mr. Bond. It has paid 4 per cent. 
 
 Senator Newlands. Both pay 4 per cent? 
 
 Mr. Bond. Yes. 
 
 Senator Neavlands. What is the present quotation of the preferred 
 stock in the market ? 
 
 Mr. Bond. It varies very much. The preferred has stood between 
 90 and 95. 
 
 Senator Mewlands. And the common stock? 
 
 Mr. Bond. It varies a great deal. 
 
 Senator Neavlands. What is the quotation of the common stock 
 to-day, approximately? 
 
 Mr. Bund. I do not know. 
 
 Senator Newlands. I observe in the report of the Industrial Com- 
 mission that in the government of the railways the Baltimore and 
 Ohio, system is put down as a part of the Pennsylvania group, the 
 entire group aggregating about 18,000 miles; what does that mean? 
 
 Mr. Bond. It means that that was the idea of the gentleman that 
 made the group. 
 
 Senator Newlands. Of the man that drew up the report? 
 
 Mr. BoND^ Yes. 
 
 Senator Newlands. As a matter of fact, is there any relation be- 
 tween the Baltimore and Ohio and the Pennsylvania Railroad? 
 
 Mr. Bond. Yes; the Pennsylvania Eailroad is our largest stock- 
 holder. 
 
 Senator Newlands. Does it own a majority of your stock? 
 
 Mr. Bond. It does not. 
 
 Senator Newlands. I'he Pennsylvania Railroad is authorized by 
 
TWELFTH DAT. 39 
 
 the laws of Pennsylvania, I presume, to hold stock in the corporations 
 organized in the other States ; is that it ? 
 
 Mr. Bo2«^D. I can not tell you how the stock is held. 
 
 Senator Xewl.vnds. Is that what they call conununity of interest? 
 
 Mr. Bond. That is one basis for community of interest. 
 
 Senator Newlands. In this group, as given in the report of the 
 Industrial Commission, it is stated that the Pennsylvania system has 
 about 10,000 miles and the Buffalo, Rochester and Pittsburg 650. 
 
 Senator Kean. That does not belong to the Pennsylvania road, and 
 I do not believe they own a share of stock in it. 
 
 Mr. Bond. Xot a share. 
 
 Senator Ivean. I am pretty sure they do not. 
 
 Senator Newlands. The Western New York and Pennsylvania, 633 
 miles ; is that included ? 
 
 Mr. Bond. I could not saj^ 
 
 Senator Newlands. The Chesapeake and Ohio, 1,476 miles ; is that 
 included ? 
 
 Mr. Bond. I could not say. 
 
 Senator Newlands. The Norfolk and Western, 1,671 miles ; is that 
 included ? 
 
 Mr. Bond. It is included in ordinary speech. Of course, I have 
 no personal knowledge. 
 
 Senator Newlands. Oh ! Well, can you state what the nature of 
 the relationship is between these various lines that constitute the so- 
 called " Pennsylvania group," aggregating, according to the state- 
 ment of the Industrial Commission, about 18,000 miles? 
 
 Mr. Bond. Active competition. 
 
 Senator Newlands. But, I mean to say, what is the relation be- 
 tween them as to community of interest or community of ownership 
 or community of control ? 
 
 Mr. Bond. Well, I do not know the exact stock ownership relations, 
 but I know the Pennsylvania Railroad and companies allied with it 
 are large stockholders in the Baltimore and Ohio Railroad, while not 
 owning a majority of the stock or nearly a majority. 
 
 Senator Newi,ands. Do you regard this tendency toward the con- 
 solidation of railroads in this country as a wise one, viewed from the 
 standpoint of the public interests ? 
 
 Mr. Bond. Yes ; I think it has done good so far. 
 
 Senator Newlands. Do you think that consolidation is likely to go 
 on to a still further extent in the future ? 
 
 Mr. Bond. I think not. 
 
 Senator Newlands. You think it has about reached its limit ? 
 
 Mr. Bond. I think it is controlled by natural groupings to a cer- 
 tain extent and that it could hardly be carried beyond the natural 
 groups. 
 
 Senator Newlands. And you think that the consolidation within 
 these groups really tends toward simplicity and economy of operation 
 and to the benefit of the public, do you ? 
 
 Mr. Bond. It has. It has given stability to the railroad business 
 and to railroad investments without, as a matter of fact, limiting or 
 decreasing active competition except secret cutting of rates. 
 
 Senator Newlands. It does accomplish the elimination of that? 
 
 Mr. Bond. The competition has been the competition of service and 
 facilities, and that is as active as it ever was, but it has lent a stability 
 
40 TWELFTH DAY. 
 
 and a respectability, I might say, to the railroad business by getting 
 rid of the utter demoralization that existed before. 
 
 Senator Newlands. Do you feel that in the future this tendenCT 
 toward consolidation may result in such complete control of the traf- 
 fic of a given area by such a system as to enable it to increase its ra,tes 
 to the disadvantage of the shippers or to unduly maintain existing 
 rates when with the increase of business there ought to be a tendency 
 toward a reduction ? 
 
 Mr. Bond. I do not. As I say, a railroad, in my view, is part of the 
 community where it does business. If it does not foster that commu- 
 nity, why, it will suffer with the loss of business of the community, 
 and it must keen its community in the markets of the world in compe- 
 tition with other communities served by other lines. Otherwise the 
 whole thing dries up. 
 
 Senator Newlands. What, in your judgment, has caused this tend- 
 ency toward consolidation of railway systems into groups? 
 
 Mr. Bond. The antitrust act. 
 
 Senator Newlands. How ? 
 
 Mr. Bond. It forbade any other arrangement by which a weaker 
 line could have been possibly induced to stop cutting into the rates for 
 the purpose of competition. 
 
 Senator Newlands. The antitrust law encouraged cut-throat com- 
 petition, did it ? 
 
 Mr. Bond. It prevented the adoption of any other method of meet- 
 ing that situation which already existed, and it was further consid- 
 ered a means of restoring confidence between the managers of the 
 different roads, which confidence had been destroyed through this 
 illegitimate competition that had been going on so long. 
 
 The Chairman. Is that all ? 
 
 Senator Foeakee. I want to ask a question or two. 
 
 I understand you to say that, in your opinion, this consolidation is 
 due to the operation of the Sherman antitrust law ? 
 
 Mr. Bond. I think that had largely to do with it. 
 
 Senator Foeakee. You refer particularly, do you not, to the con- 
 struction given to that statute by the Supreme Court, under which 
 construction reasonable as well as unreasonable agreements in re- 
 straint of trade were prohibited ? 
 
 Mr. Bond. Yes. I assume, of course 
 
 Senator Foeakee. That is to say, by which construction such agree- 
 ments as were involved in the Trans-Missouri Freight Association 
 Case were held to be illegal and prohibited by law ? 
 
 Mr. Bond. Yes. 
 
 Senator Foeakee. T^Hiich were only agreements to maintain what 
 the court found were fair and just rates. Those agreements being 
 prohibited, you think the natural result of that was this consolidation 
 process that you refer to? I just want to see if I understand you 
 exactly. 
 
 Mr. Bond. The process, as I understand, looking back at it, was 
 substantially this : Here was an existing condition of demoralization, 
 which operate to deplete the re^'enlles and increasingly to excite dis- 
 trust of the methods of the railroads. It was impossible to stop that 
 competition and correct that condition without adopting some method 
 of taking in the Aveak lines that could not live under an equality of 
 rates. That led practically to a division of burdens between some of 
 
TWELFTH DAY. 41 
 
 the larger lines. They practically agreed that " If you will take care 
 of that little fellow, I will take care of this little fellow, and in that 
 way we will get conditions so that if we can trust each other and go 
 on and do business on a business basis this demoralization can be 
 stopped." There was no other method except the acquisition of own- 
 ership after the antitrust law. 
 
 Senator Foeakee. After agreements of that character had been 
 prohibited ? 
 
 Mr. Bond. Yes, sir. In the industrial world there was no method 
 of creating a big organization except through ownership. 
 
 Senator Foeaker. I think I understand. I just want to get it in 
 the record in accordance with the understanding I have. What I 
 wanted to ask you was whether or not, in your opinion, the prohibi- 
 tion of pooling did not also have something to do with consolidation, 
 as a matter of self -protection ? 
 
 Mr. Bond. Well, pooling would have been another means, and 
 perhaps the only means in many cases, by which these other tJines, 
 these weaker lines, could have been taken care of. ' i 
 
 Senator Foeakee. Then you would attribute to the prohibition of 
 pooling also, and to the general operation of the Sherman antitrust 
 law (which by the Supreme Court was held to apply to railroads and 
 to prohibit reasonable as well as unreasonable agreements), the con- 
 solidations that have followed? 
 
 Mr. Bond. I think that is so. 
 
 Senator Foeakee. That is the upshot of what you say, as I under- 
 stand it ? 
 
 Mr. Bond. Yes, sir. 
 
 Senator Foeakee. Did you tell us to what extent the Pentisylvania 
 road has acquired interest in the Baltimore and Ohio road and the 
 Chesapeake and Ohio road under this consolidating tendency ? 
 
 Mr. Bond. I have stated in regard to the Baltimore and Ohio road 
 that the Pennsylvania road is substantially interested, 'but does not 
 own a majority of the stock. 
 
 Senator Foeakee. Yes. 
 
 Mr. Bond. I do not know about the others. 
 
 Senator Foeakee. It controls something less than a majority, but 
 probably enough, if voted in bulk, to control a stockholders' meetmg? 
 
 Mr. Bond. Well, that is a question. I do not think they could, 
 unless the bankers and other large holders operated with them- 
 
 Senator Foeakee. What I mean is, that in a corporation that has 
 a hundred million of stock, if one interest owns forty million of it, 
 which is less than a majority, and the stock of that one interest should 
 be voted solidly, it would probably control any stockholders' meet- 
 
 ing^ 
 
 Mr Bond. Yes, probably, in the absence of some contest or other 
 that would induce other large holders to unite against it. 
 
 Senator Foeaker. Most of these consolidations that you speak 
 about have been effected in the manner stated, simply by the acquisi- 
 tion of stock in different companies, which stock, when so acquired, 
 has been held in the common interest? ,■ . 
 
 Mr Bond. No; the consolidations that I was speaking of were 
 direct acquisitions by one line of another— of w-eak lines 
 
 Senator Foeakee. That is one form of consolidation that does not 
 need any explanation. But is there not this other form of consoli- 
 
42 TWELFTH DAY. 
 
 dation that you refer to, where strong interests like the Pennsylvania, 
 for example — and I use it only for illustration — have acquired thei 
 stock of competing lines and of other roads, whether they were 
 directly competing or not, so as to be able, in the way indicated, td 
 control them? Has not that kind of consolidation been going on, 
 also? 
 
 Mr. Bond. Yes; although I do not know that they care anything 
 particularly about the actual control of them. The desire is to have 
 a voice and a feeling of confidence — to have mutual confidence re- 
 stored. 
 
 Senator Foraker. So that when they want an agreement there 
 shall not be ruinous competition about this or that or the other thing. 
 It is easier to arrive at an agreement ? 
 
 Mr. Bond. No; they do not agree about competition. The Penn- 
 sylvania road or any other road can not go into such an investment 
 as that and then desert its own investment, and the other stockholders 
 would.not submit to it for a minute. 
 
 Senator Foraker. I do not know what understanding you could 
 have derived from the question I asked that would justify the 
 answer you have made. 
 
 Mr. Bond. Well? 
 
 Senator Foraker. I was not supposing that they were doing that. 
 1 do not remember just the form of the question, but the point is — 
 for I do not want to dispute about trivial matters — whether or not 
 there has been not only the consolidations that you seem to have had 
 particularly in mind, where one road has purchased and become the 
 actual owner of another road, but also this other practical consolida- 
 tion, where one road has acquired, if not a majority, at least enough 
 of the stock of another road to give it a voice in its management, and, 
 in many instances, a real control ? 
 
 Mr. Bond. Yes ; that is going on. 
 
 Senator Foraker. And you think all that is due to the fact that 
 roads are prohibited from making reasonable arrangements with 
 respect to traffic under the Sherman antitrust law and other regula- 
 tions and the antipooling law ? 
 
 Mr. Bond. I think they never would have been resorted to but for 
 those restrictions, because they involved enormous sacrifices by the 
 roads that have resorted to them. 
 
 The CHAiRjfAN. That is all you have to say, Mr. Bond ? 
 
 Mr. Bond. Yes, sir. 
 
 The Chairman. You have the thanks of the committee for your 
 attendance, as well as for your statement. 
 
 By order of the committee the following letters are printed in con- 
 nection with to-day's proceedings: 
 
 Letters frorro Mr. H. B. Ledyard. 
 
 Michigan Central Railroad Company, 
 
 OfTicE Chairman Board or Directors, 
 
 Detroit, Mich., April £8, 1905. 
 Hon. S. B. Elkins. 
 
 Chairman, Washington, D. G. 
 Dear Sir : As I wired you yesterday, I would lils^ to change one of 
 my letters of February 1 to General Alger. '^'VTien I received your 
 
TWELFTH DAY. 43 
 
 telegram I was just starting for New York and had no opportunity 
 to examine my letter book and read over the letters referred to by you. 
 On my return yesterday, in examining these letters. I found there 
 were one or two expressions somewhat severe and which ought to be 
 modified without changing in any material sense the points raised 
 in my letter to General Alger. I therefore have taken the liberty, 
 as I wired you, to rewrite one letter of February 1, changing the 
 same as to the exi)ressions above referred to, and I inclose the same 
 herewith, which, if you think it proper to do so, I am perfectly 
 willing to have published as suggested by you. 
 Yours, very truly, 
 
 H. B. Ledyaed. 
 
 • Michigan Central Railroad Company, 
 
 President's Oitice, 
 Detroit, Mich., January 25, 1905. 
 
 My Dear General : I would ask you to read with care the inclosed 
 clipping from the Chicago Daily Tribune of Thursday, January 12, 
 1905, headed " Railways unfair; Chicago resists," with a few words 
 of explanation to show you what a task the President is assuming to 
 put upon the Interstate Commerce Commission, and how impossible 
 it will be for such a Commission to name rates which can be satisfac- 
 tory to competing shipping or manufacturing interests. As I said to 
 you when you were last in Detroit, the competition now existing 
 between railroads has practically disappeared so far as rates are 
 concerned. The Sherman antitrust act makes an agreement as to 
 rates illegal, but if the roads serving any two competitive points can 
 not agree upon the rates on diiierent classes of freight, then the road 
 naming the lowest rate fixes the rate for all. The average business 
 man of this country wants to see his neighbor pay the tariff and he 
 himself obtain some secret rebate. Under the Elkins law the Com- 
 mission has, I think, full power to do away with all secret rebates. 
 Tariffs of every railroad must be published, made open to the public, 
 to the competitors of every such railroad, and be maintained. No 
 law that Congress could pass, doing away with the secret concessions 
 or, as they are ordinarily termed, rebates, could be too severe to sat- 
 isfy the majority of the railway managers of this country. 
 
 Now, the Commission has power under this proposed legislation 
 of the President to name a reasonable rate. Take the complaint of 
 the Chicago shippers, as set forth in the paragraph I have marked 
 "A." Nearly all the stations named in that paragraph are located 
 on the Illinois Central Railroad, which, as you Imow, has a railroad 
 running north and south to the middle of the State of Illinois, the 
 best corn-producing section of the State, and also controls and 
 operates a line of railroad extending from Cairo, on the Mississippi 
 River, to New Orleans. The points named in this paragraph are 
 points where the Illinois Central main line is crossed by different 
 east-bound railroads. The policy of the Illinois Central (and no one 
 can object to it) is to make such rates on corn for export via New 
 Orleans as will enable it to haul the corn raised in Illinois on its own 
 line to the port of New Orleans for export, instead of making a rate 
 which would move the corn a short distance to Chicago, and then 
 send it east via the various lines extending from Chicago to the East. 
 
44 TWELFTH DAY. 
 
 In other words, the Illinois Central, as a properly managed road, 
 desires to secure for itself the longest haul possible on all traffic 
 tributary to its lines which it can control. What the Chicago grain 
 dealers ask and complain of is that because the Illinois Central makes 
 a rate over its own line of 9^ cents from, say Mattoon, that the Chi- 
 cago roads shall arrange with the Illinois Central to haul the com 
 to Chicago by the Illinois Central at its local rate, and then make as 
 low a rate from Mattoon to Baltimore, Philadelphia, and New York 
 as the Illinois Central makes to New Orleans. A rate of 4 cents per 
 100 would not be an unreasonable local rate from Mattoon to Chi- 
 cago. That would leave the lines from Chicago, say 13 cents per 
 100, to haul the business to one of the Atlantic seaports. , 
 
 When this grain _gets to Baltimore, Philadelphia, and New York, 
 instead of being put into elevators and loaded directly into ships, it 
 has to be lightered from such elevators to the ships at an expense 
 of not less than 3 cents per 100. No such expense is attended with 
 the shipment of grain via New Orleans. The demand of the Chicago 
 
 §rain shippers would mean that instead of taking freight from 
 pringfield, Tuscola, Gibson, or Mattoon directly east by the lines 
 crossing the Illinois Central at these points, such business shall be 
 hauled north to Chicago and then east, increasing the length- of 
 haul by two sides of a right-angle triangle. The present rate on 
 grain from Chicago to the seaboard has been pronounced a reason- 
 able rate by the Interstate Commerce Commission, so far as the cost 
 of service is concerned. The same thing holds true with regard to 
 the sample of the rates given. Now, let us pass to the statement 
 shown in paragraph marked " B," headed " Samples of the rates." 
 The distance from Omaha to Baltimore is 1,360 miles. The distance 
 from Omaha to New Orleans is 1,194 miles. Out of the rate, Omaha 
 to Baltimore, must come the cost of lighterage, which does not obtain 
 at New Orleans. Yet the Chicago shipper, entirely in disregard of 
 a difference in distance, assumes that the rate between Omaha and 
 Baltimore and Omaha and New Orleans shall be made the same. 
 The lines reaching New Orleans, having the benefit of the shorter 
 distance, would not listen to this. They would claim that if they h£j>d 
 any advantage b}' way of distance they were entitled to the same, ajid 
 it would be impossible to maintain a rate from Omaha to New 
 Orleans which would be the same as the rate from Omaha to Balti- 
 more. 
 
 Chicago has long held the supremacy' of the grain trade in the 
 West. It is oriljr within very recent years that the Gulf ports became 
 an element in the export of grain, but during such recent years lines 
 have been constructed to the Gulf adequate to handle the business, and 
 they are not willing to be deprived of their fair share thereof or of 
 any advantage which distance may give them. Let such a question 
 be passed uj^on by the Interstate Commerce Commission, a body which 
 must be more or less controlled by politics, and what must be the 
 result'? They might, perhaps, say to the lines leading from Omaha 
 to Baltimore; You must reduce your rate on grain to the same basis 
 as is now being charged by the roads leading from Omaha to New 
 Orleans. Were that done, the roads from Omaha to New Orleans, 
 relying on their lesser distance, could make a lesser rate. Could any 
 commission stop them? They would be backed by the exporters of 
 New Orleans and by the shippers in the Northwest, who desire the 
 
TWELFTH DAY. 45 
 
 cheapest outlet for their traffic. The Commission might still order 
 another reduction, but the same result would obtain. Even going 
 back to the first reduction, the rate which the Commission might name 
 for the carriage of grain from Omaha to an Atlantic port, such as 
 New York, Baltimore, or Philadelphia, might be fair for the Lake 
 Shore and New York Central, but it would be so low a rate as to cause 
 a loss to the Erie in the moving of traffic. 
 
 Has the Commission the right to name the rate by any one line be- 
 tween Chicago and the seaboard higher or lower than was named for 
 all other roads ? If it was higher, the shippers on such road would 
 not consent to it ; if it was lower, the shippers on all the other roads 
 would rais6 a row. Can you imagine a commission, looking to do 
 justice between the railroads and the public, put in such a position 
 that whatever action they take will arouse a strong antagonism and 
 strong complaints, not from the railroad companies, but from com- 
 munities who are deprived of advantages they have heretofore en- 
 joyed or from communities who have made application to have rates 
 so adjusted as to give them the same advantages that other commu- 
 nities more favorably situated enjoy and desire to be put on a parity? 
 It would change the geography of the whole country. It is all very 
 well for the Commission to talk about making rates and for men to 
 complain about rates, but there is no real complaint as to the rates 
 charged. The complaints are as to the relative rates charged between 
 different producing and manufacturing centers. Each railroad wants 
 the lowest rate possible for its own customers and is jealous of seeing 
 any other railroad obtain the advantage, but when the Government 
 steps in in the personnel of the Commission how is it going to recon- 
 cile the claims of different communities, each of which is bound to get 
 the best of the other ? Chicago, as in this instance, demands that her 
 grain interests be protected at the expense of Galveston and New 
 Orleans. How could a commission adjust such a matter? I have 
 seen in some of the papers that the President is willing, if power is 
 given to the Commission to determine a reasonable rate, that the 
 railroad companies shall have the right to pool their traffic. 
 
 I do not think a more dangerous proposition could be advanced. 
 I have had probablv more to do with pools than any other living 
 man in the United States. The territory between Chicago and New 
 York, before the passage of the interstate-commerce act, was for 
 years and years a territory of contest, followed up time after time 
 by a pool made, and then a pool broken. No road was ever satisfied 
 with its allotment, and in order to get what it thought it should have 
 it resorted to secret rebates to swell its carriage of the competitive 
 traffic pooled, so as to be in a position, after a few months, to demand 
 a readjustment on the basis of the increased traffic shown. With 
 rates absolutely maintained, as they must be under the mterstate- 
 commerce act, if enforced, all desirability for a pool has vanished. 
 It would only be an incentive to the roads to let their equipment, 
 run down and to give as little good service as they dared to do. 
 Each road would be sure at the end of the month, no matter whether 
 it handled the freight promptly or not, of its share of the earnings 
 on all the competitive freight pooled, and the result would be a 
 practical stoppage of the improvements m the handling of traffic, 
 which has always been such a great factor m the development of the 
 railways of the United States. The incentive to improve is gone, if 
 
46 TWELFTH DAY, 
 
 a pool is made, because each road, as I have said before, knows that, 
 regardless of the service rendered, it will get at the end of each 
 month its allotted share of the earnings on the traffic. The rates 
 Omaha to Baltimore, complained of by the Chicago grain men, 
 3'ield to the roads west of Chicago on export- corn 4.45 mills per ton 
 per mile; on domestic corn 4.77 mills per ton per mile. To the 
 roads east of Chicago on export corn 3,27 mills per ton per mile, 
 and on domestic corn 4.07 mills per ton per mile. How is that, for 
 excessive rates ? 
 
 I hope I have made myself plain. 
 
 Yours, very truly, H. B. Ledtard, President. 
 
 Hon. E. A. Algee, 
 
 United States Senator, Washington, D. G. 
 
 Railways Unfair — Chicago Resists. 
 
 Some way to stop railroad discrimination against Chicago will be sought this 
 afternoon at a joint meeting of committees representing three great commercial 
 associations of the city. 
 
 The session will open in the transportation committee room of the board of 
 trade at 2.30 o'clock, with five representatives present from the Chicago Ship- 
 jiers' Association, five from the IIliTiois ^Manufacturers' Association, and five 
 I'rom the board of trade. Legislation by Congress will be urged. 
 
 grain trade StTFFEES MOST. 
 
 The most acute complaint of discrimination comes from the grain interests. 
 They say Chicago is steadily losing Its grain trade because the eastern railways 
 do not give Chicago and Chicago gateways an equal chance compared with the 
 advantages of the roads leading to the Gulf, and of the Soo and Canadian Pa- 
 cific, leading from Minneapolis. 
 
 It is declared that the trafiic managers of the large roads centering in Chi- 
 cago seem absolutely indifferent to Chicago's welfare, ignoring requests for re- 
 lief, even ridiculing grain merchants who are trying to get better conditions. 
 When facts have been given them showing discrimination they have simply 
 replied that " things would adjust themsleves," and have not even taken the 
 trouble to Investigate. 
 
 The men composing the joint committee are the leading shippers, merchants, 
 and manufacturers of the city, The various committees are as follows : 
 
 Chicago Shippers' Association. — Marshall Field & Co., Sprague, Warner & Co., 
 Hibbard, Spencer, Bartlett & Co., W. W. Kimball Company, H. C. Barlow. 
 
 Illinois Manufacturers' Association. — F. W. Upham, B. A. Bckhart, John 
 Wilder & Co., F. H. Madden, J. M. Glenn. 
 
 Board of trade. — George F. Stone, E. L. Merritt, John J. Bryant, John T. 
 Sickel, E. B. Boyd. 
 
 SOME MOBE BADICAL THAN OTHEBS. 
 
 There is said to be a difference of opinion as regards the measure to be sup- 
 ported before Congress. The Illinois Manufacturers' As.sociation is undei-stood 
 to favor the Quarles-Cooper measure, while the men in the Chicago Shippers' 
 Association are said to want something less radical. 
 
 The list of firms composing the shippers' committee includes some men whq 
 are stockholders and even directors of railroads, and to this fact- is attributed 
 their disinclination to support any legislation calculated seriously to cut down 
 revenues of the railroads. 
 
 The board of trade people are said to favor a measure that will give the 
 Interstate Commerce Commission the right to fix rates when it finds existing 
 rates unreasonable. 
 
 While the three committees differ as to methods, they are agreed that some- 
 
TWELFTH DAY. 47 
 
 thing must be done without much delay. None of them favor a pooling plan 
 and the railroads themselves are much divided regarding the advisability of 
 such a measure. ^ 
 
 The more conservative members of the committees vs-ould prefer to bring 
 about an understanding with the railroads as regards the support of a measure 
 that will be satisfactory to both the shipping and railroad intere!>ts. 
 
 LESS CORN COMES TO CHICAGO. 
 
 The grain men ofCer as the best evidence of discrimination the fact that 
 with the largest and best corn crop ever raised in the country, the movement to 
 this market is decreasing rapidly. Of the elevator capacity of Cliicago two- 
 thirds to three-quarters is lying idle. 
 
 Up to the present time the Gulf railways were satisfied to receive as their 
 share the grain grown in Oklahoma, portions of Kansas, portions of southern 
 Illinois, and southern ilissouri, and, at times, a moderate amount from Ne- 
 braska. Now the freight conditions as they exist cause all the corn from Kan- 
 sas, Nebraska, ilissouri, and Iowa, south of a line from Des Moines to Omaha, 
 also a large portion of Illinois, all to move to the Gulf, at freight advantages 
 of from 3 cents to 8 cents a hundredweight cheaper to foreign ports than by 
 way of St. Louis or Chicago and Chicago to the Atlantic seaboard. 
 
 GULF OITEES OTHER INDUCEMENTS. 
 
 Not only have the Gulf lines an advantage, as shown on tariffs which they 
 publish, liut, not satisfled with this, the Gulf roads are offering many other in- 
 ducements to get the business. Some of them pay the trausfer charge' at Kansas 
 City, sometimes amounting to li cents a hundredweight. In addition, when 
 grain arrives at Galveston or New Orleans the railroads allow the people 
 operating elevators 2 cents a hundredweight for the expense of unloading grain 
 and loading it on ocean vessels. In the language of the trade, the grain is 
 handled " f. o. b." The roads operating to the Atlantic seaboard do not make 
 this f. o. b. allowance at the Atlantic seaboard. 
 
 On top of t]hese advantages recently the Missouri Pacific has put in some 
 tariffs which are known in railroad circles as " midnight tariffs "' on special 
 lots of grain from Omaha to foreign points. These tariffs have made reductions 
 as high as 3 cents a hundredweight from the i-egular tariffs, besides the 2 cents 
 f. o. b. charge which is allowed at the Gulf. 
 
 CHICAGO'S LUIITED TEREITOEY. 
 
 So far this season Chicago has received its supply of corn from the limited 
 territory including the part of Iowa north of a line from Des Moines to Omaha, 
 a small portion of South Dakota and southern Minnesota, and a small territory 
 In northern Illinois not tapped by the Illinois Central. , 
 
 The corn from western Iowa, 100 miles east of the Missouri River, is sold 
 to go west to Omaha, and from Omaha is exported by way of the Gulf on the 
 favorable rates. Some grain from northern Iowa, and practically all from 
 South Dakota and Minnesota, is moving to Minneapolis, and from Minneapolis 
 for export by the Soo and Canadian Pacific, the rates for this route being at 
 least 3 cents a hundredweight cheaper than if the grain were shipped to Chi- 
 cago and exported through the cheapest port from Portland to Newport News. 
 
 Grain which Chicagp was recently receiving from eastern Illinois has also 
 been cut ofC. On account of having to divide this rate from these Illinois points 
 with the north and south lines, the roads carrying the grain east from Chicago 
 and Chicago gateways receive only a proportion of the through rate. 
 
 This business, the eastern roads claim, was undesirable, and consequently 
 they have canceled some of their tariffs from Chicago. At the same time these 
 roads, having terminals in Chicago, have not canceled their tariffs at junction 
 points outside of Chicago. In other words, at a junction point down through 
 the State the eastern roads will take the business, haul it even farther than they 
 would if they took it at Chicago, and accept as their proportion a small rate, 
 whereas if the business is given to them at Chicago they refuse it. 
 
 The Vandalia, Big Four, Wabash, Lake Erie and Western, and Toledo, Peoria 
 and Western roads all make cheaper rates from Illinois points to the seaboard 
 
48 TWELFTH DAY. 
 
 than from Chicago. A rate of 17i cents is made from SpringBeld, against a rate 
 of 22i cents by way of Chicago. 
 
 (A) There is a difference of 2* cents in the rates from Tuscola, Gilman, Gib- 
 son and Mattoon, of 4^ cents from Watseka and Hoopeston, of 2 cents from 
 Effingham, and of 4 cents from Pana. These are scattered illustrations from a 
 large territory in Illinois, the grain trade from which is lost to Chicago under 
 existing conditions. 
 
 LOSS OP MILLING TRADE. 
 
 Chicago has also lost a large amount of business in the milling trade. The 
 eastern railroads are charging to-day on wheat from Chicago to milling points 
 located in Indiana, Ohio, and elsewhere in the interior from 3 to 4 cents a hun- 
 dredweight more than the same roads are charging on grain from St. Louis. 
 For example : A car of wheat originating at a point in Nebraska takes a 20-cent 
 rate to St. Louis ; from the same point to an upper Mississippi River point the 
 rate is 20 cents. St. Louis can ship this car of wheat to Bvansville, Ind., at 6 
 cents a hundredweight. If this car is brought from the upper Mississippi River 
 crossing and shipped through Chicago to these mills, the roads charge 10 cents, 
 thus making a discrimination of 4 cents in favor, of St. Louis as against Chicago. 
 At the same time the number of miles by way of Chicago is less than by St. 
 Louis. 
 
 ADVANTAGE OF MINNEAPOLIS. 
 
 In addition to this discrimination the eastern roads also accept as their pro- 
 portion from Chicago to a certain territory in New England a great deal lower 
 rate on grain coming from Minneapolis than from the Chicago shipper, although 
 the grain originally comes from the same territory in both cases. 
 
 Some houses in the trade are contemplating having the discriminations taken 
 up before the Interstate Commerce Commission. They argue that if a 2-cent-a- 
 hundredweight transfer is allowed at New Orleans and Galveston and the 
 li cent at Kansas City and Omaha it should be allowed at Chicago. Some 
 months ago the Commission decided that the transfer allowance was proper in 
 cases that were brought before it pertaining to Omaha and Kansas City. 
 
 The board of trade transportation committee has been endeavoring to get 
 some relief, but so far with little success, on account of the extreme indifference 
 of the roads from Chicago east, although these same roads have their terminals 
 here and are relying on Chicago for their traffic. 
 
 SAMPLES OF THE BATES. 
 
 (B) To show the difference between the Gulf roads and the Atlantic seaboard 
 roads, the following rates are the basis used : 
 
 Illinois Central hauls corn from Centralia to New Orleans, 671 miles, for 9 
 cents a hunderweight. Out of this 9 cents it pays elevators at the terminal 2 
 cents, leaving it a net of 7 cents. 
 
 From St. Louis to New Orleans the roads receive 10 cents a hundredweight, 
 out of which they pay 2 cents, leaving them 8 cents. 
 
 From St. Ix)uls to Baltimore or Newport News the roads charge 16 cents, 
 and 17i cents to New York, and do not make any allowance at the seaboard 
 for elevator charge. The distance from St Louis to Baltimore is 931 miles. 
 The disparity In rates via Chicago is as great. 
 
 Omaha to Danish ports : Cents, 100 lbs. 
 
 Rail, Omaha to Baltimore 22.500 
 
 Baltimore, f. o. b. charge 1.340 
 
 Ocean 12. 500 
 
 Total cost via Baltimore 36.340 
 
 Omaha to Denmark, via New Orleans: 
 
 Rail, Omaha to New Orleans 18.000 
 
 Ocean 13. 750 
 
 Cost via New Orleans 31.750 
 
 Special midnight tariff of Missouri Pacific 28.330 
 
TWELFTH DAY. 4^ 
 
 Omaha to Belfast : Cents, 100 lbs. 
 
 By rail, Omaha to Baltimore 22. 500 
 
 Baltimore, f. o. b. charge, i cent per bushel 1. 3iO 
 
 Ocean 10. 000 
 
 Cost by way of Baltimore 33. 840 
 
 Rail, Omaha to New Orleans 18.000 
 
 Ocean 12. .500 
 
 Cost by way of New Orleans 30.500 
 
 Special midnight tariff of Missouri Pacific 27.500 
 
 St. Louis to Hamburg: 
 
 Rail, St. Louis to Baltimore 14. 500 
 
 Baltimore, f. o. b. charge, J cent per bushel 1. .340 
 
 Ocean 30. 625 
 
 Cost by way of Baltimore 20.465 
 
 Rail, St. Louis to New Orleans ^ 10.000 
 
 Ocean 12. 070 
 
 Cost by way of New Orleans , 22.070 
 
 Special midnight tariff 21.660 
 
 Note. — Foregoing "Atlantic " figures are based on the old rates — if they 
 were based on the new rates the comparison would show a still further handi-. 
 cap to the Atlantic ports of 1* cents. 
 
 SITUATION GEOWIKG WOESB. 
 
 G. E. Marcy, of the Armour Grain Company, when asked regarding the 
 discrimination against Chicago, said : 
 
 " Chicago at present is in a pocket. We now have one small limited territory 
 from which wfe can draw grain for export. It seems as if almost daily some- 
 thing was happening so that some other gateway was able to cut in and take 
 the business away. The railroads east of Chicago and Chicago gateways appar- 
 ently do not care to tiy to protect Chicago, and it almost seems as if they were 
 working to encourage the upbuilding of elevators and facilities at Gulf ports. 
 
 " If this policy is continued much longer the time will come when, if the 
 eastern roads want the business which they have lost, those fine Gulf facilities 
 will prevent them from obtaining it. A few years ago firms doing business 
 by way of the Gulf were small, their facilities were poor, corn driers were un- 
 known, but this has all changed, and the Gulf shippers are now among the 
 strongest grain firms in the country; they have large capital, have installed 
 modern machinery, and. . as matters stand to-day, foreign buyers will pay 
 practically as much for Gulf shipments as they will for Atlantic seaboard ship- 
 ments." 
 
 ILLINOIS COBN GOING SOUTH. 
 
 " Our advices recently," said Edward Andrew, of the Nash-Wright Company 
 "indicate that a big proportion of the corn now being marketed i-i central 
 Illinois on roads that take a rate to New Orleans will probably go out of the 
 country by that gateway. Stations 65 miles south of Chicago take a rate of 
 14 cents to New Orleans, while the same stations carry an export rate of 19 
 cents to 20i cents to the cheapest point of clearance on the Atlantic seaboard. 
 
 DRIVING AWAY BUSINESS. 
 
 " The discrimination against Chicago on export corn," said W. H. Meri-itt, of 
 Merritt Brothers, "is driving away a large amount of business from Chicago 
 firms The southern ports are drawing com from within 100 miles of Chicago, 
 in Illinois and are bidding from 1 cent to 2 cents a bushel higher than Chicago 
 clnThlV are also taking all the corn from Kansas, Nebraska, Missouri^ 
 SuthernYnd western Iowa: all of which are tributary to Chicag,>-corn which 
 
 12 D — 05 M 4 
 
50 TWELFTH DAY. 
 
 formerly came liere. Jliimeapolis, with clieiiper export rates by tlie Soo Line 
 and the Canadian raoific, is drawing from South Dalcota, Minnesota, and 
 northern Iowa. This leaves only a small portion of Illinois and eastern Iowa 
 for Chicago. . . ^ , . ^ 
 
 "Chicago is being disf-rimmated against even right here on the Chicago and 
 Eastern Illinois Kailway. There have been export rates in efCect from points 
 on that railway to Atlantic ports by way of Chicago as well as direct to eastern 
 points. Recently, ho^'ever, the export rates through Chicago have been can- 
 celed, but are still in force by other .iunction points." 
 
 Michigan Central Railroad Company, 
 
 Chairman's Office, 
 Detroit, Mich., February 1, 1905. 
 
 My Dear Gexer.^i- : I have your letter of January 28. It is very 
 frequently the case that we railroad men become so accustomed to 
 the use of certain terms that we forget that the ordinary business 
 man does not understand what we mean in using them. The word 
 " pool," which has always seemed to be a red flag to the American 
 public, can be best defined by an example. Suppose between Chi- 
 cago and Xew York there were five roads competing for the traffic 
 of the two cities, but Avhich roads did not necessarily touch any inter- 
 mediate iooints. Some of these roads would be necessarily shorter 
 in distance between Chicago and New York, and others so located, 
 as to grades and curves, as to be able to handle freight more cheaply 
 than their competitors. Now. we will assume that the roads have 
 been in competition for business from Chicago to New York and 
 from New York to Chicago for several years and have kept a record 
 of their carriage of freight traffic and the earnings therefrom, and 
 that during that time there have been periods of rate wars and pe- 
 riods when rates were maintained. They get together and make sug- 
 gestions to each other as to how the tralRc shall be divided. Failing 
 to agree, they refer to an arbitrator. To one road is allotted 20 per 
 cent, on account of the record of its past carriage; to another, 15 
 per cent; to another, 10 per cent, and so on, based on the gross earn- 
 ings on the traffic which it had carried. 
 
 It might not be necessary, and probably would not, that each road 
 should receive in this arbitration the exact amount which it had 
 carried, but, as a general rule, it would be reasonable to expect that 
 it would receive very nearly such percentage. The main object of 
 such a division or pool is to induce each party to maintain rates, and 
 at the end of each month some disinterested person, a commissioner, 
 for example, appointed by the different roads, would have re- 
 ceived a report from each railroad showing the traffic it had carried 
 and the earnings therefrom, and he would assess on those who had 
 overcarried the amount, in money, of their overcarriage, and pay 
 such amounts to the roads who were short. These were the old 
 pools, many of which have been made in the territory east of Chi- 
 cago and west of the Atlantic seaboard. It always did happen that 
 some one or more of the roads, especially the weaker lines (by those 
 I mean the roads which were longer in distance or less able, on account 
 of grades and curves, to haul freight as cheaply as the others) , would 
 become dissatisfied with their proportions, and by the paying of se- 
 cret rebates they would swell their cari-iage from month to month, 
 and would in a short time demand an arbitration, basing such de- 
 
TWELFTH DAY. 5X 
 
 mand on tlie record of the increased traffic they had carried This 
 was the rock on which the pools always split. Under the so-called 
 ^Ikms Act, if absolutely enforced, no such rebates as those above 
 defaned can or will be paid, and no road can in that manner increase 
 its carriage of competitive freight. 
 
 It is a matter of fact that, with or without a pool, the rates on 
 competitive traffic carried between any two points, such as Chicago 
 and New 1 ork, must be the same by all roads. This is not generally 
 understood, but arises from the fact that the intermediate rates are 
 based on the Chicago to New York rate as a unit. For example, 
 the rate from Jackson on any one given class of freight to New 
 York is 92 per cent of the Chicago rate ; the rate from Detroit, 7.3 
 per cent; the rate from Toledo, 73 per cent; and the rate from Port 
 Huron, 73 per cent. Now, under the long and short haul clause, if 
 the Grand Trunk, which, for the purpose of argument, we might 
 call a weaker road, was allowed to charge a lesser rate on any given 
 class of traffic from Chicago to New York than the Michigan Central 
 or Lake Shore, it would follow, as a matter of course, that the rate 
 from Lansing to New York would be less than that of the Michigan 
 Central on the same class of traffic. Its rate from Port Huron 
 to New York would be less than the Michigan Central from Detroit 
 to New York, or the Lake Shore from Toledo to New York. This 
 would cause a demand from all shippers at these intermediate points 
 to be put on a parity with their competitors. .They would not con- 
 sent that the manufacturer of certain articles at Port Huron should 
 be allowed to ship to New York at lesser rates than those in Detroit 
 or in Toledo were obliged to pay ; so it will not be possible to form a 
 pool between any two competitive points, whereby one road will be 
 allowed to charge a lesser rate than another. 
 
 Now, a pool having gone into force, and a road being sure to re- 
 ceive at the end of the month its money payment for any shortage 
 in its carriage of freight, under the allowance of freight made to 
 it, it would at once destroy the incentive to the road to improve 
 itself, because it would rest assured in the condition that whethei- 
 it had carried the freight or not it would receive its share, in money, 
 of the earnings on the traffic which had been allotted to it. What- 
 ever may be said as to the past history of the railroads — and I will 
 admit they have done many things which were wrongful — it can not 
 be denied that the incentive to obtain business, which was prac- 
 tically a necessity, has forced the railroads of this country to improve 
 themselves to an extent which has obtained with no other country. 
 By improvement I mean to adopt the newest and best methods of 
 moving traffic, and to move it at the lowest practicable cost. There- 
 fore I disagree entirely with Mr. Cassatt that a pool to-day would 
 be a good thing for the roads. It may be said that this will not 
 insure steady rates or low rates, but I do not thmk that ci^s any 
 figure. If the roads engaged in competing for the same traffic can 
 not agree upon a reasonable rate, then the lowest rate named by 
 any one of them must be the rate for all, and those roads who are 
 best equipped for carrying the traffic will be the roads 'which will 
 make the most profit out of the lowest rates. As an example the 
 Lake Shore, the New York Central, and the Boston and Albany 
 companies could to-day carry traffic from Chicago to Boston and 
 make money at a rate at which the Chicago and Grand Trunk, via 
 
52 TWELFTH DAY. 
 
 its main line A'ia Montreal to Bostoi>, would lose on every shipment. 
 If our railroad system is, as it appears to be, a wonder to the English 
 railway managers, it is only because we have been forced by low 
 rates to develop the art of transportation to its utmost limits. 
 
 You ask me why a road which is getting more than its share of 
 hauling will decline to haul the excess over its share. You must 
 remember that all railroads are common carriers and must take any 
 freight tendered to them. Now, if the Lake Shore and New York 
 Central and Boston and Albany can and do make better time with 
 grain, we will say, consigned to Boston for export, than does the 
 Grand Trunk, the shipper will forward his freight by the Lake 
 Shore, regardless of whether the Lake Shore has carried its allotment 
 or not. l^he Lake Shore can not refuse to receive the freight, and 
 must carry it. We can not disregard the wishes of the shippers in 
 that respect or the whole country would be in an uproar. Then 
 there are some roads which are more prompt in settling claims than 
 others, and the shippers prefer to deal with them; and there are a 
 thousand and one reasons why a carrier can not refuse to carry any 
 freight tendered to it, whether such freight be in excess of its allot- 
 ment or not. I do not believe that even if the railroads were allowed 
 to pool the courts would hold that a common carrier could refuse 
 freight because it had carried more than its agreement with other 
 roads permitted it to do. 
 
 Yours, very truly, IT. B. Ledyaed. 
 
 Hon. R. A. Alger, 
 
 United statcn Senator, Washington, D. G . 
 
 ^Michigan Central Hailroad Compaxy, 
 
 Office Chairman Boakd of Directors, 
 
 Detroit, Mich., February. 1, 1905. 
 
 My Dear Gejveral: As you have seen by the papers, I have laid 
 down my work, and from now on I will probably have but little to 
 say in regard to railroad matters. 
 
 I believe in this railroad legislation the I'resident wants to be fair, 
 because I think he ^^ants to be fair in everything; but I do not think 
 Mr. Roosevelt thoroughly understands the real trouble at the bottom. 
 There is no complaint to-day, as far as I can find, of rates. There 
 are complaints of rebates, of the abuse of private cars, of terminal 
 roads, etc., which, in my opinion, can all be done away with by a 
 strong enforcement of the Elkins Act, and without any necessity of 
 giving to the Interstate Commerce Commission the power to name 
 a rate. 
 
 I would like to call your attention to a situation which has devel- 
 oped during the last ten days. About two years since, upon com- 
 plaint of the National Hay Dealers Association, hay, you know, 
 'being, I thinli, the second largest product carried in this country, the 
 Interstate Conunerce Commission ordered, not a change in one rate on 
 hay, but a change in the classification of hay, that it should be carried 
 in sixth class instead of fifth class. This changed every rate on hay 
 carried between interstate points in the territory east of St. Louis, 
 south of Lake Superior, north of the Ohio River, and the North 
 
TWELFTH DAY. 53 
 
 Atlantic seaboard. The railroads did not consider the ruling of the 
 Commission a fair one. They claimed that hay was a bulky article; 
 that it was impossible to load a car to its full capacity with* hay, and 
 that in the handling of hay at terminal points it was always slowly 
 done; and that many roads fr6m time to time had had to issue an 
 embargo against receiving more hay, on account of their sidetracks 
 being full of carloads of hay and the consignees unable to handle 
 the same, by reason of the fact that the quality of hay was lessened 
 by close baling, and the shippers found that the looser the hay was 
 at the point of destination the higher the price they could obtain 
 for it. Shipments of hay handled by the railroad companies gradu- 
 ally became of so much greater bulk that the earnings of the rail- 
 roads at fifth-class rates were practically no greater than they had 
 formerly been upon the closer baled hay occupying less bulk, at sixth- 
 class rates. In spite of all those arguments the Commission ordered 
 the change made. Confident in their position, the railroads decided 
 to appeal to the courts. 
 
 For tAvo years nearly the press of this country has from time to 
 time condemned the railroads and held them up as violators of the 
 law', and as carrying. on their business in a lawless way, regardless 
 of the decisions of the Interstate Commerce Commission. Only 
 about ten days since the press dispatches from Washington stated 
 that the president of the National Hay Dealers Association, and its 
 secretarv, had called upon the President to congratulate him on his 
 recommendation that the Interstate Commerce Commission should 
 have power to name rates, and at this interview it was stated they 
 condemned the position of the railroads in not complying with the 
 order of the Commission. Last Saturday a decision was handed 
 down by Justice Wing, of the United States district court at Cleve- 
 land, holding, first, that the order Avas beyond the power of the Com- 
 mission to gii-e; and second, that even if the Commission had had 
 the power, the order was unreasonable, and that the rates which the 
 railroad companies had continued to charge on hay, which were fifth 
 instead of sixth class, as ordered by the Commission, were reasonable, 
 and that the railroads were therefore sustained in their position. 
 
 Xo-n-, this question of rate making is the most intricate one m the 
 world. Professor Bryce, of England, whose ability is known to ail, 
 a short time since, in discussing this question with a friend of mine, 
 stated that he had been asked to become a member of a commission 
 to consider the question of rates charged by the English roads; that 
 he had looked into the matter very carefully, and that he could not 
 see how the problem could be solved in fairness to the interests of the 
 shippers and in fairjiess to the interests of the public. Commission 
 or no commission, the rates will never be satisfactory to everyone 
 because of self-interest. Each man and each city wants the best 
 
 '^Now^'to lo^ack to the hay case. If the railroads had complied 
 with the order of the Commission they would have lost hundreds ot 
 Cisands of dollars, and in the end have found that the courts held 
 the position of the Commission unreasonable and the decision of the 
 roads the proper one. I fully appreciate the President's motives and 
 Twant to^sly to you that no le^slation that Congress Qan pass doing 
 away with preferential concessions in the way of rebates or anv other 
 S cln b^too drastic to suit the railroads; but each railroad man- 
 
54 ' TWELFTH DAY. 
 
 ager has learned this lesson, that he can not make rates himself for 
 industries along his own line without having due regard to the indus- 
 tries located on other lines and competing in the same class of manu- 
 facture or in the same class of business, and the result is that T have 
 received in the last three years bi^t one complaint that any rate 
 charged by this road was unreasonable. 
 
 The Michigan Central could not make a rate on stoves from Detroit 
 to Chicago without recognizing that the manufacturer of stoves at 
 Buffalo must have a relatively equal rate to ship his stoves; for if 
 this company should name a rate to the Detroit manufacturers which 
 the roads leading from Buffalo to Chicago should deem unreasonable, 
 such latter roads would at once put down their rates to the basis of 
 ours and keep them there until some fair adjustment had been 
 reached, and so on down the whole category of manufactories and 
 industries. If the men who have given their lives to this problem 
 can not solve it satisfactorily to all interests, how can it be solved by 
 men to whom the question is a new one? I believe that the President 
 himself will be very sorry hereafter that any such power had been 
 given to the Interstate Commerce Commission, and I believe that 
 what he really wants is that all roads shall be open to all shippers on 
 like terms, and that can easily be brought about by a proper enforce- 
 ment of the provisions of the Elkins Act and the interstate-commerce 
 act. 
 
 Yours, very truly, ' H. B. Ledyard. 
 
 Hon. E. A. Alger, 
 
 United States Senator, Washington, D. C. 
 
 STATEMENT OF MR. ROBERT MATHER. 
 
 The Chairman. iMr. Mather, please state your full name, occupa- 
 tion, and place of residence. 
 
 Mr. Mather. ISly name is Robert Mather; I am president of the 
 Rock Island Company, chairman of the executi^'e committee of the 
 Chicago, Rock Island and Pacific Railway Compaiiy, and the gen- 
 eral counsel of what is known as the Rock Island system and the 
 Frisco system of railways. My headquarters are in New York; my 
 residence is Chicago. 
 
 I represent in appearing here what are commonly known as the 
 Rock Island system and Frisco system of railways. These two 
 systems, ^^ith their controlled and allied lines, operated, as of June 
 30, 1904, 13,656 miles of railway, located in 17 different States and 
 Territories. 
 
 Tlie. aggregate capital stock of tlie companies included in the 
 
 two systems is l i|;i45, iWo. 883. 3S 
 
 Total funded debt of the two systems is 883. 217. 92.x 41 
 
 Making a total capitalization of ."i2S. 2."i3, 808. -T-t 
 
 There were paid in dividends on the capital stock during the 
 
 last fiscal year ending .June .30, 1904 7. 812, 0(i8. 12 
 
 And in interest on the funded debt ^- 1.5, 700, 73t), 37 
 
 Per cent. 
 
 The return to stockholders in the way of dividends was, on the 
 par value of the caiiital stock. 5.39 
 
 The percentage of return to the holders of the funded indebted- 
 ness is 4.10 
 
 The percentage of return on the total capitalization is 4. 45 
 
TWELFTH DAY. 55 
 
 Seven thousand eight hundred and seventy-seven (7,877) stock- 
 holders are interested in these properties, having an average holding 
 of 186 shares each. The average annual return to each stockholder 
 was $999.90. The number of employees of the system is 52,300. 
 The average annual • compensation paid each employee is $644.04. 
 The total disbursements for wages for the last fiscal year was 
 $33,683,327.91 ; disbursements for materials, supplies, etc., aggre- 
 gated $22,527,313.55. 
 
 Having been invited to appear here for the express purpose of 
 giving information concerning the systems I represent, I shall be 
 glad to answer any further questions about our properties. I do 
 not know that I can say anything new upon the general question 
 which you are considering, but in the feeling that certain features 
 of the discussion can not be too much emphasized, I venture a few 
 suggestions : 
 
 I. E.\TES ARE NOT X'XREASOXABLE, AND REBATES ARE, OR CAN BE, PRE- 
 VENTED UNDER EXISTING LAWS. 
 
 Governmental regulation of common carriers seeks to accomplish 
 two purposes : 
 
 First. The establishment and maintenance of reasonable rates, 
 and 
 
 Second. Prohibition of discriminations. 
 
 In the present discussion two propositions may be considered as 
 settled — 
 
 First. That railway rates in the United States are not in them- 
 selves unreasonable. 
 
 Second. That discriminations which result from secret rate mak- 
 ing, rebate giving, and other like devices, have been done away with 
 under existing law. 
 
 The first proposition is demonstrated — 
 
 (1) By the decrease in the rate per ton per mile for freight trans- 
 portation in the United States from 1.990 cents in ISTO to 0.763 cent 
 in 1903. • , . , 
 
 (2) By the fact that existing rates in this country are one-third 
 the rates charged in England and in France, and one-half the rates 
 
 of Germany. „ . - i xi, 
 
 (3) By the prevalent prosperity of American commerce under the 
 
 present basis of rates. . , i , i i 
 
 The proposition is not onlv demonstrated, it has long been conceded 
 by the Interstate Commerce Commission. For more than twelve 
 years its annual reports have asserted the fact that " extortionate 
 charges are seldom subjects of complaint," and that "rates as a^hole 
 are low enough." (Annual Report, 1893, pp 12 17, 218 219, 221; 
 Annual Eeport, 1897, p. 14, 2; Annual Eeport, 1898, p. 27.) 
 
 \s lono; ago as 1898 the chairman of the Commission testified 
 before the Senate Committee on Interstate Commerce that the ques- 
 tion of extortionate rates "is pretty much an obsolete question 
 
 The Commission's concessions on this proposition are supported 
 bv their records, which show that for the period from 1887 until the 
 present the Commission has found but 26 cases of unreasonable rates. 
 None of its findings in this respect have been sustained by the courts 
 
 The evils of secret rebates were ended by the passage of the Elkms 
 
56 TWELFTH DAY. 
 
 Act in 1903 and the concededly general acquiescence of the carriers 
 in its requirements. The Commission, in its annual report for 1903, 
 says (pp. 10-11) : 
 
 '■ There is basis for confident belief tlaat such offenses (rate cutting 
 and other secret devices) are no longer characteristic of railway 
 operations. * * * jj^ [ig preseiat form the law appears to be 
 about all that can be provided against rate cutting in the way of pro- 
 hibitive or punitive legislation." 
 
 Similar concessions are to be found in the report of the Commis- 
 sion for 1904. 
 
 The evils of which so much has recently been heard, of excessive 
 divisions with terminal and industrial railways, and of unlawful 
 arrangements with private car lines, fall within the category of 
 rebates, are expresslj' prohibited by section 2 of the original act to 
 regulate commerce, and are all within the reach of the remedial 
 provisions of the Elkins Act. Their eradication is concededly as 
 practicable as was the stamping out of the rebate evil, and awaits 
 only the vigorous action of the Commission for its accomplishment. 
 
 II. THE ONLY EVIL DEJIANniNG ADDITIONAL LEGISLATION IS PREFER- 
 ENCES BETWEEN LOCALITIES. 
 
 Unreasonable rates and discriminations among individual shippers, 
 then, having been remedied or being remediable under existing law, 
 there remains as the sole evil to be removed by additional enactment 
 preferences between localities. 
 
 The question for consideration, then, resolves itself into this: Is 
 it necessary or desirable that the Interstate Commerce Commission 
 should be given the rate-making power in order that preferences 
 between localities shall cease? 
 
 III. THE PROPOSED LEGISLATION IS NOT NECESSARY. 
 
 There would seem to be nothing in the commercial or financial 
 situation of the countrjr which demands such a radical departure 
 from a plan of rate making which has been long established and 
 under which our commerce has grown to its present stupendous pro- 
 portions. The commercial activity and prosperity of the present 
 time is not only unexampled, but universally felt. No section of 
 the country and practically no community fails to feel the force and 
 to share in the profit of the great industrial impetus of to-day. 
 Nowhere is trade languishing or the implements of commerce idle. 
 
 If the situation were otherwise, if there were general commercial 
 depression, or even if, here and there, communities could be picked 
 out that were not sharing in the prevalent prosperity, there might 
 be necessity to inquire into the reason and to provide the remedy. 
 But no such condition confronts this Congress. It is true that 
 occasional individual communities complain of disadvantages as 
 against their competing markets, but the strife of competition is 
 only the keener by reason of these claims, and the community is 
 hardly to be found which confesses that it is falling behind its com- 
 petitors in the race for wealth and commercial position. 
 
 If this be true, and as a general statement it will be admitted to be 
 a correct expression of our industrial condition to-day, it would 
 
TWELFTH DAY. 57 
 
 seem that, so far as the interests of the different communities are 
 affected by charges for transportation, they have been fairly well 
 and impartially provided for by the system of rates established and 
 maintained by the railways. 
 
 IV. PUBLIC CLA5I0E IS MISTAlvEX AXD JIISI.ED. 
 
 . ^^ ^y t^^^ liitrrstate Commerce Commission's statements. — The dis- 
 tinction should always be remembered betAveen necessity for new leg- 
 islation and public clamor therefor. That there is public clamor for 
 giving the rate-making power to the Commission can not be denied, 
 but that it is a misled clamor is plainly apparent. The evil which is in 
 the public mind, and which the public generally believes is to be cured 
 by the proposed legislation, is the evil of rebates and discriminations 
 between shippers. This was the keynote of the President's message. 
 It was tersely expressed by Senator CuUom in his statement the 
 other day to Mr. Tuttle : 
 
 " I have always thought that these two grounds of violating the 
 law (rebates and unjust discriminations) were the main things." 
 
 The recent developments which have caught the public eye and 
 whetted the public demand for rate regulation, to wit, the dis- 
 closures in the Atchison-Colorado Fuel Case, in the matter of divi- 
 sions with terminal roads, and in the charges and practices of private 
 car lines, are all instances of rebates or secret concession. If it were 
 clearly comprehended that these practices are all prohibited by the 
 original act to regulate coimnerce, and can all be prevented under 
 the Elkins Act, public clamor would be at a loss to put its finger 
 upon any specific evils to be remedied by new legislation, and would 
 agree witl» the statement of the Interstate Commerce Commission 
 itself that the " existing system of laws applicable to the wrong- 
 doing (the giving of rebates) is complete and ample. No amend- 
 ment of the statute, therefore, is necessary." (Annual report 1893, 
 p. 7.) 
 
 In spite of the Commission's admissions that rates are not unrea- 
 sonable, and that the rebate evil has been cured, the tom-toms are 
 kept going to frighten the people on the subject of '■ railway extor- 
 tion." 
 
 In their report to the Senate of April 7, 1904, the Commission gave 
 to the country the statement that there had been an increase in rail- 
 way charges from 1899 to 1903, resulting in an increase of gross reve- 
 nues in the latter vear of $155,475,502. The statistics of the Commis- 
 sion in its possession at the time, and subsequently published, demon- 
 strate the incorrectness of this statement. The increase in the rate 
 per ton pei- mile was from 0.724 cent in 1890 to 0.((i3 cent in 1903, 
 or 0.039 cent. This increase, applied to the gross tonnage for 1903, 
 showed an increase in gross earnings of $67,556,299, instead of $155,- 
 475,502. A closer computation submitted h\ Mv. Hines in his state- 
 ment before the conunittee makes the increase only $17,000,000. 
 (Testimony, Seventh Day, p. 4.) The Commission did not find it 
 necessary, although the facts were at hand, to state that the increase 
 in operating expenses in 1903 over 1902 Avas $154,455,885. Xor did 
 they find it" necessary to state chat while the rate per ton per mile 
 had increased 0.039 cent in the five years from 1899 to 1903, this 
 increase was less than the decrease in the same rate in one year, from 
 
58 TWELFTH DAY. 
 
 1897 to 1S98, the rate in 1897 being 0.798 cent, unci in 1898, 0.75;5 
 cent, a difference of 0.045 cent. Nor did the Commision find it 
 necessary to repeat its statement, frequently therefore made, that 
 " generally a slight increase in the rate does not materially affect the 
 price to the consumer." (Annual Eeport, 1900, p. 9 ; Annual Eeport, 
 1903, pp. 16, 32.> 
 
 Nor to recall this statement : 
 
 " When reductions have been made on account of commercial de- 
 pression, it is difficult to see why corresponding advances. may not 
 properly be made with the return of business prosperity." (Annual 
 Eeport, 1903, p. 48.) 
 
 And note that the increase complained of by the Commission in its 
 report of April 7 to the Senate was from 1898 to 1903, inmiediately 
 following a period of great commercial depression. 
 
 Xor to compare the alleged '" enormous increase " in freight earn- 
 ings.in 1003 with the showing made in its report of 1894 (p. 51), that 
 if the average rate per ton per mile from 1889 to 1893 had been the 
 average rate per ton per mile for the year 1888, the public would 
 have paid from 1889 to 1893 $525,459,587 more than was actually 
 paid. 
 
 Thus it is demonstrated, out of the mouth of the Commission itself, 
 that the " enormous additions in recent years to the cost of railway 
 transportation,"' to which their report of April 7, 1904, called the 
 attention of the public, was not only much less than the enormous 
 reductions in the cost of railway transportation effected by reduc- 
 tions in rates in preceding years, but was justified by the principle, 
 approved by the Commission, that reductions made on account of 
 commercial depression may be restored with the return of business 
 prosperity. , 
 
 Yet the Commission, in support of its crusade for greater power, 
 loses no opportunity to give to the public the impression that rates 
 ui-e extortionate and discriminations rampant. 
 
 " Within the last five years," says one of the Commissioners in a 
 public article, " rates upon every important commodity in everv sec- 
 tion have been advanced. * * * ^Ye are confronted with increas- 
 ing monoipoly, with advancing freight rates, and with no probable 
 relief in sight " (meaning, probably, no prospect of the rate-making 
 power being given to the Commission) . 
 
 In so far as public sentiment in favor of rate regulation is influ- 
 enced by such statements, I repeat it is misled, and deliberately 
 misled. 
 
 B. By inimpprehension of the facts that the proposed legislation 
 gives the general rate-maJiing poioer to the Commission. — It is misled 
 further in the belief that the power to make a rate under a specified 
 complaint does not involve power to make rates generally. On this 
 we already have the conclusive opinion of the Supreme Court to the 
 contrary. 
 
 " If the [rate-making] power exists * * * there would be no 
 escape from the conclusion that it would be within the discretion of 
 the Commission, of its own motion, to suggest that the interstate rates 
 on all the roads of the countiy were unjust and unreasonable, notify 
 the several roads of such opinion, direct a hearing, and upon such 
 hearing make one general order reaching every road and covering 
 
TWELFTH DAY. 59 
 
 every rate." (Interstate Commerce Commission v. Railway Com- 
 pany, 167 U. S.; 479, 510.) 
 
 If, therefore, the Esch-Townsend bill, or anything like it, becomes 
 a law, the entire power to make all rates is confided to the Commis- 
 sion and withdrawn from the railways. This is a result which there 
 is no evidence that the people desire and which the President himself 
 does not want. He says in his message : 
 
 " I am of the opinion that at present it would be undesirable, if it 
 were not impracticable, finally to endow the Commission with general 
 authority to fix railroad rates."' 
 
 C By misconception of the hu.^ine.'is of trnnsportation ax a " puhlin 
 function.'''' — Public sentiment is further misled by loose talk of rail- 
 ways as " public highways," and their operation as a " public func- 
 tion." 
 
 In a sense a railway is a public highway, but the business of trans- 
 portation is far from being a function of government. The distinc- 
 tion between the physical structure of a railway as a public highway 
 and the business of conducting transportation thereon has long been 
 established in law. 
 
 In Lake S'uperior and Mississippi Railroad Company v. United 
 States (93 U. S., 442) the Supreme Court had before it the question 
 whether the Government was entitled to free transportation of its 
 property and troops over certain railroads, for the purpose of aiding 
 in the construction of which Congress had donated public lands, with 
 the stipulation that any railroad so aided " shall be and remain a 
 public highway for the use of the Government of the United States, 
 free from all toll or other charge for transportation of any property 
 or troops of the United States." 
 
 The court says : 
 
 " It is someAvhat singular that a provision apparently so simple in 
 its terms should give rise to such a wide difference of opinion as to 
 its true construction. The difficulty arises from the peculiar char- 
 acter of a railway as a means of public travel and transportation. 
 The case of a turnpike or a canal would have furnished no difficulty 
 whatever. Those thoroughfares are usually constructed and owned 
 by companies who have nothing to do with transportation thereon. 
 They merely furnish the thoroughfare. Had the provision in ques- 
 tion"^ related to public works of this kind it would have been clear 
 that the right reserved to the Government would have been merely 
 the right to use the works themselves (the turnpike or the canal) 
 free from toll. The words ' free from all toll or other charge for the 
 transportation of property or troops ' would have referred, by neces- 
 sary implication, to transportation performed by the Government 
 itself, either in its own carriages or vessels or in carriages or vessels 
 procured and emploved at its expense. No one would imagme for 
 a moment that the turnpike or canal company would be bound to 
 furnish the means of transportation, much less the propellmg power 
 and labor for performing it. * * * It is undoubtedly true that, 
 in practice, railroads, as a general thing, are only operated by the 
 companies that own them or by those Avith whom they have perma- 
 nent arrano-ements for the purpose. But the ascertained impracti- 
 cability of the general and indiscriminate pubhc use of these great 
 thoroughfares does not preclude their use by transportation compa- 
 nies having no interest in the roads themselves. Such companies, m 
 
'60 TWELFTH DAY. 
 
 fact, are actually engaged in conducting a vast carrying business on 
 the principal lines of railroad throughout the country. Nor does it 
 preclude the idea that it may be of great imjDortance to the Govern- 
 ment, in conducting its various operations in peace and war, to have 
 the free use of railroads as thoroughfares whenever it chooses to as- 
 sume the conduct and management of its own transportation thereon. 
 
 " Be this, however, as it may, the general course of legislation re- 
 ferred to sufficiently demonstrates the fact that in the early history of 
 I'ailroads it was quite generally supposed that they could be public 
 highways in fact as well as in name. This view pervaded the lan- 
 guage of most charters granted at that period, many of which still 
 remain in force, and the railroads constructed under them are, theo- 
 retically at least, public highways to this day." 
 
 I know in one case the distinction was expressly recognized in the 
 act that the railroad was to be a public highway, upon which anyone 
 having a carriage in which he wanted to transport his property 
 would have a right to put his carriage upon the railway and have it 
 carried, under regulations to be established by them. Such are the 
 universal provisions, even to this day, in all charters of railway 
 companies. 
 
 Senator Kean. Have you ever read the act incorporating the Xew 
 Jersey Eailway and Transportation Companj'? 
 
 Mr. Mather. I do not recall it. I should not be surprised if that 
 language were in it, or practically so. 
 
 Senator Keax. It is there, practically as you have indicated. 
 That is now the main line of the Pennsylvania Railroad to New York. 
 
 Mr. Mather. Yes. The court, after citing these facts as to the 
 provisions in these early charters, says : 
 
 " This fact affords the only explanation of much of the language 
 used, not onh' in those e^rly charters, but in many of those which 
 have been granted since, the latter adopting, as was natural, the 
 forms of phraseology found prepared to hand." 
 
 I do know this, that the language of the first company that went 
 to form what is now the Rock Island system followed in exact 
 phraseology the charter of the Baltimore and Ohio Railroad, which 
 was one of the first ones granted, and had this provision. 
 
 " The language referred to is only consistent with the idea that 
 railroads were to be regarded and used as public highways. The 
 forms of legislative expression thus adopted, and coming down from 
 a period when they had greater practical significance than they now 
 have, bring with them an established sense, which renders them free 
 from all uncertainty and doubt. We know, as well as we know the 
 sense of any phrase in the English language which has a historical 
 meaning and application, what is meant when a railroad is spoken 
 of in a law as a 'public highway.' We know that it refers to the 
 immovable structure stretching across the country, graded and railed 
 for the use of the locomotive and its train of cars. 
 
 " But it is not alone in charters which contemplate the creation of 
 railroads as public highways that we find evidence of the understood 
 distinction between railroads as mere thoroughfares and the opera- 
 tions to be carried on upon them by means of locomotives and cars. 
 This is manifest from the fact, amongst other things, that express 
 power is invariably given (if intended to be conferred) to the rail- 
 road company to equip its road, and to transport goods and passen- 
 
TWELFTH DAY. Ql 
 
 gers thereon and charge compensation therefor. This practice evi- 
 dently springs from the conviction that a railroad company is not 
 necessarily a transportation company, and that, to make it such, 
 express authority niust be given for that purpose, in compliance ^Yith 
 the rule that no power is conferred upon a corporation which is not 
 given expressly or by clear implication. 
 
 " In view of the legislative history and practice referred to, it 
 seems impossible to resist the conclusion, when we meet with a legis- 
 lative declaration to the efl'ect that a particular railroad shall be a 
 public highway, that the meaning is that it shall be open to the use of 
 the pubhc with their own vehicles, and that when Congress, in granting 
 lands m aid of such a road, declared that the same shall be and remain a 
 public highway for the use of the Government of the United States, it 
 only means that the Government shall have the right to use the road, 
 but not that it shall have the right to require its transportation to be 
 performed by the railroad company ; and when this right of the use 
 of the road is granted ' free from all toll or other charge for trans- 
 portation of any property or troops of the United States,' it only 
 means that the Government shall not be subject to any toll for such 
 use of the road. This, we think, is the natural and most obvious 
 meaning of the language used, when viewed in the light afforded by 
 the history of railroad legislation in this country." (Pp. 449-i51.) 
 
 This case was approved as late as the case of the Union Pacific 
 Railway v. Chicago, etc.. Railway Company (163 U. S., .585). 
 
 The railway company in the building of its line is performing a 
 public function, viz, creating a public highwaj'-. It has always been 
 considered the function of Government to make the public roads, and 
 the Government originally might have built the railways with pub- 
 lic funds or on the public credit. That some States did originally 
 undertake this task and ruined themselves financially in the effort is 
 a part of the history of our railway development. That these public 
 highways have been built by the use of private capital more effectively 
 and more economically than they would have been built under gov- 
 ernmental control will be universally admitted. The interest charge 
 upon the money invested in the construction of these public highways 
 must always, under private ownership, be borne by the traffic that 
 passes over them, so that those who have the benefit of the use of the 
 highways must always bear the burden of their cost. Had they been 
 constructed by public funds or by the use of public credit, the interest 
 upon their cost would have been a charge upon the public revenues, 
 to be provided for, at least to the extent of any deficit in the revenues 
 derived from the highways, by public taxation. 
 
 This, by the way, marks the distinction between the transportation 
 charge as a return for service rendered and a tax. A tax is borne 
 by the general public; a charge for service, on the other hand, is 
 paid only bv the party to whom the service is rendered. The term 
 " transportation tax," often used to inflame the public mind, is there- 
 fore a misnomer. . 
 
 A railway company having performed the public function of cre- 
 ating a public highway is, as a matter in addition to and beyond the 
 fact of constructing its railway, empowered to transact thereon the 
 business of transportation. This business, under Anglo-Saxon laws, 
 has always been a private occupation and never in ajiy sense a public 
 function."" It has always been subject in certain of its aspects, it is 
 
62 TWELFTH DAY. 
 
 true, to governmental regulation, but that does not make of it a public 
 occupation any more than many other lines of business which are 
 affected with a" public interest and which public policy demands shall 
 serve the people impartially. 
 
 Government has always regulated the business of innkeepers, 
 baker.s, millers, wharfingers, ferriers, hackmen, auctioneers, and others 
 (Munn i\ Illinois, 94 U. S., 113, 125), but it has never been suggested 
 that (TO\'ernment should or could engage in these occupations. To 
 this list our laws have added warehousemen and grain elevators, but 
 no State has yet built public granaries or elevators, though some 
 among them--I believe yours. Senator Clapp — have granted the 
 power of eminent domain in aid of their construction. 
 
 No intelligent railway representative denies the power of the Gov- 
 ernment to regulate the business of transportation, or questions the 
 wisdom of the proper exercise of that power. The mere incident, 
 however, that the business is subject to regulation does not make of it 
 a. public function. ^Yhatever the powers of the States may be, the 
 only power of the Federal Government with respect to foreign com- 
 merce is the power to regulate it conferred by the Constitution. Not 
 even the wildest advocates of the theory of implied powers would 
 claim that the power to regulate the business of transportation 
 involves the power on the part of the Federal Government to engage 
 in that business. The railways, therefore, in conducting the business 
 of carrying the commerce of the country, are not engaged in a gov- 
 ernmental occupation. 
 
 D. By the fear that something worse may happen. — Another reason 
 urged for the immediate and unthinking adoption of experimental 
 and drastic methods of regulation of the business of transportation, 
 is the fear that if something severe is not done to satisfy public 
 clamor on this subject the country will be forced to meet the issue of 
 governmental ownership and operation of the railways. It may be 
 good politics for the Republican party to try to steal Mr. Bryan's 
 next platform from under him, but it would seem to be much wiser 
 and braver to meet that issue when it comes, rather than, with a view 
 of evading the issue, to jnake radical changes in commercial policy 
 which present commercial needs do not require, and which may 
 seriously disturb present commercial conditions. Besides, Govern- 
 ment rate making would be but the first — and a vast — stride toward 
 Government ownership. 
 
 \". THE PROPOSED LEGISLATION IS NOT EXPEDIENT. 
 
 It can not be too carefully considered what it means to give the 
 Commission power to name the rates that any one locality shall en]oy 
 in relation to the rates of its competitive communities. 
 
 A. Indnntfial coimnunities depend on their local railways for 
 protection arpdnst competitors. — Industrial centers are not estab- 
 lished under any commercial rule, nor with any approximation to 
 scientific exactness. They are the result of growth and largel}' of 
 chance. Manufacture, for instance, has not always sought the most 
 economical site for its plants. Many plants have grown from small 
 beginnings which took very little thought of the elements that deter- 
 mine the availability of a site for such an industry. Other sites, 
 carefully selected in the beginning, have been eclipsed by the advan- 
 
TWELFTH DAY. 63 
 
 tages of new locations which the growth of the country has developed. 
 Hence it results that many industrial establishments are scattered all 
 over the country which are either farther from the source of supply 
 of their raw material, or farther from the market for their finished 
 product, or less favorably located as to the labor market than many 
 of their competitors whose locations were made with greater fore- 
 sight or in better luck. The continued profitable operation of such 
 plants is not a question which affects the owners of the plants alone. 
 Thousands of men are emploj'ed in just such plants, upon whom 
 other thousands depend for a living. Towns and cities have grown 
 up about them, with all the accompaniments of retail commerce — all 
 dependent upon their continuance and prosperity. 
 
 Thousands of such instances might be cited; many will suggest 
 themselves to anyone who stops to think on the subject. If the coun- 
 try were to be built anew those plants probably would be more 
 economically located elsewhere. That they are where they are is 
 due to the fact that men of limited "means but of commercial nerve 
 and belief in the future built where they could in the small way that 
 they were able, and by their industry, sagacity, and courage developed 
 in time great industries out of nothing. Such are the men who make 
 industrial communities ; they are our real " captains of industry." 
 
 An industrial center of that kind, once established, must be sus- 
 tained. Too much money is invested in its works, too many families 
 live upon its pay roll, too many merchants rely upon its support, too 
 many railways depend upon its traffic to make tolerable the thought 
 of its failure. 
 
 The continued success of such an enterprise is largely a question of 
 railway rates. How can this industry get its raw material from the 
 farther fields in which it is found and ship its product to the farther 
 markets in vrhich it must be sold, and still be able to compete with its 
 competitors of more favored locations? That is a question in which 
 not only the industry, its employees, their families, and the com- 
 munity "which lives by supplving' their needs, but the railway com- 
 pany which hauls its traffic, is' vitally interested. And to the solution 
 of the problem as to what shall be its rates in and out, m order to 
 enable it to li^'e and prosper, the traffic manager of the road that car- 
 ries its tonnage devotes his most earnest, interested, and sympathetic 
 attention. 
 
 B. The making of rates is not a matter of volition on the fart of 
 the railways.— In solving these problems no one traffic manager can 
 determine the issue for himself. It is not only the rate that he can 
 afford to o-ive to the shipper on his own rails that he must consider, 
 but the rates that the other railways can and do give to the com- 
 petitors of his shipper. It is not alone the will or the desire of the 
 local traffic manager that is expressed m the rate that is fanaily 
 made It is his will and desire as affected by the necessities of his 
 own shipper, the advantages of the competitive shipper, and the 
 action of the latter's carrier, which may be a ^^■ater carrier, untram- 
 meled by governmental regulation. It is a result which no one mind 
 and no one set of circumstances does or can control. 
 
 C A commission of Vuuited rnnnhev looiiid he vnaUe intelligentlij 
 to make the rates which all the raUu-ays make.-The proposition here 
 is that to solve this problem of the traffic manager, which is inter- 
 laced with the like problem of all the other traffic managers who have 
 
g4 TWELFTH DAY. 
 
 to deal with the business competitive with the one under considera- 
 tion, there shall be a governmental commission of seven men, who are 
 
 supposed — 1 ■ X 1 • 
 
 First. To inform themselves as to all the manifold and mterJacmg 
 facts which affect each particular rate situation ; 
 
 Second. To consider, in the language of the Supreme Court, all 
 the circumstances and conditions which reasonable men would regard 
 as affecting the welfare of the carrying companies and of the pro- 
 ducers, shippers, and consumers ; " n ■ -, 
 
 Third. To weigh with a humane mind " the moral and social con- 
 siderations " involved ; and 
 
 Finally. To make a rate which, giving due weight to all these 
 considerations, shall preserve and not destroy this industrial com- 
 munity, and shall conserve the reasonable revenues of the railways. 
 
 It may well be doubted whether seven men, no matter what their 
 information and capacity, will ever be able to satisfy the clamoring 
 contentions of the many localities in this country which have just 
 this problem to soh'e. 
 
 There are 650,000 manufacturing plants in tlie country. _ Each has 
 its rate problem, and all are entitled to urge on the rate-making 
 power, whether that be railway or govermental, the moral, social, 
 and economical considerations which affect their welfare. Under 
 the system b}^ which rates are now made, all of them are actually 
 heard by the rate-making power ; that is, by the trafiic reiDresentatives 
 of the lines which carry their traffic. It is safe to say that none of 
 them are entirely satisfied with the final adjustment of their rate 
 problem. Certainly they would not be satisfied if thej^ felt that by 
 apiDcal to a govermental commission they might obtain a reduction 
 of rates or an advantage in rates over their competitors. Eventually, 
 then, all these clamorous contentions for rate adjustment (which 
 means rate reduction) would come before the Commission. 
 
 In the rosters of officers of the railways of the United States, pub- 
 lished in the Official Railway Guide, there are given 24 vice-presi- 
 dents in charge of traffic, 1 traffic director, 2 assistant traffic directors, 
 17 general traffic managers, 48 traffic managers, 7 assistant traffic 
 managers, 50 freight traffic managers, 10 assistant freight traffic man- 
 agers, 174 general freight agents, 190 assistant general freight agents, 
 or a total of ,523 traffic officers, not to mention rate clerks and the offi- 
 cers of small lines whose duties cover this subject without special 
 designation, who now devote their time to the settlement of these 
 questions. 
 
 And I imagine from this compilation that I have made that the 
 estimate of Mr. Hines the other day that 800 people in this country 
 are daily and all the time engaged in the solution of the rate problems 
 of the country is a very conservative one and falls short of the mark 
 rather than exceeds it. 
 
 If the Commission were frank with the country it would admit its 
 incapacity to compass such a task. It has admitted its incapacity to 
 compile or to encompass the facts necessary for it to have a judgment 
 as to the effect of existing rates. In its report to the Senate of April 
 7, 1904, it apologized for the guesses that it put forward to serve as 
 facts in the following language — and, mind you, they were reporting 
 to the Senate as to the effect upon the revenues of the railways or 
 these different increases and changes in classification : 
 
TWELFTH DAY. g5 
 
 "All of tlie thousands of railroad points throughout the country 
 are, therefore, more or less affected by these classification changes, 
 but m order to form an estimate Avhich would be of any value as to 
 the amount of increase in the revenues of the railways as a result of 
 such advances m classification it would be necessary'to be in posses- 
 sion of some knowledge, not only as to the separate tonnage carried 
 of each of the articles affected, but as to the points between which 
 they were carried as well. This information is not available, and 
 even if it could be obtained the undertaking would be so enormous 
 as to render it virtually impracticable." 
 
 A body that finds the task of ascertaining the facts on which it 
 must act "so enormous as to render it virtually impracticable" 
 should never be given power to act. 
 
 In the light of this situation, the following language of tlie Com- 
 mission in its last annual report has in it an element of humor : 
 
 " In the fixing of rates upon all commodities for carriage in all 
 directions and between all points reached by railroads it is inevitable 
 that much injustice, unfairness, unreasonableness, preference, and 
 discrimination will be practiced notwithstanding the greatest care 
 and ripest judgment may be exercised by the railway officials charged 
 with the duty of rate making. These errors of judgment on the 
 part of railway officials, many of them occurring in the hasty exer- 
 cise of the rate-making function, or in the effort to press on to the 
 discharge of other urgent duties, constitute the reason for Federal 
 regulation and the basis of the present widespread demand for an 
 amendment to the existing statute which will enable their speedy 
 correction when the results of such errors are felt by the commercial 
 public." 
 
 That is, because 800 or more railroad officials, in the solution of 
 these problems, cause injustice, unfairness, and discrimination in 
 the hasty exercise of the rate-making function, therefore seven men Or 
 five men, as the Commission is now constituted, should be given that 
 power. 
 
 D. The Com/mission could only satisfy all the communities ty 
 sacrif,cing the revenues of the railways. — Assuming that a commission 
 " may be found wise enough and broad enough so to adjust the rela- 
 tion of rates between all the communities of the country as to .pre- 
 serve commerce where it is already established and to encourage it 
 where it seeks to find a foothold, it is perfectly clear that the rates 
 finally made by the commission to accomplish this end will be made 
 satisfactory to the shipper only at a sacrifice of the revenues of the 
 railways. 
 
 The railways themselves are often willing in such an emergency 
 to sacrifice their revenues on the particular rate in controversy in order 
 to conserve other business. Mr. Tuttle, of the Boston and Maine, 
 cited before you the other day a striking instance of this principle. 
 He told you of the wire manufacturing establishments at Worcester, 
 Mass., which had long had a monopoly of the manufacture and sale 
 of barb wire. -Later the manufacture of wire was introduced at 
 Pittsburg, and, said Mr. Tuttle: ■ ■ , ^ ■ n 
 
 " Pittsburg being a center of trade and cheap manufacture in all 
 metals made, the rates from Pittsburg to Chicago and the West made 
 it impossible for the Worcester manufacturers fo do business unless 
 12 D— 05 M 5 . . . ' 
 
66 TWELFTH DAY, 
 
 the railroads could help them out. Immediately the railroads did 
 help out by reducing the rate. The roads leading from Pittsburg to 
 the West brought up the matter befo^re the Trums: Line Association, 
 and complained that the rate from Worcester ought to be higher than 
 the rate from Pittsburg because of the distance. A-Miat was the an- 
 swer? The Boston and Albany, leading west from Worcester, and 
 the Fitchburg road said : ' Gentlemen, we shall be very glad to ad- 
 just these rates if you can show us how our wire manufacturers can 
 continue to do business. If you can not authorize a greater charge 
 from Worcester than from Pittsburg, 5,000 men will go out of em- 
 ployment in Worcester. We can not stand all the collateral damage 
 that will ensue.' " 
 
 That is the test. The railway reduces its rate, not as a matter of 
 philanthropy to any shipper, nor for the benefit of any community, 
 but selfishly, because its own tonnage, its own revenues, depend 
 upon it. 
 
 " There is a practical illustration. Whenever you undertake to 
 fix arbitrarily rates in competition jou are just as sure to destroy 
 more large industries than you can ever build up in the small towns 
 and villages as the sun is to rise to-morrow morning. It is too big a 
 problem." 
 
 It is manifest that the willingness of Mr. Tuttle's company to 
 shrink its revenues on its wire tonnage was determined not alone by a 
 consideration of the question of the reasonableness of its rate on 
 barb wire, but upon the broad consideration of what efi'ect the driv- 
 ing out of the barb-wire business at Worcester would have upon the 
 general revenues of ithe company and upon the preservation of im- 
 portant industries upon its line. 
 
 To substitute a governmental commission for the railway com- 
 pany' in such a situation would be to require it to consider not only the 
 reasonableness of the rate itself, but the entire subject of the revenues 
 ,of the company carrying the traffic, as well as the industrial needs of 
 the community. And if of that community then of all communities.^ 
 
 E. Possibility of commercial disturbance if rates are determined by 
 the Commissimi. — The Interstate ,Commerce .Commission has said : 
 
 " To some extent every question of transportation involves moral' 
 and social considerations " — and I wish the committee would bear in 
 mind that phrase — " so that a just rate can not be determined inde- 
 pendenitlv of the theory of social progress." (Annual Eeport, 1896, 
 p. 59.) 
 
 But it is apparent that it is not the theory but the facts of 
 social progress with which the rate-making power has to deal. It is 
 facts and not theories with which the railways actually deal in mak- 
 ing rates as ithey now are made. If a iGovernment commission is to 
 make rates upon '" moral and social considerations," determined by 
 the commission's " theory of social progress," there is no telling what 
 disturbance of existing industrial establishments and conditions will 
 ensue. And in this possibility of commercial disturbance, to my 
 mind, lies the greatest danger m the proposed grant of rate-making 
 powers to a governmental body. The railways are entitled, under 
 the law of the land, to earn a "fair return upon the value of their prop- 
 erty. Nothing in the way of rate regulation or of burdensome taxa- 
 tion — nothing, in this country, but revolution — can finally deprive 
 them of the right to earn this fair return. 
 
TWELFTH DAY. 67 
 
 A commission with rate-making powers might establish rates upon 
 certain traffic tliat are in themselves unreasonably low, but which 
 will be upheld by the courts so long as the earnings of the railways 
 from their other traffic enable them to earn the fair return to which 
 they are entitled. So that while the Commission may reduce (his or 
 that class of rates, or relieve this or that community from its supposed 
 disadvantages, the aggregate charge for transportation of the com- 
 merce of the country must be sufficient to net this fair return. And 
 thus, against mistakes of the Commission in making unreasonably low 
 rates in special cases, the railways may recoup themselves elsewhere. 
 But an industrial plant or community ruined by a disturbance of a 
 rate relation on the existence of which its prosperity has been built 
 up, sinlply goes out of business. 
 
 The railway stays, and if its rates on that particular commodity 
 or from that particular locality do not pay, somewhere in this country 
 it will collect, and the laws will enable it to collect no mattei* what 
 Congress may do, sufficient revenues to net a fair return upon the 
 value of its property. 
 
 It is not manufacture alone that is interested in these rate-making 
 problems. Every branch of industry depending upon transportation 
 IS in like situation dependent upon a system of transportation rates 
 which, while artificial in the sense that they are nominally made by 
 the railways, are natural in the sense that they are forced by commer- 
 cial conditions. 
 
 Take the case cited by Senator Dolliver, of this committee, in a 
 letter to his Iowa constituents: Manchester, Iowa, sells butter in 
 Boston, Mass., in competition with Manchester, N. H. A system of 
 railway rates that permits the Iowa butter to be transported the 
 greater distance and to be sold on even terms in Boston in competition 
 with the New Hampshire butter that needs to be shipped but a few 
 miles in comparison is essential, first, to the Iowa dairyman, and sec- 
 ond, to the Iowa railways, which depend to an extent on the Iowa 
 dairyman's product for their revenues. 
 
 If the Commission's " theory of social progress " excludes the 
 Iowa eggs and butter from the Boston market, what is the Iowa pro- 
 ducer to do? He holds the market now not because his eggs and 
 butter are fresher and cheaper than the New Hampshire product, but 
 because not only he, but every railway that runs from Iowa to Bos- 
 ton, or any part of the way, is fighting to hold the market, and the 
 railways make rates that enable him to do so. Is it likely that as 
 against the contention before the Interstate Commerce Commission 
 that Manchester, N. H., is entitled to rates which wQjild insure to it 
 possession of the Boston market as against the distant Iowa dairy- 
 man the Commission would fight as hard for the preservation of this 
 Iowa industry as would the railways whose revenues depend upon 
 its continuance? 
 
 F. Preferences between ports. — The relative claims of the Atlantic' 
 ports will present interesting problems when the Commission comes 
 to make the rates. Vast commercial interests have grown up in each 
 of these ports on the theory that the commerce which for so many 
 years has moved through them will continue so to move. Any change 
 in industrial conditions which would destroy or materially injure 
 any of these vast interests would be a calamity to the country. Not 
 only the capital invested in the instrumentalities of commerce at the 
 
68 TWELFTH DAY. 
 
 ports themselves, but the railways that carry traffic to and from the 
 ports, as well as the country at large, are interested in the mainte- 
 nance and continued prosperity of all of these ports. Out of the 
 four-cornered competition of port against port and carrier against 
 carrier there has resulted a system of rates which, recognizing com- 
 mercial conditions at each of the ports, has secured to each in the 
 past, and if undisturbed would continue to secure to each in the fu- 
 ture, such proportion of the commerce of the country as to enable 
 each to live and prosper. All the commercial interests at all of these 
 ports are not satisfied all of the time with the adjustment of rates 
 thus reached, and one of the first questions that would press for 
 decision before the reorganized Commission would be the question 
 of rate adjustment at these ports. The first difficulty that the Com- 
 mission would find would be in clause 6 of section 9 of Article I of 
 the Constitution of the United States : 
 
 " No preference shall be given by any regulation of commerce or 
 revenue to ports of one State over those of another." 
 
 I believe the Commission hold that this constitutional restraint 
 does not apply at all to railroad charges. If the Commission can 
 ever be given the power to make railway rates it is only under the 
 ninth section of Article I of the Constitution, which provides that : 
 
 " Congress shall have power to regulate commerce with foreign 
 nations and among the several States and with the Indian tribes." 
 
 It is only on the theory that the making of railway rates by a 
 governmental agency is a regulation of commerce that Congress has 
 constitutional authority to confer the rate-making power upon the 
 Commission. If the making of rates is a regulation of commerce, 
 then clause 6, for the purpose of this discussion, reads : 
 
 " No preference shall be given by any rate established by the Inter- 
 state Commerce Commission to ports of one State over those of 
 another." 
 
 Let us pause here for a moment to note the difference between this 
 constitutional limitation upon the power of the Commission (if it 
 becomes a Federal rate-making power) and the limitation upon the 
 rate-making power of the railways in the act to regulate commerce. 
 The prohibition there is against making or giving " any undue or 
 unreasonable preference or advantage to any * * * locality." 
 In the making of rates under existing law, therefore, the carriers may 
 establish preferences as between the Atlantic ports, provided onlj'^ 
 such preferences are not undue or unreasonable. Here is express 
 authority for the establishment, by the railways, of differential rates 
 as between these ports, commercial conditions and necessities de- 
 termining whet5ier or not the differential or preference is undue or 
 unreasonable. 
 
 If, however, the Commission shall come to be a Federal rate-making 
 power, the Constitution itself prohibits the Commission from making 
 rates which would give any preference — not any undue or unreason- 
 able preference, but any preference — to the ports of one State over 
 those of another. It will be utterly impossible for the Commisison to 
 conform to this inflexible command of the Constitution, except by 
 establishing a system of rates on some fixed principle, such as a dis- 
 tance tariff or postage-stamp rates. The moment the Commission 
 should depart from such principle and attempt to adjust the relation 
 of rates between the different ports upon a comparison of their vari- 
 
TWEILFTH DAY. 69 
 
 ous advantages and disadvantages, or of the commercial, moral, and 
 social considerations upon which the contending claims of the dif- 
 ferent ports to control a portion of the commerce of the country may 
 be based, they would enter a field in which the judgment of honest 
 men might reach widely different conclusions. Any conclusion 
 reached by them in that field of investigation would be subject, and 
 honestly subject, to the claim that one port or another was thereby 
 given a preference. 
 
 It is no answer to this proposition for the Commission to say, as 
 they do in their communication of April 11, 1905, to this committee, 
 that the carriers themselves may not do what the Government could 
 not permit. The making by the railways of a rate on interstate 
 traffic is not, under existing law, " a regulation of commerce." It is 
 an established doctrine of construction, often asserted by the Supreme 
 Court, that the failure of Congress to prescribe a regulation of any 
 subject of conunerce is an expression of the will of Congress that, 
 as to that subject, commerce shall be unregulated. Congress has 
 left the making of rates on interstate commerce to the railways, sub- 
 ject only (so far as the present contention is concerned) to the 
 proviso that preferences among localities shall not be undue or 
 unreasonable. 
 
 When Congress shall have regulated this subject by empowering 
 a commission to make rates, then the act of the commission will be a 
 Federal " regulation of commerce." The constitutional prohibition, 
 therefore, while clearly applying to the act of any governmental com- 
 mission in the making of interstate-commerce rates, does not apply 
 to the act of the railways in making those rates. 
 
 The practical difficulties that would confront the commission in 
 establishing a system of differential rates for the Atlantic ports need 
 only to be suggested. These difficulties are increasing through the 
 growing importance of the Gulf ports, which furnish a port of export 
 hundreds of miles nearer to the fields where our grain is grown. 
 
 Before man began to change the plan of nature the commerce of 
 this country, from the sources of the Ohio River in western Pennsyl- 
 vania to the sources of the Missouri in the far Northwest, flowed down 
 the Mississippi Eiver to the Gulf; and it would seem that man is be- 
 ginning to realize that commerce will eventually flow along this 
 Tin 1"nT*3 1 imp 
 
 I mean by that that the railway community has come to realize that 
 the natural line for railwav transportation for all of the West and 
 Middle West between the AUeghenies on the one side and the Rocky 
 Mountains on the other side is the natural system of dramage that 
 the Lord himself established. I think it was Mr. Hill who once said 
 that you might kick a barrel of flour at Minneapolis and it would roll 
 to New Orleans ; and that is what the railways of the Middle West 
 are doing to-day, or providing ^or doing, in seeking, as all of them 
 to-day are seeking, to find a line down the Mississippi River to the 
 Gulf at New Orleans, it being, as vou all know, a fundamental princi- 
 ple of railroad operation that a railway line without gradients, or, 
 better still, a railway line with a down grade m the direction of the 
 traffic, is most econinically operated. ^ i , 
 
 Senator Cullom. Wliere the traffic goes both ways you want a level 
 
 road, do you not? , , «. i ^i ^.u i i 
 
 Mr. Mathkr. Yes; where the traffic goes both ways the level 
 
70 TWELFTH DAY. 
 
 road is desired ; and that is what we are all working for as fast as we 
 can work. 
 
 It is a curious historical fact that the eifort to divert the commerce 
 of the great Northwest to the ports on the Atlantic coast was the 
 reason for the adoption of the Federal Constitution. The Spanish 
 power held the port of New Orleans, and through that fact dominated 
 the commerce of this vast region. It was the effort of Washington 
 to divert this commerce from the Spanish port on the Gulf to the 
 American ports on the Atlantic by connecting the waters of the Ohio 
 with Chesapeake Bay through the construction of the Chesapeake 
 and Ohio Canal that led to an effort on the part of the States through 
 which the canal was to run to agree upon a system of uniform com- 
 mercial regulations for the canal. That is, Washington built a 
 canal in order that the commerce of the great Northwest should flow 
 to the Atlantic ports instead of flowing to the Gulf ports, which were 
 then controlled by a foreign and a hostile power. This conference 
 suggested the necessity of a central power to regulate commerce 
 among the States. Out of that suggestion sprang the Annapolis 
 Convention, which called the Constitutional Convention at Phila- 
 delphia. The latter convention carried out the purpose that had 
 dominated the movement, by adopting the provision : 
 
 " The Congress shall have power to regulate commerce with foreign 
 nations and among the several States and with the Indian tribes." 
 
 But in creating a strong central government clothed with this 
 power to regulate commerce among the States, the States insisted 
 upon the wise proviso that no regulation of such commerce by the 
 newly created Federal power should give any preference to ports of 
 one State over another. The Constitution could not have, been 
 adopted except for this proviso. It is not likely that this funda- 
 mental safeguard will be blown out of the Constitution so easily as 
 it is disposed of in the Commission's recent letter to this committee. 
 
 It is possible from time to time, but not by any means for all the 
 time, for the railroads that serve the Gulf ports to agree with the 
 trunk lines that serve the Atlantic ports, upon a relation of rates 
 from the grain-growing centers to these different ports of export, to 
 enable all of the carriers and all of the ports, whether Gulf or 
 Atlantic, to share in the traffic. But when the Gulf ports shall have 
 furnished, as they are rapidly doing, adequate transfer and shipping 
 facilities, and shall have perfected the systems of railways reaching 
 their ports, I doubt if they will listen with patience to the proposi- 
 tion that a governmental body shall determine, by the establishment 
 of a system of differential rates, how much of the traffic which lies 
 at their doors shall pass through their ports, and how much shall go 
 through ports less favorably located. 
 
 The conflict is inevitable. It is being hastened by the work of con- 
 struction of the Panama Canal, and will be accentuated by the vast 
 increase in Pacific and trans-Pacific traffic to follow the completion of 
 that work. The conflict is a sectional one. It is the South against 
 the East — -the Gulf ports against the Atlantic ports. If left to peace- 
 ful adjustment by the gradual development of commercial laws, it 
 will work itself out naturally and without disturbance of either in- 
 dustrial conditions or sectional feeling. But the Southern States that 
 are interested in the commerce of the Gulf have nothing to gaip and 
 much to lose by putting the settlement of this question under the con- 
 
TWELFTH DAY. 71 
 
 trol of a gorernmental body owing its appointment from time to time 
 to the Executive and likely to have a point of view not entirely ad- 
 justed to the point of view of the Gulf States. . 
 
 VI. KG EFFECTIVE JUDICIAL REVIEW IS OR CAN BE PROVIDED. 
 
 It is universally conceded, and the President's message insists upon 
 it, that the rates established by the Commission shall be " subject to 
 review," and it is always assumed that this will be a judicial review. 
 
 Now, for the only judicial act which the Commission is to perform 
 under the proposed legislation the Townsend bill provides no review. 
 The Commission is to do two things : 
 
 First. Determine that an existing rate is unreasonable. 
 
 Second. Establish a new rate in its place. 
 
 The first act, under the Townsend bill, becomes fixed and final, 
 and the Commission, without waiting for anyone to object or com- 
 plain, goes on to the performance of its second act — the making of 
 the new rate, which, in turn, is fixed and final, unless the court of 
 transportation shall find the I'ate established by the Commission to 
 be unreasonable. 
 
 I want to make it perfectly plain that the determination- of the 
 Commission as to what a rate shall be in a given case is, in the nature 
 of things, under our form of government, absolutely incapable of 
 review, except by another similar commission, or by Congress itself. 
 Neither the review provided for in the Townsend bill nor the gen- 
 eral powers of the United States icourt in an application in equity 
 to restrain the enforcement of ,any rate established by the Commis- 
 sion could give to the carrier anj'^ reconsideration or redetermination 
 of Ihat question. The making of a rate is a legislative function; 
 the only question the court can decide is whether the rate established 
 is a reasonable rate. (Reagan v. Farmers' L. and T. Co., 154 U. S., 
 362; T. and P. Rwy. Co. v. Commission, 102 U. S., 197; Maximum 
 Rate Case, 167 U. S., 234; State r. Johnson, 61 Kans., 803; W. U. 
 Tel. Co. V. Wyatt, 98 Fed., 335.) 
 
 None of the " moral and social " or other industrial considerations 
 which might move the Commission in determining what rates should 
 or should not be made could be considered by the court in determin- 
 ing whether the rate established is reasonable. The court's inquiry 
 woTjild be a cold case of figures, its determination being whether the 
 rate established is confiscatory. If the company on all its other busi- 
 ness was enabled to earn a fair return on the value of its property, 
 the court would never interfere with the enforcement of the rate 
 established by the Commission. 
 
 This test demonstrates the ineificiei^cy and the mjustice of the 
 •r^uirement of the Townsend ,biU, that the court in deciding its ques- 
 tioja shall be confined to a consideratiion of the evidence on which the 
 Commission decides its very different question. 
 
 VII. THE PROPOSED LEGISLATION SETS A PRECEDENT FOR THE REGULATIO^T 
 BY CONGRESS OF ALL TRANSACTIONS IN INTERSTATE COMMERCE, INCLUD- 
 ING ALL CONTRACTS FOR THE PURCHASE AND SALE OF COMMODITIES 
 MOVING FROM STATE TO STATE. 
 
 The making of rates by anv Federal body can be justified only on 
 the theory that the act is a regulation of interstate commerce. And 
 
72 TWELFTH DAY. 
 
 rates can be regulated — that is, made — only because the transporta- 
 tion to which they apply is interstate commerce. But interstate com- 
 merce does not consist alone of transportation, but includes buying 
 and selling. Indeed, in the first case before the Supreme Court that 
 involved the application of the commerce clause, it was contended that 
 commerce did not include the act of transportation, but was confined 
 to acts of purchase and sale, and Mr. Chief Justice Marshall states 
 this contention and its refutation thus : 
 
 '• The counsel for the appellee would limit it (commerce) to traffic, 
 to buying and selling, or to the interchange of commodities, and to 
 not admit that it comprehends na\'igation. [The only form of 
 transportation then before the court.] That would restrict a general 
 term applicable to many objects to one of its significations." (Gib- 
 bons ('. Ogden, 9 Wlieat., 189.) 
 
 And very recently the Supreme Court has said : 
 
 " Contracts to buy, sell, or exchange goods to be transported among 
 the several States, the transportation and its instrumentalities, and 
 articles bought, sold, or exchanged for the purposes of such transit 
 among the States, or put in the way of transit, may be regulated." 
 (United States v. E. C. Knight Co., 156 U. S., 11; Addyston Pipe 
 and Steel Co. v. U. S., 17-5 U. S., 239.) 
 
 So it is clear that not only the price of transportation, but also the 
 price of steel, of grain, of sugar, of dry goods, of boots and shoes, of 
 bread, of meats, of clothing, when sold ior transit from State to State, 
 are subject to regulation by Federal legislation and by Federal com- 
 missions. It is impossible to say when a public demand will arise for 
 regulation of the prices of the commodities that form the great bulk 
 of the commerce of the country. Indeed, if present-day jouruE^ism 
 can be at all relied upon as reflecting public sentiment, the public are 
 more interested in the prices charged for certain necessaries of life — 
 almost the entire sale of which constitutes interstate commerce — 
 than in the prices charged for transportation. It would not be a far 
 cry from the present agitation for regulation of interstate railway 
 rates to a demand for regulation of the prices of oil and beef de- 
 signed for transit from State to State. And the regulation of the 
 one subject is as much within the power of Congress as the other. 
 If the present demand is yielded to there will be an unanswerable 
 precedent for the other when it comes. 
 
 Mr. Chairman and members of the comjnittee, that is all the state- 
 ment I desire to make. 
 
 The Chairman. You have concluded your regular statement ? 
 
 Mr. Mather. Yes. 
 
 Senator Foeaker. Before we adjourn, Mr. Chairman, in view of 
 what Mr. Mather has said about the impending contest between the 
 Gulf ports and the Atlantic ports, I desire to call his attention to an 
 editorial found in the Washington Post of to-day, entitled " Growth 
 of southern ports," and to ask him to read it and make such comment 
 on that article (putting the article itself in the record) as he may see 
 fit, after he has read it. 
 
 Mr. Mather. Very well, sir. 
 
 (Thereupon, at 4.35 o'clock p. m., the committee adiourned until 
 to-morrow, May 3, 1905, at 11 o'clock a. m.) 
 
REGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE, 
 UNITED STATES SENATE. 
 
 THIRTEENTH DAY, 
 
 "Wednesday, May 3, 1905. 
 CONTINUATION OF STATEMENT OF ME. ROBEET MATHEE. 
 
 Senator Cullom (in the chair). Mr. Mather, you had the floor last 
 evening, and you have it now, so far as I know. 
 
 Mr. Mathee. Mr. Chairman, as I closed last evening Senator 
 Foraker handed me a copy of yesterday's Washington Post, with the 
 request that I read this editorial : 
 
 GROWTH OF SOUTHERN POETS. 
 
 One of the most remarkable trade movements of recent times is the growth 
 of the Gulf ports at the expense of New York and other Atlantic ports. New 
 Orleans has become the second largest gi'ain-exporting port, and gives promise 
 of becoming the first. Galveston's export and Import trade, is rapidly increas- 
 ing. In 1897 New York handled 77.9 per cent of the wheat, corn, and flour 
 exports, and in 1904 her share had dwindled to 36.9 per cent. The Gulf ports 
 have made corresponding or greater increases. 
 
 Natural advantages, including proximity to supply centers, and the extension 
 of port facilities for handling cargoes have had something to do with this in- 
 crease of exports from the Gulf ports, but the chief factor has been the differ- 
 entials made by railroads connecting with those ports. The Gulf rOads claim 
 as their natural territory all that region lying south and west of a line from 
 Milwaukee through Chicago and Indianapolis to Charleston. Many of the big 
 shipping cities, such as St. Paul, Dubuque, Omaha, Kansas City, St. Louis, 
 Denver, St. Joseph, and Louisville, are in the debatable territory claimed by 
 both southern and eastern roads. The Gulf roads now demand that the Inter- 
 state Commerce Commission confirm to Gulf ports a differential of 10 per cent 
 under Baltimore on all imports passing through those ports, and from 13 to 18 
 per cent under New York, according to the class of freight affected. These dif- 
 ferentials are now enjoyed by the Gulf ports, and the diversion of business 
 from Atlantic ports has driven east-and-west railroads into an alliance against 
 the Gulf routes. A rate war is on with every prospect of bitter rivalry. The 
 Gulf routes, represented at a recent meeting at Buffalo, threw down the gage 
 of battle, and are apparently able to cope with the powerful interests centering 
 in Atlantic ports. 
 
 The effect of the fight over the import trade is already visible. Atlantic 
 coast roads have made a cut of 10 per cent on import rates to the interior, 
 which reduces these rates to 50 per cent below the normal figures. Gulf roads 
 are preparing to meet further reductions. The eastern and Canadian roads 
 are enlisting the support of western roads having no connection with southern 
 ports. 
 
 So alarming is the decrease of commerce through the port of New York that 
 
 13 D— 05 ix- 
 
 H. T. NEWCOMB, 
 
 LAWTCR 
 UflLDINC. WMHINCTON. - P. C. 
 
2 THIETEENTH DAY. 
 
 an effort is being made to secure a legislative investigation of tlie subject. 
 Senator Cullen has introduced in the State senate a resolution providing for 
 the appointment of a commission to inquire into the conditions and report reme- 
 dies, if any can be found. It is probable that this commission, if appointed, 
 will discover that commerce to and from Europe is not to be controlled by the 
 New York legislature, and that no modification of conditions at the port of 
 New York can countei:act the tide that has set irresistibly toward the South. 
 
 The Senator requested that I make such comments on this article 
 as might occur to me. T do not know that I have anything to say 
 about it except that it illustrates the proposition I made yesterday, 
 that the flow of our commerce for export (speaking now of the great 
 Central and Middle West) will naturally, must eventually— as rail- 
 roads take advantage of the natural course of drainage furnished by 
 the Mississippi River and its tributaries for the building and im- 
 provement of the great lines of their railroads — flow more and more 
 through the Gulf ports. 
 
 So far as the rate situation is concerned, the figures given in that ar- 
 ticle, being in percentages, do not indicate anything definite. As I 
 understand, the situation that has existed since the war in export 
 rates that prevailed during January and part of February, I think, is 
 this : The trunk lines and the Gulf port lines have established tempo- 
 rary differentials of Ai cents from Kansas City and 3^ cents from 
 Omaha to the Gulf ports under the regular rates to Baltimore, the 
 actual rates being 16 cents, I think, from Kansas City to the Gulf, 19 
 cents from Omaha to the Gulf, and 22| cents to Baltimore. 
 
 Senator Foraker. I understand that article says that the differen- 
 tial in favor of the Gulf ports as against Baltimore is lO'cents, mak- 
 ing a difference of 13 cents in favor of New Orleans as against New 
 York. 
 
 Mr. Mather. Xo ; the article says 10 per cent. 
 
 Senator Foeajcer. Yes ; 10 per cent ; so it is. A difference, reaUy, 
 in favor of Philadelphia of 2 cents, and in favor of Baltimore of 3 
 cents, as against New York and Boston. 
 
 Now, I understand you to say that the differential in favor of New 
 Orleans and Galveston is how much in addition ? 
 
 Mr. Mather. Four and one-half cents from Kansas City and 3^ 
 cents from Omaha. 
 
 Senator Foraker. I am speaking of the differential in favor of New 
 Orleans and Galveston. That is, it would be 4| cents plus 2 cents. 
 
 Mr. Mather. Yes ; in the case of Philadelphia. 
 
 Senator Foraker. And plus 3 cents in the case of Baltimore? 
 
 Mr. Mather. Yes. 
 
 Senator Foraker. JNIaking a differential in favor of the Gulf ports 
 of how much ? 
 
 Mr. Mather. 6J and 7J cents, respectively. 
 
 Senator Foraker. Do you think that is approximately a correct 
 statement of the diversion of traffic from New York to those Gulf 
 ports ? 
 
 Mr. Mather. The statement contained in this article you mean? 
 
 Senator Foraker. Yes. 
 
 Mr. Mather. I have not ihe figures to-day. 
 
 Senator Foraker. I understood you to say yesterday that, without 
 any differential, the natural trend would be in "favor of the Gulf ports 
 as against Atlantic seaports. 
 
THIRTEENTH DAY. 3 
 
 Mr. Mather. I think that would be so on the same rates. 
 _ Senator Foeaker. In other words, there would be really no neces- 
 sity for a differential for the Gulf ports as compared with Atlantic 
 ports to enable them to share in the export business. Is that the 
 understanding we are to have ? 
 
 Mr. Mather. If the rates were the same to Baltimore and to New 
 Orleans, do yovi mean ? 
 
 Senator Foraker. I understood you to say that if there were no 
 differentials at all established, the natural trend of the business would 
 be in favor of the Gulf ports, because of their proximity to market 
 and because they have the easier grades. 
 
 Mr. Mather. I coupled that with the qualifications as to when the 
 Gulf ports shall have established sufficient facilities to care for that 
 traffic and when the railroads shall have completed their systems. 
 
 Senator Foraker. I am asking only for information. There is 
 nothing controversial in what I have 'to say. ^Vhat the committee 
 wants is to understand these questions fully. If I am correctly in- 
 formed, the transportation facilities of the Gulf ports have been 
 greatly and rapidly increased in recent years. 
 
 Mr. Mather. That is true. 
 
 Senator Foraker. That is on the basis of these arbitrary differ- 
 entials. "What was the basis before they were established, if you can 
 tell us? 
 
 Mr. Mather. As a matter, of fact I could not tell you. But clearly 
 the basis was competitive, competition between the roads serving the 
 Gulf ports with the roads serving the Atlantic ports. 
 
 Senator Foraker. Let us take the Atlantic ports, for the moment, 
 just for illustration, and to get at the facts at the bottom of the 
 matter. The purpose of these differentials was to establish, was it 
 not, coriimon through rates from originating points to points of des- 
 tination for export business, and the differentials were fixed upon the 
 theory that the ports of Baltimore and Philadelphia were at a disad- 
 vantage as compared with the ports of Boston and New York ? 
 
 Mr. Mather. That was the basis of the claim for a differential in 
 favor of those points. 
 
 Senator Foraker. And it was thought that by making a differential 
 of 3 cents in favor of Baltimore, and of 2 cents in favor of Philadel- 
 phia, upon the inland transportation, that would equalize the dis- 
 advantages of ocean transportation from those ports as compared 
 with the others. Is it, or not, a fact that those disadvantages, which 
 were supposed to exist, and doubtless did exist, when these differ- 
 entials were first established, have been largely overcome, so that by 
 the improvement of harbors and the increase of shipping and trans- 
 portation facilities the .ports of Baltimore and Philadelphia are not 
 any longer at the same disadvantage, as compared with the ports of 
 New York and Boston, that they were in 1877, when differentials were 
 first established bv agreement among the railroads? 
 
 Mr. Mather. I am not sufficiently acquainted with the situation 
 as to the Atlantic and Gulf ports to speak authoritatively about that, 
 but I should think that the same reasons exist, and probably to the 
 same degree, for the maintenance of those differentials now that 
 existed when they were established. . 
 
 Senator Foeakee. I only get an idea about it from reading news- 
 paper reports of the proceeding that has been in progress before the 
 
4 THIRTEENTH DAY. 
 
 Interstate Commerce Commission for several months as to whether 
 these differentials should be continued, and I have observed that there 
 has been a good deal of testimony introduced to show that the dis- 
 advantages of the ports of Baltimore and Philadelphia, as compared 
 Avith the ports of New York and Boston, have been practically over- 
 come, so that they are now almost upon an equality — that is to say, 
 that the cost of ocean transportation from Baltimore and Philadel- 
 phia is not appreciably greater than the cost of transportation from 
 New York and Boston, and that, consequently, having in view the 
 securing of a common through rate to all those ports, it is not neces- 
 sary longer to maintain these differentials. That, I understand, is 
 the contention of Boston and New York in the hearings now in 
 progress. 
 
 Mr. Mather. Yes; and, as I understand, that was their claim at 
 the time the differentials were established, or at least at the time of 
 the arbitration question. 
 
 Senator Forakee. I have read somewhere the statement that differ- 
 entials were established in 1873, and in 1882, when they were recon- 
 sidered by the Thurman Commission, my recollection is that there 
 was a substantial disadvantage for the ports of Baltimore and Phila- 
 delphia to overcome, and these differentials were thought to be a 
 fair expression of that advantage. The point I want to get at is 
 whether or not the differentials in favor of Galveston and New 
 Orleans were established upon the same general basis that the differ- 
 entials were established in the case of Philadelphia and Baltimore. 
 
 Mr. Mather. I could not say as to that. 
 
 Senator Foeaker. Can you, or not, tell us whether the disad- 
 vantages of those ports are being overcome? 1 understood you to 
 intimate that they are. 
 
 Mr. Mather. They are. 
 
 Senator Foraker. At what disadvantages were those ports, as com- 
 pared with the Atlantic ports, except only in longer distances for 
 ocean transportation and smaller inducements for shipping to go to 
 those ports for export? 
 
 Mr. Mather. I know that until quite recently one element of dis- 
 advantage has been the claim that grain could not be moved all the 
 j^ear round through the southern climate. Some trouble has been 
 had in the past in consequence of corn heating in shipment from 
 Galveston and New Orleans. I understand, however, that that has 
 been overcome by new methods of preparing and handling grain. 
 
 Senator Forakee. If the disadvantages of Baltimore and Phila- 
 deljDhia have been substantially overcome in the May indicated, and 
 if the disadvantages of New Orleans and Galveston and other Gulf 
 ports are being overcome in the way indicated, the time will soon 
 come, I imagine, Avhen it w ill not be necessary to have any differen- 
 tials at all based on the considerations that logically led to their 
 establiphmcnt. 
 
 Mr. JNIather. I should think that so long as one railroad can get 
 from a producing center to water for export the products of that 
 producing center on a shorter and with a more economical haul than 
 another railroad can get at other points there will always be compe- 
 tition between the lines leading to those different ports, and that 
 competition will probably always be pacified, by some such arrange- 
 ment as resvilts in differentials. 
 
THIRTEENTH DAY. 5 
 
 Senator Foeaker. The practical and all -important proposition fol- 
 lowing IS that something of that kind is necessary. Can not Con- 
 gress—and this IS a legal question— in vour opinion, invest the Inter- 
 state Commerce Commission with power to fix rates, establish dif- 
 ferentials, and recognize and provide against those conditions by 
 equalizing conditions through the fixing of an arbitrary differential? 
 
 Mr. Mather. I do not think it can, under our Constitution. 
 
 Senator Foraker. You think that would be in violation of the 
 ninth section of Article I 'i 
 
 Mr. Mather. 1 thinlv it would. 
 
 Senator Ctjllom. As I remember, you stated pretty distinctlv in 
 your prepared statement your opposition to the present law and to 
 the proposed Esch-Townsend bill. Please tell us exactly now the 
 kind of amendments you thinlc ought to be made to the present law 
 or laws in relation to interstate commerce. 
 
 Mr. Mather. I did not mean to state any opposition to the present 
 law. I did state reasons for opposition to" the proposed Esch-Town- 
 send bill. 
 
 Senator Cltllo.m. But do you think the present law should stand 
 exactly as it is, without amendment ? 
 
 Mr. Mather. Xo; I think both the community and the railroads 
 would benefit by changes in that law. I think', however, that the 
 changes in the law ought to be confined to a restriction of the scope 
 of the authority and power of the Interstate Commerce Commission 
 rather than to an extension of it. I think the trouble with the Com- 
 mission is that it has too many powers and too manjr duties, and that 
 if it were confined to some one logical course of duty and procedure 
 it would be more effective than under the theory of the present law 
 where it separates itself through the three departments of the Gov- 
 ernment. I think it should be confined to an investigating and prose- 
 cuting tribunal. 
 
 Senator Cuixoji. With the po^ver of making orders taken away? 
 
 Mr. Mather. Yes. 
 
 The Chairman. Do you think it should have power to settle differ- 
 ences or controversies between shipper and carrier ? 
 
 Mr. Mather. Oh, ye? ; power to settle them amicably, undoubtedly. 
 It has done valuable service in that respect. 
 
 Senator Cullom. Would this be your idea: That you think the 
 Commission ought to be given pov/er to make settlements by agree- 
 ments between the railroad companies and the shippers, and that if 
 they failed to make settlement on a basis which the Commission 
 thought was right the Commission should proceed at once with a case 
 in court ? Is that your idea ? 
 
 Mr. Mather. That is my idea. Senator. 
 
 Senator Cullom. Do vou think the Commission could be able to 
 make settlements at all unless they had the power to do what they are 
 doing now — to make an order stating what should be a reasonable 
 
 rate? 
 
 Mr. Mather. I think'its records show that it would be able to do 
 that. ' In the face of the persistent claim of the railroads that the 
 Commission has no power to make rates it daily settles many contro- 
 versies, and has settled thousands since it came into existence. 
 
 Senator Cullom. So you think the Commission is of value to the 
 
6 THIRTEENTH DAY. 
 
 public, notwithstanding it has not the power to say that such a rate 
 would 'be reasonable and thereby to make the rate ? 
 
 Mr. Mather. I think it is of great value to the public and to the 
 railways. 
 
 Senator Ctillom. Are there any other respects m which you would 
 amend the law so far as you can think now ? You are a lawyer, and 
 represent the law department as well as the executive department of 
 your road now, I believe. 
 
 Mr. Mather. Well, I have not come here to suggest any compre- 
 hensive amendments to the law. The statement I have made covers 
 the theory on which I think the law should be amended. Nothing 
 else occurs to me now specifically. 
 
 Senator CrLLoax. But you are very determined in your conviction 
 that the Commission ought not to have the rate-making power. _ 
 
 Mr. Mather. I think it would be very injudicious to give it that 
 power; yes. 
 
 Senator CtrLLOAi. Do you think it would be unconstitutional ? 
 
 Mr. Mather. I do ; yes — that is, in the broad sense that you and I 
 have been speaking of the power. 
 
 Senator Foraker. Your opinion is, as I understand, that the Cul- 
 lom law, the original act for all this legislation, has worked exceed- 
 ingly well ? 
 
 Mr. Mather. I think so. 
 
 Senator Cullom. And that that law as amended provides an ample 
 remedy for the prevention of extortionate rates and for the prevention 
 of rebates where they are in the nature of money refunded or worked 
 out through the devices of terminals or private car lines or refrig- 
 erator cars or in any other manner ? 
 
 Mr. Mather. I do. 
 
 Senator Foraker. In that connection I suppose you are familiar 
 with section 3 of the last amendment to the CuUom law, known as 
 the " Elkins law," in Avhich it is provided that the Interstate Com- 
 merce Commission may bring an injunction proceeding (which pro- 
 vision has been approved by the Supreme Court in 189 U. S.) to pre- 
 vent any such abuse as may be forbidden by law under the head of 
 " discriminations? " 
 
 Mr. Mather. 1 am. I think that might have been done before the 
 passage of the Elkins law. 
 
 Senator Foraker. Yes : the Grosscup decision indicates that. That 
 was under the CuUom law. 
 
 Mr. Mather. Yes; although the decision was rendered after the 
 Elkins law was in effect, and the court took a great deal of comfort 
 to itself out of that fact. 
 
 Senator Foraker. Yes; the court was relieved from all doubt 
 about it. 
 
 Mr. Mather. Yes. 
 
 Senator Foraker. At any rate now, if any further legislation 
 should be necessary, could it not be had by so amending section 3 of 
 the Elkins law as to make more definite and' certain the right of the 
 court to proceed by injunction to remedy all forms of discrimina- 
 tions ? 
 
 Mr. Mather. I think that might be made. 
 
 Senator Foraker. That is, it should specify that that provision 
 
THIRTEENTH DAY. 7 
 
 should apply to refrigerator cars, private cars, and to discrimina- 
 tions as between places as well ? 
 
 Mr Mather. The more you specify in legislation the more you 
 hmit the force of that legislation. 
 
 Senator Foeaker. Of course upon the theory of exclusio unis ex- 
 clusio alter lus ? 
 
 Mr. Mather. Yes. Our Constitution covers so many subiects iust 
 because it enumerates so few. 
 
 Senator Foeaker. You think the language of this statute, as it 
 now stands, just simply that all discriminations are forbidden by 
 law, is broad enough ? 
 
 Mr. Mather. I think so. 
 
 Senator Foeaker. I think so, too; but the Interstate Commerce 
 Commission, I am told, has not instituted a single proceeding under 
 that statute. We intended to give them full authority to break up 
 all these practices complained of when we enacted that statute, and 
 that section was very carefully considered by our committee. Some 
 of us were opposed to it in that form, because we were afraid the re- 
 sult would be that the courts, being required to proceed summarily 
 with the hearing of these complaints, would not take time to attend 
 to the business of private litigants, and that it would be unjust 
 to those private litigants. But so far, after more than two years 
 have passed, there has not been a proceeding under it. 
 
 Mr. Mather. I have heard of none. 
 
 Senator Foeaker. Except incidentally, and by that I mean proceed- 
 ings under the old laAv have been held to be covered by this. Is it 
 your opinion that if the Commission were to confine itself to the busi- . 
 ness of prosecuting complaints that are made as to discriminations it 
 would find under that section a summary remedy in the court for 
 every sort of abuse that has been mentioned so far? 
 
 Mr. jNIather. I have no doubt of it. 
 
 Senator Clapp. In response to Senator Cullom's inquiry you said 
 that if the Commission could not adjust the matter you would favor 
 proceeding in court, as I understood you ? 
 
 Mr. Mather. Yes. , 
 
 Senator Clapp. In that proceeding what authority would you 
 attempt to give the court ? 
 
 Mr. Mather. I think the extent of the power that Congress could 
 confer upon the court ^vould be the investigation and determination 
 of the judicial question whether the rate established by the railroad 
 or bv the Commission is a reasonable rate. If it finds that it is an 
 unreasonable rate it should enjoin it. I think that is the extent of 
 the power of the court. 
 
 Senator Clapp. Have you paid any attention to the statements 
 made by Mr. Morawetz aiid Mi'. Hines upon the legal aspect of this 
 question ? 
 
 Mr. Mather. I have read them ; yes. 
 
 Senator Clapp. I think, broadly stated, they both agree— although 
 they did not so recommend— that the court could be authorized and 
 proceedings could be so framed that the court should be authorized not 
 only to say whether the schedule, as published, was unreasonable, 
 but what would, in their opinion, under existing conditions, be a 
 maximum rate ^^'hich they would have sustained, rather than that 
 originally issued. Do I make that clear ? 
 
8 THIRTEENTH DAY. 
 
 Mr. Mather. Yes; your statement is perfectly clear, Senator. 
 
 Senator Clapp. What do you think of the power of Congress to 
 confer such a jurisdiction upon the court? 
 
 Mr. Mather. I can not agree with the gentlemen, if that is a fair 
 statement of their position. I do not think Congress could either 
 require the court to make such a finding or confer upon the court any 
 power to make such a finding effective. 
 
 Senator Clapp. I have not treated it as a finding, but rather in this 
 light : As between a carrier and an individual, if the carrier sued and 
 the individual refused to pay the amount claimed, independently of 
 what limitation might now exist by virtue of the published rates 
 being legal under the interstate-commerce law, the court would of 
 necessity not only pass upon the question of whether the amount 
 claimed was reasonable, but would have to determine what was a 
 reasonable charge in that case. 
 
 Mr. Mather. As a question of fact? 
 
 Senator Clapp. Yes. 
 
 Mr. Mather. Yes ; I can conceive of that situation. 
 
 Senator Clapp. That would be true. 
 
 Mr. Mather. That is, if you should sue our company ? 
 
 Senator Clapp. No ; if the companj' should sue me. 
 
 Mr. Mather. To recover for freight ? 
 
 Senator Clapp. Yes. 
 
 Mr. Mather. And claimed that we were entitled to a certain 
 amount of money for the service ? 
 
 Senator Clapp. Yes. 
 
 Mr. Mather. And you would claim that that was an unreasonable 
 demand ? 
 
 Senator Clapp. Yes. 
 
 Mr. Mather. I think the court could investigate that transaction 
 and determine what was a reasonable rate for that past transaction. 
 
 Senator Clapp. That Avould be the real issue, narrowed down, 
 would it not ? 
 
 Mr. Mather. Yes. 
 
 Senator Clapp. Could not the Commission, acting for the carrier 
 generally, under authority of the law, bring an action based upon 
 the claim that this schedule, as published, was unreasonable, and ask 
 an adjudication by the court as to Avhat would be a reasonable rate — 
 not to fix rates for the future, but upon existing transactions and 
 conditions? '\^'Tiat would you say to that proposition? 
 
 Mr. Mather. I should say that that might be governed by other 
 questions of law. Senator. If, in an actual controversy between two 
 individuals, that question should arise, as I said, the court could un- 
 doubtedly determine it. But I doubt the power of Congress to 
 require the Federal courts to determine that as a mere moot question. 
 
 Senator Clapp. Would it be a moot question as to an existing con- 
 troversy? Here are certain schedules which have been published, 
 the rates have been put into effect by the carrier, and the Commission, 
 theoretically under the law representing the public, claims that that 
 is an unreasonable rate. That certainly would not be a moot ques- 
 tion, would it ? 
 
 Mr. Mather. In the sense in which lawyers understand the phrase 
 " moot question," I think it would be. Senator. It would depend, 
 I should say, on what was the purpose of the inquiry in court and 
 
THIETEBNl'H DAY. Q 
 
 what effect was to be given to the final finding of the court. Can 
 we not get along a little further than that step and see what would 
 happen ? 
 
 Senator Clapp. Let us wait and analyze that step. To-day the 
 Commission does act practically if the company fails to recognize 
 the order of the Commission. 
 
 Mr. Mather. Under existing orders on complaint with respect to 
 a rate, whether or not it is reasonable? 
 
 Senator Clapp. Yes. If the Commission just made an order and 
 then brought the question of the reasonableness of the rate to issue 
 in an action to enforce that order, certainly it would not be a moot 
 question for the Commission to bring an action directly to ascertain 
 the reasonableness of the rate attacked by the order, would it ? 
 
 Mr. Mather. If that were the sole purpose of the proceeding by 
 the Commission and the court, I think it would be. If the Commis- 
 sion filed a suit in which it asked some relief through the processes 
 of the court, then it would not be a moot question. I take it that the 
 determination of the question you are asking me depends upon what 
 sort of relief the Commission is going to ask the court to give. I do 
 not think you could ask the court, with respect to anj' existing rate 
 or system of rates, merely to make a finding that that rate was 
 unreasonable. 
 
 Senator Clapp. Probably not, merely to make a finding; but as 
 the law is to-day, the Commission can condemn a rate, and if the road 
 does not accept it, an action is brought which involves the issue of 
 whether the rate condemned is a reasonable rate or not. 
 
 Mr. Mather. Yes ; that is the issue ; but the purpose of the pro- 
 ceeding in court is to enjoin the continuance of that charge. 
 
 Senator Clapp. The continuance of this given rate ? 
 
 Mr. Mather. Yes. 
 
 Senator Clapp. But the issue is whether that rate is reasonable. 
 
 Mr. Mather. That is right. 
 
 Senator Clapp. It seems to me that it wiould be no less an issue if 
 the Commission brought its action in the first instance. 
 
 Mr. Mather. To enjoin the rate? 
 
 Senator Clapp. To enjoin the existing rate. 
 
 Mr. Mather. 1 concede that. 
 
 Senator Clapp. Then you did not understand my question ? 
 
 Mr. Mather. No. 
 
 Senator Clapp. To enjoin the existing rate, or any rate above a 
 certain rate. Then, that being established, would you question the 
 validitv of an act which provided, in the terms of the act and by 
 operation of the act itself, that that decision should apply to similar 
 conditions? . . 
 
 Mr. Mather. AMiat decision? The decision that the existing rate 
 is unreasonable ? 
 
 Senator Clapp. Yes; and what would be a reasonable-rate. 
 
 Mr. Mather. I could not go that subsequent step. 
 
 Senator Clapp. Then you would not agree broadly with Morawetz 
 and Hines on that proposition? 
 
 Mr. Mather. No ; I could not, and do not. 
 
 Senator Clapp. In the Maximum Kate Case the court, in speaking 
 of the authority of the Commission, distinctly characterized that 
 authority as judicial and executive. The authority of a State or the 
 
10 THIETEENTH DAY. 
 
 Federal Legislature to use a commission in the adjustment of rates 
 prmiarily rests, does it not, upon the principle that it is for the legis- 
 lative body to declare the policy— for instance, that all rates shall be 
 reasonable— and then authorize the tribunal that is created to ascer- 
 tain the facts? Now, while the courts have repeatedly and broadly 
 stated that the power to make rates is a legislative power, the ascer- 
 tainment of these facts is strictly a judicial act, is it not? 
 
 Jlr. Mather. The ascertainment of the fact whether or not a cer- 
 tain rate is reasonable is judicial? 
 
 Senator Clapp. Yes ; or what is a reasonable rate. 
 
 Mr. Mather. Yes. 
 
 Senator Clapp. After the law provides that all rates shall be rea- 
 sonable, and then authorizes the Commission to ascertain that fact, 
 the ascertainment of that independent fact is not a legislative act, 
 clearly. The court said that in the Maximum Rate Case. It would 
 be, strictly speaking, a judicial act. Coming back to your answer to 
 the Senator's other question, that you thought the vesting of this 
 power in the Commission might be unconstitutional, let me put the 
 question in a little different form: What do you say as to the con- 
 stitutionality of a law declaring that rates shall be reasonable, and 
 then leaving the question of ascertaining that fact to a tribunal? 
 
 Mr. Mather. To a judicial tribunal? 
 
 Senator Clapp. Well, I was going to follow your answer, of 
 course, with that suggestion. It is a judicial act, and if it could not 
 be done by a tribunal, such as a commission, could it not clearly be 
 done by a court i 
 
 i\Ir. Mather. I think a court could be empowered to find whether 
 or not ini existing rate is reasonable, undoubtedly. That, at present, 
 is the first function of the Commission. 
 
 Senator Clapp. But I am going a step further. I do not just 
 recall the Senator's question, that is, in exact terms, but, as I recall 
 j'our answer, you stated that in that broad sense you doubted the 
 constitutionality of a law' which would give the Commission power 
 to fix i-ates. "\rithout dwelling upon what is technically the act of 
 fixing the rate, ^vhether by reduction or by direct proceeding, would 
 you question the constitutionality of an act which declared that 
 rates should be reasonable, and then left it to some tribunal to ascer- 
 tain that fact as to what was a reasonable rate? 
 
 ]\Ir. :Mather. In a given case ; no ; I would not question the con- 
 stitutionality of that delegation of power. 
 
 The Chairjiax. If the present differentials, now existing by the 
 common consent of railroads and shippers, should be aboHshed, what 
 would be the result or effect on transportation and the business of 
 the country? 
 
 Mr. Mather. Oh, I do not know. 
 
 The Chairmax. A\^ould it lead to confusion? 
 
 Mr. jMather. Undoubtedly it would tend to confusion and dis- 
 arrangement. 
 
 The Chairman. And disturbance? 
 
 Mr. Mather. And disturbance of existing conditions. 
 
 The Chairmax. Do you think, if the Commission were vested with 
 the power to make rates under an act of Cono-ress it could i-nnintnin 
 differentials under the Constitution? "" ' ^ maintain 
 
 Mr. Mather. I do not think it could. 
 
THIRTEENTH DAY. 11 
 
 The Chairman. Outside of anj^ legal or constitutional question, 
 but as a practical and business question, is it your judgment that the 
 rate-making power should be left in the first instance in the hands 
 of the owners and managers of railroad properties rather than in 
 the hands of a body of men having no interest in them ? 
 
 Mr. Mather. I think it is hardly to the interest, not only of the 
 railroad, but of the public. 
 
 The Chairman. It would be better managed ? 
 
 Mr. Mather. I think so. 
 
 The Chairman. More successfully ? 
 
 Mr. Mather. Yes. 
 
 The Chairman. Then you would leave the power, in the interest 
 of the public and of the shipper, in the courts by proper proceedings 
 to prevent excessive rates? 
 
 Mr. Mather. Yes; by injunction or otherwise — any proper order. 
 
 The Chairman. I have no other questions, and that is all unless 
 you want to say something else. 
 
 Mr. Mather. I would like to say something more about the ques- 
 tion of a court making a rate. 
 
 The theory of my address before this body was that existing law 
 provides for all present and possible evils except the alleged evil of 
 preferences between localities. When it comes to the making of a 
 rate which shall determine the relation of rates between different lo- 
 calities, then it is perfectly clear that there enters into that question 
 not alone the question of the reasonableness of the rate, which any 
 court might determine in any controversy between Senator Clapp, for 
 instance, and our company (as was his illustration), but also that the 
 broad question of the possibility of the maintenance or disturbance 
 of the relation of rates depends on the continuance of existing com- 
 mercial conditions in which millions and billions of money of this 
 country are invested. 
 
 The question whether, in the making of a rate or of a system of 
 rates or of a system of differentials. New York and Baltimore or any 
 other Atlantic port shall be permitted to retain that portion of the 
 commerce of the countrj'^ AA-hich it now holds, or to increase it or to 
 lose part of it, as against the Gulf ports, is a political question en- 
 tirely — that is, it is entirely a legislative question. It is addressed 
 to the legislative discretion of the lawmaking body of this country. 
 The question is, What does the good of the country depend upon in a 
 case of that kind ? 
 
 So that the proposition I want to make perfectly clear, and to 
 leave here as my opinion as a lawyer, is that no court, whenever such 
 a case as that is presented to it, could ever possibly decide that polit- 
 ical question, and there is no way by which Congress might phrase 
 the act so as to confer upon the court the power to say that such and 
 such a rate is a reasonable rate under existing circumstances, and 
 then provide that that existing rate was then and should be the law- . 
 ful rate, or could take away from that act of the court its essential 
 character of being a finding of a political or legislative question. 
 
 It is on that ground that I say that, not under any circiunstances 
 nor by any use of language, could Congress confer upon the court 
 any power which, in its final analysis, leaves it to the court to deter- 
 mine what should be the rate or relation of rates in such case. 
 
]^2 THIRTEENTH DAY. 
 
 The Chairmax. Mr. Mather, you have the thanks of the committee 
 for your attendance and for your statement. 
 
 STATEMENT OF MR. JAMES J. HILL. 
 
 The Chairman. Mr. Hill, please state your full name, your occu- 
 pation, and your place of residence. 
 
 Mr. Hill. My name is James J. Hill ; residence, St. Paul, Minn. ; 
 I am president of the Great Northern Railway. 
 
 I shall undertake, in as brief a way as I can, to discuss the ques- 
 tion of intersta,te commerce and the reasonableness of rates as applied 
 in a broad way to the business of the country, and I shall occupy as 
 little of your time as I can. 
 
 In the first place, there is only one safe basis upon which low rates 
 can be made, and that is a low cost of producing the transportation. 
 It is not and never can be a safe basis for the business of the coun- 
 try to be built upon that the one party to the transaction, the party 
 that furnishes the transportation, must furnish it at a loss. Under 
 such conditions, sooner or later that enterprise falls to the ground — 
 it is destroyed. The only basis for low rates is a low cost of producing 
 the rate. 
 
 There is another view of it. It is taken generally throughout the 
 country that a rate once made is always a rate that is compulsory; 
 that if a railway voluntarily makes a rate from one point to another 
 on shipments of any commodity it follows that that rate, which is 
 voluntarily made, is a fair and compensatory rate as far as the rail- 
 way is concerned ; and it would be a voiy difficult thing to convince 
 a judge or a jury that the railway could not make that rate under 
 all conditions. 
 
 The conditions under which rates are made vary almost daily. If 
 a railway company had a lot of empty cars moving in one direction, 
 it goes without saying that they could afford to make a lower rate to 
 fill those cars than if they had to send the cars out with that load^ 
 and bring them back empty. But what do you find ? Hard and fast, 
 the railway is up against the proposition that if you ever make a 
 rate that rate must stand for all time against you. And that alone 
 goes further to hold up rates than anything else. You must make 
 a rate always assuming that you have to bring the car back empty, 
 because you are called upon when you have empty cars going out. 
 You are called upon to send a car out with this load and there is 
 nothing to bring 'back. That in itself, in my opinion — and I have 
 watched it closely — goes further to hold rates up than almost any- 
 thing else. 
 
 There is but one true basis for determining the reasonableness of a 
 rate ; there never can be but one ; and that is the value of the service, 
 and that is determined- by the density of traffic. If I have $100,000 
 profit to raise and 100,000 tons of freight it is very easy; I must 
 make a profit of $1 a ton. Now, if you will give me 200,000 tons of 
 freight 50 cents a ton will be sufficient, and if you will give me 400,000 
 tons 25 cents a ton profit gives me the amount I want. The density 
 of traffic must determine the rate. The cost varies on different dis- 
 tricts of a railwav. Among sixteen districts on the Great Northern 
 Railwav we find "some places where the cost is over three times as 
 much as it is in other places. If the average rate or the average cost 
 
THIBTEENTH DAY. 13 
 
 of the Great Northern for a year were applied to some divisions the 
 rate would be prohibitory, almost; and in others it would result in a 
 loss to the company. We have divisions where the amount that it 
 costs us for transporting a ton of freight 100 miles is 20 per cent 
 higher than the average rate that we receive from the public for the 
 whole road. 
 
 Eates vary with conditions. They vary from day to day, almost. 
 I was much struck by some of the questions that were asked a few 
 moments ago of the gentleman who preceded me in addressing the 
 committee as to the difficulty in fixing what is a reasonable rate, by 
 law. You are dealing with the questions that exist to-day. Can you 
 apply the conditions that exist to-day to to-morrow or next week or 
 next month ? It is absolutely impossible. It can not be done. 'For 
 that reason you have to deal with the question and the conditions and 
 the facts that are shown in this particular case. 
 
 You will pardon my reference to our own road, as I am more 
 familiar with the conditions upon it than I am with those affecting 
 other roa^s. We have built up trade to a greater extent, possibly, 
 than it has ever been built in the same time. For instance, three- 
 quarters of our mileage to-day lies in a country that twenty years ago 
 was unoccupied, and the niunber of tons moved 1 mile, or the density 
 of traffic, has passed the figure established by roads that are in older 
 countries and have been in existence twice as long as we have. There 
 are not to exceed 15 people to the square mile for the entire length of 
 our road, and still our tonnage, our density of traffic, is as great as the 
 average of the State of Illinois, where the density of population is 
 much greater. Our average rates will compare favorably with the 
 rates of any lines west from Chicago. 
 
 In making these rates we have to take into consideration what the 
 country produces. You build a railroad into a country. Can you 
 choose "what you are going to carry ? By no means. You must carry 
 whatever the natural resources of that"country produce' or develop, 
 and you must carry the goods to a marlret. You must enable the 
 man who lives on the farm or works in the forest or in the mine to 
 carry on his work with a profit or he will cease to work, and your in- 
 vestment becomes worthless— it is gone. You must make up your 
 mind, in building a road into a country, that all you can carry is 
 what that country produces, and you are charged with the prosperity 
 of every man on the line of the road, if he works. 
 
 You might say that there shall be no discrimination. That condi- 
 tion will never exist. If there were no discrimination the people 
 would come down here in gxeat throngs and ask you to authorize dis- 
 criminations. We have to discriminate against ourselves. For in- 
 stance, we built a line to the Pacific coast, and when I went out there 
 before the line was built and loolced it over there Avas nothing there 
 to carry east except lumber— the most magnificent forests on the con- 
 tinent or anywhere that I know anything about. They did not think 
 of shipping lumber east. There were 40,000,000 or 50,000,000 people 
 north oi the Ohio Eiver and east of the Eocky Mountains using more 
 lumber and with more money to pay for lumber than the same num- 
 ber of people anywhere else on the face of the earth but they were 
 getting their lumber from our own more eastern States ""^cP .? i 
 ting it off, and buving up in Canada, going finally to the South and 
 bringing Ap southern lumber. Now, I called the people together— 
 
24 THIETEENTH DAY. 
 
 the mill men. All the trade they had was what went out by the sea. 
 I called them together and I asked them what rate they could pay. 
 I said : " You are paying 90 cents a hundred to Lake Superior or to 
 the Twin Cities." They said if we could make it 65, which was a 
 reduction of 25 cents a hundred, that would be perfectly satisfactory. 
 I knew they could not ship anything at that rate, and we made them 
 a rate oif 40 cents a hundred on fir. That is the lowest lumber rate 
 that has ever been made in the world. It is a rate of 4 mills a ton a 
 mile. We discriminated against the lumber on the eastern end of 
 our own road. But to-day the trees on the eastern end are all 
 counted, and in fifteen years— theoretically in ten years— they will all 
 
 t)6 Cllt. 
 
 I went there in 1890, and the road was finished in 1893. In 1897 
 we were carrying about four trains a week eastward over the Cascade 
 Mountains. We are now carrying four trains a day, and the people 
 in the East and the lumbermen in the East have not suffered. We had 
 to discriminate against them, because if you can not carry to market 
 what the country produces, whether it is coal or iron or lumber or 
 corn or cotton, if you can not carry it to market and find a place 
 where the man who produces it can sell it, you will have nothing else 
 to carry. That is all that that road is built for. 
 Senator Foeakee. Was that lumber rate profitable ? 
 Mr. Hill. Certainly. 
 
 Senator Foeakee. Standing alone, by itself? 
 
 Mr. Hill. No, sir: not if we had had to haul empty cars out; but 
 I will carry it a little further : It was to load back the cars that went 
 out there with merchandise. There had theretofore been nothing 
 with which to load them back. 
 
 Senator Foeakee. You took back lumber rather than take the cars 
 back empty i 
 
 Mr. Hill. Yes, sir; and it was so successful that in a short time 
 the lumber increased so that they Avere calling for empty cars ; and if 
 the people of the State of "Washington did nothing but devote their 
 entire energies to destroying different classes of goods and all their 
 capital they could not furnish the empties to carry the lumber east. 
 And that drove us on to the sea. That drove us to look bej'ond — to 
 look to Asia for our loading west. Now the trade is nearly balanced. 
 Before we had to bring cars back. 
 
 Senator Culldji. What do you ship west, now, especially? 
 Mr. Hill. Going to the Orient? 
 
 Senator Ci'Llom. No; going to the Pacific coast, on your road? 
 Mr. Hill. General merchandise for the Pacific coast points, and 
 for the foreig-n trade there are a few things that we can carry. We 
 can carry raw material. A year ago v.-e were carrying flour from 
 Minnesota to Australili and to China and Japan ; but the Interstate 
 Commerce Commission came in and afSxed a condition that compelled 
 us to stop carrying the ti-ade. 
 
 Senator Foeakee. ^Vliat was that condition? 
 
 Mr. Hill. They said : " You must file with us your through rate, 
 and your proportion as between your ship — whether it is your ship 
 or anybody else's— with us in "\7ashington." We said: "If we file 
 that rate, it is a public rate, and the German ship or the British ship 
 or the Dutch ship or the Norwegian ship or the Italian ship is under 
 no such obligation; we can not change it after we have filed it with 
 
THIBTEENTH DAT. 15 
 
 you without notifying you." Our agent in Hongkong, at $2.50 a 
 word, could cable and get a rate, and we could telegraph to Washing- 
 ton, and in the course of time— we might get the rate liack in seven 
 or eight or ten days to Hongkong— but in the meantime the other fel- 
 low has contracted for the stuff, and we do not carry it. 
 
 Senator Foeakee. You mean that lie would cut to a lower rate ? 
 
 Mr. Hill. He knows what our rate is. 
 
 Senator Foeakee. I say, as soon as your rate would be public, he 
 would cut to a lower rate and take the business? 
 
 Mr. Hill. We can not change it for seven or eight days, and he can 
 change it in a minute. 
 
 Senator Foeakee. I understand. 
 
 Mr. Hill. So that we simply withdrew the rates. Now, we do 
 not carry any of that business from Minnesota at all. 
 
 Senator Foeakee. T\Tiat did that amount to? 
 
 Mr. Hill. Last year to about 40,000 tons. 
 
 The Chaiejeax. Forty thousand tons of flour? 
 
 Mr. Hill. Of flour; yes, sir. 
 
 Senator Foeakee. Who is carrying that now ? 
 
 Mr. Hill. Nobody. 
 
 Senator Clapp. ^Vliile you are on that question, state the rate 
 that you put into effect for the flour going west. 
 
 Mr. Hill. The rate Avas 45 cents. 
 
 Senator Clapp. For what distance? 
 
 Mr. Hill. To Hongkong. 
 
 Senator Clapp. From the Twin Cities? 
 
 Mr. Hill. Yes. 
 
 The Chajeman. Forty-five cents a hundred? 
 
 Mr. Hill. Yes, sir. 
 
 The Chaiejian. If you had not had this interruption by the Com- 
 mission, if you might call it that, you would be shipping this flour 
 now, and this cotton?. 
 
 jNIr. Hill. We carried 73 per cent of the cotton. We started the 
 first cotton by guaranteeing the JajDanese that if there was a loss in 
 mixing our long-staple cotton with the short-staple India cotton 
 we would stand the loss if thej' took 2 or 3 carloads; and it resulted 
 in a very large amount of business. It was the same way with 
 American iron and steel. It was a little contest. A railroad is not 
 entirely, in my experience, a charitable institution. It is carried on 
 for the purpose of getting a return on the investment. But we get 
 our return very easily ; and if we did not carry a ton of oriental busi- 
 ness in twenty years our shareholders would not know the difference ; 
 and if we had not any ship on the high seas it Would not affect our 
 dividends ; and if we did not build a mile of new road it would not 
 affect our dividends. 
 
 Senator Foeakee. Then why do you have these ship lines ? 
 
 Mr. Hill. Wiy? 
 
 Senator Foeakee. I want to get it on the record. 
 
 Mr. Hill. All right. I shall be very glad to answer any questions. 
 We thought at one time that it was an advantage to everybody — to 
 the country and the railroad and to the people of our section — to 
 have the additional markets and to extend our trade. 
 
 Senator CuLLoai. Have you given that idea up ? 
 
 Mr. Hill. It has been qualified a good deal. Sometimes it may be 
 
IQ THIRTEENTH DAY. 
 
 held that it is against the law. You ask me a question. I find it is 
 against the law to have the po^ver to restrain trade ; and it is a greater 
 power to carry it on. The power to carry it on is necessarily greater 
 than the power to restrain it ; and we have had a severe lesson. 
 
 The Chairmaij. And if you had been left to act for yourselves, 
 without this requirement of filing the rate at Washington, you would 
 still be shipping these 40,000 tons of flour and more cotton to the 
 Orient? 
 
 Mr. Hill. We are carrying a great deal of cotton now ; but during 
 the last year, owing to the short crop, wheat found markets at home. 
 We did not have the usual shipments from the United States of from 
 100,000,000 to 1-25,000,000 bushels a year of wheat to be exported. 
 
 The Ci-i AIRMAN. If you had had it, and there had been a surplus, 
 then would it have gone ? 
 
 Mr. Hill. We had not the surplus. Wheat was 110 or 112 cents 
 in Chicago, Minneapolis, or Duluth. Now, with the promise of more 
 wheat and better crops and normal conditions, the market is about 85 
 cents ; so that the oriental market would be a great advantage to our 
 people. 
 
 Senator F(ii;aker. I would like to understand you in this matter. 
 Are we to miderstand that you think there is no advantage in having 
 foreign markets ( 
 
 yir. Hill. I think there is a decided advantage ■ 
 
 Senator Forakf.r. And having ships in which to get to them with 
 our product:- :' 
 
 Mr. Hill. Where would the advantage be to us if we take all the 
 responsibility and care, and we are dividuig 7 per cent? That is 
 enough. We ought not to increase it, and we make it every day; 
 and we do not have to go abroad to make it. 
 
 Senator Fokaker. I am not talking about your being satisfied with 
 7 per cent. IMaybe that is more than we will let you take after we 
 get through with this legislation ; but what I want to know is whether 
 or not you, one of the most prominent business men of the United 
 States, want to be understood as telling this committee that there is 
 really no advantage in having foreign trade and foreign markets? 
 
 ilr. Hill. There is a decided advantage to the country, but I fail 
 to see where the advantage is to us. 
 
 Senator Foraker. T want to get at just what you mean to tell us; 
 that is all. 
 
 Mr. Hill. Yes, sir ; I shall be very glad to answer any questions. 
 Senator Foraker. I want to Iviiow whether you gave up that trade, 
 for which you made extensive preparations, to the extent that you 
 may have surrendered it — we understand you to say that you have 
 abandoned it to a certain extent — because you did not find it profitable 
 or of any advantage to yourself or the country, or whether the restric- 
 tions put upon you by the law, which we might have something to do 
 with removing if they were prejudicial, led you to do it. 
 
 Mr. Hill. To answer your question, the difficulty of carrying it on 
 is so great as under ordinary conditions to make it not worth our 
 while, unless it would bring some pecuniary advantage. The share- 
 holders of our road would find fault with me for asking them to put 
 their money into enterprises that are not going to bring them anv 
 return. » & j 
 
THIRTEENTH DAY. 17 
 
 Senator FoKAKiiE Is that the fault of the Commission or the law, 
 or whose fault is it ? That is what I want to get at 
 
 Mr. Hill. I will come to that. I think I will make that plain. 
 
 Senator Lullom., That is what I wanted to inquire 
 
 The CHAIE3IAX. Proceed, Mr. Hill. 
 
 Mr. Hill. I think I will make that plain. 
 
 Now, take the rates in the United States and compare them with 
 the rates m Europe. I tried to get the present rates in Europe, but 
 the best I could do was to get them from Mulhall, and they are 
 eighteen months old. The average rate in Great Britain for hauling 
 a ton of freight a hundred miles is $2.35. That covers the delivery of 
 small packages— the cartage in many cases; in some cases it does not. 
 The rate m France is $2.02, about. In Austria it is $1.88 ; in Ger- 
 many, $1.76 ; in Eussia, where the haul is long and the conditions are 
 more like those m our own country, the rate is $1.70 ; in the United 
 States it is 76 cents. 
 
 If in the United States everything in the way of wages and material 
 for the maintenance of the railway is higher than it is in Europe, and 
 labor is from three to five times as high, and the rate is about 40 per 
 cent of the average of Europe, our system of transportation has made 
 a prima facie case that the rate is a low one. It is the lowest rate in 
 the world, and it is a wonder to a great many of the railway men 
 abroad how it is done. Every year we have two or three delegations 
 from abroad. The under secretary for home affairs in India last 
 year came out and spent two or three days in our country. They have 
 grain to transport long distances, as we have, and he made his report. 
 It is a published report. 
 
 With an average rate throughout the country that is only 40 per 
 cent of the average rate of Europe, we are not, I think, claiming too 
 much when we claim that we have accomplished a great deal in the 
 way of transportation ; and, starting with that, it is a low rate. The 
 conditions under which these rates are made vary constantly. Take 
 one instance : Coal is being carried to market in large quantities. It 
 would look on its face as if the conditions would be permanent ; but 
 they are not. The seasons vary, and the consumption of coal varies 
 with the season. The equipment necessary to supply the demand for 
 coal in the Avinter months is very much greater than it is in the sum- 
 mer months, and railroads are expected to be able to furnish the 
 equipment when it is called for. So that the conditions are varying 
 to such an extent as to greatly affect the cost of producing the trans- 
 portation ; and therein is, to my mind, the great diificulty of fixing a 
 future rate where you do not know what the future conditions will be. . 
 The rates in this country for fifteen years, you might say, have 
 been in a condition of evolution. If there is reasonable latitude given 
 to the raihvay companies, allowing those that are able to do the work 
 at a low rate"to do it, I think the rates will go lower. 
 
 I will give you briefly the official reports for the different years. 
 In 1882 the Great Northern had 1,000 miles of railway and it moved 
 1,007,000 tons. In 1903, twenty-one years later, it had 5,598 miles of 
 railway and moved 16,148,000. The increase in twenty-one years 
 was over 1,600 per cent. 
 
 Senator Foeaker. There is nearly five times as much road, though ? 
 
 13 i>— 05 -M 2 
 
18 THIRTEENTH DAY. 
 
 Mr. Hill. Yes, sir ; but the increase of tonnage was over three 
 times as great as the increase in mileage. 
 Senator Foeakee. Yes. 
 
 Mr. HiLi,. And that mileage was built in a country that in 1882 was 
 unoccupied. Now, the rate. In 1882 the rate per hundred miles 
 was $2,518, or nearly 2.52 cents per ton per mile. The rate twenty- 
 one years later was 85.7 cents per hundred miles, or 0.837 cent per ton 
 per mile, one-third of what it was twenty-one years before. Now, to 
 bring that to dollars and cents. Had the company received the same 
 average rate per ton per mile in 1903 as it did in 1882 it would have 
 collected $90,820,000 as freight earnings, while the actual collections 
 were $30,915,000, a decrease through the reduction in freight rates of 
 $59,904,000 in one year; and these fig-ures are from the published 
 reports of the Railway Commission. 
 
 The Chaieiuan. Just hand those figures in to accompany your 
 statement. 
 
 Mr. Hill. Yes, sir. I will leave them because they furnish an 
 example of the result of an unrestricted power to make rates. We 
 had to build the country up; we had to drag the settlers into. the 
 country and we had to find a market for everything they could pro- 
 duce. In some cases we had to take seed to them ; but now they are 
 able to buy their own seed. To illustrate: The greatest growth I 
 have known has been in North Dakota. Take our own State of 'Min- 
 nesota. I have lived in it forty-nine years. It has advantages cer- 
 tainly equal to those of North Dakota, and it has more fresh water 
 and more timber; but for some unaccountable reason they have not 
 grown as the other people have. We have, outside of the terminals, 
 probably 15 towns and cities in Minnesota where the railway com- 
 pany's business is $100,000 a year or more, and we have 38 in North 
 Dakota; and portions of Minnesota were settled when North Dakota 
 was wild. 
 
 There is a desire on the pait of the people of North Dakota to co- 
 operate. Go in among them and propose anything that is for the 
 benefit of their locality and they are ready to work with you. We 
 have a greater interest in building up the people on the line of the 
 road, whether' it is in Minnesota, Dakota, or Washington, or Mon- 
 tana, than anybody else ; because unless we build them up we will not 
 be built up ourselves. They must prosper in order that we shall 
 prosper, and if they are poor we will be poor with them. You can 
 not separate them. The man may move away, the railway man may 
 move away, but the railway and the land are there, and they will 
 prosper together or be poor together ; and if a man does not realize 
 that, he is far from home. 
 
 I was surprised yesterday when I found the traffic of the United 
 States tabulated in 1894. The total number of tons carried 1 mile 
 m 1894 was 68,000,000,000 ; in 1904 it was 170,000,000,000. 
 The Chaieiman. That increase was in seven years ? 
 Mr. Hill. In ten years; the increase in ten years is 50 per cent 
 inore than the entire tons carried 1 mile with all the development and 
 growth of the country from its early settlement up to 1894. The in- 
 crease is 150 per cent in ten years. 
 
 Take the facilities the railways have for hauling that business and 
 consider them. The railway facilities have barely increased. They 
 
THIRTEENTH DAY. ' 19 
 
 have not, for some reason, kept pace with the growing demands. 
 Maybe they have lacked courage, but thev do not provide adequate 
 terminal facilities. There is another reason: The public has got in 
 the habit of making warehouses of cars. The average car move- 
 ment in the United States per diem per annum is about 24 or 25 
 miles. If the trains run an average of 12 miles an hour, the equip- 
 inent is used two hours out of twenty-four. It is verv difficult to 
 hnd any other business where the use of its facilities for two hours 
 out of twenty- four will be charged with the maintenance of the 
 property and a return on the capital invested. And if the average 
 shipper can not let a car stand until he is ready to unload it, he feels 
 injured; greatly injured. That is one reason why the traffic lines 
 are compelled during a great part of the year to give up the attempt 
 to move the business from the West. A year ago last December I 
 know of a case where freight was delivered in carloads at Peoria to 
 go to New York in early December, and on the 22d day of February 
 those care were standing in Peoria. 
 
 Senator Cullom. "Wliose fault was that ? 
 
 Mr. Hill. There was no place to put them \^■hen you got them East. 
 It was jammed tight full, and the cup would not hold any more. 
 Now, the Pennsylvania Kailroad is spending, oh, how many millions 
 for terminals, increasing their terminals; but they will not increase 
 their terminals as fast as the business increases. And in regard to 
 this business that is going to the Gulf, remember that the Gulf labors 
 under a great disadvantage. It costs more to ship from New Or- 
 leans or Galveston, to charter a ship to am^ port in Europe, than it 
 does from Baltimore or Philadelphia or New York; but, because 
 they are not so crowded, you can get the business through ; and with 
 this enormous increase in the tonnage of the country — I Avant to put 
 it fairly before j'ou — I want to ask you to be most careful not to 
 cripple a business that is as important as the railway business is to 
 the country; not because it is ours — we will take care of ourselves. 
 Before you would get down to where we live there would be a great 
 many corpses lying around the country. 
 
 It" would be very easy to imagine a condition where the business of 
 the country would be absolutely tied up, manacled, because there 
 would be no way to handle it. We have Minneaj^olis, the largest 
 flour-producing center in the world. Usually it is impossible for 
 them to sell 10,000 or 20,000 barrels of flour for shipment, for export, 
 to get anybody to agree to deliver it in New York in thirty days. If 
 a man has engaged room on a ship he wants to know that he can get 
 his flour from Minneapolis to New York in thirty days. We can 
 send it from Minneapolis to Chicago in thirty-six hours; but Heaven 
 only knows— and it won't tell— when it will leave Chicago. 
 
 Senator Foraker. That is because of the congested condition? 
 
 Mr. Hill. You have not built any trunk Imes lately. 
 
 Senator Foraker. No. 
 
 Mr Hill And nobodv wants to invest m them. Let somebody go 
 and buy the Erie road. 'There is a trunk line, one of the oldest and 
 with a little money spent on it and a good three-tenths grade from 
 Chicago to New York . , ,i ■ , • , 
 
 Senator Foraker. Whv is it not prospering at this time? 
 
 Mr. Hill. It was not built right. 
 
 Senator Foraker. It did not run in the right direction? 
 
20 THIRTEENTH DAY. 
 
 Mr. Hill. It was built at a time when guns were muzzle-loaders 
 and flintlocks ; and there are some muzzle-loading and flintlock rail- 
 ways in this country. 
 
 Senator Foeakee. Could it not be remodeled and reconstructed? 
 
 Mr. Hill. Yes, sir. The capital has laid idle for a great many 
 years, and I suppose the loss of interest has made conditions at this 
 time so that the Erie road ought to be 
 
 Senator Cullo:\i. AVhat is your suggestion as to the way out of this 
 situation, so that produce can be shipped when it is ready to start? 
 
 Mr. Hill. Well, now, Senator, I am a firm believer in all natural 
 laws where we have demonstrated that they are laws, and the law of 
 the survival of the fittest is a natural law that we can safely adopt. 
 T think I would let a railway company consider the investment; I 
 would protect the property as I would any other property, and I 
 would hold them for their good behavior, as I would everybody else. 
 If the railway company can make the rate and can do it profitably, 
 give them an opportunity to do it. Do not say, " You must make 
 good this man's mistakes." If I build a factory to-day, or buy one 
 that is out of date, Avith machinery 25 or 30 years old, and my neigh- 
 bor comes in and builds a factory with modern machinery and he can 
 produce the cloth for 10 or 15 per cent less than I can produce it for, 
 would I not look strange to go and ask him to divide his profit with 
 me? That is what a great many railways ask, and a great many peo- 
 ple think it ^vould be an advantage to the coimtry to allow the rail- 
 ways to make pools. My theory is : Hold them to a strict observance 
 of the law and enforce it, and let them have room according to their 
 heft. Let them have room to see what they can do, what thej' will 
 do; nothing else ever brought our rates down. 
 
 Senator Foeakeh. You have said somebody ought to go and buy 
 the Erie Railroad. That was your expression? 
 
 Mr. Hill. I said somebody could. 
 
 Senator Foeaker. Then, if somebody were to go and buy it, it 
 would be necessary to make a trunk line out of it ? 
 
 Mr. Hill. It is a trunk line. It could be improved. 
 
 Senator Foeakee. You say it is a " flintlock " road ■ 
 
 Mr. PIiLL. Well, it could be improved. 
 
 Senator For ApEE (continuing). And a muzzle-loader ? 
 
 Mr. Hill. It could be improved. 
 
 Senator Forakee. I am using your expressions. 
 
 Mr. Hill. I say it could be improved. 
 
 Senator Foeakee. And you would expect it to be ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Forakee (continuing). If anybody should buy it who 
 wanted to do business in competition ? 
 
 Mr. Hill. Yes. It would take some money. But, you see, there 
 is the point: "\"\Tio will put the money in, when every "dollar that is 
 invested is threatened with having the control of it taken away and 
 handed oyer to some sort of a commission, whom we know, who have 
 to deal with them, are absolutely incompetent? ^A'ith all due defer- 
 ence to the men on that Commission — I have a high regard for many 
 of them — what position could they fill on a railway ? I do not know 
 any. We pay traffic men thirty to forty thousand, and as high as 
 $50,000 a year, because they are worth it. 
 
 Senator P^oeaker. To make rates and to get business? 
 
, THIRTEENTH DAY. 21 
 
 Mr. Hill. They understand the business of the country. A good 
 traffic man commences at the bottom, and he studies the natural 
 conditions, and undertakes to make a rate that will move whatever 
 that country has to move to market. 
 
 It is not a question of a low rate. Take coal : A modern car carry- 
 ing 50 tons of coal for the same distance pays more than the United 
 States is paying for its mail car hauled on a passenger train. 
 The Chairman. What is that? I did not understand that. 
 Mr. Hill. I say a modern coal car with 50 tons of coal in it will 
 pay the company as much revenue as it receives for carrying the 
 United States railway post-office the same distance ; and it has got 
 to heat and light and bed and take care of the railway post-office, 
 and carry it on a fast passenger train. 
 
 The CHAtaJiAx. And what is the relative cost of carrying those 
 •oars? 
 
 Mr. Hill. Oh, the cost of carrying the coal car is very much less 
 than the cost of carrying the mail car. 
 
 The Chaieinian. I know it is very much less, but hoAv much? 
 Mr. Hill. Say one-third. 
 The Chairman. One-third less ? 
 
 Mr. Hill. No; one-third of the amount; 33 per cent of the cost 
 of carrying the mail car. 
 
 Senator Foraker. It costs three times as much to carry the mail 
 car as it does to carry the coal car ? 
 Mr. Hill. Yes. 
 
 The Chairman. Who fixes the price of the mail car? 
 Mr. Hill. The Postmaster-General. 
 The Chairman. The Government? 
 Mr. Hill. Yes. They do not, in many cases, pay at all. 
 Senator Foraker. He fixes it by "contract with the road, does he 
 not? . , ., 
 
 Mr. Hill. He does when he gets ready. We h^ve carried railway 
 post-offices for a great manv years without any pay at all. We get 
 up within 800 miles of the coast, and we carry them from Assmni- 
 boine, or Pacific Junction, 830 miles, to the coast; and if we did not 
 furnish a railway post-office possibly the business people would not 
 get the mail within twelve hours of the time they do get it, and the 
 condition would be unsatisfactory. 
 
 Senator Foraker. It is some advantage to the road to carry the 
 
 mail, is it not? , , ^ ^, n . i 
 
 Mr HrLL. It is an advantage to the people along the road to have 
 
 the mail, and to us, and for everybody; and there is no other way 
 
 they could get it. We carry that mail in railway post-offices at the 
 
 same rate that the Government pays for pouch mail service. 
 
 Senator Foraker. Nobody is allowed to stop the mail car, and they 
 
 might stop the coal car. , , -n i ^ ^.i, x,+ ^4: 
 
 Mr Hill. That is an advantage that I had not thought of. 
 Senator Foraker. You do not expect us to believe that you had 
 
 "m^hS The effect upon the business of the country of the ina- 
 bility of the railways to handle what has to be handled, or what is 
 ^^aiting to be handled, and this enormous increase is go"^g to/.f f«f 
 tremendous investments; and what are the roads compelled to do? 
 
22 THIETBENTH DAY. 
 
 I tell you frankly I see no other way than higher rates east to Chi- 
 cago, and I think they are altogether too high now. 
 
 Senator Culloji. They are too high already ? 
 
 ]\Ir. Hill. Yes ; but they have got to get them higher. 
 
 Senator Cullom. In order to get more facilities 
 
 ]Mr. Hill. In order to get more facilities. 
 
 Senator Ci'LLOM (continuing). For transporting property ? 
 
 Mr. Hill. Yes. There are these questions of terminals and arbi- 
 traries, and so on. I have been through this business, and we have 
 given up more things than a portion of the foreign trade. Take the 
 case of grain going from Chicago to Buffalo: A few years ago it 
 cost a cent and a quarter a bushel for elevating grain in Buffalo, and 
 I thought that it was next to robbery. The Buffalo elevator pool 
 had control of the situation, and the stock sold at six or seven hun- 
 dred. We built a steel elevator there -nith a capacity of nearly 
 3,000,000 bushels and put the rate down to half a cent. It was a new 
 responsibility. We were attacked in Buffalo and we were attacked 
 evervAvliere. and after a few j^ears interested parties came along and 
 said : " We will give you so much." I think they gave us $300,000 
 more than it cost, and we let them have it, because this taking all the 
 burden of all the people on your shoulders, in place of getting help 
 from them, sometimes does not pay. 
 
 Senator Forakee. Then what happened to the rates? 
 
 ]Mr. Hill. Three-quarters of a cent a bushel 
 
 Senator Forakee. They put them up to that? 
 
 !Mr. Hill. Three-quarters of a cent a bushel on 200,000,000 bushels 
 in Buffalo Avas a very respectable amount. I might say they got a 
 cent and a half, because they got a quarter of a cent a bushel addi- 
 tional for the use of a patent shovel that they owned, and it amounted 
 to $2,000,000 a year. Our elevator cost $800,000, and the ground it 
 was on about four. We sold it for about a million and a half and 
 retired from Buffalo; and the boys have it entirely in their own 
 hands to nialce anv rate thev see fit, and I have no right to find 
 fault. 
 
 Senator Foeaker. What rate did they make then? 
 
 Mr. Hill. What rate are they making now ? 
 
 Senator Foraker. Yes. 
 
 ^Ir. Hill. Well, sir, I have not followed that up. 
 
 Senator Foeaker. It was a cent and a half before you put in your 
 elevator ? 
 
 Mr. I-TiLL. I think now that it is three-quarters of a cent. 
 
 Senator Foraker. Did they come doi.^ n to half a cent ? 
 
 Mr. Hill. They did ; yes, sir. They had to. 
 
 Senator Foraker. They met your rate ? 
 
 The Ciiairjiak. Do you not think that these elevator people ought 
 to be put under the interstate-commerce law, and some restraint 
 l^laced on them ? 
 
 Mr. Hill. There are a good many things that should be done, and 
 that is one of them, if you can get the Interstate Commerce 'Commis- 
 sion to enforce the l{\w' : but up to the present time 
 
 The Chairman. At any rate, do you not think we should make the 
 law first in resi^ect to elevators ? 
 
 Mr. Hill. You will be quite safe in doing that. It will do no harm, 
 and if they will enforce the law it may do great good. 
 
THIETEENTH DAY. 23 
 
 Senator Foraker. That elevator, then, does enter into the through 
 rate that has to be fixed at the originating point? 
 
 Mr. Hill. Certainlj^ The man Avho' raises the grain out on the 
 prairie takes Avhat is left. The reduction in the rate does not go to 
 the man on the prairie. 
 
 Senator Cxjllom. Who is he ? Who is the man that gets it? 
 Senator Foraker. He is the conmion people. 
 ;Mr. Hill. I atIU bring it right home. 
 Senator CuixoM. Yes; get down to facts. 
 
 Mr. Hill. Suppose you want a load of something you could find 
 in Chicago — fire brick. 1 ou get the cost in Chicago. You are buy- 
 ing it, and you get the cost of freight to your own'station where you 
 are going to unload it. So that it is the buyer that gets the rate, 
 except when it comes to the final question of competition between an 
 American wheat field and an Argentine wheat field. Then the thing 
 comes down to the survival of the fittest. There is no statute law 
 that fixes it. All the laws that you can put \ipon the books for that 
 will amount to nothing. You have got to face the cold fact, then, 
 and your man who is receiving the material on your railroad must be 
 able to beat the other man or he will stop and you will stop carrying 
 it. The railroads are not getting any such returns as is supposed by 
 some people. If you take the returns on the actual investment of the 
 railroads in the country it is very low. For the purpose of illustra- 
 tion : To move a ton of freight 10 miles in a day and a team to get 
 back would be a good day's work for a farmer's team; and he would 
 want $3 and think he was not overpaid. Xow, a difference of a cop- 
 per cent in moving a ton of freight 10 miles on the Great Northern 
 Railway would make $3,600,000 in a year, and on the Pennsylvania 
 system "about $13,000,000. Does anybody think he can sit down and 
 with a wave of the hand, or that a court or anybody in the world, is 
 competent to fix a rate that is adjusted as finely as that is? 
 
 Senator Foraker. That is a difference of a cent a ton for the whole 
 distance ? 
 Mr. Hill. Xo, sir ; that is a difference of a mill a ton a mile. 
 Senator Foraker. One mill per ton per mile would make that dif- 
 ference ? 
 Mr. Hill. Yes, sir ; a cent for 10 miles. 
 
 Senator Foraker. Yes. ■-, ^ 
 
 Mr. Hill. That is what would ordinarily, before the railroad was 
 there, constitute a day's work. 
 
 Senator CuLLOM. For a man and his team ? 
 
 Mr. Hill. Yes, sir. Now, a rate that may be a reasonable rate 
 to-dav the next dav or next month may be absolutely unreasonable. 
 That: I think, is apparent. The important thing m any section of 
 the country is to make a low rate on the natural products of that 
 country Mr. Chairman, a low rate on coal and on hard-wood lum- 
 ber from "West Virginia will help "West Virginia more than anything 
 
 cls6. 
 
 The Chairman. Certainly. 
 
 Mr Htll 1 low rate in Texas on cotton, and up m Minnesota and 
 Dakota on grain will help them more than anything else To illus- 
 trate Let f man have 40 acres of wheat, with a yield of 20 bushels 
 to the afre That would give him 800 bushels, 48.000 pounds, or 
 .4 ton= 1 recfuction of 5^ents a hundred would be $1 a ton on 
 
24 THIRTEENTH" DAY. 
 
 24 tons, and would give him $24 on his crop. Now, suppose that this 
 )nan o-oes to the country store and brings away not salt or nails or 
 lumber or coal — they are carried at special low rates — ^but what we 
 call shelf goods, merchandise; that he brings away 50 pounds once 
 a week. He would bring 2,600 pounds in a year. Suppose his mer- 
 chandise that he brings awaj^ costs an average of 50 cents a hundred. 
 The entire amount that the railway company would receive on that 
 2,600 pounds would be $13. If you cut the rate in two it would be 
 $6.50. What difference would that make to that farmer? Would 
 he get a pair of shoes for less, whether they carried it at one rate or 
 the other? But it does malve a difference of $24 to him whether his 
 wheat is carried at the higher or the lower rate. Twenty-four dol- 
 lars is probably more than the railway company receives, twice over, 
 on his entire consumption of shelf goods — general goods. 
 
 Now, if we did not make the rate so as to encourage the production 
 of that wheat in a wheat country where there is nothing else, what 
 would become of the merchandise? There would not be any. There 
 would not be any churches or schoolhouses or doctors or school-teach- 
 ers or clergymen; there would not be any town there. It would re- 
 turn to what it was twenty-fiA'e or thirty or fortj^ years ago — an 
 imoccupied wilderness. And so it is not an unfair discrimination to 
 make the low rate for the man who is cultivating the soil, or digging 
 in the mine, or working in the forest, because upon his product de- 
 pends the gTOwth of the entire section of the country, and you must 
 build it up ; if you do not the railroad is not worth a cent. 
 
 Take the question of maximum rates: The very moment that you 
 get a maximum rate it becames the minimum rate. ^^Tienever you 
 give the power to make a rate the railway company expects that its 
 own sins and everybody else's sins are going to be visited on its head, 
 and the rates will be down; and they find every reason in the world 
 for maintaining that rate — the maximum rate. It is a legal rate 
 then, fixed by law. 
 
 (Thereupon the committee took its usual noon recess.) 
 
 AFTER RECESS. 
 
 The Chairman. Now, Mr. Hill, you can proceed. 
 
 Mr. Hill. We left off, I think, where I undertook to show that it 
 was to the advantage of the country served by a railway' line that the 
 natural products of that country should have whatever preference 
 might be given by the low rate, for the reason that if the natural 
 products of the country are not able to find a market the country 
 goes back; there Avill be no passenger business and no high-class 
 freight traffic. 
 
 As to the question of maximum rates, once a rate is made by law the 
 railway company is invariably afraid to cut loose and make a lower 
 rate than that. So that drives us to this position : If the Interstate 
 Commerce Commission will insist that the railway companj^ shall 
 carry all the traffic that it is capable of carrying at a rate that M'ill 
 afford it a fair return on the investment you will get rates down that 
 way quicker than in any other way. There is no question as to the 
 reasonableness of a rate when the company is receiAing a fair return 
 on its investment. Beyond that the rate is unreasonable. There is 
 no defense that the most ingenious lawyer can set up that the prop- 
 
THIRTEENTH DAY. 25 
 
 erty is being confiscated when he is getting upon it a return of 7 per 
 cent per annum. So that if you make the railway company transact 
 busniess at prices that will pay it a fair return on the investment you 
 will get your rates reduced more quickh- than you will in any other 
 way. Give them the authority, let them go on and make the rate, and 
 see that the rate is not too high. 
 
 The question of a rate being high or low is a question of fact. As 
 I am not a lawyer I shall not attempt to take up anv of vour time in 
 discussing a legal proposition. It is a difficult matter to determine 
 on a statement of facts what is a fair rate. But the courts can deter-, 
 mine that question. The courts go much further than that in the 
 matter of exercising the right of eminent domain for a corporation. 
 They will fix the price of your house; they will take your property, 
 appoint a commission, fix the price; but it is the price of that par- 
 ticular house. It is not the fixing of a rate that is to be applied to 
 the traffic of the country this week or next week or next month or 
 next year. The conditions are not the same. The facts found by 
 the court are not the same. 
 
 So that, for that reason, if you are ever to attempt to give any 
 poM'er to a commission or a court or any other body to fix future rates 
 for future conditions you will establish that rate, and it will not go 
 down, no matter Avhat you say. You have the authority of the court 
 to fall back upon, and j'ou would arrest the progress of the commerce 
 of the whole country. 
 
 I can not imagine a greater misfortune than to attempt to fi.t these 
 rates by law, because one way or another the railroads have the ad- 
 vantage in showing the facts, they are more familiar with it, and the 
 courts have got to try it on the facts as shown. 
 
 How many times has the Interstate Commerce Commission been 
 reversed? Almost invariably when it comes to the question of 
 making rates; almost invariably the courts, on the presentation of 
 the facts, are compelled to set the Commission's finding aside. 
 
 As to the question of discriminations by private cars and terminal 
 side tracks that they call railroads, as a device for getting rebates, all 
 those things are abundantly provided for. If the present law is 
 enforced, not one of them could exist a moment. There are many 
 conditions that illustrate that. 
 
 Take, for instance, the grain moved by lake from Duluth to Chicago 
 or Buffalo at li cents or U cents per bushel— carried a thousand 
 miles. "V\1ien that grain gets to the city of New York or to the 
 Harlem Eiver it pays an arbitrary charge of 3 cents a hundred 
 pounds — I was about '^to call it a fine for coming to New York. That 
 is a cent and eight mills, or more than it has cost to bring it from 
 Duluth to Buffalo. . . ., 
 
 There is something that would be well worthy the attention or the 
 Interstate Commerce Commission. ^^ ^ . 
 
 Senator Fokakek. Is that the rate from Buffalo to Harlem ( 
 
 Mr. Hill. No, sir. It is an arbitrary when it comes to Harlem. 
 
 Senator Cullom. On what ground was that arbitrary established 
 
 there ^ 
 
 Mr Hill. I could never find out. It is a terminal charge. 
 
 The Chaie^iax. I have always supposed it was for the expense to 
 the railroad of getting into the city. 
 
26 THIRTEENTH DAY. 
 
 Mr. Hill. Why not have a terminal charge at Chicago ? There is 
 terminal service there. 
 
 Senator Foeaker. Chicago is a yoimg city and has not got its 
 growth. 
 
 Mr. Hill. I will not undertake to explain it. and never could. 
 
 Senator CuLLo:\r. It is established at Harlem Kiver. 
 
 ;Mr. Hill. What happens below Harlem River? All of you ride 
 on railways that are kept busy running a great number of passenger 
 trains. You alwa^^s find the freight train is sidetracked to let the 
 passenger train get by. That delaA' of freight trains in waiting for 
 passenger trains to pass is an enormous addition to the expense of 
 running freight trains. If a railroad could be built from Buffalo to 
 Xew York, with two or four tracks, and not l)e compelled to carry 
 passengers at all, it could afford to make a rate that would surprise 
 you, and there T\-ould not be any occasion for spending that 
 $101,000,000 on the Erie Canal. 
 
 The Interstate Commerce Commission and Congress have under- 
 taken to legislate probably as to the applianres. as to the form of 
 coujDler, air brakes, etc. They might go a little further, I think, 
 with great advantage. Any legislation that would protect the lives 
 of peojjle traveling on railways would certainly be useful. Ninety 
 per cent or more of all the railway accidents are due to nonobservance 
 of the rules that are made as the result of experience and made for 
 the preservation of the lives of people traveling by trains. Investi- 
 gation that got at all the facts would show that the most of those 
 accidents are caused by open "violation of the rules. There are a 
 great many good men. excellent men, employed on the railwaj's. 
 The public knows about most of the accidents, but it knows very little 
 about the narrow escapes, and they are much more frequent than are 
 the accidents. A pilot or an engineer on the smallest steamer on 
 the smallest river must get a license ; he must maintain his chai-acter 
 as an intelligent man. That vessel has good sea room, but has not 
 the speed, so the conditions are not so dangerous. The man hauling 
 you 50 or 60 miles an hour has no responsibility, except that his em- 
 ployer can discharge him. I never heard of any other responsibility. 
 
 I think a great majority of the conductors and engineers hauling 
 passenger trains through the country are men of high character and 
 try to do their best. But occasionally you will find, if you observe 
 from the I'ear end when another train passes on the main track, that 
 the man with the lantern, in place of going back 15, 20, or 25 tele- 
 graph poles, will loiter with his lantern, only going back about 2 
 telegraph jjoles, expecting his train to start on in a minute or two, 
 and then he will not have to run to catch ujj. Approaching stations 
 Avithout the engineer having his train under proper control, and the 
 ambition of the public to make time, all these things are what cause 
 so many accidents in our country as com23ared witb other countries. 
 There is no law in iorck to keep jjeople from taking the chances and 
 getting in the Avay of great danger. An old wonian with a crutch 
 under one arm and a little flag can anywhere in Europe stop the king 
 on his own highwaj' at a railroad crossing. But in this country a 
 boy 10 years old would tell a railroad watchman to go to the devil, 
 if he was impolite, if the watchman undertook to stop the boy from 
 crossing the track when a train was coming and in sight. We court 
 danger. 
 
THIETEENTH DAY. 2T 
 
 I do not know whether the States will ever legislate to try to pre- 
 vent so many accidents. If they did, somebodv might say that it 
 would do no good to enact a law in one State for 'the use of some par- 
 ticular appliance that you could not use in another ; and certainly it 
 AYOuld not do to change cars at State lines. Consequently it seems 
 necessary that Congress should take action to see that the railway 
 appliances and the use of them are not such as to restrain interstate 
 commerce. 
 
 I spoke this morning of the coal rates. Coal rates with us are 
 low — -we think they are. Allien we see the rates that obtain in some 
 of the Eastern States, where the tonnage is so many times greater 
 than ours, we feel that we might be justified in advancing our own 
 rates. But if we did we should be accused of motives of self-interest. 
 The question is, How is an employee going to live and take care of 
 his family? AVe are charged Avith his prosperity wherever he may 
 be on our lines. So we can not advance the rate. There is also 
 the question of warmth and shelter. The man who builds his house 
 must have the coal that heats his house during the long, cold winters 
 of our northern latitude. 
 
 Senator Foraker. How many coal fields have you on your line? 
 
 Mr. Hill. We take coal as far west as the mouth of the Yellow- 
 stone River, but that coal comes from "West Virginia and Pennsyl- 
 vania mainly. 
 
 Senator Forakek. So you take your coal from West Virginia and 
 Pennsylvania as far west as the mouth of the Yellowstone? 
 
 Mr. Hill. Yes; which would be on the meridian of Denver. 
 
 Senator Foraicer. Then what do you do ? 
 
 Mr. Hill. In the Eocky Mountains we have an abundance of coal.. 
 
 Senator Foeaker. Yovi have abundance of coal fields there ? 
 
 Mr. Hill. Yes. 
 
 Senator Ctjllo:ii. Is it anthracite or bituminous? 
 
 Mr. Hill. It is bituminous. 
 
 Senator Clapp. In this connection I would like to have some knowl- 
 edge of Avhat the coal rate is in the West, especially on your own line. 
 
 Mr. Hill. Take coal from the head of I^ake Superior to the Twin 
 Cities, where vou live, 160 miles, and that rate is 75 cents. 
 
 Senator Kean. That is anthracite ? 
 
 Mr. Hill. Yes. 
 
 The Cpiairman. What rate is that per ton per mile ( 
 
 Mr. Hill. It is a little less than half a cent. 
 
 The Chairman-. Four mills? -d wu .- • +i ^- 
 
 Mr Hill. It is a little over 4 mills; say n. But that is the rat« 
 the vear round. At times we have to haul empty cars back, and 
 there are times when we would like to make the rate that we could 
 afford if we had return freight. But that would be an inconvenience 
 TO some people, and if we ever made such a rate they would want us 
 to make that the permanent rate. ,ti ii ^ +i. 
 
 The CHAIRJIAT^^ Do you ever have an established low rate on the 
 coal that you carry ? 
 
 Mr. Hill. We do. 
 
 The Chairman. What time ? ,..■-,-,-. ^ 
 
 Air Hill ^fter the grain begins to move. say. from the middle of 
 September until the Ist^f December. After that there is very httle 
 business going to the Lakes. 
 
28 ■ THIRTEENTH DAY. 
 
 The Ci-rAiRiiAX. That is hauled in box cars? 
 
 Mr. Hill. Our transiDortation of coal is nearly all in box cars on 
 the eastern end, so as to load both ways. Take the coal rates from 
 seacoast points in Xew England for 50 or 100 miles inland, and I 
 think you will find them by comparison quite high; in fact, all the 
 rates on coal in Xew England are quite high as compared with ours, 
 where they have a population of 150 to the square mile and we only 
 have 50. 
 
 Senator Cctllojl How do you account for that ? 
 
 Mr. Hill. I do not undertake to account for that ; it might not look 
 well, coming from me. 
 
 The Chaiemax. Yet we have not heard of any complaint from Xew 
 England. 
 
 Senator Cullom. They ha^-e been imposed upon so long that they 
 do not know any better. 
 
 Mr. Hill. Take the rates as they exist. Suppose a man down here 
 on the Potomac Kiver, somewhere on the boundary line between Mary- 
 land and Virginia. If he is shipping 10 boxes of eggs to 10 different 
 consignees every day, it is perfectly competent for him to make a 
 complaint on each shipment. He can do that on a postal card and 
 send it to the Interstate Commerce Commission, and under your law 
 it is the duty of that Commission to take all of the 10 cases and inves- 
 tigate them, and if all of them are found to be unreasonable, to bring 
 the matter to the attention of the carrier, and if the carrier refuses 
 to correct it the Conmiission can go into court. And if the com- 
 plainant is called as a witness in his own case he gets witness fees. 
 The lawsuit is conducted by the Government. The railway company 
 has to defend itself and has to be at all the expense of defending it. 
 The complainant has no expense. 
 
 Do you want to go much further than that ? Is not that going very 
 far ? It affords the shipper a great deal of jarotection. The question 
 of the reasonableness of the rate can be tried without any expense to 
 the shipper. All he has to do is simply to put his complaint on a 
 postal card and direct it to the Interstate Commerce Commission. 
 That is the law to-daj'. 
 
 While the railways of the country are next in value to the agricul- 
 tural land of the country, is there any other property that has to fight 
 so hard for its life as railroad propertj' I A man may steal from the 
 railroad company and it is an awful hard thing to convict him. 
 
 We have had a case in the State of Minnesota where we caught 
 men in the car breaking open boxes of other people's goods, and we 
 turned those men over to the prosecuting attorney of the county, but 
 he let them go, saying that they had no money there to prosecute 
 railroad cases. 
 
 Under these circumstances what do we pay taxes for? We pav 
 the State of Minnesota $000,000 to $700,000 a year in taxes. We 
 have not contaminated the air. We have not deprived them of any 
 highway or byway they had before the railroad was built. We have 
 not destroyed the water. We have given them better and cheaper 
 facilities for communication than they had before. They have not 
 put a cent of their money into it. Is there any reason why we should 
 get' a different measure of justice from any other class of property 
 owners? It comes home to us. We feel that we are sort of outlaws. 
 
THIRTEENTH DAY. 29' 
 
 Then we have the question of foreign commerce, and it is a leading- 
 one. vVethulk that, as a nation, ATe are doing a great deal 
 
 I was very much struck by an article I found in the Booklovers' 
 Magazine, prepared by a man in the Treasuiy Department here I 
 shall not mflict a long article upon vou, but I should like to read 
 some 01 the points he has made. 
 
 The Federal publications show that the United States is credited with only 
 4.66 per cent of the gi-eat import trade of Asia— a continent that buys more 
 merchandise abroad in a year than America does. The official account further 
 reveals that South America buys as much merchandise abroad in one year as 
 we sell that contingent in eight. These telltale figures find no place in the 
 popular reviews and declamations of the hour. 
 
 Statesmen, economists, editors, and magazine contributors— equipped to trans- 
 late the tabulated details of our commercial defeat in South America, Oceania, 
 and Asia into the language of the people— have lovallv refused to capitulate to 
 the facts. 
 
 Senator Foeaker. By Avhom was that article written ? 
 
 Mr. H11.L. By Harold Bolce. I do not know him, but he is evi- ■ 
 dently speaking by tlie record. I know that many of his statements 
 are entirely sound. 
 
 Our total exports of merchandise to all South America, Oceania, and Asia 
 combined brought, in 1904, a per capita return to the people of the United States 
 of less than 15 cents a month. 
 
 Summed up in a sentence, the situation ^-s'ith which we are now face to face 
 is the rapid decrease in our exports of agricultural products and the failure of 
 our manufactured exports to fill the resulting gap. 
 
 Hitherto we have had a surplus of farm products to sell. The nations have 
 gladly sent their ships here to secure our agricultural supplies. Ninety-seven 
 per cent of these cargoes has gone across the seas on foreign vessels. To-day 
 our exports of agricultural products are decreasing at an enormous rate-, The 
 value shipped abroad in 1904 was nearly one hundred millions less than it was 
 in 1901. We have reached a turning point in our commercial history. Our 
 enormous and increasing home consumption is leaving a constantly dwindling 
 surplus of farm products for export. 
 
 We shipped abroad, in fact, more breadstufCs a quarter of a century ago than 
 we did in 1904. America withheld from export in the past year over half a 
 billion bushels of wheat. 
 
 "^Vhat we use for bread and seed with us is about 6^ bushels. per 
 capita. 
 
 Senator Foraker. Did we withhold it, or did we fail to export? 
 
 Mr. Hill. He says it Avas withheld. We needed it at home. Our 
 crop was that much short. 
 
 It was the greatest amount ever kept in this country. It was not enough. 
 To keep our mills grinding we had to import wheat from Canada. In the year 
 1880 we not only exported a hundred million more bushels of wheat than we 
 did in the past year, but we also shipped abroad then almost double the quantity 
 of corn we do to-day. 
 
 Our importation of articles of food and animals, not to mention agricultural 
 raw materials for our factories, now amounts to about a quarter of a billion 
 dollars in value per annum. 
 
 We have been blind to alluring opportunity. Official returns show that while 
 we have been maintaining the political gospel that safeguards the autonomy of 
 the Republics south of the Isthmus, Europe has secured their trade, and that 
 while with impressive dignity, we have held open the trade door of Asia, the 
 cargoes of our competitors have been pouring through. Even our own colonial 
 islands in the Pacific are being exploited by our trade rivals. 
 
 He gives a graphic statement showing the proportions, the black 
 being the proportion of the United States commerce as compared 
 with that of other countries. Again, he graphically says : 
 
<50 THIRTEENTH DAY. 
 
 We have already seen that Asia credits us with only 4.06 per cent of its 
 imports. Oceania, which buys more manufactures than we sell to the Old 
 World, gets only 11.95 per cent of its total imports from us. South America 
 credits us with 12.5-5 per cent. Such is the wide record of our defeat, even 
 when we include our exports of agricultural products. Asia, Oceania, and 
 South America in 1902 imported .f 1,642, 708,000 worth of merchandise. That 
 is !);155,000,000 more than the gross value of our foreign sales in all lands in 
 the greatest export year in our history. Beginning with the year 1897, and 
 adding up the value of all our exports to South America for eight years — pecu- 
 liarly prosperous ones at home — the grand total is found to be $33,000,000 less 
 than that continent buys in a single year abroad. Our total export trade with 
 South America, which has been the theme of much American optimism, has 
 brought during these eight years an average annual per capita i-evenue of less 
 than 50 cents to the people of the United States. 
 
 The record becomes even more humiliating when we consider the exports of 
 manufactures to individual countries. Our trade with China has been greatly 
 exaggerated. Our open-door policy has not contributed to the sale of our gen- 
 eral manufactures in that Empire. For many years China has been buying two 
 articles from us — uncolored cotton cloth and mineral oil. Our other exports of 
 manufactures to China are not only Insignificant, but up to the outbreak of the 
 war had declined steadily since 1899. Aside from oil and cotton cloth, our total 
 export of factory goods to China has brought to the American people a per 
 capita revenue of a trifle over 2 cents a year. Yet China is a great importer of 
 general manufactures from other countries, and is buying bigger cargoes every 
 year. 
 
 The plain facts regarding our trade with Japan run so counter to popular 
 fancy that they have been totally unwelcome. There is a widespread delusion 
 that the rise of Japan has meant the beginning of American trade ascendency 
 in the Orient. But official records show that our exports of manufactures to 
 Japan were rapidly declining up to the outbreak of the war. In 1903 the value 
 of all our manufactures sold to Japan was $4,000,000 less than it was at the 
 opening of the twentieth century, and more than half of our small returns from 
 Japan was for mineral oil. 
 
 At the same time there was also a marked decline in Japan's imports from 
 Europe. Meanwhile the imports into that Empire from Asia were vastly 
 mereasing, the bulk of the huge volume of incoming cargoes from the Asiatic 
 continent being raw material for the manufacturing establishments of Japan. 
 This marked transformation in the character of the commerce of new Japan may 
 well challenge serious attention. Japan makes no secret of its aspiration to 
 commercial supremacy in Asia and throughout the circuit of Western and Far 
 Eastern islands. It is rapidly becoming the Great Britain of the Pacific, and is 
 seizing the vast opportunity America has missed. 
 
 I shall not take up more of your time in reading this, but will leave 
 it with the committee, and any portion' that may be of interest the 
 secretary can use. 
 
 The foreign commerce of our country and a portion of the domestic 
 commerce must be considered. Take, for instance, the Canadian 
 Pacific Railway, mainly built by Government subsidies, not only of 
 land, but enormous subsidies in cash. We must meet their competi- 
 tion, and we can. But when they are not subject to the conditions 
 imposed by the interstate-commerce law, how shall we meet their 
 competition ? There is the condition that threatens the United States. 
 
 Take the grain business going to the seaboard from north of St. 
 Louis and as far west as grain grows in the Platte Valley, and it 
 would not be difficult to see it leave and seek the sea by way of the St. 
 liawrence. If the Georgian Bay Canal were built from Georgian 
 Bay, the eastern portion of Lake Huron, up French River, up the 
 •divide to the Ottawa system of lakes, it would involve the construc- 
 tion of 32 miles of canal with a depth of 20 feet of water on the sill 
 and 22 feet in the reaches. Only 32 miles of actual canal to build, 
 and for the remainder of the distance existing waters could be used, 
 "with some dredging in the Ottawa River. The distance from Chi- 
 
THIRTEENTH DAY. 31 
 
 S«7 ^"^''*^ ^ ^^"l^'^^i '"' ^ *^^^^' IS ™iles shorter than it is to 
 iSuflalo, going around the State of Michigan 
 
 frnn. ^ .r!"^ ^"'^"^ ^^^ ^''''fJ' ^'^^"^ '^^^^^^ §« f^om Chicago or 
 from Duluth to deep water at Montreal for 2^ cents a bushel. Ee- 
 frigerator ships can load direct from the packing houses in Chicago 
 and sail from there, drawing 20 feet or 19 feet of water, to anv port 
 m the world duruig the season of open water. The St. Lawrence is 
 open when the Lakes are open. I have somewhere the plans and 
 drawings ot that canal. I think the estimated cost of it is $17,000,000 
 
 Senator FoEAKER. Which canal is that? 
 
 Mr Hill. The Georgian Bay Canal, going from the eastern limit 
 ot Lake Huron through hj the Ottawa Eiver to Montreal. 
 
 Senator Clapp. What would be the difference in distance? 
 
 Mr. Hill. Fifteen miles. 
 
 Senator Clapp. By what route ? 
 
 Mr. Hill. By tliis proposed' canal. 
 
 Senator Cullom. Is that likely to be built soon ? 
 
 Mr. Hill. The present government has just been returned last fall, 
 and I think it is probably the most popular thing that they will ever 
 have to do. For that reason I think there is no doubt of its being 
 built. I know that the people up there are very much taken with the 
 possibilities. 
 
 Senator Cui-lo:m. That is my impression, but I wanted your knowl- 
 edge about it. 
 
 Mr. Hill. Yes; I think it will be built, and unquestionably they 
 think it is of vastly more importance than some other things they have 
 in hand at the present time. They are spending from $80,000,000 to 
 $85,000,000 for building a railroad from Monckton, Xew Brunswick, 
 to Manitoba, north of Quebec and north of thfe St. Lawrence ancl 
 Ottawa, and on the other side of the divide north of Lake Superior, 
 and going into Winnipeg through country only a portion of which 
 will support a population and a 23ortion of which might be called verj'- 
 good country, up toward the Hudson Bay. 
 
 All these things can be easily taken away from us. We have not 
 anything to spare, as it is now. We are carrying some articles upon 
 which there has not been much expended for labor. 
 
 When it comes to an article into the cost of which labor enters to a 
 large extent in these oriental countries, Germany especially is forging 
 to the front very rapidly, and beats us entirely. But this country 
 has the advantage in raw material, our rich iron ores, and close 
 jjroximity to the Lakes, as well as low cost of transportation. So 
 that a transportation problem that would be considered impossible to 
 solve in Europe we can solve with great ease. 
 
 It is a curious thing that transportation, into the cost of which 
 enter so much labor and material that is created by labor, is the one 
 article that is furnished to the public at a price that is so much lower 
 than that of any other country that there is no comparison. In the 
 production of iron and steel, owing to our natural resources, we can 
 compete successfully with most of them. Occasionally Belgium, 
 owing to verv low rates of labor, comes in and makes a rate that it is 
 •difficult for our people to meet. But we meet them in the Orient 
 -with' nails and steel. Eaw cotton is easy, and manufactured cotton 
 started in a small way about 1897, and that has increased. American 
 
32 THIRTEENTH DAY. 
 
 cotton and American cotton cloth are better than the Orientals can 
 buy anywhere else and contain less foreign substances. They like 
 them better and pay more for them. 
 
 Senator Clapp. Have you the figures showing the increase in the 
 cotton trade, especially over your line and other northern lines ? 
 
 Mr. Hill. I have not. I know that it started at almost nothing 
 and ran into very large figures. I have not the figures for the present 
 crop, but this year, I think, will exceed any of the past years. For 
 instance, railway locomotives ; we are taking 106 railway locomotives 
 to the Orient now. 
 
 Senator Foeaker. ^-NTiere were they manufactured ? 
 
 Mr. Hill. Mainly in Philadelphia. 
 
 Senator Foeaker. At the Baldwin works ? 
 
 Mr. Hill. At the Baldwin works ; some at Dunkirk. I happened 
 to have advices of shipments in my hand when one of our directors, 
 who has a railway in the Southwest, came into my office, and I found 
 that we carried those locomotives from Philadelphia to Yokohama 
 at about the same rate that he paid for carrying them 500 miles. 
 
 Senator Foeaker. How did you do that? How did you come to 
 doit? 
 
 Mr. Hill. Those are questions for the Interstate Commerce Com- 
 mission to take up and investigate, and it would be very interesting if 
 they would do more than to pucker up their lips and whine about 
 their inability to make rates. 
 
 Senator Foeaker. If they investigated that, what would they find 
 out? 
 
 Mr. Hill. They would ^find out that somebody was getting more 
 than his share. 
 
 Senator Foraker. Certainly you are not. 
 
 Mr. Hill. All right ; we are satisfied with what we are getting. 
 
 Senator Foraker. If you took those locomotives from Philadelphia 
 for about the same amount that he got for taking them only 500 
 miles, it would seem that the other fellow gets more than his share? 
 
 Mr. Hill. If it weie not for the fact that we work every source, 
 that we try to bring together all the forces that we can control for 
 the purpose of finding a load to the Pacific coast, or if it were not for 
 the fact that we have a carload of lumber waiting to be loaded and 
 put on the train at one terminal and taken to' the other terminal and 
 unloaded — if it were not for that we could not make any such rate, 
 we could not begin to make the rate. You might say that we are dis- 
 criminating in making that rate, but if we did not get that car out 
 there and get a carload of lumber to move east, we could not make 
 the rate. The whole country is much better if we have the traffic 
 increased than it would be if the traffic were retarded — much better. 
 
 It will come back to this — and I am as confident of it as that I 
 stand before you — that if you allow the railroad company, under the 
 closest scrutiny of an intelligent Interstate Commerce Commission, 
 to make the rate, and if they transgress in making the rate too high, 
 take them ]n'omptly to the court, and if you can not prove that it is 
 too high, they have not sinned very far. But if it is too high, punish 
 them quickly and summarily; fine them or do anything you like Avith 
 them. But leave the rate-making power with them, and subject to 
 review by an intelligent court that can judge of all the facts, because 
 
THIRTEENTH DAY. 33 
 
 jf you attempt to put it in the hands of a commission or take it away 
 from the railroads, that moment you have driven every raik'oad in 
 the country into a position to maintain the highest rate they can get. 
 It is practically what I said this morning in regard to the foreign 
 business, or in regard to increasing our business. We have some 
 places in Minnesota where they would like to have railroad exten- 
 sions, to have new lines built. There are some places in Montana 
 where they would like to have new lines built, and we would like to 
 have them built. But what is the use ? I go to our shareholders and 
 ask them for money to build this 'line, and they say: " Mr. Hill, you 
 are earning money enough now ; you haven't any trouble in earning 
 your dividends; why should we take that additional trouble?" So 
 rhey can not get anybody to build that road any more than you can 
 get capital to build a line from Chicago to the Atlantic seaboard in 
 opposition to the Pennsylvania road. They have got the advantage 
 of being in, and having the choice of terminals. How would another 
 road get into this city, for instance ? What woitld it cost to come into 
 this city from Chicago and get terminals, or to go to Baltimore, Phil- 
 adelphia, or New York? A¥hy, it would cost as much to get termi- 
 nals into those cities as it would to build the railroad in the first 
 place. And besides, the Pennsylvania would eat them up. In the 
 end, the law of the survival of the fittest will apply. 
 
 If the trunk lines do not furnish the facilities, you must not be sur- 
 prised to see wheat going, as it did last winter, from Winnipeg to 
 Great Britain by way of New Orleans, because you can not get it 
 through the other way. It would take too long, and it might sprout 
 on the way. 
 
 Now, Senators, I have taken a lot of your time, and I am ready to 
 answer questions of any kind. 
 
 The Chairman. Have you any branch or lateral connecting lines 
 owned by other companies than your own ? 
 
 Mr. Hill. We have a number of branches. 
 
 The Chairman. Yes, you have; but are there branches of other 
 lines connected with yours ? 
 
 Mr. Hill. Yes. 
 
 The Chairman. Short lines? 
 
 Mr. Hill. Some. Some places we are the long line, and other 
 places we are the short line. t . u -u 
 
 The Chairman. As I understand, capital can be found lor build- 
 ing a branch line to some through line, but it would be extremely 
 difficult to find capital to build a trunk line now, as you said a while 
 
 ^^Mr Hill It would be the case between Chicago and New York, 
 because the investment would fate badly, and it would probably 
 take ten or fifteen years. xx ^ u -u ^..+1,0,. 
 
 The Chairman. It would not be an easy matter to build another 
 railroad from Chicago to the Pacific coast, would it? 
 
 Mr. Hill.* No; it would not. , . . , » ^, • ^-u t. 
 
 The Chairman. You think that on this side of Chicago the great 
 trunk lines now control the financial sources of supply? 
 
 Mr. Hill. Oh, no, sir. ^ ^ ^ .u 
 
 The Chairman. So that they could not get the money. 
 
 13 D— 05 M 3 
 
34 THIRTEENTH DAY. 
 
 Mr. Hill. The man who has money is timid. If a man has the 
 money to build a railroad, he has money enough to get along without 
 that railroad. 
 
 The Chairman. But he might want to build another trunk line. 
 
 Mr. Hill. Take people who have only small amounts of money 
 and want to invest and have their returns certain — to invest at 4 
 per cent, if you like — they would be very timid about furnishing 
 money to go into an enterprise of building a railroad between Chi- 
 cago and the Atlantic coast to any point reached by present trunk 
 lines. 
 
 The Chairman. Could the money be found for that ? 
 
 Mr. Hill. I think the Government probably could find it, and that 
 is about the only one that could. 
 
 The Chairman. Now, Mr. Hill, the conditions being as you have 
 stated, that the trunk lines exist, and that there probably will not 
 be any more trunk lines built, would it not be good policy for the 
 development of the country, and in the interest of the public, to 
 encourage branch and lateral lines connecting with the great trunk 
 lines ? 
 
 Mr. Hill. The trouble is that a trunk line is like a river, and 
 branches are like the little streams. If the river is overflowing its 
 banks, I don't know any other way to help it than to deepen the 
 channel, to lath and plaster the bottom, or something of that kind. 
 
 The Chairman. What do you mean — make more tracks? 
 
 Mr. Hill. Yes; and more terminals. The great difficulty to-day 
 is that peoj)le think of forcing a railway company into a position 
 where it can only use its equipment for two hours out of twentj'-four. 
 and where it has to pay all its bills and get a fair return on its invest- 
 ment out of that U\Q hours. 
 
 The Chairman. What rule do you adopt in the way of making 
 allowances for freight originating on branch lines that you do not 
 own? Do you do it on a percentage basis of the through rate or 
 arbitrary ? 
 
 Mr. Hill. We have been very liberal Avith thern. 
 
 The Chairman. What rule do you adopt usually? 
 
 Mr. Hill. Take their mileage, and, as a rule, vce would double our 
 mileage and then prorate on distance. 
 
 The Chairman. From 50 miles to 100 miles? 
 
 Mr. Hill. On 50 we would go up to 100. 
 
 The Chairman. Would you go up to 200 miles? 
 
 Mr. Hill. Only go up to 100. That is all our haul was in excess 
 of theirs. ■ 
 
 The Chairman. What would you do if you had a long haul ? 
 
 Mr. Hill. If we had 500 miles, we would allow two for one. 
 
 The Chairman. Is that usual ? 
 
 Mr. Hill. They usually want too many built. They are ambitious. 
 But where men have Avanted to build branch roads we have encour- 
 aged them. We say : " You are starting to build, and 'Ave will give 
 you 2 miles 'for one, and we will furnish equipment besides. You 
 grade the road and we will furnish ties and rails at low cost, and we 
 will take a bond on your road for what you OAve us." 
 
 The Chairman. You thereby deA'elo]^ the freight business? 
 
 Mr. Hill. If there is any money in it, Ave let them make it. But 
 
THIETEENTH DAY. 35 
 
 often Avith even 2 miles for 1, it gets around to a place where thev ask 
 us to take their railroad and let them out. 
 
 Ti^®^^^'^™^;^^" "^^^ y°" ^^'^ "^^''y accommodating and take it? 
 
 Mr Hill. A\ e ought not, but it simply shows that the general rate 
 IS so low that unless you can distribute the business over a large svs- 
 tem It can not live. If we had the rates of twentv vears ago, 2 cents 
 per ton per mile, or 2^ cents per ton per mile, in place of three-quar- 
 ters ot a cent per ton per mile, the little local road could live and 
 make money, but it can not do it now. 
 
 The Chairman. You think the connecting branch line should have 
 something for originating tlie freight and bringing it down in train 
 loads 5 
 
 Mr. Hill. We would be glad to give them, the 2 miles and con- 
 structive mileage, doubling their length, and prorate, rather than 
 for us to build the road. 
 
 The Chairman. You have said that there has been a reduction, 
 in the last thirty years, from about 2 cents per ton per mile on freight 
 rates to about 7.6 mills, to be accurate? 
 
 Mr. Hill. Yes. 
 
 The Chairman. That is done under natural forces governing trans- 
 portation, railroading, and business conditions. Now, what do you 
 think will be the probable reduction in case that same rate is kept up 
 for the next thirty years ? 
 
 Mr. Hill. If you Mall give them a square deal 
 
 The Chairman. That is what the President wants us to give the 
 railroads and to everybodj^ else. 
 
 Mr. PIiLL. Give the railroads a square deal and allow them a fair 
 return upon their investment, and compel them to do the wbrk that 
 they can do and that they are designed to do, for what they can afford 
 to do it, returning to themselves a fair income, and I think that 
 the 7.6 mills rate would be reduced. It seems wild to say so, but I 
 think it will be reduced to about a half a cent per ton per mile. That 
 is the railroad rate in the United States. That would mean that some 
 of the coarser products would be carried at, say, 2 mills, and 2 mills 
 would ruin a canal. 
 
 The Chairman. You were talking in your main statement about 
 a safe return on investment. What would be a safe return for a 
 railroad? For instance, one railroad is highly capitalized, and has 
 an immense bonded debt, while another in the same territory would 
 not have a high capitalization nor a great bonded debt, so that a 
 safe return for the one road would not be a safe return for the other, 
 would it ? If you made 4 per cent a safe return, would not the rail- 
 road with the lowest capital and the lowest bonded indebtedness be 
 entitled to the larger return ? 
 
 Mr. Hill. That is all right, and they should. 
 
 The Chairman. The one with the lowest bonded, indebtedness 
 and the lowest capitalization would be entitled to that; but the other 
 fellow, who is highly capitalized— and whose capital some say is 
 watered— would he not say that that was unfair? 
 
 Mr. Hill. Let us squeeze the water out. 
 
 The Chairman. But he does not want it squeezed^out. 
 
 Mr Hill. Well, let us squeeze it out anyhow for the purpose of 
 illustration, because if he has water in his stock he clearly is not 
 
36 THIKTEENTH DAY. 
 
 entitled to any income on that water. But assume that I have a rail- 
 road; I build it under the law; it is built by myself and my friends; 
 nobody compels me to build it; I build it as a business enterprise. 
 I made a mistake; I did not get the best location; I did not get the 
 best engineers ; the road cost more than it ought ; the business of the 
 country has been killed by that of some other locality, or maybe 
 another railroad hundreds of miles away has taken the business that 
 this road was built to carry, because the other fellow could do it for 
 less money. Now, tell me under what principle of justice or under 
 what fair interpretation of law the man with the high-priced road 
 that he built and took the business risk in building — upon what 
 ground he can claim that the public should make good his errors and 
 maintain him. 
 
 The Chairmak. My question was, if, say, 4 per cent is a fair re- 
 turn on all railroad investments — I do not say that it is, but I use 
 that for illustration 
 
 Mr. Hill. I will answer right there. Tf you guaranteed 4 per 
 cent that would be one thing, and if you limited it to 4 per cent and 
 take only what you can get you would not have any more railroads 
 built. 
 
 The CHAiRsrAN. You stated a while ago that the changes of condi- 
 tions that compel a change of rates are often so sudden that you have 
 to act over night, as it were. 
 
 Mr. Hill. In an hour. 
 
 The Chairman. It is your judgment,' that being the case and being 
 generally the case, that the railroads ought to have the right to meet 
 that question immediately rather than go before a commission and 
 possibly into court in order to ascertain whether they could; and if 
 they did go to the Commission or to the court time would be con- 
 sumed and the opportunity for getting the freight would pass ? 
 
 Mr. Hill. Assuredly. If you take them to court you are taking 
 them on the assumption that they have committed an offense. 
 
 The Chairman. That the rate was too high ? 
 
 Mr. Hill. Yes; that the rate was too high. If you have to apply 
 to the Commission it comes back to where we were fifteen months ago 
 when the Interstate Commerce Commission said : " You must pub- 
 lish your oriental rates and file them with us in Washington." We 
 felt that we were carrying these commodities at a low rate, and that 
 it was a matter of indifference to us whether we carried them or not, 
 so far as the money was concerned. But it was helping our section 
 of the country, and we liked to do it. They say, " File your rates;" 
 we say, " We withdraw our rates." We do not make any, because it 
 would be idiotic to have our agents sit in HongJtong, Shanghai, or 
 Yokohama, and when somebody came in and asked for a rate on flour 
 or 10,000 or 15,000 bales of cotton goods from some point in the South 
 to Yokohama, if you please, and to have our agent say : " I will give 
 you an answer in two weeks from to-morrow ; I will have to cable to 
 St. Paul or to Chicago, and they will have to find the rate and file it 
 in Washington with the Interstate Commerce Commission, and then 
 they will notify me, and you come and see me then." He goes to the 
 representative of the German or English shippers, and they quote the 
 rate laid' down, and give it to him to-day. We simply withdrew the 
 rat«. We do not make any on the commodities we were making them 
 upon at that time. 
 
THIRTEENTH DAY. 37 
 
 _ We do make rates to the Orient; we make them every day. To 
 illustrate: You asked the question, Senator, and I will give you a 
 point right here : A short while ago they wanted fifteen or eighteen 
 thousand tons of steel of various sizes in the Orient. The competition 
 stood between Great Britain, Germany, Belgium, and the United 
 States. Everything being equal, the United States stood a fair 
 chance to get it. The rate had to be made. They came to us to help 
 them out. We hardly ever turn our back on people who are trying to 
 extend commerce in that direction. We made them a rate, and they 
 got it. Great Britain dropped out first, and Germany second— to the 
 great disappointment of the Kaiser. Then the contest was between 
 the United States and Belgium, and to-day the material goes for- 
 ward from Chicago. Whatever money was spent to produce that 
 has gone to people living in the United States ; they might be on the 
 railways, they might be in the mines, they might be in the rolling 
 mills. 
 
 Japan wants to use i\jnerican flour in the place of rice, because 
 they find that the disease of beriberi, a sort of dropsical swelling of 
 the limbs, is largely due to the excessive use of rice. So the Japanese 
 tell me. The great difficulty with them is how to pay us for every- 
 thing they get. Just now they can borrow the money from us and 
 pay us. ' But that is not the usual way. Our traffic with those people 
 has increased enormously, although it is limited almost to the natural 
 productions or articles upon which there is very little labor spent. 
 
 The Chairman. I think you said there was something like 187,000,- 
 000,000 tons of freight moved 1 mile in the United States last year. 
 
 Mr. Hill. I have that article in my pocket. In 1890 it amounted to 
 68,000,000,000 tons 1 mile; in 1904 to 170,000,000,000 tons. 
 
 The Chairman. One gentleman stated that it had reached 187,000,- 
 000,000, and that it had doubled in the last seven years. 
 
 Mr. Hill. It has. 
 
 The mere increase from 1897 to 1904 was more than 9,000,000,000 tons 
 greater than the total tonnage of 1890. At the same rate of increase the ton- 
 nage in the next seven years will be more than 300,000,000,000 tons as against 
 170,000,000,000 tons In 1904. 
 
 The Chairman. That is it. Have not the railroads, as a fact, 
 been put to their highest strain in order to move this immense vol- 
 ume of freight? Has it not tested their capacity? 
 
 Mr. Hill.' They can not do it with any regularity. They are in- 
 creasing the number of tracks and increasing the terminal facilities 
 and trying to do away with obstruction at congested points. They 
 are trying to do all this, but what they are doing does not enable 
 them to keep up with the procession. They are not doing as much as 
 will offset the yearly increase. 
 
 The Chairman. If this increase is kept up for the next seven years, 
 what will the railroads be obliged to do in the way of increasing their 
 facilities in order to meet the demands? ., i , :,i 
 
 Mr Hill. I do not think that existing railways can possibly handle 
 it. I think they will have to find new terminals in places that are 
 now hardly thought of. . xi t i. i 
 
 The Chairman. They will have to make an immense outlay, 1 take 
 it, in order to secure facilities of all kinds— equipment, etc. 
 
 Mr. Hill. Terminals and tracks. 
 
38 THIRTEENTH DAY. 
 
 The Chairman. Where will the money come from to do that? 
 How are you going to get the money ? 
 
 Mr. Hill. I will tell you how not to get it very quickly. 
 
 The Chairman. Both ways. 
 
 Mr. Hill. You have already a condition of things in this country 
 where people hesitate to put money into railroads. Some railroads 
 have not been prosperous right along. Some are prosperous, though 
 if you could actually look on the inside you would find that they are 
 hanging by a verj' slender thread, and that thread will break, espe- 
 cially if you put any extra weight on it ; it will break and fall to the 
 ground. The railroads of the country have been asked to make brick 
 without straw. They have furnished transjDortation at prices that are 
 an astonishment to the rest of the world, paying a higher scale of 
 wages, and paying more for everything, and furnishing it for nearly 
 40 per cent of that obtaining in the lowest country in Europe, which 
 is Eussia. If that is true, and you want them to go on furnishing the 
 necessary facilities, they have got to get an amount of money that is 
 appalling. 
 
 The Chairjean. They will borrow it. 
 
 Mr. Hill. They have got to borrow it, and the amount will be ap- 
 palling. 
 
 The Chairman. Borrow it on bonds, and the bonds have to be sold? 
 
 Mr. Hill. But you can not get the people to take them. They have 
 got to show that they can pay the interest on those bonds. 
 
 Just think of the amount of money that has been going into termi- 
 nals in the last two or three years. The courage of some of our neigh- 
 bors is sublime, and it is magnificent in what they are doing. 
 
 The Chairinian. They have to show to the investor that they can 
 borrow the money ? 
 
 Mr. Hill. That they can carry the financial burden. 
 
 The C/HAiRivrAN. Yes ; and pay the interest. 
 
 Mr. Hill. Yes, sir. 
 
 The Chairman. Would that power to borrow be impaired in any 
 way by allowing a conmussion to fix the rates ? 
 
 Mr. Hill. It would be destroyed. It would not be impaired ; it 
 would be destroyed. It would not exist. You could not sell your 
 bonds at any price, because if the bonds are not worth par, or nearly 
 par, it is because there is no certainty that the roads are going to pay 
 what they agreed to pay ; and a piece of paper that is discredited has 
 little value. 
 
 The Chairman. Then it is your opinion that if you take away the 
 rate-making power from the railroads in the first instance, the initia- 
 tive, or disturb it materially, it will afi'ect the ability of the railroads, 
 in the minds of the public, at least, to such an extent that the public 
 will not take the bonds ? 
 
 Mr. Hill. Why, it will be just like a frost that would freeze the 
 streams solid ; they will not run any more. 
 
 The Chairman. Then you are face to face with the condition that 
 you can not get the money to make these improvements if that is 
 done-? 
 
 Mr. HiLi,. You can not get it. 
 
 The Chairman. Very well; that is what I wanted to bring out. 
 Now, you spoke of terminal charges. Could Congress do anything 
 
THIRTEENTH DAY. 39 
 
 in the way of making the terminal charges part of the through rate 
 instead of having them, as you say, all come right at the end of the 
 line below the Harlem River on that side, and we will say Jersey City 
 on the other side ? 
 
 Mr. Hill. Congress has conferred through the existing law an 
 abundance of power upon the Interstate Commerce Commission 
 whereby it can take up the question of any part of the charge and 
 test its reasonableness, and if it is reasonable or unreasonable it is a 
 fact that can be proven or disproven, and it can then take it before 
 the court. And if you can show that for no service rendered except 
 to manipulate it below the Harlem River it is worth more for a 
 bushel of wheat to land than it is to bring that bushel of wheat from 
 Chicago, including the Chicago terminals, to Buffalo, or from Diiluth, 
 a thousand miles, the court will say that it is a fair charge. But I 
 think you would have great difficulty in satisfying the court that it 
 was worth more to float it below the Harlem River than it was to 
 bring it a thousand miles. 
 
 The Chairman. Then you think the Interstate Commerce Commis- 
 sion, under existing law, can inquire into these terminal charges right 
 now? 
 
 Mr. Hill. Why, certainly, sir ; and it is a wonder that they have 
 not. 
 
 The Chairman. How has that escaped attention ? ■ 
 
 Mr. Hill. Because they are busy. 
 The Chairman. Who is busy ? 
 
 Mr. Hill. The Interstate Commerce Commission. They are busy 
 seeing if they can not get the right to make rates and to become the 
 five most powerful individuals on the face of the earth. Oh, the 
 prayer, " Deliver us from temptation ! " 
 
 The Chair^ian. You said something could be done in the way of 
 perhaps licensing engineers and conductors, etc., or having the 
 interstate-commerce laws provide punishments for acts or omissions 
 that might contribute to accidents that would cause loss of life. 
 Can vou specify ? Can you tell us what we could do ? 
 
 Mr Hill. I think that if the open, careless violation on interstate 
 trains of an important rule that is made to preserve life is made an 
 offense against the law, and may be tried m a Federal court you 
 would not have many cases come before the court, but it would go 
 very far to accomplish the desired end. Understand me, the great 
 maiority of these men are perfectly safe, but sometimes we find those 
 who are not safe. AVhat would you think of ridmg through the 
 country at the rate of 50 or 60 miles an hour with the engmeer asleep? 
 The Chairman. I think you have brought that to the attention ot 
 the committee, and to may attention particularly, m a way we should 
 not have thought of bef ore-that perhaps Congress can do somethmg 
 
 "m; mLrVlTave^dont that in the matter of couplings. 
 
 ^: grS potjtSTanilo ttbut there is nothing 
 to-day fhaTcotpels^ a man to observe the rules, except that he may 
 V.P dismissed for their nonobservance. . 
 
 SeSor N:,Tlands. Mr. Hill, right there (if you will permit me, 
 Mr ChairmaiT) : I was told by an engineer on one of the trans- 
 
40 THIRTEENTH DAY. 
 
 continental lines that during the great pressure of business a year or 
 two ago, when the men were oftentimes kept continuously at work 
 for ten or fifteen hours, he had been asleep himself, and he had 
 known others who would go to sleep, and wake up and find the train 
 going. Have not some of these accidents been due to overpressure 
 of traffic of that kind ? 
 
 Mr. Hill. No, sir; no, sir. I do not know of a railroad where 
 there is not a rule forbidding a man to work when he has not had 
 proper rest. The only exception is in case he is out on the road 
 when an accident or something delays him. Then he must bring his 
 train to some place of safety. But the men, in their anxiety to 
 make overtime — they are paid a day's wages for a hundred miles — 
 frequently do so much that we pay three days in one. 
 
 Senator NE\^rLANDS. Does that mean that one man will work for 
 twenty-four hours ? 
 
 Mr. Hill. Oh, no, no, no! He will go 300 miles in eight hours 
 and get three days' pay — ^thirty hours' pay. He has done the work 
 in eight hours. 
 
 The Chaiuman. Mr. Hill, are our arrangements with foreign lines 
 satisfactory — for instance, the Canadian lines and the Mexican lines ? 
 
 Mr. Hill. I can speak for the Canadian lines. On the whole, we 
 have to put up with them. They have advantages in that they are 
 not compelled to observe the law as we aie. 
 
 The Chairman. Should we not, in the interest of our American 
 roads, provide that things should be equalized as nearly as possible, 
 and that the Canadian Pacific and other foreign lines should not 
 have advantages over our roads and our people? 
 
 Mr. Hill. The Canadian Pacific can now come into the United 
 States and hire five men to organize a. railroad, and under their 
 names build railroads anywhere, under tlie general law. 
 
 The Chairman. Yes. 
 
 Mr. Hill. But if you want to go into their country you have to 
 get a special charter. 
 
 The Chairman. That is as to the law ; but I mean as to through 
 rates, and so on. Do they not have advantages ? They are not sub- 
 jected to our interstate-commerce law, as we are. 
 
 Mr. Hill. No, sir. 
 
 The Chairman. Ought we not to do something along that line? 
 Ought not our Congress to do something to protect our people and our 
 lines as against the advantages, if you please (if you want to call 
 them that) , that they have and enjoy ? 
 
 Mr. Hill. They ought not to be permitted to pay a rebate of 25 or 
 50 cents a ton where we can not pay any. We may reduce the rate 
 50 cents a ton to meet their rebate, but then, the next turn their 
 rebate is in effect. 
 
 The Chairman. In order to enforce a law that we might pass, 
 what suggestion would you make as to equalizing conditions, and 
 what would you require — what kind of a law ? 
 
 Mr. Hill. I would be willing, Senator, to let us work that out 
 among ourselves. 
 
 The Chairman. The railroads ? 
 
 Mr. Hill. The railroads. If you will just give us a fair start, and 
 not handicap us by putting a millstone around our necks, we will be 
 all right. 
 
THIBTEENTH DAY. 41 
 
 The Chairman. Tell me what millstone we are liable to put around 
 your necks ? 
 
 Mr. Hill. Why, making rates and making conditions that we 
 can not comply with, or force us 
 
 The Chairman. As things exist now, you can overcome the in- 
 equalities? For instance, the Canadian laws allow them to give 
 rebates ? 
 
 Mr. Hill. I think that before we are through with them they will 
 cease giving rebates. 
 
 The Chairman. I do know that it is a fact that from Akron, Ohio, 
 the Canadian Pacific takes freight 
 
 Mr. Hill. To Port Arthur, up on Lake Superior ? 
 
 The Chairman. To Vancouver, if you please, and ships it by 
 water to San Francisco cheaper than any of our lines can do it. 
 
 Mr. Hill. Why, it was only a few years ago that the Canadian 
 Pacific got a couple of old steamers and started them from Van- 
 couver to San Francisco, and made a very low rate from \ew York 
 by water up to New London, and then over their lines and down 
 to San Francisco. They published a rate, and the Transcontinental 
 Association started to meet it, but as quick as they met it the Cana- 
 dian Pacific dropped it again. The shippers in San Francisco said: 
 " Why, here, we can do thus and so by the Canadian Pacific ; now 
 you must give us the same rate." " Well, but that is no fair competi- 
 tion ; it is a water route over to New London, and then up through 
 Canada, and you get your freight started in the summer and get it 
 some time in the fall." " Oh, well, they can make the rate; " and 
 they did make the rate. 
 
 What did the Transcontinental Association do? They met them 
 and asked them what they would take to get out. The reply was, 
 a half a million dollars a year. It was a very profitable thing. I 
 suppose these two old hulls together cost them $40,000, or perhaps 
 $75,000, and they ran them for a few weeks and then settled. The 
 way I came to know about it was that we had a portion of the trans- 
 continental line running to Butte at that time, and they assessed us, 
 I think, three or four thousand dollars as our proportion of it — 
 which I did not pay. 
 
 The Chairman. How long did they pay that $500,000? How 
 many years ? 
 
 Mr. Hill. I think they paid it two years. 
 
 The Chairman. And then stopped? 
 
 Mr. Hill. And then stopped. 
 
 The Chairman. How are you going to protect American roads 
 against just this thing? 
 
 Mr. Hill. They claimed a differential. 
 
 The Chairman. They will take it to St. Louis by way of Canada, 
 and over to San Francisco cheaper 
 
 Mr. Hill. Well, we will not let them. , . .^ ^ - 
 
 The Chairman. But you do it now. I know about the rate irom 
 Akron, Ohio, because the Government needed some machinery at 
 the Mare Island Navy Yard, and they invited bids, and the Canadian 
 Pacific took the contract, for this Government work from the other 
 Pacific railroads— from yours and all of them. 
 
 Mr. Hill. Why; certainly. 
 
42 THIKTEJ5NTH DAY. 
 
 The Chairmak. How did they do it? I would like to know how 
 they put that rate down. . „ m, j 
 
 Mrf Hill. They simply made the rate; that is all. They made 
 the rate, and you say that it is wrong for us to do the same; that 
 if we make the rate once we have got to make it again — practically 
 we have got to make it for everybody. 
 
 The Canadian Pacific, a few years ago, claimed a differential. 
 They claimed, as against all the American lines, that they were 
 entitled to it, especially on passengers — they wanted $5 on passengers. 
 I told Mr. Newman, who was our traffic manager and who is now 
 president of the New York Central, to make our rate $5, and then 
 let them put their differential in force. They would carry them for 
 nothing; that is all. I told him to do that, and to keep it there 
 vintil they were ready to quit. 
 
 The Chairman. Mr. Hill, what is the amount, of your through 
 freight as compared with your local freight * 
 
 Senator Newi^ands. Do vou mean interstate as compared with 
 State? 
 
 The Chairman. Yes, but he runs through so many States. Take 
 the through freight from Chicago, Milwaukee, and St. Paul to the 
 coast as compared with your local freight. 
 
 Mr. Hill. The local freight would be 70 per cent of the whole. 
 
 The Chairman. And there would be 30 per cent of the other? 
 
 Mr. Hill. Yes. sir ; but a great deal of that local freight becomes 
 through freight. For instance, we haul copper from Montana, or 
 lead, or some classes of ores ; or we haul wool, or we haul hides, or we 
 haul lumber from Montana ; and we send these things, if you please, 
 all over Ohio, or to Indianapolis. One mill that I have in mind sends 
 its entire, cut to Oshkosh, Wis. That mill is situated in Montana, 
 west of the Rocky Mountains. 
 
 Senator Xewi,ands. You call that local traffic? 
 
 jNIr. Hill. It is local in one sense, because it originates on a local 
 jjoint ; but it is through when it is delivered. 
 
 The CiiAiRjiAN. I thought the reason of your ability to make the 
 low rates you spoke of was due, in a large measure, to your enjoying a 
 longer haul as compared with eastern roads. Is that so, or not? 
 
 Mr. Hill. There is an advantage in the long haul in this : That a 
 20-inile haul covers the same terminal service that a 2,000-mile haul 
 covers. 
 
 The Chairman. Yes. 
 
 Mr. Hill. And the cost of solicitation, the cost of getting the 
 freight together, and the cost of maintaining the different depart- 
 ments of the service, the legal department, and the traffic depart- 
 ment, and the mechanical department, and all that sort of thing, are 
 the same in either case; as far as the car is concerned the terminal 
 service is as much as if the car traveled a long distance. 
 
 Say, for instance, that we would send a car 2,000 miles to the coast 
 and bring it back again, loaded; and we do that in four weeks. 
 We take a car out 25 miles and have it loaded, and if we get it back 
 in a week we have no right to complain, everj'body has been pretty 
 smart. That is about the ^^'ay it goes. In one case we would get ten 
 or fifteen dollars, and in the other case we would get from $160 to $200 
 for the car. Now, take, an ordinary city lot and cover it with rail- 
 way tracks, as a terminal; take a lot that is worth $5,000 or $6 000 
 
THIRTEENTH DAY. 43 
 
 and piiit your tracks on it and fill it up, and vou will find that you 
 have $8,000 or $9,000 represented; and it will hold five cars, on an 
 average, for working purposes. You have to have a little extra car 
 room or track room to handle your cars in the yard, and even if you 
 pack the cars in well you can not handle more than five to an ordinary 
 city lot, 50 by 150. If you figure that up you will find that the 
 interest is not far from $75 a year for the ground that the car uses— 
 ]ust the bare rent of the ground. 
 
 Senator Newlands. For each car ? 
 
 Mr. Hill. For each car; and when you get into large cities it is 
 four or five times as much. 
 
 The CHAiRMA>f. That is all I wish to ask. Mr. Kean, you are 
 next in order. 
 
 Senator Kean. Mr. Hill, ^xill you state the capitalization of your 
 road ? 
 
 Mr. Hill. The capitalization of the company covers all its prop- 
 erties. It covers lands, timber lands, coal mines, coal properties, and 
 various things — ships, elevators, and all that sort of thing. It 
 amounts to alsout $35,000 a mile. 
 
 Senator Kean. Just state the total amount; that is all I wish. 
 
 Mr. Hill. The total amount is about $220,000,000. I am speaking 
 in round figures. 
 
 Senator Kean. And the mileage? 
 
 Mr. Hill. About 6,000 miles. 
 
 Senator Kean. The Great Northern road has its own refrigerator 
 cars, has it not, Mr. Hill? 
 
 Mr. Hill. Yes, sir ; it has. 
 
 Senator Kean. It has no private car lines of any kind ? 
 
 Mr. Hill. No, sir. We have no pr"vate car lines; but suppose 
 that a meat packer, dealing in fresh meats, wants to send his cars to 
 Puget Sound or to some other point on our road. We have got to 
 choose between taking his car, or refusing the freight unless he puts 
 it in our car; and somebody else is ready to take it in his. Some- 
 times it may work one way and sometimes the other; sometimes we 
 would refuse it. 
 
 Senator Kean. The Great Northern road has no private car lines 
 of any kind, either passenger or any other ? 
 
 Mr. Hill. Passenger or sleeping cars or anything else. 
 • Senator Kean. Or express cars? 
 
 Mr. Hill. It never has had. 
 
 Senator Kean. Everything belongs to the stockholders of the 
 Great Northern road ? 
 
 Mr. Hill. That is right, sir; everything belongs to the stock- 
 holders. 
 
 Senator Newlands. Does that include sleeping cars i 
 
 Mr. Hill. Everything. . •, n • 
 
 Senator Kean. So that your railroad is a complete railroad m 
 
 Mr Hill I have made one rule— that if anybody working for the 
 company can buv or use anything that is in any way connected with 
 the company with a profit for hhnself, he can make the profit tor tha 
 company; and we will not have divided service. ■,■,.-, 
 
 Senator Forakee. ^Yhen you do take a private car already loaded, 
 how do you charge for the service rendered ? 
 
44 THIETEENTH DAY. 
 
 Mr. Hill. We charge just the same, whatever the tariff rate is; but 
 they charge mileage on their car. They furnish a car, and they want 
 mileage on it. 
 
 Senator Foeaker. That is, they charge the shipper mileage, do you 
 mean? 
 
 Mr. Hill. No, no ; they are the shippers. 
 
 Senator Foeaker. I understand. 
 
 Mr. Hill. The goods are their own goods, but they want us to pay 
 them mileage. If we take another railway company's car, we pay 
 20 cents a day for it for the time we have had it, and we are in a hurry 
 to get it back ; and we load the other man's car back if we have any- 
 thing to put in it. That -is always understood. But they do not 
 want anything put in their cars. They say : " Hurry it back ; get it 
 around quickly, and pay us, in place of 20 cents a day, three-fourths 
 of a cent a mile." They used to ask a cent a mile, but I think that has 
 been abandoned. 
 
 Senator Foeaker. I understand you to say that you charge the reg- 
 ular rates of freight ? 
 
 Mr. Hill. Yes, sir; but they get the advantage by compelling us 
 to either take it in their car and hire their car and pay them for the 
 use of it while our own cars stand on the side track, or else some other 
 road gets the business. 
 
 Senator Newlands. How much does that amount to a day, say at 
 the rate of a cent a mile ? ' 
 
 Mr. Hill. If they got a cent a mile and we hurried that car through 
 to the coast, we would take it about 300 miles a day, so that they would 
 get about $3 a day for the car. 
 
 Senator Newlands. So that in the one case you pay 20 cents? 
 
 Mr. Hill. And in the other we pay $3. 
 
 Senator Newlands. And the private car lines you pay $3 ? 
 
 Mr. Hill. Yes — ^well, $3 would be the extreme figure. We will say 
 $2.50. 
 
 Senator Foeaker. I understood you to say that you thought the 
 correct basis for fixing rates was a fair return on the cost of the road 
 and its equipment ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeaker. And that in cases where there were 
 
 Mr. Hill. Instead of the cost, I should have said the value. 
 
 Senator Forakee. A fair return on the value ? 
 
 Mr. Hill. Yes, sir ; because a road might have cost more than it is 
 worth ; and, on the other hand, we have many places where we have 
 built up from a wild, unoccupied country, through the terminals, etc., - 
 a town of fifteen or twenty thousand people, and the value of the 
 property is enhanced greatly. So that, taking the safe line, it is its 
 value. 
 
 Senator Foeaker. The value of the road as it is at the time of 
 using it ? 
 
 Mr. Hill. A fair compensation for the value. 
 
 Senator Forakee. I understood you to say that in a case where ' 
 there were two competing roads the value of the least valuable road 
 should be taken as the standard? 
 
 Mr. Hill. I think so. 
 
 Senator Foeaker. On which to fix the rate? 
 
THIRTEENTH DAY. 45 
 
 Mr. Hill. T think so. Every other business has to take the busi- 
 ness risk, and why not the railroad ? 
 
 Senator Foeakeh. You gave as an illustration this suggestion— 
 that a road might be built improvidently as to its location, etc. ? 
 
 Mr. Hill. Yes, sir ; yes, sir. 
 
 Senator Forakee. Take the city where I live— Cincinnati : We 
 have a road called the " Chesapeake and Ohio," by which we can 
 reach New York ; another, the Baltimore and Ohio, by which we can 
 reach New York; another, the Pennsylvania; and another, the New 
 York Central, by way of Cleveland ; the Lake Shore, and so on. 
 
 Mr. Hill. Yes, sir. 
 
 Senator Forakee. I do not know how many other routes there are ; 
 but all those roads seem to be wisely provided so far as location is 
 concerned. At the same time, however, there is, no doubt, a very 
 great difference both in the original cost and in the present value of 
 those roads. Would you, in a case like that, take the least valuable 
 road as the basis and allow only a fair return on that valuation ? If 
 so, what would happen to the other roads, which are quite necessary 
 to the communities through which they pass and very valuable to 
 the terminus of Cincinnati because of the competition they afford 
 and the reduction occasioned by reason of that competition in rates 
 of freight from New York? 
 
 Mr. Hill. I think if you allowed them a fair return on the value 
 of the property you would have to consider the property as a whole — 
 not the property as doing business in Cincinnati and nowhere else; 
 but you must consider it as a whole. The court would do that. 
 
 Senator Forakee. I assume that you mean the value of the prop- 
 erty from Cincinnati to New York in each case ? 
 
 Mr. Hill. Well, if it was one ownership. 
 
 Senator Forakee. But I am assuming a case where there are four 
 distinct ownerships, although, perhaps, they are not very distinct 
 ownerships now. 
 
 Mr. Hill. I should say one line; you might take the Baltimore 
 and Ohio, -to illustrate. 
 
 Senator Forakbr. Yes. 
 
 Mr. Hill. If the Baltimore and Ohio was the shortest line and 
 could make the lowest rate, the fact that its affiliations with the Penn- 
 sylvania' road might be more or less intimate would cut no figure. 
 
 Senator Forakee. No ; I want you to eliminate that and treat them 
 as separate and distinct properties. 
 
 Mr Hill. I want to just come down and say. Here is this prop- 
 ertv allow us a fair return on the investment, taking mto consider- 
 ation what it earns on all its business between its terminal points 
 
 Senator Forakee. Yes. Now, take the Baltimore and Ohio too 
 Suppose you were to take the Chesapeake and Ohio and find that its 
 present vklue was 25 per cent more than the present value of the Bal- 
 timore and Ohio as a connecting line and a competmg line between 
 Cincinnati and New York. Would you think ;* ^f>^l^ be fair to 
 the Chesapeake and Ohio to compel it to accept (as it would have to 
 if it wanted to compete) the same rate that you prescribed for the 
 Bait™ and Ohio? ^^^^ ^^ .^ it could not get 
 
 a higher rate If the Baltimore and Ohio voluntarily or through 
 
46 THIETEENTH DAY. 
 
 compulsion publishes a tariff rate the other roads have to accept that 
 tariff. 
 
 Senator Forakek. That is true; but I am speaking of a case where 
 somebody fixes the rate as the result of a legal provision that com- 
 pels the road to accept the rate that is fixed — as, for instance, the 
 judgment of a court or the action of the Interstate Commerce Com- 
 mission, if we should confer upon it this rate-making power. It 
 seems to me, in order that I may give to you the benefit of what is 
 in my mind, that it might work a very gross injustice to the more 
 valuable road if you took the least valuable and then said, " Your 
 rate shall be just such and no more as will yield 5 per cent or 6 per 
 cent," or your rate of 7 per cent. 
 
 Mr. Hill. If you do not adopt that rule, that the shortest line will 
 make the rate and the others have the privilege of meeting it or not 
 as they see fit, I do not know where you will land. I think that you 
 are compelled to adopt that rule; and if the Chesapeake and Ohio 
 (for purposes of illustration) could not compete successfully in 
 the New York business, it would simply mean that the people living 
 along the line of the Chesapeake and Ohio would pay a little higher 
 rate for their business. 
 
 Senator Foeaker. For their local business? 
 
 Mr. Hill. For their local business — for New York. New York 
 could get the service from another source than theirs for less money, 
 and you ought not to take that advantage away from the man living 
 in New York or the shipper in New York. The fact that conditions 
 along the line of the Chesapeake and Ohio are such that men living 
 100 or 200 or 500 miles away can take advantage of those conditions 
 is no reason why they should be transferred down to the Chesapeake 
 and Ohio locally. 
 
 Senator Foeaker. Let us take another basis that is sometimes dis- 
 cussed by gentlemen who want to establish some fair way of making 
 rates — the distance rate. Suppose there are four roads, as there are, 
 between Cincinnati and New York. They are not all of equal length. 
 I do not know which is the shortest of the four roads; b.ut suppose, 
 for the sake of illustration, that the Chesapeake and Ohio route is 
 a hundred miles shorter between Cincinnati and New York than the 
 Baltimore and Ohio route. 
 
 Mr. Hill. Yes, sir. 
 
 Senator Fokaker. And 200 miles shorter than the New York Cen- 
 tral and Lake Shore route. Would the distance basis be a fair one 
 in that sort of a case ? 
 
 Mr. Hill. The distance basis has been the practice almost uni- 
 formly — -that the shortest line shall make the rate. 
 
 Senator Foeaker. Yes. 
 
 Mr. Hill. There are other conditions that have come in. Take, 
 for instance, freight traffic. We will say that the distance from Cin- 
 cinnati to New York is 800 jniles, and that they haul 800 tons behind 
 one locomotive on 1 per cent ruling grades. Now, somebody else 
 builds a road with a three-tenths grade, and he can haul 2,000 tons, 
 twice and a half the amount ; but that line is 200 miles longer. You 
 can see readily that to move a given number of tons the second road 
 runs less than half the train miles; so that the farthest way round is 
 the ]iearest way home in that case. 
 
 Senator Foeaker. Yes. 
 
THIRTEENTH DAY. 47 
 
 iJih^ ^"ur ^'^^5uestl«n of the low grade is of as much importance 
 to the public as the other question, because it fixes the ability of a 
 
 iTc a" the*!":^? fof '""; ''''■ . ^' 't "^^ ^^ '"-h importance to the pub 
 sreamsMpt'mpa'ny"''" " *'" ^'^™^^ approach^ing a harbor is^to a 
 Senktor Foraker At any rate, the most that any rate-makine 
 authority could do for the public in the matter of rates would be tf 
 take the shor est me or the least valuable line and make the rate S 
 
 JoniSm S tr iitmpeS.r '^^ -^-' ^^ ^^'^ ^^^ oSfer^-is 
 
 ratfor^s^ieUhe gotdrjo. '"'^^ '"^"^ '''' '"^ ^^'^^^^ *" *^^ ^--* 
 
 Senator Iorakek. And that they do already, do thev not? 
 
 Mr. Hill. Yes, sir; ahvays. 
 
 Senator Foraker. And that is a natural law ? 
 
 Mr. Hill That is a natural law that you can not interfere with. 
 
 Senator Loraker. That is to say, if you have four roads between 
 two given pomts competing with one another, the road that is best 
 situated to handle the freight will get it ? 
 
 Mr. Hill. In the end. 
 
 Senator Foraker. Unless the others compete with it by meeting 
 its rates. "^ * 
 
 Mr. Hill. But they will get it in the end, because they will go on 
 putting that rate down, down, down, until finally they will make the 
 other fellow drop the bundle. And the more they get, the more ton- 
 nage they move, the cheaper they can move it. 
 
 Senator Foraker. "What I want to know is, is not that a universal 
 law without any legislation on the subject? 
 
 Mr. Hill. Assuredly; there is no, exception to it. You will see 
 that if one road will make the rate, the others will have to accept 
 that rate and to meet it, or go out of that business. 
 
 Senator Foraker. And the road that is most favored by natural 
 conditions, or by length of line, or by cost, will 
 
 Mr. Hill. Will make that rate. 
 
 Senator Foraker. Will make the rate ? 
 
 Mr. Hill. Yes, sir. Some road that had not the natural conditions 
 in its favor might temporarily make a rate, but only temporarily. 
 When it is losing money it will very soon drop it, and the road that 
 can do it will do it in the end. 
 
 Senator Forakhr. That is enough about that. There is a more 
 important matter that you have touched on that I Avant to ask you 
 a few questions about, and that is the foreign or export trade. The 
 CuUom Act as it was originally passed, and as it still stands, applies 
 in all its provisions to the transportation of freight originating in 
 the United States and going to foreign countries. 
 
 Mr. Hill. Y^es, sir. 
 
 Senator Foraker. I understood you to say this morning, in giving 
 US your own experience, that you started out to build up a foreign 
 trade, and then abandoned the idea, for some reason or other. The 
 reason, so far as I gathered any from your statement, was that the 
 Interstate Commerce Commissioners, proceeding under that act, re- 
 quired you to publish your rates, and to state in that publication 
 how much of the through rate from St. Paul, or wherever your freight 
 originated, to Yokohama, was railroad rate, and how much of it 
 
48 THIRTEENTH DAY. 
 
 was ocean rate. Now, I wish you would tell us a little more fully, 
 in regard to that, what your experience was. 
 
 Mr. Hill. Yes, sir; exactly. A year ago last winter there was a 
 plentiful crop of wheat in the northwest and all along our lines. 
 
 Senator Foeakee. That was in 1903 ? 
 
 Mr. Hill. Yes, sir; the crop of 1903. We made a reduction on 
 wheat rates of 10 per cent, locally. We found that in the eastern 
 part of the State of Washington grain had been sold as low as 
 40 cents a bushel, because there was only one market, a few people 
 down at the seaboard buying it, and compelling it to go to Europe; 
 or else there was some locally ground into flour for export. 
 
 Senator Foeaivee. Do you mean at the Atlantic seaboard ? 
 
 Mr. Hill. No ; I mean at the Pacific seaboard. 
 
 Senator Foeakee. Oh, yes. 
 
 Mr. Hill. Now, that white Walla Walla wheat is particularly 
 adapted to other uses than the making of flour; it makes the best 
 quality of Quaker Oats and other materials that are extensively 
 sold, breakfast foods, etc. ; and we introduced some new customers, 
 and the result was to advance the price of wheat from 20 to 25 cents 
 a bushel. 
 
 Senator Foeakee. Because you were providing a market ? 
 
 Mr. Hill. We had to ; as I said this morning, we are charged with 
 providing those people with a market, helping them out. 
 
 Senator Foeakee. Yes. 
 
 Mr. Hill. And you take the same thing on the east end. They 
 wanted wheat in Australia, and flour; they wanted wheat and flour 
 in Hongkong, and in other of the oriental ports. We made rates 
 from Minneapolis and from points in Minnesota and North Dakota 
 through to these distant communities that would carry that flour, 
 and we carried somewhere between 35,000 and 40,000 tons. When 
 they asked us to file that rate 
 
 Senator Foeakee. That is, the Interstate Commerce Commission- 
 ers asked you ? 
 
 Mr. Hill. Yes, sir; we put the question fairly before them and 
 argued it. We have the greatest respect for their good intentions; 
 but they felt that they could not permit us, under the law, to forego 
 filing that rate. We said : " Very well, if we are violating the law, 
 sue us. We do not think we are, but sue us ; and in any event we will 
 not violate the law for Minnesota," and we withdrew the rate. We 
 do not make it, because it would put our representatives in a sorry 
 position over in those places to say, " ^ATiy, we can cable and get a 
 rate," when everybody else on the ground is ready to make it from 
 day to day. You see the disadvantage we would be at if, after we 
 had made the rate, we could not change it for ten days or two weeks. 
 We could not do anything to change the rate, while the other people 
 Avould be making their arrangements and have the stuff under way. 
 Under these conditions we can not build up American foreign trade. 
 
 Senator Foeakee. You appealed to the Commissioners not to re- 
 quire you to publish these rates, did you ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeakee. And they held that they had no discretion under 
 the act ? 
 
 Mr. Hill. I think so ; that is my recollection. 
 
THIETEENTH DAY. 49 
 
 Senator Foeakee. The act specifically provides, in sections 5 and 
 6. that they shall require, in cases of joint rates, " a publication of the 
 same in so far as may in the judgment of the Commissioners be 
 deemed practicable, and said Commission shall from time to time 
 prescribe the measure of publicity which shall be given to such 
 rates, fares, and charges, or to such part of them as it may deem it 
 practicable for such common carriers to publish, and the places in 
 which they shall be published." This was a case of joint rates over 
 a continuous line, a part of which line was water transportation, how- 
 ever? 
 
 Mr. Hill. Yes ; but when we get to the water we use any ship that 
 is sailing to take the proportion. 
 
 Senator Foeakee. Yes; but when a shipment originates the 
 through rate is then fixed, is it not ? 
 
 Mr. Hill. Certainly, sir. 
 
 Senator Foeakee. And you agree upon an apportionment ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeakee. So much for the railroad and so much for the 
 ship? 
 
 Mr. Hill. It is practically divided equally. 
 
 Senator Foeakee. And if the Interstate Commerce Commissioners 
 had taken the view I should have thought they might feel at liberty 
 to take under the clause I have just read, they could have excused 
 you from publishing those rates ? 
 
 Mr. Hill. We thought so. 
 
 Senator Foeakee. If you had been excused from publishing the 
 rates, you could have continued in that business? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeakee. I want to get into this record the reason why you 
 could not afford to publish the rate. I think I know ; but will you 
 state it in your own way ? 
 
 Mr. Hill. The reason M'hy we could not afford to publish the rates 
 was that we would serve notice on our competitors that that was our 
 rate, and our hands would be bound, and we could not change them 
 for so long a time ; and they would have that time in which to make 
 a contract and take the traffic. 
 
 Senator Foeakee. To whom do you refer when you speak of your 
 competitors in that case? 
 
 Mr. Hill. The merchants and the lines of transportation— the 
 steamer lines— and they largely go together. The English lines are 
 represented by a few houses, and the German lines. 
 
 Senator Foeakee. Where is the western terminus of your railroad ; 
 at what point on the coast ? 
 
 Mr. Hill. Seattle is the principal one. 
 
 Senator Foeakee. At Seattle ? 
 
 Mr. Hill. Yes, sir. . ,. n • xi 
 
 Senator Foeakee. How many shipping lines are engaged m the 
 transportation business from- there to the Orient?" The Japanese 
 have a line there, have they not ? 
 
 Mr. Hill. A very large one. ,■-,••, t • ^ ., 
 
 Senator Foeakee. And that is a heavily subsidized line, is it not i 
 
 Mr. Hill. The subsidy is almost equal to the cost of operation. 
 
 13 D— 05 M 4 
 
50 THIRTEENTH DAY. 
 
 Senator Forakek. Almost equal to the cost of operation? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeaker. So that they, in competition with you, can give 
 a very low rate and still not lose any money ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foraker. And what other lines are there now ? 
 
 Mr. Hill. There is the Boston Line, the Windsor Line, and then 
 there is the Chinese Mutual. 
 
 Senator Foraker. The Chinese Mutual? 
 
 Mr. Hill. That is an English line. 
 
 Senator Foraker. Yes. Is this Chinese Mutual Line, which you 
 say is an English line, also subsidized ? 
 
 Mr. Hill. No, sir. 
 
 Senator Forakek. It is free from subsidy ? 
 
 Mr. Hill. I think it has no subsidy at all. 
 
 Senator Foraker. No line from Seattle is subsidized except the 
 Japanese line ? 
 
 Mr. Hill. I think that that is all. 
 
 Senator Foraker. Now, you have mentioned only three lines — the 
 Boston Line 
 
 Mr. Hill. Then there is our own line. 
 
 Senator J'oraker. Yes ; your own line. What do you call it ? 
 
 Mr. Hill. Ours is the Northern Steamship Company. 
 
 Senator FoRAitER. How many ships have you ? 
 
 Mr. Hill. Two. 
 
 Senator Foraker. Only two ? Those are two very large ships, put 
 in recently for that particular trade ? 
 
 Mr. Hill. Yes, sir ; the two largest freight carriers in the world. 
 
 Senator Forakek. And so, rather than publish your rates and enter 
 into what you regarded as a hopeless competition with these competing 
 lines you simply withdrew from that undertaking so far as flour was 
 concerned ? 
 
 Mr. Hill. Eather than put ourselves in a position where we would 
 be helpless, v/here we would give them ten days' start, we simply 
 withdrew. 
 
 Senator Foraker. That is to say, under this interstate-commerce 
 law, if it is to be applied to you, having once fixed a rate you could 
 not change it up or down except upon ten days' notice ? 
 
 Mr. Hill. We could put it down on three days' notice, but it would 
 take us the other seven days to get the word over and back, and that is 
 why I said ten. 
 
 Senator Forakek. Yes. 
 
 Mr. Hill. But if we wanted to raise it, it would take ten days' 
 notice plus the seven ; it would take seventeen days. 
 
 Senator Foraker. It would take seventeen days to raise it? 
 
 Mr. Hill. And ten days to reduce it. 
 
 Senator Foraker. And about ten days to reduce it ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foraker. And when you speak of that length of time being 
 necessary you refer to business originating at Hongkong to come to 
 this country ? 
 
 Mr. Hill. No ; the business over there. 
 
 Senator Foraker. Oh, yes; I understand. 
 
 Mr. Hill. They want to know what it will cost. 
 
■ THIRTEENTH DAY. 51 
 
 Senator Foeakee. That is, a man in Hongkong importing from this 
 country would want to know what his freight was to cost him — ^what 
 rates he could get ? 
 
 Mr. Hill. He figures on a bale of so many yards of a certain class 
 of goods. 
 
 Senator Foeakee. Yes ; I understand. 
 
 Mr. Hill. He can be furnished with it from England for so much, 
 from Germany for so much, or from France for so much, and from 
 the United States for so much. 
 Senator Foeakee. Yes. 
 
 Mr. Hill. And the insurance and the interest on the time the goods 
 are in transit — all these things are taken into consideration; and as 
 small an amount as 40 or 50 cents a bale will turn it one way or the 
 other. 
 
 Senator Foeakee. Divert the business ? 
 Mr. Hill. Yes, sir. 
 
 Senator Foeakee. Now, Mr. Hill, the difficulty that you encoun- 
 tered there is a difficulty that is encountered with respect to all at- 
 tempts to engage in forei^gn commerce across the ocean, is it not? 
 Mr. Hill. Quite, sir. 
 Senator Foeakee. Just the same thing? 
 Mr. Hill. Quite. 
 
 Senator Foeakee. I want to know, if that be true, whether you 
 think it wise that the interstate-commerce act should apply (as, in 
 accordance with the provisions I have called attention to, it does 
 apply) to business originating in this country with foreign countries 
 not contiguous to us — across the ocean ? 
 
 Mr. Hill. It is barely possible, but I think not at all probable, 
 that the right to discriminate in favor of tliis export business would 
 be abused. It is possible that it might be, but I think it is very im- 
 probable. But even if it is abused, the railway company simply car- 
 ries it at a lower rate; and the question is whether the discrimination 
 hurts any local interest whatever. Now, the railroad company is 
 not going to willfully lose money for the sake of doing business; but 
 if there is some profit in it, let the railroad company earn that profit, 
 and for that reason it can afford to make a lower rate on its local busi- 
 ness I think I am quite free to say that I know of no reason why any 
 focai interesTshould suffer on account of our finding a new market for 
 
 "genitrFoE™. Let me ask vou this question: Is it possible for 
 
 leTf^TtS^^un^^^ 
 
 ^ol^tt'mSute'yoXchS^^^^^^ escape competition with these 
 
 lines that are—- „„Hpr nur a-overnmental control? You 
 
 '"£S?; FrSXt S under any control at .U. To. are at 
 every disadvantage, are you not? 
 Mr. Hill. Yes, sir. „ nlacine our foreign com- 
 
 „srrot£s,unrt£inSt:*i^^^^ 
 
52 THIRTEENTH DAY. 
 
 our hands while we are compelled to engage in competition with those 
 whose hands are entirely free? 
 
 Mr. Hill. There is absolutely no question as to that. 
 
 Senator Foeaker. And if that be true, and if they can navigate 
 their ships cheaper than we do anyhow, how would it be possible, if 
 the law did not apply, for any injury to be done to any American 
 interest? .... 
 
 Mr. Hill. There is not any possible waj^ of injuring any American 
 interest— nobody is going to suffer— by giving us as far as may be, 
 without placing any burden upon anybody else, a fair opportunity to 
 meet the other fellow on his own ground. 
 
 Senator Foeaker. Yes; that has no application at all to what is 
 done on the mainland, by rail? 
 
 Mr. Hill. No ; oh, no. 
 
 Senator Forakee. But simply to the water transportation, where 
 that commences. Now, in view of all that, I want the benefit of your 
 opinion as to whether or not we should not amend this original inter- 
 state-commerce act by striking out of its first section, which is a defini- 
 tion of the carriers and commerce and transportation to which the 
 law shall apply, the following — " and also to the transportation in 
 like manner of property shipped from any place in the United States 
 to a foreign country and carried from such place to a port of trans- 
 shipment, or shipped from a foreign country to any place in the 
 United States and carried to such place from a port of entry either in 
 the United States or an adjacent foreign country." 
 
 Mr. Hill. I would limit that to a foreign country, if you please, at 
 least a thousand miles distant. 
 
 Senator Forasler. Well, it is already limited. 
 
 Mr. Hell. Because if you made it apply to Canada we might buy 
 a railroad over in Canada and get around interstate commerce from 
 the West in that way. 
 
 Senator Foeaker. By the question I asked you a moment ago I 
 eliminated that very idea. 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeaker. That is, adjacent countries. 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeakee. I think I used the expression " contiguous for- 
 eign countries." The language of this section is as follows — I will 
 read it all, because I want to get a flat-footed answer to that proposi- 
 tion. 
 
 Mr. Hill. I will give it to you. Senator, if I can. 
 
 Senator Foeaker. " Be it enacted," etc., " that the provisions of 
 this act shall apply to any common carrier or carriers engaged in 
 transportation of passengers or property wholly by railroad or partly 
 by railroad and partly by water when both are used under a common 
 control, management, or arrangement for a continuous carriagei or 
 shipment from one State or Territory of the United States or the 
 District of Columbia to any other State or Territory of the United 
 States or the District of Columbia, or from any place in the United 
 States to an adjacent foreign country, or from any place in the 
 United States through a foreign country to any other place in the 
 United States " — evidently intended to 
 
 Mr. Hill. To cover Mexico or Canada. 
 
 Senator Foeakee. To cover Mexico and Canada. Now, imme- 
 
THIRTEENTH DAY. 53 
 
 diately after that there follows the clause that I called your attention 
 to and as to which I asked you if, in your opinion, in view of what you 
 have said, it should not be stricken out of this law, or there should 
 be a statute which would exempt it from application. Further the 
 clause reads as follows: "And also to the transportation in like man- 
 ner of property shipped from any place in the United States to a 
 loreign country and carried from such place to a port of trans- 
 shipment, or shipped from a foreign country to any place in the 
 United States and carried to such place from a port of entry either in 
 the United States or an adjacent foreign country." 
 
 Mr. Hill. I think that if that expression " foreign country," in 
 the first clause, was made to read " distant a thousand miles from the 
 territory of the United States," you would be perfectly safe. 
 
 Senator Foeaicer. In other words, eliminating the thousand miles 
 (which you have a particular purpose in your mind in putting in) 
 from the statement, your idea is that it should be stricken out so far 
 as its application goes to foreign countries not contiguous ? 
 
 Mr. Hill. To Europe, or Africa, or Asia, or Oceania — yes, sir; 
 all that. It is simply a handicap that can do no good, and is suscepti- 
 ble of doing a great deal of harm. 
 
 Senator Foraker. And does not do any good whatever? 
 
 Mr. Hill. It can not, in the nature of things, do any good. 
 
 Senator Forakee. Is it not true that the chief complaint about 
 rates, to the effect that they are extortionate, is based on the fact that 
 through rates on foreign commerce are necessarily so low, by reason 
 of this competition with foreign steamship companies, that it attracts 
 attention and a feeling of criticism for our domestic rates because of 
 the apparent unfairness as between the through rates and the local 
 rates? . 
 
 Mr. Hill. Of the proportion of the through rates to the local rates. 
 
 Senator Foraicer. Yes. Now, you told us a while ago — that brings 
 me to it — that you had occasion to ship 500 locomotives from Phila- 
 delphia to Yokohama ? 
 
 Mr. Hill. One hundred and six. 
 
 Senator Foeaker. Oh, yes ; . it was 106 locomotives. And you took 
 them at a rate not exceeding a rate that some other railroad charged 
 for a like shipment for a distance of only 500 miles? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Foeakbe. You made some remark in that connection about 
 that being a good place for the Interstate Commerce Commissioners 
 to do some investigating. Did you mean to have us understand by 
 that that vour rate was as high as it ought to be made in order to 
 yield a fair return, or that it was so low by reason of competition that 
 it appeared excessively high as compared with the other? "What I 
 want to get at is whether or not you meant that the rate for the 500- 
 mile shipment was an extortionate rate. I do not know what road it 
 was on or anything about it. , ,• n i n i x -i. 
 
 Mr. Hill. I thinlc the 500-mile rate was practically double what it 
 
 ought to be. 
 
 Senator Foeakee. Yes. 
 
 Mr Hill Now, take our rate. The car goes like a ship. A ship, 
 for instance, might be going from here to Liverpool; but we do not 
 expect that that ship is going to stay m Liverpool. We expect that 
 
54 TPIIKTEEKTH DAY. 
 
 she will come back and make the round trip. Now, if that car start- 
 ing from the East loaded with locomotives — these locomotives are not 
 set up and hauled on the track ; they are knocked down and packed in 
 cars — goes to Puget Sound and comes back with a load, we have to 
 take the total revenue it gets for the entire distance, you see. We 
 know that we do not send it out there to throw it into the sea ; we are 
 going to bring it back ; and you have to figure the entire load. And 
 if we did not know before we started with that cargo of locomotives 
 that we had a carload of lumber there to bring back as soon as the 
 car was ready for it we could not make the rate we did. 
 
 Senator Foeakee. No; so I understand. In other words, condi- 
 tions have everything to do with the fixing of a rate ? 
 
 Mr. Hill. Everything to do with the fixing of a rate. 
 
 Senator Foeakee. Did they in that case ? 
 
 Mr.- Hill. Yes, sir. 
 
 Senator Foeakee. I understood you to say that rates in this coun- 
 try, generally speaking, are not high, but low ? 
 
 Mr. Hill. Very. 
 
 Senator Foeakee. There may be exceptions, I suppose, to that rule ? 
 
 Mr. Hill. The average rate is so much lower than it is anywhere 
 else that it is a wonder how it is done, paying the rates that we do. 
 Eelatively, railroad transportation is the lowest thing that is fur- 
 nished in the United States. 
 
 Senator Foeakee. Lower than any other commodity ? 
 
 Mr. Hill. Lower than any other commodity ; yes, sir. 
 
 Senator Foeakee. As to terminal charges, I understood you to say 
 that that is another way of exacting discriminations, or whatever 
 you may see fit to call it ? 
 
 Mr. Hill. Thej'^ ought to be all eliminated. 
 
 Senator Foeakee. Yes. The CuUom law, as originally passed, 
 contained a provision in the first section about the publication of the 
 schedules; and one requirement as to those schedules was that they 
 should state separately the terminal charges and all rules, regula- 
 tions, etc. So that on every schedule that is approved by the Inter- 
 state Commerce Commission and published, I suppose, all of these 
 terminal charges are set forth? 
 
 Mr. Hill. I never saw a schedule where they were set forth at all. 
 
 Senator Foeakee. You never did ? 
 
 Mr. Hill. No, sir. 
 
 Senator Foeakee. That has been in the law ever since the day it 
 was passed. 
 
 Mr. Hill. But the law itself has been admirable, and the present 
 law covers the ground with the most rigid care in every possible 
 condition. 
 
 Senator Foeakee. Yes. 
 
 Mr. Hill. But it is one thing to have the law on the statute books 
 and another to have it enforced. 
 
 Senator Foeakee. Well, terminal charges are thus recognized in 
 this original statute? 
 
 Mr. Hill. Yes. 
 
 Senator Foeakee. And a way is provided for publishing them so 
 that everybody may know whether they are fair or otherwise? 
 
 Mr. Hill. If there is a terminal charge; but, as a rule, the rate 
 includes the terminal charge. 
 
THIRTEENTH DAY. 55 
 
 Senator Foeakek. I understand; but they say that the terminal 
 charge shall be stated separately in the schedules— that is the lan- 
 guage of the law — in the classification of freight. 
 
 Mr. Hill. Yes, sir. Now, Senator, I am glad you mentioned the 
 classification, because there is a great deal of clamor for what is called 
 a uniform classification; and it ^YOuld be the most unfair and 
 iniquitous thing that could be put in effect, for this reason : A cotton 
 planter in the South does not care two straws in what classification 
 you put cattle coming from the ranches or cattle coming from the 
 feeding yards to the slaughterhouse. He cares for his cotton. Take 
 the case of a lumberman, up in our locality: He is interested in a 
 low rate for his lumber, and whether it goes in fourth class or fifth 
 class or sixth class or class A, B, C, or D cuts no figure with him. 
 It is the rate that you make on his lumber that affects him. 
 
 Take a farmer in Minnesota or in North Dakota : He is interested 
 in a low rate on his wheat. He does not care what the classification 
 is. He wants a low rate. If conditions were equal throughout 
 the country, then you might malie equal conditions in the classifica- 
 tion; but the natural conditions vary, and the classification that 
 would be fair in one section would be manifestly unfair in another. 
 My contention a]wa3fs is that the low rate ought to be made to favor 
 the natural products of the particular section that you are serving. 
 If you get into a section of country where there is coal, for instance, 
 develop your coal trade; if it is a corn country, develop your corn 
 by making a low rate, and all the rest of the business will follow; 
 and it will not follow if you do not. 
 
 Senator Foeaker. Under the head of " Discriminations " in this 
 same law are mentioned " special rates, rebates, drawbacks, or other 
 devices," which would seem to be very broad language — broad enough 
 to cover everything that has been suggested to us. 
 
 Mr. Hill. It does cover everything, Senator. 
 
 Senator Foeakee. You think it does? 
 
 Mr. Hill. Yes, sir; but 
 
 Senator Foeakee. So that, now, with the Elkins law following, 
 providing that for any discrimination or any rebate or any excessive 
 rate there shall be a summary proceeding upon complaint of the 
 Commission in a United States court of competent jurisdiction, there 
 would seem to be a sufficient remedy already. 
 
 Mr. Hill. Yes, sir ; if it is followed up ; and if it was followed 
 up in one or two cases and the road was fined and had to pay the 
 penalty, vou would hear the last of that sort of business. 
 
 Senator Foeakee. I understand you to say, as other witnesses 
 have, that not only is the rate reasonable, but that rebates have been 
 practically abandoned; that they are practically a thing of the past? 
 
 Mr Hill. Thev have been, I should say, since the passage of the 
 Elkins bill. Thev almost faded out of sight at that time. 
 
 Senator Foeakee. Yes. And so far as. elevator charges, and ter- 
 minal charges, and private car charges, and refrigerator- car charges 
 are concerned they are devices that you think are covered by this 
 law, so that if they are to be broken, up we have the law already on the 
 statute books with which to do it? 
 
 Mr. Hill. You have the law. All you have to do is to put the 
 
 law in motion. 
 
56 THIRTEENTH DAY. 
 
 Senator Forakek. Then, except only to exempt foreign commerce 
 from the application of the interstate- commerce act, there is not 
 much for us to legislate about? 
 
 Mr. Hill. There is not anything, sir, as far as I am concerned. 
 Now, when I said that, about eliminating foreign commerce, I was 
 not speaking from our own premises. 
 
 Senator Foraker. No ; I understand that. 
 
 Mr. Hill. Because we will get along anyway, no matter what 
 may be done. 
 
 Senator Fokaker. You have shown an ability -and a willingness 
 to " go it alone " somehow. 
 
 Mr. Hill. Yes, sir; we will get along anyway, but we can do 
 better. The plainer the road is made the better it is for everyone. 
 Nobody has a patent for doing well — everybody can do equally well 
 if the conditions are equal. 
 
 Senator Foraker. But it is your judgment that it is utterly 
 impossible for us to be successful in building up a foreign commerce 
 as long as you are handicapped in making through rates? 
 
 Mr. Hill. You might just as well. Senator, pass a statute to make 
 the toothache a crime or to attempt to set a broken limb by statute. 
 
 Senator Foraker. I came very near getting ruled out of the Sen- 
 ate and out of the Republican party for introducing a bill to do this 
 very thing about a year ago. 
 
 Mr. Hill. I remember that. I saw the bill when it was introduced, 
 and I thought you had courage. I knew, absolutely knew, at the 
 time that that was a sound, sensible movement, but we were at the 
 time on trial for conspiracy. 
 
 Senator Foraker. And you did not dare even write a letter approv- 
 ing of that? 
 
 Mr. Hill. No ; I did not. 
 
 Senator Foraker. Well, we had a Presidential campaign coming 
 on, and I did not think that was an opportune moment for me to 
 get in any controversy about it. 
 
 Mr. Hill. It was not worth while. 
 
 Senator Foraker. But I have not abandoned the opinion on which 
 I based my action, that that kind of legislation would be very bene- 
 ficial to the commercial interests of this country, and I hope, when 
 I can revive my courage sufficiently, to try it again. 
 
 Mr. Hill. Your opinion was entirely right. Sometimes I think 
 that we have dashed ourselves into a feeling or a fever that is epi- 
 demic. Perhaps it is like the " pink eye," or the grip, and it will 
 have to have its run and run out. But there is not any possible 
 question as to where it will land in the end ; and the more obstruc- 
 tions and difficulties that are put in the way of doing this business 
 the more you will obstruct the business of the country and prevent 
 the reduction of rates — the very thing that you want to bring about. 
 
 Senator Nem'lands. May I ask one question on that point you have 
 ]ust discussed before Mr. Hill leaves it? Mr. Hill, regarding this 
 question of exports, is there not also a converse to that proposition? 
 As I understand it, you contend for the ability to make rates to for- 
 eign countries without publication, with a view to stimulating the 
 export of American products abroad ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Newlands. And that, of course, will be beneficial to this 
 
THIRTEENTH DAY. 57 
 
 country. But, on the other hand, will not that system enable vou to 
 import goods from foreign countries into this country and give the 
 producers of those products an advantage over American producers 
 who are perhaps nearer to the. points of consumption than these for- 
 eign markets are ? 
 
 Mr. Hill. I do not think that it would have that effect ; but— now, 
 take our own case ; I know it would not have that effect. We do not 
 encourage the import trade. We would just as soon bring our ships 
 back in ballast as to have them loaded, because if we bring back a car- 
 load of merchandise it will displace a carload of lumber, and on the 
 merchandise the carrier's risk is greater. We have to handle it at 
 each end, whereas the lumber is loaded and unloaded by the shipper 
 and we only have to haul it through and deliver it. The carriage 
 rate is very much less, as well. 
 
 Senator Newlands. You would be willing, then, that this should 
 apply only to exports ? 
 
 Mr. Hill. I was going to say that, as far as I am concerned, we do 
 not care anything about the imports; but if there was any fear that 
 that might introduce foreign goods into this country, why, make the 
 law so that it will not apply to imports. 1 care simply as far as our 
 exports go. I am thinking of the man who produces the stuff out of 
 the ground, either on the field or in the forest or the mines, or wher- 
 ever it comes from. I am thinking of him, because he is the man 
 that we are interested in. 
 
 Senator Foraker. The other question I was going to ask you was 
 about the growth of these Gulf ports in the matter of export business. 
 Are you familiar with that, Mr. Hill? Have you given any atten- 
 tion to it? 
 
 Mr. Hill. Yes, sir; I have given a good deal. 
 
 Senator Foraker. To what is it due; and to what extent have the 
 ports- of New Orleans and Galveston, for instance, overcome the dis- 
 advantages that were regarded as a justification for differentials in 
 their favor some years ago ? 
 
 Mr. Hill. To begin with, their conditions are entirely different. 
 Take Kansas Citv, St. Louis, and all those points, and the export 
 business would naturally go to the Gulf. Ship charters— take gram, 
 for instance— are a cent to a cent and a half a bushel higher from 
 the Gulf than they are from the Atlantic. Coal is higher there, and 
 there are other reasons. The shipper must guarantee the quabtv 
 of the corn on delivery after the 1st of April, on account ot the 
 climate. There are conditions that run against them. They have the 
 advantage, however, of a very short haul, and they have the advan- 
 tage that if the roads are built aslhey are now building them, with 
 ve?y low grades, thev can carry at prices that the trunk lines will 
 not care to make or meet. With us m the A^ est that is an important 
 outlet, and one to which we must look, because the trunk lines east 
 of Chicago for a part of the year are totally unable to move the 
 present volume of business. 
 
 Is there anvthing further. Senator^ 
 
 Senator Foraker. I think that is all. 
 
 Senator Clapp. Mr. Hill, there are one or two questions I would 
 i^vwraoi T understand vou to sav that you would favor a law 
 wLebv a'lim tlSbe pllced on the rat. of charge. What wouk 
 be vour^ opinion as to the same proceeding also designating, by the 
 
58 THIRTEENTH DAY. 
 
 legal effect, a rate above which the carrier could not go in reducing 
 from the rate that is condemned? Do I make that plain? 
 
 Mr. HiiiL. I think so; my answer will show if I understand it, 
 A rate that is on trial as to whether it is reasonable or unreasonable, 
 disregarding, for the moment, whether it is on trial before the Inter- 
 state Commerce Commission or before a court, or whatever tribunal, 
 of itself depends upon the conditions under which it is made. Sup- 
 pose you come to me and say : " I want to build a mill at Cass 
 Lake" — the Senator knows all about the situation in Minnesota, 
 and he knows all about Cass Lake, so I will take him where he is 
 entirely familiar — '' and I will ship 100,000,000 feet of lumber a 
 year." That is probably four or five times the amount of lumber 
 that we now carry from Cass Lake. And suppose you say, " I want 
 such and such a rate." Now, that will give us four or five times the 
 amount of business we now have. Remember that the density of 
 traffic — the number of tons to move — is one of the principal elements 
 in fixing the rate; and if you increase the tonnage we can decrease 
 the rate. There is a new 'condition that would arise between you 
 and the railway company in as short a time as it took you to state the 
 case; and if a rate was made and called a reasonable rate by law, 
 why, you would be turned bacli. 
 
 In other words, I do not care whether it is the court, or the Commis- 
 sion, or any tribunal or arbitration, or any device that can be worked 
 out, to whom you give the right to make a future rate ; you will sim- 
 ply make that the minimum rate. The maximum rate will become the 
 minimum rate. The company will charge that, and fall back and 
 say, " That is the legal rate, and that is what you can pay." 
 
 Senator Clapp. Under the existing law, of course, the Commission 
 simply condemns the existing rate. We will assiune that that is sus- 
 tained in the courts. Now, the carrier, in obeying the order to dis- 
 continue that rate, would make necessarily, from a practical stand- 
 point, at least, a practical reduction, to meet the suggestion that if it 
 \vas not a practical reduction, a substantial reduction, the new rate 
 would be again challenged ? 
 
 Mr. HiLi,. Certaijily, sir. 
 
 Senator Cr.APP. So that practically the carrier'is compelled to make 
 a substantial reduction ? 
 
 Mr. Hill. Pie has to meet the conditions that made it an unreason- 
 able rate. 
 
 Senator Clapp. Yes. Now, would you have in this proceeding 
 anything to indicate legally, for the time being (siibject again to the 
 initiation of another rate by the carrier and review by the Commis- 
 sion) a substituted rate — that is, the rate which should take the place 
 of the one that is condemned ? 
 
 Mr. Hill. You can not substitute a rate for the future, for to- 
 morrow or next week, any more than you can define what is going to 
 occur next week. The rate is based upon conditions, and I think 
 that the public has direct protection in this, that if the rate is found 
 to be unreasonable, and the road varies it a little, enough to take the 
 curse off, and is hauled back into court, the second or third time it 
 came into court its standing would be unenviable, would it not? 
 
 Senator Ci;App. It certainly would. 
 
 Mr. Hill. And you must give the railroads credit for at least some 
 common sense. They would want to go into court with clean hands, 
 
THIRTEENTH DAY. 59 
 
 else they would stand a very poor show. I think the public is well 
 protected. Just think what has occurred in twenty years. Why, 
 when Thomas Scott died the cost on the Pennsylvania road was about 
 8i mills a ton a mile. I think he died about 18S2 or 1883. To-day 
 the Pennsylvania road is receiving from the public 6 mills. The 
 reduction that has been made in railroad transportation in the United 
 States is greater than that that has been made in anything else. 
 Wages in ten years have advanced 47 per cent on our line. Rates 
 have gone in that time from a cent and a quarter to .85 of a cent. So 
 that the rates of ten years ago were 50 per cent higher, and our rates 
 of wages are 47 per cent higher than they were then. 
 
 How did we do it? Twenty-one years ago our average trainload 
 was 117 tons. This year I think we will show for the year 500 tons, 
 and the expense of hauling that train as against the other train has 
 not increased in anything like the same proportion. In other words, 
 we get more for the money, and yie work it out. And that has been 
 done without the aid and, 1 might almost say, in spite of all the legis- 
 lative obstructions that have been placed in our way; because we 
 have had our troubles to meet at home, and we have met them, and 
 I think the people have rather looked for us to lead in reduction of 
 rates. I think they do, and I think we have led. 
 
 Senator Clapp. Then your idea is that the examination and deter- 
 mination should be limited to the condemnation of the existing rate ? 
 Mr. Hill. You can not do otherwise. If you go beyond that you 
 are getting into a realm of uncertainty, and you fix what is meant 
 to be the maximum rate as the minimum rate, and reductions will 
 cease until they are compelled by law. Now, take our case. There 
 has been no compulsion of any" kind, but our rates in twenty-one 
 years have been reduced to one-third of what they were. 
 
 Senator Clapp. Your position that what would be a reasonable 
 rate upon one line would be fixed absolutely with reference to that 
 line, without regard to the effect of that as a competitive rate on 
 another line, was sustained by the court in Minnesota in a contro- 
 versy involving your road and the Northern Pacific, was it not— the 
 ::fff Stevenson case? 
 '" Mr Hill. Yes. 
 
 Senator Clapp. The court held there that the rate could be fixed 
 upon one road without reference to its effect upon a competitive road? 
 Mr. Hill. Ours was the short line. 
 
 Senator Clapp. Yours was the short line? , , ^, . ., ^ 
 
 Mr. Hill. And we made the rate, and they had the privilege of 
 
 'vM carrying out that rate if they wanted to. • xv„x 
 
 Jii sSator Clapp. And the court sustained your position m that 
 
 matter? 
 
 slnatoOiS^Mn Hill, it m.y be broademng the '"Sji^ « Wt^j 
 but I would like to nsk you your opiniou of tbe effect of the Panima 
 
 V K tca^'-iSStw uTbuliW of that ca^al will be 
 
 /^^rSiffdiisrof-ru^i'of^^ixraui'^^^^^^^^ 
 '™' "^i£ewSi,^^e^i:ra«'i^'t%°s'r!=iu3- 
 
60 THIRTEENTH DAY. 
 
 portation — take a pair of dividers and put one leg at Cleveland and 
 the other at Cincinnati and swing it around toward Chicago and 
 swing it around toward the East, and you will have included in the 
 line it will inscribe the bulk of the manufacturing in the United 
 States. You take in Chicago, and you take in South Toledo, Find- 
 lay, Ohio, and all that territory, and around, say, to Bethlehem or 
 Scranton. In order for a manufacturer to avail himself of the canal 
 he has to get to some Atlantic or Gulf port. I will go right to the 
 map, Senator, if I may. Now, here he is, in here. [At this point 
 Mr. Hill illustrated his remarks by reference to a large map in the 
 committee room.] He has to send his product down here to some 
 port where land is expensive, where the dock is expensive, where the 
 land is high, and he has to get to the seaboard where a ship draw- 
 ing 30 feet of water can get in. (We can not go out of Fortress 
 Monroe or out of New York with more than three-fourths of a load 
 on our big ships, whereas if we go around to Seattle v/e can load them 
 in 37 feet now.) He has to start here and come down here and go 
 down, and then if he is going to the Orient he gets out to the vrest, 
 and by the time he starts to go west he is more than 300 miles from 
 the Straits of Fuca. You see where he has had to go; and by the 
 time that he gets the product around there we would have had it laid 
 down, or would take it from here by rail or by water and get it up here 
 and whip it across, and we will meet all the rates that they ever make 
 from there back [indicating]. There may be a little strip along 
 here that that will affect, but all the rest of the country we will take 
 care of. 
 
 Senator Ci.app. You own practicallj' all jour own refrigerator 
 cars? 
 
 Mr. Hill. Entirely. 
 
 Senator Clapp. As touching upon the subject of the private car, 
 Avhat is your opinion of the ownership of the carrier united in the 
 same person in the production and distribution of the product? 
 Ought that to be prohibited ? 
 
 Mr. Hill. Senator, you are coming on tender ground, but I will 
 answer that question. 
 
 Senator Clapp. I thought I might be. 
 
 Mr. Hill. We are here to speak out in meeting. I think that every 
 railway officer in this country should be disqualified from having any 
 interest, directly or indirectly, in any large producer of traffic, 
 whether it is a coal mine or a factory or a mill or anything else, on a 
 line of railway wheije he is on the pay roll. 
 
 Senator Clapp. And the reason for that suggestion is what ? 
 
 Mr. Hill. That he can not be fair to the other fellow and punish 
 himself. 
 
 Senator Clapp. And the opportunity is such that it can not be de- 
 tected and prevented ? 
 
 Mr. Hill. It is so easy, if there is a great demand for coal in one 
 direction, or for some commodity in one place, for him to help one 
 fellow and forget the other. We have made it a rule (and it never 
 can be done for a moment on our road, and I have always been very 
 glad that that rule is in effect) that if a man wants to work for him- 
 self in any particular at any point on the line of the road, he must 
 first sever his connection with the company; and it saves us a lot of 
 trouble. And I think that in some cases it might help to reduce 
 
THIRTEENTH DAY. 61 
 
 rates on natural products like coal very, very materially if there was 
 a fair field, or a square deal, or whatever you like to call it. 
 
 Senator Newlands. Mr. Hill, under "the laws of what State is 
 the Great Northern Railroad Company incorporated. 
 
 Mr. Hill. Under the laws of the State of Minnesota. 
 
 Senator Newlands. And in how many States does it operate? 
 
 Mr. Hill. Eight or nine. 
 
 Senator Newlands. And it operates in those States through the 
 comity of those States ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Newlands. Would you have found it more convenient and 
 simple if you could have done it, all other things being equal, to have 
 operated under a national charter? All other things being equal, I 
 say. 
 
 Mr. Hill. A national charter would have some advantages. 
 
 Senator Newlands. Advantage both for the railroad and for the 
 public, or only for the railroad? 
 
 Mr. Hill. For both. 
 
 Senator Newlands. For both ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Newlands. The systems of taxation vary in all these 
 States, do they not ? 
 
 Mr. Hill. Very widely. 
 
 Senator Newlands. Would you regard it as conducing to the sim- 
 plicity of the operation of the railways and to the advantage both of 
 the railways and of the public if a simple tax could be mathematically 
 ascertained ? 
 
 Mr. Hill. And make it uniform? 
 
 Senator Newlands. Making it uniform ? 
 
 Mr. Hill. That certainly would be a great advantage; and I will 
 illustrate it in a moment. 
 
 In one State in which we have lines of railroad we have what we 
 call a local line— the best local line in the State. In fourteen years it 
 has paid six or seven dividends; I suppose in fourteen years it has 
 paid an average of 2^ per cent a year ; and our taxes on a single track 
 there are nearlv as much per mile as the tax on the Pennsylvania road 
 between Philadelphia and Pittsburg. The people there come to me 
 and say : " Why, Mr. Hill, will you not build more roads for us i 1 
 tell them that I have not the cheek to go and ask our shareholders to 
 put in more monev where we are paying a penalty of that kind. 
 
 Senator Newlands. Then you find the laws being changed from 
 
 time to time, do you not? ^, ■ ,. -r .■ nr i^ m u 
 
 Mr. Hill. Oh, we do. I think it was Chief Justice Marshall who 
 said that the power to tax is the power to destroy. 
 Senator Newlands. Yes. . j. j • 
 
 Mr Hill And the matter of taxation always shows a steady in- 
 crease. I think the tax that we pay in the State of Minnesota is equal 
 to about half what we get for carrying the wheat crop of the State 
 Senator Newlands. In Minnesota you pay a certam percentage 
 
 '^MyZrTK per cent on our gross earnings in the State; but 
 we include in that the interstate earnings as well. 
 
 Senator Newlands. You do? Now, how many different and sepa- 
 rate Sroads™ you in your Great Northern system? I mean, as 
 
Q2 THIRTEENTH DAY. 
 
 to corporations. Are they all owned by one corporation, or does your 
 corporation own the stock of other corporations, or own the local 
 railroads ? 
 
 Mr. Hill. We have made it a rule that the parent company should 
 build them ; but there are times where they would eat the parent com- 
 pany up if they could, and we would rather that they only ate up the 
 little fellow, if they are going to do any harm. 
 
 Senator Newlands. Yes. So that means the incorporation of a 
 road 
 
 Mr. Hill. Built by a local company, and the railway company fur- 
 nishing the money. 
 
 Senator Newlands. The stock of which is held by the Great 
 Northern ? 
 
 Mr. Hill. Yes, sir. 
 
 Senator Newlands. Is the Great Northern a part of a general sys- 
 tem of route bound together by any community of interest ? 
 
 Mr. Hill. No; the Great Northern bought out the Manitoba, be- 
 cause the Manitoba had outgrown its clothes. It was limited to a 
 capital of $20,000,000, and we preferred to build with stock rather 
 than with bonds. Latterly, for the last four years, we have not issued 
 either stock or bonds, and we have built about 1,500 miles of road. 
 
 Senator Nea^lands. Do you think the consolidation of railroads is 
 beneficial to the country, or otherwise ? 
 
 Mr. Hill. If you will make a condition whereunder you will make 
 the railway perform the service at a reasonable rate, one at which it 
 can perform it, you can go on and consolidate them all into one if you 
 like. 
 
 Senator Newlands. And you would have a more efficient service? 
 
 Mr. Hill. You certainly would; you would have only one to deal 
 with; but in that case that one would be charged with the burden 
 of proof that it was on its good behavior all the time. 
 
 Senator Newlands. Yes. 
 
 Mr. Hill. But that is not likely to occur. You have illustrations 
 of that kind in some parts of the country, I think, some very im- 
 portant divisions of the country, where the railways are practically 
 all under one control by State law. 
 
 Senator Newlands. Yes. 
 
 Mr. Hill. But if you go there you will find that the rates are 
 relatively very high. 
 
 Senator Newlands. You think they are higher under those condi- 
 tions, where there is consolidation ? 
 
 Mr. Hill. Either they are too high, or the rates in some other 
 places are too low. 
 
 Senator Neavlands. Yes. I would like to have questioned you, Mr. 
 Hill, upon some views that I have regarding national incorporation, 
 simplification of the tax system, and unification. 
 
 Mr. Hill. There are other advantages besides the tax system. 
 
 Senator Newlands. But you have been before the committee so 
 long that I think it is rather unfair to hold you longer. I may ask 
 you to communicate hereafter your views to the committee in a letter 
 on the subject. 
 
 Mr. Hill. I will be very glad to do so. There is just one thing I 
 would like to add now : The protection of life and property in inter- 
 
THIRTEENTH DAY. g3 
 
 State transportation could be worked out under the Federal law so as 
 to remove nine-tenths of the losses of life or injuries. 
 
 ^enator Newlands. Under a national incorporation act« 
 
 Mr. Hill. Yes, sir; that is a pretty serious matter, you know. 
 We are helpless as it is. We can discharge the man and he will 
 get a ]ob somewhere else, changing his name, and so on 
 
 The Acting Chaiemax (Senator Kean). Mr. Hill, we are very 
 much obliged to you for your attendance, and I desire to express 
 to you the thanks of the committee. 
 
 Senator Clapp. Some question has arisen as to rebates under 
 Orovernment contracts. I desire to submit the following papers, 
 being the oi)inion of Judge Campbell, solicitor for the Department 
 of the Interior, and Attorney-General Moody, sustaining the action 
 of the Department in this matter. 
 
 The papers above referred to, which were directed by the com- 
 mittee to be made part of to-day's proceedings, are as follows : 
 
 Department or the Interior, 
 Office of the Assistant Attorney-General, 
 
 Washington, March 20, 1905. 
 The Secretary of the Interior. 
 
 Sir : By your reference of the 3d instant I am asked for opinion 
 whether a proposed agreement between the Maricopa and Phoenix 
 and Salt River Valley Railroad Company, party of the first part, and 
 the United States of America, party of the second part, which has 
 been signed by the president of said company, " can be approved by 
 the Secretary of the Interior." 
 
 The proposed agreement recites that whereas the " United States 
 reclamation service of the United States Geological Survey " pro- 
 poses to construct certain public works incident to such service, and 
 whereas any concession in freight rates to the contractors for mate- 
 rial and machinery used in the construction of such works is, in fact, 
 a concession to the United States, the party of the first part therefore 
 agrees " to transport over its own lines the material and machinery 
 used by the United States, or by the parties contracting with the 
 United States Government for work on said irrigation systems, when 
 originated at or passing through Maricopa, Ariz., at one-half regu- 
 larly published class rates in force at the time of shipment." 
 
 The reference calls attention to an opinion of the Comptroller of the 
 Treasury, February 20, 1905, in substance, that while the reclamation 
 service mav be carried on under the direction and control of the 
 Geological Survev, yet " it is not made a part of said bureau." 
 
 I assume that the suggestion intended to be conveyed by this cita- 
 tion relates to that phrase in the proposed contract above quoted 
 which seems to assume that the reclamation service is part of the 
 Geological Survev, and this, in view of the Comptroller's said decision, 
 naturally suggests the question whether that officer would allow the 
 payment of a demand against the reclamation fund under such a 
 
 f on \ 7*3 ff" 
 
 If necessity exists for answering this question at all, I respectfully 
 suggest that it be referred to the Attorney- General of the United 
 States The question is of no importance as to unexecuted contracts, 
 
64 THIBTEBNTH DAY. 
 
 since the objectionable phrase might just as well be left out of these 
 contracts. 
 
 The real question presented is whether this contract can be law- 
 fully entered into between a railroad company (common carrier) and 
 the United States in view of the provisions of the interstate-com- 
 merce act of February 4, 1887 (24 Stat. L., 379, 380, 387). Section 2 
 of that act provides : 
 
 " That if any common carrier subject to the provisions of this 
 act shall, directly or indirectly, by any special rate, rebate, draw- 
 back, or other device charge, demand, collect, or receive from any 
 person or persons a greater or less compensation for any service 
 rendered in the transportation of passengers or property, subject 
 to the provisions of this act, than it charges, demands, collects, or 
 receives from any other person or persons for doing for him or 
 them a like and contemporaneous service in the transportation of 
 a like kind of traffic under substantially similar circumstances and 
 conditions, such common carriers shall be deemed guilty of unjust 
 discrimination, which is hereby prohibited and declared to be un- 
 lawful." 
 
 If the United States were subject to this provision there can be 
 no doubt that the proposed agreement would be prohibited. But 
 section 22 of the same act provides : 
 
 That nothing in this act shall apply to the carriage, storage, or 
 handling of property free or at reduced rates for the United States." 
 
 Whether the word " for " in this section relates to the carriage, 
 storing, or handling of the property of the United States, or the 
 carriage, storing, or handling of property for the ultimate and 
 specific uses of the United States, is, to my mind, immaterial. The 
 intention of this excepting clause was undoubtedly to permit common 
 carriers, notwithstanding the provisions of section 2 of the act, 
 to contract with the United States for the carriage, storing, or han- 
 dling of property to be used by the United States in the discharge 
 of proper governmental functions. If the United States were the 
 absolute owner of the property when delivered to the common car- 
 rier, the right to make such contract would not be questioned, and 
 I am unable to see, as respects the question presented, what dif- 
 ference it makes whether the title to the property passes to the United 
 States then or ultimately. The statute not only authorizes the 
 handling under special contract the property of the United States, 
 but handling under such contract any property for the United 
 States. 
 
 "Very respectfully, Frank L. Campbei.i., 
 
 Assistant Attorney- General. 
 
 Approved, March 20, 1905. 
 
 E. A. Hitchcock, Secretary. 
 
 Department or Justice, 
 WasBnffton, D. C, Ap7^l W, 1905. 
 The Secretary of the Interior. 
 
 Sir: I have the honor to acknowledge the receipt of your letter 
 dated April 12, 1905, requesting my opinion as to whether" the provi- 
 sions of the act to regulate commerce which forbid common carriers 
 
THIKTEENTH DAY. (35 
 
 to grant rebates or concessions from their published rates hit certain 
 agreements and proposed agreements between the United States and 
 various railroad companies m which the latter promise to transport 
 oyer their respective lines, at one-half of their published rates, mate- 
 rials and machinery used by the United States or by parties contract- 
 ing with the United States for work upon the irrigation systems now 
 being constructed in the and regions of the West. 
 
 The material parts of the statute read as follows : 
 J' Sec. 2. That if any common carrier subject to the provisions of 
 this act shall, directly or indirectly, by any special rate, rebate, draw- 
 back, or other device, charge, demand, collect, or receive from any 
 person or persons a greater or less compensation for any service ren- 
 dered, or to be rendered, in the transportation of passengers or prop- 
 erty, subject to the provisions of this act, than it charges, demands, 
 collects, or receives from any other person or persons for doing for 
 him or them a like and contemporaneous service in the transportation 
 of a like kind of traffic under substantially similar circumstances and 
 conditions, such common carrier shall be deemed guilty of unjust dis- 
 crimination, which is hereby prohibited and declared to be unlawful. 
 * ****** 
 
 " Sec. 22 (as amended March 2, 1889, and February 8, 1895) . That 
 nothing in this act shall prevent the carriage, storage, or handling 
 of property free or at reduced rates for the United States, State, or 
 municipal governments," etc. 
 
 I gather from the papers placed in my hands that most, if not all, 
 of the railroad companies whose lines reach these arid regions, realiz- 
 ing that they will be among the chief beneficiaries of the reclamation 
 project, and therefore desiring to promote its consummation, have 
 signified to officers of the Government their willingness to transport 
 the machinery and materials used in the construction of the irriga- 
 tion systems at one-half of their regular rates, in order that that 
 much more of the amount appropriated by Congress might be spent 
 in the work of reclamation proper. Aside from the legal. question 
 presented, it is evident that such an arrangement would be of advan- 
 tage to the Government and the railroads and a disadvantage to none. 
 These reduced rates, you inform me, are advertised to all prospective 
 bidders upon work and material, the theory being that their bids will 
 be lowered by an amount equal to the reduction in freight rates, and 
 that in that way the reduction in freights will inure to the benefit of 
 the United States. 
 
 The principles governing this case are clear and simple. 
 
 It is perfectly plain, I thinlf, that the intention of section 22 of the 
 act to regulate commerce was to give express sanction to any arrange- 
 ments between the United States, State, or municipal governments 
 and railroad companies by which those governments might relieve 
 themselves of the cost of transportation in whatever form it might as- 
 sume and the section should be construed to give effect to that mten- 
 tion It is, therefore, immaterial whether the property transported 
 belonged to the United States at the time of shipment or whether it 
 ever subsequently became the property of the United States m the 
 
 13 D — 05 ii 5 
 
66 THIETEENTH DAY. 
 
 particular shape in which it Avas shipped. It is sufficient that it 
 entered into the construction of a public work of the United States 
 and that the cost of its transportation was a part of the final cost of 
 that work to the United States. 
 
 The issue, then, narroAvs down to this: Does the United States, in 
 point of fact, receive in the end the whole of the concession in freights 
 granted under these contracts ? 
 
 It can not, of course, be stated in advance, as a presumption of fact 
 covering all cases which may arise under this arrangement between 
 the United States and the railroad companies, that the United States 
 Avill receive the Avhole of the concession and the contractor none ; for 
 that would be to presume not only that the contractor's bid will be 
 less than it would have been if he had had to pay the published rates, 
 but that it will be less by an amount equal to the freight reductions 
 allowed him. On the other hand, however, it certainly can not be pre- 
 sumed that in no case will the United Statesi receive the whole con- 
 cession; that is to saj', that in no case will the contractor make full 
 allowance in his bid for the reduced freight rates. The strong proba- 
 bility is that he Avill, in order not to leave any advantage from that 
 source in the hands of his competitors. In other words, then, whether 
 or not the United States receives the whole of the concession and the 
 contractor none is a question of fact which must be determined in 
 each case separately, as the answer may be different in different cases. 
 My conclusion upon the question you propound, therefore, is this: 
 That in thosQ cases where the fact is that the United States receives 
 the whole of the concession and the contractors none, then neither the 
 spirit nor the letter of the act to regulate commerce has been violated; 
 but that in those cases, if any, where that is not the fact the operation 
 of the agreements which have been drawn in question would result 
 in the violation of section 2 of the act. Being a question of fact, and 
 one that, if it shall ever properly arise at all, must arise in the admin- 
 istration of your Department, your determination of the question will 
 be binding so far as the executive branch of the Government is 
 concerned. 
 
 Respectfully, William H. Moody, 
 
 A ttorney- General. 
 
 Professor Myers thereupon took the stand, but before beginning 
 his statement the committee adjourned until to-morrow, Thursday, 
 May 4, 1905, at 11 o'clock a. m. 
 
 By direction of the committee, this information is printed in coii- 
 nection with the statement of Mr. James J. Hill : 
 
 Tlie information given below has been compiled from the following sources : 
 
 For the year ended .Tune 30, 1882, from the published report for that year of 
 the railroad and warehouse commission of the State of Minnesota. 
 
 For the year ended June 30, 1892, partly from the report of the Great Northern 
 Railway Company to its stockholders for that year and the balance especially 
 prepared for this memorandum. 
 
 For the year ended .Tune 30, 1903, from the Great Northern report to its 
 stockholders for that year, as based on the figures given therein. 
 
THIETBBNTH DAY. 
 
 67 
 
 For fiscal year ended June 30— 
 
 1882. 
 
 1892. 
 
 1903. 
 
 Lengtli main line and branches miles 
 
 Freight train cars owned numher_. 
 
 Freight hauled tons.. 
 
 Average revenue per ton per mile cents.. 
 
 Average per train tons 
 
 Average per oar, loaded and empty do.. 
 
 1,007.8 
 
 3,707 
 
 1,007,536 
 
 2.B18 
 
 117,278 
 5.708 
 
 3,417.38 
 
 11,667 
 
 Not given. 
 
 i.au 
 
 216.23 
 8.76 
 
 "5,598.89 
 
 29,731 
 
 16,148,673 
 
 .857 
 
 446.785 
 
 13.06 
 
 "Mileage for 1903 does not include 288.91 miles owned but operated separately. 
 
 Had the company received the same average rate per ton per mile in 3903 as 
 in 1882, it vrould have collected $90,820,109.73 as freight earnings, while actual 
 collections were $30,915,234.29, a decrease through reductions in freight rates 
 of $59,904,875.44. 
 
 The reduction in freight rates has been brought about by increasing the 
 volume of traffic. That volume has been increased by makiag such rates as 
 would enable shippers to develop new lines of traffic, and the building of addi- 
 tional mileage that would create traffic. To reduce the cost of transportation 
 in face of continual increase in wages and advances in prices of material, the 
 only way was to increase the amount of work done by each train and so to 
 receive a large increase for the train mile. 
 
REGULATION OF RAILWAY RATES. 
 
 HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE 
 UNITED STATES SENATE. 
 
 FOURTEENTH DAY. 
 
 TntTRSDAY, May 4., 1905. 
 STATEMENT OF HON. W. A. HARRIS. 
 
 Senator Cullo^i (in the chair). Senator, will you state your name 
 and place of residence ? 
 
 Mr. I-lAEitES. My name is ^y. A. Harris; I reside in Chicago. I 
 am the general representative of the American Shorthorn Breeders' 
 Association, which has about 800 stockholders and about 15,000 peo- 
 ple connected with it. I am also vice-president and general manager 
 of the Xational Live Stock Association, which represents nearly all 
 of the organized stockmen in the different States and Territories 
 west of the Mississippi River. 
 
 Senator Culloji. Did you say you lived in Chicago ? 
 
 Mr. Harris. Yes. 
 
 Senator Cullom. I did not know that before. 
 
 Mr. Harris. I have been there for a year and a half. 
 
 Senator Ct lloji. You may jaroceed to state what you have to say 
 on this general subject. 
 
 Mr. Harris. Mr. Chairman, I desire, first, to thank the committee 
 for their kindness in permitting me to make a very brief statement 
 with regard to the attitude of the cattlemen in regard to this matter. 
 
 I want to say that, so far as the attitude of the cattlemen of the 
 West is concerned, they are disposed to be absolutely fair. There is 
 no disposition whatever on their part to do anything which will 
 affect injuriously the railroad interests of the country. I do not 
 think any class of men in the whole country appreciate the impor- 
 tance of the great railroad systems of this country more than do the 
 people of the great West, which has been developed by means of the 
 great railroads that have penetrated that country. They recognize 
 all of the difficulties and recognize the earnestness on the part of a 
 great many railroad managers to meet these difficulties and to be 
 absolutely fair. 
 
 But the cattle business has been undergoing some very remarkable 
 chanfres in the last few years. In the first place, it is much more 
 expensive to produce beef or mutton anywhere in the United States 
 now than it was fifteen or twenty years ago. The difficulties sur- 
 roundino- the production of meat are advancing all the time. The 
 advanced in rent and labor, the growing uses of gram m every direc- 
 
 14 D — 05 M 1 ^ 
 
2 FOUETBENTH DAY. 
 
 tion, all tend to make the breeders' and feeders' profits smaller and 
 smaller. 
 
 In the country west of the Missouri Kiver thei-e have been some 
 very marked changes. Montana, Wyoming, Xorth and South Da- 
 kota have practically ceased to be breeding countries. They are now 
 being utilized entirely as a maturing region where the cattle that were 
 bred in the South and Southwest are taken to mature. The ship- 
 ment of young steers from the Paiihandle of Texas, from Arizona and 
 New Mexico runs up now into the hundreds of thousands every year. 
 They are transported by rail more and more to the northern region, 
 and held there for a year or two for feeding and maturing. 
 
 I want to call the attention of the committee to a fact which I 
 think is indisputable, that there is no class of freight which con- 
 tributes so large a proportion of its ultimate value to railroad trans- 
 portation as the live-stock interests of the country. Cattle are 
 shipped, as I say, from the South to the Xorth, and then they are 
 shipped to Chicago. Very few are in shape, however, when they 
 arrive at Chicago to be consumed; but the cattle are scattered over 
 the country as feeders, and they are fed by the farmers in the corn 
 belt, and are then either shipped back to Chicago or shipped farther 
 east. 
 
 There is also a large movement in the shipment of young cattle 
 from the southern breeding grounds to the corn belt, regions where 
 they are taken and put inmiediately into the fattening yards. 
 
 So that they practically have a double transportation. Only 45 
 per cent of the cattle that reach Chicago are consumed there. The 
 others are scattered over the country for feeding purposes. Of 
 course a great many cattle are shipped to Xew York and other At- 
 lantic ports for foreign consumption, and also for our great cities of 
 the East. But, practically, there is a double shipment of nearly all 
 those cattle. 
 
 Not alone that, but almost everything that enters into the prepara- 
 tion of these meat products bears a large part of railroad transporta- 
 tion. The hay, corn, bran, and all that has to paj^ tribute to the 
 transportation companies. 
 
 As the expense attending, the production of meat is increasing all 
 the time, it is the desire of the cattlemen that their interests shall be 
 considered. The markets do not advance proportionately. The 
 ability of the people to buy does not justify so large an increase. 
 The effect of that has to be suffered by the l)reeder, and the breeder's 
 business is absolutely destroyed. In fact, a great many men in the 
 past tw,o years, which have been unprecedentedly hard, have been 
 rendered bankrupt or almost bankrupt by these excessive railroad 
 charges, and they enter largely into the problem. 
 
 It has been stated frequently that a good deal of this agitation 
 has been brought about by people who are in favor of Government 
 ownership. I want to say for the thousands of gentlemen I repre- 
 sent that we have no desire in that direction. I want to say that 
 the desire of the overwhelming majority of the cattlemen is to avoid 
 in every possible way what would be called State or Government 
 ownership of the roads. They do not desire to see any such burden 
 as that assumed. They would be afraid of the thousand and one 
 risks and difficulties attending it. They believe that the onlv wav 
 
FOURTEENTH DAY. 3 
 
 to avoid the growing feeling in that direction and put off indefinitely 
 any such movement as that is that there shall be effective govern- 
 mental control and regulation of railroads. They feel that that is 
 the way to prevent what gentlemen seem to deplore, and very prop- 
 erly to deprecate, as I think. ^ ^ 
 
 It is not necessary for me to burden you with an attempt to go 
 into details m regard to inequalities and improper rates. There is 
 undoubtedly a good deal of complaint on the part of the men who 
 are transporting cattle from the south and southwestern ranges. 
 There is comparatively little complaint on the part of people in 
 the Northwest. Such roads as the Northern Pacific and the Great 
 Northern seem to have been able to govern the situation fairly in 
 their control and with satisfaction to everybody. But the systems 
 of roads that are operating in. the West and Southwest, and that 
 are chiefly concerned in this movement of young cattle to the northern 
 maturing grounds, are those who seem constantly to demand enor- 
 mous rates, inequitable rates, rates which can not be reconciled one 
 with another, and which interfere in every possible way. 
 
 A year ago last February a committee was appointed by the Na- 
 tional Live Stock Association to meet with ten or a dozen general 
 traffic managers of all the roads centering in Chicago, and we had 
 a very pleasant conference with them. The grievances which the 
 ■cattle men had to present on that occasion were, first, in regard to 
 service. The speed of cattle trains had been run down until they 
 were only about 7, 8, or D miles an hour. They were constantly 
 sidetracked as dead freight. The result was an enormous shrinkage 
 in the weight of cattle and a depreciation of their value in the mar- 
 kets. 
 
 Another cause of complaint was the inequitable rates. 
 
 The third cause was the repeal of the former transportation 
 privilege which was given to men in charge. 
 
 The subject was discussed in a fair and unimpassioned way at 
 that conference, and almost every one of the positions which the 
 gentlemen took was practically assented to, with the exception of 
 their complaint that some of the rates were too high. But the 
 traffic managers all assented that the service was absolutely inade- 
 quate, and was just as unsatisfactory to them as it was to the cattle- 
 men, and I am glad to say that in some respects that service has 
 been improved. They also consented or put in force the privilege 
 of allowing the men in charge of the cattle to have return trans- 
 portation So that, with the exception of inequitable and high rates 
 which exist in the country west of the Missouri Kiver, there is no 
 
 ""^Thf cattkmenXnk that, so far as the right of the Government 
 to fix a rate is concerned, that ground has practically already been 
 conceded VTe understand that all the railroad men assent to the 
 proposition that the Government has the right and that it should 
 Regulate and control rates. But we are unable to understand what 
 thf words " regulate " and " control " really mean unless they mean 
 that in the ultimate the Commission shall have the POwer to fix a rate. 
 It was supposed in 1887. when this law was passed that that was 
 what wasTntended to be the purpose of the law. that the Commission 
 lould examine into each case and, when a rate was found to be un- 
 reasonable, it should put in force a rate which would be reasonable. 
 
4 FOURTEENTH DAY. 
 
 As a matter of course, the right of appeal to the courts and every- 
 thing of that kind sliould be preserved in all cases. ^Yhat we desire- 
 is simply that there shall be an impartial and disinterested tribunal 
 Avho can name, after a careful investigation, what is a fair and rea- 
 sonable rate. 
 
 "We are absolutely unable to see where any of the disasters which 
 have been predicted, and which were very ably alluded to this 'morn- 
 ing, will follow. 
 
 It seems to be that no scientific basis has yet been found by which 
 anybody can give precisely the cost of the service which should, of 
 course, be the basis of transportation charges. Some of the railroad 
 men say they arrive at it bj;^ a process of instinct. The fact is that no- 
 man can give the cost per mile per head of cattle or sheep. But it 
 seems to me that the officials appointed by the Government are quite- 
 as capable of arriving at a fair and just regulation of that proposition 
 a,s any interested party. Railroad managers, as a matter of course, 
 are interested. They are not willing, it seems to me, to let the density 
 of the traffic or the increase of business have its due weight in the 
 regulation of charges. 
 
 The fact is that in the last five or six years, when business has been 
 growing enormously in every direction, the transportation charges, 
 on live stock particularly, have ad^'anced 25 or 30 per cent. 
 
 These facts can be sustained by an examination of the schedules of 
 any of the roads I have mentioned. 
 
 The railroads reply that the cost of maintenance and operation has 
 increased enormously. That is a question which the Interstate Com- 
 merce Commission should be perfectly able and willing to ascertain 
 and allow for. 
 
 "What we want is simply a disinterested tribunal to fix a rate, which 
 it seems to me has absolutely been conceded to be the right and also- 
 the duty of the legislative power of this country to enter into. 
 
 The perishable character of the freight is a matter of very great 
 importance. It is absolutely important and absolutely necessary that 
 freight of this kind shall be transported rapidly and shall not be de- 
 layed. The character of the service is of even more importance, look- 
 ing at the net result, than the mere transportation charges. That, as 
 I say, has been very unsatisfactory and should in some way be placed 
 under the control of a body which would be able to judge of the 
 rights of the parties. 
 
 If the committee will permit me, I should like to file some brief 
 statement here with regard to these matters. I should also like to 
 hie the statement which was made by the. committee which met with 
 the traffic managers in Chicago. That gives briefly and concisely a 
 good deal of matter with rearard to these things. 
 
 The Chairman. If there Tje no objection, let that be made part of 
 your statement. 
 
 Mr. Haeeis. I shall be very glad to put it in. I have also here a 
 statement prepared last year by Mr. S. H. Cowan, who has appeared 
 heretofore before this committee, and which I think is a very fair 
 and accurate statement. It is made at greater length than I should 
 care to go into myself. 
 
 The Chairman. He has been before the committee and made a very 
 full statement, and his whole brief is in the record. I think probably 
 
FOURTEENTH DAY. 5 
 
 the Statement of his that you have would be only a duplication of 
 four da ^^ ^^^^'^^^ "^ P^^i"^*. I think he was on the stand three or 
 
 Mr. Harris. Of course, Mr. Chairman, I do not desire to enter into 
 any argument. It seems to me that the committee knows the situa- 
 w""; / f^^I.^^''^ to reiterate the fact that the cattlemen of the 
 West feel that they are bemg very hardly and unjustly treated in a 
 ^eat many cases. They say that without any desire to reflect iniu- 
 riously upon the railroad companies; but they feel that there is an 
 absolute necessity for the Government to exercise this power which 
 IS Its right and its duty, and which the great majority of the cattle- 
 men ot the country supposed would be exercised. 
 
 It is not to be supposed that the Congress of the United States, in 
 •enacting the legislation of 1887, degired to enact a law and prescribe 
 a lot of machinery extended in its character with absolutely no result. 
 The Commission testifies, and everybody knows practically, that it is 
 impotent, that no result of any particular value can be arrived at, 
 and it needs this express power given to it to name a rate which shall 
 be a reasonable one where a rate has been condemned after investiga- 
 tion by the Commission. 
 
 The Chairman. Now, Mr. Senator, I believe you referred to the 
 advance of rates on cattle or live stock from that southwest part of 
 the country to other points. Was that rate advanced in Kansas, or 
 was it in Texas ? 
 
 Mr. Harris. It is a rate which covers shipments from the Pan- 
 handle of Texas and Arizona, by way of Denver, to both Omaha, and 
 Kansas City. 
 
 The Chairman. Can you state the roads that have advanced the 
 rates ? 
 
 Mr. Harris. The Santa Fe, the Rock Island, and the Burlington 
 system have all, I believe, made advances in the last five or six years. 
 
 The Chairman. Was the Missouri Pacific in it ? 
 
 Mr. Harris. I can not say as to the Missouri Pacific. 
 
 The Chairman. You cattle growers, live-stock people, claim that 
 these rates are extortionate and excessive ? 
 
 Mr. Harris. Yes, sir. 
 
 The Ci^AiRaiAN. You think they are excessive? 
 
 Mr. Harris. Yes, sir. 
 
 The Chairman. Did the cattlemen take the case of these excessive 
 rates before the Commission, and did the Commission take the case 
 before the courts ? . 
 
 Mr. Harris. There is a very full and complete case made up and 
 now pending before the Commission. 
 
 The CiiAiiorAN. How long has it been pending? 
 
 Mr. Harris. I think the last evidence was in and the final argu- 
 ments weie made a month or two ago. , , » ., ^ 
 
 The Chairjian. Was that the first case brought before the Com- 
 mission? , , , , i.1 U i 
 
 ■ Mr Harris Xo, sir; I thmk there have been some other cases, but 
 I am' not so well advised about that. This case has taken about a 
 year— that is, it was begun about a year ago. 
 
 " The Chairjian. Were any of them e^-er pursued m the courts to a 
 conclusion ? 
 
6 FOUBTEENTH DAY. 
 
 Mr. T-I,\RRis. I have heard of people who have had cases, but the 
 result is that, I think, no cases have been prosecuted to a conclusion 
 except those for actual damage sustained. 
 
 The Chairman. The Commission has not up to this time made any- 
 finding in the case presented by the cattlemen ? 
 
 Mr. Harris. No, sir. 
 
 The Chairman. And has not passed upon the question of the rate, 
 as to whether it was too high or not? 
 
 Mr. Harris. No, sir ; the Commission has not given any decision. 
 
 The Chairman. And the case is still pending, is it? 
 
 Mr. Harris. The case is still pending. Of course, if the Commis- 
 sion finds the rate to be unreasonable, any ultimate benefit will seem 
 very remote. I do not see exactlj^ where we are to expect any 
 changes or betterments. 
 
 The Ci-iAiEJiAN. As you have stated, the carriers say that the cost 
 of transporting cattle has increased materially, and that the care 
 recjiiired and the difficulties surrounding that particular kind of trans- 
 portation have made these increases necessary. 
 
 Mr. Harris. We claim, as a matter of course, that all those ad- 
 vances ai'e inadequate to account for the very great changes that have 
 been made. 
 
 The Chaiejlan. I think one gentleman went so far as to state here 
 that the I'ailroa'ds made more money out of a carload of grain than 
 out of a carload of live stock transported the same distance. 
 
 Mr. Harris. There has been a disposition on the part of many rail- 
 road companies to say that they did not want the cattle business, that 
 it was not profitable. I have heard that very often. But at the 
 same time I notice that if it is not given to them they display a very 
 decided interest in the matter. 
 
 The Chairman. So you do not believe them when they say that ? 
 
 Mr. Harris. I think they go a little too far. Not alone that, but 
 there is a much more important thing underlying it. Even supposing 
 it to be true that the cattle 'business does not pay as well as the grain 
 business, the live-stock husbandry of the country is an absolute 
 necessity. Where you can not grow cattle you can not grow grain, 
 and if you can not grow grain the whole country is ruined. So I 
 say the live-stock business is the salvation of anj' country. While 
 there are some difficulties in the transportation of cattle, I think there 
 are compensating advantages in a great many ways. The cattle load 
 find unload themselves ; they are more easily handled in a great many 
 ways than grain is. So I do' not think there is any foundation in 
 the claim or complaint that the business is not fairly profitable to the 
 railroads. I do not know just how it compares with other kinds of 
 business, but there is no question that the railroads can make a profit 
 on the cattle business, because they did make a profit on that business 
 eight or ten or fifteen or twenty years ago when rates were very much 
 lower than they are now. 
 
 The Chairman. Do you think the correction of these abuses could 
 be made by vesting in the Interstate Commerce Commission the 
 power to fix a rate that would be binding from the moment it is fixed, 
 and then if they can fix one rate they can fix all ? 
 
 Mr. Harris. People generally will be satisfied that justice has been 
 done and this everlasting war, this unhappy condition of affairs, 
 will end. Nobody can see it without regret. 
 
POTJETEENTH DAT. ■ 7 
 
 What I think is needed is an impartial tribunal which will decide 
 between the two parties in interest, and I am quite sure the cattle 
 men will be willing to accept the result fairly and properly. 
 
 The Chairman. Do you think it would be possible for an impartial 
 tribunal, such as you describe, to take charge of this rate-making 
 process? AVould it have sufficient knowledge of the subject? 
 
 Mr. Harris. Certainly. 
 
 The Chairman. Would it have time to investigate the matter 
 thoroughly ? 
 
 Mr. Harris. I do not think there is any occult mystery, Mr. Chair- 
 man, about this matter of fixing rates. T think myself that if con- 
 sideration is given to the factors that enter into it such a commission 
 would soon be able to fix rates just as fairlj' and equitably as any 
 so-called experts. In fact, the so-called experts have admitted over 
 and over again that it is very largely a matter of " cut and try,"' 
 that they simply put on a rate and see how the traffic will stand it. 
 
 The Chairman. If you put' on the Commission men who are not 
 owners of the property 
 
 Mr. Harris. It is because they are not owners of the property that 
 they will be able to do what is more nearly fair and right. The ele- 
 ment of self-interest will disappear. The cattlemen do not ask to 
 be allowed to fix the rates, nor do they want the men who own the 
 railroads to have absolute authority in the matter. 
 
 The Chairman. But you cattlemen would not want somebody 
 wholly unacquainted with the cattle business to fix the price of your 
 cattle, would you ? . 
 
 Mr. Harris. Thev do. , • -: 
 
 The ChairM'AN. "Would you want a commission to fix the price ot 
 
 your cattle ? , ^ n i j: 
 
 Mr. Harris. AVe would like to see the market a great deal treer 
 than it is now. We do not want the burden of transportation to be 
 anv heavier than is proper and consistent with the rights of the roads. 
 The Chairman. There has been complaint from all over the coun- 
 try about advances in the prices of meat, and I think that complaint 
 has been prettv well established. Do you think that a commission 
 should be established or that the Interstate Commerce Commission 
 should be given the power to fix prices so as to prevent this extortion 
 
 and abuse ? . j. . , 
 
 Mr. Harris. Fix the price of meat i 
 
 The Chairman. Yes; so as to protect the people. 
 
 Mr Harris. I do not know. Of course, we would hke to see the 
 Government investigations with regard to some other matters reach 
 a dIS ?esilt. There are some other things affecting the prices of 
 Lnf +1. ft the Government is now investigating. When that time 
 comes whe^w?c^^^^^^^ absolutely whefe the fault is then there 
 
 -feiR^r^^^^^^^^^^^^^ 
 
 ag^o^od^d^^^^ 
 
 StyTbJdr 1? :ho'S no interest whatever in the property, 
 
 t?|y|te aJa^ontrol it .^^^^^^^^^^^ ^ _ ,,,, 
 
H ■ FOURTEENTH DAY. 
 
 the Government. He enters into a contract to discharge a public 
 service to the people of the country, and that it is subject to regula- 
 tion and control, and he invests his money with that distinct under- 
 standing. 
 
 Senator Cullom. I want to ask you if you could furnish the com- 
 mittee with a statement of prices from year to year of shipments be- 
 tween given points, so that we can have the actual evidence. Shipments 
 from point to point have been increasing, and we have been hearing 
 generally about reduction of prices. 
 
 Mr. H.\RRis. I could give you the report of the Stock Yards Com- 
 pany, of Chicago, which shows the receipts and shipments from that 
 point, and the same, of course, for Kansas City, and from Omaha. 
 If desirable, I could give you that, and that would indicate something 
 of the volume of business from, year to year. 
 
 Senator CrLLOM. And the actual cost of transportation from year 
 to year: that is what I want to find out. You state that the price 
 has been going up and that you have had to pay more for shipping 
 cattle. 
 
 Mr. H^hris. That evidence is already before the Interstate Com- 
 merce Commission, I might say, in full and complete form, and I 
 think it would be easier to get it from the Commission in these pend- 
 ing cases than from any other soiirce. 
 
 Senator FoitAKER. I think it is in. Mr. Cowan's statement. 
 
 Mr. Harris. I think perhaps he gave it. 
 
 Senator Cullom. If it is in Mr. Cowan's statement, we will have 
 110 occasion for it again. 
 
 Mr. Harris. In this statement I have here there is some allusion 
 to things of that sort. 
 
 Senator CuIjIjOM. I want the committee to find out to a certainty 
 whether the price of transportation has been going up or has been 
 going down. There have been general statements here lately that 
 the price of transportation was being reduced from year to year. 
 
 Mr. Harris. I think the railroad men generally concede that there 
 has been an advance, and they explained the reason for the advance, 
 as I have said — the higher prices of wages and the higher cost of 
 material. 
 
 Senator Cullom. Your idea is that giving the Interstate Com- 
 merce Commission the poMer to fix the rates is what is necessary in 
 this case ? 
 
 Mr. Harris. I think so, sir. I think that is the essential thing. 
 
 I should regret to see a very elaborate and great change in the 
 existing law. I think whatever amen(^ent is made ought to be 
 simple. We now understand how the present law has been construed. 
 For the sake of expedition of cases the membership of the Commis- 
 sion might be increased, and there might be a transportation court 
 which should specially devote itself to these questions. That would 
 all tend to a speedy and rapid settlement of these questions. 
 
 Senator Cullom. Your idea is to give the Commission power to 
 fix the rates, but do you mean to make that fixing subject to the de- 
 cision of the courts afterwards? 
 
 Mr. Harris. When it goes into effect, but of course the railroads 
 should have the right of appeal to the court. 
 
 Senator Cullom. You do not want to deny them that right? 
 
 Mr. Harris. Certainly not. 
 
FOTJETEEXTH DAY. 9 
 
 Senator Ct-li.ojc. Apparently, from the testimony given before 
 this committee, the decisions of the courts in almost every instance, 
 where the nite has been fixed and the case has gone to the court it 
 has been reversed by the court. ' 
 
 Mr. Harris. If 'that is the case, then the railroad people ought 
 not to fear the result. If they are going to win in every case or in 
 the niajority of cases, they ought not to be so much afraid of this 
 amendment which is sought. If the courts are there to protect them 
 and will protect them, they can not be hurt. 
 
 Senator Cullom. You do not object to having the court pass upon 
 the question? 
 
 Mr. Harris. I think they would have absolutelv that constitutional 
 right, Mr. Senator. 
 
 Senator Keax. I think you said that all the diiferences between the 
 cattle people and the railroads have been settled, practically, except 
 the rate. 
 
 Mr. Harris. I will not say that the question of service has been 
 absolutely settled, but the railroad companies have done better this 
 year than for the last two or three years. They make a great many 
 promises. In fact, the damage suits have been enormously increased 
 in the last year or two, and the railroads have had to pay for so much 
 of value for cattle destroyed by the roads because the shipments 
 were large. But the trouble is that the small shippers can not ailord 
 to sue, and I have had managers tell me that they could not afford to 
 pav these damages any longer. So that the matter of service, I think, 
 will regulate itself in'time ; but it is a question of methods. 
 
 Senator Keax. I think you also said that there were no complaints 
 of the Great Northern and Xorthern Pacific ? 
 
 Mr. Harris. Very little complaint. I think the people up there 
 in Montana and in North and South Dakota and all that region feel 
 that thev are fairlv well treated. , ^, ^ 
 
 Senator Kean. Then the complaint is more m the southwestern 
 parts of the country ? 
 Mr. Harris. In the West and Southwest. 
 
 Senator Ke AN. What roads specially ? _ .^ ^, _ ,. ^ ,, 
 Mr. Harris. The Santa Fe, the Union Pacific, the Burlington, the 
 Book Island, the Southern Pacific, and systems covering that terri- 
 
 ^"s'enator Forai^r. I understood you to say. Senator, that if the 
 tendencv appears to be for the courts to decide m favor of the rail- 
 rSSeX railroads have nothing to fear fron. allowmg the Com- 
 mfssfon to fix rates. That was the statement, I believe. 
 
 fena^r^AlS'XiJd ^^^ not be a hardship on the roads if the 
 CoSSSLrpd fix these rates so t^^^^^^^^ 
 
 mediately -d --ta^e in ^^^^^J^.^^f^J.^ should fe held by 
 Z SS r SSv^S oico^irse, is assumed) that the Commission 
 
 Ke^a^mistaL Jn ^^^.t^ Wsht ruKl^rly so great 
 Mr. Harris. I ^o "ot th^^^k t^«^^3^^ unreasonable to substi- 
 
 ZtTIn SSn!i:?atetr'aTfinite, and when the case has been 
 pending five or six years. 
 
10 FOURTEENTH DAY. 
 
 Senator Fohaker. But the shipper can be protected by the court. 
 
 Mr. Hakris. Pie never has been. 
 
 Senator Foeaicer. Perhaps that is the fault of the procedure. 
 But, as I understand, there is no difficulty in having the railroad file 
 a bond so as to protect the shipper. 
 
 Mr. Harris. I think there is a difficulty because of the almost 
 infinite number of very small shipments. 
 
 Senator Foeaker. If you fix a low unreasonable rate, and one that 
 the court sets aside as such, the railroad has to collect not only that 
 rate from the particular shipper, but from all other shippers, so that 
 the whole revenue is cut clown, and the railroad has no security 
 whatever for the loss of freight thus occasioned. 
 
 Mr. Harris. The railroad company can bring about a much more 
 rapid adjustment of the matter and a solution of it by the courts 
 when the onus is upon them, I think, than as it is to-day. 
 
 Senator Forakjer. That •^^■ould be the fault of the court, then, I 
 suppose ? 
 
 Mr. Harris. I dislike to say where the fault is, but we know what 
 the law's delays are. 
 
 Senator Foraker. The Interstate Commerce Commission is the 
 prosecuting attorney, if I may use that expression. It is the prose- 
 cuting authority, made so by the interstate-commerce law. For in- 
 stance, the Commissioners now have the authority to apply to any 
 circuit court of the\Jnited States having jurisdiction of the railroads 
 to correct by injunction or other 2)roper proceeding any abuses or 
 rebates or discriminations, and I think they also have in the case of 
 excessive rates. For more than two years, under the Elkins law, 
 you could have gone into the circuit court of the United States instead 
 of going before the Interstate Commerce Commission where the 
 Commission has no power to do anything, and you could have had 
 a trial, because it is the duty of the court under the law, as it is now, 
 to grant a summary proceeding, postponing all other business. You 
 could have had a hearing on the merits and have had an order from 
 the court for the ascertainment of the fact whether the rates that 
 were being ch^-rged were reasonable, and enjoined them if they 
 were unreasonable. 
 
 Mr. Harris. Aside from that question of the law's delays, I think 
 it is much more equitable that a rate which has been found to be 
 reasonable by a competent commission should continue to be in 
 force than that an unreasonable rate ^^'hich has been denounced 
 should continue in force. It seems to me it is more logical that the 
 rate which has been denounced should be abrogated and the substi- 
 tuted rate obtain after the consideration of it by the court. 
 
 Senator Foraker. As the Interstate Commerce Commission in 
 more than a hundred cases has substituted a rate, in so far as it could 
 find and substitute one that it regarded as reasonable, for one that it 
 held was unreasonable; and in every instance, except three or four, 
 the courts have held that the action of the Commission was er- 
 roneous. 
 
 Mr. Haeeis. I think that opens up a very broad field. In arriving 
 at reasonable rates the courts have to take into consideration more 
 than the conditions — the question of the \'alue of the property, and 
 everything of that kind, which is hardly a matter for discussion 
 here. 
 
POUETEENTH DAT. 11 
 
 Senator Foeaker. Do you not think the court is competent to 
 deal with that question ? Or would you have us understand that the 
 court is not? 
 
 Mr. Harris. I think there is too much courtesy shown to the law- 
 yers in the consideration of cases. 
 
 Senator Forakee. Is there not a good deal of courtesy shown to 
 the attorneys before the Interstate Commerce Commission ? 
 Mr. Harris. There maj' be in many cases, and doubtless is. 
 Senator Foraker. I remember that when I was practicing law I 
 had cases before the Commission where I lost everything, and I 
 attributed it to the extreme courtesy shown by the Commission to 
 the lawyers on the other side. At least, I explained it that way to 
 my clients. Now, I understand you to say, and j^ou repeated it a 
 moment ago in answer to Senator Kean's question, that so far as 
 rates are concerned for live stock there is no complaint in the northern 
 or northwestern part of the country. 
 
 Mr. Harris. ISIo general complaint. As I said at the start, they 
 are generally fairly well satisfied. 
 
 Senator Foraker. The rates are regarded as fairly reasonable? 
 Mr. Harris. Yes, sir. 
 
 Senator Foeaker. The complaint is confined to the Southwest? 
 Mr. Harris. To the West and the Southwest. 
 
 Senator Forakee. ^Ye have had before us one witness, Mr. Lincoln, 
 representing the Missouri Pacific, who testified on this subject, and 
 he has told us that they did advance rates, perhaps as much as you 
 have indicated, 25 or 30 per cent; I do not remember exactly what 
 his statement was in that respect. But he says that the rates as they 
 are to-day are preferential in favor of live stock as compared with 
 other kinds of freight. He made a very strong statement. You will 
 find his testimony on that point in the proceedings of the eighth day 
 of these hearings, if you have a copy of the.record. I call your atten- 
 tion to it so that you can make further answer to him if you desire 
 to do so. 
 Mr. Haeeis. Thanli you very much. . 
 
 Senator Foraker. According to his statement it would appear 
 that live stock in the part of the country you are talking about has 
 a favored or preferential rate, and he says it is so much of a prefer- 
 ential rate that they prefer not to have it at all, and that they ha^e 
 given instructions to all their agents not to seek any live-stock busi- 
 T1PSS but let it £0 to other roads. , . , , 
 
 Mr Harris I will be very glad to look at his statement 
 £a?or ForakIr I call vo5r attention to it, and I think when you 
 readTyou will find something there that you may want to answer. 
 
 Senator Millard. Was it not the fact several years ago that a man 
 tofnTa few cattle, whether one car or more, had transportation 
 forSfd both ways for as many men as were necessary to care for 
 
 the cattle to ^^^^^t^^f'J^m^^^^'My recollection of the condi- 
 Mr. Haeeis. >ot ff \\™^^^^n";ith two cars of cattle was entitled 
 tion some years ago is that a man ^^^1^ ^^^^^^ ^-^ home 
 
 to send one man Jith them, and tne ^^^ ^j^^ ^^-^^^^^^ ^ 
 
 S^iSt s^:nTiore"th"- one man for two cars. One man is 
 
 enough. 
 
12 FOURTEENTH DAY. 
 
 Senator Millard. In the western country they carried that too 
 far, did they not ? 
 
 Mr. Harris. There is no doubt there was a great abuse of that 
 privilege. If a man were shipping ten or fifteen carloads of cattle 
 he would sometimes, with the consent and connivance of the local 
 agent, divide up his shipment into three or four, which would entitle 
 him to send one of his friends with each two or three cars, and he 
 might send a doctor or a lawyer or a clergyman or anybody who 
 wanted to avail himself of that privilege. That subject was dis- 
 cussed at the meeting in Chicago to which I have referred, a year 
 ago last February, and the cattlemen were unanimous in recommend- 
 ing the railroads to adopt every precaution to prevent that abuse. 
 
 Senator Millard. That practice was discontinued pretty much 
 entirely a few years ago, was it not ? 
 
 Mr. Harris. It was abrogated a j^ear ago last January, and then it 
 was reinstated about a year ago last March, after this meeting to 
 which I have referred. 
 
 Senator Millard. Is it a fact that the discontinuance of that favor 
 to the cattlemen had something to do with the complaints of the 
 shippers ? 
 
 Mr. Harris. It resulted in losses. A great many cattle were killed 
 in shipment that might have been saved, because after a train has 
 been running three or four hours and is sidetracked and the train 
 stopped the cattle are very apt to lie down; unless an attendant is 
 on hand to keep them on their feet they are likely to be trampled 
 and sometimes killed. 
 
 Senator Millard. Did the lack of transportation for the men cause 
 that? 
 
 Mr. Harris. The failure to have men on hand to take care of the 
 cattle and keep them on their feet was an element in the increased 
 damage. 
 
 Senator Millard. It is the custom now to furnish transportation to 
 enough men to take care of the cattle until they reach the market? 
 
 Mr. Harris. One man for two cars, I believe, is what has been set- 
 tled upon. The companies can regulate the details of the matter so 
 as to absolutely prevent any improper advantage being taken. 
 
 Senator Millard. I live in a country from which cattle are shipped, 
 and I think a few years ago that was a great abuse. 
 
 Mr. Harris. I know it was. 
 
 Senator Millard. The law, I think, provides that cattle must be 
 unloaded every twenty-eight hours. 
 
 Mr. Harris. Yes. 
 
 Senator Millard. Does that interfere very much with the shipment 
 of cattle ? 
 
 Mr. Harris. I think that law ought to be changed. It seems to me 
 that forty hours would be better, because the handling of cattle is very 
 often very seriously interfered with by too frequent unloading, and 
 without an}' particular advantage to the cattle. 
 
 Senator Millard. I think a great many of the railroads and a great 
 many of the cattlemen object to the twenty -eight hours. 
 
 Mr. Harris. Yes; I remember several years ago they made an 
 effort in the Senate to get the law changed. 
 
 Senator Millard. I know a great many shippers in our country 
 
■FOURTEENTH DAY. i o 
 
 it had Sttrbe'exSndeS'"'^""^^' ''''''' '' ''' '''''' ' ''^^- -^ that 
 Senator Xewlands. If we have the power, hi legislating uDon this 
 
 matter to take measures to present overcapitalization of ?aZads in 
 
 the future. Avould you think it wise to exercise it « 
 Mr. Harris. I would. 
 
 r.?,trt°'flf ""'''"^^w-- ^"l."'S ^' ^ ^^'''^ the decision of the Supreme 
 Court m the regulation ot rates, regard must be had to the va ue of 
 the property and a fair return upon that value after allowing for 
 operating expenses, taxes, and fixed charges. Would you thinl. that 
 It ^lould tend toward simplification of regulation if Congress should 
 take measures to make the tax system as simple, direct, and mathe- 
 matical as possible? 
 
 Mr. Harris. The tax system ? 
 
 Senator Newi.ands. The tax system. If we could devise some 
 system o± taxation upon gross receipts, in lieu of the present law, by 
 Avhich a tax could be mathematically determined, would you reo-ard 
 that as wise ? ^ 
 
 Mr. Harris. I do not know that I have ever given any thought to 
 the proposition of changing the fonn of taxation, but it seems to me 
 that it is very essential indeed to arrive at some method by Avhich we 
 can determine the reasonableness of rates as based upon the value of 
 property, by limiting the right to increase capitalization, bonded 
 debt, and fixed charges at will, which is now exercised. 
 
 Senator Newlam)s. "Would you think it wise, then, to provide that 
 the Interstate Commerce Commission should approve hereafter of 
 the issues of bonds and stocks made by railroad companies engaged 
 m interstate commerce without some other form of approval by the 
 Government ? 
 
 Mr. Harris. I think somewhere there should be the power lodged 
 to control or limit it. I do not say that it ought to be given to the 
 Interstate Conmierce Commission, but somewhere there should be 
 that limitation, because it is a continually accelerating movement. 
 You increase the value by overcharges; you increase the capitaliza- 
 tion as the resrilt of that, and then another raising of the rate; and 
 so it goes on indefinitely. 
 
 Senator Xewlaxds. Your view is that the rates would be made a 
 great deal more reasonable if the Avhole operation of railroads were 
 simplified, and if the investments Mere properly secured, so that 
 there would be a fair return, and that everything that could be done 
 should be done tending toward simplicity of operation? _ 
 
 ]Mr. Harris. It is '' a consummation devoutly to be wished." 
 
 Senator Xewlaxds. Our present system comprises about 2,000 rail- 
 roads in this country, 600 of them operating railroads; these rail- 
 roads all grouped together in various systems with the complexity of 
 bond and stock issues that at present exist. Do you regard that sys- 
 tem as a simple one ? 
 
 ]Mr. Harris. Xo, sir; but Avhile some of these methods adopted 
 have been very reprehensible, I believe that the principle of consoli- 
 dation has been a good one ; that the more they are consolidated, the 
 smaller the number of combinations of the great corporations, the 
 better they will 'nork toward simplicity of action. 
 
14 FOUBTBElirTH DAT. 
 
 Senator Xewlai^ds. But you think that should be guarded, of 
 course, by providing against overcapitalization in bonds and stocks? 
 
 Mr. Haeris. I think it is very liard to say what the number of 
 smaller corporations should be for that reason. 
 
 Senator Foeaker. WTien was this proceeding, to which j^ou have 
 referred, commenced before the Interstate Commerce Commission '. 
 
 Mr. Haeeis. Something over a year ago. 
 
 Senator Foeakee. It was commenced after the Elkins law was 
 passed, was it not ? 
 
 Mr. Hakeis. It was commenced by the Texas Cattle Growers' Asso- 
 ciation ; yes, it was after the Elkins law ^^as passed. 
 
 Senator Foeakek. That was passed in February, 1903. What was 
 the purpose ; simply to test the reasonableness of the rate ? 
 
 Mr. Haeeis. Yes. 
 
 Senator Foeakee. That, and nothing more ? 
 
 Mr. Haeeis. Yes. 
 
 Senator I'^orakee. Do you know wh}^ it was that you did not pro- 
 ceed under the Elkins law in the court ? 
 
 ^Ir. Haeeis. I could not say why, but as I understand it the Elkins 
 law has reference to rebates and discriminations. 
 
 Senator Foeakee. Yes ; rebates and discriminations, and it is also, 
 in the terms of the act, as has been held by the Supreme Court, a 
 modification of the existing law. So I suppose j'ou could sue under 
 it to enjoin an unreasonable rate, because the law prohibits an unrea- 
 sonable rate. 
 
 Mr. Haeeis. That, I say, was of course a matter for the parties and 
 their attorneys. I had no connection with it. 
 
 Senator Foeakee. Proceeding before the Commission is at your 
 own expense in every way ? 
 
 Mr. Haeeis. Yes, sir. 
 
 Senator Foeakee. I mean the expense of the cattle association? 
 
 Mr. FIaeeis. Yes ; they pay all the expenses. 
 
 Senator Forakee. In court it would have been by the action of 
 the Commission and at the Government expense and on behalf of all 
 the shippers. Xow, do you know of any proceeding instituted in the 
 courts since the Elkins law was passed to enjoin any discrimination 
 or rebate or excessive rate? Has there been any proceeding of that 
 kind anywhere? 
 
 Mr. Haeeis. No, sir ; I do not recall any. 
 
 Senator Foeakee. So that you do not know of any. instance in 
 which any court has failed to give effect to the provisions of that 
 statute since it was passed ? 
 
 Mr. Haeeis. I do not. 
 
 STATEMENT OF MR. J. R. NUTTING. 
 
 Mr. Nutting. Mr. Chairman, my name is J. R. Nutting, of the 
 corporation of Sickels, Preston & Nutting Company, wholesale hard- 
 ware, in Davenport, Iowa; and I am also interested in the wholesale 
 hardware house of Sickels & Nutting Company, New York. 
 
 "^^Tien the Esch-Townsend bill was being considered I felt that it 
 would not be to the interest of our locality to increase the duties 
 and responsibilities as suggested, and therefore took occasion to tele- 
 
rOTJETEENTH DAY. J 5 
 
 graph our Senators and others whom I chance to Icnow in Confess 
 beggmg them to oppose the railroad rate-making feature of the bill' 
 
 1 therefore per.-onally appear before you, hoping to have the 
 privilege of giving, as concisely as possible, a few reasons for the 
 position taken at that time. With your permission, I would like to 
 read these reasons now. 
 
 There are many objections to conferring power upon any man, or 
 a committee of men, no matter how or by whom they are selected, 
 to make arbitrary rates for the transportation of freight in all locali- 
 ties, under all circumstances, throughout this vast country. Condi- 
 tions vary so much and the sudden changes in these conditions are 
 so frequent as to make it, m my judgment, utterly impossible to 
 determine any basis for making tariff schedules that will be just to 
 all classes of our people. 
 
 There are now in use many classifications of freight which would 
 have to be abolished and a new classification made that Avould govern 
 everywhere in this land. In adjusting this feature alone it%Fould 
 require the time of our most expert, experienced, and practical rail- 
 road men for a very long period. "^^Tiile this was being done the com- 
 merce of the country would be thrown into a chaotic condition, 
 which Avould greatly interfere with commercial transactions and 
 possibly bring on a stagnation in business circles that would lead to 
 the most unparalleled and deplorable financial panic ever known in 
 this or any other country. 
 
 In arranging the one classification to take the place of the many 
 now in use the committee must take into consideration every article 
 now produced or to be produced, bought and sold at all seasons of the 
 year, and under all circumstances. The committee will confront the 
 old States rights question, which has cost so much money, misery, 
 suffering, and human lives. 
 
 While you may confer certain power on your Interstate Commis- 
 sion, you can not interfere with present laws or regulations of trans- 
 portation of freight within the boundary of any State. Your classi- 
 fication and your schedules of freight rates could, and doubtless 
 would, be ignored to the extent of billing within a State to the 
 boundary line of another, and again rebilling from that boundary 
 line to another. There may be difficulty in compelling two or more 
 lines to make joint billing. 
 
 Should the Interstate Commerce Commission decide to make the 
 new rates on a distance tariff basis — and there seems to be no other 
 practical basis upon which they can make them — it would result in 
 great hardship to the Middle West, and the important distributing 
 centers would be greatly injured, and might ultimately lose the 
 prestige they now enjoy in the markets of the world. 
 
 The new rates, in order to become popular with the masses, must 
 necessarily be reduced, and there is great danger that this reduction 
 in revenue to transportation companies would result in inferior serv- 
 ice, which would be greatly deplored by all classes of shippers, 
 
 especially live stock. i • vir x ax i. 
 
 The cost of constructing and operating railroads m different States 
 varies materially. My friend Simmons would hardly be satisfied 
 with a freight rate from Denver to the top of Pikes Peak that 
 doubtless would be acceptable to the Chicago and Northwestern Kail- 
 load from Waukegan to Kenosha. Climatic conditions, variations 
 
1(5 FOURTEENTH DAY. 
 
 in cost of labor, and also in the salaries of skilled operatives and com- 
 petent railroad officials can not be compiited by figures. National, 
 international, and State waterways would be a very serious matter, 
 but must be considered. Water rates can not legally be made and 
 enforced, and even if they could, the goods to be transported on them 
 tire liable to be, and frequently are, owned by the party who owns 
 the crafts that convey this freight. 
 
 Notwithstanding ail these objections — and the foregoing mentioned 
 are but few of them — if you should decide to confer this power on 
 the present Interstate Commission, or any other commission, it would 
 certainly be conservative, and, in my judgment, the part of wisdom, 
 to ask the commission A^'ho are to make these changes to arrange the 
 schedules after consulting with the reioresentative shippers, com- 
 missioners of the different States, and transportation comi^anies before 
 conferring this power — a power which you will doubtless concede 
 (as 23roposed to confer on the Commission under the provisions of 
 the Esch-Townsend bill) to be the greatest commercial power ever 
 conferred upon any body of men, and it seems only fair and just 
 that the people of this countrj' should ha^e some idea how such a 
 change Avould affect their interests before such legislation is carried 
 into effect. 
 
 Gentlemen, I thank you. 
 
 STATEMENT OF MR. WILLIAM GEOTE. 
 
 The CiiAiKjiAN. Please state your name and rc'^idence. 
 
 Mr. Grote. My name is William Grote ; residence, Elgin. 111. My 
 office business is real estate and investments. Aside from, this I am 
 connected with and interested in a great many industrial enterprises 
 and commercial enterprises. I am a director in two banks, am presi- 
 dent of the Seaboard Keed Pipe Organ Company, vice-president of 
 the Stover Piano Company, and secretary of the Elgin Lumber Com- 
 pany. How many moie you want me to name I do not know. 
 There are a number of others. 
 
 I appear here before this committee in the interest of those com- 
 panies. 
 
 In addition to this, up to a te-w years ago, I was president of the 
 Elgin City Railway Company for eleven years, and we had an 
 interurban system connected w"ith it. We did -ome hauling for the 
 Illinois Central Railway; they brought our cvi's to the city of Elgin. 
 This brought me into contact"with the freight arrangements of tliat 
 road. 
 
 Some years ago I was instrumental in locating seven factories at 
 our city of Elgin. They came there from other places. You gentle- 
 men of business affairs know that they would not locate there unless 
 they had railroad facilities. Almost every one made it one of the first 
 questions to ask whether there were railroad facilities and what were 
 the freight rates. In almost every instance we had to go to the rail- 
 roads to have that matter adjusted so as to ascertain what rates of 
 freight those companies would have to pay if they located at our city. 
 They certainly did locate there — not all 'that we wanted, but at the 
 time every one of these factories was satisfied Avith the freight ar- 
 rangements, rates, etc., and some of them have been for a number of 
 
POUETEENTH DAY. 17 
 
 jrears since. I haven't heard of any difficulty in regard to that ques-' 
 tion, and I think if there had been any I would have known of it. 
 
 Some of these companies are very anxious to locate these factories 
 on their lines of road. They know their business from its infancy. 
 They have a general traveling freight agent who calls occasionally 
 and inquires into conditions and wants. The railroads keep fully in- 
 formed of every industry on their lines, all their conditions and neces- 
 sities and obligations, in competition with other manufacturers in the 
 same business. 
 
 As to our own interests, the organ company ships its goods all over 
 the country, from the Atlantic to the Pacific, in different States, and 
 in that we have had no difficulty to get fair treatment from the roads. 
 
 I can say the same for the piano company. 
 
 The lumber conipany years ago got nearly all their supplies from 
 Wisconsin and Michigan, and part of that time they would get re- 
 bates, but for a number of years since that law was passed prohibit- 
 ing the giving of rebates we have not received any. But I consulted 
 with the manager and he gave me different rates on lumber. We get 
 some from the Pacific and some from the Southern States; but, on 
 the whole, he reported that our dealings were very satisfactory. No 
 doubt, in years past there may have been some things that took place 
 that were not satisfactory. Some industrial enterprises have been 
 favored, especially large ones, over small competitors. For that rea- 
 son I am in favor of a State commission. As you know, a number of 
 States have such commissions now. 
 
 I am also in favor of the Interstate Commerce Commission to a cer- 
 tain extent regulating traffic arrangements. But I think it would be 
 very unwise if Congress should go so far as to give this Commission 
 any right to fix a rate. I think one of the bills in contemplation says 
 in extreme cases, if exorbitant rates. were found to have been charged, 
 they could do so. I for one think if there was such a power given to 
 any such commission it would have more business than it could pos- 
 sibly attend to. 
 
 In the city I come from the people often complain. They are not 
 satisfied with the railroad management as to rates. But I do not 
 think we could get any commission to improve on that, though I 
 am fully satisfied you will find any number of people who will find 
 fault with the way they are treated. They look at their condition 
 from one side, and compare that with the case of somebody else, 
 where on the face of it it is equal, and still they want a lower rate. 
 To have a commission with that power, and only one commission in 
 the United States to look after the affairs of all the railroads, if, 
 after hearing the witnesses, they thought there was a just cause 
 they could change -the rate, they would probably not Imow what 
 effect it would have upon other rates, and they would have to be 
 straightened out, and that would cause a general disturbance of our 
 present splendid commercial conditions and all our industries in this 
 country. I think instead of assisting to improve the present condi- 
 tions it would work the other way; and we know that that is a 
 matter that touches every city of the United States, either directly 
 or indirectly. I see the salary of the Commissioners is proposed to be 
 
 14 D— 05 M 2 
 
18 FOURTEENTH DAY. 
 
 $10,000 a year in one bill there, and that they are to be appointed 
 for one, two, three, four, and five j^ears. Any experienced railroad 
 man who is now with the companies that would accept such a posi- 
 tion would not be the man that this country could afford to put in 
 charge of all their industrial enterprises, to fix the rates. They 
 would not be familiar with it. The people that are in charge of the 
 fixing of rates now have grown u^j in the business. They watch the 
 industries on their line from the time they start, and they keep in 
 close touch with them. They are informed from time to time of 
 any complications occurring, and for that reason they are better 
 judges as to what can be done. 
 
 I will go further and state that all requests that we have made to 
 the railroads have not been granted. Even if I thought that they 
 were just, it did not take long to convince me that they were not so, 
 when the whole matter was considered. By documents right there 
 in their office they convinced me that my request was not a just one, 
 and consequently I dropped it. But whenever it was fair I -never 
 had any difficulty in arranging matters as they came up from time 
 to time, and I believe that the commercial interests of this country 
 are so great that we should consider very carefully before we inter- 
 fere to the extent contemplated in this new legislation. 
 
 Senator CxxLLOit. You think, Mr. Grote, that it would be dangerous 
 to put power in the hands of a commission to make the rates abso- 
 lutely? 
 
 Mr. Grote. Yes, sir. While the law that I read there, which con- 
 templated it, says that " in extreme cases " they may do it, I am 
 fully satisfied in my own mind that the exercise of the power would 
 be extended to other cases. If the public generally should know 
 that they had this right, they would have so many demands upon 
 them that they could not possibly take care of them, and more than 
 they ought to take care of for the good of this country. 
 
 Senator Foraker. Your experience, then, is that rates are reason- 
 able and low enough ? 
 
 Mr. Grote. Yes, sir. 
 
 Senator Foeaker. And so far as your experience goes, rebates are 
 not allowed any more since the Elkins law of 1903 ? 
 
 Mr. Grote. No, sir. 
 
 Senator Foraker. Just one other qxiestion: What is the aggregate 
 amoimt of your shipments annually, if you can tell ? 
 
 Mr. Groi'e. Of these industries that I mentioned, the organ com- 
 pany amounts to about between three and four thousand a year and 
 the piano company about the same. The lumber company gets in 
 the neighborhood of about 200 cars a year of lumber from these dif- 
 ferent places. 
 
 Senator Foraker. And your goods go out all over the country ? 
 
 Mr. Grote. They do ; yes, sir. 
 
 Senator Foeaicee. On all the different roads ? 
 
 Mr. Grote. Yes, sir. 
 
 Senator Foraker. And you have no complaint to make as to any 
 of them? 
 
 Mr. Grote. No,' sir. 
 
 Senator Newlands. "Wliat road are you on ? 
 
 Mr. Grote. The direct road that strikes Elgin is the Chicago, Mil- 
 waukee and St. Paul and the Northwestern. 
 
FOUETEEKfTH DAY. 19 
 
 STATEMENT OF MR. H. C. GARVIN. 
 
 The CHAiEjrAiv-. State your name, residence, and occupation, Mr. 
 Garvin. 
 
 Mr. Gaevix. H. C. Garvin; I am secretary and manager of the 
 Bay State Milling Company, Winona, Minn. 
 
 The Chaieman. Go right on and make your statement, and when 
 you have finished some of the members of the committee may desire 
 to ask you certain questions in regard to it. 
 
 Mr. Garvin. "We have a flouring mill at Winona that is reached 
 by the Chicago and Great Western Road, the Chicago, JMilvraukee 
 and St. Paul, the Chicago, Burlington and Quincy, and the Chicago 
 and Northwestern. Our annual shipments for many years have been 
 not less than 6,500 cars. They run along from that up to 8,500 cars 
 in the twelve months. 
 
 Senator CuLLOM. Of flour? 
 
 Mr. Gaevin. Flour and grain; yes, sir. In addition to that I am 
 one of the largest stockholders and take quite an interest in the 
 management of a line of 225 country elevators, where we buy grain 
 of all kinds from the farmer and sell him coal, salt, and so forth. 
 
 Senator Cullom. You are the man they used to call the " middle- 
 man," are you not? 
 
 Mr. Garvin. Those elevators are situated throughout Iowa, Min- 
 nesota, and the two Dakotas, on the St. Paul road, the Illinois Cen- 
 tral road, the Rock Island road, and the Northwestern road. I 
 might go on further and say that together with three or four of our 
 citizens we have just completed, at an expenditure of $240,000, a 
 malting plant, our section of the country immediately thereabouts 
 being largely a barley district. 
 
 Senator Foraker. Where is that located ? 
 
 Mr. Garvin. At Winona. All this interest is at Winona, Minn. 
 
 Senator Cullom. "V\Tiat is the population ? 
 
 Mr. Garvin. Twenty-five thousand. 
 
 The Chairman. Proceed. 
 
 Mr. Garvin. I am on a little tour down through this country. I 
 have been over to Buffalo, to New York, Boston, and Philadelphia, 
 and am stopping here and then going up to Pittsburg. That is a 
 little tour that I make annually, round amongst the territory in 
 which I have representation. I have two of my traveling men here 
 meeting me to-day. 
 
 At the time the Esch-Townsend measure passed the House so over- 
 whelmingly I interested myself somewhat in opposition to it by 
 addressing some of the Senators that I knew, and I was very much 
 pleased to see the measure stop where it was rather than be made a 
 law. 
 
 All we ask in our various interests — and we have, something like 
 $3,000,000 as a permanent investment in these interests that I repre- 
 sent — is to be on an equality with our competitors in a like business 
 in the same locality. 
 
 In our milling business, without saying it boastfully, we rank, 
 according to statistics, as the fourth largest producer in the TTnited 
 States. The only people having larger mills are those at Minne- 
 apolis, as to which I believe Senator Clapp will bear me out. Under 
 
20 FOURTEENTH DAY. 
 
 the present adjustment of rates we people who are in the country, in 
 small places, enjoy the same facilities for the handling of our goods 
 as the people in the larger cities ; and all that we ask is that we have 
 the same basis of rates that our competitors have. 
 
 It seems to us, or to me personally, in representing these interests, 
 that we are fixed now with the Interstate Commerce Commission if 
 they will only do their duty. We are satisfied with the present laws 
 with respect to controlling railroads by the Interstate Commerce 
 Commission if they will simply do their duty. .Since the Elkins 
 measure everything has been wiped out. Prior to that there were 
 some transgressions. 
 
 Senator Clapp. There are none any more ? 
 
 Mr. Gaevin. No, sir. ' 
 
 Senator Foeakee. When you say " everything has been wiped 
 out," specify what you embrace in that term. 
 
 Mr. Gaevin. Well, any departure from the printed tariffs of the 
 company. 
 
 Senator Foeakee. That is, rebates? 
 
 Mr. Gaevin. Rebates. 
 
 Senator Foeakee. And drawbacks? 
 
 Mr. Gaevix. Drawbacks of all sorts. 
 
 Senator Foeakee. And discriminations? ' 
 
 Mr. Gaevin. Discriminations in favor of one and against the other. 
 
 Senator Foeakee. And any special rates ? 
 
 Mr. Gaevin. Special rates of any kind. 
 
 Under the conditions up in our territory, the man making 200 
 barrels of flour gets the same consideration that we do making 3,500 ; 
 and we, in turn, get the same consideration that the large mills at 
 Minneapolis do. That is all we can ask for. We people certainly 
 would not invest our money permanently on the right of way of rail- 
 ways — ^that is, where we are with our elevators; we are on the rail- 
 road company's property 
 
 Senator Foeakee. Has that anything to do with your testifying as 
 you have here to-day ? 
 
 Mr. Gaevin. No ; any more than to say that if we did not feel that 
 we were treated fairly at the hands of the transportation lines under 
 the present conditions we certainly would not make any investment 
 on their road. We would keep our money. 
 
 We feel that the railroads that I have mentioned here — those four 
 railroads — are practically partners of ours. They want to see us get 
 along and thej' want to see us succeed in our business. 
 
 I do not know that I have anything further to say, except that I 
 will repeat myself in this 
 
 Senator Cuelom. Have you ever had any controversy with the 
 railroads, or the Interstate Commerce Commission, either? 
 
 Mr. Gaevin. Many times Avith the railroad people; yes. 
 
 Senator CuLLOJi. You thought they were charging you too much? 
 
 Mr. Gaevin. Yes, sir. There was always a settlement of it, though, 
 and they could point out features that I had not considered. They 
 could see things, perhaps, through different glasses than I saw them 
 through. 
 
 Senator Cullom. Your elevators are scattered all along these 
 roads ? 
 
 Mr. Garvin. Yes, sir. 
 
FOUKTEENTH DAY. 21 
 
 Senator Cilloji. How far apart ? 
 
 Mr. Gaevix. "Well, we have 57 in South Dakota and about 40 in 
 Minnesota and the balance throughout Iowa, at various stations 
 where the distances cover from 10 to 15 miles apart. 
 
 Senator Culloji. You get about the same rates from those ele- 
 vators ■ • 
 
 Mr. Gakvin. Yes, sir; practically the same proposition. 
 
 Senator CrLLOM (continuing). That they do from St. Paul? 
 
 Mr. Gaevix. Exactly. 
 
 Senator CrrxoM. How far from St. Paul are they ? 
 
 Mr. Gaevix. Our elevators? 
 
 Senator Cullom. Yes. 
 
 Mr. Gaevix. They are about the same distance from St. Paul that 
 they are from Winona ; ranging from 50 up to 400 miles. 
 
 Senator Cttllom. And they give you the St. Paul rate ? 
 
 Mr. Gaevix^ Yes ; they give us the St. Paul and Minneapolis rates. 
 Of course our own county — Winona County — ^is a barley county, 
 the largest barley county in Minnesota; indeed, it is the second 
 largest barley producing county in the United States. The other 
 large county is Scott County, in Iowa. So that our wheat there is 
 not enough, received at Winona, locally, to run our mill a week, and 
 necessarily we have to go out into the interior and ship grain in on 
 what is called a " milling in transit arrangement," which permits us 
 to ship wheat from the country to our mill and manufacture it into 
 flour and reship it on the basis of the through rate from the original 
 point of shipment. 
 
 Senator Cullom. Yoii are not complaining of anybodj' ? 
 
 Mr. Garvix. Only let us alone, and let the railway companies alone. 
 
 Senator Cullom. And let the Commission alone? 
 
 ilr. Garvix^. Yes : onh^ specify that they shall do their duty. 
 
 Senator Culloji. Well, you can legislate for them to do their duty. 
 
 Mr. Gartix. Let them live up to the Elkins measure. That is all 
 that is necessary. That pertains to injunctions. They do not have 
 much to do witih. injunctions.' 
 
 Senator Forakee. You mean thev can proceed under the Elkins 
 law? 
 
 Mr. Garvix. Yes, sir. 
 
 Senator Forakee. If they discover any violations? 
 
 Mr. Garvix. Yes, sir. 1 can vouch for what Senator Harris had 
 to sav there, with reference to the live-stock interest. Some years 
 ago I became interested in a cattle ranch in South Dakota. We have 
 4.200 acres and raise three or four thousand head a year, and feed 
 them. We are about an equal distance in the interior between the 
 Milwaukee and St. Paul and the Northwestern road, and they gave 
 us splendid rate facilities and quick service. Our cattle go from 
 there to Chicago pretty nearly as fast as the passenger trains go. 
 He said the trains he referred to went 7 or 8 miles an hour. Our 
 trains go at the rate of 30 miles an hour. 
 
 Senator Ctjllom. You have a sort of preference there ? 
 
 Mr. Gaevix. The whole territorj^ has the same thing. AA^e simply 
 ship them three or four cars at a time, and the train comes along and 
 takes them up at A'arious stations. 
 
 Senator CuLLoar. How does it happen that his trains were so badly 
 treated ? 
 
22 FOURTEENTH DAY. 
 
 Mr. Garvin. He must have shipped from the Southwest, as he said. 
 We are up in the same territory as the Great Northern and the 
 Northern Pacific. 
 
 Senator Foeaker. You are satisfied ? 
 
 Mr. Garvin. Yes, sir. 
 
 Senator Foeaker. Do you know whether the satisfaction that you 
 enjoy is shared by other shippers throughout your part of the 
 country ? 
 
 Mr. Garvin. I am quite sure that my competitors in the same line 
 of business would voice the same sentiments. 
 
 Senator Foraker. Have you competitors in the elevator business, 
 for instance ? 
 
 Mr. Garvin. Yes, sir. 
 
 Senator Foraker. In the same territory? 
 
 Mr. Garvin. Yes, sir. 
 
 Senator Foraker. Along the same road ? 
 
 Mr. Garvin. Yes, sir. 
 
 Senator Foeakee. That is quite a business out there, apparently ? 
 
 Mr. Gaevin. Yes, sir ; it is quite a business. 
 
 Senator Foeaker. You have over a hundred elevators? 
 
 Mr. Gaevin. Two hundred and twenty-seven. 
 
 Senator Foeakee. And they are on how many different roads ? 
 
 Mr. Gaevin. The Eock Island, the Illinois Central, the Milwaukee 
 and St. Paul, and the Northwestern. 
 
 Senator Foeaker. And the Burlington ? 
 
 Mr. Garvin. And the Burlington. 
 
 Senator Foraker. And they all treat you well ? 
 
 Mr. Gaevin. They all treat us well. 
 
 Senator Foeakee. And all your competitors in that particular 
 business are as well satisfied as you are ? 
 
 Mr. Gaevin. I think so. 
 
 Senator Foeakee. How about the general class of shippers — men 
 who ship outside of the elevator service? I suppose there are some 
 shippers that do not do business with the elevators. 
 
 Mr. Gaevin. That is one of the grievances that we occasionally 
 have against the railroad people. 
 
 Senator Foeakee. What is that ? 
 
 Mr. Gaeain. In this; that we will get our elevators filled with 
 grain and in the fall there is a scarcity of equipment, because of the 
 fact that out in that new country, like Minnesota and the Dakotas, 
 with the railroad companies it, is either a feast or a famine. They 
 are either doing no business at all, or, in the fall, they have more 
 business than they can handle. That necessarily makes equipment 
 scarce. We get our elevators full and the farmer can come along 
 and make requisition for a car and take grain from his farm and haul 
 it to the car and load it; and therefore he is given as much prefer- 
 ence in equipment as we are, with our elevators full. 
 
 Senator Foeakee. Well, now, you have suggested a very important 
 topic. Tell us what you can about the distribution of cars; whether 
 or not there is any complaint among shippers of an unfair distribu- 
 tion of the cars ? 
 
 Mr. Gaevin. Well, I think in the past year or two that matter 
 has been handled a little more judiciously, perhaps, on the part of the 
 railroad people, thaii heretofore. They have gotten up a system that 
 
FOURTEENTH DAY. 23 
 
 was inaugurated somewhat on suggestions from the railroad commis- 
 sioners of various States, whereby a shipper is required to call upon 
 the station agent and record his wants ; and he has received his cars 
 in proportion as he wants them. 
 
 Senator Foeakee. You think the cars are fairly distributed, do 
 you? 
 
 Mr. Gakvin. Yes, sir. 
 
 STATEMENT OF MR. CHARLES NEVITT. 
 
 The Chairman. State your name, place of residence, and occu- 
 pation. 
 
 Mr. Nbvitt. My name is Charles Nevitt; I live at Oshkosh, Wis. 
 I am treasurer of the Paine Lumber Company, a woodworking insti- 
 tution at Oshkosh. We have there three mills, a sash, door, and 
 blind factory, a sawmill and a veneer mill. We are jperhaps, although 
 somewhat larger than the other mills at Oshkosh, a type of the wood- 
 working industry there. The city of Oshkosh is likewise a type of 
 ' the western country town of 30,000, and the other cities in central and 
 middle Wisconsin, such as Sheboygan, Fond du Lac, Eau Claire, 
 Stephens Point, and the others. 
 
 We pay the railroads $400 or $500 a day freight. We employ 
 1,100 or 1,200 hands. In the busy season in the winter the employ- 
 ment runs up to perhaps 1,600 hands. We have no complaint to 
 make about our treatment by the railroads, but what we fear is that 
 the so-called commodity rate may become affected by the interference 
 of the Commissioners, and that would sap the vitality- of our section 
 of Wisconsin. 
 
 The commodity rate is the rate on logs to our mills from the timber 
 district. The northern portion of "Wisconsin and the northern penin- 
 sula of Michigan, Avhich is perhaps 70 per cent in area of that ter- 
 ritory, is' not thickly populated. It is a timber district. Seventy 
 per cent of the population is south of us. That timber district must 
 be cleared of its timber. You have heard it said before that the tim- 
 ber of northern Wisconsin and ^Michigan has been cut. That applies 
 only to the pine. The hemlock and the hard wood are still there. 
 They have got to be moved. They will be inoved to these towns that 
 1 speak of — Oshliosh and the other wood-working towns — on this 
 commodity rate. ^Ve heard from Professor Meyer that a rate of 
 $1.56 was made for the distance of, I believe he said, 150 miles. That 
 is the nearest approximation I could get to the rate I am going to 
 mention. The railroads haul our logs 150 miles on this commodity 
 rate for four-tenths of 1 cent. 
 
 Senator Fokakee. That is, for i mills ? 
 
 ]\Ir. Xevitt. For -1 mills ; yes, sir. 
 
 Senator Foe-ucer. As against fifteen mills and a half? 
 
 Mr. Xevitt. Four-tenths of 1 cent per mile. I believe the Profes- 
 sor's rate was $1.56 for the same distance. I take a rate as near that 
 as I could recall, Avhich is 3 cents for 150 miles ; that is, four-tenths 
 of 1 cent per ton per mile. 
 
 The Chaieman. That is the rate on logs, you say ? 
 
 Mr. Xevitt. Yes, sir. 
 
 Senator Foeaker. Let me understand that. That 4 mills is 
 against $1.56, or 15-J mills for the same distance? 
 
24 FOUETEENTH DAY. 
 
 Professor Meyer. It Avould be 1.056 of a cent, or 15.6 mills. 
 
 Senator Forakek. I say 15.6 mills, or 15^- in round numbers. For 
 what distance is that? 
 
 Professor Meyer. On grain and traffic of that kind; for all dis- 
 tances. They abolish the tapering rate. They were compelled to 
 abolish that in 1894. 
 
 Mr. Nevitt. May I ask the Professor what was the rate per ton 
 per mile which he mentioned this morning? 
 
 Professor Meyer. On what commodity? 
 
 Mr. Nevitt. On any commodity — the cheapest. 
 
 Professor Meyer. The very lowest rate i>er ton per mile in force 
 on the railways in Germany is -Si mills. But that goes in force only 
 for that part of the haul which is upward of 400 miles or so, and it 
 applies only to salts used in the manufacture of certain artificial 
 manures. That is the very lowest rate. You could not get an 
 average of anything like 3-i mills on a shiiDment of that kind. 
 
 Mr. Nevitt. That serves the purpose. We get from the railway, 
 upon request, this commodity rate, which is about the equivalent of 
 that mentioned by the Professor, four-tenths of a cent per ton per 
 mile, on the logs. Our compensation to them is not in the profit in 
 that haul, but it is in the manufactured product going out. 
 
 The Chairjmax . Their profit is upon the return freight — the manu- 
 factured product, or lumber ? 
 
 Mr. Nevitt. Yes, sir; there is an understanding that we will give 
 them a sufficient amount of the manufactured product out, and we ship 
 $1,500,000 to $2,000,000 a year of sash, doors, blinds, and lumber. 
 The railroad can afford to make this haul at the commodity rate only 
 upon the basis of that promise. 
 
 The Chairman. Are the rates satisfactory on your manufactured 
 product ? 
 
 Mr. Neiitt. , Yes, sir. 
 
 The Chairmax. Altogether satisfactory 
 
 Mr. Nevitt. "We have no complaint whatever. 
 
 The Chairman (continuing). To j^ou and to all other shippers in 
 the same business ? 
 
 Mr. Nevitt. It is true in all that vicinity, in that territory. 
 
 The Chairjlan. And among all the shippers you hear no com- 
 plaint? 
 
 Mr. Nemtt. We do not hear any complaint from the small mer- 
 chants on the street, for the verj' reason that they are interested in 
 the pay rolls which come in from our factories and the others into 
 their mills, which helps their business. To be sure, on perhaps some 
 small items the little merchant may feel that he is charged a higher 
 rate of freight than he should be, but he would rather have the money 
 to pay it, which he gets from the stimulus to business. 
 
 Senator Foeaker. Are you interested in any railroad ? 
 
 Mr. Nevitt. We have a short line of logging railroad. I thanl? the 
 Senator for the suggestion. The development of Wisconsin is just 
 in line of what y6u heard from the Professor this morning in regard 
 to the development of any wild territory. Originally the logs floated 
 down the river. When the timber was cut which is tributary to the 
 streams, the manufacturer and the railroad company were both face 
 to face with a want of product out. The railroad company then said 
 to the manufacturer : "We will bring your logs in at a low rate if you 
 
POXJETEENTH DAY. 25 
 
 will give us the product out." What is the result ? For six or sev^n 
 miles back from the main lines the timber has been cut. Then fol- 
 lows the plan of the cutting of the timber in the timber district. If 
 we have a tract of 50,000,000 feet of timber 20 miles back from the 
 railroad, it is inaccessible, and we say to the railroad : " Build a line 
 and make us a commodity rate to our mill." They are, of course, 
 thrifty, and they say : " If you will open up a tract of 200,000,000, we 
 will do it." We do so. We get the commodity rate. This commod- 
 ity rate is the basis of the life of the Wisconsin towns. If, however, 
 we had to deal with a commission, we are afraid that the commis- 
 sioner would not recognize the shipment out, and if we are deprived 
 of that commodity rate it means annihilation — nothing more, nothing 
 less. 
 
 Senator Clapp. Eight here I would like to ask whether the rate out 
 is any higher because of the low rate in — the commodity rate in ? 
 
 Mr. Xevitt. Xo, Senator ; but the business is given to the road 
 which brings the logs in. There are three railroads centering at 
 Oshkosh. The railroad which brings the logs in gets the shipment 
 out. There is no exorbitant charge for the freight out. We ship to 
 every State in the Union; we ship to England; we ship some logs 
 from Mississippi to Wisconsin. 
 
 , Senator Clapp. Is there more than one road that brings the com- 
 modity to you ? 
 
 Mr. Nevitt. Principally one road. 
 
 Senator Clapp. And you will expect to give your outgoing freight 
 to that road? 
 
 Mr. Nevitt. Yes, sir; and it has worked successfully since 1885. 
 Originally the railroads said, " We can not haul logs." I remember 
 the oiRcials said, " If you drop one of these heavy logs on one of our 
 flat cars it will go right through to the roadbed." I think the presi- 
 dent of our company, George M. Paine, taught the railroads how to 
 haul logs. He built 40 cars that would hold the logs. They demon- 
 strated, jointly, that it was a profitable enterprise, and since that time 
 the logs have been hauled by rail ; and we sold our cars back to the 
 railway company. 
 
 I apologize for taking up so much of the time of the committee, as 
 I see that time is precious here. I did not expect to take over ten 
 minutes. 
 
 The CiLiiEMAN. You have made a very clear statement. 
 
 Senator Fokaker. And we are very much obliged to you. 
 
 The Chairman. The committee is obliged to you. 
 
 STATEMENT OF ME. HUGO R. MEYER. 
 
 The CkAiEMAN. Professor Meyer, will you please state to the com- 
 mittee you name, residence, and occupation or profession ? 
 
 Mr. Meyer. My name is H. E. Meyer; assistant professor of po- 
 litical economy at the University of Chicago; my residence is Chi- 
 cago. 
 
 I beg leave to state that I come here in obedience to a summons from 
 the committee, issued by the chairman of the committee. 
 
 I should like to discuss the question of the public regulation of 
 railwav rates in the light of the experience of the United States and 
 
26 rOUETBENTH DAY. 
 
 of the different countries of Europe. I should like to begin by stat- 
 ing that you can have Government regulation of railway rates by 
 two means — either by assuming the railways themselves and letting 
 the Government operate them or by establishing a conmiission or 
 some kind of administrative body that shall regulate the. rates in 
 accordance with principles laid do\vn by the Legislature. 
 
 Senator Cullom. May I ask you a question before you go fur- 
 ther? 
 
 Mr. Meyi!e. Yes. 
 
 Senator Cullom. Are you familiar with the constitutional power 
 of our Government — just what we can do under our National Consti- 
 tution — or do you discuss this subject on general principles, without 
 reference particularly to the Constitution of this country? 
 
 Mr. Meyer. Not without reference to the Constitution of this coun- 
 try; but of course when I speak of the constitutional questions I 
 speak as a layman; I am not a lawyer by profession. 
 
 Senator Cullom. There are some things, you Iniow, we can do 
 under our Constitution and some things we can not. 
 
 Mr. Meter. I am aware of that, sir. 
 
 The experience of all countries that have had a generally effective 
 regulation of railway rates, whether such regulation was exercised 
 by commission or by means of state ownership itself, has been to 
 bring into politics the question of reasonable rates a-nd the great ques- 
 tion of conflict of sectional interests, which is an incident necessary 
 to the development of a country, and the ultimate result has been 
 that railway rates have become inelastic and finally havp ceased to 
 decline ; thej' have become stationary and have remained so. 
 
 The result of that has been to paralyze commerce to a very large 
 extent, the railways as effective agents for the development of com- 
 merce, and the resources of a country ; and unless there has been the 
 possibility of escape from that paralysis through a recourse to a 
 means of transportation that was abandoned in this country in the 
 seventies, nameh', by river and canal, the effect has been absolutely 
 disastrou?. 
 
 It will be said that we have had in this country regulations by 
 State commissions and by a Federal commission, but that we have 
 not experienced all the disastrous results which have just been alleged 
 to follow. The reason for that is twofold : 
 
 In the first place the activity of State railway commissions has 
 been extremely restricted by reason of the fact that, imder our Con- 
 stitution, the States may regulate only intrastate traffic; they may 
 not regulate interstate traffic. That intrastate traffic is compara- 
 tively small, it ih often said anywhere from 15 to -30 per cent of the 
 total amount. 
 
 Here one must point out that practically all of the State com- 
 missions that have been active in the matter of regulating railway 
 rates have regulated largely with an eye to establishing local pro- 
 tection. To-day you can establish protection by means of regulation 
 of railway rates in an astonishing degree of efficiency; and prac- 
 tically all of the State commissions that have been active in railway- 
 rate regulation have done that. 
 
 For example, the report of 1888 of the Iowa State railroad com- 
 mission announces with great satisfaction that the commission re- 
 
POUBTEENTH DAY. 27 
 
 cently had regulated the intrastate rates in Iowa in such a way that 
 the dairy farmers of southeastern Iowa, who, in the past, had pur- 
 chased hay and grain in Chicago, now were purchasing hay and grain 
 in the northwestern part of Iowa. In other words, this commission 
 said " The dairj^ farmers of southeastern Iowa used to pay tribute to 
 Chicago, but, thanks to our activity, they no longer do that." You 
 have a State commission using the words " paying tribute " in 
 denouncing interstate traffic. 
 
 The State commission of Texas refers to St. Louis, New Orleans, 
 and other places as foreign territory, and the State commission of 
 Texas repeatedly has served notice upon the interstate railways 
 engaged in the carriage of interstate traffic from the North into 
 Texas that if those railways shall carry traffic into Texas at such 
 low rates as to interfere with the paramount rights of the local 
 manufactures of Texas or of the local jobbing centers of Texas, then 
 the State commission T\ill get back at them, will punish them by 
 cutting into their interstate rate. They said : " If you bring foreign 
 commodities into this territory at such rates as to offend us, we shall 
 cut into that part of your revenue over which we have control." 
 
 The Interstate Commerce Commission itself has made decision after 
 decision which would have established local protection in this coun- 
 try, which would have broken this country up into local areas that 
 do not trade with each other and are mutually hostile and envious 
 of each other to a degree that would ha^^^e been fnlly equal to the 
 condition of disorder that existed in this country before the Union 
 was established, and when each of the several colonies was regulating 
 trade on the basis of protecting the trade and comnierce of that 
 colony against that of the neighboring colonies. 
 
 Bii't we have been protected from the disastrous consequences of 
 that kind of a policy by reason of the fact that the Interstate Com- 
 merce Commission has 'been overruled by the Supreme Court of the 
 United States not only on questions of law— of course, strictly speak- 
 ing, it could be only overruled on questions of law, I take it — ^but I 
 mean to say that the Supreme Court has expressed its most emphatic 
 disapproval of the questions of public policy underlying the decisions 
 of the Interstate Commerce Commission. 
 
 By your leave I shall show you how these questions of local con- 
 flict' have absolutelv paralvzed" the development of Germany under 
 the system of State ownership of railways there, paralyzed them m 
 such a way that the svstem of public regulation of railway rates by 
 State ownership would have broken down absolutely a long time 
 since had it not been possible to have recourse to an entirely anti- 
 quated means of transportation, on river and canal, with the result 
 that the modern industrial term, of which we hear so much and 
 which is impressed so much on the imagination of each one of us, 
 rests not upon the railways, but upon the rivers and the canals. 
 
 I should begin bv stating that the Prussian Government owns 
 about 70 per cent of the railways of Germany^ They are owned not 
 by the Empire, but by the Government of Prussia. The other 25 
 per cent are owned bv the several smaller States-Saxony. Wurttem- 
 bere Bavaria. Baden, and those States. Scarcely 5 per cent are 
 owned bv private companies. The Government took over the rail- 
 wavs in "1879 largelv for the purpose of regulating the question of 
 railway rates. It was decided that the only effective means of regu- 
 
28 FOUETEEKTH DAY. 
 
 lating them Avas hj having Government ownership and Government 
 management. 
 
 Senator Clapp. May I asls: whether you have made a personal ex- 
 amination of the conditions of Germany ; and, if so, how lately ? 
 
 Mr. Meyer. I am familiar with the" situation down to the present 
 day by means of the study of all of the official statistics published by 
 the several governments, and by means of a study of the parliamen- 
 tary debates, and by reading the reports of chambers of commerce 
 and matters of that kind. The work itself has been done here, but I 
 have used precisely the same material that I should have used had I 
 gone to Germany. 
 
 Senator Clapp. Your statement will not rest upon what you have 
 actually seen personally of the workings ? 
 
 Mr. Meyer. Xo, sir ; if you mean by " personally " that I have not 
 seen the trains moving in Germany; biit I have read the statements 
 made in Parliament by the persons whom I should have been obliged 
 to consult if I had wanted to make a personal investigation. 
 
 The dissatisfaction in Germany with railway rates was, in the 
 first place, dissatisfaction with the practice of charging what the 
 traffic will bear, local discriminations, and matters of that kind. In 
 order to do away with that dissatisfaction, the German Government 
 established so-called haulage charges and terminal charges. The 
 terminal charges are made for loading and unloading, but they do not 
 depend upon the distance over which the traffic is sent. The haul- 
 age charges are a certain sum per ton mile. For example, on what is 
 called Special Tariff III class, which embraces raw material largely, 
 the haulage charges are 0.9 cent per ton mile for distances up to 62.5 
 miles, and then for distances bej^ond fii^.5 miles at the rate of 0.76 cent. 
 That is, in order to find the total charge .you multiply 0.9 cent by 50 
 for the first 50 miles, and after that, for distances beyond 50 miles, 
 you multiply the distance by 0.76 cent. The great difficulty with a 
 thing of that kind is that if you make your haulage charge so low that 
 you can ship freight over distances of five or six hundred miles you 
 will lose money in carrying your freight over distances of one or two 
 hundred miles, and if you keep your rate so high that you can afford 
 to make money on short-distance transportation of 100 or 200 miles 
 you will find that you can not ship over a distance of five or six hun- 
 dred miles for the simple reason that the aggregate cost of the freight 
 tariff becomes prohibitive. 
 
 It was soon found, therefore, that those rates should be modified, 
 and it was desired to modify them by introducing so-called " tapering 
 rate systems " — that is, charging at a certain rate per ton mile, say 1 
 cent for the first 50 miles; at a rate, say, of three- fourths of a cent 
 for the second 50 miles ; then one-half a cent for the third 50 miles, 
 a quarter of a cent for the next 50, and so on. The tapering rate 
 system to a considerable extent has been introduced, but not to any- 
 thing like a sufficient extent to permit of the free movement of freight 
 over long distances. The reason for that is that whenever you lower 
 railway rates and bring into the market a distant consumer, who in 
 the past has been excluded, you expose to additional competition the 
 persons who in the past had a monopoly of the market, and those 
 persons always object to that kind of increased competition, and they 
 bring pressure to bear upon the Government, with the result that 
 
FOUKTBENTH DAY. 29 
 
 the Government ultimately is obliged to keep the distant producer 
 out of the market. 
 
 That is shown in a striking manner in the experience of Germany 
 in the grain traffic, in the timber traffic, and in the iron-ore traffic, 
 as well as in the beet-sugar traffic — that is, in the traffic relating to 
 the four industries that are at the foundation of the industrial system 
 of Gerniany to-day. 
 
 I exhibit to the committee a map of Germany, these big lines indi- 
 cating the courses of the rivers. That is the Ehine, that is the 
 AVeser, that is the Elbe, and this is the Oder, and the width of the 
 lines indicates the relative amount of river traffic upon the different 
 sets of rivers. The region of surplus grain producing lies to the 
 east of the Oder. This territory produces some 500,000 tons of grain 
 a year in excess of the amount that the people consume, and it is 
 necessary to find a market for this surplus grain. 
 
 Here in western Germany you have one of the great industrial 
 centers, the iron and steel industry, and many similar industries. 
 The Krupp Steel and Iron Works, employing 44,000 people, are 
 located at this point, and near the so-called " Ruhr district." This 
 region imports some 1,200,000 tons of grain a year from the United 
 States, from Argentina, from Roumania, and from Russia, the region 
 itself not producing the grain that the people consume. 
 
 In 1879, -nhen the Government took over the railway rates, it estab- 
 lished a haulage charge upon grain which was 1.56 cents per ton 
 mile. That charge did not taper at all, Avith the result that it was 
 impossible for grain to go by railway from eastern Germany into 
 western Germany, and so the grain had recourse to the rivers and 
 canals and moyed out by Avay of the Oder to Stettin, where it was 
 transferred to ocean-going vessels and carried down to Rotterdam, 
 where it was transferred to river vessels and then carried up the 
 Rhine, and then transferred to railway and carried inland to the 
 points of consumption, some 25 or 30 miles. Of course the cost of all 
 these transfers was very heavy, and with the increase of competition 
 from the United States and Argentine and the consequent decline in 
 the price of grain, it became more and more difficult to sell this grain 
 from eastern Germany into western Germany by means of that round- 
 about means of transportation. 
 
 So that in 1888 the great land holders of this district to the east of 
 the Oder petitioned the Government to reduce the haulage charge on 
 grain from 1.56 cents per ton mile to 0.53 cent, virtually asking a 
 reduction of 66 per cent, and stating that if the haulage charge should 
 be reduced to that extent grain could move by rail from eastern Ger- 
 many to the manufacturing regicms of the Rhine. The Government 
 denied that request on the ground that it would be an inequitable 
 departure from its hard and fast scheme of railway rates, and that it 
 would expose the farmers of southern and western Germany, who 
 supplied a part of the demands of the Rhine region—it would expose 
 those farmers to an additional source of competition. They were 
 already exposed to competition from the United States and from 
 South America and Russia, and the Government thought they would 
 be further exposed to competition from eastern Germany, their land 
 values would be depressed, and it would be inequitable to depress the 
 land values in western and southern Germany for the purpose of 
 raising the land values of eastern Germany, for of course if you 
 
30 FOURTEENTH DAY. 
 
 should give the eastern grain a better access to markets of westeirn 
 Europe, the grain would rise in value and that would cause an 
 increase in the value of lands. 
 
 In 1891 there were very serious crop failures, and as a result the 
 price of grain rose in these manufacturing regions to such a point as 
 to subject the laboring population, the manufacturing population, to 
 serious hardships; and under those circumstances the Government 
 made a reduction in rates, a temporary reduction which should allow 
 the grain of eastern Germany to move into the regions of western 
 Germany, and they established this rate : They retained the haulage 
 charge for distances up to 125 miles at 1.56 cents; for distances 
 between 126 and 187 miles they charged 1.04; and for that part of 
 the haul which exceeded 188 miles they charged 0.7 cent. That was 
 some relief. It was not very much. But the proportion borne by 
 the grain traffic that moved over 125 miks to the total grain traffic 
 increased in the first year by 10 per cent, in the second year by 13 per 
 cent, and in the third year by 20 per cent. If there had been a more 
 effective reduction the increase would have been very much greater. 
 But immediately the farmers of southern Germany and of western 
 Germany protested that they were being deprived of the advantages 
 accruing to them by virtue of their geographical position, and the 
 farmers of Saxony, between the Ehine and eastern Germany, made 
 the same complaint. They asked the Prussian Government to abolish 
 those rates, pointing out that the Government had introduced them as 
 a temporary arrangement. But the Government was so pleased with 
 the increase of traffic resulting that it tried to keep the rates. 
 
 In 1894 the Prussian Government, which manages the affairs of 
 the Empire, was interested in getting the Eeichstag«to pass a bill 
 authorizing the Imperial Govei'nment to make a commercial treaty 
 with Eussia which should admit the manufactured commodities of 
 Germany into Eussia on more advantageous terms, a matter of 
 transcendent importance, because the total increase of population 
 of Germany that has already taken place since 1882 lives in the manu- 
 facturing and mining regions and depends for its living upon manu- 
 facturing and mining business, and largely, almost entirely, upon 
 manufacturing and mining business carried on for export. The 
 Avhole increase of population since 1892 practically lives by the 
 export trade. It therefore was a matter of great moment that the 
 Government of Prussia should try to make this commercial treaty 
 with Eussia, which should increase the export trade of Germany. 
 The representatives of Saxony, Wurttemberg, Bavaria, and Baden 
 held the balance of power in the Eeichstag, and they said, " Our 
 constituents will not permit us to vote for j^our bill authorizing a 
 commercial ti-eaty with Eussia so long as those railway rates that 
 are offensive to them shall remain in force." In the upper house, 
 the Bundesrath, j^ou haA'e this situation: The members of the upper 
 house are appointed by the governments themselves; they are the 
 instructed delegates of the governments. And the kingdoms of 
 Saxony, AVurttemberg, Bavaria, Baden, and Hesse instructed their 
 delegates, who constituted a majority in the Bundesrath and had the 
 balance of power, that they must not vote for that bill as long as those 
 rates should remain in force. I believe it was the 23d of April — I 
 am not sure of the exact date, speaking from raemory-^-but on- a 
 certain date in April the Prussian Government issued an order 
 
' FOURTEENTH DAT. 31 
 
 revoking its reduction of rates that had been made in 1891 and put 
 the rate on grain back where it had been ever since 1S79, and on the 
 following day the Reichstag passed a bill authorizing a commercial 
 treaty with Russia. 
 
 In all the German publications and in the journals of political 
 economy and, in general, this fact is always spoken of very freely. 
 It is an accepted fact, and everybody speaks of it as a natural thing. 
 
 Since then grain can not move by rail farther than 125 miles. The 
 people of eastern Germany raise some 400,000 to 500,000 tons more of 
 grain than they consume, and the question arose what should be done 
 with that grain. The Government said, " We are not allowed to 
 enable you to sell it in the Rhine territory. The alternative is we 
 must give you a bounty, so that you can sell it in England." The 
 customs duty on grain is $8.75; therefore, these people are given a 
 bounty of $8.75 a ton. So that now you have eastern Germany 
 exporting some 400,000 to 500,000 tons of grain per yeai, under a 
 bounty of $8.75 a ton, and eastern Germany sells that grain in Eng- 
 land mainly, and western Germany imports 1,200,000 tons of grain 
 a year over a customs barrier of $8.75. 
 
 Senator Foeaker. The tariff duty on a ton is $8.75, the same as the 
 bounty ? 
 
 Mr. Meyer. Yes. 
 
 Senator Foeaker. One is to send it out and the other to bring it in ? 
 
 Mr. Meter. Yes. That is done in order that the man who exports 
 may be able to get as good a price as the domestic producer who sells 
 in the domestic market. 
 
 Senator Foraker. That makes them all happy, I suppose ? 
 
 Mr. Meyer. That makes them all happy ; yes. 
 
 In 1894, Von Miquel, who was the minister of finance of Germany 
 from 1890 to 1901, and is admitted to be the ablest financier thiit has 
 ever been minister of finance in Prussia, and has often been snid to 
 be, since the time of Prince Bismarck, the most astute statesman in 
 Germany, said : 
 
 This opposition of the agricultural interests of the west to tapering rates is 
 but one of many illustrations of the unexpressed desire of the various sections 
 of the Empire to reestablish sectional protection by means of the regulation of 
 railway rates. If that desire is allowed to realize itself, we shall return to the 
 conditions of 1820 — 
 
 When every little State of Germany imposed a customs barrier 
 against every other one; in fact, when they had in Germany pre- 
 cisely the condition we had in our own colonial period, and to escape 
 from which largely we adopted the Constitution and formed a tTnion. 
 He went on to say : 
 
 A unified state can not undertake to balance the interests of one section as 
 against those of another. The I'russian railways were consolidated under the 
 State in order that they might promote trade throughout the length and breadth 
 of the land. If their efforts to develop trade and industry are to be defeated 
 by local jealousies German industry will be distanced in the competition for 
 the world's markets. 
 
 Now, let US take the next great industry, the beet-sugar industry. 
 
 The beet sugar is the most important single article of export of 
 Germany to-day. That beet-sugar industry originated along the 
 Elbe. The people along the Elbe were the pioneers in the industry, 
 and after they had developed the industry some people said, " Why 
 
32 FOURTEENTH DAY. 
 
 there is a great deal more of relativelj' cheap land and relatively 
 cheap labor over in eastern (jermany. Let us go out there and raise 
 sugar beets." They came here, and they began to raise sugar beets. 
 Then they found that the railway charge on beet sugar was so high 
 as to exclude, for all practical jDurposes, the use of the railway for the 
 purpose of carrying the sugar to market. The haulage charge is the 
 same as that on grain — 1..56 cents. They had to have recourse to the 
 Oder River to reach Hamburg either by way of Stettin, the Baltic 
 and North Sea, or by way of the canal through the Elbe to Hamburg. 
 It takes six weeks to make that trip by way of the Oder and Elbe to 
 Hamburg, and that makes it impossible for a man to avail himself of 
 the fluctuations in the market and sell sugar in the Hamburg market 
 on twelve days' delivery. 
 
 If you are located along the Elbe you can always reach Hamburg 
 by river in not to exceed ten days, so that the sugar producer can take 
 advantage of the fluctuations of the market and sell his sugar on 
 twelve days' delivery. The Silesian sugar producer can not do that; 
 thus he is handicapped and his sugar does not bring the price it would 
 if it could be put into Hamburg inside of twelve days. Then the 
 Silesian sugar always sells at a lower price because the grower of it 
 is uncertain as to the time of delivery. The water may run low, the 
 navigation may be interrupted for some time, or in the winter the 
 river may freeze earlier and navigation be interrupted. Therefore 
 the Silesian sugar producer asks the Government for tapering rates 
 which should alloAV the sugar to move by rail. 
 
 Immediately the sugar producers akng the Elbe said, " Sixty per 
 cent of the beet-sugar production is to be extinguished. We were 
 first in the business, and. besides, we are nearest to the exporting 
 point, Hamburg, and we have a natural right to the monopoly that 
 we acquired by virtue of the fact that we were first in the business, 
 and a natural right to the monopoly that we enjoyed for a long time 
 by virtue of the fact that we were nearest to the exporting point, and 
 the Government has no right to deprive us of that monopoly." 
 
 That was precisely the position taken, as I shall point out later, 
 by the New York Cliamber of Commerce in the seventies, when the 
 wheat from Kansas and Nebraska began to come into the eastern 
 markets. The conflict of interest spread farther. The man who 
 navigated the rivers and the canals said, " If you take this traffic 
 off of the rivers and canals and put it on the railways, you deprive us 
 of the means of making a living, a means which we have enjoyed for 
 a long time, and to which we have acquired a vested right." x\.nd, 
 incidentally, it may be pointed out that in a number or places, by 
 obiter dictum, the Interstate Commerce Conmiission has said that 
 the railways of the country have no right to make railway rates so 
 low as to drive the vessels off the rivers. 
 
 There was a still further conflict of interest. So long as the sugar 
 goes to market by way of the rivers Magdeburg will be the great col- 
 lecting market for sugar, just as Duluth is a great collecting market 
 for grain, and Chicago also. 
 
 If, however, the traffic should be transferred to the railways there 
 would no longer be any reason why Magdeburg should be such a col- 
 lecting center. There would be places better adapted to that kind 
 of business if the business went from the rivers to the railroads. 
 
FOUETEENTH DAY. 33 
 
 Therefore the Magdeburg commission merchants said, " You have 
 no right to take this traffic off the waterways and put it on the rail- 
 ways and deprive us of a means of livelihood in which we have ac- 
 quired a vested right." 
 
 This conflict of interest became such that the Government finally 
 had to say, " If you, the different i)arties to this controversy, will 
 agree on sets of rates, we shall be willing to execute them." That was 
 some five or six years ago, and that had been in the early nineties. 
 But the parties never were able to agree. 
 
 Now, the situation was becoming more and more serious. It was 
 absolutely necessary that transportation charges should be reduced. 
 The price of beet sugar has fallen enormously. In 1880 it was $165 
 a ton; in 1899 it was only $55 a ton. In those twenty years between 
 1880 and 1899 the price of beet sugar dropped 66 per cent, and the 
 railway-rate charge remained stationary at the figure imposed in 
 1879—1.56 cents. The situation became so serious that in 1896 the 
 Government doubled the export bounty, and for the purpose of 
 doubling that export bounty the Government raised the tax on sugar 
 from 1.95 cents per pound to 2.16 cents per pound. In other words, 
 here you find a Government regulation of railway rates, rather than 
 giving relief by lowering transportation charges, doubles the export 
 bounty and increases the tax on the consumption of sugar. 
 
 The only reason why the whole business has not collapsed under 
 the fall of prices of sugar has been that the railways to-day, gentle- 
 men, have practically no part in the transportation of beet sugar. 
 Sugar uses the railway more for the purpose of reaching a river or 
 canal. And in a recent year, 1900, the figures obtained to-day show 
 the total traffic carried upon the railways. The sugar traffic was 
 38,000,000 ton-miles; the sugar traffic carried upon waterways was 
 144,000,000 ton-miles. That means, gentlemen, that a region that 
 lies high and dry between two rivers and is served only by railway, 
 upon which rates are regulated by the Government, can not enter into 
 the sugar-producing figures. The sugar producing of Germany is 
 limited to locations lying along rivers and canals. 
 
 That same conflict of interest is also in the third great industry of 
 Germany — the timber-producing industry. 
 
 You have in the territory lying east of the Oder what, to the Euro- 
 pean mind, would appear to be large timber resources. That region 
 produces vastly more timber than it can itself consume. On the other 
 hand, the Rhine region, where you have the great mines, demands 
 more timber than it can produce. The regions of southern and west- 
 ern Germany sell their surplus timber into the Ehine region, but 
 they can not supply the total demand of the Rhine region. Eastern 
 Germany is not allowed to -sell its surplus timber into the Ehine 
 region. The result is that Germany has increasing recourse to the 
 timber of Sweden and Norway, which can come in by reason of the 
 fact that it moves entirely by water, a means of transportation which 
 the Government absolutely refuses to regulate. 
 
 In the year 1901 the minister of public works stated in Parliament : 
 
 If to-morrow we could make rates which should allow of a reasonably free 
 movement of timber from eastern Germany into the manufacturing and mining 
 region of western Germany, the value of every bit of timber within twenty-four 
 hours would increase by 25 per cent. 
 
 14 D— 05 M 3 
 
34 FOURTEENTH DAY. 
 
 It will give you some idea of the way in which the Government in 
 regulating railway rates there is destroying values. 
 
 Furthermore, if rates could be made there on the basis of what the 
 traffic would bear you could move out into eastern Germany in the 
 enormous sawmilling establishments, which would carry with them 
 a population and which would be the first step toward the develop- 
 ment of a manufacturing business in eastern Germany. 
 
 The transition in our West from a purely agricultural community 
 to a manufacturing community was made precisely in that way. The 
 first steps were taken by the construction of manufacturing indus- 
 tries that manufactured the raw materials, the timber, the grain, and 
 the cattle into manufactured products; the sawmill that made the 
 lumber, the flour mill that turned grain into flour, and the pork and 
 meat packing industries that converted hogs and cattle into finished 
 pork products and dressed meats. That established a population, a 
 consuming population, in our agricultural West, and that enabled 
 our agricultural farmer of the West to go over from one-crop farm- 
 ing to diversified farming; it gave him a market for his varied 
 products and the vegetables he chose to raise, and in that way it 
 greatly promoted his prosperity and his well-being. You can not 
 promote the prosperity and well-being of the farmers of eastern Ger- 
 many in that way. Those who control the flour-milling industries 
 of western and central Germany would protest that the Government 
 has no right to deprive them to any degree of their vested right to a 
 practical monopoly of the flour-milling business. 
 
 You have the same argument applied by the men who own the lum- 
 ber mills, the sawmills of eastern and central Germany, by their pro- 
 tests after the partial establishment of such mills in eastern Germany. 
 
 Before going further it is desirable to point out that there were 
 great 'forces in this country working for years, and there are still 
 great forces in this country working to the establishment of that con- 
 dition in the United States. When in the seventies the grain raised 
 west of the Mississippi River began to pour into the Atlantic seaboard 
 and to compete in the Atlantic seaboard territory with the grain 
 raised on the farms of New York, Pennsylvania, and Ohio, land for 
 the purposes of wheat raising dropped headlong, and the farmers of 
 New York and Ohio and Pennsylvania demanded over and over 
 again that Congress regulate the rates upon the wheat on a pro-rata 
 basis. They said : " We want these rates regulated in such a way 
 that if it shall cost, say, 10 cents to carry wheat from a point 300 
 miles from the Atlantic seaboard, somewhere in Pennsylvania or 
 Ohio, let us say, then it shall cost four times as much, or 40 cents a 
 hundred, to carry wheat from a point 1,200 rniles west of the seaboard, 
 say from Kansas, to the Atlantic seaboard." It was the farmers of 
 Ohio, New York, and Pennsylvania who petitioned Congress for the 
 regulation of railway rates on the basis that the man who is nearest 
 ' to the market is entitled to the advantages accruing to him by virtue 
 of his geographical position; that the man who in the past has ac- 
 quired a vested interest and a monopoly in the production of grain 
 has a right to continue in that monopoly, and that we may not use our 
 railroads for the purpose of bringing the lands west of the Mississippi 
 within the belt upon which we can raise grain. 
 
 In the year 1900, according to the United States census, the total 
 value of farm lands and farm buildings in New York, Ohio, and 
 
FOURTEENTH DAY. 35 
 
 Pennsylvania was $2,823,000,000; whereas it had been twenty years 
 before $3,159,000,000— that is, you have a decrease of $336,000,000, or, 
 10 per cent. 
 
 If it were possible to distinguish between the value of farm lands 
 and the value of the buildings thereon, that increase would appear to 
 be vastly greater. There has been spent millions upon millions of 
 dollars upon buildings upon the farm lands for dairy purposes, for 
 vegetable purposes, and so on. Yet in spite of that investment, run- 
 ning into the tens of millions of dollars, the farming lands and build- 
 ings of those three States to-day are not worth within 11 per cent of 
 what they were in 1880. In spite of the advantages of the great in- 
 crease of population of these States farming land is not anywhere 
 near so valuable as it was in 1880. 
 
 That illustrates what the late Mr. David A. Wells calls the " grow- 
 ing pains of progress," and it brings you, gentlemen, to the heart of 
 the railway problem, which is nothing more and nothing less than 
 the continual protest of established interests against any impairment 
 or destruction of values incidental to the building up of new ways or 
 incidental to the bringing into the existing market new feeders. 
 
 Let us look at what might have happened if we had heeded the 
 protests of the farmers of New York and Ohio and Pennsylvania 
 and acted upon the doctrine which the Interstate Commerce Com- 
 mission has enunciated time and again, that no man may be deprived 
 of the advantages accruing to him bj' virtue of his geographical 
 position. We could not have west of the Mississippi Eiver a popula- 
 tion of millions df people who are prosperous and are great con- 
 sumers. AVe never should have seen the years when we built 10,000 
 and 12,000 miles of railway, for there would have been no faimers 
 west of the Mississippi Kiver who could have used the land that 
 would have been opened up by the building of those railways. And 
 if we had not seen the years when we could build 10,000 and 12,000 
 miles of railway a year, we should not have to-day east of the 
 Mississippi River a steel and iron producing center which is at once 
 the marvel and the despair of Europe, because we could not have built 
 up that steel and 'iron industry if there had been no riiarket for its 
 products. 
 
 We could not have in New England" a great boot and shoe industry ; 
 we could not have in New England a great cotton-milling industry : 
 we could not have spread throughout New York and Pennsylvania 
 and Ohio manufacturing industries of the most diyersified kinds, 
 because those industries would have no market among the farmers 
 west of the Mississippi Eiver. 
 
 And while the progress of this country, while the development of 
 the agricultural West of this country, did mean the impairment of 
 the agricultural values east of the Mississippi River that ran up into 
 hundreds of millions of dollars, it meant incidentally the building up 
 of great manufacturing industries that added to the value of this land 
 by thousands 6i millions of dollars. And, 'gentlemen, those things 
 were not foreseen in the seventies. The statesmen and the public men 
 of this country did not see what part the agricultural development 
 of the West was going to play in the industrial development of the 
 East. And you may read the decisions of the Interstate Commerce 
 Commission from the first decision to the last decision, and what is 
 
36 FOURTEENTH DAY. 
 
 one of the greatest characteristics of those decisions ? The continued 
 inability to see a question in this large way. 
 
 The Interstate Commerce Commission liever can see anything more 
 than that the farm land of some farmer is decreasing in value, or that 
 some man who has a flour mill with a production of 50 barrels a 'day is 
 being crowded out. It never can see that the destruction or impair- 
 ment of farm values in this place means the building up of farm 
 values in that place, and that that shifting of values is a necessary 
 incident to the industrial and manufacturing development of this 
 country. And if we shall give to the Interstate Commerce Commis- 
 sion power to regulate railway rates, we shall no longer have our 
 rates regulated on the statesmanlike basis on which they have been 
 regulated in the past by the railway men, who really have been 
 great statesmen, who really have been great builders of empires, 
 Avho have had an imagination that rivals the imagination of the great- 
 est poets and of the greatest inventors, and who have operated with a 
 courage and daring that rivals the courage and daring of the greatest 
 military generals. But we shall have our rates regulated by a body of 
 civil servants, bureaucrats, whose besetting sin the world over is that 
 they never can grasp a situation in a large way and Avith the grasp of 
 the statesman; that they never can see the fact that they are con- 
 fronted with a small evil ; that that evil is relatively small, and that 
 it can not be corrected except by the creation of evils and abuses which 
 are infinitely greater than the one that is to be corrected. 
 
 Now let us look at some of the decisions actually made by the Inter- 
 state Commerce Commission when these questions have come up. 
 
 In 1895 there was brought before the Interstate Commerce Com- 
 mission, by the Milk Producers' Protective Association, a suit against 
 the Delaware, Lackawanna and Western Railroad, reported in vol- 
 ume 7 of the Interstate Commerce Commission's reports. Since 
 the fifties the railwaj's leading into New York had made group rates 
 on milk, one rate over a lax'ge area,' irrespective of whether you were 
 10 miles or a hundred miles from New York. The essence of that 
 practice is this — that it is an extremely costly thing to carry milk 
 in refrigerator cars at express-train speed, and you can not go into 
 the business unless you can have a business of a certain minimum 
 volume, and you can not have that business of that minimum volume 
 unless you can offer the distant man an inducement to go into the 
 business of raising milk — making milk — for the New York market; 
 unless you can induce him to give up wheat raising or corn raising, 
 or something, in order to go into the dairy business. Now, you begin 
 with a graded rate of charging a man near New York 10 cents, and 
 then go up to 15 and 20 and 30, and by the time you get out here 
 200 or 300 miles your charge is so high that the price of milk on the 
 farm will be so low that it will not be worth a man's while to go into 
 the milk-raising business. 'On the other hand, if you begin up here 
 300 miles from New York, with a charge that shall be such as to leave 
 the price of milli on the dairy farm such as to make it advantageous 
 for a man to go into the milk business, and then reduce your charge 
 until you get to New York, by the time you are still a hundred 
 miles or more from New York you have reached a charge which is 
 absolutely unprofitable, and a losing charge. The only basis, then, 
 upon which you can establish this kind of a service is by making a 
 uniform charge, burdening, if you will, the near-by producer with a 
 
POUETEENTH DAY. , 37 
 
 part of the cost for doing the service for the distant producer. I 
 have no desire to blinlf the fact. 
 
 That practice the railroads had made ever since 1856 ; and in 1895 
 they had extended the practice so that there was a group rate all 
 the way out to Buffalo — 340 miles, I believe. The charge was 32 
 cents per hundred pounds on milk. 
 
 The Milk Producers' Protective Association, who were 600 men 
 who produced milk in the neighborhood of Xew York, brought the 
 complaint that this adjustment of rates deprived them of the advan- 
 tage accruing to them by virtue of their geogra,phical position, and 
 that the rates to the near-by producer were relatively unreasonable 
 as compared with the rates charged to the distant producer ; and the 
 Interstate Commerce Commission ordered the breaking up of these 
 rates. In the course of the decision (of course as an obiter dictum, but 
 showing very clearly the Avay in which the mind of the Interstate 
 Commerce Commission works) , the Commission said : " It is prob- 
 able that the area has not been so large as to bring in so many milk 
 producers as to make the price of milk unduly low." 
 
 The Interstate Commerce Commission here suggested that if the 
 railroads should do what one of the witnesses for the railway said 
 might easily be done and was being contemplated — namely, make a 
 group rate of a thousand miles — then so many men would go into 
 the milk-producing business that the price of milk would become 
 unduly low, and the Commission would condemn the practice. In 
 other words, the Commission intimated that occasion might arise 
 when it should say what should be the price of milk. 
 
 Then, for the purpose of adjusting these rates, the Interstate Com- 
 merce Commission said : 
 
 If, in consequence of the growth of population of New Yoj'li, tlie demand of 
 New Yorli for niilli shall increase by a million gallons, the farmers who are 
 within 40 miles of New York must be allowecl to supply their share of that 
 increased demand of 1,000,000 gallons before the railways shall be allowed to 
 bring in the farmer who is 50 miles from New York. 
 
 Now, is there any way whatever by means of which you can answer 
 a question of that kind ? What is the right, the share of the farmer 
 within 40 miles, of the increased demand for milk of New York ? In 
 the middle ages they used to dispute how many angels could dance 
 simultaneously on the point of a needle. Those disputes were no more 
 idle than was this question. And as incidental to this question, it is 
 interesting to point out that one reason Avhy these farmers within 40 
 miles of New York were not selling more milk into New York was 
 that they persisted in feeding brewery swill to their cows; and the 
 question now arises, How much milk from cows fed on brewery swill 
 must the people of New York consume before the railways shall be 
 allowed to bring in milk from farmers 50 miles from New York who 
 feed hay and grain to their cows? That question must have been 
 answered bv tlie Interstate Commerce Commission to its own satis- 
 faction before it made this regulation, which said that the farmer up 
 to 40 miles from New York may not be charged more than 23 cpnts 
 per 100 pounds; that the farmers who are within 41 miles and 100 
 miles may not be charged more than 26 cents ; that the farmers who 
 are within 100 and 190 miles may not be charged more than 29 cents, 
 and that the farmers Avho are beyond 191 miles may not be charged 
 more than 32 cents. 
 
38 POUKTEBNTH DAY. 
 
 This decision, gentlemen, illustrates the operations of the mind of 
 the Interstate Commerce Commission. Those were all guesses. 
 There is no man in the world, and no body of men in the world, that 
 could prove that at a rate of 23 cents for the farmer within 40 miles, 
 rather than a rate of 19 cents or 25 cents, that farmer who is within 40 
 miles will supply his due share of the increased demand of New York 
 for milk. It was a pure guess. 
 
 Mr. Walker D. Hines, in the Forum for March, 1902, pointed out 
 that one of the presidents of one of the railways concerned in this- 
 decision kept an eye' on the matter, and found that the price of milk 
 to the producer did not increase anywhere. These men whose charges 
 were reduced from 32 cents to 23 cents did not get a cent more for 
 their milk; it simply went into the pockets of the middleman — the 
 man for whom, in this particular case, the Interstate Commerce Com- 
 mission had no love whate\rer ; and it reduced the revenue of this rail- 
 way compan}'' by $32,000 a year. 
 
 Here'j'ou have a gratuitous cutting into the revenues of the rail- 
 road. I have no hesitation whatever m saying that in the early days, 
 when the practice of group rates was being established in a tentative 
 way, when the railwaj^s were feeling their way as to whether it could 
 be done, when nobody knew whether it was going to be profitable or 
 not, if at that time we had had an Interstate Commerce Commission 
 that had stepped in and had slashed into the revenues resulting from 
 that practice, it is more than likely that the group-rate practice would 
 have been abandoned and never have been developed; and then we 
 should have in the United States the situation that they have in Ger- 
 many. 
 
 Berlin is a city of upward of a million and a half people, and one 
 single dairy firm is stabling to-day within the very city limits of 
 Berlin 14,000 cows^^ and there are hundreds of other dairy firms 
 stabling within the limits of Berlin considerable numbers of cows. 
 Nobody is being " deprived of the advantages accruing to him by vir- 
 tue of his geographical position." The health of hundreds of thou- 
 sands of people is endangered by the presence of these cows. The 
 price of milk is kept at a materially higher price than it would be if 
 they had refrigerator cars and the group-rate practice and you could 
 bring milk into Berlin from farms hundreds of miles away. The 
 consumers of Berlin would be infinitely better off. The farmers who 
 are hundreds of miles from Berlin would be able to put their land to 
 better uses than it can now be put to. And here was a great practice, 
 a beneficent practice, into which the Interstate Commerce Commission 
 cut and which the Interstate Commerce Commission condemned, on 
 the strength of what? On the strength of the doctrine that no man 
 may be deprived of the advantages accruing to him by virtue of his 
 geographical position. 
 
 Gentlemen, I have some knowledge and familiarity with history, 
 but I do not know anywhere a more autocratic use of power, a more 
 willful and wanton use of power, than you find in this decision ; and 
 that decision was not an exception. 
 
 Senator Newlands. Did that decision go to the Supreme Court I 
 
 Mr. Met'Er. No, sir ; no, sir. 
 
 Senator Newlands. It was acquiesced in by the railroads ? 
 
 Mr. Meyer. It was acquiesced in. 
 
FOUBTEENTH DAY. 39 
 
 Take the case, in 1897, of W. K. Eay v. Mobile and Ohio Railroad, 
 volume 7 of the Interstate Commerce Commission's reports. In the 
 nineties the Mobile and Ohio Railroad, running from East St. Louis 
 to Alabama, found that it had immediately north of Alabama a large 
 tract, a large area of land, 400 miles in extent, that was being put to 
 uses \\-hich supported upon that land a comparatively small population 
 only. It decided to put upon that land a market-gardening popula- 
 tion, and for that purpose doubtless it did as all of our American rail- 
 ways do — it went into the North and drummed up immigrants who 
 should go down there and raise vegetables; and I should not be at 
 all surprised to learn that it had gone away over to Italy to get men 
 to come over and raise vegetables there. 
 
 The rate on vegetables as you went out from East St. Louis toward 
 Mobile, at Columbia, which was 175 miles away, was 30 cents; at 
 Humboldt, which was 241 miles away, it was 52 cents ; at Verona it 
 became 70 cents ; but Verona was still 272 miles from Mobile. Now, 
 you could not raise the rate beyond Verona. A man can not pay 
 more than 70 cents a hundred on vegetables, because if he did he 
 could not compete "with vegetables that were being brought up from 
 Xew Orleans by way of the Illinois Central into St. Louis and into 
 the northern markets. Competition between the markets, then, fixed 
 the limit for vegetables at 70 cents a hundred at a point which still 
 was 272 miles from Mobile. This left you an area of 272 miles upon 
 which you could establish people in the vegetable and market- 
 gardening business. 
 
 The railroads had built up a very considerable business, when one 
 W. R. Ray, who was a market gardener at Verona, the point where 
 this blanket rate of 272 miles began, appeared before the Interstate 
 Commerce Commission and said : " MTien the railroads carry vege- 
 tables from a point 272 miles farther from the_ market than I am at 
 the same rate that they charge me, they are depriving me of the ad- 
 vantages accruing to me by virtue of niy geographical position." 
 And the Interstate Commerce Comumission said : " Yes ; you are right. 
 The facts in this case are not sufficient to allow us to indicate spe- 
 cifically what we think would be proper rates, but we find that your 
 rates from' Verona down are relatively unreasonable as compared 
 with that blanket rate." In other words, the Commission said to the 
 railways : " If you want to put in this blanket rate, and if you want 
 to bring that great stretch of land of 272 miles within the possibility 
 of cultivation by vegetable market gardening, you have got to cut 
 down proportionately upon all of your rates between here and East 
 St. Louis, irrespective of whether that will result in any increase of 
 traffic or not." 
 
 Suppose that decision had been made in the early days, when this, 
 too, was a tentative experiment. Is it not easily conceivable that 
 what the railroads would have made on this comparatively distant 
 country would have been more than lost by the reductions ordered 
 between that region where they had the blanket rate and East St. 
 Louis ? And suppose, then, that the railways, having been governed 
 by a long series of decisions made by the Interstate Commerce Com- 
 mission along these lines, had never gone into the business of devel- 
 oping the vegetable gardening business in the South. Thousands of 
 families, gentlemen, who to-day are making a good living— a better 
 
40 FOURTEENTH DAY. 
 
 living than they could make anywhere else under any other condi- 
 tions — would not be there making that living. The whole devel- 
 opment of the South to-day would not be anything like what it is. 
 
 What has been one of the great causes in the recent development 
 of the South ? It has been the fruit industry, the vegetable industry, 
 the market-gardening industry; and, doubtless, group rates have 
 played a great part in that. That development of the South has 
 drawn from the North immigrants, and those northern men have gone 
 down there and mingled with the southern men, and they have broken 
 down the old feeling of hostility between the North and the South. 
 And the other day I met a gentleman who said he left Minneapolis 
 and St. Paul when the snow was lying on the ground, and he got 
 down to Mobile and he found them shipping vegetables up to the 
 people at Minneapolis and St. Paul; and the people of Minneapolis 
 and St. Paul were eating vegetables at this season, where the previous 
 generation could not have done that. This practice has made vegeta- 
 bles and fruits which were a luxury in the days of the last generation 
 an article of common diet with the mass of the people to-day. 
 
 All of these thiiags, gentlemen, are great beneficent institutions. 
 They are things working to the political and material welfare of this 
 country. But when the Interstate Commerce Commission is asked to 
 pass judgment on a railway rate practice, by means of which you do 
 these things, the Interstate Commerce Commission can see nothing 
 more than the fact that one W. E. Ray is being exposed to an in- 
 creased competition in tlie vegetable-raising business, and that land 
 for which he paid, say, $100 an acre, on the assumption that he 
 was going to have a qualified monopoly of the market, now is worth 
 only $75 an acre, because his monopoly was more qualified than he 
 had supposed. 
 
 Now, let us take another group-rate case: A case coming up in 
 1891, the case of A. S. Newland v. Northern Pacific Railway Com- 
 pany and others, volume 6. A certain railroad had made a group 
 rate of 32^ cents a hundred to Portland, Oreg., from Connell, Wash., 
 to Juliaetta, Idaho, a distance of 21.5 miles. It made a group rate of 
 32|- cents in order that it might sell its land to better advantage, 
 and, of course, if a railway could sell its land to better advantage it 
 would do so, because somebody could go on that and cultivate it 
 to better advantage; otherwise he could not obtain a bigger price for 
 it. In other words, this practice enabled people to settle on an area 
 of land 215 miles in extent and make there a better living than they 
 would have been able to make if the practice had not been introduced. 
 
 This was the first case in which the Interstate Conunerce Commis- 
 sion fixed a rate, and, incidentally, I think by way of obiter dictum 
 (fiot being a lawyer I am not always sure when I am using an obiter 
 dictum, and when I am speaking of the actual decision, but I am 
 pretty sure this was an obiter dictum, and I quote it for the purpose 
 of showing the working of the mind of the Interstate Commerce 
 Commission), it condemned this group rate in part because it de- 
 prived people nearer to the market of the advantages accruing to 
 them by virtue of their geographical position. So you have the Inter- 
 state Commerce Commission enforcing this doctrine on the Atlantic 
 seaboard, on the Gulf States, arid upon the Pacific coast. 
 
 This rate was 32^ cents. The raihvays, in order to avoid a suit. 
 
FOURTEENTH DAY. ' 41 
 
 offered the plaintiffs a rate of 28f cents. The plaintiffs not accepting 
 that, they offered them a rate of 23| cents. The plaintiffs asked for a 
 rate of 16 cerfts. The Interstate Commerce Commission split the 
 difference and made it 20. 
 
 If the railroads had only made an offer of 28 cents, would the 
 Interstate Commerce Commission hare split the difference between 
 28 and 16? The decision of the Interstate Commerce Commission 
 was a pure guess, gentlemen, as it is in nine cases out of ten, either 
 a pure guess or a mere splitting of difference. They do that right 
 through. 
 
 In the case brought by the Chicago Board of Trade against certain 
 railroads, the question was what should be the relative rates on hog 
 products and hogs on the hoof from the Missouri River to Chicago. 
 The rate on hogs was higher than the rate on hog products. The 
 Chicago Board of Trade asked that the rate on hogs be made 75 per 
 cent of the rate on hog products ; and the Interstate Commerce Com- 
 mission compromised by ordering that the rate be made the same; 
 and you will find that right through. There is nothing scientific 
 about their decisions; they are mere guesses. 
 
 Xow let us take another case, which shows that 
 
 Senator Neavlaxds. Is not that largely the case with the railroads 
 themselves in making these rates — ^that they are mere guesses? 
 
 Mr. Meter. In one case you have a ^uess made by a man who 
 has something ilpon which to guess, a basis for his guess, and in the 
 other case you have a rate made by a man who has no basis. But, 
 more particularly, the railways do not make rates; the railways reg- 
 ister rates. The railways register the resultant of the great forces 
 of trade, the competitive forces of trade. I shall take that up later 
 on, if you will allow me. 
 
 All of these decisions, gentlemen, show that if the Interstate Com- 
 merce Commission had been in existence since the close of the civil 
 war it would have indorsed the protests of the farmers of Ohio, New 
 York, and Pennsvlvania that they must not be deprived of the advan- 
 tages of their position, and that the Kansas and Nebraska farmers 
 must not be relieved of the disability accruing to them by virtue of 
 their geographical position. For the reverse of this great doctrine 
 of the Interstate Commerce Commission that no man may be deprived 
 of the advantages accruing to him by virtue of iiis geographical posi- 
 tion is that no man may be relieved of the disadvantages accruing to 
 him bv virtue of his geographical position. That man must not use 
 the railway for the purpose of annihilating distance ; and the Kansas 
 and Nebra^ska people not having been able to raise grain in the days 
 when we carried freight by the ox cart, they ought not to be allowed 
 to raise it now when we carry freight by the railway. 
 
 In the case (vol. 7 of the decisions of the Commission) in the 
 matter of export rates from points east and west of the Mississippi 
 River, down to, let us say, 1895, the railway rate from the farm in 
 Nebraska, say, was made "in this way: There was the local charge to 
 the Mississippi River, and at the Mississippi River there was added 
 the charge to the Atlantic seaboard. The total charge from Nebraska 
 to the Atlantic seaboard was the sum of that local and that through 
 
 The charo-e from the Mississippi River to the Atlantic seaboard 
 was 116 per cent of the charge from Chicago, because the distance 
 
42 FOXIETEEN'TH DAY. 
 
 was 116 per cent of the distance from Chicago. But in consequence 
 of the competition between the roads leading from the territory west 
 of the Mississippi Eiver to the Gulf with the roads leading from that 
 territory west of the Mississippi Eiver by way of Chicago and other 
 ports to the Atlantic seaboard, the rate from the Mississippi River 
 to the Atlantic seaboard came to be only 85 jper cent of the rate from 
 Chicago. The rate from the Mississippi River was less than the rate 
 from Chicago, though Chicago was nearer. The reason was that the 
 competition was so tremendously fierce between these two sets of rail- 
 ways that the railways leading by way of Chicago to the Atlantic 
 seaboard had the choice of withdrawing entirely from this competi- 
 tion and letting all the grain go to the Gulf ports, or else making a 
 rate which would have been entirely unprofitable and impossible 
 even to extend to all of the traffic moving from Chicago and from 
 points east of the Mississippi for which there was not that keen com- 
 petition. In other words, the play of the great forces of trade had 
 given the territory Avest of the Mississippi River the advantage of 
 this tremendous competition between two sets of railways, and that 
 advantage had not been extended to the farmers of Illinois, because 
 the competition did not extend to Illinois. 
 
 The result of this was that the difference between the total cost of 
 moving grain from the farm in Illinois to the seaboard became less 
 great, and the total cost of moving grain from the farm in Nebraska 
 to the seaboard became less great than it had been. It did not become 
 absolutely cheaper to move the grain from the farm in Nebraska 
 than from Illinois; but the diilerence, the handicap of Nebraska, 
 became less than it had been; and the Interstate Commerce Commis- 
 sion did not make a decision, but it expressed its disapproval of this 
 fact. It said, " Illinois is being deprived of the advantage accruing 
 to it by virtue of the fact that it is nearer to Liverpool than is Ne- 
 braska ; " and it said the evidence before it was not sufficient to 
 allow it to make a finding, but it told the complainants that they 
 might bring another suit and introduce more evidence — that is, here 
 you have the Interstate Commerce Commission announcing the doc- 
 trine that the great play of the competitive forces of trade may 
 never be allowed to have free scope to such an extent as to impair the 
 handicap that Nebraska in the past has been under as compared with 
 Illinois. 
 
 There was brought before the Industrial Commission evidence to 
 the eifect that Avheat on the farm in Nebraska was bringing a cent 
 a bushel more than wheat on the farm in Iowa, 'and that meant also 
 Illinois. Now, if the Interstate Commerce Commission had been iij 
 existence for a long time, and if, instead of being overruled by the 
 Supreme Court practically everj^ time it came before it, it had been 
 supported and indorsed by the Supreme Court it would doubtless 
 immediately have gone out there to Nebraska and' have ordered a 
 readjustment of rates, so that grain should not sell .at a cent a 
 bushel more in Nebraska than in Iowa; for eAddently that relative 
 range of prices was depriving the Iowa farmer of the advantages 
 accruing to him by virtue of his geographical position. 
 
 I am of opinion, gentlemen, that, these decisions of the Interstate 
 Commerce Commission not only justify, but compel the conclusion 
 that if that body had been established, say, at the- close of the civil 
 
FOUETEENTH DAY. 43 
 
 war, and that if the public policy underlying its decisions had been 
 supported by the Supreme Court, or if the act under which it 
 acted had been worded in such a way that the Supreme Court could 
 not have overruled the Interstate Commerce Commission on ques- 
 tions of law, and the Interstate Commerce Commission had been 
 able to c^rry out the ideas upon which it acts, it would, when that 
 great conflict of interests came up in the seventies between the farmers 
 east of the Alississippi Eiver and the farmers west of the Mississippi 
 River, have acted in favor of the farmers east of the Mississippi 
 River. It would have thrown the great power of the Federal Gov- 
 ernment on the side of the established vested interests as against the 
 side of the interests that were seeking to come into existence, partly 
 because of the fact that it has not the grasp, and never has shown the 
 grasp, to comprehend these things, and partly because of the fact that 
 one naturally is more impressed with the complaints coming from 
 an existing interest than with the requests made by an interest that 
 is merely trying to come into existence. And if it still be said 
 that in these matters which I have cited the Interstate Commerce 
 Commission was passing judgment upon relatively small matters, 
 and that when it came to really great matters it would not have 
 dared to enforce its doctrine that no man may be deprived of the 
 advantages accruing to him by virtue of his geographical position, 
 and if you should allow them to act with that degree of discretion, 
 then, gentlemen, you would have in this country no longer a govern- 
 ment of laws, but a government of men; no longer the giving of 
 justice by means of laws, but the regulating of trade by power of 
 dispensation. 
 
 Now let us turn to another aspect of the situation in Germany, and 
 then apply that situation in Germany to the situation in the United 
 States once more by means of a review of the decisions of the Inter- 
 state Conmierce Commission. 
 
 There are in Germany two great steel and iron producing centers. 
 One of them is on the Rhine, in the so-called Ruhr district, near 
 Cologne, where the Krupp Iron Works are. They produce about 39 
 per cent of the steel and iron produced in Germany. You have 
 another great steel and iron producing center near the Luxembourg 
 frontier, in the Alsace-Lorraine country, the so-called Saar district, 
 from the River Saar. These two regions are 220 miles away from 
 each other. The Saar district contains the greatest body of iron ores 
 to be found on the continent of Europe, and the Ruhr district pro- 
 duces the best coking iron to be found on the continent of Europe. 
 The Saar district needs the coke of the Ruhr district, and the Ruhr 
 district needs the iron ore of the Saar district; but there is no free 
 movement of coke and of iron ore between these two regions, because 
 of the conflict of interests, because of the impossibility of the Govern- 
 ment inducing the Saar people and the Ruhr people to come to an 
 agreement on the question of what shall be relatively reasonable rates 
 on coke moving from the Ruhr district into the Saar and upon iron 
 ore moving from the Saar into the Ruhr. The Ruhr people want 
 lower rates on ore moving from the Saar district, and the Saar peo- 
 ple immediately reply: " If you give them a lower rate on ore, you 
 must give us a correspondingly lower rate on coke from the Ruhr 
 into the Saar in order that we may not be handicapped in competi- 
 tion with them." 
 
44 FOTJKTEENTH DAY. 
 
 The Government can not get those two parties to agree on what 
 shall be relatively reasonable rates, and so ever since the early eighties 
 you have had a deadlock of interests, with the result that transporta- 
 tion charges have remained practically stationary, and to-day they 
 constitute some 30 per cent of the total cost of producing pig iron, 
 while in the country which up to very recently was the great com- 
 petitor of Germany in the international markets for the steel and iron 
 business, England, the transportation charges are only 10 per cent of 
 the cost of producing steel and iron. 
 
 In the year 1880 Mr. Jencke discussed this question at a meeting of 
 the steel and iron interests of Germany : " Why has the State owner- 
 ship of the railways since 1879 resulted in a marked arrest of the 
 decline of railway rates? " Mr. Jencke had been a very prominent 
 official in the state railways of Saxony. He had left that service for 
 the purpose of becoming chairman of committees of Krupp & Co., 
 the greatest steel and iron producers of Europe, a firm which now 
 employs some 44,000 people. He spoke, therefore, with great au- 
 thority. He said that under the private ownership of railways down 
 to 1879 the factor that had pulled down railway rates had not been 
 ' the competition of rival lines between two points, but it had been the 
 competition of rival producing centers for the common market, each 
 producing center being served by its railway or its sets of railways. 
 
 Under the private ownership of the railways the relative adjust- 
 ment of rates had been determined in the only way in which it can be 
 determined — namelj^, by a rate war, a contest of strength. Under the 
 public ownership of the railways the whole situation had changed. 
 When a government reduced the rate on iron ores from the Saar to 
 the Ruhr, it had to determine scientifically what would be a corres- 
 ponding reduction on coke from the Ruhr to the Saar. 
 
 Now, no government could do that to the satisfaction of the several 
 parties to the controversy, because the problem was not a problem 
 capable of solution bj- means of reasoning that was compelling in its 
 force. There was room for difference of ojDinion; and you never 
 could get the Saar people to accept a rate that the Ruhr would deem 
 reasonable, or the Ruhr people to accept a rate that the Saar people 
 would deem reasonable, and the result was a deadlock. And Mr. 
 Jencke went on to point out what happened. He pointed out that in 
 1882, in a minor iron and steel producing region, the Lahn region, the 
 Government had decided to reduce the rates of that region because it 
 was suffering in the competition of the various markets. Under the 
 fall of prices it was suffering more than were the richer iron and steel 
 producing regions, and in order to determine what would be a rela- 
 tively reasonable reduction from this Lahn district as compared with 
 the rates to be made from the Ruhr district and the Saar district, the 
 Government appointed a commission consisting of Government officers, 
 of manufacturing men, and of mining men, and it threw in a sprink- 
 ling of college professors, and those men began to discuss the evidence. 
 Their data were taken from tlie year 1882, and in 1886 they brought 
 forth a report. But in 1886 all the condition? had been changed, so 
 that the data of 1882 no longer were good, and the report had to be 
 rejected, and nothing could be done for the Lahn interests. In the 
 meantime the Lahn interests were practically being wiped out. 
 
 Under the private ownership of railvvays, on the other hand, 
 you can make a rate in the time that it takes you to sign your name 
 
POTJETEENTH DAY. 45 
 
 to an order ordering the reduction in rates, and if you do not hit the 
 right rate the first time you can try it over and you can keep on until 
 you do hit a rate which will enable the producers in your region to 
 hold their own with the producers in other regions. 
 
 That was in 1888. In 1896 Mr. Jencke came back and made that 
 same statement. In 1889 Mr. Von Maybach, who was then minister 
 of public works, said that there were moving from the Saar district 
 to the Ruhr district 250,000 tons of iron ore, and if the Government 
 were allowed to make a rate that would do justice to the capacity of 
 the Ruhr district to produce steel and iron, within twenty- four hours 
 that traiBc would jump from the rate of 250,000 tons a jear to a 
 million tons a year. 
 
 Senator Kean. What was the year ? 
 
 Mr. Meter. That was in 1889"; and that situation has continued to 
 exist down to this day. 
 
 Senator Kean. T^^at is the production of iron ore there now ? 
 
 Mr. Meter. I could not state any figures. They produce about 39 
 per cent of the total of Germany. 1 could not give you the exact 
 figures. 
 
 At the same time Mr. Von Maybach said : 
 
 If you gave free play to the commercial forces of trade, the Ruhr district 
 would grow more rapidly than the Saar district, by reason of natural differ- 
 ' ences in the power to produce. 
 
 But the Government could not give free play to those forces 'of 
 trade, because it could not expose itself to the charge of preferring 
 the Ruhr district to the Saar district. And he said there was nobody 
 on earth who could convince the Saar district that the fact that the 
 Ruhr district was going ahead faster was by reason of the fact that 
 it was better fitted to meet the competition in the international mar- 
 kets, instead of the fact that the Goverimient was preferring the 
 Ruhr district over the Saar district. And that conflict of interests 
 has continued down to the present day. 
 
 In 1900 Mr. Von Miquel said : 
 
 We have been discussing this question for sixteen years, and we have had 
 commission after commission, and report after report, and we are no nearer 
 to a solution than we were sixteen years ago. And this is a pregnant illustra- 
 tion of the way in which commerce and trade are being paralyzed by the 
 conflict of interests. 
 
 Those were the words of the minister of finance, Mr. Von Miquel ; 
 and the fact that the whole thing has not collapsed entirely is due to 
 the fact that you can get relief to an extent. The Ruhr district, which 
 is not allowed to draw freely upon the iron ores of Germany, 220 miles 
 distant, can go to Spain, and can go to the iron beds of Norway, 
 because those ores can move in freely by means of the ocean and the 
 river means of transportation, which the Government has persistently 
 refused to regulate. 
 
 We could very easily have in this country precisely that kind of 
 a conflict. We have a great steel and iron producing industry in 
 Pennsylvania; we have one at Buffalo; we have one at Joliet; we 
 have a steel and iron producing industry at Alabama, and we have 
 a steel and iron producing industry at Pueblo, Colo. Those steel 
 and iron producing industries have grown with very different de- 
 grees of rapidity. Sometimes one industry has been forging ahead 
 
46 FOURTEENTH DAY. 
 
 more ra|Didly than another. Suppose we had been in the business 
 of regulating railway rates since the close of the civil war: Could 
 Ave have escaped having that question brought up to the Government ? 
 Could we have escaped putting our Government in a position where, 
 if it gave free play to the great forces of trade, it would have had 
 to witness one industry growing more rapidly than another, and then 
 expose itself to the charge that it was favoring one industry rather 
 than another? 
 
 You will say that questions of that kind could not come up. Ques- 
 tions of precisely that kind have come up and have been passed upon 
 by the Interstate Commerce Commission. 
 
 Take the case of Anthony Salt Company v. Missouri Pacific Kail- 
 way Company and others, in volume 5. The Atchison, Topeka and 
 Santa Fe Railway operates two lines of railway, one from St. Louis 
 to Fort Worth and one from Hutchinson, Ivans., to Fort Worth. 
 The distance from St. Louis to Fort Worth is 743 miles. The dis- 
 tance from Hutchinson, Kans., to Fort Worth is 426 miles. There 
 is a difference of 316 miles. For many, many years back salt mined 
 in Michigan has been carried from Bay City, Mich., to St. Louis, a 
 distance of 600 miles, put in storage warehouses there, handled by 
 the commission merchants, and sold, among other places, to Fort 
 Worth and other Texas points. That was an old established business. 
 In 1890, or in the later eighties, they discovered salt wells at Hutch- 
 inson, Kans., and began the production of salt. The railway made a 
 rate of 35^ cents per hundred pounds on salt from St. Louis to Fort 
 AVorth, and the same rate, 35^ cents per hundred pounds, from 
 Hutchinson to Fort Worth. It put the producer in Hutchinson on a 
 footing of equality with the commission merchant at St. Louis, if you 
 ignore the fact that the commission merchant at St. Louis had to pay 
 8 cents or 10 cents per hundred pounds to get his salt to St. Louis. 
 It said, " Now, you can go ahead, and you can fight this out. The 
 charge is 35^ cents per hundred pounds, and the distribution of this 
 business between St. Louis and Hutchinson is a question of the energj' 
 and the capacity of the several sets of merchants to do business." 
 
 But the Hutchinson people went before the Interstate Commerce 
 Commission and said, " The railroads, in carrying salt 743 miles for 
 35J cents for St. Louis people — the same rate that they make to us 
 for carrying salt 427 miles — are making a relatively unreasonable 
 charge to us, and are depriving us of the advantages accruing to us 
 by virtue of our geographical position." And the Interstate Com- 
 inerce Commission said, " You are right ; the railways are carrying 
 salt 316 miles from. St. Louis for nothing, and that they have.no 
 right to do." 
 
 Thereupon the Commission ordered that so long as the rate should 
 remain 35^ cents per hundred from St. Louis to Fort Worth, it 
 should be not to exceed 27 cents from Hutchinson to Fort Worth, 
 and thereafter, whenever the rate on salt from St. Louis should be 
 reduced, there must be a corresponding reduction from Hutchinson, 
 Kans. In other words, the differential in favor of Hutchinson, 
 Kans., must always be at the rate of 8 cents. 
 
 Now, gentlemen, this decision of the Interstate Commerce Com- 
 mission undertook to regulate trade between Michigan and Kansas 
 .and Texas. It undertook to say whether or not the man who mined 
 salt in Michigan shall be allowed to sell that salt in Texas in com- 
 
FOURTEENTH DAY. , 47 
 
 petition with the Kansas man, and, if so, what shall be the disability 
 under which he shall labor. And let us note the character of the 
 reasoning of the Interstate Conmierce Commission in dealing with 
 mom.entous questions of this kind. The Interstate Commerce Com- 
 mission would have found it more difficult to make its case apparently 
 reasonable if it had taken into consideration the fact that Michigan 
 salt was really handicapped to the extent of 8 cents a hundred, because 
 it had to pay 8 cents a hundred in order to get down to St. Louis ; 
 and so the Interstate Commerce Commission, in order to clear away 
 that difficulty, said, " For the purposes of this argument, we may 
 assume that Michigan salt is mined in St. Louis." 
 
 Here you have a body sitting in judgment upon the railway rates 
 of this country, undertaking to determine how the trade of this 
 country shall be done, undertaking to determine where Michigan 
 salt producers shall sell salt and where they shall not sell salt ; and 
 that body has no better idea of what government by due process of 
 law means than to permit itself to make the assumption that Michigan 
 salt is produced in St. Louis. If a body may make an assumption 
 of that kind, I know no assumption that they may not make. 
 
 Here you have the Interstate Commerce Commission doubling the 
 handicap under which the Michigan salt labored, although it itself 
 found that the advantage in the production of salt on the part of 
 Michigan over Hutchinson, Kans., was less than 5 cents for 280 pounds. 
 Michigan salt was selling in Texas under a handicap of 8 cents, so 
 the advantage in production of Michigan salt was less than 5 cents 
 for 280- pounds; and the Interstate Commerce Commission, without 
 any further ado, slapped another 8 cents onto that handicap. 
 
 Now, gentlemen, if the Interstate Commerce Commission may regu- 
 late the trade in salt between Michigan and Kansas and Texas, the 
 Interstate Commerce Commission may regulate the trade in iron 
 manufactures from Alabama to Texas, from Pittsburg to Texas, from 
 Maryland to Texas, from Buffalo to Texas^, from Duluth to Texas, 
 from Pueblo, Colo., to Texas. The Interstate Commerce Commission 
 may determine and tell us how much of the product of the cotton- 
 milling industry of New England shall be sold in Texas and how 
 much of the cotton product of the milling industries of the Carolinas 
 may be sold in Texas. The Interstate Commerce Commission may 
 determine whether the people of Texas shall buy their shoes in 
 St. Louis, in Cincinnati, in Chicago, or in New England. There is 
 no trade in this country sufficient in volume to be worth fighting for 
 that the Interstate Commerce Commission may not regulate; and 
 there is no man in this country who is a manufacturer, who does any- 
 thing more than a local business, who may not wake up to-morrow 
 morning and find out that to-day the Interstate Commerce Commis- 
 sion has passed a decision which has deprived him of a substantial 
 part of his market. 
 
 Where is the difference between the situation in Germany in this 
 matter and in the United States ? What shall we think of a body of 
 men that go out of their way, so to speak, to involve this country in 
 these terrible conflicts of sectional interests ? There was no evidence 
 that the Hutchinson salt trade was not growing ; and let us apply to 
 this case the reasoning that the Interstate Commerce Commission 
 applied to another case — the only case, I believe, in which it made 
 
48 rOXJETEENTH DAY. 
 
 rates on commercial considerations, and a most instructive case, par- 
 ticularly to the student of politics and to the student of government. 
 
 In the early eighties the railways running from Kansas into Texas 
 had decided to build up a flour-milling industry in the State of 
 Texas for the purpose of promoting wheat raising in Texas. They 
 said, " If we build up a local flour-milling business in Texas, we shall 
 induce farmers to go into wheat raising," and so they made a differ- 
 ential on grain into Texas from Kansas points as against flour of 20 
 cents ; and as time went on, and the Texas millers became better able 
 to meet the Kansas competition, they rapidly reduced that until in 
 1890 the differential had been reduced to 5 cents. At this time the 
 Kauffman Milling Company, of St. Louis, brought suit before the 
 Interstate Commerce Commission — the case is entitled " Kauffman 
 Milling Company v. Missouri Pacific Eailway Company," in volume 
 4 — alleging that this discrimination in favor of grain as against flour 
 resulted in relatively unreasonable rates and subjected the Kauffman 
 milling industry of St. Louis to undue and unreasonable disadvantage. 
 
 Here, gentlemen, was a railway-rate practice that the Interstate 
 Commerce Commission should have condemned outright on all of its 
 past reasoning, and upon all of the reasoning of the men who in the 
 Ijast have been the critics of our railways, have condemned our rail- 
 way practices, and have urged us to regulate our railway rates so as 
 to deprive railways of the possibility of developing trade and in- 
 dustry. If there is one thing upon which the critics of our railways 
 are agreed, it is that a railway has no business to practice protection; 
 that a railway has no business to build up an industry ; that it is the 
 business of a railway man to sit in his office and to order that trains 
 be run back and forth for the carrying of such freight as may spon- 
 taneously come to the railway, but that he has no business to take 
 measures to promote, to build up, trade. 
 
 In this case the Interstate Commerce Commission surprised every- 
 body by approving this adjustment of rates. And what was its 
 reasoning ? It said : 
 
 Both parties to the controversy, the Texas millers and the St. Louis Kauffman 
 Milling Company, are engaged in a legitimate trade. The fact that the two 
 parties are in the field makes the profit of each one smaller than it would be if 
 the other were not there ; but we do not think that that is anything that Is 
 against public policy. 
 
 Now, why did not this reasoning apply to the Texas salt business ? 
 Were the commission merchants of St. Louis engaged in an illegiti- 
 mate business ? Could you say anything more about the Texas situa- 
 tion than that if the St. Louis man were not there the Kansas man 
 would have made a bigger profit, or if the Kansas man had not been 
 there the St. Louis man would have made a bigger profit? Why, 
 gentlemen, did the Interstate Commerce Commission depart from 
 nil of its past practices? I do not knoAv. But I can not forget, and 
 I can not exclude from my mind, the fact that (to use the words of 
 the Interstate Commerce Commission) — 
 
 This question has broadened out into a vastly greater problem than a prob- 
 lem between different sets of railways. This has become a question between 
 the Texas farmers and the Texas millers on the one hand and the other States 
 of Kansas and Nebraska on the other. 
 
 And I can not forget, gentlemen, the fact that at that time we had 
 still among us a great statesman, a man of masterful mind and a man 
 
FOURTEENTH DAY. 49 
 
 of great influence, the late Mr. Reagan ; and that, furthermore, at that 
 time there was in the State of Texas a public opinion that demanded 
 the establishment of a State railroad commission. And within three 
 months after this decision was made there was established in Texas 
 a State railroad commission ; and the first report of that commission 
 informs us that one of the first things that the Texas State railroad 
 commission did when it came into power was to regulate the intra- 
 state rates in Texas on flour and grain, respectively, m such a way as 
 to give the Texas miller increased protection from the competition 
 of the Kansas and the St. Louis miller. 
 
 In other words, if the Interstate Commerce Commission in this 
 case had followed all its precedents it would have aroused the hos- 
 tility of the people of Texas and of the late Mr. Regan; and, 
 furthermore, the Interstate Commerce Commission itself, in effect, 
 would have been overruled by the State commission of Texas ; for the 
 ruling of the Interstate Commerce Commission would have been in 
 the direction of depriving the Texas miller of the protection that this 
 adjustment of rates was giving him,' and the Texas railroad commis- 
 sion, in turn, immediately would have readjusted intrastate rates in 
 such a way as to neutralize the decision of the Interstate Commerce 
 Commission and to give the Texas man more protection. And there 
 yoii have not the only case, gentlemen, in which you have a conflict 
 of interest, a conflict of ideals dnd ideas, between our Federal Com- 
 mission and our State commissions. 
 
 We have an exact parallel in the United States of the situation in 
 Germany. We have the Connellsville coke moving to Buffalo and 
 to Chicago and to Milwaukee and numerous other points on the 
 Great Lakes, there to meet the ores coming down from the great ore- 
 producing regions. Now, if the Government had been in the busi- 
 ness of regulating railway rates it would have been inevitable that 
 the question of the relative reasonableness of the rate on coke from 
 Connellsville to the Lake ports and the ore from the Lake Superior 
 regions to these same Lake ports, where the coke and ore meet, should 
 be brought before that Commission for adjustment. 
 
 I should like to indicate the tremendous character of this problem 
 and the far-reaching consequences of any mistake made in these mat- 
 ters by referring to the character of the lumber trade in this country. 
 You have in Chicago, competing for the common market, lumber 
 brought from Minnesota and Wisconsin ; from the so-called Spokane 
 territory ; from Oregon, Texas, and Arkansas ; from Louisiana, from 
 Alabama, and from South Carolina. The lumber that comes from 
 Oregon comes 2,240 miles at a rate of 40 cents a hundred; the lum- 
 ber that comes from Ferguson, S. C, comes 700 miles at a rate of 
 28 cents a hundred ; and the limiber coming from Texas and Arkansas' 
 comes about 1,400 miles at a rate of 28 or 29 cents or thereabouts. 
 In other words, there is no proportion between the rate from Oregon 
 and the rate from the other points. The rate from Oregon is dis- 
 proportionately low. On the theory of the Interstate Commerce 
 Commission, as enunciated in the Hutchinson salt case, Oregon has 
 an undue advantage, and that advantage should be minimized. In 
 other words, the trade of Oregon in lumber to Chicago and those 
 points should be restricted. Suppose that when this business of 
 building up a trade in lumber was begun the Interstate Commerce 
 14 D — 05 M 4 
 
50 FOtrRTEENTH DAY. 
 
 Commission had made a ruling that had nipped this trade in its 
 infancy. 
 
 So far as the general public is concerned, or has become aware, 
 probably that would have been the end of the matter. But ten years 
 later, when the manufacturer in the ITnited States east of the Missis- 
 sippi tried to get a foothold in the oriental markets in competition 
 with the manufacturer of England and Germany and Belgium, he 
 would have found that he could not do it. He would have gone to 
 the railways and the railways would have simply told him, " We can 
 not make the rate; it would be impossible and unproi: table to make 
 such a rate." And, as Mr. James J. Hill stated, the rates that he can 
 make and does make on manufactured commodities from Pennsyl- 
 vania and Ohio and New York and Chicago to the Orient are only 
 25 to 33 or 50 per cent of the rates that he would have to charge if he 
 did not have a back haid in the form of lumber for every car that he 
 carries to the Pacific coast carrying merchandise. If it were not for 
 that great lumber traffic backward he could not put the American 
 manufacturers' commodities int(5 the oriental market in competition 
 with those of the Englishman and the German and the Belgian. 
 
 It may be worth while to state that on the 1st of January, 1903, 
 the Suez Canal tolls were reduced for the first time in thirteen years. 
 The management announced that in the future it expected to reduce 
 canal tolls very frequently, because of the competition of American 
 commodities in the oriental markets — commodities carried by the 
 transcontinental railways. That traffic, gentlemen, could not have 
 come into existence if we had had in the early nineties an Interstate 
 Commerce Commission which had destroyed or had not built up this 
 traffic, and the general public probably never would have become 
 aware of the fact why 'i^nerican manufacturers could not compete 
 in the Orient. The American manufacturer would simply have 
 found that he could not, and he would have accepted that fact as 
 sufficient. 
 
 Senator Cullom. If we are contesting the transportation of goods 
 to the Orient now by the use of the transcontinental railroads, what 
 will other countries do when we get the Isthmian Canal built ? 
 Mr. Meter. I do not know, sir. 
 
 The Chairman. Take the lumber cars from the Carolinas to Chi- 
 cago, a distance of 700 miles. Have they any return freight down 
 there, or is it all one way ? 
 
 Mr. Meyer. I do not know. I am not familiar with that situation. 
 The Chairman. Do you know how it is from Arkansas and Loui- 
 siana, whether there is any return freight? I laiow there is return 
 freight from the Pacific. 
 
 Mr. Meyer. From Louisiana the grain is a return freight. 
 The Chairman. Yes; I should say Louisiana would have a good 
 deaL of grain; but I do not think there is any return freight from 
 North and South Carolina. 
 
 Mr. Meyer. There may not be. The lumbermen of North and South 
 Carolina feel that thev need the Chicago market, and the railroads 
 feel that they can help thein get in there, and they make the rate on 
 commercial considerations. 
 
 I should like to summarize the German situation with the state- 
 ment of Mr. Von Miquel, the minister of finance, to the effect that 
 the German Government absolutely can not stand up against this 
 
I-OXJRTEBNTH DAY. 51 
 
 conflict of sectional and local interests ; that it can not affoi'd to have 
 the representatives in Parliament oppose the administration's measure 
 for getting a new tariff, or a bill for an increased appropriation for 
 the navy, and so on. It can not afford to have those measures blocked 
 by the fact that some constituents are dissatisfied with the railway- 
 rate situation. So that Mr. Von Miquel said, in 1900, that the only 
 waj' in which the Government regulation of railway rates could be 
 effected by means of Government ownership was through the strictest 
 kind of adherence to a distance traffic. All rates must be on the 
 basis of distance ; and if that excluded one producer from the market, 
 why it simply excluded him. They could not make rates on com- 
 mercial considerations for the purpose of admitting to the market 
 more distant producers. And still more recently some -prominent 
 officials in the German Government, so-called " privy counselors," 
 Messrs. Schwartz and Strutz, have written a very bulky volunie upon 
 the finances of the Prussian railways; and their concluding state- 
 ment is that it is absolutely out of the question that the Government 
 should go over at all to the practice of charging what the traffic 
 will bear — that is, to the practice of making rates on commercial 
 considerations. It must adhere rigidly to a hard and fast system of 
 distance rates; that that was the only way of avoiding the conflict 
 of sectional interests under which no government could possibly 
 stand up. 
 
 Now, it will be said, if the situation in Germany has been as serious 
 as I have painted it, why has Germany been able since 1880 to make 
 the extraordinary advances that it has made in manufacturing and 
 in industry? The answer to that is that 'the railways have played 
 no part in that development. That development has been carried 
 entirely by the rivers and the canals. That is, Germany has been 
 obliged to go back to a means of transportation that was abandoned 
 as antiquated in this country certainly not later than 1875. Indeed, 
 in 1875 it was the general "opinion in Germany that the river and 
 canal boats were going the way of the stagecoach. In that year 
 the traffic upon the waterways "had a density of 290,000 ton-miles 
 per mile and the traffic upon the railways had a density of 410,000 ton- 
 miles per mile; that is, the traffic of waterways was 70 per cent of 
 the density on the railways. But it had been continuously declining. 
 In the next ten years — that is, within six years after the Government 
 took over the roads — the density of traffic upon the waterways had 
 become 480,000 ton-miles per mile as against a density of 450,000 
 on the railways. And in 1900 the density of traffic on the waterways 
 was l,150,000"ton-miles per mile as against 740,(100 ton-miles per mile 
 on the railways. That is, in 1875 the density of traffic on waterways 
 was 70 per cent of that of the railways, and in 1900 the density of 
 traffic upon the railways was only 64 per cent of that upon the water- 
 ways. 
 
 The Chairman. Did the Government do anything to help the 
 canals and the rivers ? 
 
 Mr. Metee. The Government improves the rivers and it tries to 
 build new canals, because the Government is aware that the Govern- 
 ment ownership of railways has practically paralyzed the railways 
 for the work of building up the industries of the country ; but, for 
 reasons which it would take too long to enumerate, they can not 
 iidmit that in public, and they can not go back on the State owner- 
 
52 FOUEIEENTH DAY, 
 
 ship. They can not go back to private ownership. So they are now 
 proposing to find a way out by practically paralleling, whenever pos- 
 sible, their railways with canals in order that all the long-distance 
 and low-value freight shall move freely by waterways, and the rail- 
 ways shall carry only that traffic which can bear comparatively high 
 charges. 
 
 The Chairman. Does the Government build these canals and make 
 these waterways, and has it been the policy since 1880 to do it when 
 it was not before? 
 
 Mr. Meter. It was not before. In the early eighties the Govern- 
 ment rejected a request that it build certain canals, the Government 
 saying that canals are things of the past; that they do not pay and 
 they can not do the work that the railways do. And it is only since 
 the deadlock of interest has arrested the decline of rates that the 
 Government has gone back to the building of canals. 
 
 To show you the extent to which the traffic of Germany depends 
 upon the waterways and not upon the railways, if you will recall the 
 Rhine and the whole territory served hj the Rhine, 82 per cent of the 
 cominodities imported by that whole territory reached by the Rhine 
 use the waterways exclusively and not the railways at all, and over 
 50 per cent of the exports of the Rhine territory go by water and not 
 by rail. And if j^ou take the whole territory served by the Elbe, 
 going up from Hamburg, up the Elbe and over to Berlin and into 
 Silesia, you will find that 85 per cent of that traffic goes by river and 
 only 15 per cent goes by rail. That traffic upon the Rhine is carried in 
 vessels with an average capacity of 650 tons; the traffic on the Elbe 
 is carried in vessels of an average capacity of 400 tons, and that part 
 that goes through to Berlin and to the Oder is carried in vessels of 
 250 tons. 
 
 Senator Cullom. How about the passenger traffic? Does not it 
 largely go the same way ? 
 
 Mr. Meyer. No, sir ; the passenger traffic of course all goes by raU. 
 
 The Chairman. Did vou state the capacity of the boats on the 
 Rhine? 
 
 Mr. Meter. Six hundred and fifty tons. 
 
 The Chairman. They are the largest? 
 
 Mr. Meyer. They are the largest. 
 
 In the United States the railway rates, relatively 'speaking, are so 
 low that even 2,000-ton vessels can not compete with the railways. 
 The only competition between the railway and the waterway in the 
 United States is in the coast traffic, where the vessels are not less than 
 3,000 tons, and are generally 4,000, and on the Great Lakes, where the 
 vessels are 8,000 and 10,000 tons and upward. 
 
 Senator Millard. You know there are plenty of passenger boats 
 on the Rhine? 
 
 Mr. Meyer. But the traffic is relatively not of any great impor- 
 tance. It is a pleasure traffic. 
 
 Senator Millard. Yes; but a great many people travel on the 
 Rhine boats in the summer time. 
 
 Mr. Mey'er. Oh, yes ; but simply for pleasure. 
 
 Let me point out, gentlemen, that the Government took over the 
 railways in 1879 for the purpose of abolishing local discrimination 
 and the concentration of industry, and that twenty years later — in 
 1899 — the Government brought in a bill proposing to parallel the 
 
POXJETEENTH DAY, 53 
 
 railways with canals, for the purpose of abolishing discrimination 
 and concentration of industry. In other words, the Government 
 ownership of the railways has accentuated the very evil that the 
 Government ownership of the railways was intended to eliminate, 
 and the reason for that is that the deadlock of local interests has kept 
 railway rates practically stationary for the last fifteen years, with 
 the result that the rates upon the railway, generally speaking, are two 
 and three and four times more — often three and four times as high 
 as the rates upon the rivers. 
 
 Senator Cullom. How many miles of canals have they in Ger- 
 many ; do you know ? 
 
 Mr. Meter. I could tell you in a moment ; a little under 2,000 miles 
 of rivers and canals. 
 
 Senator Kean. How many miles of railroad are there in Germany ? 
 
 Mr. Meyee. About six times as much; to be perfectly exact, the 
 proportion borne by the waterways-^that is, rivers and canals — to the 
 total of waterways and railways is 17 per cent. 
 
 Senator Foeakee. Seventeen per cent of all are canals? 
 
 Mr. Metee. And rivers — waterways ; I can not separate the rivers 
 and canals, unfortunately. 
 
 Senator Cullom. I would like to get a sort of a general approxi- 
 mate guess as to how many miles of canals there are in Germany. 
 
 Mr. Meyer. The canal does not amount to much ; it is mainly the 
 rivers. Perhaps there would be, as a guess, three or four hundred 
 miles of effective canals ; scarcely that much. 
 
 Senator Foeaicee. How many miles of railroad are there altogether 
 in Germany, if you can tell us, approximately ? 
 
 Mr. Meter. I think about 12,000 or 14,000 miles. 
 
 Senator Foeakee. That is near enough. 
 
 Mr. Meter. To show you the nature of the discrimination that 
 exists to-day: In the first place I pointed out that sugar goes to 
 market exclusively by river and not at all by rail, with the result 
 that Hamburg has literally an undisputed monopoly of the export of 
 sugar business. To understand the situation let us imagine that in 
 the United States New York and New Orleans had undisputed 
 monopolies of the export of grain. Let us dmagine that the grain 
 were exported only by way of New York, because they have the Erie 
 Canal, and by way of New Orleans, because they have the Mississippi 
 River, and then you would have the situation that they have in Ger- 
 many. In other words, there is no such thing in Germany as Phila- 
 delphia, Baltimore, Newport News, Galveston, Sabine "Pass, and 
 Savannah exporting grain. 
 
 Bremen has absolutely no share in the export trade of sugar, and 
 sugar is the greatest and most important single article of export. 
 By virtue of the fact that no vessels go to Bremen to bring baclv 
 sugar, and having exported commodities of that kind, there are coni- 
 parati^'ely fewer vessels at Bremen to take out manufactured prod- 
 ucts. 
 
 To show you again how Bremen has been discriminated against: 
 In 187T Bremen had practically the monopoly of the import trade 
 in petroleum, by reason of the fact that there was located there an 
 exceedingly aggressive firm of importers and dealers in petrolemn — 
 the men who originated the practice of carrying petroleum across 
 
54 FOTJKTEENTH DAY. 
 
 the ocean in tank vessels. These men, under the private ownership 
 of railways, were supported in an aggressive manner by the private 
 railway running from Bremen, but when the Grovernment took over 
 the railways the decline in railway rates was arrested, and the neces- 
 sity of putting petroleum on the market more cheaply compelled 
 these people to take the traffic off the railways and put it entirely 
 onto the waterways, with the result that no petroleum goes by rail 
 to-day in Germany. It all goes by water excepting, of course, from 
 the end of the water route to the point inland. There are many 
 points which you can not reach by water. The result of that has 
 been that Bremen has lost all this import trade in petroleum except 
 trade dependent upon petroleum actually consumed in Bremen and 
 the immediate neighborhood; and the petroleum import trade has 
 gone entirely to Hamburg for eastern Germany, which distributes 
 by means of the Elbe and then the canal from Berlin and then the 
 Oder. 
 
 On the other hand, for western Germany the petroleum trade has 
 gone entirely to Rotterdam and Mannheim, which is at the head of 
 navigation f &r large vessels on the Rhine, at the point where the Main 
 empties into the Rhine. You see that is a kind of local discrimina- 
 tion that never has existed in this countr5\ Similarly Mannheim is 
 a great coal distributing center. It obtains all of its coal at a point 
 about 250 miles down the Rhine, from the Ruhr region. The Govern- 
 ment itself has great coal mines in the Saar region, which are about 
 125 miles from Mannheim — only half the distance. Mannheim acts 
 as a supply center to a population of 8,000,000 people, but Mannheim 
 does not handle any Saar coal, the reason being that coal that comes 
 from the Saar district has to come over a Government railway, where 
 the rates are hard and fast, but the coal that comes from the Ruhr 
 district, twice as far, comes over a river, where rates fluctuate with 
 the necessities of business, and the business men say, " When business 
 is bad the river vessels help us out and come down on their freight 
 rates ; and when business is good, and we can bear higher rates, they 
 put their rates up." The margin of profit is so much greater on this 
 business carried by water than on this business carried by the rail- 
 way that they can not afford to handle Saar coal, and they do not 
 handle that coal at all, as you will find by looking into the reports of 
 the Chamber of Commerce of Mannheim"^ for 1896. 
 
 I could go on indefinitely in this manner, but I must leave this 
 subject, and first content myself with drawing your attention to a 
 situation which is practically incredible. Berlin, of course, is a 
 great consuming center, and it is also getting to be considerable of a 
 producing center. From Berlin to Stettin, which is at the mouth of 
 the Oder, there is a Government railway which is 85 miles long, and 
 there is a canal that is 126 miles long that will carry no vessels 
 exceeding 170 tons capacity. Stettin used to get a good deal of 
 trade through Berlin, and it used to have a good deal of trade by 
 way of the Oder back into Silesia. The mouth of the Oder has not 
 been improved, but the lower part of the Oder has been improved, 
 and the canal by way of Berlin from the Oder to the Elbe has been 
 improved, so that you can reach Silesia and Berlin from Hamburg 
 by means of vessels of 400 tons capactiy; but you can not reach 
 Stettin with such vessels. Therefore Stettin has been losing trade 
 
rOUETEENTH DAY. 
 
 55 
 
 constantly to Hamburg. Hamburg is not really a Prussian port in 
 the sense in which Stettin is. The Prussian Crown is particularly^ 
 fond of Stettin, because it is old Prussian territory. Hamburg is 
 an old Hanse city, and it would like to leave Stettia out; but the 
 Government can not give Stettin a railway differential, as our rail- 
 ways gave Philadelphia and Baltimore diAerentials, and as they are 
 now giving New Orleans and Galveston differentials. That would be 
 discrimination. So this railway that is 85 miles long and that car- 
 ries 191,000 tons of freight into Berlin and 80,000 tons out, less than 
 50 carloads a day, this railway Avhich has, you may say, no traffic, 
 is going to be paralleled by a canal which will carry 660-ton vessels, 
 and which will cost $2,000J000 more than the railway costs, and then, 
 when you have put in the ()50-ton vessels, you can give Stettin lower 
 rates, because Stettin being able to reach Berlin by 600-ton vessels 
 will have the advantage of Hamburg, which can reach Berlin only by 
 means of 400-ton vessels. 
 
 Senator Forakee. Who will build that canal — the Government ? 
 Mr. Meyer. The Government will build that canal. 
 The Chairmajt. The Government will own the canal and own the 
 railroad ? 
 
 Mr. Meter. Yes. 
 
 The Chairman. And compete with itself? 
 
 Mr. Meyer. Yes, sir; but the railroad carries practically no trade. 
 It is a railroad that cost $9,000,000, and it does about 50 carloads of 
 business a day ; but the Government could not make a discriminating 
 rate which would allow that railway to build up business. But it 
 can put in a canal, because, gentlemen, water transportation is sup- 
 posed to be a natural transportation and a natural advantage, and, 
 while a canal is not exactly a river, it looks very much like a river in 
 that both of them have got water. 
 
 The Chairman. Can they fix the rates on water ? 
 Mr. Meyer. No, sir ; you could not induce them to do that. They 
 have been repeatedly asked to do that, but they say : " No ; of course 
 not. If we were to regulate the rates on the canal, we should be 
 drawn into the same conflict with local interests. It is precisely for 
 the purpose of escaping them that we desire to build this canal." 
 
 Senator Foraker. Is there a Government railway between Ham- 
 burg and Berlin ? 
 
 Mr. Meyer. Oh, yes ; but it carries only 15 per cent of the freight. 
 Eighty-five per cent of the freight goes by river, by weight. 
 
 The Chairman. Why can not the Government discriminate, if it 
 owns the railroads ? 
 
 Mr. Meyer. Because it can not stand up against the conflict of sec- 
 tional interests. We know what the feeling has been between New 
 York and Philadelphia and Baltimore and now between New Orleans 
 and Galveston. That conflict of local interests no government can 
 afford to be drawn into. So in 1878 it is a well-known fact that Mr. 
 Vanderbilt declared a rate war upon the Pennsylvania and the Balti- 
 more and Ohio over the question of differentials, for the express pur- 
 pose of convincing the Chamber of Commerce of NeW York and 
 public opinion of New York that differentials had got to be admitted. 
 Mr. Vanderbilt said, " We have got to give Philadelphia and Balti- 
 more a differential, because those cities will fight to the finish for that 
 
56 FOURTEENTH DAY. 
 
 differential." The Chamber of Commerce of New York, through its 
 secretary, Mr. Wilson, said, " That is all arrant nonsense. It is all 
 arrant nonsense to say that the New York Central has a right to 
 allow the Pennsylvania and the Baltimore and Ohio to deprive New 
 York of an acquired monopoly, a monopoly of the export trade 
 which it acquired at a time when freight moved by the Erie Canal 
 and not by rail." And that, public opinion became so powerful that 
 Mr. Vanderbilt had to go into a rate war, and one of the worst, if not 
 the worst, rate war that this country has ever seen, for the purpose 
 of demonstrating to the public opinion of New York that you had to 
 admit this differential. And the Commercial and Financial Chron- 
 icle, which is a conservative paper, in 1882 said : " These differentials 
 have got to go. The people of New York, the merchants of New 
 York, are not Socialists, are not tainted with communistic ideas ; but 
 if these differentials are not abolished something dreadful is liable 
 to happen," intimating that they might break out in a socialistic or 
 communistic way. That illustrates the nature of this conflict. The 
 Government can not get into that any more than it could keep in 
 that conflict over the grain-rate question, or than it could get into the 
 sugar-beet conflict, or than it could get into the timber-rate conflict, 
 for the same reason that grain can not move from eastern Germany 
 into western Germany and timber can not move freely and beet sugar 
 can not be allowed to go by rail. For that same reason the Govern- 
 ment may not give Stettin a discriminating rate which allows Stettin 
 to hold some of its business, the Government was not allowed to give 
 Bremen a discriminating rate which would allow Bremen to retain 
 some of its petroleum trade, and so on all through everything. 
 
 Senator Foraker. Is this rate of $1.56 "universal on all railroads 
 throughout Germany? 
 
 Mr. Meter. Yes, sir. 
 
 Senator Foraker. That is, $1.56 for how many miles? 
 
 Mr. Meyer. No matter how far you want to ship. 
 
 Senator Foraker. It is that much per ton per mile up to 125 
 miles ? 
 
 Mr. Meyer. For all distances. 
 
 Senator Foraker. How long since that rate was fixed ? 
 
 Mr. Meyer. Since 1879. They modified it from 1891 to 1894, and 
 then business broke. 
 
 Senator Foraker. To what extent was it modified — in a general 
 Avay? Did they reduce it? 
 
 Mr. Meyer. For the distances beyond 125 miles it was reduced to 
 about six-tenths of a cent — ^6 mills. 
 
 Senator Foraker. I remember, now. 
 
 Mr. Meyer. Then it was put back in 1894, and has remained there 
 since. 
 
 Senator Foraker. There has been no change since, in all that time? 
 
 Mr. Meyer. Not on domestic grain. Export grain goes at very 
 much lower rates, but when you export grain j'ou do not conflict with 
 the vested interests of any local farmers, you see. 
 
 Senator Foraker. Is that for all kinds of freight ? 
 
 Mr. Meyer. The rate of $1.56? 
 . Senator Foraicee. Yes. It differs on other commodities. They 
 have a classification? 
 
FOUETEENTH DAY. 
 
 57 
 
 Mr. Meter. Oh, yes. For example, ordinarily the rates on coal 
 and iron would be 0.76 cent ; 7.6 mills. That is the ordinary rate. 
 
 Senator Foeakee. How many classes have they ? 
 
 Mr. Meter. Six ; and then they have exceptions — special rates. 
 
 Senator Foraker. Special classifications. 
 
 The Chairman. Coming back to the question of differentials, how 
 do Baltimore and Philadelphia force a differential on New York? 
 What method or means is adopted by Baltimore and Philadelphia to 
 force New York to allow a differential ? 
 
 Mr. Meter. Why, they simply cut rates until they get such traffic 
 as they think they are entitled to or as they can get, and they fight 
 that out, and rates go away down until they are not paying to any- 
 body — to New York's roads or Philadelphia's roads or to Baltimore's 
 roads; and after they have had enough of carrying business at no 
 profit or at an actual loss they finally say, " Well, let us be reasonable 
 men and fix up some kind of a compromise here. We know perfectly 
 well that we can not prove to each other's satisfaction just how much 
 of this trade each person should get, so let us make a compromise." 
 And they make a compromise. They can say, also, " We had a free 
 fight here, and everybody was free to go as low as he wanted to. 
 The New York railroads and their shippers did the best they could 
 to bring freight to New York; the Philadelphia roads did the best 
 they could to bring freight to Philadelphia. Let us see how the 
 traffic moved during that period of fighting. Let us say 50 per cent 
 went to New York, 30 per cent to Philadelphia, and 20 per cent to 
 Baltimore." They say, " Well, that practically sums up the relative 
 strength of these different places and their bid for business. Under 
 a free fight, everybody domg the best he can, and taking any step 
 he can to get business. New York gets 50 per cent, Philadelphia gets 
 SO per cent, and Baltimore gets 20 per cent. That about represents 
 their relative strength." And that, sir, is the only way in the world 
 in which you can settle that question. 
 
 The Chairman. Baltimore may be satisfied that she has got the 
 shortest line, and she can afford to cut rates lower, even, than New 
 York and Philadelphia, because Baltimore is nearer Chicago. Is 
 not that so ? 
 
 Mr. Meyer. I do not think the question of the line has anything 
 to do with it. 
 
 The Chairman. Or the distance? 
 
 Mr. Meter. I do not think the distance has anything to do with it; 
 I think the necessities of a road have got more to do with it. 
 
 The Chairman. Yes ; there is something in that. But in a fight, 
 Baltimore being nearer, can haul the freight cheaper, perhaps. That 
 is one element. Of course, there are commercial conditions; there 
 is the question of return freight and a lot of other things to be con- 
 sidered. 
 
 Mr. Meyer. And it may be that the Baltimore road is content with 
 a much lower profit on grain, because it needs it so much more. 
 
 The Chairman. And Baltimore is nearest Chicago. I should 
 think that would have some effect. 
 
 Senator Foraker. That differential is applied only to the export 
 business, is it not — the freight intended for export ? 
 
 Mr. Meter. Yes, sir. 
 
 Senator Forakee. In fixing through rates ? 
 
58 FOURTEENTH DAY. 
 
 Mr. Meyer. Yes, sir. 
 
 Senator Forakee (continuing). With freight originating in the 
 Northwest, or grain, going through to Liverpool ? 
 
 Mr. Mbyhe. Yes ; the theory being that the total of the rail charge 
 and the ocean charge between the West and Liverpool shall be the 
 same. 
 
 Senator Forakee. ^Vhether it goes through the Boston or the New 
 York or the Philadelphia or the Baltimore port? 
 
 Mr. Meyer. Yes, sir. 
 
 Senator Forakee. And they originally fixed that, did they not, 
 with reference to the supposed disadvantages of the ports of Balti- 
 more and Philadelphia as compared with those of Boston and New 
 York? 
 
 Mr. Meyee. As to ocean transportation, yes, sir. 
 
 The Chaieman. Proceed, Mr. Meyer. 
 
 Mr. Meter. Local discrimination, then, is much worse in Germany 
 than it ever was. Personal discrimination has not been eliminated 
 from the whole field of transportation, though it has been eliminated 
 from the railway field. There is, of course, no personal discrimina- 
 tion on the railways; but this vast amount of traffic that goes by the 
 waterways is all carried subject to the greatest kind of personal dis- 
 crimination. The average boat load on the Rhine now is away up, 
 650 tons. That is considerably over a German train load. 
 
 Senator Forakee. There is no Government regulation of rates on 
 the water at all, whether river or canal ? 
 
 Mr. Meyee. No, sir; and the Government absolutely refuses to 
 undertake to regulate them. It will not go into that. 
 
 I shall now simply point out what the arrest in the decline of rail- 
 way rates has meant for Germany, and compare the German situa- 
 tion with the United States situation. In the period from 1880, 
 which we call the first year of Government ownership, to 1899, the 
 average receipts per ton mile on the German railways declined only 
 15 per cent, but prices in Germany fell on an average of 18 per cent. 
 In other words, prices fell more rapidly than railroad transportation 
 charges. That is to say, the railways did nothing in the waj'' of 
 enabling the producer to adjust himself to a new level of prices. 
 
 In the United States, on the other hand, in the period between 1880 
 and 1899 railway rates declined 42 per cent and prices declined only 
 25 per cent. That gives you some idea of the advantage that the 
 American producer, who competes for the international markets, has 
 as compared with the German. 
 
 Senator Foeakee. Was there not more of a decline than 42 per cent 
 in the United States rate ? 
 
 Mr. Meyer. In those years, 1880 to 1899, that was the percentage. 
 
 Senator Foeakee. From 1880 to 1899 we have been told here by a 
 number of witnesses that the decline was from 2 cents per ton mile to 
 0.76 of a cent. 
 
 The Chaiemajj. That was from 1870, that it decreased from 2 cents 
 to 0.76. 
 
 Senator Foeakee. Oh ! 
 
 Mr. Meyer. For the purpose of saving your time, I shall say nothing 
 more about Germany, but simply say a word about France. The in- 
 structive thing about France is that there you have private owner- 
 
FOtrRTEENTH DAY. 
 
 59 
 
 ship of the railways almost exclusively, but you have governmental 
 regulation of the rates; and that governmental regulation of the 
 rates has brought about that same arrested decline of railway rates 
 through the conflict of interests on private railways that you have in 
 Germany on government-owned railways. 
 
 The Chairman. They have two commissions ? 
 
 Mr. Meyer. They have what they call the ministry of railways. 
 
 The Chairman. Thirty-three experts, I believe? 
 
 Mr. Meter. I believe so ; I do not know the details. 
 
 The Chairman. Yes ; they have 33 experts. 
 
 Mr. Meyer. But the machinery is as follows: If a railway wants 
 to change a rate, to move it either up or down, it must give notice to 
 the prefect of the Department in which the rate is to be changed — the 
 Department being one of the administrative areas of France. That 
 jDrefect advertises the proposed change and asks people to express an 
 opinion. Any man who has a complaint to file can make it. Then 
 the prefect makes a report and sends all those documents on to the 
 minister of railways; and the minister of railways passes judgment; 
 but, of course, the minister of railways realizes that if there is much 
 opposition to a certain change he can not afford to countenance the 
 change, because his Government might lose support in the Chamber of 
 Deputies. 
 
 To show you the nature of that conflict of interests, and how far 
 you haA'^e got to make concessions to private interests, with the increas- 
 ing efficiency of the railways, they at one time threatened to wipe 
 out — to press seriously — the canal and river boats ; and so the admin- 
 istrative officers of the Government established a rule, which has not 
 the sanction of law, but which is an administrative rule that has the 
 force of law, that every railway rate must always remain at least 
 20 per cent above a canal and river rate if there is a competition 
 between the canal and the railway. The result is that you have your 
 canals and rivers doing business exactly as they did a hundred years 
 ago, except that 2| to 3 per cent of the freight that moves by water 
 is propelled by steam, the other 97^ per cent being drawn by horses 
 or by men and women. If you draw a line east and west through 
 Paris, the territory to the north of that line is the great industrial 
 and manufacturing center of France; and fully 50 per cent of the 
 business of that region is transacted by the rivers and canals— almost 
 all by the canals. The railways can get only 50 per cent of the 
 traffic. And in other parts of France you have not the same river 
 traffic and canal traffic simply because the canals and rivers are not 
 well adapted to transportation; but you have little industry there. 
 You ask how has France been able to stand this frightful state of 
 affairs ; this arrested decline of railway rates ? The answer is that ■ 
 France has practically withdrawn from the race for commercial 
 and industrial supremacy. France is not developing its great indus- 
 tries. France is scarcely holding its own in the development of its 
 industries. 
 
 Recently the founder of the Credit Lyonnais, one of the greatest 
 banks of France, or of Europe, died. The Credit Lyonnais started 
 as a bank that was a promoting bank, a bank that promoted indus- 
 tries of all kinds — railways, manufacturing enterprises, and every- 
 thing else of that kind. And when this gentleman died, who had 
 
60 
 
 FOUETEETSTTH DAY. 
 
 been some forty years the head of this Credit Lyonnais, the Credit 
 Lyonnais was exclusively an institution. that bought and sold foreign 
 government securities. It was handling no more industrial securi- 
 ties. It was not promoting industries, because, as this gentleman 
 said, " France is not promoting its industries, and there is no field 
 for activity for me, and therefore I turn to the new field of the pur- 
 chase and sale of government securities." The Frenchmen invest 
 their money — their savings, and so on — in the purchase of the securi- 
 ties of foreign governments. All that they ask for is a very moderate 
 return. They are not encouraging any industrial ventures. 
 
 Of course when we consider the question of the public regulation 
 of railway rates in France by means of governmental authority we 
 have to bear this fact in mind, that France is a decaying country. 
 "We are not a decaying country. We are a progressive country, and 
 hope to continue to progress. I shall not say anything whatever 
 about the rest of Europe, where the situation is entirely the same. 
 
 I shall now go very rapidty over the experience of Australia, 
 where there is Government ownership of railways and Government 
 regulation of railway rates through the Government ownership. 
 Australia has an exceedingly valuable lesson for us from two points 
 of view. One is this very troublesome and perplexing problem of 
 differentials to the several ports, and the other is a problem that is, 
 perhaps, even more important — the rate problem of basing points or 
 competitive points. Let us view the situation. You have in Aus-. 
 tralia three colonies of importance — New South Wales, which has a 
 harbor, Sydney, and the railways run from Sydney into the inte- 
 rior of New South Wales; then immediately to the south you have 
 Victoria, whose harbor and central point is Melbourne, with the rail- 
 ways running up into Victoria and to the frontier of New South 
 Wales. They can not go beyond, because the southern port of New 
 South Wales is the great wool-raising region of Australia, and the 
 railways of Victoria and Sydney ever since 1884 have been fighting 
 for that traffic, and the New South Wales Government says : "If we 
 allowed the Victorian railways to extend into New South Wales, or 
 if we even built our own railways so as to connect at numerous points 
 with the Victorian railways, then more traffic would go to Mel- 
 bourne, and we do not want that." Then, to the east of Victoria you 
 have South Australia, with Adelaide, which reaches up into the 
 southern port of New South Wales, or to the frontier. There you 
 have three systems of state railways fighting for the export and im- 
 port traffic with the River Rina country, which is the greatest wool- 
 producing region, and j'ou have the same kind of discrimination that 
 you have here. 
 
 Recently the minister of railways in Victoria was asked by a mem- 
 ber of Parliament whether he would state whether the government 
 had secret or private arrangements with freighters who should bring 
 business to the Victorian railways in competition with the New 
 South Wales and South Australia railways ; and the minister of rail- 
 ways said, " Yes." And thereupon the member of Parliament said, 
 " Will the minister make known those rates ? " And the minister re- 
 plied, " No, sir. It would not be good policy so to do." 
 
 Let me go on. Here you have had this rate war ever since 1884; 
 the traffic managers themselves have repeatedly agreed upon a di- 
 vision of the traffic and have said, " We are ready to stop fighting." 
 
POUKTEENTH DAY. 61 
 
 But every time that they came to their govermnents they fovmd con- 
 ditions to be as they were in 1901, when Sir George Turner, as prime 
 mmister.of Victoria, announced in public the statement: 
 
 We have rejected the compromise which the railway managers of the several 
 state railwaj- systems had reached. They look upon this question as a mere 
 question of railway revenue, but we are not interested in a beggarly question 
 of $500,000 a year more of railvray revenue. We are concerned with the indus- 
 trial supremacy of Melbourne over Sydney. We do not want traffic to go to 
 Sydney ; not because we care so much for the railway revenue, but because we 
 can not allow Sydney to become a more important exporting and Importing and 
 financial point than Melbourne. 
 
 There you have practically the same situation that you had in the 
 United States when you had the New York Central Railroad admit- 
 ting that Philadelphia and Baltimore were entitled to differentials 
 and when the New York Board of Trade and the public opinion of 
 New York forced the New York Central into a rate war. It was the 
 public opinion of Melbourne that would not permit the premier to 
 approve the division of traific, the compromise arrived at by the sev- 
 eral railway men. 
 
 Senator Foeaker. I do not want to hurry you or cut you off, but 
 what kind of rates have they in Australia ? 
 
 Mr. Met:ee. Oh, they are exceedingly high. 
 
 Senator Forakee. How do they compare with the rates in Ger- 
 many ? 
 
 Mr. Mexee. They are even higher than the rates in Germany. 
 
 Senator Foeakee. And they are Government fixed rates? 
 
 Mr. Meyee. Yes. In 1899 it cost as much to ship wheat 250 miles 
 over the railways of Victoria as it did to ship wheat from Chicago to 
 Liverpool. The Victorian farmer gets 10 bushels an acre, if he has . 
 luck. In 1900 he had had a series of four years when he got an aver- 
 age of 8 bushels; and he was obliged to compete with the Ameri- 
 can farmer who gets 13 bushels and the Argentine farmer who gets 
 14| bushels. He could not compete, and that is the reason why you 
 have had an excess of emigration over immigration from Australia. 
 
 Senator Foeakee. What has been their experience in the develop- 
 ment of railroads ? Have they built many miles of road ? 
 
 Mr. Meyee. Not anything like the mileage that we have built here, 
 because they can not make rates which will permit of the develop- 
 ment of the interior. They can build a railway, but they can not 
 make rates which will permit a man to go and settle on that railway. 
 
 Senator Foeakee. That is, their rates are arbitrary, so much per 
 ton per mile? 
 
 Mr. Meter. Yes, sir. They are so much per ton per mile. 
 
 Senator Cullom. Does the government own them ? 
 
 Mr. Meyer. Yes, sir; the government owns them and operates 
 them. 
 
 Senator Foeaker. They are all owned by the government? 
 ■ Mr. Meter. Yes, sir. 
 
 Senator Foeakee. There is no private ownership of railways in 
 Australia? 
 
 Mr. Meyee. There is a little branch line of 30 miles in the southern 
 part of New South Wales, and another one of 40 miles. 
 
 Senator Foeakee. That is very interesting and instructive, but I 
 think the committee wants to find out whether the government owner- 
 ship has proven successful or otherwise? 
 
62 
 
 FOXJBTBENTH DAY. 
 
 Mr. IMeyisr. It has proved unsuccessful, particularly from the point 
 of rate regulation. 
 
 The Chairman. It has proved ruinous? This rate in Australia 
 is the highest rate in the world, is it not? 
 Mr. Mexee. I think so. 
 
 The Chairman^. The rate charged in Great Britain, where there is 
 private ownership, is higher than the rate charged in Germany, 
 where there is Government ownership ? 
 
 Senator Forakee. All the English roads are held by private owner- 
 ship. There is no Government ownership there, is there ? 
 Mr. Meyer. No, sir. 
 
 Senator Foraker. And in France they are both private and under 
 Government ownership? 
 ]Mr. Meyer. Yes, sir. 
 
 Senator Forakee. And in Germany they are almost exclusively 
 under Government ownership ? 
 
 Mr. Meyer. Xinety-five per cent of them. 
 
 Senator Foeakee. And in Australia they are exclusively under 
 government ownership? 
 INIr. Meyee. Yes. sir. 
 
 Senator Foeakee. I shall not interrupt you further. 
 Mr. IMeyee. In Australia they have not been able to adopt what 
 we call the basing point, or the competitive point system, with the 
 result that they have not been able to develop the interior of the coun- 
 try. That was brought in this way. At one time the railways of 
 Victoria reached only 100 miles inland. Now, the railway charge 
 was, say, at the rate of 1 cent per mile for the first 50 miles ; for the 
 .next 50 miles of the haul it was three-fourths of a cent; that made 
 over the total shipment of 100 miles an average of 0.87 cent per mile. 
 Under that arrangement there were a good many importers located 
 100 miles inland who distributed still further into the interior by 
 means of ox teams and horse teams. Then the railway was built in 
 there a hundred miles inland, and they continued the tapering-rate 
 system. That is, if you made a shipment of 200 miles, you paid at the 
 rate of 1 cent for the first 50 miles, at the rate of three-fourths of a 
 cent for the next 50 miles, and at the rate of one-half a cent for 
 the next 50, and at the rate of one-fourth of a cent for the final 50 
 miles, making a total average of 0.62 cent. If you located at Mel- 
 bourne, you could take advantage of that rate of 0.62 cent. If, how- 
 ever, 3^ou were located at this point 100 miles inland, if you brought 
 commodities from Melbourne into your warehouse, you paid at the 
 average rate of 0.87 cent, and then if you shipped out another 50 
 miles, you paid again at the average rate of 0.87 cent. That is, you 
 were discriminated against to the extent of the difference between 
 0.87 cent and 0.62 cent. 
 
 These men, who were located at the point 100 miles inland, there- 
 fore asked the railway department to adopt the basing-point system, • 
 which was to make a low rate to that point 100 miles inland, so that 
 that point could reship into the interior in competition with the man 
 located at the seaboard. But the Government said that would be 
 discrimination and a departure from their hard and fast system of 
 rates, and they denied the request, with the result that the whole- 
 saler of the interior had to pull up and move to the seaport town; 
 and similarly those manufacturers who had located there had to 
 
FOURTEENTH DAY. 63 
 
 pull up and move back to the seaport town in order that they might 
 get a continuous long shipment over the railways and get advantage 
 of the low rate. That accounts for the tremendous concentration 
 of all of the trade and industry of the Australian colonies in the 
 seaboard cities. Thirty-seven per cent of the population of Victoria 
 lives in Melbourne, and that same proportion of the population lives 
 in Sydney. Forty-five per cent lives in South Australia. In other 
 words, the basing-point system of whii^h we hear so much complaint, 
 and which the Interstate Commerce Commission would have de- 
 stroyed if the Supreme Court had not overruled it on this question 
 of the basing-point system, decentralizes trade. It does not cen- 
 tralize it. It does not concentrate population. 
 
 It is generally supposed that if the basing-point system is applied 
 to Atlanta, Ga., it will concentrate in Atlanta, Ga., trade and popula- 
 tion that otherwise would go to the neighboring cities. As a matter • 
 of fact, however, it decentralizes it. The trade that is in Atlanta 
 comes from New York and those points, and not from the points 
 immediately surrounding Atlanta. That is shown by a case brought 
 before the Interstate Commerce Commission, Holzdkom i\ The Michi- 
 gan Central, in which the Interstate (]ommerce Commission itself 
 found that the basing-point system decentralizes trade. ■ The Atchi- 
 son, Topeka and Santa Fe reached southern California in 1884. It 
 found that the jobbing trade of southern California was entirely in 
 the hands of San Francisco. The Atchison, Topeka and Santa Fe 
 was interested in having a jobbing point established in southern Cali- 
 fornia, because it did not itself reach San Francisco by a line of its 
 own, and therefore had no direct interest in San Francisco. The 
 Atchison, Topeka and Santa Fe looked over the situation and it found 
 Los Angeles there ^^ath 11,000 people and San Bernardino with 2,000 ; 
 and it said to itself, " Los Angeles is the point which best promises to 
 repay eiforts to make it a basing point; " and so they gave it special 
 rates which enabled it to build up a big jobbing business in a short 
 time. And the Interstate Commerce (commission itself found that 
 that jobbing business had been built up not at. the expense of San 
 Bernardino. 
 
 There had been no transfer of business from San Bernardino to Los 
 Angeles. There had been no transfer to Los Angeles of business that 
 in the absence of the jobbing-point system would have gone to San 
 Bernardino; but there had been a transfer of business from San 
 Francisco to Los Angeles. In other words, you had decentralization 
 of trade and decentralization of population; and the Commission 
 itself found that this practically had been of benefit to the. public of 
 southern California, because the competition between the jobbers of 
 San Francisco and the jobbers of Los Angeles gave lower prices to the 
 public of southern California, and so it had aided in the development 
 of the South; and that has been the nature of the jobbing and com- 
 petitive points practically throughout this country. The railways 
 have developed the most promising points most rapidly. They have 
 by doing that not done damage to other local points. They simply 
 have prevented the overgrowing of the seaport towns — such places as 
 New York and Philadelphia — and the overgrowing of places like 
 Chicago, and so on. 
 
 Thereupon (at 4.35 p. m.) the committee adjourned until to- 
 morrow, May 5, 1905, at 11 o'clock a. m.