publications 
 
 in' THE 
 
 UlnfversftE of Pennsylvania 
 
 SERIES IN 
 
 Political Economy and Public Law 
 
 asro. 15 
 
 RAILWAY CO-OPERATION 
 
 AN INVESTIGATION OF 
 
 RAILWAY 1 TRAFFIC ASSOCIATIONS AND A 
 
 DISCUSSION OF THE DE^-FEE AND FORM OF CO-OPERATION 
 
 THAT SHOULD BE GRANTED COMPETING 
 
 H aILWAVS IN THE UNITED STATES 
 
 nv 
 
 CHARLES S. LANGSTROTH # 
 
 AND 
 
 WILSON STILZ 
 
 INTRODUCTION 
 
 HY 
 
 MARTIN A. KNAPP 
 
 Chairman of tlie Interstate Commerce Commiv 
 
 Pull 'IsftJett for tin- University 
 PHI! tDELPHty 
 
 IS! I' I 
 
 Ctnx & Co., Selling Agents, Tremonl Place, Moston, Mass 
 
&tate OfnUegc of Agriculture 
 Kt <5orncll Hmwecaitg 
 
 Htljara, ». f. 
 
 Sihranj 
 
Cornell University Library 
 HE 1829.L28 
 
 Railway co-operation.An investigation of 
 3 1924 013 692 896 „., 
 
The original of this book is in 
 the Cornell University Library. 
 
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 http://www.archive.org/details/cu31924013692896 
 
publications 
 
 OP THE 
 
 TUniversfts of Pennsylvania 
 
 SERIES IN 
 
 Political Economy and Public Law 
 
 asro- Z5 
 
 RAILWAY CO-OPERATION 
 
 AN INVESTIGATION OF 
 
 RAILWAY TRAFFIC ASSOCIATIONS AND A 
 
 DISCUSSION OF THE DEGREE AND FORM OF CO-OPERATION 
 
 THAT SHOULD BE GRANTED COMPETING 
 
 RAILWAYS IN THE UNITED STATES 
 
 BY 
 
 CHARLES S. LANGSTROTH 
 
 AND 
 
 WILSON STILZ 
 
 WITH AN 
 
 INTRODUCTION 
 
 BY 
 
 MARTIN A. KNAPP 
 
 Chairman of the Interstate Commerce Commission 
 
 Published for the University r £ \ (, 
 
 1899 I r L( ' t 
 
 PHILADELPHIA K i ,- 
 
 Ginn & Co., Selling Agents, Tremont Place, Boston, Mass. ; [ 
 
 Is 
 
PREFACE. 
 
 The two essays constituting this monograph on Railway 
 Co-operation were written in competition for a prize open 
 annually to a limited number of students in the senior class 
 of the Wharton School of Finance and Economy of the 
 University of Pennsylvania. This prize was established in 
 1896 by Mr. Henry C. Terry, of Philadelphia, in honor of 
 his son, Willis Terry, who died suddenly two months after 
 graduating from the Wharton School. 
 
 The second set of essays submitted in competition for the 
 Willis Terry Prize were prepared under my supervision during 
 the academic year 1897— 1898. The subject which the five 
 competitors investigated and wrote upon was given to them 
 ten months before the essays were submitted in final form for 
 examination. The five essays were all prepared with care ; 
 but two of the contestants, Mr. Charles S. Langstroth and 
 Mr. Wilson Stilz, gave a large amount of time and research 
 to the preparation of their essays, and when the judges came 
 to pass on the merits of the manuscripts, it was agreed by the 
 judges, not only that the essays by these two young men 
 were the best of the five, but that the studies were of such 
 exceptional value as to make it desirable for the University of 
 Pennsylvania to include them among its publications. 
 
 In making their award, the judges gave the prize to Mr. 
 Langstroth and made honorable mention of Mr. Stilz's essay. 
 They recommended that both papers be published, not only 
 because each possessed a high order of merit, but also for the 
 reason that the two authors had treated the subject differ- 
 ently and in such a manner that the two essays complemented 
 
 (iii) 
 
iy Preface. 
 
 each other in a large degree. Although not one of the 
 judges, I fully agreed with them. The two essays taken 
 together constitute what seems to me to be a most useful 
 contribution to the literature dealing with the railway 
 question. 
 
 In submitting the subject of the essays to the contestants, I 
 accompanied the statement of the subject with the following 
 explanatory remarks : 
 
 "The essay is to be a concrete study of the practical 
 question of the co-operation of the railways in the United 
 States at the present time. Present and former traffic asso- 
 ciations will require investigation, not for the purpose of 
 setting forth the details of their history, but for the purpose 
 of depicting the economic and social forces that account for 
 the efforts of the railways to promote co-operation and of the 
 public to maintain complete competition. The past and pres- 
 ent agreements of traffic associations, the legislation of the 
 States and of the United States, and the more important 
 judicial decisions affecting railway associations constitute the 
 chief materials to be used in the preparation of the essay, 
 which is to deal, first, with the interpretation of these 
 materials, and, second, with a discussion of the present, prac- 
 tical, economic and political question — the extent and form 
 of railway co-operation which, in the light of our past experi- 
 ence, should be granted to competing railways." 
 
 The authors carried on the investigation thus outlined each 
 in his own way; and, although they consulted with me 
 frequently, the work in the strictest sense of the term is their 
 own. As counselor and critic, I took pains to give each 
 contestant the fullest intellectual freedom. The literary work 
 of the two authors whose essays are printed in this mono- 
 graph was such that but few changes in style were required. 
 Both essays were accompanied by a bibliography, but as the 
 two bibliographies did not differ very greatly, only one, that 
 prepared by Mr. Langstroth, has been printed: 
 
Preface. v 
 
 The views held by Mr. Langstroth and Mr. Stilz on railway 
 questions, as well as those entertained by myself and all other 
 students of those problems, have been largely influenced by 
 the work and reports of the Interstate Commerce Commission. 
 The writings of the present chairman of the commission, the 
 Honorable Martin A. Knapp, hold a high place in transporta- 
 tion literature, and it is a source of especial pleasure to the 
 authors of this monograph and to myself that he has prepared 
 an introduction to this study. He has set forth the relation 
 of these essays to a treatment of the general subject of rail- 
 way transportation, and has outlined the principles of govern- 
 mental regulation of railroads in such a manner as to add very 
 much to the value of this publication. 
 
 Emory R. Johnson. 
 
 August, 1899. 
 
INTRODUCTION. 
 
 And no doubt, when the whole subject is carefully examined and wisely con- 
 sidered, it will be found that the true interests of the owners of railroad property 
 may be made to perfectly harmonize with the true interests of the public, and 
 that it will be as wise for the state to encourage and protect whatever in corpo- 
 rate arrangements is of beneficial tendency as it will to suppress what is mis- 
 chievous. — Thomas M. Cooley. 
 
 This was the utterance fifteen years ago of an eminent 
 jurist and thoughtful student of railroad transportation. The 
 forecast thus expressed embodies a weighty truth which is 
 rapidly gaining recognition and will ultimately come to full 
 acceptance. Contrasted with actual conditions, however, it 
 seems in one aspect an impracticable view, while in another it 
 suggests the magnitude and complexity of the railway prob- 
 lem. How to secure from carriers by rail the most efficient 
 and most equitable service at the lowest reasonable cost ; how 
 to promote the development and increase the usefulness of 
 these agencies of commerce, and at the same time hold them 
 in such control as to prevent the abuse of corporate power ; 
 how to combine their facilities to the ends of highest utility 
 without incurring the risk that public rights will be impaired 
 or public welfare imperiled ; how to harmonize conflicting 
 interests of such vast proportions and place the people and 
 the railways on a plane of equal advantage and protection, 
 are questions of such grave import as to test the wisdom of 
 statesmanship and tax the resources of public authority. 
 
 It cannot be doubted that the solution of these questions 
 will be greatly aided by an intelligent use of experience. 
 While they are presented in many phases and frequently modi- 
 
 (vii) 
 
viii Introduction. 
 
 fied by new conditions, the careful study of what has already 
 occurred must prove of unquestioned value. For this reason 
 it is highly important that the facts of transportation history 
 should be known and their significance understood not only 
 by those who own and manage our railway properties, and 
 are primarily responsible for their operation, but quite as much 
 by the masses of people whose interests are directly involved 
 and who have the power to determine the nature and extent 
 of control to which public carriers shall be subjected. 
 
 While the railroads of the country have been of incalculable 
 benefit, the chief agency of our wonderful growth and pros- 
 perity, their construction and management as private enter- 
 prises have brought about more or less friction and conflict 
 with those who are dependent upon their services. This 
 happens so frequently that in popular estimation there is 
 an almost continuous controversy between the public on 
 the one side and the carriers on the other. Both parties 
 have been influenced by a desire to bring their differences to 
 a fair adjustment, and each of them has tried in its own way, 
 though without much assistance from the other, to reach a 
 satisfactory settlement. 
 
 On the part of the public the contest has been mainly 
 carried on by means of legislation. The law-making power has 
 been constantly resorted to for relief from real and protection 
 against imaginary evils, and to force from the roads by statu- 
 tory enactments compliance with popular demands. Scores 
 of measures for controlling the methods and charges of rail- 
 way carriers have been passed, many of which were well con- 
 sidered and useful, though not a few were distinctly unwise 
 and mischievous. At the outset some effort seems to have 
 been made to provide restraints by means of charter provis- 
 ions, which were modeled after those granted to canal and 
 turnpike companies, but this method of furnishing safeguards 
 against corporate wrong-doing was an undoubted failure. At 
 best it was only a preventive remedy, which was tried in a few 
 
Introduction. ix 
 
 cases and found of no value. The doctrine of non-interfer- 
 ence by the government was stoutly maintained during this 
 period, and most of the States appear for a time to have 
 abandoned all efforts to impose exceptional or restrictive laws 
 upon railway carriers. 
 
 The two feverish decades that followed the civil war were 
 characterized by prodigious activity in railroad building. 
 Excessive and premature construction was encouraged by 
 popular demand or found its incentive in visionary expecta- 
 tions. In the eager haste to secure railroad facilities an 
 unwarranted premium was offered to those who would furnish 
 them. Enormous grants of public lands, donations of private 
 property and endless obligations in the form of county, town 
 and municipal bonds were freely and often inconsiderately 
 given to aid the extension of roads into remote and undevel- 
 oped regions. Schemes of crazy speculation often resulted 
 in capitalization unwarranted by cost or earnings, while the 
 temptations of financial necessity furnished excuse for dis- 
 honest management. The opportunity to engage in the 
 business of railroad transportation was almost unlimited, 
 because under state laws the formation of railway corpora- 
 tions was easily effected and the restraints to which they were 
 subjected meager and ineffectual. The inevitable outcome of 
 this prolific creation of carriers was a brood of railroad evils, 
 arising from reckless financiering and the intense competition 
 of rival lines. 
 
 About 1 870 attempts at regulation were made in several of 
 the States, and although only partial success was attained, 
 much of permanent value was accomplished. It was speedily 
 seen, however, that State legislation is inadequate. It is influ- 
 enced by the circumstances and prejudices of locality, and is 
 therefore variable in its aims and unequal in its requirements. 
 So far as it undertakes to control railroad operations, it is 
 liable to be so feeble and inefficient as to be practically with- 
 out benefit, or it may be so vexatious and burdensome as to be 
 
x Introduction. 
 
 plainly oppressive. While the laws relating to property may 
 be dissimilar and conflicting in different sections without 
 serious injury, the laws relating to transportation need to be 
 uniform, or at least harmonious, in all the territory under a 
 common government. 
 
 Prior to 1887 Congress had made no comprehensive effort 
 to regulate commerce "among the several States." Its con- 
 stitutional power in this direction had never been exerted and 
 consequently never tested. The railroads had already 
 absorbed a large portion of the international carrying trade, 
 and were prosecuting their operations regardless of State 
 boundaries and restrained only by the lax and insufficient 
 provisions of the local statutes under which they were organ- 
 ized. Under this system, or want of system, which charac- 
 terized the history of railway legislation up to a recent period, 
 abuses arose which the States were powerless to correct, and 
 which assumed such startling proportions that the interference 
 of the national government was vehemently demanded. This 
 demand was fortified by a decision of the United States 
 Supreme Court, in 1886, to the effect that a State has power 
 to regulate rates only on such traffic as does not pass its 
 boundaries, thus confining State authority within narrower 
 limits than its exercise had been attempted. The agitation 
 which had already aroused public sentiment culminated in 
 the passage of the Act to Regulate Commerce, approved 
 February 4, 1887, and thus was inaugurated a scheme of 
 federal regulation. 
 
 It is not the province of these introductoiy paragraphs to 
 review the results thus far attained by State or national efforts 
 to control the business of railway carriers ; nor was that the 
 principal purpose of the writers of the two essays contained 
 in the following pages. Although it was only incidental to 
 the development of their main topic, nevertheless Mr. Langs- 
 troth and Mr. Stilz have set forth these results with such 
 clearness and accuracy that their productions will be found 
 
Introduction. xi 
 
 of great value to the student of public regulation. Under the 
 title of Railway Co-operation these essays are primarily a 
 study of the attempts of railway companies, through volun- 
 tary action induced by self-interest, to deal with the difficulties 
 of unrestrained competition. Those difficulties were not seri- 
 ously felt in the early history of railroad operations. The 
 lines first constructed were mostly of limited extent and their 
 business largely confined to traffic originating in the several 
 sections where they were located. The opportunity for com- 
 bination seems for some time not to have been appreciated, 
 while the aggregation of capital and unification of control were 
 generally regarded with distrust and hindered by opposition. 
 Gradually, however, the union of connecting lines was effected 
 until finally there came into existence the great railway systems 
 with which we are familiar. The objections to consolidation 
 of this character have mainly disappeared, for the predicted 
 evils have not been experienced and the benefits to the public 
 are everywhere recognized. 
 
 Although the relations of the roads have been gradually 
 changed by this process of development, the resulting compe- 
 tition between systems has correspondingly grown in force 
 and intensity. The conditions are different, but the difficulties 
 have greatly increased. For many years railway managers 
 have tried to maintain harmonious relations with each other 
 and thereby avoid the losses and demoralization of interline 
 warfare, Yet during all this period the public opposition to 
 rate agreements, division of competitive traffic and other 
 arrangements of similar character has been constant and 
 decided. The cause of this opposition can be understood 
 only when our railway history is viewed in connection with 
 the social and economic development of the United States 
 during the last half century. In dealing with this complex 
 situation it is necessary to test the various measures adopted 
 by their effects upon the service and the relations of that ser- 
 vice to the public ; and the student of railway questions 
 
xii Introduction. 
 
 should examine the results of efforts put forth from time to 
 time by railroad managers and by the public, as different 
 aspects of the difficulty have been viewed from their respec- 
 tive stand-points. The writers of this volume have been highly 
 successful in co-ordinating the events of railway history with 
 other social and economic activities, and by so doing have 
 contributed to a better understanding of both. Regarded 
 simply as a historical and critical review of the leading inci- 
 dents in railroad development, these essays combine the 
 merits of a work of reference and a philosophical treatise upon 
 the subject. 
 
 The concluding sections of each monograph are devoted to 
 a consideration of " the extent and form of railway co-opera- 
 tion which, in the light of our past experience, should be 
 granted to competing railways." This, after all, is the vital 
 point of the whole discussion. How can the benefits of asso- 
 ciated action be made available without incurring dangers from 
 the concentration of corporate powers ? If this far-reaching 
 inquiry can receive a satisfactory answer the difficulties of 
 regulation will be largely removed. So far as railway expe- 
 rience can guide to correct solution, it will be found epito- 
 mized in the history of the various traffic associations through 
 which railroad managers have endeavored to put some effec- 
 tive restraint upon rate competition. The papers contained 
 in this volume exhibit the most thorough and exhaustive 
 study that has yet been made of these organizations ; and it is 
 specially interesting to note that both writers, examining the 
 question in the light of past events and with reference to 
 public advantage, have reached the conclusion that co-opera- 
 tion by rival carriers should be sanctioned by law. 
 
 This conclusion accords with the views of those who have 
 bestowed the most intelligent reflection upon the subject of 
 railway regulation. In the last analysis it is seen that all' 
 measures of legislation are designed to the one end of securing 
 at all times and to all persons just and equitable charges for 
 
Introduction. xiii 
 
 public transportation. To attain this result and secure its 
 consequent advantages, the railroads of the country should be 
 regarded in their entirety and treated so far as possible as a 
 single system for all the purposes of legal regulation. Practi- 
 cally there is no such thing as an independent or isolated 
 railway. There are many members, yet but one body. 
 Between the different parts of this complex organism there is 
 such relationship and mutual dependence that whatever affects 
 one must in greater or less degree affect the others also and 
 the public interest as well. Whatever, therefore, tends to 
 harmonize action between different lines, whether connecting 
 or competing, whatever operates to bring the railway service 
 into more uniform and systematic operation should be pro- 
 moted and encouraged by suitable enactments and appropriate 
 administration. 
 
 Nor will any just theory of legislation proceed upon the 
 assumption that the public alone are in need of protection and 
 that the railroads can take care of themselves. Such a view 
 is unfair and illogical. The shipper is entitled to have his 
 property transported at a reasonable price, the carrier equally 
 entitled to reasonable compensation for performing the service. 
 The collision of pecuniary motives by which both parties are 
 influenced gives rise to the controversy over rates and 
 charges. This conflict is incessant and sometimes extremely 
 severe. But the shipper is not always worsted in the encoun- 
 ter. He is quite often the successful contestant. The 
 necessity of the carrier is often the opportunity which the 
 shipper unscrupulously turns to his own profit. Odious extor- 
 tions have been practiced by railway managers; shippers 
 likewise have been unreasonable and dishonest. The public 
 service in which the carrier engages is undertaken for private 
 gain. The shipper avails himself of this public service, like- 
 wise for private gain. The selfishness of human nature is on 
 both sides of the transaction. Now, the object of legal regu- 
 lation is to hold these opposing forces in stable equilibrium; to 
 
xiv Introduction. 
 
 reduce contests and complaints to a minimum, and to bring 
 the dealings between the railways and their patrons under the 
 control of mutual justice. The sufficient scheme of legislation, 
 therefore, will recognize the possibility of wrong-doing on one 
 side as well as the other ; it will be judicial rather than parti- 
 san in its aims and requirements, and while equipping the 
 shipper with ample protection will also furnish the carrier with 
 all needful defenses. This is true not only as to rates on 
 competitive traffic, but also as to relative rates between com- 
 peting centres of trade. So far as the law can provide reme- 
 dies for grievances which grow out of these conditions, those 
 remedies should be available both to the carrier and the 
 public. Reasonable charges to the one and reasonable 
 remuneration to the other are alike involved in any just idea 
 of regulation ; and laws which realize that idea in practical 
 results will conserve the rights of the railways to the full 
 extent consistent with the rights of the people. 
 
 These beneficent ends cannot be reached without conferring 
 upon railroad corporations privileges of association and rights 
 of contract with each other which are denied by existing laws. 
 The facts of experience and familiar knowledge demonstrate 
 the error and inconsistency of a legislative policy which makes 
 rate competition compulsory and at the same time condemns, 
 as criminal misdemeanors, the methods and inducements by 
 which in all other spheres of activity competition is mainly 
 effected. The time has come for combining the facilities and 
 unifying the operations of railway carriers that they may 
 better meet the demand for stable rates, equal treatment and 
 cheaper transportation. We must surely believe that the 
 government of the United States has the strength, the 
 courage and the sagacity to permit this indispensable service 
 to be performed by friendly association, and at the same time 
 provide ample safeguards against the dangers of railway 
 federation. 
 
Introduction. xv 
 
 These theories of legislation find much support in the 
 
 thoughtful essays of Messrs. Langstroth and Stilz. They 
 
 are a valuable contribution to railway literature and will be 
 
 read with interest and profit by all who desire accurate 
 
 knowledge of railway history and correct views of railway 
 
 regulation. 
 
 Martin A. Knapp. 
 
 Washington, D. C, August 3, 1899. 
 
Railroad Co-operation in the 
 United States* 
 
 BY 
 
 CHARLES S. LANGSTROTH. 
 
TABLE OF CONTENTS. 
 
 CHAPTER I. 
 
 Co-operation of Connecting Railroads. 
 
 page 
 Causes. — Consolidation. — Fast freight lines. — Consequent stimulus to com- 
 petition 9 
 
 CHAPTER II. 
 Co-operation of Competing Railroads. 
 
 Part i. — Economic and Social Eorces^Accounting for such Co-operation. — 
 Railroad problem due to competition. — Excessive competition leading 
 to rate wars. — Personal discriminations. — Place discriminations . . 14 
 
 Part 2. — Agreements to Sustain Rates — Early history. — Agreements be- 
 tween trunk lines. — Failure almost universal 20 
 
 Part 3. — Agreements to Divide Traffic. — Idea at the basis of such agree- 
 ments. — Early history. — In the West. — In the South. — In the 
 North. — Review 31 
 
 CHAPTER III. 
 
 Legislation and Its Results. 
 
 Part I. — Prohibitive Legislation. — Public opposition. — Legal status and 
 
 State legislation. — Federal legislation 55 
 
 Part 2. — Evolution of Traffic Agreements. — Necessity for reorganization — 
 
 In the East. — In the South. — In the West. — Present status .... 61 
 
 Part 3. — Extent of Evils Due to Competition. — Discriminations pro- 
 hibited. — Prohibition evaded. — Difficulty of detection. — Strong in- 
 ducement to discriminate. — Injurious effects. — Summary 7° 
 
 CHAPTER IV. 
 
 Degree and Form of Co-operation That Should be Granted 
 Competing Railways. 
 
 Public nature of the railway's services. — Competition relied on for regulation. 
 — Competition under the pooling agreement. — Possible abuse of the 
 right to pool. — Pools, if allowed, should be regulated. — Form of 
 regulation 79 
 
 Sources of Material and Bibliography 100 
 
 (7) 
 
CHAPTER I. 
 
 Co-operation of Connecting Railroads. 
 
 The earliest combinations of railroads in the United States 
 were those made by several lines jointly engaged in the 
 carriage of through traffic. This form of combination was 
 merely a consolidation of different links into one connecting 
 line, in order to secure the benefits of unified management. 
 
 The railroads in this country were at first of a purely local 
 character ; their traffic originated and ended at places on the 
 same road. Very often the railroads were regarded merely 
 as feeders for the canals. With the development of a large 
 through traffic, however, a system of transportation which 
 required frequent transhipments of the goods naturally involved 
 great waste. The shipping public also suffered, since, each 
 link in the chain being under a separate management, it was 
 difficult if not impossible to determine responsibility for loss 
 or damage. 
 
 The actual condition of affairs under such a system has 
 been described by Edwin D. Worcester, secretary of the New 
 York Central, in his testimony before the Senate Committee 
 on Transportation Routes to the Seaboard. The description 
 applies to the conditions which existed before the consolida- 
 tion which took place in 1851 and 1853 : 
 
 " We had ten roads between Albany and Buffalo. There 
 was just about as much efficiency in operating ten roads as 
 there would be in ten men trying to do a thing that one ought 
 to do. Every board of directors had its own profit to make 
 and its own schemes to advance. There was no obligation 
 on the part of any one company to do anything for any other. 
 Through lines of cars could be run only by very complicated 
 and embarrassing arrangements. I can remember the time 
 when conductors were changed at the end of each one of the 
 
 (9) 
 
io Railroad Co-operation in the United States. 
 
 roads of the old line between Buffalo and Albany. In some 
 cases a ticket could not be bought through from Albany to 
 Buffalo. The elements of usefulness and economy were very 
 few. In regard to freight, there was no obligation on the part 
 of any one of the roads to take a single pound of it from 
 another. Except as far as they might agree with each other, 
 it involved changing at each terminus." 1 
 
 Consolidation. — It was to overcome this state of affairs that 
 the railroads entered into their earliest combinations. Con- 
 solidation had been begun in some sections before i860, but 
 in general it was not until well along in the seventies that any 
 considerable number of the roads had given up their inde- 
 pendence. 
 
 The Pennsylvania engaged more extensively in such oper- 
 ations than any other company. With an original line of 249 
 miles, by 1869 this company had secured, through purchase 
 and leases, and by construction of certain connecting links, a 
 line of 2,458 miles. The New York Central forms another good 
 example of the growth by consolidation during this period. 
 It was formed in 1853, of what had been originally eleven 
 railroads. Within five years five more lines had been added, 
 and in 1 869 there was under one general management a line of 
 more than 4,000 miles long. During this same period were 
 developed in a manner nearly similar the other trunk line 
 systems — the Erie and the Baltimore & Ohio. In the West 
 the great railway systems have grown and consolidated even 
 more rapidly than in the East. 
 
 There has been not a little public apprehension in regard to 
 the growth of these enormous companies, with the concentra- 
 tion of such great power in the hands of a few men. If great 
 power has been placed in the hands of a few, however, at 
 least one of its uses has been to promote public interests. 
 Facilities for cheap, rapid and convenient movement of pas- 
 sengers and freight between distant points have been improved, 
 
 1 Windom Report, 1874, Evidence, p. 157. 
 
Co-operation of Connecting Railroads. n 
 
 delays and changes of cars have been avoided, and the respon- 
 sibility of the carriers has been increased, to an extent that 
 without consolidation would have been impossible. 
 
 In 1873, the Massachusetts Railroad Commissioners said 
 of consolidation, "not only have the evils anticipated not 
 resulted, but it would seem that the public has invariably 
 been better and more economically served by the consolidated 
 than by the independent companies. The larger companies 
 employ abler officers, and seem to be managed more on the 
 system of great departments of commerce and less on that of 
 lines of stage coaches. There is, in fact, far less of friction in 
 the work of transportation and far more of a system. Finally, 
 as regards the community at large, it is found that large 
 companies can be held to a closer responsibility than small 
 ones." 1 
 
 In 1874, the*Windom Committee expressed itself in favor 
 of the consolidation of separate links into through chains, on 
 the ground both of economy and of increased and centralized 
 responsibility. 2 
 
 Fast Freight Lines. — Forms of combination other than actual 
 consolidation have been entered into by connecting railroads 
 to secure the advantages of unified management. For the 
 purpose of handling the traffic with which several roads were 
 concerned, entirely distinct organizations were established; 
 these "fast freight lines," as they were called, owned the cars 
 used for through traffic and assumed the necessary responsi- 
 bility. They collected the charges from the shippers and 
 paid the railroads certain specified tolls for motive power and 
 use of road-bed. The most serious abuse connected with the 
 system was that the officers of the railroads were also inter- 
 ested in the freight line and would consequently give it 
 exceptional advantages. 
 
 This evil was obviated by the establishment of the co-oper- 
 
 1 Report, p. 138. 
 
 2 Transportation Routes to the Seaboard, p. 138. 
 
12 Railroad Co-operation in the United States. 
 
 ative fast freight lines. These were neither separate organiza- 
 tions nor partnerships ; they were simply car clearing-houses, 
 whose main duties were to keep the accounts of the traffic in 
 which several roads were concerned and to adjust balances. 1 
 Their plan of operation was this : the through traffic was 
 hauled in the cars of any of the roads forming the line, the 
 company owning the car received a certain mileage for 
 its use (say three-fourth cents per mile run) ; 2 and the remain- 
 der of the receipts was divided up among the roads in propor- 
 tion to the distance each had hauled the freight. Collections 
 and disbursements were made by the line, but only as agent 
 for the different roads. It accordingly had no income of its 
 own and was supported by assessments on the different roads. 
 As Hadley says, " It cannot be made a means of fraud, any 
 more than a clearing house can be made a means of fraud. 
 The sum of debit balances for one set of roads must equal the 
 sum of the credit balances for the rest, leaving the line itself 
 neither the gainer nor the loser." 3 
 
 A typical example of the saving resulting from this system 
 is shown in the experience of the New York and Erie. By 
 simply changing from the old form of handling through ship- 
 ments to the co-operative form, the expense of looking after 
 through freight was reduced by this road from 9 per cent of 
 the earnings on such freight to 3 per cent. 4 
 
 The service performed by the two kinds of fast freight lines 
 can hardly be overestimated. Without their aid only a very 
 small proportion of the through rail freight movements would 
 have been possible. They have been the main factor in 
 bringing about the abolition of the practice of transferring 
 
 1 Hepburn Committee Report, p. 8 ; testimony, p. 2963. 
 
 2 Varying according to the condition of the track — largest in the South, 
 smallest on the trunk lines. (Hadley " Railroad Transportation," p. 88.) 
 
 » " Railroad Transportation," p. 89. 
 
 * Report on Transportation Routes to the Seaboard, testimony. (Blanchard) 
 P- 364- 
 
Co-operation of Connecting Railroads. 13 
 
 freight from one set of cars to another at the connecting point 
 between two lines, and in avoiding the many delays and 
 expenses otherwise attached to long through shipments. 1 
 
 Stimulus to Competition. — The result of the cheapening of 
 through rail traffic by means of consolidation and of fast 
 freight lines, has been to increase the opportunities for compe- 
 tition and to strengthen its intensity. 2 Without the aid of 
 these factors a large part of the through traffic would never 
 have gone by rail, and the amount shipped under the old 
 extravagant conditions of transhipment would have been 
 insignificant as compared with the volume of existing traffic. 
 The ability of the railroads to haul a commodity a long 
 distance without consuming its value, led, however, to the 
 increase of competitive traffic, to secure which the railway* 
 were willing to make strenuous efforts. 
 
 1 Ringwalt : Transportation Systems in the United States, p. 193. 
 5 Windom Report, p. 138. 
 
CHAPTER II. 
 
 CO-OPERATION OF COMPETING RAILROADS. 
 
 (i) Economic and Social Forces Accounting for Such 
 Co-operation. 
 
 Railroad Problem Due to Competition. — The motives that 
 have led connecting roads to combine have been of a much 
 less complicated nature than those that have actuated the 
 co-operation of competing lines. The average railroad man 
 regards competition as being responsible for nine-tenths of 
 the evils of our railway system. To overcome these evils 
 has been the chief motive leading to such combinations. 
 
 From the establishment of our railway system, transporta- 
 tion has been looked upon as being regulated by the natural 
 safety-valve of competition. The earliest roads were constructed 
 with the belief that they were merely improved highways, that 
 every one would be at liberty to run his own wagons or cars 
 upon them by the payment of a certain toll to the company, 
 and that the only artificial regulation needed was to prescribe 
 maximum rates of tolls. Although this idea of improved 
 highways was soon abandoned, and the maximum rates either 
 abolished or antiquated, the belief in the power of competi- 
 tion remained unshaken. Competition was relied upon as the 
 natural regulator of this and all other industries, and it is to 
 the failure of competition to perform its part that we owe our 
 railroad problem. 
 
 Charles F. Adams says, 1 "As events have developed them- 
 selves, it has become apparent that the recognized laws of 
 trade operate but imperfectly at best in regulating the use made 
 of these modern thoroughfares by those who thus both own 
 and monopolize them ;" and he defines the railway problem as 
 the question of finding some other means of making good 
 1 " Railroads," p. 81. 
 
 (14) 
 
Co-operation of Competing Railroads. 15 
 
 the deficiencies thus revealed in the working of the natural 
 laws. 
 
 The unsatisfactory results of competition in regulating the 
 railways of our country — and the numerous evils developed 
 under it — may be attributed to certain inherent qualities of the 
 transportation industry. These qualities, which seem to be 
 peculiar to the railroad industry, may be considered as three 
 in number : 
 
 1. Excessive competition, resulting from the oversupply of 
 
 transportation facilities and the permanent character 
 of the railroad when once constructed. 
 
 2. Slightness of the relation between the amount of service 
 
 and the cost of each unit of service performed. 
 
 3. Partial application of competition, which exerts an influ- 
 
 ence on only a portion of any road's traffic. 
 
 Excessive Competition Leads to Rate Wars. — The intensity 
 of the struggle between competing railroads arises from the 
 existence of an oversupply of transportation facilities caused 
 either by ignorance of the conditions of trade or by the profit 
 to be made in mere construction. The influence exerted by 
 an oversupply of facilities has not been so important a factor 
 in the other industries as in the railway, for two reasons : the 
 motives have not existed generally that cause such an over- 
 supply ; and where an oversupply does occur its influence is 
 not so powerful because of the more temporary character of 
 the industry. 
 
 In an ordinary industry, competition so works out that 
 when, for any reason, an oversupply of facilities exists — 
 when more products are being made than there is a demand 
 for — the price of the product will fall, the producers carrying 
 on business at the greatest disadvantage will be forced out, 
 and production will be curtailed. But when a railroad is once 
 established, it is established for good and all ; rather than 
 shut down, a road will continue to run if its revenues pay run- 
 ning expenses and leave anything at all to pay for running it. 
 
1 6 Railroad Co-operation in the United States. 
 
 The history of the railroad's development in the United 
 States so abounds with examples of desperate competition for 
 traffic that it is hardly necessary to cite any special instances. 
 The point to which a railroad rate will fall during a " rate 
 war" is fixed by the actual cost of each particular operation. 
 During a rate war, a railroad cannot attempt to make each 
 part of the traffic pay its share of the fixed expenses ; a man- 
 ager is satisfied if he can make anything over actual operating 
 expenses. This accounts for the desperate character of such 
 wars as those between the trunk lines from 1869 to 1878, 
 when rates fluctuated from 82 cents to 10 cents. 1 
 
 The violent reductions in rates during rate wars result in 
 great evil to the business public, who depend upon stability 
 of trade conditions, and to the railroads, whose revenue from 
 competitive traffic is often practically annihilated. 
 
 To sum up in a few words the first class of competitive con- 
 ditions which we have found to apply with peculiar strength 
 to the railway, they are : that powerful influences have caused 
 the creation of an oversupply of transportation facilities ; that 
 the consequent results have been more pronounced owing to 
 the permanent nature of a railroad once constructed, and that 
 these results in an industry with such a large proportion of 
 fixed capital are violent strife and fluctuating rates. 
 
 Personal Discriminations. — The roads have made every 
 effort to avoid such strife by adhering to a sort of tacit agree- 
 ment as to the rates charged. Of course it is desirable for 
 the roads to keep up rates to a paying level, but then it is 
 still more desirable for one road to ask just a little below the 
 rate charged by its rivals. This brings us to the second great 
 evil caused by competition — the special rate given to individual 
 shippers. The temptation to give a discriminating rate does 
 not lie in the fact that the total volume of freight will be 
 increased, but in the fact that each additional unit of freight 
 can be hauled at a proportionately less charge. 
 
 1 Albert Fink, New York, 1884. 
 
Co-operation of Competing Railroads. iy 
 
 In the railroad industry we find a peculiarly slight relation 
 between volume of traffic and the proportionate cost of each 
 unit hauled. While the conditions in most industries are 
 undoubtedly such that an increase in production will not 
 mean a corresponding increase in the total cost, it is never- 
 theless true that in no other industry is the cost of performing 
 an increased service so low compared with the cost of the 
 previous amount of service, as in the railway. 
 
 The consequence of this peculiarity of the railway is the 
 attempt made by the railroad to get the freight of a large 
 shipper by offering him a slight rebate. The shippers them- 
 selves often take the initiative in the matter of special rates> 
 working one road off against another. Very often the ship- 
 pers make the grossest misrepresentations and of course one 
 railroad has no possible opportunity to verify the statements 
 about its rival made by a shipper anxious to secure favorable 
 rates. 
 
 Under such conditions the result under unrestricted com- 
 petition was that special rates were given to those who asked. 
 This was well shown by the Hepburn Committee's report in 
 1879 : " He who goes into a railroad office and barters for a 
 low rate gets it ; he who, relying on the equitable treatment 
 which common carriers are bound to give, or not knowing 
 that secret special rates may be had, delivers them his goods 
 and calls for his freight bill, pays a higher rate." 1 
 
 That discriminations existed wherever it was possible for 
 them to exist can hardly be doubted. The Hepburn Com- 
 mittee report is the earliest reliable source of information 
 regarding the prevalence of the practice of granting discrimi- 
 nating rates. The report said : " The charge that the railroads 
 discriminate in favor of certain individuals, as compared with 
 others in the same locality, is fully proven. . . . The 
 committee find, made and in force within the period of one 
 year, a number of special contracts on the New York 
 
 1 Report, p. 66. 
 
1 8 Railroad Co-operation in the United States. 
 
 Central and the Hudson River Road, estimated by the railroad 
 people at six thousand. The number on the Erie was very- 
 much less though the practice of giving them was the same." 1 
 
 The condition in the West was described in the Cullom 
 Committee Report of 1886, where J. W. Midgely says: 
 " While the tariff from Chicago to Kansas City on the first 
 four classes of freight was 90, 70, 50 and 30 cents per hun- 
 dred pounds respectively, large shippers had contracts at one- 
 half the rates named, while a few secured contracts at even 
 less than half." 2 These two examples are sufficient to show 
 the conditions which resulted from competition ; it is hardly 
 necessary to cite any further instances of what is a univer- 
 sally admitted fact. 
 
 Such a system of discriminating between individuals violates 
 the fundamental premises of the law of competition and shat- 
 ters the foundation on which the successful working of that 
 law must rest — that equal opportunity under similar circum- 
 stances must be afforded to all. We know what the effect 
 would be if the government were to tax one firm at twice as 
 high a rate as another; and no great depth of economic 
 thinking is required to extend this knowledge to the railroad 
 situation — that the very soul of competition is equality of 
 treatment, and that wlrere this equality does not exist there 
 will be monopoly. 
 
 The injurious effects of this abuse of the railroad's power 
 were felt not only by the shipper. It reflected on the rail- 
 roads themselves — although they created this evil they were 
 one of the greatest sufferers from it. Why they continued a 
 practice from which they were the greatest sufferers, is, as 
 Van Oss says, a mystery ; and he draws the following picture 
 of their position : " Like gamblers in a Montana mining camp 
 everybody knew he had to be on his guard against others, yet 
 confidently expected not only to hold his own, but to be * one 
 
 'Ibid., p. 48. 
 
 2 Cullom Report — Appendix, p. 226. 
 
Co-operation of Competing Railroads. 19 
 
 too many ' for all players, no matter how many cards each 
 might have up his sleeve." 1 
 
 A good summary of the evils of discrimination was made 
 by Haines, a prominent Southern railroad manager, before the 
 Cullom Committee : " This system went on from bad to 
 worse, centring the business of competitive points in fewer 
 hands, drawing the business of neighboring stations to com- 
 petitive points, and rendering it impracticable for a man with 
 small capital to establish himself in business under such cir- 
 cumstances. . . . The railroad managers no longer con- 
 trolled their own business. Under the threat of losing busi- 
 ness they were forced to make concessions which they knew 
 were wrong. They were annoyed by applications which it was 
 impolitic to refuse, and met with suspicion and treachery from 
 the very men who were being made rich by rebates, and yet 
 feared that some one else might be getting better rates." 2 
 
 Discriminations between Localities. — The third characteristic 
 of the competitive conditions of the railway, which is not 
 present in the conditions of any other industry, is that while 
 part of the traffic of a road may be competitive, very rarely if 
 ever are conditions such that all of the traffic of a road is sub- 
 ject to the competition of another road. In other words, the 
 influences affecting competitive railway rates, largely fail to apply 
 to rates on traffic between places which are served by only one 
 road. The instances of parallel competing roads serving 
 absolutely the same territory are of very rare occurrence. The 
 usual condition is that the through traffic is subject to the 
 competition of two or more roads, while the local traffic of 
 any of the roads is subject only to an indirect competition. 
 
 This peculiarity of railroad competition — that its influence 
 extends unequally to different parts of the traffic hauled by 
 any road — that some communities enjoy the benefits of its 
 influence more fully than others do — has been of great 
 
 1 " Amer. Railroads as Investments," p. 33. 
 
 2 Cullom Report, Appendix, p. 132. 
 
20 Railroad Co-operation in the United States. 
 
 importance in the history of the railroad problem, a problem 
 which, as Charles Francis Adams says, arose out of the 
 failure of natural law, or competition, to perform its part. 1 
 
 The effect of a system of transportation which tends to sup- 
 press industry at localities having only one railroad, and which 
 unduly encouraged industry at points enjoying direct compe- 
 tition, was very injurious to the individual railroads, since they 
 could safely rely for a profitable return upon only the non- 
 competitive traffic. It has always been the aim of roads to 
 pass through territory in which a large and remunerative 
 local traffic can be developed ; but this development is often 
 rendered impossible by the lower rates which manufacturers 
 may obtain at competitive points. The community enjoying 
 competition in railway service was the successful community, 
 and consequently the one which supplied the bulk of the 
 traffic of the railroads. This resulted in great injury to the 
 roads, since it created traffic at non-remunerative points at the 
 cost of destroying traffic at the remunerative non-competitive 
 point. The roads attempted to overcome this evil by equal- 
 izing local and through rates, partly by an open adjustment 
 of published rates, but more often by making invidious and 
 injurious personal discriminations. 
 
 Agreements to Sustain Rates. 
 
 Early History. — The co-operation of railroads to overcome 
 the effects of competition began almost immediately upon the 
 completion of those arrangements which made competition 
 possible. We have seen that it was the co-operation of the 
 connecting lines that rendered possible any large through all- 
 rail shipments of freight, which in turn afforded an opportunity 
 for the force of competition to play its part in determining 
 what proportion of this traffic should be hauled by each of 
 the available roads and what rates should be charged. 
 
 1 For a fuller discussion of the nature of railroad competition, see chapter IV. 
 
Co-operation of Competing Railroads. 21 
 
 What is perhaps the first indication of an attempt on the 
 part of the roads to co-operate in order to hold in check the 
 influence of competition is to be found in the report of the 
 Pennsylvania Railroad Company, dated January 31, 1855. 
 There President J. Edgar Thomson says : " With a view of 
 agreeing upon general principles which should govern railroad 
 companies in competing for the same traffic, and preventing 
 ruinous competition, a free interchange of opinions took place 
 during the past year between the officers of the four leading 
 East and West lines, 1 and also with those of their Western 
 connections. The influence of these conferences, it is believed, 
 will be felt in reducing expenses, correcting abuses and adding 
 to the net revenue of the several companies, while the public 
 will be served with equal efficiency and greater safety. In- 
 stead of an army of drummers and runners, spread over the 
 country and paid by each company, an agent is now main- 
 tained, at the joint expense of the four lines, at all important 
 points in the West, to distribute bills and give unbiased infor- 
 mation to the traveler." 2 
 
 The " ruinous competition " spoken of by President Thom- 
 son related to classes of business different from those which 
 later furnished the most fertile source of strife. At that time 
 the Eastbound movement of the great Western crops played 
 a very small figure in trunk line traffic ; the passenger traffic 
 occupied a much stronger relative position before i860 than 
 it ever has since. The various trunk lines were making great 
 efforts to become popular routes for travelers. The Pennsyl- 
 vania acquired connections that enabled it to compete for the 
 passenger travel not only to and from Philadelphia, but also 
 to and from New York and Baltimore. Then, as now, the 
 Baltimore & Ohio prided itself on the opportunity which it 
 was able to afford travelers going to Washington, D. C. 3 
 
 1 New York Central, Erie, Pennsylvania, and Baltimore & Ohio. 
 
 2 Eighth Annual Report, p. 13. 
 
 3 " Development of Transportation Systems," p. 152. 
 
22 Railroad Co-operation in the United States. 
 
 This agreement seems to have been without much perma- 
 nent success, for two years later we find the New York 
 Central engaged in a bitter strife with the Erie over the pas- 
 senger traffic between Lake Erie and New York. This strug- 
 gle assumed nearly all those exceptionally hostile features 
 which characterized the later wars. As Ringwalt says, 1 " this 
 strife was exceptionally acrimonious and led to a fearful cutting 
 of rates." 
 
 This war came to an end with another treaty or agreement 
 signed by the presidents of the four great trunk lines in 1858, 
 which is spoken of as follows in President Thomson's report for 
 that year : 
 
 "The effects of the unwise competition for the carrying 
 trade between the East and the West, which prevailed for a 
 time during the past year, induced the officers of the New 
 York Central, Erie, Baltimore & Ohio and Pennsylvania to 
 meet in convention for the purpose of agreeing upon remuner- 
 ative rates, abolishing injudicious practices, and effecting a 
 harmony of purpose conducive to the mutual advantage of the 
 railway interest and the public. An arrangement was agreed 
 upon which took effect on the first of last October, and the 
 advantages thus far resulting from this compact seem to 
 demonstrate the propriety of its continuance." * 
 
 According to Ringwalt, 3 this agreement provided that S. 
 M. L. Barlow, then president of the Ohio & Mississippi, should 
 act as umpire in case of a renewal of strife. It also clearly 
 laid down a number of rules which related not only to the pas- 
 senger traffic but also to the rates to be maintained on various 
 classes of freight traffic, especially the Eastbound movement 
 of live-stock, and the Westbound movement of merchandise 
 forwarded from Boston. It is probable that rate agreements 
 were also in vogue in New England before the War of the 
 
 1 Ibid., p. 133. 
 
 1 Twelfth Annual Report, p. 19. 
 
 s «< Development of Transportation Systems," p. 153. 
 
Co-operation of Competing Railroads. 23 
 
 Rebellion, but their history has not yet been brought to 
 light. 
 
 Agreements Between the Trunk Lines. — The history of the 
 attempts of the railroads in the trunk line territory to combine 
 is especially suggestive. The really severe competition between 
 the trunk lines did not arise until 1 869, when the New York 
 Central and Pennsylvania had each obtained virtual control of 
 a Chicago connection. 1 The effect which this new competi- 
 tive force arising from consolidation had upon the rates charged 
 on freight from Chicago to New York was immediate and 
 powerful. In 1868, the rates had been $1.88 per hundred 
 pounds for first-class freight and 82 cents for fourth-class. 
 In the summer of 1869, the rate fell to 25 cents per hundred 
 on all classes. Of course such rates as these could not con- 
 tinue for any great length of time, and as a matter of fact 
 they did not. Rates were soon (in 1870) returned to an at 
 least nominal basis of $1 to $1.50 for first-class and 60 cents 
 to 80 cents for fourth-class. 2 
 
 Excessive competition culminated in the general collapse 
 of 1873. As Charles Francis Adams says, 3 "at that time 
 the unnaturally rapid construction which had been going on 
 for ten years produced its results." The situation was still 
 further unsettled in 1874 by the Baltimore & Ohio's acquisi- 
 tion of a Chicago connection and also by the competition of 
 the Grand Trunk of Canada, which had secured its line con- 
 necting Milwaukee and Detroit with the Northern Atlantic 
 ports. 4 
 
 There were now five great trunk lines competing for the 
 East and West bound freight, the Grand Trunk, the New 
 York Central, the Erie, the Pennsylvania and the Baltimore & 
 Ohio. Up to this time agents from the last four of these lines 
 
 1 Hadley, p. 93. 
 
 1 Hadley, p. 93. 
 
 3 Railroads : Their Origin and Problems, p. 148. 
 
 * Hadley, p. 94. 
 
24 Railroad Co-operation in the United States. 
 
 had been in the habit of meeting at regular intervals and pub- 
 lishing agreed rates. 1 As Adams says, 2 the fact "that the 
 whole business of transportation between the West and the 
 seaboard, and the prices which should be charged for doing 
 it, had long been performed under common tariffs binding on 
 the roads (the New York Central, Erie and Pennsylvania), and 
 made by their agents at stated times, was a matter of public 
 notoriety." For instance, the newspapers had long given, 
 among their regular news, accounts of these meetings, just as 
 they had reported the doings of State legislatures or of Con- 
 gress. " That such meetings should have been held and such 
 common tariffs prepared and published, was obviously a mat- 
 ter of mere necessity to the railroads. It would have been 
 utterly impossible for them to live under the pressure of a 
 war of rates knowing no limitation — a war in which freight of 
 every description should be transported long distances abso- 
 lutely for nothing. There was a time, for instance, when 
 cattle were brought over the competing roads in New York 
 at a dollar a car. Such competition as this plainly opened 
 the widest and shortest way to insolvency, and it was to avoid 
 it that the convention of freight agents met." As Adams 
 says, 3 there was no secrecy about their meetings ; the news- 
 papers openly published the tariffs arranged by them, which 
 took effect at stated periods, and which were subject to revi- 
 sion at other stated periods. The regular local tariffs, the 
 tariffs which were not affected by competition, were no more 
 open than the competitive tariffs so agreed upon. " The only 
 difference," according to Adams,* " between the local and the 
 through tariffs was that, whereas the former were fixed and 
 Tarely changed, the latter were subject to sudden and violent 
 fluctuations." 
 
 'Stuyvesant Fish, President of Illinois Central, in "American Railroad.s" 
 2 Railroads, p. 152. 
 a Ibid. 
 ■•Ibid. 
 
Co-operation of Competing Railroads. 25 
 
 It was from a desire to make these agreements of some 
 avail, if possible, and to prevent these sudden and violent 
 fluctuations which resulted in such an unsatisfactory state of 
 business in general, that the celebrated "Saratoga Confer- 
 ence "took place. In 1874 Vanderbilt being at Saratoga, 
 spending his vacation, a meeting was held there in which he 
 conferred with representatives of the Pennsylvania and Erie 
 roads. The result of the conference of three of the trunk 
 lines was an arrangement by which, in addition to the usual 
 agreement upon tariffs, the roads were to establish a board of 
 arbitration to settle disputes. The idea was simply this : that 
 the managers of the roads recognized the absolute failure of 
 rate agreements .under such conditions that any fancied viola- 
 tion, generally without even a suggestion of an investigation, 
 was made a grievance which could be settled only by war ; 
 and in the hope of obtaining some beneficial returns from, 
 these agreements, they endeavored to substitute arbitration 
 for war. 
 
 To quote again from Adams, 1 " In place of the ' Rob Roy 
 plan ' of leaving each company to assert its own rights and to 
 maintain them if it was able, a central board was organized, 
 the duty of which was to establish rules and tariffs which 
 should be binding upon the various companies, and this cen- 
 tral board it was intended should be clothed with sufficient 
 powers to hold the companies firmly. It was an attempt to 
 substitute arbitration among railroads for a condition of per- 
 petual warfare." 
 
 The attempt was a failure. President Garrett, of the Balti- 
 more & Ohio, refused to surrender the independence of his 
 road. He expressed his willingness to adhere to his old 
 policy of charging the agreed tariff of rates on through traffic ; 
 but he strenuously objected to submitting the action of his 
 sovereign road to the supervision of some other power and 
 followed strictly Washington's advice as to keeping aloof 
 ilbid., p. 153. 
 
26 Railroad Co-operation in the United States. 
 
 from entangling alliances. The proverbial recklessness of the 
 Grand Trunk was another disturbing factor. Nor could the 
 Erie, being bankrupt, be relied upon as sure to follow a con- 
 servative policy. 
 
 The work of the conference was almost immediately upset 
 by the Baltimore & Ohio, which began a severe war with 
 its nearest neighbor, the Pennsylvania. A little later the Grand 
 Trunk, assisted by numerous Western allies, started what was 
 perhaps the most momentous railroad war on record ; in fact, 
 so far did it carry things that, as Fish says, " it bade fair to 
 transfer to Boston the commercial supremacy previously en- 
 joyed by New York." In 1875, the New York Central felt 
 itself obliged to take action, which it did most summarily by 
 reducing all through rates 60 per cent. In December of that 
 year reason seems to have prevailed in the minds of the 
 great generals, for they patched up a sort of truce. The 
 conditions of this truce, however, were violated almost imme- 
 diately (in fact one might think that it was made only to 
 be violated), and in a few weeks there was a general melee, 
 in which everybody hit everybody else, the New York Cen- 
 tral, Erie and Grand Trunk taking the most prominent part. 
 After some eight months of strife, which was stemmed 
 once or twice, but at best only partially, by attempts at 
 agreement which were doomed to immediate failure, the 
 five trunk lines were ready for pretty nearly any kind of an 
 agreement. The Baltimore & Ohio had abandoned all pre- 
 tensions to independence and was quite ready to enter into 
 any alliances, no matter how entangling ; and the Pennsyl- 
 vania having lost for the time being its ability to pay dividends, 
 had lost with it all disposition to compete. 1 Hadley says, 2 
 "the fight ended in 1877, not because anything was settled, 
 but because all parties were exhausted." I am rather in- 
 clined to agree with Larrabee, that something was settled, in 
 
 1 Adams, p. 168. 
 
 2 Railroad Trans., p. 95. 
 
Co-operation of Competing Railroads. 27 
 
 fact that a great deal was settled. Larrabee says, 1 that in 
 time the railroad managers became convinced that, unless it 
 was possible radically to reform railroad ethics, rate agree- 
 ments could never be relied upon for the maintenance of rates 
 at competing points. Experience convinced them that to 
 make their agreed-upon tariffs effective it was necessary to 
 deprive individual roads of the power or the inducement to 
 cut below the agreed rates. 
 
 Failure almost Universal. — The experience of the trunk 
 lines, in their attempts to maintain an agreed tariff of the 
 rates to be charged on competing traffic, seems to be typical 
 of the experience of all roads that made such attempts. Of 
 course the courts would not enforce compliance with these 
 agreements on the part of the roads making them, as the law 
 discountenances combinations of this character as being in 
 restraint of competition and against its own policy. 2 There 
 being no way of enforcing such agreements, beyond the mere 
 word of the manager of the road, they were violated when- 
 ever it came to be the interest of any of the agreeing parties 
 to do so. Even where the principal officers made a simple 
 agreement to charge only according to a certain agreed-upon 
 tariff, where one would naturally suppose that if the managers 
 were really in earnest they would stand by their pledge, the 
 peculiar nature of the railroad prevented a satisfactory result. 
 The rate-making power was turned over to numerous subordi- 
 nate officials,. over whom it is almost impossible to keep a 
 close watch and to whom motives of honesty do not strongly 
 appeal. As Fink said in one of his reports to the Bureau of 
 Statistics, " This history of the management of the transpor- 
 tation business is constantly repeating itself. The general 
 managers or heads of the departments attend generally to the 
 establishment of rates, and make agreements with each other, 
 and to this extent, but no further, this important business may 
 
 1 Railroad Question, p. 193. 
 
 2 Dabney — " Public Regulation of Railways," p. 144. 
 
28 Railroad Co-operation in the United States. 
 
 be said to be under their control ; but no sooner is it believed 
 that one or the other of the competing lines has violated the 
 agreement, and tries to deceive, whether this be a fact or not, 
 the management is of necessity surrendered into the hands of 
 subordinates, the soliciting commission agents, to whom the 
 general instructions are given to do as others are doing, or 
 supposed to be doing ;" * in other words, to make any rate 
 they please, no matter how low. 
 
 That even a railroad president did not have control sufficient 
 to enable him to prevent his road from violating an agreement, 
 was clearly brought out in the testimony before the Cullom 
 Committee in 1885, when Charles Francis Adams, then presi- 
 dent of the Union Pacific, said that, curious as it might seem, 
 he was unable to prevent cutting by his subordinates. His 
 testimony is so suggestive on this point, and the idea is so 
 well brought out in the testimony, that I quote exactly what 
 he said : 2 
 
 Mr. Adams. — If you could provide any way by which all freight and passenger 
 agents could be absolutely debarred from making reductions from published rates, 
 and from deceiving each other in some way or other while doing it, you would be 
 very much more successful than I have been in my limited sphere. You would 
 suppose that at any rate the president of a road would be able to get at the bottom 
 of these things on his own road. I can only say that I cannot. 
 
 Question. — As president of your road, can you not manage your own men ? 
 
 Mr. Adams. — No ; theoretically I can, practically I cannot. 
 
 Question. — You cannot control them ? 
 
 Mr. Adams. — I want you to understand what I mean. I do not mean that I 
 cannot issue orders, and I do not mean that in each individual case those orders 
 will not be observed to a certain extent, but the freight agent and the passenger 
 agent is under a terrible strain all the time. He is working for his living. He 
 is judged by results. All the time he has to meet the sharpest of sharp practices. 
 If he is successful, and gets what is called his "share of the business," that is 
 all right. 
 
 Question. — It is all right in the estimation of the company ? 
 
 Mr. Adams. — I of course mean in the estimation of his superiors. If he does 
 not get his "share of the business," he is very apt to be told some day that his 
 
 1 Internal Commerce of United States for 1876. 
 
 1 Cullom Committee Report, Part II, testimony, p. 1210. 
 
Co-operation of Competing Railroads. 29 
 
 services are no longer needed. Accordingly he will have recourse to every con- 
 ceivable evasion. "Smartness," as it is called, thus becomes the quality most 
 highly prized, especially in subordinates. Honesty and good faith are scarcely 
 regarded. Certainly they are not tolerated at all if they interfere with a man's 
 " getting his share of the business." Gradually this demoralizing spirit of low 
 cunning has pervaded the entire system. Its moral tone is deplorably low. This 
 is the root of the trouble as it exists to-day. That healthy, mutual confidence, 
 which is the first essential to prosperity in all transactions between man and man, 
 does not exist in the American railroad service taken as a whole. Of course there 
 are exceptions to this statement. But as a rule, agreements are made only to be 
 broken, and superior officials, under the fear of " getting left," as the expression 
 goes, are constantly shutting their eyes to acts of cheating and evasion on' the part 
 of their subordinates, which are in direct disregard of solemn agreements those 
 superior officers have themselves made. 
 
 The blame for violating these agreements is not to be placed 
 wholly at the feet of the subordinate officials of the competing 
 roads. An unscrupulous manager would not hesitate to in- 
 crease his business by a reduction in rates as long as he could 
 hope to escape detection. Of course, as soon as the other 
 agreeing roads discovered the condition of affairs, they would 
 retaliate by offering still lower rates to close-tongued shippers, 
 and the violation of the agreement was sure to be discovered 
 sooner or later. In fact, there was little danger that they 
 would not discover such violations ; often they thought they 
 had detected a violation which had really not been committed. 
 The roads were extremely suspicious of each other, knowing 
 full well the advantages which would accrue to the road who 
 could successfully keep secret the fact that it was asking a 
 slightly reduced rate. In consequence, the roads were only 
 too ready to listen to stories of violations of agreements by 
 their rivals, and as it was to the interest of a shipper to make 
 one line think its rival was already violating the agreement, 
 the result can be imagined. 
 
 Sometimes the roads made agreements, when they intended, 
 at the very time that they signed the paper, to break them as 
 soon as possible. After such an agreement there was a race 
 to see which line could break the agreement first and thus 
 
30 Railroad Co-operation in the United States. 
 
 enjoy a temporary gain until the others would make like 
 reductions. Fink describes this state of affairs very clearly in 
 an address to the Southern Railway and Steamship Associa- 
 tion in 1876, when he said : 
 
 A number of competing lines agree upon certain rates to be charged by each, 
 and pledge themselves to strictly maintain the same. There may be some of the 
 managers who honestly mean to carry out the agreement, but generally there are 
 others who make agreements with the intention to break them, and merely for the 
 purpose of taking advantage of the more honest. The fact that these agreements 
 are hardly ever carried out has been fully established by past experience. The 
 managers have no longer confidence that they can ever be carried out, and there 
 seems to be a tacit understanding that agreements to restore and maintain rates, 
 after a period during which low rates prevailed, are, in most cases, merely made 
 for the purpose of practicing deception upon each other, starting for a higher scale 
 of rates in order to secure, for a short period at least, some remuneration for the 
 work performed, until low rates are reached again in the natural course of events. 
 This mode of transacting business, based upon deception and dishonesty, has been 
 elevated into a business principle in the management of railroad property, and is 
 pronounced by many experienced railroad managers and general freight agents as 
 the only possible or practicable mode upon which competitive business can be 
 conducted. 
 
 Although Fink based the foregoing statement upon his 
 experience with the railroads in the South, what he said 
 would apply with equal force to the railroads in other parts 
 of the country. All the railroad companies discovered, sooner 
 or later, that agreements based merely on the word of the 
 managers of the rival lines were of no avail in counteracting 
 the influence of that disturbing factor, competition. Mere 
 parole promises had failed, the law would not help the roads 
 to enforce their agreements, and the railroad man was faced 
 with a problem, the solution of which was necessary to pre- 
 serve not only his own existence, but also the business inter- 
 ests of the community as a whole. How were the roads to 
 prevent the evil results of competition : secret cutting or 
 personal discrimination, and open cutting, place discriminations 
 and bankruptcy ? That was the problem. 
 
Co-operation of Competing Railroads. 31 
 
 And this problem was solved in an intensely practical way 
 — by removing the temptation which prompted the roads to 
 violate an agreement. Some shrewd Yankee discovered that 
 the railroad managers were only human — that, like the rest 
 of us, they resemble the man in " Life " who said the only 
 thing he couldn't resist was temptation — and accordingly for- 
 mulated a device which would remove the temptation to violate 
 agreements. 
 
 Agreements to Divide Traffic. 
 
 Idea at Basis of Pooling Agreements. — The idea at the bot- 
 tom of all pooling agreements is to remove the temptation to 
 violate them. A simple agreement based on word of honor 
 failed. An agreement where each company made a large 
 deposit to be forfeited in event of a violation of agreement 
 failed, because of the possibility that a secret violation might 
 •escape detection. If, however, a road is told — " you can haul 
 ■one-third of the traffic between Chicago and Omaha" — that 
 joad is not going to make secret rebates or discriminations, 
 because they will only cause loss. Of course a road will 
 yield to the temptation to cut if it can secure greater earnings 
 by so doing, but if a manager knows that he is going to get 
 ■only a certain portion of the traffic hauled on all the roads, 
 he also knows that every rebate is just so much paid out of 
 the coffers of the road for no return. 
 
 The object of the pool was to maintain rates ; it attained 
 that object by removing all temptation to charge any other 
 rate. At least that was the foundation of the ideal pool, and 
 an so far as that was the foundation, the pool was successful. 
 
 Early History. — Exactly when and where the idea of pool- 
 ing Originated is difficult to determine. From the very nature 
 ■of things, their early history is obscure and almost impossible 
 to be gotten at (if indeed it ever existed in any tangible shape). 
 The first pools were formed before railway affairs were the 
 
32 Railroad Co-operation in the United States. 
 
 object of public investigation. The roads, of course, made 
 every effort to keep the facts secret, meagre and indefinite ; 
 the charming frankness which prompted President Thomson, 
 of the Pennsylvania, to openly allude to an agreement in his 
 reports for 1855 and 1858, soon ceased to prevail. 
 
 Hadley says, "the earliest railroad pools were probably 
 developed in New England, but they were on a small scale, and 
 the whole thing was often so quietly done that their very exist- 
 ence was almost unsuspected." 1 President Fish, of the Illinois 
 Central, in speaking of the trunk line pools said, some years 
 ago, that " the pooling idea is not so recent as might be sup- 
 posed, however. It was introduced into New England and 
 quietly used for a long time." These pools did not have any 
 great influence on railway conditions in New England and 
 they have little more than an historical significance. 
 
 Pools in the West. — The first great instance of an application 
 of the apportionment idea to competing roads, which has had 
 important history, occurred in the West — on the three lines- 
 running between Omaha and Chicago. In 1 870, the Chicago- 
 Omaha pool was formed by the Chicago & Northwestern, 
 the Chicago, Rock Island & Pacific, and the Chicago, 
 Burlington & Quincy Railroads. In that year these three 
 roads determined that the receipts from through traffic played 
 too important a part in their total revenue to be trifled with, 
 and accordingly made an arrangement whereby each road 
 should be guaranteed its share of such traffic. The three- 
 roads enjoyed practically equal advantages in competition — 
 length, grades, etc., being almost identical — and the agreement 
 provided that each of the three was entitled to haul 33^ per 
 cent of the total through traffic between Chicago and Omaha. 
 The pool established the following arrangement : 2 the through 
 business, without any solicitation on the part of the companies,. 
 
 1 Railroad Transportation, p. 91. 
 
 5 Annual Report for 1878 of the Iowa State Board of Railroad Commissioners, 
 p. 48. 
 
Co-operation of Competing Railroads. 33 
 
 "was to take any of the three routes, the rates being uniform ; 
 each road was allowed to retain 45 per cent of the passenger, 
 and 50 per cent of the freight gross earnings, the remaining 
 percentages being equally divided among the three companies. 
 Later the agreement as to passenger business was slightly 
 modified, so that all gross receipts from passengers going East 
 and from travelers buying tickets at Chicago going West 
 were equally divided. 
 
 Although there was a State law x in Iowa prohibiting pool- 
 ing of earnings between parallel lines, this arrangement was 
 not illegal, as the pool applied only to traffic between Council 
 Bluffs and Chicago, which being interstate commerce, was not 
 subject to legislative control by the State of Iowa. 
 
 This pool was unpopular in the State of Iowa, but the State 
 railroad commission sided with the railroads in the matter. 
 In one of their reports they say, 2 " We look upon the pool as 
 the only agency that can compel the through traffic to bear, 
 as it should, its proportion of the interest on the cost and the 
 expense of maintaining and operating the roads." Later, 
 speaking of the danger of the pools being broken, they said, 3 
 "The practice that has been so much in vogue, since railroad 
 •competition became strong, of carrying through business at 
 rates that were not remunerative, and making up the losses on 
 local business, is, we think, a mistaken one. We see no 
 simpler method of reaching a fair compensation for through 
 traffic than that adopted by the Iowa pool lines, and we believe 
 that to break the pool and open a warfare would be an 
 unfortunate move." Thus in 1878, we find a State board of 
 •commissioners recognizing the great evil that resulted from 
 place discriminations and the benefit, to at least the local 
 shippers, which resulted from a successful pool. Looking at 
 the situation merely from the standpoint of the inhabitants of 
 
 » Section 1297, Code of 1873. 
 a First Annual Report, p. 48. 
 ••Ibid., p. 49. 
 
34 Railroad Co-operation in the United States. 
 
 the State, who were of course only indirectly affected by the 
 pool, they realized 1 that " a wrong is done the producer and 
 shipper if the through business is carried at a loss, and the loss 
 made up from local or Iowa business." 
 
 The Chicago-Omaha pool continued in operation, on the 
 whole successfully, until 1884, when it merged into a larger 
 association known as the Western Freight Association. I 
 say " on the whole successfully," for there was not a complete 
 harmony in its operations during the fourteen years. 2 In the 
 summer of 1882, there was, according to the report for that 
 year of the Iowa State Board of Railroad Commissioners, 3 a 
 disagreement concerning the distribution of freight, and a war 
 of rates followed, continuing until October. 
 
 Although this war came to an end in October of the same 
 year, the settlement of the dispute was not finally concluded 
 until the formation of the Western Freight Association. 
 Here were united the several disturbing elements which had 
 prevented a really successful working of the pool since 1880, 
 and a form of organization and government was adopted 
 closely allied to that of the Southwestern Association. 4 This 
 new association included all the roads operating between 
 Chicago, Milwaukee and St. Louis on the east and Omaha 
 and Council Bluffs on the west. 
 
 Operating immediately to the north, the Northwestern 
 Traffic Association comprised all roads engaged in the trans- 
 portation of freight between Chicago and Milwaukee on the 
 one hand, and St. Paul, Minneapolis and Minnesota Transfer 
 on the other. 
 
 All roads east of the Missouri River and west of Chicago 
 and St. Louis (excepting the St. Louis & San Francisco) that 
 
 1 Report for 1878, p. 49. 
 
 s Larrabee is accordingly mistaken when he says (on p. 194) that this pool 
 " lasted fourteen years without a break." 
 3 Annual Report for 1882 (Nov. 30), p. 48. 
 4 Cullom Com. Rept., p. 231. 
 
Co-operation of Competing Railroads. 35 
 
 carried business destined to or originating in Colorado and 
 Utah, were united in the Colorado-Utah Association. In line 
 with this association, although distinct from it, was the Colo- 
 rado Railway Association, which comprised the roads west 
 of the Missouri River engaged in the transportation of freight 
 traffic to and from competitive points in Colorado. Then 
 there was the Pacific Coast Association, which included all 
 roads east of the Missouri River and St. Paul, and west of 
 Chicago, Milwaukee and St. Louis (again excepting the St. 
 Louis & San Francisco), which carry business destined to or 
 from points on the Pacific Coast, including Oregon, Washing- 
 ton and British Columbia. Immediately west of this compact 
 and fitting into it, was the Transcontinental Association, 
 which included all roads west of St. Paul, Omaha and Kansas 
 City, and a north and south line drawn through the two last 
 named cities on the east and the Pacific Coast on the west. 
 All of these compacts were governed by rules similar to those 
 adopted for the guidance of the Southwestern Railway Asso- 
 ciation, to be later described. 
 
 At the time of the Cullom Committee's investigation in 
 1885, the whole of the competitive traffic of the West and 
 Northwest was under the control of some one of the nume- 
 rous traffic associations. An unsuccessful effort had been 
 made in 1878, to unite all of the roads and associations inter- 
 ested in the movement of through Eastbound freights into one 
 gigantic pool. 1 The idea was that Chicago was to be the 
 pooling centre, a schedule of rates fixed for it, and the rates 
 of all the railroad centres in the West and the Northwest 
 dependent upon it. The combination was to comprise more 
 than forty companies, controlling over 25,000 miles of road. 
 The scheme was actually tried for three months, but it was 
 beyond the power of man to harmonize such a multitude of 
 discordant elements. It was after the failure of this gigantic 
 Western pool, which had really been organized under the 
 
 1 Larrabee, p. 200. 
 
36 Railroad Co-operation in the United States. 
 
 protectorate of the trunk lines, that the companies which had 
 composed it formed, as their individual interests dictated, 
 most of the various combinations already described. 
 
 One of the most instructive parts of the history of railroad 
 combinations to overcome competition is to be found in the 
 history of the struggle between the competing roads connect- 
 ing the Missouri River points with Chicago and St. Louis, 
 respectively. For some years after the roads from Chicago 
 and St. Louis were completed through to the Missouri River, 
 they agreed upon rates of freight, 1 but, as no pledge for their 
 maintenance was given, the rates were not adhered to. Charges 
 of bad faith, denials and counter-charges were of common 
 occurrence. The inevitable war followed, which attained its 
 most severe aspect in the spring of 1876, when rates fell so 
 low that no profit remained in the business. In order to 
 restore rates to a paying basis, the managers of the interested 
 lines met at St. Louis on May 4, 1876. There they entered 
 into an agreement of a twofold nature — to maintain rates and 
 to establish the differentials which should prevail between the 
 St. Louis and Chicago rates to and from the Missouri River 
 points. This effort met with no success, however, because 
 there was no agreement as to the share of the traffic which 
 each road should be allowed to carry. This defect, however, 
 was soon discovered by the managers, and on the twelfth of 
 September following (1876) a division of the earnings derived 
 from the traffic was agreed upon between the several lines. 
 The organization formed for effecting this purpose was known 
 as the Southwestern Railway Rate Association. There was 
 no attempt made to force traffic over a particular line which 
 was not securing its share of the freight ; each road hauled all 
 the freight offered it at agreed rates, then, after deducting 
 50 per cent from the gross earnings on such traffic to pay 
 
 1 All information as to this pool is based on the Report for 1879 on the Internal 
 Commerce of the United States, unless otherwise stated. Chap. VI, Appendix 4, 
 and Part II, p. 174. 
 
Co-operation of Competing Railroads. 37 
 
 operating expenses, the remaining 50 per cent was turned 
 over to a common "pool." This pool was in turn divided 
 among the roads in accordance with a fixed percentage 
 already agreed upon. Later, when the new revised agree- 
 ment went into effect (September 1, 1877) the amount 
 allowed each road for hauling was reduced to 40 per cent. 
 The remaining 60 per cent was divided among the roads in 
 proportion to the business done by the several roads during 
 the past year. 
 
 One very valuable feature of this association was the clear- 
 ing house under the control of the Secretary, who was required 
 to audit all accounts and settle balances between the roads. 
 Unfortunately this part of the association's organization did 
 not survive the reorganizations which soon followed. 
 
 On the fourteenth of March, 1878, the association was dis- 
 rupted by the withdrawal of the St. Louis roads, which, having 
 paid $150,000 in balances to the Chicago roads, determined 
 that the large movement of wheat to St. Louis was natural, 
 and so they resolved to pay no more such balances. How- 
 ever, the opening of the Lake navigation soon made the 
 balance the other way, and accordingly on the fourth of May 
 the association was reconstructed. The associated roads 
 were divided into three divisions — the Chicago, the St. Louis 
 and the Hannibal. The division of traffic was as follows : 
 Chicago Division, 45 per cent; St. Louis Division, 45 per 
 cent ; Hannibal Division, 10 per cent. The several roads in 
 each division agreed among themselves what proportion of the 
 share allotted to the whole division should be carried by each 
 individual line. 
 
 This agreement lasted less than a year, being formally dis- 
 solved on the twelfth of April, 1879. Then followed one of 
 the most severe contests in the history of railroad wars. The 
 rates fell so low that the business carried up to September 1 2, 
 a period of five months, entailed an actual loss in revenue of 
 about two million dollars. 
 
38 Railroad Co-operation in the United States. 
 
 On September 15, 1879, the Southwestern Railway Rate 
 Association was reorganized, when it took the form to which it 
 substantially adhered up to 1887. This agreement made 
 provision for a resort to arbitration in the event of any con- 
 troversy. A method of securing impartial arbitrators was 
 embodied in the agreement. 
 
 This pool continued in substantially the same form until 
 1887, 1 with no little success, although the " intractableness " 
 of the average railroad manager often aroused the ire of their 
 commissioner, J. W. Midgely. In his statement to the 
 Cullom Committee in 1885, he said: 2 
 
 Notwithstanding it is to the immediate interest of a road when it becomes party 
 to a pool to adhere strictly to the agreement, such is the weakness of human 
 nature, under the blandishments of shippers, that few are the number who firmly 
 resist. Soon the breach of faith is discovered, whereupon confidence is destroyed, 
 and with difficulty are the others restrained from making reprisals. If the viola- 
 tions are repeated, protective measures are adopted, and the agreed rates are 
 ceased to be regarded. This has been the mortifying experience of all compacts, 
 thus compelling the admission that no means have yet been devised whereby an 
 absolute maintenance of established rates can be assumed. Self interest has failed 
 to effect it, hence compulsory legislation could not be relied on to accomplish it. 
 Yet, despite their imperfections, the fact remains that the pools which have been 
 wisely ordered have approximated the desired results, whereas, all other forms of 
 regulation have failed. 
 
 In a statement made to the Bureau of Statistics in 1879, 3 
 this same commissioner explained what was perhaps the 
 greatest cause of the lack of confidence among the members 
 of the pool — that is, the various compacts were always ham- 
 pered by a conscious weakness, arising from the fact that they 
 depended solely upon the honor of the members. The railroad 
 manager knew that he could not go into court and sue for 
 balances withheld from him, hence there was a constant dis- 
 trust lest when any member should be called upon to pay over 
 
 1 Cullom Committee Report, p. 230. 
 
 "Ibid. 
 
 ' Report on Internal Commerce — Reports of Experts, p. 58. 
 
Co-operation of Competing Railroads. 39 
 
 a large amount he would refuse, and a disruption ensue. It 
 was on account of this that Midgely was in favor of legalizing 
 pooling agreements. 
 
 Pools in the South. — The really sharp competition between 
 the railroads of the South came later than it did in the North 
 and West, but when it did come (shortly after the war) it came 
 in earnest. As Vigil Powers, later a commissioner of the 
 Southern Railway and Steamship Association, said, "there 
 was not so much business as all could do. Indeed, any of 
 these lines, with a comparatively small output for rolling stock, 
 can do all the business to any, indeed to all, competitive points 
 named in our circulars." 1 The natural result was the presence 
 of the evils of secret rebates, open cuttings and wars, and 
 place discriminations. Rate wars were so severe that Mr. 
 Fink estimated the loss caused by them to be such that gross 
 earnings were 42 per cent less than what they would have 
 been under regular rates. 2 Joseph Nimmo, after reciting the 
 various abuses caused by competition in the South and the 
 evil effects which they had on business in general, concludes 
 his sketch of the conditions which gave rise to combination in 
 the South, as follows : 3 " This condition of affairs not only 
 operated prejudiciously to the interests of trade by breaking 
 down competition, but it also operated detrimentally to the 
 interests of the Southern railroads and of the coastwise steamer 
 lines, by virtually placing them under the control of a few 
 large shippers, whose interest it was, by secret operations, to 
 keep the managers of the various lines in a continual struggle 
 with each other." 
 
 The railroads of the South made their first effort to over- 
 come these evils by co-operation in December, 1873, when 
 
 1 Circular letters of the Southern Railway and Steamship Association, Vol. 3, p. 
 991 . ( Quoted by Hudson. ) 
 
 2 Circular letters, Vol. I, p. 278. Also quoted by Hudson. In fact most of 
 my information in regard to conditions in the South has been derived from his 
 excellent study in the Quarterly Journal of Economics, Vol. V. 
 
 3 Internal Commerce of the United States, p. 171 (1879). 
 
40 Railroad Co-operation in the United States. 
 
 four roads connecting Atlanta, Ga., with the seaboard, 1 agreed 
 upon divisions of the cotton business. 2 This, however, cov- 
 ered only the cotton season of that year. In order to bring 
 about some permanent means of settling the difficulties that 
 were constantly arising between the Southern roads, they 
 held a meeting at Macon, Ga., on December 21, 1874. 3 An 
 adjourned meeting was held in January, 1875, when an 
 agreement was signed and a provisional apportionment of the 
 traffic between competitive points was arranged for. 4 For the 
 purpose of keeping the accounts a clearing-house was estab- 
 lished. 5 
 
 In September of that year, a convention of managers of 
 Southern railroads and steamship lines was held, at which Mr. 
 Albert Fink presented a paper embodying the principal features 
 of an organization. 6 In October, Mr. Fink was elected gen- 
 eral commissioner, 7 and he immediately set to work to organize 
 and put in motion the pool. The result was the Southern 
 Railway and Steamship Association — the second apportionment 
 scheme of any considerable magnitude and importance estab- 
 lished in this country. 
 
 The membership of this association comprised the railroads 
 in the States of Virginia, North Carolina, South Carolina, 
 Georgia, Tennessee and Alabama ; and also the steamship lines 
 connecting these roads with Boston, New York, Philadelphia 
 and Baltimore. 8 
 
 In accordance with its plan of organization, the associa- 
 tion held an annual convention composed of one representative 
 from each line. At this convention officers and an executive 
 
 •Report on Internal Commerce (1879), p. 171. 
 2 Circular letters, Vol. 22, p. 1619. (Hudson.) 
 
 3 Hudson Quarterly Journal of Economics, Vol. V, p. 72. 
 
 4 Ibid. 
 
 5 Internal Commerce, p. 172. 
 
 6 Internal Commerce, 1879, p. 177. 
 'Circular letters, Vol. I, p. 18. 
 6 Internal Commerce, 1879, p. 172. 
 
Co-operation of Competing Railroads. 41 
 
 committee were elected. A general commissioner had general 
 charge of the workings of the agreement, being supposed to 
 refer to the convention any matters with which he was unable 
 to deal. This practice of referring details to the annual con- 
 vention was found to be impracticable, so in 1883 an executive 
 committee was provided for, to consist of the managers of 
 each of the principal lines. This committee was given juris- 
 diction over all joint traffic, but a unanimous vote was required 
 for action. In the event of a failure to arrive at such a deci- 
 sion, it was provided that the matter should be referred to a 
 board of arbitration. The executive committee had subordi- 
 nate to it a rate committee, which had control, subject to appeal, 
 of rates and apportionments. 
 
 The competitive traffic was apportioned among the rival 
 roads by the executive committee, or, if a unanimous agree- 
 ment could not be reached, by a board of arbitrators. The 
 principle which guided the committee or the arbitrators in the 
 division was that shares should be apportioned as nearly as 
 possible to what each of the roads would get under nominal 
 competitive conditions. Each road was expected to carry, as 
 nearly as possible, its allotted amount. In case a road should 
 carry more than its exact proportion, it was allowed, for the 
 mere hauling, 20 per cent of the gross receipts from such 
 excess, and the remaining 80 per cent was turned into the 
 pool to be divided among the roads which had run behind 
 their proportions. 1 At first the allowance for hauling was 
 one-half cent per ton per mile, but this was abandoned in the 
 later years of the pool, being considered too high. 
 
 The evil which Midgely complained of so strongly in his 
 Southwestern Association was also present in its Southern 
 neighbor. The roads were slow in paying over the balances 
 to those roads that had run behind. But this abuse was 
 soon corrected by requiring each of the roads to deposit 
 monthly 20 per cent of its gross receipts to the order of the 
 1 Hudson, p. 74. 
 
42 Railroad Co-operation in the United States. 
 
 commissioners. Then the commissioner, at the end of the 
 month, paid over to the " short " roads the balance due them out 
 of this deposit, returning the remainder of the 20 per cent to the 
 original depositor. In other words, the association held funds 
 belonging to each road sufficient to remove any temptation to 
 withdraw from the association for the sake of keeping the bal- 
 ance due another road. All danger of fraud, such as secret 
 rebates, under-billing, incorrect classification, etc., was obviated 
 by the complete power of the commissioner to examine all 
 books and bills. 
 
 The association's greatest source of danger lay in the diffi- 
 culty of apportioning the traffic fairly among the several com- 
 peting roads. 1 For example, in 1883, the East Tennessee 
 became dissatisfied with an agreement which allowed it only 
 14 per cent of Montgomery cotton traffic ; it asserted that, to 
 avoid paying the heavy penalty of $1.50 per bale for excess 
 carried, they had been compelled to turn over to their com- 
 petitors several thousand bales. In 1883—84, the cotton traffic 
 accordingly was not pooled, and the East Tennessee carried 
 over 27 per cent of the business, even though full association 
 rates had been maintained. The matter was finally settled by 
 arbitration, which gave the East Tennessee 22 per cent. 
 
 The question of allotments was continually coming up and 
 the number of routes on which the traffic was pooled was 
 steadily increased up to 1887. At Atlanta, for example, the 
 number of pooled routes had grown from 5 to 12. The arbi- 
 trators were generally able to render a satisfactory decision, 
 and where the roads became dissatisfied with a division and 
 went out of the pool, the almost universal experience was that 
 the greatly reduced charges, made during the ensuing rate war, 
 necessitated a larger increase of traffic than could be secured. 
 The result of the pool was not an elimination of competition. 
 The agreement binding the association together was re-enacted 
 every year, at which time were also re-enacted the allotments 
 1 Hudson, p. 83. 
 
Co-operation of Competing Railroads. 43 
 
 of the traffic to each of the several competing roads. Between 
 the periodical apportionments each road made a strong effort 
 to get as much as possible of the available traffic, so that, even 
 if all earnings on an excess did have to be paid to the other 
 roads, the next allotment would give to such a road a larger 
 share. As Hudson puts it, 1 " Each road tried to carry as 
 much freight as possible, so that, when the next contract 
 came to be made, it might demand with some show of reason 
 a larger share of business. It is competition of this sort that 
 is advantageous, not competition with little Or no regard to 
 the cost of doing the work." 2 
 
 The rates made by the association were regulated by certain 
 external competitive forces over which the association had 
 little or no control. It was found that if the rates between 
 Atlanta and New York were increased beyond a certain limit, 
 the trade of Atlanta would be driven to other competing trade 
 centres. Again, sailing vessels competed with the steamer 
 lines of this association between the Northern and Southern 
 ports. Rates by sailing-vessel and rail between the Northern 
 ports and points in the territory of the association had to be 
 met by the association. Besides this there was regulating 
 influence of rates via the Mississippi River, and the railroads 
 extending from that river into the territory of the association. 
 In spite of these influences, however, the association was able 
 to exercise a very large discretionary power over the rates 
 which were to prevail to and from all points within its terri- 
 torial limits in the Southern States. 
 
 In its dealings with lines that would not become members 
 the association used its powers in an unjustifiable manner. 
 In the revised rules adopted in December, 1876, the following 
 provision occurs : " If any company owning or operating a 
 
 2 Larrabee's statement (p. 19S), that there was no inducement for any company 
 to seek to carry more than its allotment " the nominal price allowed for carriage 
 on an excess being so low " is thus not borne out by the facts. 
 
44 Railroad Co-operation in the United States. 
 
 line of transportation in connection with the roads or lines of 
 companies, parties hereto, shall refuse to become a member 
 of the association, such line shall, as far as practicable, be 
 refused recognition as part of a through line." l In other 
 words, such lines were to be boycotted. This rule does not 
 appear in the later agreements, but, as a matter of fact, I 
 believe the facts would bear me out in the statement that this 
 principle was nevertheless adhered to, though to exactly what 
 extent is of course impossible to determine. 2 For example, 
 in 1877, the steamship lines between the Southern ports and 
 Boston and New York refused to co-operate with the associa- 
 tion in carrying out its rules. The commissioner accordingly 
 authorized greatly reduced rail rates to Boston and New York, 
 as well as to the South Atlantic ports. The result was that 
 in three weeks the refractory steamship lines joined the as- 
 sociation and rates were restored. 3 Another troublesome 
 competition was found in that of the river steamboat lines. 
 Often the differentials between two cities, such as St. Louis 
 and East Cairo, were sufficient to allow the boats to charge 
 under the association rates. To prevent this, in the case 
 referred to, the rates to East Cairo were raised to make 
 them the same as to Cairo, across the river. 4 Rates to 
 Selina and Montgomery from the East were cut in a similar 
 way by the New York and Mobile steamship lines. The 
 association changed their rates to stop this; a few months 
 later, the competition being withdrawn, the rates were 
 restored. 5 
 
 The changes in the organization of the Southern Railway 
 and Steamship Association after the passage of the Interstate 
 Commerce Law in 1887 will be considered later. 
 
 1 Circular letters, Vol. 2, p. 598. 
 
 •See Larrabee's " Railroad Question," and J. F. Hudson's "Railways and 
 Republic." 
 * Henry Hudson Quarterly Journal of Economics, p. 86. (Vol. V.) 
 *Ibid. 
 'Ibid. 
 
Co-operation of Competing Railroads. 45 
 
 Pools in the North. — The history of the attempts of the 
 trunk lines to maintain rates and to overcome the effects 
 of competition has already been considered. The nature of 
 the competition between the rivals was so complicated that the 
 resulting evils could not be overcome by mere agreements 
 between the managers. The lesson had been learned by 1877, 
 that, unless there were some way of removing the temptation 
 to violate an agreement, the agreement might just as well 
 not be made : and it was in that year that the new device for 
 removing the temptation was first put into operation in the 
 North. 
 
 Agreements to divide the business in order to do away with 
 competition had been used before that time, although with 
 only limited scope. The first important combination of this 
 kind in which the Northern railroads engaged was formed 
 by those interested in the transportation of anthracite coal. 
 The " anthracite coal combination," as it was called, had two 
 distinct objects in view. First, to obtain a remunerative price 
 for the coal by restricting its production ; and, second, to 
 divide among the carriers, who were at the same time those 
 most interested in the production, the total amount of com- 
 petitive traffic according to certain fixed proportions. 1 Ruin- 
 ous competition, i. e., competition in which the parties interested 
 seemed to forget self-interest in a vain endeavor to over- 
 come their rivals, had existed in coal mining and hauling 
 to such a degree that in 1872 the roads entered into a com- 
 pact for self-protection. 2 This compact continued in force from 
 December 1, 1872, to August, 1876. 3 So long as this agree- 
 ment was in force, all went well, but upon its dissolution the 
 price of coal and rates of transportation fell so that several of 
 the companies were obliged to cease paying dividends, one to 
 obtain an extension of time from its creditors, and one to go 
 
 1 Ringwalt, p. 273. 
 
 'Internal Commerce Report, 1879, p. 179. 
 
 'Ibid., p. 180. 
 
46 Railroad Co-operation in the United States. 
 
 into the hands of a receiver. 1 The roads entered into another 
 agreement on January 1, 1879, which lasted for one year. 
 
 This agreement went to pieces at the end of the year, mainly 
 because one of the roads refused to accept terms offered by 
 the other roads. 2 From 1878 on to 1887, similar compacts 
 were generally in force and they undoubtedly did much to 
 check excessive competition. They were scarcely ever fully 
 effective, however, mostly because the Pennsylvania refused 
 to enter into a combination which had for its object the 
 restriction of the production of coal ; but there were number- 
 less other dissensions and legal hostilities continually disturb- 
 ing things. 3 
 
 The device known as the " evener system " was the form 
 of combination which undoubtedly provoked the strongest 
 public censure and led to the worst abuses. The first appli- 
 cation of the "evener" principle to competitive traffic was 
 made in 1875 to the live stock traffic between Chicago and 
 the East. 4 For this traffic there had been a tremendous com- 
 petition between the trunk lines, live stock being frequently 
 transported at less than cost. 5 The evener plan involved two 
 steps — first, to determine what part of the traffic should be 
 hauled by each of the competing lines ; and second, to enter 
 into an association with certain of the principal shippers, who 
 agreed to divert their shipments over the different lines so as 
 to secure to each road its allotted portion. These shippers 
 were known as " eveners," and in consideration of their services 
 as such, they were allowed a rebate not only on the shipments 
 made by themselves, but also on all those made by other 
 parties. The result was to give them a great advantage over 
 
 1 Ringwalt, p. 273. 
 
 « Hudson, p. 222. 
 
 'Ringwalt, p. 273. Consult, also, G. O. Virtue's paper on "The Anthracite 
 Combinations," Quarterly Journal of Economics, Vol. 5, for a fall and careful 
 history of the coal carriers' pools. 
 
 'Internal Commerce Report, 1879, p. 1 77. 
 
 * Hepburn Testimony (Blanchard), p. 3316. 
 
Co-operation of Competing Railroads. 47 
 
 their competitors in business, often resulting in a monopoly. 
 According to Ringwalt, 1 the scheme met with such strenuous 
 and determined opposition that it was abandoned by the rail- 
 roads in 1879, si nce which time the transportation of live 
 stock has been subject to regulations similar to the other 
 forms of traffic. 
 
 The greatest advantages granted to any evener were those 
 given to the Standard Oil Company. This company received 
 as a compensation for so dividing the petroleum traffic between 
 the different lines carrying oil, special advantages, 2 which 
 enabled the company to establish a monopoly of great 
 strength. 
 
 When in 1 877 there came a cessation of the trunk line 
 wars, whose history we have already considered, the com- 
 panies had learned a very valuable lesson. In order that they 
 might profit to the utmost from their experience, they called 
 Albert Fink to their assistance, the man who had been so 
 successful in the South. The four trunk lines organized 
 July 1, 1 877, 'and established an executive committee, with 
 Albert Fink as chairman. During this year the Westbound 
 traffic from New York was pooled and the traffic apportioned 
 among them according to the following percentages : s The 
 New York Central received 33 per cent, the Erie 33 per cent, 
 the Pennsylvania 25 per cent and the Baltimore & Ohio 9 per 
 cent. If any road received more than its allotted share of the 
 freight, the amount of the excess was to be turned over to a 
 road which was deficient. The conditions involving the East- 
 bound traffic were more complicated, and a division was not 
 completed until two years later. 4 
 
 On the seventeenth of December, 1877, the railroads in what 
 is now called Central Traffic Territory — the region between 
 
 l p- 273- 
 
 2 " Railways and the Republic," Chap. III. Also Hepburn Committee Report. 
 
 8 Ringwalt, p. 274. 
 
 'Hadley, p. 95. 
 
48 Railroad Co-operation in the United States. 
 
 Buffalo and Pittsburg and the Mississippi River — formed an 
 organization and established an executive committee similar to 
 the one that the trunk lines had appointed. The next step 
 was to form a joint organization to supervise the competitive 
 business, in which the trunk line and the roads west of them 
 both participated. An organization was formed similar to the 
 Southern Railway and Steamship Association. This new asso- 
 ciation went by the name of the Joint Executive Committee, 
 and Albert Fink was chairman. This association, according 
 to Hadley, was never so strong as its Southern prototype. 
 There was no clearing-house, and no central authority with 
 power to form pooling agreements — the voluntary action of 
 each road was required in every case. 1 There were three dis- 
 tinct sets of activities assigned to this new body: 
 
 1. The decision of what differential should be allowed Phila- 
 delphia and Baltimore, by virtue of their disadvantageous posi- 
 tion, as compared with New York and Boston. 
 
 2. What percentage of the traffic hauled should be allowed 
 each of the available roads. 
 
 3. Consideration of general business arrangements, matters 
 such as rates, hauling of joint traffic, etc., under the Joint 
 Executive Committee. 2 
 
 This arrangement was not satisfactory to the people of New 
 York, who claimed that their city suffered in proportion as 
 its more favored rivals, Philadelphia and Baltimore, became 
 commercially more prosperous than in periods of unregulated 
 competition. Simon Sterne claimed, in a letter published in the 
 Report on Internal Commerce for 1879,* "that the effect was 
 to transfer rental values in New York to Philadelphia and 
 Baltimore." Accordingly in the year 1881, the agreement 
 was violated by the New York Central, which avowed its 
 
 1 Hepburn Testimony (Blanchard), p. 3120, I, etc.; also, Fink's Railway Prob- 
 lem and its Solution, 1880. 
 1 Internal Commerce Report, 1879, p. 165. 
 'Appendix, No. 2. 
 
Co-operation of Competing Railroads, 49 
 
 intentions of returning to the status of competition. 1 A fierce 
 war then followed, which lasted for eight months, when the 
 roads decided to put the matter before a board of arbitrators. 
 A board was selected, to consist of Messrs. Thurman, Wash- 
 burn and Cooley. There were no charges of unfairness against 
 these men, who rendered a report on the situation and on the 
 results of their investigation, but the problem was not solved ; 
 they gave an impartial abstract of both sides of the dispute and 
 decided that the existing differentials between seaboard cities 
 were reasonable. At about the same time Albert Fink made his 
 now classic " Report on Adjustment of Railroad Transportation 
 Rates." He showed in effect that the seaboard cities were 
 simply intermediate points en route from Chicago to Liverpool, 
 and argued that the differential rate ought to counterbalance 
 exactly the difference in the cost of ocean carriage, if the 
 problem was to be solved on a theoretically correct basis. 
 Practically, he said, things would quickly adjust themselves 
 to an arbitrary basis, but an effort should be made to fix that 
 basis so as to prevent the instability consequent upon continu- 
 ous readjustments. With Fink's assistance a peace was patched 
 up between the roads on the basis of this principle. But in 
 1884, war broke out again and assumed a very serious form, 
 although the harmful results to the roads were not so marked 
 because of the large traffic available. 
 
 In November, 1885, the differences were settled by the 
 adoption of an agreement and code of rules. The combina- 
 tion then formed is important as marking the result of thirty 
 years of experience, and the principles on which the combina- 
 tion was based formed the latest product of that evolution 
 which was so abruptly terminated by the passage of the Inter- 
 state Commerce Act in 1887. Without unduly extending this 
 narrative by including an account of other pooling organiza- 
 tions that were established before 1887, it will suffice to pre- 
 sent the plan adopted by the trunk lines in 1885. 
 
 1 Fink, Report on Adjustment of Railroad Transportation Rates, 1882, p. 7. 
 
50 Railroad Co-operation in the United States. 
 
 The purposes of this agreement are set forth in the following 
 preamble : 
 
 Whereas, past experience has fully established the fact that the joint action of 
 competing railroad companies in establishing and adhering to uniform rates of 
 transportation for like services to the public is necessary in order to avoid the evils 
 of unjust discrimination and fluctuating rates, so injurious to commercial as well as 
 to the railroad interests ; 
 
 Therefore the parties above named 1 enter into the following contract for the 
 purpose of jointly establishing tariffs over their respective roads on competitive' 
 traffic, both passenger and freight, and of publishing said tariffs and strictly main- 
 taining the same. 
 
 This agreement provided in brief, for submitting disputes 
 which could hot otherwise be settled, to arbitration ; for hold- 
 ing Western connections in check by joint action of the agree- 
 ing roads ; for joint schedules and classifications, and finally, 
 for division of the competitive traffic among the several com- 
 peting roads. 2 
 
 In order to carry out these provisions a trunk line organ- 
 ization was formed and a body of rules adopted. The organ- 
 ization consisted of a presidents' committee, which served as a 
 court of last resort for the settlement of disputes before an 
 appeal to arbitration ; of an executive committee, which was 
 charged with carrying out the previous committee's orders, 
 and also to settle problems, if possible, without a reference to 
 the higher committee, and of freight and passenger committees,, 
 which had charge of their respective branches of the traffic. 
 A permanent arbitrator was also appointed by the presidents' 
 committee, to whom was " submitted for final decision all 
 questions arising under the contract upon which the parties 
 thereto cannot agree." It was provided that, in case of one 
 road discovering a rival in the violation of the agreement, the 
 executive committee was to be notified and given all possible 
 
 i Grand Trunk of Canada, New York Central, Erie, Delaware, Lackawanna & 
 Western, Pennsylvania, West Shore and Baltimore & Ohio. 
 2 Cullom Committee Report, p. 237. 
 
Co-operation of Competing Railroads. 51 
 
 information, but " pending the action of the executive com- 
 mittee, the complaining party shall not meet any alleged 
 reductions in rates or take any separate action whatsoever in 
 violation of the contract, all action necessary to protect the 
 trunk lines and their affiliated roads shall be taken jointly." 1 
 
 Under the provision as to dividing the traffic among the 
 several competing roads, all danger of failure to pay over 
 excess balances was obviated by the requirement that balances 
 should be settled monthly, and that each of the roads should 
 deposit with a trustee an amount of money sufficient to enable 
 the drafts for monthly settlement of balances to be drawn 
 upon it. 2 
 
 Throughout the whole history of the attempts made by the 
 trunk lines to combine, we find a disturbing factor at work 
 which would often upset a combination almost as soon as it 
 was made. This factor was the competition with the carriers 
 by water, which was an ever potent force and one which 
 could not be restrained. 
 
 That the effect of the water route by the Lakes and over 
 the Erie Canal and Hudson River was to break down the 
 pools arranged by the trunk lines is brought out very clearly 
 in the evidence before the Hepburn Committee. For instance, 
 a larger shipper in New York, Charles Greiner, 3 who enjoyed 
 a special rate from the New York Central, testified as follows : 
 
 Q. What ground was there for withdrawing your special rate for a time ? 
 
 A. There was some understanding between the roads — some pooling arrange- 
 ment, I believe — that they agreed not to give any special rate to anybody ; it was 
 in the winter, and, of course, then we had to pay full rates ; it only lasted for a 
 little while — for a month or two — and we told them that if they did not give us 
 special rates we should not ship by them the following summer, but would use 
 the canal. 
 
 Q. And they then gave you the special rate ? 
 
 A. Yes, sir. 
 
 1 Cullom Committee Report, p. 240. 
 
 'Agreement — Article VII. 
 
 * Hepburn Testimony, p. 2169. 
 
52 Railroad Co-operation in tJu United States. 
 
 This single piece of testimony contains in a nutshell the 
 nature of the agreements made by the railroads. In order to 
 do away with the special rate, they combine and agree to give 
 no more, all goes well for a short time, and then there comes 
 in a disturbing factor which cannot be controlled. The com- 
 petition with the canal was one of several influences which 
 rendered any remedy for railway competition so difficult. 
 There was also the competition with other routes ; large por- 
 tions of the crops of the West could be shipped either to the 
 Atlantic seaboard or to the Gulf ports, according to the rela- 
 tive charges. A constant competition prevailed between the 
 two great outlets. Then, in addition to the numerous exter- 
 nal competitive influences that were at work, there was quite 
 a scope for competition to have an influence even between 
 roads which were strictly regulated by pools. There was the 
 constant desire to increase traffic, even if there were no return, 
 in order that at the next periodic revision of the apportion- 
 ment, a larger share might be allowed the road showing an 
 excess. These competitive influences, both external and 
 internal, while they were of course not so potent a factor as 
 absolutely unrestrained competition would have been, were 
 nevertheless of great significance in determining the actual 
 results of the pools. 
 
 As to the actual course of rates during the ten years in 
 which the traffic on the trunk lines was pooled, it seems from 
 reliable evidence that they were certainly not extortionate ; in 
 fact Blanchard goes so far as to say 1 that " no American pool 
 can be cited which advanced rates unless to restore unjustifi- 
 able rate war reductions." His figures substantiating this 
 statement are certainly reliable, at least so far as they apply to 
 the trunk line pools. When the pool was organized (in 1877) 
 the average of the eastward and westward tariff class rates 
 between Chicago and New York was 71 cents per hundred 
 
 'New York Mail and Express — "Railway Pooling," Paper No. 4. 
 
Co-operation of Competing Railroads. 53 
 
 pounds. When pooling was discontinued in 1886, the rate 
 was under 50 cents. 1 
 
 Blanchard's figures 2 as to the actual tonnage transferred 
 from one road to another under the pool, are especially signi- 
 ficant. In the last year of the eastern pools from Chicago, 
 St. Louis, Peoria, Cincinnati, Louisville and Indianapolis, all 
 the tonnage changed from one route to another at all these 
 points was only 22 per cent of the total. The cash paid by 
 the same companies to each other in money settlements did 
 not average nine cents per ton. (The significance of this 
 figure is seen when it is compared with the fifty cent reductions 
 which were usually made during rate wars.) Of about 
 $12,000,000 pooled freight earnings, less than $300,000 
 changed hands. These figures certainly speak well for the 
 success of those who arranged the apportionments. 
 
 REVIEW. 
 
 The pooling system of restraining competition, which grew 
 up after the failure of the simple rate agreements, had its 
 -origin between 1870 and 1880. During those years the idea 
 was planted all over the country and so general was its growth 
 in the next few years that by 1887, nearly all classes of traffic 
 for which a considerable number of railway companies actively 
 •competed, had been pooled. 
 
 In all of these combinations the principle was the same, 
 although the method of its execution often differed. Several 
 competing roads would determine, as nearly as possible, what 
 share of the competitive traffic fell to each under the nominal 
 conditions of competition, then they would agree that each 
 road should haul as nearly as possible the amount to which it 
 was entitled, and in case a road should receive more business 
 than it was allotted, the matter was easily adjusted either by 
 hauling the freight and transferring the receipts to the road 
 
 • "Railway Pooling," Blanchard, No. 4. 
 2 Ibid. 
 
54 Railroad Co-operation in tlie United States. 
 
 with a deficit, or by transferring the freight itself. Very often 
 there were disturbing factors which the roads could not draw 
 into the combination and which continually interfered with the 
 satisfactory workings of the agreement. The influence of 
 water competition in regulating railroad pools was emphasized 
 by the Cullom Committee ; they say in their report 1 " that 
 their influence (i. e., of the water routes) is not confined within 
 the limits of the territoiy immediately accessible to water com- 
 munication, but extends and controls railroad rates at such 
 remote and interior points as have competing lines reaching 
 means of transport by water. Competition between railroads 
 sooner or later leads to combination or consolidation, but 
 neither can prevail to secure unreasonable rates in the face of 
 direct competition with free, natural or artificial water routes." 
 The agreements and organizations which have been described 
 do not include all traffic associations, but those mentioned are 
 typical. They were all based on one principle, had similar 
 obstacles in their way, and met with more or less success 
 according as they were able to overcome those obstacles. In 
 all associations there existed, even under the strictest arrange- 
 ments, competitive influences which could not be smothered, 
 such as the desire of the individual road to increase its allot- 
 ment; formation of roundabout routes in case of too high rates; 
 presence of water lines, both canal and river, which were 
 difficult if not impossible to harmonize in a pool with railroads ; 
 the rivalry of markets ; these and numerous others which 
 exerted a strong regulative if not actually restrictive control 
 over the operations of the railroads in their pools. 
 
 1 p. 170. 
 
CHAPTER III. 
 
 LEGISLATION AND ITS RESULTS. 
 Prohibitive Legislation. 
 
 PuSIic Opposition. — The early combinations of the trunk 
 lines met with an outburst of popular animosity, the more radi- 
 cal side of which found its expression in the New York and 
 National Anti-Monopoly Leagues that flourished in the sixties. 
 The first really serious opposition arose, however, after the 
 results of the Saratoga conference became known. According 
 to Charles Francis Adams, 1 an " alarm and popular clamor 
 was excited throughout the country. It was looked upon as 
 a movement against public policy, and the plan for operating 
 the combined roads which resulted from its deliberations was 
 denounced as one which, if successfully carried out, must neces- 
 sarily result in the destruction of all competition for carriage 
 between the seaboard and the West, and as consequently turn- 
 ing over to a band of heartless monopolists the vital work of 
 transporting the cereals of the interior to their market. The 
 cry of ' railroad kings ' and ' railroad extortioners ' was at 
 once raised from every quarter." 
 
 Public opposition to traffic agreements and pools has been 
 of two distinct kinds : First, that arising from those shippers 
 and communities which benefited by the discriminating rates 
 caused by unrestricted competition ; and, second, the more 
 general feeling of fear as to the possible results of a system 
 which placed such power in the hands of a few men and 
 which seemed to undermine the foundation of the industrial 
 system by substituting monopoly for competition. 
 
 The first form of opposition has had a much greater influ- 
 ence than would at first be supposed. The community which 
 
 i P . 151. 
 
 (55) 
 
56 Railroad Co-operation in the United States, 
 
 was served by only one railroad, instead of encouraging any 
 system which would place it more on an equality with its 
 rival neighbor that happened to enjoy competition, spent its 
 whole energy either in denouncing the local rates as extor- 
 tionate or in attempts to induce another line to build a con- 
 nection. For instance, there was a tremendous opposition in 
 Iowa to the combination arranged by the three great lines 
 running across the State (known as the Chicago-Omaha 
 Pool), and yet their own State commission warned the inhabi- 
 tants of the State that, so far from injuring the local traffic, 
 the real effect of the pool was to make the competitive traffic 
 (in which the inhabitants of the State had no interest) pay its 
 share of the fixed expenses and thus to relieve the local traffic 
 of a proportionate burden. 1 The individual merchants who 
 suffered from personal discriminations, spent their energy try- 
 ing to get a more favorable rate, and in their rage at being 
 baffled they denounced every action of the railroad managers, 
 including the attempt on the part of the roads to eliminate 
 the causes of discrimination. Of course, those merchants and 
 communities which enjoyed the " advantages of competition " 
 would make a tremendous outcry if the roads took any steps 
 to deprive them of what was considered to be their due, viz., 
 discriminating rates in their favor. 
 
 The more serious, and of course earnest, opposition to the 
 combination came, however, from the great bulk of the com- 
 munity, that large portion of the public not directly affected 
 by the actual discriminations. Of this opposition, we have 
 already noted an instance in the outburst caused by the Sara- 
 toga conference ; the basis of the opposition in this case was 
 typical of the general opposition to pools and agreements 
 throughout the country. This feeling, as tersely summed up 
 by the former Interstate Commerce Commissioner, W. G. 
 Veazey, is that the public has just as much interest in prevent- 
 ing the railroads from forming powerful and overshadowing 
 
 1 Iowa State Report, 1883, pp. 4285-86. 
 
Legislation and Its Results. 57 
 
 combinations as it has in restraining persons engaged in indus- 
 trial pursuits from banding together for purposes of gain. 
 The opponents of pooling say, with reference to the carriers, 
 " you transport our commodities, and we are willing that you 
 should individually fix and charge a fair price for the service, 
 but we are not willing to permit you to combine and by united 
 action so adjust rates, facilities and methods of service over 
 naturally competing lines, so, in fact, conduct the transporta- 
 tion business of the country as to force us, your employers, 
 into positions of subserviency which railway commissions and 
 courts may find it difficult to relieve." l 
 
 Both of these forms of opposition found expression in the 
 Congressional debate in 1886-87, when the question as to the 
 advisability of prohibiting pooling was decided in the affirma- 
 tive. The arguments against pooling were admirably summar- 
 ized by the Interstate Commerce Commission in its report for 
 1892. Although not in full sympathy with the views stated 
 the commission gave a very fair and clear statement of the 
 position held by the opponents of pooling. 
 
 Those opposed to allowing pooling contracts criticised them as conspiracies 
 in restraint of trade, as dangerous monopolies, as "rings" and "corners." They 
 were alleged to have the effect of giving the railroads control of the transporta- 
 tion, commerce, and wealth of the country, and to threaten the liberties of the 
 people by ultimately dominating the measures and policy of the great political 
 parties. It was asserted that such agreements were forbidden by the common 
 law, by the constitutions of many of the States, and by a long line of constitutional 
 decisions, that their effect was to substitute monopoly for competition, extortion for 
 reasonable rates, and discrimination for equal treatment. It was claimed that the 
 publication of tariffs and the uniformity of charges which other provisions of the law 
 made mandatory would be aided in their beneficial purposes by prohibiting pooling 
 rather than by permitting it, that pools had proven to be expensive, troublesome, 
 and demoralizing to operating officials, and that they had often resulted in unre- 
 munerative rates between competing points, the losses from which were recouped 
 by excessive charges at local stations. In short, the belief was entertained that 
 the legalization of these agreements was contrary to the general policy of the pro- 
 posed statute. 
 
 1 Interstate Commerce Commission Report, 1893. Appendix D, p. 220. 
 
5 8 Railroad Co-operation in the United States. 
 
 Legal Status of Pooling Contracts. — Under the common 
 law, the pooling contract was treated by the courts as " extra- 
 legal," i. e., while it was not a crime to be a party to such a 
 contract, the courts refused to interfere if the agreeing parties 
 did not adhere to the agreement. 
 
 The principle on which the courts based their position is 
 brought out by Spelling, in his treatise on " The Law of Pri- 
 vate Corporations," where he says of pooling arrangements : 
 " Courts long ago exercised jurisdiction to regulate rates of 
 quasi-public corporations, and on the same principle will refuse 
 to enforce pooling contracts between railroad and gas com- 
 panies. Such contracts are void as against public policy. 
 There is substantial harmony between the English and Ameri- 
 can definitions of monopoly, the two countries agreeing that 
 contracts entered into by and between two or more corpora- 
 tions, the necessary result of whose performance will crush 
 and destroy competition, are illegal." 
 
 In spite of the extra-legal nature of the pooling contracts, 
 which rendered them void and unenforcible by the courts, the 
 railroads endeavored to combine. The strong popular oppo- 
 sition to such action caused several of the States and later the 
 United States to pass laws making such contracts criminal. 
 
 The attitude of the individual States toward these combina- 
 tions is given in Clarke's monograph on State Railway Com- 
 missions, 1 where he summarizes the railroad laws of the 
 various States. 2 In 1891 all traffic agreements between paral- 
 lel roads were forbidden by either the constitutions or the 
 statutes of Iowa, Minnesota, Kansas, Missouri, California, 
 Alabama (when the object of agreement is to defeat com- 
 petition), North Dakota, South Dakota, Oregon, Texas, 
 Nebraska, North Carolina, Arkansas and Nevada. 
 
 Federal Legislation Prohibiting Pools. — The traffic which was 
 most concerned in the agreements of competing railroads was 
 
 1 Publications of American Economical Association, Vol. VI. 
 
 2 Table No. 4. 
 
Legislation and Its Results. 59 
 
 the through shipment which almost always passed through 
 more than one State. In other words, the pool applied mainly 
 to interstate commerce, over which the legislature of the indi- 
 vidual State had no control. Accordingly the assistance of 
 federal legislation was asked for. The Cullom Committee 
 reported in favor of waiting for a recommendation from the 
 proposed commission before any action be taken on so impor- 
 tant a matter as the prohibition of pooling, 1 but the House 
 was opposed to pooling and it carried its point. The fifth 
 section of the Interstate Commerce Act of 1887 provides 
 "that it shall be unlawful for any common carrier subject to 
 the provisions of the act to enter into any contract, agreement, 
 or combination with any other common carrier or carriers for 
 the pooling of freights of different and competing railroads, or 
 to divide between them the aggregate or net proceeds of the 
 earnings of such roads, or any portion thereof, and in any 
 case of an agreement for the pooling of freights as aforesaid, 
 each day of its continuance shall be deemed a separate 
 offence." The law further provides that any officer of a cor- 
 poration who arranged or aided in forming a pooling agree- 
 ment shall be deemed guilty of a misdemeanor and subject 
 to a fine not to exceed five thousand dollars for each offence. 
 
 The Sherman Anti-Trust Law of July 2, 1890, provides, in 
 Section I, that " every contract, combination in form of trust 
 or otherwise, or conspiracy in restraint of trade or commerce 
 among the several States or with foreign nations, is declared 
 illegal." The status of the traffic agreement under this act 
 was brought out in the case of the Trans-Missouri Freight 
 Association, which elicited from the United States Courts a 
 decision that the agreement of the roads constituting the asso- 
 ciation was illegal and void. 
 
 The lower courts had upheld the legality of the associa- 
 tion's agreement ; the Circuit Court maintaining : 
 
 1 Cullom Committee Report, p. 200. 
 
60 Railroad Co-operation in the United States. 
 
 An agreement between several competing railway companies and the forma- 
 tion of an association thereunder for the purpose of maintaining just and reasonable 
 rates, preventing unjust discriminations by furnishing adequate and equal facilities 
 for the interchange of traffic between the several lines, without preventing or 
 illegally limiting competition, is not an agreement, combination or conspiracy in 
 restraint of trade in violation of the Act of July 2, 1890. ... It was not the 
 intention of Congress to include common carriers subject to the act of February 4, 
 1887, within the provisions of the Act of July 2, 1890, which is a special statute, 
 relating to combinations in the form of trusts and conspiracies in restraint of 
 trade. 1 
 
 This decree of the Circuit Court was sustained by the Circuit 
 Court of Appeals, that court arguing as follows : 
 
 The contracts, combinations in the form of trust or otherwise, and conspiracies 
 in restraint of trade declared to be illegal in interstate and international commerce 
 by the Act of July 2, 1890, entitled an act to protect trade and commerce against 
 unlawful restraints and monopolies, are the contracts, combinations and conspira- 
 cies in restraint of trade that had been declared by the courts to be against public 
 policy and void under the common law before the passage of that act. 
 
 The test of the validity of such contracts or combinations is not the existence 
 of restriction upon competition imposed thereby, but the reasonableness of that 
 restriction under the facts and circumstances of each particular case. 2 
 
 The case was carried to the Supreme Court, which reversed 
 the decrees of the lower courts, in a decision delivered March 
 22, 1897, in which the Court held: 
 
 The Act of July 2, 1890, covers, and was intended to cover common carriers 
 by railroad. 
 
 The words unlawful restraints and monopolies, in the title of the Act of 
 Congress of July 2, 1890, do not show that the purpose of the act was to include 
 only contracts which were unlawful at common law, but refer to and include those 
 restraints and monopolies which are made unlawful in the body of the act. 
 
 The term " contract in restraint of trade," as used in the Act of July 2, 1890, 
 does not refer only to contracts which were invalid at common law, but includes 
 every contract in restraint of trade, and is not limited to that kind of a contract 
 which is unreasonable restraint of trade. 
 
 The policy of the government is to be found in its statutes, and when they 
 have not directly spoken, then in the decision of the courts and the constant prac- 
 tice of the government officials : but when the law-making power speaks on a 
 
 1 From the syllabus of the decision. 53 Federal Reporter. 
 * Syllabus of the decision. 
 
Legislation and Its Results. 61 
 
 particular subject over which it has constitutional power to legislate, public policy 
 in such a case is what the statute enacts. 1 
 
 The point in dispute, in other words, was as to what was 
 included under the term " unlawful combinations in restraint 
 of trade." Did the act declare to be illegal only those agree- 
 ments which had been previously so considered under the 
 common law ? Or did it go further and put under the ban all 
 combinations which had the aim of restraining trade ? The 
 lower courts held the former view, the latter was held by the 
 Supreme Court. 
 
 This decision decrees, therefore, that " The right of a rail- 
 road company to charge reasonable rates does not include the 
 right to enter into a combination with competing roads to 
 maintain reasonable rates." 
 
 The Act of 1 8S7 had declared illegal and criminal all com- 
 binations between competing railroads which maintained rates 
 by the " pooling " device. This decision of March 22, 1897, 
 " makes illegal " as Dr. E. R. Johnson says, 2 " all traffic 
 associations formed by railway companies for the purpose of 
 regulating rates charged on competitive traffic." 
 
 Evolution of Traffic Agreements Since 1887. 
 
 Upon the passage by Congress of the Interstate Commerce 
 Act in 1887, it was necessary to alter the organization of the 
 numerous traffic associations then in force, in order to bring 
 them into harmony with the fifth section of the law, which 
 prohibited pooling. That the continuance of the rate agree- 
 ment and of some means of enforcing it was essential, had been 
 learned by the roads in their years of bitter experience, with 
 such force that the lesson was not soon to be forgotten. The 
 associations continued in existence, therefore, and, after the 
 
 1 Syllabus of the decision. United States v. Trans-Missouri Freight Association, 
 169 United States 290. 
 
 2 Current Transportation Topics II. Annals of American Academy Political 
 and Social Science, Vol. X, p. 246. 
 
62 Railroad Co-operation in the United States. 
 
 pool was prohibited, attempted to accomplish the same end by 
 other means. These attempts and their results, with the 
 extent to which the evil effects of competition were obviated 
 by other provisions in the Act of 1887, will form the conclud- 
 ing subject of this chapter. 
 
 In the East. — After the passage of the Interstate Commerce 
 Act, new articles of association were entered' into by the 
 Trunk Lines. 1 The agreement was signed on the seventh 
 day of April, 1887, and the following preamble was adopted : 
 
 Whereas, The Interstate Commerce Law, taking effect April the 4th, 1887, 
 requires all the railroads which are subject' to the law to establish, publish, and 
 maintain reasonable and just tariffs of transportation, for both freight and passen- 
 ger traffic ; and, 
 
 Whereas, The co-operation of the several railroad companies which exchange 
 traffic with each other, and which enter into joint traffic arrangements, is necessary 
 in order to make said tariffs, classifications,' etc. , conform with the law, and to 
 avoid unjust discrimination between localities and shippers ; and, 
 
 Whereas, On account of the complicated business relations of so many rail- 
 roads whose business offices are located in different parts of the country, it is desir- 
 able, in order to secure this co-operation and bring about a principal organization 
 through which the business between the several railroad companies may be 
 promptly and efficiently transacted, the following named railroad companies, to 
 wit : . . . 2 and such other railroad or transportation companies in the same 
 territory as may hereafter become parties hereto agree to form an association to be 
 called "The Trunk Line Association," for the purpose of facilitating the transac- 
 tion and interchange of business with each other and with their connecting roads, 
 in conformity with the requirements of the Interstate Commerce Law. 
 
 The agreement thus provided, in much the same manner 
 as had the preceding agreements, for an organization by which 
 the roads could co-operate in the transaction of business. No 
 method, however, was provided for the punishment or dis- 
 cipline of any of the members which should violate the agree- 
 ment. It will be noticed that the Grand Trunk of Canada 
 was not a member. From the date of the execution of the 
 
 1 Report of New York Railroad Commissioners, 1887, p. xi. 
 
 2 New York Central, West Shore, Delaware, Lackawanna & Western, Pennsyl- 
 vania, Baltimore & Ohio, and the Philadelphia & Reading were the principal 
 parties. 
 
Legislation and Its Results. 63 
 
 agreement until about the middle of November, the agree- 
 ment was generally observed and rates maintained on the 
 basis of 25 cents per 100 pounds from Chicago to New York 
 on grain. About that time, however, the Grand Trunk Rail- 
 road lowered its rates on dressed beef, and on November 18 
 all the other roads lowered theirs to meet the cut by the 
 Grand Trunk. In their report dated January, 1888, the New 
 York Commissioners l expressed their " serious apprehension 
 that this will initiate another period of unregulated competi- 
 tion, or, in other words, a railroad war, . . . which will 
 result in great depreciation of property and with no corre- 
 sponding benefit to either producer or consumer." That this 
 apprehension was realized is shown by their report for the 
 succeeding year, 2 when they say that rates " were seriously 
 cut into by the fierce competition between the railroads." 3 
 This was attributed to five causes, of which the three most 
 important were : " The clause in the Interstate Commerce Act 
 prohibiting pooling ; the reckless efforts of some railroad 
 managers to procure business at any rates, however unprofit- 
 able ; and the building of new roads in advance of any necessity 
 for the same." 4 The commissioners state in their report that 
 " the clause prohibiting pooling has taken away from the rail- 
 roads whatever power they possessed, previous to the passage 
 of the Interstate Commerce Act, to enforce the provisions of 
 their joint traffic agreements as against each other." 
 
 New articles of association between the trunk lines were 
 entered into to take effect February 20, 1889. 5 They declare 
 in the preamble that " past experience has fully established the 
 fact that the joint action of railroad companies is necessary to 
 establish and maintain reasonable and just transportation 
 tariffs on freight and passenger traffic"; and that such joint 
 
 'p. xii. 
 
 2 Report for 1888. 
 
 3 p. vii. 
 'p.viii. 
 
 6 New York Reports, 1889, p. viii. 
 
64 Railroad Co-operation in the United States. 
 
 action is also necessary to avoid unjust discriminations in trans- 
 portation charges in conformity with the requirements of the 
 Interstate Commerce Law." 
 
 The articles were signed by the Grand Trunk as well as by 
 the other roads. This new association seems to have been 
 temporarily successful, if we are to judge by the following 
 sentences from their reports for the two succeeding years, 
 1889 and 1890 : " It can be said as peaceful relations between 
 the trunk lines and their affiliated connections have been main- 
 tained during the past year as have ever before, or are likely to 
 be hereafter." 1 " The trunk line agreement has been fairly well 
 preserved throughout the year with a correspondingly stable 
 maintenance of freight and passenger rates at fairly profitable 
 figures." 2 The commissioners believed, however, that the 
 diminution of ruinous competition was largely due to : " first, 
 the very great increase of business giving all a share ; and, 
 second, the long and short haul provision in the Interstate 
 Commerce Act." 3 The railroads certainly could not afford 
 to reduce rates on local traffic, " that which is by far the more 
 reliable and profitable," to a war level, and the consequence 
 was, the commissioners argued, that all rates were kept up. 4 
 
 The clause in the agreement to which was due the " fairly 
 successful" maintenance of rates was Article VIII, which 
 reads as follows : 
 
 If the maintenance of uniform tariffs by all lines reduces the traffic of any 
 party below a fair proportion of the traffic in competition, the tariffs may be so 
 adjusted from time to time as to protect such lines from an unjust depletion of traffic ; 
 such adjustment to be made under the rules of this association. 
 
 The same principle was contained in the revised articles of 
 the Central Traffic Association, which became effective Decem- 
 ber 1, 1893 : "Whenever any party hereto feels that its traffic 
 
 1 1889, p. viii. 
 2 1890, p. viii. 
 3 1889, p. viii. 
 *l889, p. ix. 
 
Legislation and Its Results. 65 
 
 is being unjustly depleted, it shall represent the facts in writing 
 to the commissioner, who shall promptly endeavor to secure 
 to the parties hereto their fair shares of traffic." 1 
 
 The Trunk Lines were members of two associations : The 
 Trunk Line Association, including the eastern sections, and 
 the Central Traffic Association, including the Chicago connec- 
 tions. For the purpose of establishing joint tariffs, of deter- 
 mining divisions of through rates and fares, and of making 
 other rules and regulations as might be necessary for carrying 
 out the objects of the two associations, the two associations 
 had long had a joint committee. This committee, while it 
 may have been successful in arranging joint tariffs and divi- 
 sions of through rates, had become an inefficient agent for 
 regulating competitive traffic. According to the Articles of 
 Agreement, it could legislate but it could not execute its 
 decrees. 
 
 The companies composing these two associations had been 
 trying for several years to find a more reliable instrument than 
 the joint committee, but each such attempt was met with 
 failure. No one believed that a permanent agency could be 
 established, and often even temporary arrangements were 
 violated, each road being afraid to trust its rivals. A decided 
 movement to bring about some joint agreement between the 
 two associations was made in the spring of 1894, 2 but without 
 success. Then the evils of competition assumed a more 
 prominent form than ever, until in June, 1895, according to 
 the Railway Guide, 3 there was danger that all American 
 securities held in England would be sold, and that the dimin- 
 ishing profits of the roads would soon culminate in widespread 
 insolvency. This fear pervaded the owners of American rail- 
 road securities, for they brought such an influence to bear on 
 
 1 Interstate Commission, 1895, p. 97. 
 'Railway World, Vol. XXI, pp. 636-7. 
 a Vol. XXVI, pp. 298, 450. 
 
66 Railroad Co-operation in the United States. 
 
 their directors, 1 that a meeting of the representatives of the 
 railroads was held in the latter part of June, 1895. After 
 numerous meetings during the summer and autumn of that 
 year, the presidents held a short meeting in New York, on 
 November 19, 1895, at which were adopted the Articles of 
 Agreement. 
 
 This new organization, called the Joint Traffic Association, 
 which went into operation on the first of January, 1896, pro- 
 vided for a board of managers, a permanent board consisting 
 of one representative from each of the nine principal systems 
 of roads. This body had the power of recommending " such 
 changes in rates as may be reasonable and just, and necessary 
 for governing the traffic covered by this agreement." 2 This 
 recommendation was, in effect, an order, since it was further pro- 
 vided that " the failure to observe such recommendations shall 
 be deemed a violation of this agreement." 3 
 
 A violation of the agreement was punished by making the 
 offending party forfeit a sum " not to exceed $5000, unless 
 the gross receipts of the transaction in which the agreement is 
 violated exceed that amount." In that case, the forfeiture 
 should not exceed the gross receipts. Each road was required 
 to make an initial deposit of $5000, as well as further monthly 
 payments based upon the gross earnings of each company, 
 for the purpose of providing for forfeitures and defraying the 
 necessary expenses of the association. 
 
 Another of the duties of the managers was to secure " to 
 each company equitable portions of the competitive traffic so 
 far as can be legally done." 4 In order to accomplish this, it 
 was provided that if the maintenance of uniform tariffs by all 
 the lines reduced the tariffs of any party below a fair propor- 
 tion of the competitive traffic, the tariffs should be so adjusted 
 
 » "Railway World," Vol. XXI, p. 124. 
 'Article VII, Section 2. 
 'Article VII, Section 2. 
 "Article VIII. 
 
Legislation and Its Results. 67 
 
 from time to time as to protect such lines from an unjust 
 depletion of revenue. 
 
 Action was brought by the United States in the Circuit 
 Court of the United States for the Southern District of New 
 York to have the contract declared illegal, because, as the 
 District Attorney maintained : 
 
 1 . It provided a traffic and earnings pool, and therefore vio- 
 
 lated the Interstate Commerce Act. 
 
 2. It was a combination in restraint of trade and com- 
 
 merce, and therefore violated the Sherman Anti-Trust 
 Act of 1890. 
 
 3. It was an unlawful interference with and an obstruction 
 
 to interstate commerce, and therefore the United States 
 had a good cause of action in equity irrespective of 
 statute. 
 The Circuit Court and the Circuit Court of Appeals both 
 decided that the contract violated neither the Interstate Com- 
 merce Law nor the Anti-Trust Law. The United States 
 Supreme Court, however, overruled the lower courts and 
 October 24, 1898, decided, in this case, as it had in the 
 Trans-Missouri Freight Association Case, that the contract 
 included an agreement to maintain rates and was a violation 
 of the Anti-Trust Law. 
 
 In the South. — The Southern Railway and Steamship Asso- 
 ciation, which included most of the roads south of the Ohio 
 and east of the Mississippi, continued in existence after 1887, 
 although the prohibition of pooling required a reorganization. 1 
 The power of the association was by no means destroyed, 
 however. Pool divisions being no longer legal as a means of 
 maintaining rates, fines were imposed to accomplish the same 
 end. According to Hudson, the association succeeded for 
 some years in maintaining rates and preventing discriminations. 
 During the panic of 1893, however, it became powerless to 
 prevent rate-cutting, and its orders being disregarded it 
 
 1 Henry Hudson, Quarterly Journal Economics, Vol. V, p. 90. 
 
68 Railroad Co-operation in the United States. 
 
 dissolved. 1 In 1895, it was succeeded by the Southern States 
 Freight Association. 2 This association provided that "the 
 principle of a physical apportionment of actual traffic subject 
 to arbitration shall be recognized in the operation of the asso- 
 ciation," and "that the maintenance of rates as established 
 under the rules of the association is of the very essence of this 
 agreement." The agreement also made traffic subject to 
 arbitration, in order to bring it within the rule of physical 
 apportionment. 3 The decision in the Trans-Missouri Freight 
 Association Case compelled a reorganization of the Southern 
 States Freight Association. There are now in existence, 
 January, 1899, two organizations south of the Ohio and east 
 of the Mississippi — the Southeastern Freight Association and 
 the Southern Freight Association. 
 
 In the West. — Some time after the prohibition of pools, the 
 Western Freight Association and the Western Passenger 
 Association came into existence to control the traffic between 
 Chicago and the Missouri River. 4 The former of these asso- 
 ciations enjoined upon its administrative board "the duty of 
 securing to each party a fair share of the competitive traffic." 6 
 The declared object of the Western Passenger Association was 
 " to provide for joint instead of individual action in all matters 
 of common interest, and to afford protection against unfair 
 competition, to the end that proper rates of fare may be main- 
 tained." 6 The Trans-Missouri Freight and Passenger Asso- 
 ciations extended from the western limits of the "Western 
 Associations " nearly to the western boundaries of Arizona, 
 Utah, and New Mexico. 7 
 
 1 Quarterly Journal of Economics, Vol. V, p. 91. 
 
 * " Railway World," 1895, p. 467. 
 
 'Interstate Commerce Reports, 1896, p. 90. 
 
 *A. F. Walker, Forum, Vol. XIII, p. 743. 
 
 6 Interstate Commerce Reports, 1896, p. 90. 
 
 «Ibid. 
 
 'A. F. Walker, Forum, Vol. XIII, p. 743. 
 
Legislation and Its Results. 69 
 
 The traffic to and from the Pacific Coast was controlled by 
 the " Transcontinental Association." ' 
 
 An account of traffic associations in the West would be 
 incomplete without some mention of the Western Traffic Asso- 
 ciation, which, founded January 31, 1891, embraced most of 
 the carriers west of the Missouri and as far south and includ- 
 ing Arizona, Utah and New Mexico. 2 This association dif- 
 fered from its predecessors in three particulars : 
 
 First, its authority was derived from the boards of directors, 
 a higher source than the presidents or traffic managers ; sec- 
 ond, it did not directly make or alter rates, but, with functions 
 similar to those of an appellant tribunal, did so through the 
 older associations which were still retained. /The matter of a 
 proposed change of rates by one of the subsidiary associa- 
 tions was taken up by the general organization at one of its 
 regular monthly meetings. Third, where the rate committees 
 of the subsidiary associations were unable to agree, the West- 
 ern Traffic Association afforded arbitration by means of a per- 
 manent board of five commissioners. 
 
 Mention has been made in this and the preceding sections 
 of this chapter of only the more important associations. 
 There has been no attempt made to discuss all the organiza- 
 tions nor to note all the many and frequent changes which the 
 associations have undergone. It remains only to speak in a 
 general way of the present status of the traffic association 
 and this recital of details will have ended. 
 
 Present Status. — The decision of the Supreme Court of the 
 United States, in the Trans-Missouri Freight Association Case, 
 made the agreements of all existing traffic associations illegal. 
 Accordingly, with the exception of the Eastern trunk lines, 
 the railroads withdrew from their old associations and recon- 
 structed their agreements in such a way as to make them 
 
 1 A. F. Walker, Forum, Vol. XIII, p. 743. 
 »Ibid. 
 
70 Railroad Co-operation in the United States. 
 
 conform with the principles laid down in the court's decision. 1 
 They retained the general form of the previous organizations, 
 with the one important exception of reserving to the individ- 
 ual companies the functions of rate-making. 2 An instance of 
 this is to be found in the articles of agreement of the Western 
 Joint Traffic Bureau (which took the place of the old Western 
 Freight Association), where it is provided that the board of 
 commissioners " shall supervise and at its option recommend 
 changes in rates, rules and regulations governing the traffic 
 subject to this agreement." The agreement takes care to pro- 
 vide further, however, that " Nothing herein shall be construed 
 as interfering with the right of individual members to change 
 rates at will, and the board of commissioners shall so exercise 
 the power conferred upon it as to discourage, and, so far as 
 possible, prevent violation of the Interstate Commerce Act, or 
 any other federal or State law, or the provisions of the charter 
 of any member, and it shall, with these ends in view, co-oper- 
 ate with federal and State commissions." Similar provisions 
 are included in the revised agreements of the other freight 
 and passenger traffic associations. 3 
 
 The Joint Traffic Association promptly dissolved after the 
 Supreme Court held its agreement to be illegal. 
 
 Extent of Evils of Competition Under Interstate 
 Commerce Law. 
 
 Discriminations Prohibited. — Federal legislation for the regu- 
 lation of commerce was first considered in the early seventies, 
 but action was from time to time postponed, on the ground 
 that the affairs of the railway companies should be regulated by 
 their creators, the individual States. In 1886, however, this 
 policy was changed as a result of the decision by the Supreme 
 
 1 E. R. Johnson, Current Transportation Topics, Vol. II, p. 98. 
 
 2 Ibid. 
 
 3 Interstate Commerce Reports, 1897. 
 
Legislation and Its Results. J\ 
 
 Court, in the case of the Wabash Railway Company vs. the 
 State of Illinois. The court declared that a State law against 
 discrimination had no validity in respect to interstate ship- 
 ments, even though Congress had wholly refrained from 
 action upon the subject. 1 In view of this decision an espe- 
 cial significance became attached that year to the report to the 
 Senate of its Select Committee on Interstate Commerce. This 
 report summed up the necessity for federal legislation in a series 
 of "Complaints against the railroad system of the United States." 
 There were eighteen of these complaints, and as A. F. Walker 
 has said, 2 " the bill recommended to the Senate might properly 
 have been named An Act to Prevent Railway Discrimination." 
 Its machinery and details were nearly all directed to the 
 accomplishment of that result. The remedy proposed was 
 the forbidding of unjust discriminations under pains and pen- 
 alties. When the Interstate Commerce Act was finally passed, 
 it contained two additional features added by the House — the 
 long and short-haul clause and the anti-pooling clause. 
 
 The law undertook to accomplish by legal inhibitions what 
 the railroads had been trying to do by means of pools. A 
 brief review of the extent to which the law has accomplished 
 its purpose of stopping discriminations will constitute the third 
 part of this chapter on legislation. 
 
 Prohibitions of the Law Evaded. — When the law first went 
 into operation the managers of the railways, so they claim, 
 accepted it as inevitable? and made serious efforts to conform 
 to its provisions. Rebates, drawbacks, and all " other de- 
 vices " whereby a carrier should receive from one person 
 " greater or less compensation for any service rendered " than 
 from another for a like service, were expressly declared 
 
 1 Forum, Vol. XI, p. 526. 
 
 2 Ibid. 
 
 3 That the railroads ' ' accepted the Act of 1887 as inevitable ' ' may seem to be 
 a statement hardly warranted by developments, but the railroads at the time of its 
 passage undoubtedly made serious efforts to conform to its provisions. This is 
 admitted by the Interstate Commission in its first report. 
 
72 Railroad Co-operation in the United States. 
 
 unlawful and were punishable by a heavy fine. As Walker 
 says, 1 this was just what conservative railway managers desired ; 
 it was not only just but it protected their revenues ; so the new 
 rule was cheerfully accepted and imperative orders were issued 
 for its obedience. 
 
 This happy condition did not continue. Before the close 
 of the year difficulties began to develop, which in 1888 
 assumed very serious proportions. Where several roads 
 charged similar rates, the traffic naturally went by the most 
 advantageous]route. The road which pursued a more indirect 
 line, climbed heavier grades, or had less favorable terminal 
 facilities, found that the traffic was going by the route more 
 advantageously situated. Complaint was raised that the law 
 was in effect "a direct interference by the government in favor 
 of the strong roads and against the weak." The weaker 
 roads were not managed by men who were of the kind to sit 
 idly in their offices and lose business. They soon discovered 
 that a commission to a shipper's friend would result in the 
 desired freight, there being nothing in the law to prevent such 
 commissions " to friends." Nor did their ingenuity stop here ; 
 as Walker says, 2 " other kindred devices were sugggested, some 
 new, some old ; the payment of rent, clerk hire, dock charges, 
 elevator fees, drayage, the allowance of exaggerated claims, 
 free transportation within some single State — a hundred ingen- 
 ious forms of evading the plain requirements of the law were 
 in use." Nor was it the minor, unimportant roads alone 
 which thus became demoralized ; shippers were ready to give 
 information to other lines concerning concessions which were 
 offered them, and to state the sum required to control their 
 patronage. " A freight agent thus appealed to might perhaps 
 let the business go at first, but when the matter became more 
 serious and he saw one large shipper after another seeking a 
 
 1 Forum, Vol. XI, p. 531, 
 
 2 Ibid. 
 
Legislation and Its Results. 73 
 
 less desirable route, he was very apt to throw up his hands 
 and fall in with the procession." 
 
 These conditions were largely due to the inadequate methods 
 provided in the original law for its enforcement, and a remedy 
 was attempted in the amendments which went into effect in 
 March, 1889. For a year thereafter there was an almost 
 entire cessation of the use of illegitimate methods of securing 
 business, and until near the close of this period little com- 
 plaint was heard. 1 Then, however, conditions assumed their 
 old form — the malady underwent a serious relapse. Accord- 
 ing to Walker, 2 it became a common statement among shippers 
 and traffic agents that the law was largely a dead letter, as 
 regards the prohibition of personal discriminations, and that 
 its penalties need not be feared. 
 
 Difficulty of Detection. — The reason for this state of affairs 
 is to be found in the report of the Interstate Commission for 
 1893, where the commission admits 3 that "the difficulty does 
 not consist in determining what constitutes the criminal act, 
 but in uncovering the guilty transaction and bringing to justice 
 those who engage in it." 
 
 The report states it to be the belief of many " that the 
 public tariff charges are frequently departed from in particular 
 localities, that rebates are paid, and that other prohibitions of 
 the statute are disregarded." The commission' admits this ; 
 "the legal proofs of these violations may not be obtainable, 
 yet the fact of their occurrence is a moral certainty. How to 
 check discriminations of this kind is a most perplexing 
 inquiry. Unlawful contracts between shipper and carrier are 
 consummated in secrecy, and are all the more harmful on that 
 account. The means for their concealment are practically 
 unlimited ; the mutual interest of the parties compels each to 
 screen and protect the other.; detection is very difficult." 
 
 1 Walker— Forum, Vol. XI, p. 532. 
 
 2 Ibid. 
 
 3 p. 8. 
 
74 Railroad Co-operation in the United States. 
 
 Even roads competing with the road that is offering special 
 rates feel themselves bound to a certain code which forbids 
 their bringing to light the misdoings of their rival. Newcomb 
 shows the truth of this in an articlein the Engineering Magazine, 1 
 where he quotes " the following extract from an article pub- 
 lished in a periodical of high standing and wide circulation 
 among railway officials": 
 
 At present no railway man dares to assist the commission to information against 
 another road. No company dares to be the active instrument in bringing com- 
 plaint against another. It has its own record behind it. There would be retalia- 
 tion, and (I say it with sorrow) there is no great company which can face having 
 its record of the past years subjected to investigation. 
 
 The Interstate Commission expressed this same idea, only 
 more broadly, in their report for 1893 : 2 "The average public 
 sentiment recognizes little moral turpitude in compacts to 
 secure special privileges from railroad corporations and the 
 general refusal to play the role of informer covers the illegal 
 transaction with comparative security." 
 
 That the law against personal discriminations may be vio- 
 lated and the individual transaction so covered as to prevent 
 any possibility of its discovery, was a fact unexpectedly 
 brought home to the Interstate Commission in 1 894. Accord- 
 ing to Section 20 of the Act to Regulate Commerce, reports 
 are required to be filed with the commission on numerous 
 subjects, among them being the earnings and amounts ex- 
 pended and for what purposes. In response to this require- 
 ment an important railroad system filed with the commission a 
 report, verified by the oaths of its president and auditor, for 
 the year 1893. It subsequently appeared from a statement 
 made by an expert accountant, who made an examination of 
 its affairs and accounts, that during the period covered by 
 the report large sums of money had been paid out by the 
 
 1 Vol. XI, p. 1059. 
 a p. 8. 
 
Legislation and Its Results. 75 
 
 company by way of rebates and drawbacks, but were falsely 
 covered under the head of legitimate expenditures. 1 Under 
 the existing law, no indictment for perjury could be predicated 
 upon such false and fraudulent report, though made under 
 oath. 2 If the examination of this company's books had not 
 been made for another purpose, the existence of the discrimi- 
 nations would have continued undiscovered. It would cer- 
 tainly be impossible for the commission to examine all railroad 
 accounts with the minuteness required to detect false entries, 
 and the only effect of a law punishing the maker of a per- 
 jured report would be merely to make him more careful. In 
 the case just mentioned, the reason why the accountant was 
 able to discover the existence of discriminations, was because 
 no attempt had been made to conceal them, the officers of the 
 road knowing that accounts were almost never so deeply ex- 
 amined and that anyhow no indictment for perjury could be 
 brought. 
 
 The commission recognized its helplessness in ferreting out 
 evidence of personal discriminations, in its report for 1897. 3 
 An inquiry was made into certain rates ; the investigation was 
 conducted by members of the commission ; the officers of 
 the accused companies were called and compelled to give 
 evidence under oath. That testimony was, without exception, 
 that the rate had been in all cases maintained. " Neverthe- 
 less," says the commission, "there are strong reasons for 
 believing that the fact is otherwise. Those who are in a 
 position to know say that this is so. Railroad managers 
 themselves, with one accord, declare it to be so. Facts which 
 are morally convincing, although not of a character to secure 
 a legal conviction, lead us to the same opinion. We have no 
 doubt that at the present time very large quantities of com- 
 petitive traffic are carried at other than published rates." 
 
 1 Report, 1894, p. 63. 
 * Ibid, p. 64. 
 3 1897, P- 47- 
 
?6 Railroad Co-operation in the United States. 
 
 Strong Inducement to Discriminate. — That there is a strong 
 motive back of the special rate is doubted by no one. As the 
 Interstate Commissioners say, l " The opportunity of the 
 shipper combined with the carrier's asserted necessity is a 
 constant temptation to bargain for preferential rates." The 
 amount of available traffic varies greatly, while the carrying 
 capacity of the roads is nearly a constant quantity. " Hence 
 at different seasons of the year, or in periods of commercial 
 depression, when the volume of shipments is greatly reduced, 
 the strife to get business is exceedingly fierce. There are 
 occasions where competition is so sharp, where the freight of 
 some large shipper or combination of shippers is so needful to 
 a particular road, that when reduced rates are demanded as 
 the alternative of losing the tonnage the carrier can scarcely 
 refuse." 
 
 The subordinate agent who in the early days of railway 
 competition created such a disturbance, came to life again, 
 with a restricted field of activities, but with an even greater 
 desire to "get his share of the traffic." Even where the 
 responsibility is placed in higher hands, the official, whoever 
 he may be, is often unable to resist what A. F. Walker calls : 
 "The persistent importunity of patrons, who beg openly, 
 misrepresent unscrupulously, and devise ingeniously, to the 
 end that they may get a trifle, be it ever so small, off tariff, 
 in consideration of their patronage." " In the language of 
 the street, ' anything goes ' with shippers, from a free-pass to a 
 greenback, from the allowance of a bogus claim to free 
 storage, from a clerk on the pay-roll to a dinner at the club. 
 If the facts in respect to the pursuit of personal favors and 
 discriminations by shippers were fully known, all surprise that 
 the law against unjust discriminations has been so extensively 
 a dead letter would disappear." i 
 
 'Report., 1893, p. 8. 
 
 a A. F. Walker, Forum, Vol. XL 
 
Legislation and Its Results. yy 
 
 Present Injurious Effects. — The conditions which give rise to 
 discriminating special rates are such that the results have been 
 and are of an especially unfortunate and injurious nature. The 
 large shipper and the dishonest shipper have been and are the 
 men favored by present conditions. 
 
 As Newcomb said, in an article in the Engineering Magazine 
 of December, 1897, 1 "There is abundant evidence that 
 concessions are regularly made to those shippers, or combina- 
 tions of shippers, whose enormous wealth, or the extent of 
 whose business operations, enable them to dictate terms to 
 carriers, wherever alternate routes exist." The reason for this 
 is brought out in the Interstate Commission's report for 
 1897, where they say : 2 " Incidentally this rate-cutting prefers 
 the large to the small shipper. Rebates cannot be given 
 to-day as they were before the passage of this act, nor as they 
 were before the Brown decision 3 even. Various devices are 
 resorted to. Only a few can know of the transaction. The 
 whole matter must be covered up and kept secret, with the 
 result that the large shipper, the trust, the monopoly, is able 
 to secure the concession, while the small shipper is obliged to 
 pay the published rates." 
 
 Another effect of present conditions which, while it may not 
 be so harmful economically, is nevertheless most outrageous 
 to the more optimistic observer, — the position in which the 
 honest shipper finds himself. " The most unfortunate feature 
 of the whole situation," according to the Interstate Commis- 
 sion, 4 "is the fact that it often prevents the honest shipper 
 from doing business at all. It being a crime to accept less 
 than the published rate, one who believes that the law of the 
 land should be obeyed can not accept a reduction from that 
 rate. It is only the dishonest trader that can and does accept 
 
 iVol. XIV, p. 473. 
 
 ' *P- 47- 
 
 3 161 U. S. 591. This decision compels a witness to testify even though his 
 testimony may tend to criminate him. 
 «p. 48 (I897)- 
 
78 Railroad Co-operation in the United States. 
 
 it." The same effect is produced on the carrier — the present 
 situation undoubtedly puts a premium on dishonest and 
 unlawful methods. As the commission says 1 " It is a crime 
 for the agent of the railroad company to give this concession 
 in rates, and no honest man can be, on behalf of the railroad 
 company, a party to such a transaction ; so that the carrier 
 which would obey the law is deprived of the business that 
 legitimately belongs to it." 
 
 Summary of Present Conditions. — When the Interstate Com- 
 merce Act was first passed, it was believed that the functions 
 performed by pools in preventing discriminating rates as 
 regards both persons and places would be accomplished by 
 the law. This belief, time has shown us, was not well- 
 founded. Personal discriminations are now prevalent, and 
 local discriminations still exist to some extent. I make this 
 statement with great caution, although it may seem a rather 
 sweeping assertion ; the authorities are certainly almost 
 unanimous. That the law forbidding preferential rates has 
 been, and is being, violated, is admitted by all. As the 
 Interstate Commerce Commission says in its latest report, 2 
 "Railroad men have themselves tacitly admitted that rates 
 were not maintained ; the press openly charges it ; and what 
 inquiries the commission could make led us to the same con- 
 clusion." Yet the commission is unable to prevent these 
 illegal practices. That they exist, the commission says it 
 knows by " facts which are morally convincing." Yet even 
 what it so knows of cannot be eliminated because these facts 
 are "not of a character to secure a legal conviction." 
 
 'p. 48- 
 
 1 1897, p. 47. 
 
CHAPTER IV. 
 
 Degree and Form of Co-operation that Should be 
 Granted Competing Railways. 
 
 Public Nature of the Railway's Services. — " A discussion of 
 the present, practical, economic and political question — the 
 extent and form of railway co-operation which, in the light of 
 our past experience, should be granted to competing rail- 
 ways " — should be prefaced with a consideration of the 
 economic and political position occupied by the railroad. 
 
 While transportation is undoubtedly an industry, its object 
 being the creation of " place value," there is no doubt that its 
 position in the industrial world is exceptional. No other 
 industry bears such important relations to each and every 
 other industry. Transportation figures in practically all 
 production — the commodities in the production of which 
 transportation does not have a share, are, if they exist at all, 
 few in number and without significance. I think the state- 
 ment could be made without exaggeration, that what coal is 
 to the iron industry, transportation is to industry in general. 
 In 1776, Adam Smith told the world that the division of 
 labor, the " greatest cause of improvement in the productive 
 powers of labor," is " limited by the extent of the market." x 
 Upon the industry of transportation rests the task of removing 
 that limitation ; and most ably has that instrument of trans- 
 portation, the railway, performed its task. For the removal 
 of all limitations upon the division of labor, and for the open- 
 ing up of all the resources supplied by nature, the people of 
 the United States depend upon the railroad. 
 
 The improvement of the old means of transportation has 
 changed the character of the relations of customer and seller ; 
 
 1 "Wealth of Nations," Book I, Chap. III. 
 
 (79) 
 
80 Railroad Co-operation in the United States. 
 
 the railway is doing on a larger scale what the highway for- 
 merly did in a lesser degree. The railroad is the improved 
 highway — and even if the customer pays for wagon hire as 
 well as for use of road, the principle still remains the same. 
 Now, this connection between the railway and its prototype, 
 the highway, is significant, since it indicates the public nature 
 of the service performed by the railroad. Ever since the 
 establishment of the right of private ownership of land, there 
 has been a public necessity for some common means of going 
 from one place to another without trespassing on someone's 
 property. In recognition of this necessity, the State has 
 reserved to itself what is called the right of eminent domain, 
 in order that when necessity arises the requisite land can be 
 obtained with which to supply such a common means of 
 moving person and property — the highway, in other words. 
 The supply of this highway, in the form in which it must be 
 used, has been long recognized as a function of the State. 
 
 In this country the State itself does not carry on this public 
 service, but prefers to create an artificial person for that pur- 
 pose. To this creature is delegated a portion of the sovereign 
 power of the State — the right to condemn property and to 
 take possession upon payment of an arbitrated price — and for 
 this service of relieving the State of one of its burdens, the 
 corporation is allowed to charge rates and tolls. Thus the 
 duty of the State in regard to the railway is of a twofold 
 nature : first, to the community at large, that the means of 
 transportation shall be furnished of sufficient quantity and 
 quality and at fair and equal rates to all alike j and second, to 
 those who thus relieve the State of a burden, that they shall 
 receive an adequate remuneration for so doing. 
 
 Competition Relied on in the Past to Regulate the Railway. — 
 With the exception of certain provisions in the early charters 
 regarding maximum rates, the State did not at first take any 
 legislative steps to fulfill the requirements of its twofold duty. 
 The State relied instead on the force of competition to regulate 
 
Degree and Form of Co-operation. 81 
 
 the relations of the transportation industry, as it did of other 
 industries. This form of regulation has failed, however, inso- 
 much as it does not secure the execution of either of the 
 two duties of the State ; we have seen that competition 
 resulted in : 
 
 i. Discriminations, which violate the State's duty of secur- 
 ing to all the use of the public service on equal terms ; 
 and, 
 2. Rate wars, which injure the roads, by cutting off. the 
 fair remuneration to which we have seen they were 
 entitled, and which injure also the shipping public, 
 owing to the fluctuating and consequently speculative 
 condition of business. 
 Not only have these evils been produced by relying solely 
 on competition as the regulator of the railway, but even this 
 faulty regulation applies to only a part of the traffic of the 
 •country. It is a fact that cannot be denied. Furthermore 
 competition has been found to apply to only a part of the 
 transportation service. Not until every road is paralleled by 
 another can we have the full regulation of competition. That 
 every road should be paralleled would be an absurd require- 
 ment, one that is not to be for a moment thought of, and so 
 we must accept the inevitable, that competition must remain 
 in its present state of partial application to the railway. " Far 
 the greater number of railway stations are dependent upon 
 single railway lines, and the vastly larger portion of railway 
 traffic has no alternative rates available." 1 In other words, 
 competition applies in the first place to only part of the traffic, 
 and in the next place it results in evils where it does apply. 
 
 The railroads devised a scheme of regulation that they 
 claimed did away with the evils resulting from competition. 
 But the State, fearing that by this new means of regula- 
 tion the duty to see that just rates were charged would not 
 be carried out, has forbidden the roads to make use of their 
 1 Newcomb in "Engineering Magazine," Vol. XI, p. 1057. 
 
82 Railroad Co-operation in the United States. 
 
 device. When this prohibition was made other legislation 
 was enacted providing for the prohibition of the evils of com- 
 petition through the punitive machinery of the courts of 
 justice. That this legislation has failed in a large measure 
 has been admitted by practically everyone — shippers, railroads, 
 and the Interstate Commission itself — and the country is 
 to-day faced with the necessity of securing some means 
 whereby the duty of the State in regard to the supply of 
 transportation facilities may be fulfilled. Competition has failed 
 to do so, and legislative prohibition of abuses has not brought 
 about the desired result. 
 
 The concluding sections of this paper will consider the pub- 
 lic expediency of allowing the railroads to use their means of 
 solving the difficulty. In other words, should competing rail- 
 ways be allowed to co-operate, and, if so, what should be the 
 form and extent of their co-operation ? 
 
 Competition under the Pooling Agreement. — The evil of per- 
 sonal discrimination undoubtedly arises, as we have seen, from 
 the presence of excessive competition. The force which brings 
 about fluctuating and war rates is likewise the effort of each 
 road to get the better of its rival in order that its rival may not 
 get the better of it. Discrimination between places is some- 
 times due to rate-cutting incident to competition for traffic free 
 to choose between carriers, and sometimes due to the rivalry 
 of roads serving different regions, and even connecting differ- 
 ent termini. The end of the pooling agreement is to eliminate 
 the evils of personal and place discriminations, and this end is 
 to be attained by doing away with one of their causes, the com- 
 petition between several roads struggling for the same traffic. 
 
 A mere agreement or a mere law was long ago found to be 
 powerless in putting an end to these evils. As we have seen, 
 the relations of rival roads are of such a nature that the only 
 power which can be brought to bear on these evils lies in the 
 railway itself. So long as an individual road cares to give 
 special rates or to declare war on its rival, it is able to do so,. 
 
Degree and Form of Co-operation. 8$ 
 
 and, in spite of legislative enactment, the road will do so unless 
 its own interests require otherwise. Self-interest is man's 
 strongest motive, and the pool recognizes this principle — that 
 the only way to prevent discriminations and rate-cutting is to 
 guarantee to each road its share of the traffic and thus do 
 away, once and for all, with the inducement to discriminate. 
 
 The argument of the advocates of pools is that competition 
 still remains in force between the several members of a pool 
 even during the existence of an apportionment agreement. 
 They claim that such motives as a desire to increase the allot- 
 ment at the next periodical apportionment, to keep in favor 
 with shippers in case of a break in the agreement, are still 
 present and are an evidence that competition still exists. 
 This contention may violate the principle on which the pool 
 rests. Fink, Midgely and Blanchard said that the pool does 
 away with discriminations, because it does away with the 
 inducement to give special rates. They claim that the only 
 way to prevent the manager of a road from giving a special 
 rate to a large shipper in order to increase the freight hauled 
 by his road, is to remove all incentives to do so by taking 
 away all the advantage of rate-cutting. The advocates of 
 pooling say competition will continue but assert that pools 
 only regulate competition in such a way as to make it possible 
 for the railroad companies to control discriminations. The 
 opponents of pooling say that if competition continues pools 
 will be a failure ; and that if pools do succeed the public will 
 be deprived of the influence of competition on rates. The 
 Interstate Commerce Commission speaks in much the same 
 vein when it says in its report for 1 897 that : 
 
 It must be remembered that if pooling produces any beneficial result it neces- 
 sarily does so at the expense of competition. It is only by destroying competition 
 that the inducement to deviate from the published rate is wholly removed, and it 
 is only to the extent that competition is actually destroyed that beneficial results 
 can be expected. Notwithstanding the specious arguments of carriers to the con- 
 trary, this is and must be the fact. 
 
84 Railroad Co-operation in the United States. 
 
 These statements seem hopelessly contradictory. Indeed, 
 neither side is strictly accurate in its assertion, although each 
 is partly correct. The difficulty arises from a misunderstand- 
 ing of the nature and scope of competition, and a use of the 
 word competition in two senses. 
 
 Undoubtedly the idea at the bottom of all traffic agree- 
 ments is to eliminate the competition between the several 
 members of the pool. But the commission goes too far when 
 it says that "it is only by destroying competition that the 
 inducement to deviate from the published rate is wholly 
 removed." This would require that all competition be 
 destroyed by the pool, whereas in reality the only compe- 
 tition destroyed is that for the traffic that is free to move by 
 way of one or more of the several rival roads forming the 
 association. The force of competition still remains to be reck- 
 oned with. The commission, in throwing aside all competi- 
 tion, has fallen into the error against which we are warned by 
 Dr. Weyl. "They have given to railway competition too 
 local a significance and have laid insufficient, if any, emphasis 
 on its national and international bearings." ' 
 
 The struggle between several roads for the same traffic is 
 only one of the forms in which competition makes itself felt 
 as a factor in determining railway charges. Dr. Weyl goes 
 so far as to say that such competition can never exist perma- 
 nently, the sole permanent competition being that between 
 roads having no territory in common. In the first kind of 
 competition the struggle always ends in some agreement or 
 at least understanding. Take for example the relations of 
 two rival railways serving the same wheat-field ; the compe- 
 tition between them may be partially or totally stifled in many 
 ways. But the farmers of that field — say Dakota — enjoy no 
 monopoly, and unless they can get their wheat to the world's 
 market at a certain rate, they cannot compete with the farmers 
 of Nebraska and Kansas. The railroad or railroads hauling 
 1 Annals of the American Academy of Political and Social Science, April, 1898. 
 
Degree and Form of Co-operation. 85 
 
 Dakota wheat to Chicago cannot afford to increase the cost 
 of its production by charging a rate higher than is charged 
 the Kansas or Nebraska wheat ; for if they do, the marginal 
 farmer — the farmer producing at the greatest disadvantage — 
 will be driven out of the market and will consequently trans- 
 fer his energies to the field which enjoys the more favorable 
 transportation rates. 
 
 This competition of locality with locality — known by the 
 railroad man as "the competition of markets " — is a far more 
 powerful force in fixing transportation charges than are the 
 dicta of railroad officials. 1 This form of competition is not 
 only more powerful than that between several roads in one 
 locality, but it is more permanent, since the industrial condi- 
 tions of the world are far too complicated to admit of any 
 understanding between the transportation agencies of the 
 many productive centres. This competition is national and 
 international in scope ; not only does the wheat of Dakota 
 compete in Chicago with that of Kansas and Nebraska, but 
 the wheat of the United States competes in Liverpool with 
 that of Canada, Russia, Argentine Republic and India. 
 Several instances of this industrial competition are given by 
 Dr. E. R. Johnson. The Pennsylvania and Virginia coal 
 competes in New England with that from Nova Scotia ; the 
 various coal fields in the Alleghenies compete with each 
 other ; the Southern iron and Northern iron are competitors ; 
 in the fruit markets of our Northern States we find California, 
 Florida and the Mediterranean countries striving to outdo, 
 each other. In fact, as Dr. Johnson says, the instances of 
 industrial competition are so numerous and well known that it 
 is hardly necessary to cite special cases. 
 
 Another phase of this broad form of competition is to be 
 found in the struggle between the various possible routes 
 connecting a given productive centre with the ultimate market 
 of the product. This is a more complicated form of competi- 
 
 1 Dr. E. R. Johnson, New York Independent, 1897. 
 
86 Railroad Co-operation in the United States. 
 
 tion than that between merely two or more practically parallel 
 lines, as is shown by the following illustrations, which, for 
 their aptness, I quote from Dr. Johnson : " Recently, impor- 
 tant trunk lines have been constructed running north and 
 south at right angles to the older routes of traffic, so that 
 now the great region of the Central West will be able to use 
 either the Atlantic or the Gulf ports as gateways for its export 
 and import trade. The consequence will be that rates from 
 the West to the Atlantic cities cannot much exceed those to 
 Galveston, New Orleans, Mobile and other Southern ports. 
 There is a similar instance of this competition in the rivalry 
 of the North Central States and the North Atlantic States in 
 the markets of the Southern States. The Central States, 
 not having facilities for cheap water transportation to the South, 
 are obliged by their rivals on the Atlantic Coast to secure as 
 low rates as possible in order to compete." 
 
 Acting in conjunction with this species of competition, as 
 an additional stimulus tending to the reduction of railway 
 charges, we find the influence of the principle of increasing 
 returns. This principle is based on the fact that there is no 
 proportionate relation between gross tonnage and gross 
 expenses. To double the gross tonnage hauled by a road 
 means something far different from doubling the expenses. It 
 is usually roughly estimated that the cost of railroading is 
 made up half by fixed expenses on capital and half by operat- 
 ing expenses, and that of these operating expenses one-half 
 do not vary with volume of traffic. In other words, only one- 
 fourth of the total expense of maintaining a road is affected 
 by an increase in traffic. Accordingly there is a strong 
 inducement to charge lower rates if there is any hope that 
 they will cause an increase in the gross tonnage hauled. 
 
 To understand how this principle of increasing returns 
 works in conjunction with the competition of markets in tend- 
 ing to lower rates, let us consider the position of a number of 
 roads serving a given community. Let us imagine that they 
 
Degree and Form of Co-operation, 87 
 
 have formed a pool. They see that by charging a certain 
 rate they get a certain amount of freight to haul ; they 
 lower that rate, increase their traffic without proportionately 
 increasing their expenses, and the result is an increase in net 
 earnings. It may be objected that a reduction in rates will 
 not necessarily increase tonnage to an extent great enough to 
 neutralize the reduction in charges. It is in answering this 
 objection that we discover the close inter-dependence of " in- 
 creasing returns '' and " competition of markets." The reason 
 why a reduction in rates will increase gross tonnage is because 
 the industrial activity of the community affected by the reduc- 
 tion is stimulated by its advantage over competing communi- 
 ties. Each set of roads forming a pool is interested in the 
 industrial welfare of the locality served by its members as is 
 each road in its own particular locality. The success of the 
 roads transporting the wheat crop of Dakota to Chicago 
 depends in large measure on the success of the wheat industry 
 in that particular field. It is to the interest of a railroad, or 
 set of railroads, to stimulate as far as possible the industrial 
 activity of that part of the country served by them, and this 
 interest is intensified by the fact that the increase in traffic 
 resulting from increasing prosperity can be hauled at a con- 
 stantly lower rate. It is this competition between communi- 
 ties — a competition which, owing to the complicated character 
 of economic conditions, cannot be restrained by any under- 
 standing or agreement — that is overlooked by the Interstate 
 Commission when they insist so strenuously that the induce- 
 ment to deviate from the published rate is wholly removed 
 "only by destroying competition." 
 
 Possible Abuse of Right to Pool. — The supposition that com- 
 petition is completely eliminated under the pooling agreement, 
 has been the greatest cause of opposition to the pool. There 
 has been a strong popular fear that the traffic agreement 
 was simply a scheme of doing away with competition in 
 order that the roads might charge extortionate rates. Let 
 
88 Railroad Co-operation in the United States. 
 
 us glance at "our past experience" to determine how far 
 this objection has been justified by the facts, and how far the 
 joint influence of the two factors, "competition of markets" 
 and "increasing returns" has tended to prevent extortionate 
 rates. 
 
 Upon an investigation of the actual working of the various 
 pools throughout the country, one is inclined to agree with 
 the Interstate Commerce Commission that " the actual results 
 of the Trunk Line Association and others have been to lower 
 rates." * The commission explicitly states in its first report 
 that pools " have not enabled managers to keep rates up to 
 former standards." 
 
 That the Trunk Line pool did not keep up rates is shown 
 by some figures gathered by C. C. McCain, for many years 
 the auditor of the Interstate Commerce Commission and 
 one of the foremost authorities on transportation charges in 
 the United States. He says 2 that the average rate per ioo 
 pounds on freight from New York to points west of the termini 
 of the Trunk Lines was 53.7 cents in 1878, the second year 
 of the existence of the Trunk Line pool. In 1886, the year 
 before the Interstate Commerce Law went into effect, the 
 average charge for the same service was 42.6 cents. And in 
 1892, it was 41.5 cents. Newcomb draws from these figures 
 the significant fact that during the period when this traffic was 
 pooled the charges declined at the rate of 2.59 per cent per 
 annum, but that, after pooling was prohibited, the rate of 
 decline dropped to .39 per cent for each year. 3 However, I 
 do not mean to suggest by. these figures that pools were the 
 only, or the chief, factor affecting rates. 
 
 The tendency of rates in the South under the influence of 
 the Southern Railway and Steamship Association is described 
 in Hudson's account of that association. Speaking of changes 
 
 1 First Annual Report, p. 34. 
 
 2 American Statistical Association, Vol. V, p. 65. 
 * American Statistical Association, p. 67. 
 
Degree and Form of Co-operaiion. 
 
 89 
 
 in rates he says, 1 "Such changes as took place have been 
 almost uniformly downward ; and, as reasonable notice of these 
 has been given, there has been no offset to the public's gain 
 such as sudden and fluctuating rates bring. The following 
 figures show the steady downward trend of rates, and prove 
 at least that the effect of the association was not to maintain 
 rates at any fixed high figures." 
 
 The rates in cents per 100 pounds on Class I from Boston, 
 New York and Philadelphia to Atlanta fell from 170 on Janu- 
 ary 1, 1875, to 114 on January, 1887; on Class VI the fall 
 was from 70 to 49. The decline in rates from Baltimore south 
 was equally great. 
 
 A table showing the rates charged per ton per mile for all 
 traffic carried by the important roads named during the years 
 1876, 1886, and 1894, has been prepared by Newcomb. 2 
 The average rate per ton per mile in cents was as follows : 
 
 1876 
 
 1886 
 
 1.05 
 
 0.76 
 
 1.03 
 
 0.69 
 
 0.82 
 
 0.64 
 
 2.04 
 
 1.17 
 
 1-95 
 
 1. 19 
 
 1.91 
 
 1.07 
 
 1.63 
 
 0.96 
 
 1.85 
 
 1. 10 
 
 3-46 
 
 1-93 
 
 1894 
 
 New York Central 
 
 Michigan Central 
 
 Lake Shore & Michigan Southern 
 Chicago, Milwaukee & St. Paul 
 Chicago & Northwestern . . . 
 Chicago, Rock Island & Pacific 
 
 Chicago & Alton 
 
 Louisville & Nashville .... 
 Southern Railway 
 
 o-73 
 0.67 
 
 o-59 
 1.04 
 1.08 
 0.99 
 0.63 
 0.88 
 113 
 
 The full significance of this table will be seen when we con- 
 sider what was meant by each one of the years selected. In 
 1876 the Southern Railway and Steamship Association pool 
 was organized ; and the Chicago-Omaha pool had then been 
 in existence for six years, while the year following saw the 
 formation of the Trunk Line pool. The year 1886 was the 
 last in which pooling was legal, and during the ten years' 
 
 1 Quarterly Journal of Economics, Vol. V, p. 93. 
 
 2 American Statistical Association, Vol. V, p. 65. 
 
90 Railroad Co-operation in the United States. 
 
 interval all the companies named were parties, more or less 
 continuously, to pooling contracts covering portions of their 
 traffic. The table not only shows that the average decline 
 was much greater during the earlier than during the later 
 period, but also affords ground for a reasonable inference that 
 the decline was confined to no class of traffic, either competi- 
 tive or local, but was distributed over the entire business of 
 each company. 1 
 
 The statement was made in 1 897, by George R. Blanchard, 2 
 that " no American pool can be cited which advanced rates 
 unless to restore unjustifiable rate-war reductions," and 
 although this may be a little broad, I feel safe in saying this 
 much — that I have been able to find no record of any pool 
 which has done otherwise, and that accordingly the general 
 tendency of traffic agreements has not been, by removing 
 competition, to cause extortionate charges. 
 
 Objections have been raised to pools on the ground that 
 from their very nature they were only temporary, and that 
 when a pooling contract was broken conditions were rendered 
 more unstable than as if the pool had never existed. J. F. 
 Hudson 3 goes so far as to claim that nearly, if not quite, all 
 railway wars and severe fluctuations in rates are caused by 
 alternating periods of competition and non-competition. First 
 no pool, then a pool, then broken, then reconstructed, and so 
 on — this, he claims, is the very condition of affairs which 
 leads to discriminations, rate-wars and all other evils of com- 
 petition. 
 
 There may be some truth in this accusation, but we must 
 remember that the pool was never given a fair opportunity to 
 show its efficiency. We have seen 4 that even prior to the 
 passage of the Act of 1887, the pooling contract was not 
 
 1 Newcomb, American Statistical Association, Vol. V, p. 63. 
 1 New York Mail and Express, May 15, 1897. 
 ' " Railways and the Republic." 
 «p. 58. 
 
Degree and Form of Co-operation. 91 
 
 legal but only extra-legal. The standing of the pool before 
 the common law was similar to that of the gambling contract, 
 while it was not made a crime to agree to such a contract, the 
 courts would refuse to oblige any of the parties to obey its 
 provisions. This being the standing of a contract, there was 
 a constant temptation on the part of one or the other of the 
 roads to violate the agreement ; each road, knowing that the 
 others could break the contract as soon as they so desired 
 and without any penalty for so doing, became suspicious of its 
 rivals and was very hasty in believing reports of such viola- 
 tions. This was the great weakness in the Southwestern Rail- 
 way Rate Association — that, as Midgely testified, 1 it depended 
 solely upon the honor of members. Each manager knew 
 that he could not go into court and sue for balances withheld 
 from him ; hence there was a constant distrust, lest, when any 
 member should be called upon to pay over a large amount, he 
 would refuse, and a disruption ensue. This weakness was 
 also present from the first in the Southern Railway and Steam- 
 ship Association, but there the difficulty was obviated in part 
 by the system of deposits and forfeits which was soon after- 
 wards adopted. Taking into account this extra-legal nature 
 of the pooling contract, one cannot fail to agree with the 
 statement made by Midgely ; when speaking of the necessity 
 of legalizing such contracts, 2 he says : " Until that result 
 is reached, apportionment schemes, however well devised, 
 will have but a precarious existence and an imperfect trial." 
 In fact, the fairness of this position, which Midgely took 
 in 1879, is recognized by the Interstate Commission in 
 their report for 1897 when they say : 3 " Pooling in this coun- 
 try had not been tested previous to the act under such circum- 
 stances as to make its success or failure then a fair criterion of 
 what legalized contracts of that sort might accomplish." 
 
 1 Report on Internal Commerce, 1879, p. 58. 
 
 2 Ibid. 
 
 * Report for 1897, p. 49. 
 
92 Railroad Co-operation in the United States. 
 
 It is obviously unfair to judge of an experiment when made 
 under imperfect conditions. Nor should we judge of the pool 
 by any weaknesses which it may have shown in the early part 
 of its development. Such an authority as Hadley 1 has made the 
 statement that " Pools were better administered in 1880 than 
 in 1877, and better in 1886 than in 1880." This is only 
 natural when we consider that at first pools were only experi- 
 ments. Their natural evolution resulted in an improved form. 
 So to be perfectly just in forming an estimate of the appor- 
 tionment agreement, we should consider it only in its most 
 recent form, and then allow for the weakness due to its unen- 
 forcible character in the courts. 
 
 There have been certain abuses connected with the pool 
 that have stirred up what is an undoubtedly just indignation. 
 The methods employed by the Southern Association to disci- 
 pline unruly members and to force into the agreement certain 
 recalcitrant roads, were certainly not altogether above-board. 
 One of the roads forming the Colorado pool has become 
 famous for its attempt to prevent the construction of a new 
 road which would compete with another member of the pool ; 
 the method employed was a point-blank refusal to haul the 
 necessary construction material. To permit such action would 
 be most unwise and uncommendable on the part of the com- 
 munity, and, indeed, under existing law, a road which thus 
 refused its services would be promptly set right. 
 
 Necessity for Regulation of Pools. — Although the objections 
 to permitting pools can be smoothed away, the community 
 should never forget that even in thus allowing the roads to 
 destroy such competition between the several parties to the 
 agreement as a pool can eliminate, a force that has exercised 
 a potent influence in the past on the charges and services of 
 the railways will be destroyed. I cannot agree with the 
 Interstate Commission 2 that " by the legalizing of pooling the 
 
 1 New York Mail and Express, May 20, 1897. 
 'Report, 1897, p. 49. 
 
Degree and Form of Co-operation. 93 
 
 public loses the only protection which it now has against the 
 unreasonable exactions of transportation agencies," for even 
 under a perfect pool there would exist strong competitive and 
 other influences to prevent extortionate practices. But I 
 nevertheless believe that an important rate-influencing power 
 would be removed by the permission to pool. 
 
 The history of pools may not show any examples of extor- 
 tion, or of abuses which cannot be accounted for, but that is 
 not a sufficient reason for placing such a vast power in the 
 hands of the railroads as an unlimited right to pool would give 
 them. It was in recognition of this fact that the Interstate 
 Commission said in 1 894 : x " Pooling without other remedial 
 legislation is, we think, unadvisable. Pooling under proper 
 conditions to be approved by the commission and rendered 
 capable of easy and direct regulation, with accompanying 
 effective remedial legislation, we believe might safely be tried." 
 In other words, we find the commission in 1894 expressing 
 itself as in favor of trying pools, if at the same time such 
 legislation were provided as would prevent any of the possible 
 incidental abuses of the right to pool. This same view was 
 upheld by the commission in their report for 1895, when they 
 said : 2 " While the commission is impressed with the evils 
 attending the present system of competition, often resulting in 
 unequal rates and unlawful practices, and concedes that the 
 practical results of that system upon the railroads and the 
 public are unsatisfactory in many respects, it nevertheless 
 believes that the re-establishment of pooling without adequate 
 restrictions and further remedial legislation would be unwise." 
 The commission's reason for believing that to do so would be 
 unwise, was that without such legislation " it would be in the 
 power of the combination to charge excessive rates for the 
 transportation of staple commodities and necessaries of life, 
 and thus to deprive the people of the benefits arising from the 
 
 1 P . 63. 
 
94 Railroad Co-operation in the United States. 
 
 competition which now exists." In their report for 1897, the 
 commission take the same ground, when they say * : "In view 
 of the whole situation, a majority of the commission would be 
 inclined to recommend that the experiment (of legalizing 
 pooling) be tried if suitable safeguards are provided. We are 
 all agreed that the enormous power which such a measure 
 would place in the hands of railroad companies ought not to 
 be granted, unless the exercise of that power is properly 
 restrained in advance." 
 
 Form, of Regulation. — This certainly seems reasonable 
 enough ; the only difficulty to be solved is in regard to the 
 exact form which regulation should take. It is one thing to 
 say that competition has resulted in evil and therefore we 
 should allow pools, which, however, should be regulated in 
 order to prevent possible abuse, and it is entirely another 
 thing to prescribe the limits within which the regulating is to 
 be applied. 
 
 In their report for 1895, 2 the Interstate Commission suggest, 
 as an adequate substitute for the safeguards which competition 
 is supposed to afford, the regulation of rates by the commis- 
 sion. To this end, they believed it would be necessary that 
 the rates established by the combination should be subject to 
 effective control by the commission. This exercise of authority 
 would be justified, they claimed, by the fact that it is in the 
 nature of a condition upon which the government grants to 
 certain corporations the privilege of forming a combination or 
 limited monopoly. Such a grant would constitute an excep- 
 tion to the general policy of the federal laws prohibiting 
 trusts and combinations in restraint of trade. Conditions have 
 always been attached to government grants of monopolies and 
 special privileges. The railroad corporations in effect repre- 
 sent that their business is of such a nature that, if subjected 
 to the restrictions upon combination which the policy of the 
 
 1 1897, p- 49- 
 
Degree and Form of Co-operation. 95 
 
 law imposes upon other kinds of business, the result will be 
 destructive to themselves and injurious to the commercial 
 interests of the country ; and they ask to be relieved from the 
 effects of this policy, and that an exception be made in their 
 case because of the exceptional character and relations of 
 public transportation. 
 
 While regulation of rates by the commission would undoubt- 
 edly be justified according to this line of reasoning, a difficult 
 problem still remains to be solved in determining how this 
 regulation shall be actually administered — what form shall it 
 take and on what principles shall it act ? The Patterson bill, 
 in 1894, answered this question by providing a system whereby 
 all pooling contracts should be obliged to receive the sanction 
 of the commission before becoming legal. This bill 
 proposed to amend Section 5 of the Act of 1887, by 
 declaring pools unlawful, unless they conformed to the follow- 
 ing conditions : " Every such contract shall be in writing and 
 filed with the commission created by this act, and shall become 
 lawful and enforceable between the parties thereto at the 
 expiration of twenty days from the filing thereof, unless the 
 commission shall, upon inspection thereof, make an order 
 disapproving the same : and it shall be the duty of the com- 
 mission to make such order of disapproval whenever, upon 
 such inspection, it shall be of opinion that the operation of any 
 such contract would result in unreasonable rates, unjust dis- 
 crimination, inferior service to the public, or otherwise con- 
 travene any of the provisions of this act." In~other words, a 
 pooling contract was to be submitted to the commission, which 
 had authority to disapprove any contract that would produce 
 undesirable results. Nor did the commission, under this bill, 
 give up its supervision over a pool which had been once 
 approved. It was further provided that the commission should 
 " observe the working, operation, and effect of every such 
 contract upon the transportation and business of the country 
 and of the several contracting parties ; " also that it should 
 
96 Railroad Co-operation in the United States. 
 
 " investigate all complaints relating to the rates, charges, facili- 
 ties, or practices maintained by or under any such contract," 
 and when any of these were found to be " unreasonable or 
 excessive, or to result in any unjust discrimination," the com- 
 mission was to " issue an order requiring such rates, charges, 
 facilities or practices maintained by or under such contract, to 
 be changed," or, if necessary, to disapprove the contract itself. 
 All findings of the commission disapproving such contracts 
 were to be subject to review by a circuit court of the United 
 States, the burden of proof to fall on the railroad company, 
 while the commission should be a party defendant. 
 
 This bill, while it undoubtedly covered all the main points, 
 was expressed in general terms and thereby possessed a 
 weakness which might have been cured by a little more 
 explicitness regarding the exact nature of the contracts to be 
 disapproved. Another weakness of the bill was that it did not 
 provide for any appeal in case the commission approved a 
 pool to which individuals had objections. It seems to me to 
 be only just that, if the railroads are to have the right to 
 appeal to the United States Courts from an unsatisfactory 
 decision, the same privilege should be accorded to any who 
 might believe to be objectionable a pool which the commis- 
 sion had approved. 
 
 The Cullom bill, introduced in the Senate in 1 897, provided 
 that pools should be lawful only after their approval by the 
 commission ; that the contract should be for a term not to 
 exceed five years, and should name the maximum and mini- 
 mum rates to be charged by the common carriers parties to 
 such contract. The duties of the commission as set forth in 
 this bill are similar to those of the Patterson bill, except that 
 the following more explicit wording is used : " to observe the 
 working, operation, and effect of every contract 
 upon the transportation and business of the country, 
 making such examinations and investigations in relation thereto 
 as the commission may deem necessary, and to investigate all 
 
Degree and Form of Co-operation. 97 
 
 complaints relating to the rates, charges, facilities, or practices 
 maintained by or under such contract." It is further provided 
 that " whenever the commission, after due notice and reason- 
 able opportunity to be heard, shall find that any such rates, 
 charges, facilities, or practices are excessive or unreasonable, 
 or result in any unjust discriminations as between individuals, 
 localities, or articles of traffic, . . . the commission shall 
 issue an order requiring such rates, charges, facilities, or prac- 
 tices maintained under such contract to be changed, modified, 
 or corrected," as maybe necessary, or shall even disapprove and 
 annul the contract altogether. The Patterson clause provid- 
 ing for appeal to United States Courts is practically reinserted 
 in the Cullom bill. The same weakness is apparent in allow- 
 ing only the roads to appeal in case of an adverse decision by 
 the commission. 
 
 If an amendment embodying the change just suggested 
 were made to the bill presented by Senator Cullom in 1 897, 
 it would, in my opinion, afford the necessary safeguards against 
 an abuse of the right to pool. The shipping public is just as 
 much interested in a decision by the commission as are the 
 railroads, so I would advise that all interested parties be given 
 that right to appeal which Senator Cullom would grant only 
 to the railroads. Of course the idea of the Cullom bill was 
 that the interests of the shipper would be looked after by the 
 commission — that the commission would not approve a pool- 
 ing contract which violated the rights of the shipping public. 
 This, however, gives the investigations by the commission a 
 wrong status, the commission becomes the advocate of the 
 public against the railroad. The status of the commission 
 should be that of an impartial tribunal, looking equally to the 
 interests of all concerned. Both the shipper and the railroad 
 company should be given equal right to appeal from a pooling 
 decision of the commission to a higher tribunal. This amend- 
 ment might secure only negative results, but even as such 
 the results would be of importance. 
 
98 Railroad Co-operation in the United States. 
 
 Summarized briefly, my recommendations as to the form 
 of regulation which should be adopted by this country to 
 prevent any abuse of the permission to pool are as follows : 
 Contracts apportioning traffic among competing roads should 
 be unlawful except when approved by the commission ; that 
 body should have authority to alter or reject altogether con- 
 tracts submitted to it, and an appeal should be allowed from its 
 decision to the United States Courts, such appeal to be taken 
 by either the railroads or any other interested party. Further, 
 the commission should keep a strict watch over the operation 
 and actual workings of the pool, and if any abuse such as 
 discrimination between persons or places should creep in, the 
 proper steps should be taken for their elimination, the pool 
 being utterly annulled if no other way could be found by 
 which to do away with the evil. 
 
 To adopt such a plan of regulation would undoubtedly put 
 a tremendous power into the hands of the commission, but it 
 seems to me that a safeguard has been provided in the gener- 
 ous appeal-rights given to all interested parties. Some advo- 
 cates of pooling have gone so far as to object to the supervision 
 of such contracts by the commission, because it would give 
 that body too great an influence. As T. J. Greene, one of 
 those who holds this view, has said, the commissioners would 
 be given indirectly " a tremendous power." x But to grant the 
 railroad what he advocates, the right to pool without any 
 supervision, would be a more injudicious step than the adher- 
 ence to our present policy. I heartily agree with the vigor- 
 ous language used by the Interstate Commission in regard to 
 this matter in the report for 1 897 : 2 " The members of the 
 Interstate Commerce Commission wish to say in the strongest 
 possible terms that they are unanimous in the opinion that to 
 overturn the Trans-Missouri decision, to repeal the fifth section 
 and enact in its place a pooling bill, thereby permitting and 
 
 1 Nation, December 15, 1892. 
 2 1897, p. 50. 
 
Degree and Form of Co-operation. 99 
 
 inviting unlimited combination between carriers, would be 
 little better than a crime against the people of the United 
 States, unless this tribunal, or some other tribunal, is at the 
 same time invested with adequate powers of control.'' 
 
 To grant the permission to pool, even with a strict system 
 of regulation, may seem to many to be a radical step possess- 
 ing the characteristics of a blind experiment. It seems to me, 
 however, that the radical step was taken in 1887, when, instead 
 of adopting the recommendation of the Cullom Committee that 
 the matter be left undecided until a report could be obtained 
 from the new commission, or instead even of taking the mod- 
 erate step of providing for regulation, Congress blindly pro- 
 hibited all pools. It is not too late now to give the country a 
 fair trial of the pooling system under proper regulations, and 
 Congress should take appropriate action to that end. 
 
SOURCES OF MATERIAL AND BIBLIOGRAPHY. 
 
 The information contained in this paper on " Railway Co-opera- 
 tion ' ' has been obtained in general from three sources : govern- 
 mental and railroad reports, text-books, and periodical literature. 
 
 The most important source has been the body of reports prepared 
 by the federal and State governments. First in importance come 
 the reports of the Congressional Committees : Windom in 1874 
 (Sen. Rep. 307, 1st Session, 43d Cong.), Reagan in 1878 (House 
 Rep. 245, 2d Session, 45th Cong.), and Cullom in 1886 (Sen. 
 Rep. 46, 1st Session, 49th Cong.); and the report of the New- 
 York Legislative Committee, the "Hepburn," in 1879 ("Pro- 
 ceedings of the Special Committee on Railroads," New York 
 Assembly, 1879). 
 
 The Annual Reports, beginning in 1877, on the Internal Com- 
 merce of the United States, prepared by Joseph Nimmo, chief of 
 the Bureau of Statistics, have furnished a valuable contemporary 
 view of the railroad situation as it developed from year to year. 
 The reports of the various State railroad commissions, especially 
 those of Massachusetts, New York and Iowa, have been valuable 
 for a similar reason, though necessarily more local in scope. The 
 annual reports of the Interstate Commerce Commission have formed 
 the best source of this kind since 1887. Under the head of reports 
 would also come those of the individual railroads, of which I have 
 used especially those of the Pennsylvania, the Baltimore & Ohio, 
 and the New York Central. 
 
 Next in importance to these original sources have been those 
 various .scientific compilations which, for want of a better name, I 
 call the text -books. Under this head I would include a number of 
 works which vary greatly in value and reliability. Those used most 
 frequently have^been Professor Hadley's valuable work on "Rail- 
 road Transportation " (1885), Van Oss' "American Railroads as 
 Investments " (1894), Charles Francis Adams' " Railroads : Their 
 Origin 1 and Problems " (1878), Dabney's " Public Regulation of 
 Railways" (1892), and Stickney's " Railroad Problem " (1893). 
 The less important works consulted have been Hudson's " Railways 
 
 (100) 
 
Sources of Material and Bibliography. ioi 
 
 and the Republic," Ringwalt's "Development of Transportation 
 
 Systems in the United States, " McCain's "Compendium of Trans- 
 portation Theories," Larrabee's " Railroad Question," Dos Passos' 
 
 "The Interstate Commerce Act," and Cook's " Corporation 
 
 Problem." 
 
 A very valuable mass of material has been found in the numerous 
 
 articles in the periodicals and magazines, of which I give a list of 
 
 the most important : 
 
 Hudson : " Southern Railway and Steamship Association ;" Quar- 
 terly Journal of Economics, Vol. V. 
 
 Clarke : " State Railway Commissions ; Publications of the Ameri- 
 can Economic Association, Vol. VI. 
 
 Hadley : "Railroad Pools;" Quarterly Journal of Economics, 
 Vol. IV. 
 
 Johnson : "Industrial Services of the Railways;" Annals of the 
 American Academy of Political and Social Science, Vol. V. 
 "Relation of Taxation to Monopolies;" Annals, Vol. IV. 
 " Current Transportation Topics " (I and II); Annals, Vols. 
 IX and X. " Monopoly and Competition in Railway 
 Charges;" New York Independent, second issue of Septem- 
 ber, 1897. 
 
 Taussig : " Contribution to the Theory of Railway Rates ;" Quar- 
 terly Journal of Economics, Vol. V. 
 
 Seligman : " Railway Tariffs and the Interstate Commerce Act ;" 
 Political Science Quarterly, Vol. II. 
 
 Walker: "Western Freight Association;" Forum, Vol. VIII. 
 " Has the Interstate Commerce Law Been Beneficial ?" Forum, 
 Vol. XVII. 
 
 Newcomb: "Reasonable Railway Rates;" Annals of the Ameri- 
 can Academy, Vol. V. "Railway Competition;" Engineer- 
 ing Magazine, Vol. IX. Also series of articles in the American 
 Statistical Association's Reports, Vol. V. 
 
 Knapp : " Some Observations on Railroad Pooling ;" Annals, Vol. 
 VIII. 
 
 Dabney : " Basis of the Demand for Public Regulation of Indus- 
 try;" Annals, Vol. II. 
 
 Prouty : " Railway Pooling, from the People's Point of View;" 
 Forum, Vol. XXIV. 
 
102 Railroad Co-operation in the United States. 
 
 Blanchard : " Prohibition of Railroad Pools ;" Forum, Vol. X. 
 Midgely : " Wars in Railroad Rates ;" Forum, Vol. XX. 
 Virtue : ' ' The Anthracite Combinations ; ' ' Quarterly Journal of 
 Economies, Vol. X. 
 
 In addition to the articles contained in this list, information has 
 been obtained from other less important articles, and also from the 
 newspaper and trade press. The Nation, the Mail and Express, 
 the Philadelphia Public Ledger, the Financial Chronicle, the Official 
 Railway Guide, the Railway World, and the Railway Gazette 
 have been the main sources from which facts, dates and other 
 details have been obtained. 
 
 The recent history of the traffic associations before the courts 
 has been found in the following legal references : 
 
 United States vs. Trans-Missouri Freight Association et al. : 169 
 U. S. 290. 
 
 Decision of this case by the Circuit Court is in 53 Fed. Rep. 440, 
 and the decision of the Circuit Court of Appeals is in 19 U. S. 
 App. 36 and 24 L. R. A. 73. 
 
 The Briefs of Counsel in this case contain a valuable discussion 
 of traffic associations and railway co-operation. 
 
 United States vs. Joint Traffic Association et al.: 171 U. S. 
 505. Consult also : 
 
 Decision of the Circuit Court. 
 
 Decision of Circuit Court of Appeals, and 
 
 Briefs of Counsel. 
 
 Numerous other miscellaneous sources have been utilized to a 
 greater or less extent, such as the Congressional debates, and the 
 testimony and investigations of specialists. Under the latter head 
 would come Blanchard' s papers on " Railway Pooling," the Mail 
 and Express (May 8, 11, 13, 15, 18, 20 and 22, 1897); the writ- 
 ings and testimony of Albert Fink in regard to the Organization 
 of Pools, Differential Rates, and Legal Status of Traffic Associa- 
 tions ; and the Thurman, Washburne and Cooley " Report on Dif- 
 ferential Rates to the Seaboard. ' ' 
 
Railway Co-operation in the 
 United States* 
 
 BY 
 
 WILSON STILZ. 
 
 (103) 
 
CONTENTS. 
 
 Railway Co-operation in the United States, 
 part first. 
 
 Evolution of Railway Co-operation. 
 
 PAOB. 
 
 I. Co-operation of Connecting Lines to Promote Through Traffic. 
 
 (i) The beginning of co-operation about 1850 107 
 
 (2) Co-operation of connecting lines never a real problem .... 108 
 
 (3) Public favor does not stop with a merely negative attitude . . 109 
 
 (4) Joint through traffic handled largely by organizations separate 
 
 from the railroads 112 
 
 II. Co-operation of Competing Lines in Restraint of Rate Competition. 
 
 (1) Introductory Ilj 
 
 (2) The period from 1867 to 1877 : 
 
 A. The Granger movement : causes, origin and nature. 
 
 Granger legislation ; indirect results and the end 
 
 of the agitation for reduced rates 114 
 
 B. Connection of co-operation and the Granger move- 
 
 ment 123 
 
 C. Course of railway co-operation in restraint of competi- 
 
 tion 125 
 
 D. Summary 130 
 
 (3) The period from 1877 to 1887 : 
 
 A. A new phase of the rate question as a leading problem . 131 
 
 B. Results of the fact that discrimination had become the 
 
 leading question. A lessened cause of dispute and 
 
 a dispute less allied to the problem of co-operation. 131 
 
 C. The traditional feeling against restraint pf competition 
 
 increased 134 
 
 D. Experience of pools and rate wars 135 
 
 E. Summary of the changes in the pooling situation by 
 
 1887 138 
 
 F. The growing demand for national regulation .... 139 
 
 G. The "Interstate Commerce Act" 142 
 
 (4) The period from 1887 to the present : 
 
 A. Character in general I4S 
 
 B. Restraint of competition after 1887 147 
 
106 Railroad Co-operation in the United States. 
 
 PAGE. 
 
 C. Illegality of rate agreements ; the "Trans-Missouri" 
 
 and " Joint Traffic " cases 149 
 
 D. Attitude of the courts and of the Commission on the 
 
 question of competition : 
 
 D 1 . Interpretation of the " long and short haul " 
 
 clause 156 
 
 D 2 . The question of relativity of rates .... 160 
 
 D 3 . The Commission on " Pooling " 161 
 
 E. Summary of the present situation 162 
 
 III. Co-operation to Consolidate Freight Classifications. 
 
 (i) Introductory 164 
 
 (2) History of freight classification 165 
 
 PART SECOND. 
 
 The Present Needs of Railway Co-operation. 
 I. Through Routing and Through Rating. 
 
 (1) What should be the practice 171 
 
 (2) What the present practice is 171 
 
 (3) The remedy 172 
 
 II. Freight Classification. 
 
 (1) A uniform classification desirable 173 
 
 (2) How to secure a uniform classification 173 
 
 III. Co-operation in Restraint of Rate Competition. 
 
 (i) No a priori conclusion 174 
 
 (2) Railway competition not inherently desirable for the railroads . 175 
 
 (3) Railway competition not inherently desirable for the public . . 178 
 
 (4) Relative merits of different forms of restraint 182 
 
 (5) The pool is inherently, as well as relatively, desirable .... 1 83 
 
 (6) Pooling should be legalized 187 
 
 (7) Precautions against abuse of pooling 189 
 
 (8) Brief summary of the situation in the three forms of co-opera- 
 
 tion hitherto developed in the United States 190 
 
 IV. A Railway Clearing- House. 
 
 (1) England and the United States in the past 191 
 
 (2) The need of a clearing-house in this country 192 
 
 (3) The necessary preliminaries to a clearing-house system . . . 194 
 
 (4) Legalization of pooling the most pressing need of the co-opera- 
 
 tive situation 194 
 
PART I. 
 
 The Evolution of Railway Co-operation in the United 
 
 States. 
 
 I. Co-operation of Connecting Lines to Promote Through Traffic. 
 
 § i. Railway co-operation made its first appearance in the 
 United States about the year 1850 as the result of a demand 
 for improved facilities in long-distance transportation. 
 
 Prior to that time, our railroads had been built mainly to 
 meet local needs, to connect neighboring towns, to tap the 
 coal fields, or to supplement water transportation. The con- 
 cept of long-distance through traffic had not as yet attained 
 dominating importance, and, therefore, though the short, local 
 lines not infrequently formed a continuous series, no need was 
 felt, and no attempt was made, to connect their termini. By 
 the year 1850, however, the social and economic development 
 of the country had resulted in the beginnings of a consider- 
 able through traffic that at once made apparent the defects of 
 existing conditions. Passengers vigorously protested against 
 the inconvenience and delay of having to go from the terminus 
 of one road to that of another. They demanded a rail con- 
 nection and whatever else might be necessary to obviate 
 change of cars and to secure the desired facilities for a long 
 journey. Shippers made a like demand on the ground that 
 freight was lost or delayed in transfer from road to road, to 
 say nothing of the cost of repeated loading and unloading. 
 
 The smoother and more rapid working of through traffic 
 was, moreover, at least equally desirable from the standpoint 
 of the carriers themselves. Connecting lines saw that they 
 had everything to gain and nothing to lose by developing long- 
 <iistance traffic ; for local receipts were evidently in nowise 
 
 (107) 
 
108 Railroad Co-operation in the United States. 
 
 diminished thereby, and every through passenger or through 
 consignment was a source of net gain. The interests of the 
 railroads, therefore, served but to supplement popular needs 
 in making desirable the improvement, or rather the inaugura- 
 tion, of a through service. 
 
 For the railroads to furnish this requsite, one of two things 
 was necessary ; either the short, consecutive lines must reor- 
 ganize as a single company, or they must enter into some sort 
 of an agreement with respect to the many things requiring 
 common consent and mutual aid. In other words, the carriers 
 had the choice of co-operation or consolidation, and in prac- 
 tice, made free use of both expedients, though perhaps the 
 latter is the more typical of railway policy in the early 
 fifties. But whether such be the case or not, is of no signifi- 
 cance for us, as it remains unquestionably true that however 
 prevalent the plan of consolidation, co-operation was also 
 much resorted to, and that joint railway activity thus began 
 about 1850. 
 
 The need of harmony between connecting lines was so evi- 
 dent that every nerve was strained to secure this form of 
 co-operation. The termini of local roads were connected, a 
 uniform gauge adopted, and time-tables arranged so as to 
 avoid unnecessary delay at what might now indeed be called 
 "junctions." Stoppages for meals, baggage privileges, passen- 
 ger and freight rates, liability for damage or loss — these and 
 countless other questions, newly recognized as of common 
 interest to connecting lines, were settled by co-operative effort. 
 Thus the public were quickly provided with every facility for 
 through traffic that it was in the power of our carriers to fur- 
 nish, to the advantage of the railroads as well as of the com- 
 munity at large. 
 
 § 2. The form of railway co-operation which we have so far 
 considered cannot be regarded as having ever constituted a 
 part of the railway problem, if by "problem" we mean a 
 question either of uncertain answer or with marked difficulties 
 
Co-operation of Connecting Lines. 109 
 
 in the way of solution. Neither doubt nor opposition has 
 ever limited the efforts of our carriers to promote the freest 
 interchange of traffic between connecting lines. Were there 
 no other object for co-operative endeavor, the present paper 
 would be of the briefest, or else would of necessity consider 
 the most technical details of interline organization. We are 
 denied either alternative, however, by the presence of another 
 phase of co-operative activity, namely, that which has for its 
 object the restraint of competition. Joint effort of railway 
 companies to this end has for thirty years been a much dis- 
 puted question and one upon which almost endless discussion 
 is possible. To this later development of co-operation, there- 
 fore, our attention will be almost wholly confined ; so that, for 
 the sake of simplicity, it may be well to consider at once the 
 few points of interest connected with co-operation of connect- 
 ing lines, even though chronological sequence would defer 
 their treatment to a subsequent portion of this paper. 
 
 § 3. First of all, we should notice in passing that the public 
 has not remained content with a merely negative attitude 
 toward co-operation of connecting lines. Congress felt it 
 necessary as early as 1866 to authorize railroads chartered by 
 States to engage in interstate commerce, and to connect with 
 roads of other States so as to form continuous lines for that 
 purpose. True, this act does not furnish any positive encour- 
 agement to interline co-operation, but it does show that 
 through routes were already of sufficient importance to call 
 for Congressional action to remove all doubt as to their 
 legal sanction. It was not until twenty years later that leg- 
 islation upon this question was again demanded; for our 
 carriers continued to promote the smooth workings of long- 
 distance traffic without other spur than that of self-interest. By 
 1887, however, Congress felt that more positive action must 
 be taken. In accordance with this view, the Interstate Com- 
 merce Act not only declares unlawful all combinations or 
 agreements to prevent continuous shipment, but also goes on 
 
no Railroad Co-operation in the United States. 
 
 to state that " common carriers subject to the provisions of 
 this act shall . . . afford all reasonable, proper and equal 
 facilities for the receiving, forwarding and delivering of passen- 
 gers and property to and from their several lines and those 
 connecting therewith, and shall not discriminate in their rates 
 and charges between such connecting lines." Now, inasmuch 
 as the only way for separate companies to furnish " all rea- 
 sonable, proper and equal facilities " for through traffic over 
 their connections is by co-operative action, the above clause 
 means in brief, that whether they so desire or not, connecting 
 interstate carriers are ordered to co-operate, in every reason- 
 able way, for the most efficient organization of the through 
 service. Evidently railway self-interest was no longer relied 
 upon to furnish satisfactory co-operation of connecting lines, 
 and we see from subsequent statements of the Commission 
 that this distrust was justified. In every report of the Com- 
 mission since 1888, it has been urged that the law as above 
 stated is not enforceable, and that this fact constitutes a serious 
 defect, properly to be eliminated by amendatory legislation. 
 It is alleged in the report for 1 897, for example, that the im- 
 portance of a really effective amendment, giving the Commis- 
 sibn full power to enforce the through traffic clause, " is more 
 and more deeply impressed upon us by frequent complaints of 
 the denial, both to carriers and to shippers of the reasonable, 
 and from a commercial standpoint often necessary facilities of 
 through routing and through rating." 
 
 In the light of such a statement, the accuracy of which we 
 are not justified in questioning, our former assertion that co- 
 operation of connecting lines is no part of the railway problem, 
 may seem at first sight scarcely accurate ; but the error is 
 only apparent. Refusal to make arrangements for the promo- 
 tion of joint through traffic has indeed been frequent, but not 
 because of any new-born opposition to such an arrangement 
 per se. Whenever our carriers have really been open to the 
 charge of blocking through traffic over connecting lines, the 
 
Co-operation of Connecting Lines. ill 
 
 blame is due to competition, — more or less direct, — between 
 the companies concerned, and not to a concept that such 
 traffic is no longer desirable. It is always as a competitor 
 and not as a connecting line that one railroad refuses another 
 the proper facilities for interchange of freight and passengers. 
 Unfortunately the ways in which competition may become a 
 factor in determining the relations of connected lines are 
 legion, and we can look for efficient co-operative efforts in 
 through routing and through rating only in and after complete 
 solution of the problem of railway competition. Perhaps it is 
 not amiss to illustrate the actual working of interline rivalry 
 as interfering with harmony of connecting roads. 
 
 In 1897, for instance, the following case was noted by the 
 Commission : The only available route for coal from Newburg, 
 N. Y., to certain points in Connecticut was in part over the 
 New York, New Haven & Hartford Railroad, and in part 
 over the New York & New England Railroad. The former 
 refused to co-operate in forming a through rate, however, be- 
 cause under such a rate the joint route from Newburg to Con- 
 necticut would compete with the coal traffic wholly over the 
 New York, New Haven & Hartford Railroad from Jersey 
 City directly to the Connecticut markets. The haul from 
 Jersey City meant more to the New York, New Haven & 
 Hartford Company than did its share of a joint haul from New- 
 burg, and indirect competition thus became the basis of a 
 refusal to co-operate with the New York and New England 
 Railroad. 
 
 The above instance is but typical of the influence of inter- 
 line rivalry upon agreements and co-activity between connect- 
 ing railway companies. As already stated, therefore, any 
 hesitancy on the part of our carriers freely to form joint 
 through routes, is entirely the result of railway competition ; 
 and although the public has felt it necessary in some degree 
 to urge greater co-operation between connecting lines, we 
 must not thereby infer that co-operation is in itself a more 
 
112 Railroad Co-operation in the United States. 
 
 complex question than at its first beginnings in the early 
 fifties. On the contrary, in so far as there is any problem 
 involved, it is the problem of railway competition ; and the 
 fact that railway co-operation is not quite satisfactory as between 
 connecting lines, — the fact that a negative attitude of active 
 popular opinion is no longer predominant, — deserves mention, 
 but not lengthy discussion. 
 
 § 4. A second, though minor point of interest in connection 
 with the handling of joint through traffic, is the fact that a 
 considerable share of this work has been done, not by the 
 railroads directly, but by separate organizations. 
 
 This development was in every case a natural result of 
 existing conditions, and, in its beginning at least, an unques- 
 tioned economic advantage. The express company, the fast 
 freight line, the company to furnish specialized forms of 
 passenger coach — each from the start performed its particular 
 type of service for many roads. No one of our carriers could 
 have organized an equally efficient service at like rates, nor was 
 it practicable to form a jointly managed company. Co-opera- 
 tion had not yet reached the point where the latter course was 
 expedient, nor had consolidation advanced sufficiently to make 
 the former a financial success. The only feasible plan to 
 secure the best freight and passenger service therefore, was the 
 one adopted ; though it may be, as many claim to-day, that 
 our railway system is now sufficiently developed for our car- 
 riers successfully to undertake the functions at present exercised 
 by outside organizations. Whether this be so or not, however, 
 it remains true that in the past the passenger coach, express 
 and fast freight companies, organized separate from any rail- 
 road, have to some extent lessened the necessity for direct 
 co-operative action between connecting lines. The point is of 
 interest rather than of importance, however, and without 
 dwelling thereon at greater length, let us turn from that phase 
 of co-operative activity which, though the first to arise, has 
 never attained the doubtful honor of becoming a railway 
 
Co-operation of Competing Lines. 113 
 
 problem, and view that other form of interline effort that has 
 been so marked a subject for popular dislike and railway 
 favor ; — namely, co-operation in restraint of rate competition. 
 
 II. Co-operation of Competing Lines to Restrain Rate 
 Competition. 
 
 § 1. It may be well to state at the outset that the several 
 parts of the railway problem are practically a unit, and that no 
 one question can be isolated and dealt with by itself. The 
 kaleidoscopic changes of railway policy and public opinion 
 toward co-operation in restraint of competition must, therefore, 
 be considered to some extent in the light of contemporaneous 
 thought and action in other fields of the railway problem. 
 Though the effort will be made to restrict our discussion as 
 much as possible directly to the problem of co-operation, by 
 far the greater space must of necessity be devoted to subjects 
 that would, in a categorical list, appear utterly irrelevant. 
 With this thought in mind, therefore, we are ready to take up 
 the problem of railway co-operation — to trace its evolution, to 
 analyze its nature, and to offer some suggestions for its 
 solution. 
 
 About twenty years had passed since the first appearance of 
 railway co-operation, before it became in truth a great problem ; 
 and, as already intimated, the sudden and lasting importance 
 of this question was not the result of any gradual growth or 
 development of such joint efforts as we have so far considered ; 
 but was due entirely to its entrance upon a new field. So 
 long as co-operation was merely a means to facilitate through 
 traffic, popular approval was not withheld ; but when, in the 
 later sixties, it was discovered that competing roads were 
 utilizing the rate agreement and pool to prevent a reduction 
 of charges through the force of interline rivalry, then co-opera- 
 tion seemed arrayed against all " free competition " and in 
 such guise aroused instant and bitter condemnation. 
 
1 14 Railroad Co-operation in the United States. 
 
 About 1870, then, there began the problem of railway 
 co-operation that has since been ever present, for throughout 
 the last thirty years, interline efforts in restraint of competition 
 have been a constant and fruitful source of dispute between the 
 carrier and the community at large. It is rather too compre- 
 hensive to speak of this period as a whole, however, for the 
 success of railway restraints Upon competition, the nature and 
 intensity of public opposition thereto, and the relation of the 
 whole problem to other railway questions, have varied con- 
 siderably from time to time. To subdivide this period, there- 
 fore, and to treat of the broad characteristics of each minor 
 division in contrast with the others is to promote a clear 
 understanding of the changes mentioned. 
 
 The difficulty in this method is to determine just when there 
 has occurred a decided alteration in the relations of public 
 opinion and railway practice. So gradual have been the 
 changes that it is practically impossible to assign any definite 
 date to their occurrence. All that we can do, therefore, is to 
 take such convenient landmarks of railway history as can, with 
 nearest approach to accuracy, be used to bound a period 
 differing from others in its aggregate of predominant features. 
 In this broad and general meaning of the term, the following 
 " periods," covering the evolution of co-operation as a problem, 
 will be taken up in successive order: (1) the decade from 
 1867 to 1877 — the "Granger" Period, ending with the 
 Supreme Court decision establishing beyond dispute the legal 
 right of governmental control over railroad rates ; (2) the 
 decade from 1877 to 1887 — testing the more permanent 
 results of Granger agitation, and ending with the passage of 
 the Interstate Commerce Law; (3) the decade from 1887 to 
 the present. 
 
 The Period From 1867 to 1877. 
 
 § 2— A. The first period is one of extreme importance, mark- 
 ing, as it does, the beginnings of co-operation between com- 
 peting lines and of public hostility thereto. The years from 
 
Co-operation of Competing Lines. 115 
 
 1867 to 1877, corresponding roughly to the time of the 
 Granger excitement, are made a distinct division of our 
 subject because of the close connection between the new co- 
 operation and the Granger agitation. The intimate relations 
 of these two questions can be more clearly shown, and will 
 be better appreciated, after some attention has been devoted 
 directly to the causes, development and ultimate results of 
 that wave of popular antagonism and legislative coercion in 
 our railway affairs, broadly known as the Granger movement. 
 To this movement, therefore, let us turn. 
 
 The five or six years preceding the panic of 1873 were a 
 period of rapid railway growth. In the middle and far West 
 the construction of new lines was especially marked, and 
 differed from previous development in that the railroads became 
 distinctively the pioneers of civilization. Tracks were laid 
 through and into regions almost devoid of population. They 
 were laid, moreover, with full knowledge that practically no 
 traffic could be expected under existing circumstances, capital 
 expended in such projects looking to a distinctively future 
 return. That surplus Eastern wealth actually took these 
 chances is largely due to the general fever of speculation fol- 
 lowing the war, but largely also to the special inducements held 
 forth by our Western States and Territories to encourage rail- 
 road building. Settlers in these regions were for the most 
 part either pioneer farmers or professional "boomers," and 
 whether seeking to support themselves by agriculture or by 
 wildcat banking and land deals, a direct transportation route 
 to the East opened up visions of unlimited prosperity. The 
 railroad was thought to be a very Midas, whose touch would 
 turn all things to gold. 
 
 By this exaggerated concept of railway usefulness, our 
 Western States and Territories were led to make most lavish 
 grants of land, bonds, and privileges to railroad companies 
 laying tracks within their respective borders. This competi- 
 tion of different States and Territories was duplicated between 
 
Ii6 Railroad Co-operation in the United States. 
 
 smaller sections of the country. The people of different 
 localities within a State strove to outbid one another in secret 
 or open inducements to cause a prospective road to pass 
 through their particular town or county. Naturally when 
 the railroads did come they accepted this public appraisement 
 as indicative of their true worth, and conducted themselves 
 accordingly. Believing that the public was utterly dependent 
 upon the carrier, and striving above all things for a quick 
 return on invested capital, railway managers not only fixed 
 rates at an exorbitant figure, but in other ways as well used 
 their great power unsparingly. Towns were forced to grant 
 greater privileges . under threat of changing the road's loca- 
 tion; lobbying was freely resorted to; judges and executive 
 officers of the State and members of the legislatures were 
 given free passes ; caucuses were packed, and laborers in con- 
 struction gangs were compelled to vote as the " boss " directed. 
 Of course the public deeply resented the domineering con- 
 duct and corrupting influence of the railroads in general, but 
 the rate question was above all else the point of decided fric- 
 tion between the companies and the people at large. Indeed, 
 this has ever been the case, for it is in the matter of fares and 
 freight charges that the individual is brought into most direct 
 contact with our transportation agents. Not until a man is 
 satisfied that he pays no more, and that his neighbor and com- 
 petitor pays no less, than a just and reasonable rate, will he 
 turn his attention very strongly to matters of less direct per- 
 sonal concern. Only after this all-important rate problem is 
 adjusted with some degree of satisfaction to the public, will 
 that body concentrate its attention very vigorously upon the 
 solution of less pressing railway questions. It is scarcely 
 surprising, therefore, to find that throughout the entire history 
 of popular opposition to railway policy, the rate question has 
 constituted, in one form or another, the chief source and field 
 of conflict. In Granger days, however, greatest emphasis was 
 laid upon a phase of the rate problem that has not been very 
 
Co-operation of Competing Lines. 117 
 
 prominent in subsequent periods ; for popular hostility and 
 popular effort were directed against an abuse that no longer 
 exists, namely, extortion in railway charges. 
 
 As already stated, our Western carriers had indeed fixed 
 their rates at an exorbitant level in order to obtain an imme- 
 diate net return from a region of comparatively sparse settle- 
 ment, and the public now undertook to force a reduction of 
 such transportation charges. 
 
 At first it was thought that railway competition would be 
 an all-sufficient means to the end desired, and in this belief 
 every effort was made to duplicate existing lines ; but it soon 
 became evident that no considerable relief was to be obtained 
 from such a course. To begin with, it was not possible to 
 parallel every mile of road already built, and so long as any 
 points lacked the active competition afforded by the presence 
 of more than one carrier, rates were there raised to counter- 
 balance, in part at least, their reduction at competitive centres. 
 Nor did the latter reap any real benefit from interline rivalry, 
 for though rates were thereby lowered, competition greatly 
 increased the evil of personal discrimination. Of course it 
 was the larger shippers who received the lower rates, and, 
 therefore, the increased aggregate wealth of competitive rail- 
 way centres was not an unmixed blessing, since it was accom- 
 panied by a greater disproportion in the distribution of 
 property. On the whole, then, while railway competition did 
 somewhat reduce the average of rates, the public felt that 
 tariffs were still excessive and that other abuses in railway 
 methods were on the increase. 
 
 A lessened transportation charge seemed at this time more 
 than ever desirable. The fall in prices that preceded the 
 panic of 1873 was already being felt in our agricultural 
 regions. Wheat, the great staple of the West and Northwest, 
 had for some time been subjected to a steady decline in mar- 
 ket value, and the farmers of the wheat region saw ruin staring 
 them in the face. The one hope of escape lay in reducing 
 
Ii8 Railroad Co-operation in the United States. 
 
 the cost of production, and transportation charges being the 
 most conspicuous as well as one of the largest elements in 
 cost, we can scarcely wonder at the excited popular demand 
 for a reduction of freight rates. Moreover, public feeling was 
 intensified by an erroneous belief that the railroads were 
 making an enormous and extortionate profit. It was argued 
 that no carrier would transport a given consignment of freight 
 unless the return for such a service was to some extent 
 remunerative. The lowest competitive rate was, therefore, 
 assumed to be " paying " the road that offered it, and upon 
 this principle was based the conclusion that all non-competitive 
 charges, in so far as they exceeded rates to " common " points, 
 were pure extortion. Although this concept of the situation 
 was utterly fallacious, — as we shall see when we discuss the 
 nature of railway competition, — the public at large did not 
 realize that fact, but considered that common justice as well as 
 their own needs called for the immediate reduction of trans- 
 portation charges. Competition having failed to accomplish 
 this result in its desired completeness, legislation was essayed. 
 About 1870, therefore, we find that constitutional conven- 
 tions and State and Territorial legislatures, though commenc- 
 ing to deal with many railway questions, are engaged primarily 
 in an attempt to solve the problem of extortion, and either 
 prescribe maximum rates by direct law or create a State Com- 
 mission and vest in it full authority to regulate charges. The 
 former method was pursued by Arkansas and Ohio in 1873, 
 and by Iowa and Wisconsin in the following year. Michigan 
 had taken this course in 1871, after a constitutional amend- 
 ment of 1 870 authorizing such action, but in 1873 changed 
 over to the commission plan. Direct legislation on rates had 
 begun in Minnesota also in 1 871, but here, too, this scheme 
 was found to lack elasticity, and was abandoned for commis- 
 sion regulation three years later. Illinois had a commission 
 from the outset of her Granger legislation in 1871. Several 
 other Western States, and some in the South, at about this 
 
Co-operation of Competing Lines. 119 
 
 time adopted similar means to secure control over rates and 
 thus to insure a cheapening of the transportation service. 
 
 The general intention of this early regulation was to fix 
 maximum charges at a point below existing non-competitive 
 rates, but higher than the general level of those in vogue at 
 common centres. The idea of reducing only the highest rates 
 was to give the railroads a chance to recoup themselves by 
 raising their discriminating low charges. The public thought 
 thus to secure the desired reduction of at least the bulk of 
 "extortionate" rates and the abolition of interplace discrimi- 
 nation, without any possibility of injury to vested railroad 
 interests. 
 
 When put into actual practice, however, Granger legislation 
 gave results far other than those expected. The reduction of 
 non-competitive charges took place ; but, from the nature of 
 the case, rival lines could not raise their rates at common 
 points, for tariffs were there adjusted, not to meet the needs of 
 one or all of the rival carriers, but by the intensity of compe- 
 tition. The fact, therefore, that other railway revenues were 
 reduced, did not cause an increase in competitive rates. In- 
 deed, it served rather to lessen these charges, for the railroads, 
 made desperate by the curtailment of their profits, struggled 
 more fiercely than ever over competitive traffic and quickly 
 reduced charges thereon. Neither local nor personal discrimi- 
 nations were bettered, therefore, and the net effect of Granger 
 law upon the companies was simply to annihilate their profits. 
 Railroads were no longer a paying investment, capital sought 
 other fields, and the development of our railway system was 
 suddenly checked. This result was so evidently due to hos- 
 tile legislation, and was so serious a blow to the prosperity of 
 our young Western States, that the more severe laws, — such 
 as the " Potter Law " of Wisconsin, — were quickly amended 
 or repealed. 
 
 Judged merely on the basis of its immediate purpose, there- 
 fore, Granger legislation was a dire failure. True, it had been 
 
120 Railroad Co-operation in the United States. 
 
 more successful than competition in that it had actually brought 
 about a general reduction of so-called extortionate rates ; but, 
 as we have seen, this result was accomplished at such cost 
 that all classes were glad to see the laws modified or repealed. 
 Though foiled in its direct object, however, Granger agitation 
 was yet of incalculable value, owing to certain of its indirect 
 results. 
 
 In the first place, the Granger contest established, once for 
 all, the quasi-public character of our railroads. Prior to this 
 time, the carriers had claimed to be private corporations, and 
 had asserted that their charters were, therefore, contracts with 
 the State. On this ground, the clause inserted in most rail- 
 way charters, granting to the companies in so many words the 
 right to fix charges, was claimed by them as inviolable. 
 Furthermore, even in the absence of any charter grant on this 
 subject, our carriers asserted that no governmental body could 
 lawfully interfere in railway rate-making. Control over their 
 respective charges was believed by our railroads to be a 
 property-right due them as ordinary business concerns. When, 
 therefore, legislatures and commissions began to prescribe 
 maximum rates, the railroads at once carried the question to 
 court and vigorously contested the validity of such regulation, 
 asserting that it was an impairment of the obligation of 
 contract, and that it deprived them of property without due 
 process of law. The decisions in these Granger test cases set- 
 tled the question for all time, the courts everywhere coming to 
 hold that the railroads are common carriers, that they exercise 
 a public function, and that they are, therefore, subject to State 
 control in all respects. 
 
 A second important result of Granger legislation was to 
 demonstrate the general superiority of a commission with 
 mandatory power as compared with direct legislative control 
 or with an advisory commission. Of course this whole ques- 
 tion was merely one of experience. Direct legislative control 
 was quickly abandoned after trial, for it was found entirely too 
 
Co-operation of Competing Lines, 121 
 
 inelastic to meet the needs of the case. Moreover, a commis- 
 sion could act more rapidly than the legislature, was more 
 directly responsible, was less open to the danger of corruption 
 — in fact was by far the preferable agent of control, and as 
 such was not long in becoming also the accepted agent. The 
 further question of advisory versus mandatory commission was, 
 perhaps, less definitely setded in Granger days, although the 
 need for the latter form was clearly proven in some cases. 
 New England had been the pioneer section in establishing 
 railway commissions, and had developed the advisory type. 
 That is to say, the New England commissions had inves- 
 tigating, reporting and recommendatory functions, but no 
 power of enforcement. As Charles Francis Adams has aptly 
 expressed it, they served merely " to focus public opinion on 
 the railroads." Now the advisory principle had worked 
 admirably in New England, and a similar type of commission 
 was, therefore, tried in several other parts of the country dur- 
 ing the period of Granger regulation. Its lack of success as 
 compared with the compulsory form, quickly brought the 
 people to a realization of the fact that the advisory commission 
 could succeed only in certain environments. The stability of 
 railway conditions and the recognition accorded to public 
 opinion in New England made her experience no criterion for 
 the rest of the country. Nor, indeed, is there reason to sup- 
 pose that a mandatory commission would have failed, or have 
 been less successful than the advisory type, even in New 
 England. After Granger experience, therefore, we began to 
 see that although there may be circumstances in which a 
 commission will not need to exercise mandatory power, yet it 
 is best to take no risks. In recent years, therefore, we have 
 tended more and more toward the mandatory type, and it is 
 not improbable that if our States continue to have jurisdiction 
 over railway affairs, they will all eventually adopt this form of 
 regulative body. 
 
 A third important development from the Granger movement 
 
122 Railroad Co-operation in the United States. 
 
 is found in the dawning realization of public and railway inter- 
 dependence. The public learned by bitter experience in the 
 early seventies that too severe legislative enactments would 
 check railway development and so react against the prosperity 
 of the community ; while the railroads were taught to fear and 
 respect popular opinion. From this crude beginning, the 
 consciousness of harmony in railway and public interests has 
 become steadily, though slowly, a more real factor in controll- 
 ing railway policy and governmental interference. 
 
 In concluding this brief sketch of the Granger movement, 
 we should note that coincident with its cessation came the 
 disappearance of popular agitation for the mere reduction of 
 absolute rates. This change in the public demand was neither 
 because a low rate was no longer desired nor because its 
 attainment had been despaired of, but was the result solely of 
 the fact that a big reduction of railway charges had taken 
 place from natural economic causes. A lessened cost of the 
 transportation service due to technical improvements in tracks, 
 locomotives, etc.; the beginning of competition with waterways 
 for long-distance freight; the development of the railway 
 system so as to bring about a competition of markets ; the 
 greatly increased volume of traffic, and many less important 
 influences, combined to cause a rapid decline in transportation 
 charges to a level exceeding the fondest hopes of the early 
 Grangers. Although certain rates might still be thought to 
 yield an excessive profit to the carriers, there was no longer a 
 fear of " extortion " as threatening general prosperity in large 
 sections of the country, and we find, therefore, that on toward 
 the eighties, the cry for reduced rates is heard less and less. 
 
 Such, then, is in outline the history of Granger agitation — 
 a movement making the years from 1867 to 1877 of greater 
 aggregate significance in the general evolution of our railway 
 regulation than any other period of equal length. In the 
 light of this fact, a brief consideration of Granger law, its 
 causes and effects, would be pertinent in the treatment of 
 
Co-operation of Competing Lines. 123 
 
 almost any great railway question. As already intimated, 
 however, there is more direct reason to justify our digression 
 into Granger history, for not only did co-operation of com- 
 peting lines begin in this period of popular agitation, but such 
 co-operation was so intimately connected with the causes and 
 results of the Granger movement as to seem at times almost 
 a part thereof. For the decade under consideration, the prob- 
 lem of co-operation can be viewed in its true perspective, 
 therefore, only when compared and connected with the more 
 general problem that we have already examined. To this 
 relation between the Granger problem and railway co-opera- 
 tion, let us, therefore, turn our attention. 
 
 § 2-B. To begin with, co-operation of competing lines 
 arose in and from the fierce railway competition that marked 
 the later sixties, and was thus closely allied in origin with the 
 causes of Granger agitation. The rapidity and the specula- 
 tive character of railway development at that time tended 
 naturally to produce a considerable duplication of lines, and 
 this result was but rendered the more certain by the conscious 
 efforts of the community to foster competition in the hope of 
 reducing rates. The rivalry of parallel roads is fierce in pro- 
 portion as traffic is scarce and as the companies pursue a 
 short-sighted policy. Both of these conditions were in full 
 force at the time under consideration. Available traffic was 
 rarely more than sufficient to yield a fair return to one line, 
 and with a duplication of roads, the question sifted down to 
 a division of loss. Moreover, the enormous power vested in 
 railway managers and the effort to secure a quick return on 
 invested capital left no hope of conservative and far-sighted 
 methods. When the public succeeded in obtaining a consid- 
 erable duplication of lines, therefore, scant traffic and reckless 
 policy combined to make competition most bitter. It is not 
 necessary to repeat how this interline rivalry failed to reduce 
 rates sufficiently to satisfy the popular demand, or how it mul- 
 tiplied other abuses ; but it is significant to note that while the 
 
124 Railroad Co-operation in the United States. 
 
 public deplored the results of competition and sought their 
 remedy, along with the reduction of rates, in legislative enact- 
 ment, the carriers were striking at the root of the whole 
 matter in attempting by united action to restrain competition 
 itself. Of course we must admit that their motives were very 
 different, and that neither public nor carrier seems to have 
 been conscious of any connection between railway efforts and 
 the popular endeavor. If, however, we concede, — as I think 
 we must, — that discriminations are directly due to competition, 
 then it would seem that the restraint of competition sought 
 by our carriers tended to accomplish one of the things desired 
 by Granger agitators, namely, abolition of discriminations. 
 Both in origin and in nature, therefore, the early co-operative 
 efforts in restraint of railway competition are akin to the 
 great popular movement of the seventies. 
 
 A second line of interrelation between these two is found 
 in an examination of the factors that at that time gave weight 
 to public feeling against co-operation in restraint of competi- 
 tion. It is of course but fair to state at the outset that the 
 major cause of this feeling was then, as now, to be found in a 
 blind and purely traditional reliance upon the equitable work- 
 ings of competition, any restraint of that force being regarded 
 as ipso facto, an injury to industrial welfare. Admitting, how- 
 ever, that this fact accounts for much of the antagonism to 
 "pools," it is still true that special circumstances of Granger 
 days are important factors in this opposition. The general 
 feeling of resentment against the carriers, arising from their 
 short-sighted, autocratic methods, and intensified as time went 
 on and the evils became more and more pronounced, led the 
 public to assume what might be termed a " Granger attitude," 
 toward all railway questions. In other words, the desire to 
 coerce became a habit of mind. Our carriers had so often 
 shown themselves utterly indifferent to public interests that 
 the people had no longer any faith in a laissez faire policy, 
 but desired forcibly to harmonize railway methods with the 
 
Co-operation of Competing Lines. 125 
 
 , wishes of the community. Thus arose an indiscriminate 
 demand for regulation, that extended as well to those fields 
 of railway activity in which abuse was only feared, as to those 
 in which abundant evil had already been endured. It seems 
 to me, therefore, that we can attribute the strong movement 
 against pooling and other restraints of competition in the early 
 seventies, partly at least to the general hostility that the public 
 felt toward unregulated railway policy. In part, also, we can 
 explain the especial reluctance to allow any restraint of inter- 
 line rivalry, by the fact that reduction of rates was at that time 
 the chief end of popular endeavor, and an end toward which 
 competition was thought to work without injustice to carrier 
 or to shipper. Naturally, therefore, pooling and consolidation 
 were severely condemned in the seventies, as tending to check 
 competition and therefore to delay or prevent that reduction 
 of rates so urgently demanded. In Granger days, therefore, 
 both the nature of the leading problem and the general 
 hostility felt toward our railroads tended to make any re- 
 straint of competition seem especially undesirable, and it 
 is scarcely a matter for surprise that a number of our 
 Western and Southern States, either by constitutional 
 amendment or by statutory enactment, prohibited pooling 
 and consolidation. 
 
 The Granger movement and the relation of co-operation 
 thereto mark in a general way the status of public opinion in 
 the decade from 1867 to 1877, and after our discussion of 
 these points, we can, I think, with greater profit turn to the 
 actual course of railway co-operation as a problem. 
 
 § 2-C. Although, as we have seen, the forces that led the 
 carriers to seek a restraint upon competition, and the public to 
 oppose such efforts, are so interwoven with the Granger move- 
 ment that it is quite justifiable to connect the two in thought, 
 we must not forget that the problem of co-operation does 
 not begin quite so early as the popular effort to reduce 
 rates. The latter was in full swing by 1869, while it was 
 
126 Railroad Co-operation in the United States. 
 
 not until the following year that the former attained its first 
 prominence. 
 
 About 1870, then, the co-operation of rival lines became 
 an important railway question and began to attract general 
 attention. Of course, some rate agreements had been in 
 vogue prior to that date, but they had become ineffectual. 
 Now, however, the fierce interline competition that had arisen 
 — from causes already enumerated — led the railroads to 
 engage in most widespread and destructive warfare, making 
 effective agreements seem more necessary to the carriers than 
 at any previous time ; and in the endeavor to give interline 
 agreements some degree of stability, the pooling feature was 
 added. Railway pools are said to have originated in New 
 Engand at an earlier date ; but although the statement is very 
 probable it has little significance, for if such arrangements 
 were made they were small affairs, dealing with a comparatively 
 mild competition. The first big pool of which we have any 
 record is that of the lines between Chicago and Omaha, 
 formed in 1870, and it is, therefore, no real inaccuracy to date 
 pooling from that year. 
 
 The significance of the pool lay in the fact that it gave 
 promise of enabling the railroads to maintain rates. With this 
 hope, our carriers rapidly sought to enforce their agreements by 
 a division of traffic or earnings ; and with this fear, the public 
 at once opposed pooling with a bitterness that would be sur- 
 prising did we not know the traditional reliance upon free 
 competition and the peculiar circumstances of Granger days. 
 It was from these circumstances also, that secrecy was no 
 longer possible in any real restraint of interline rivalry. The 
 concentration of popular attention upon the rate question and 
 the marked difference between competitive and non-competi- 
 tive charges, made concealment of an effective agreement 
 practically out of the question. The public had but to notice 
 that rates were raised at a common point, in order to be 
 
Co-operation of Competing Lines. 127 
 
 morally certain that some understanding had been arrived at 
 by the lines there meeting in former competition. 
 
 About 1870, therefore, — with competition fierce and our 
 carriers anxious to check its alleged destructive effects ; with 
 publicity and, therefore, public condemnation assured should 
 any real restraint be imposed upon interline rivalry ; and with 
 the appearance of pooling as a means likely to accomplish such 
 restraint, — the great dispute in railway co-operation began. 
 The railroads, claiming that competition when unrestrained 
 leads to the utter destruction of their profits, and that some 
 check to interline warfare was, therefore, both justifiable and 
 expedient, urged legalization of pooling. The public, believ- 
 ing railway charges to be extortionate and having full 
 confidence in the equitable effects of competition, in no case 
 authorized pooling and in several States prohibited this form 
 of co-operative activity. There is abundant evidence to show, 
 however, that these early statutory and constitutional banns 
 did not really prevent the formation of pooling contracts in 
 the States enacting them. But there was a very real check 
 to the successful working of any restraint upon competition, 
 — though a check that was only in its indirect results a 
 preventive, — namely the attitude of the common law upon the 
 question of competition. 
 
 The common law, being but the crystallized aggregate of 
 public opinion, past and present, embodies, along with much 
 other matter, the industrial standards and ideals of the people. 
 The experience of trade from the beginning of modern history 
 up to quite recent times had steadily and consistently impressed 
 the public with the excellence of competition as an equitable 
 regulator of industry, so that we naturally find in Granger 
 days an unbounded faith in that force. It was firmly believed 
 to be the universal panacea for industrial ills, and " competi- 
 tion the life of trade " was almost a creed. The common 
 law, embodying this popular belief, held all efforts to limit the 
 workings of free competition as contrary to public policy. 
 
128 Railroad Co-operation in the United States. 
 
 Needless to say, rate agreements and pooling contracts were 
 placed in this category, and while not strictly illegal, were 
 "extra-legal" — the courts refusing to take cognizance of their 
 existence. 
 
 In the absence of all redress at law for violation of agree- 
 ment in restraint of competition, the carriers found great diffi- 
 culty in checking rate warfare, even for a short time, whilst 
 any lasting restraint thereof was almost too much to hope for. 
 The only thing the railroads could do was to adopt such a 
 form of contract as would from its inherent character be least 
 susceptible to violation, and experience soon demonstrated the 
 utility of pooling as compared with a mere rate agreement in 
 this respect. Not that the pool was very successful in pre- 
 venting rate warfare, but at least it was the best form of con- 
 tract available to accomplish any restraint of competition. A 
 mere agreement as to rates was evidently of no value, for it 
 left the temptations to competition unchanged. Indeed, con- 
 sidering the ease and secrecy with which agreed tariffs could 
 be ignored, a bare promise to maintain charges rather put a 
 premium on dishonesty. Pooling, on the other hand, tends 
 in theory to destroy all motive, either secretly to cut rates or 
 openly to repudiate the whole arrangement. The latter course 
 is rendered undesirable by the fact that the division of traffic or 
 earnings is, theoretically, in such proportion among the co- 
 operating lines as would result from unchecked, but fair and 
 open rivalry. Should a company openly leave the pool, 
 therefore, no advantage is thereby gained in its proportionate 
 share of traffic or earnings, while absolute receipts are cer- 
 tainly lowered by the force of competition. If, on the other 
 hand, a carrier does not wish to leave a pool, any voluntary 
 reduction of rates is folly, as tending to lower the aggregate 
 receipts from which each company must, in the last analysis, 
 draw its fixed proportionate share. In theory, then, there 
 might seem little reason to doubt the possibility of a 
 
Co-operation of Competing Lines. 129 
 
 comparatively permanent pooling contract even without 
 any legal backing to such an arrangement. 
 
 In actual practice, however, although superior to the rate 
 agreement, and therefore adopted almost universally in place 
 of, or in addition to, the latter, the pool was from the start a 
 merely temporary expedient ; for the very instability of rail- 
 way conditions that made it desirable also prevented its long 
 continuance. New roads sprang up, new traffic became 
 available, or in other ways the competitive environment 
 changed, so that co-operating lines were quickly led to believe 
 that in open warfare they might secure a larger proportion of 
 traffic or receipts than they had been receiving under the ex- 
 isting pool. Tariffs were cut, secretly at first and then openly, 
 and a rate war was soon in full progress. With the exhaustion 
 of all engaged therein, a new pool was formed, only to meet in 
 turn a like fate with the old. Such is the course that in 
 general marked the progress of pools in Granger days. 
 
 Even in this period, however, we find some pooling arrange- 
 ments that might claim to be more than a brief respite between 
 battles and that therefore constitute exceptions to the general 
 rule. A good instance of this is furnished by the pool already 
 mentioned as having originated in 1870, between the lines 
 connecting Chicago and Omaha. These were three in number, 
 and so nearly equal in length, financial strength, and all the 
 other factors that go to make up a road's relative advantages, 
 that competition was even more evidently than usual of a 
 suicidal tendency. An agreement was therefore entered into, 
 by the terms of which money receipts were to be equally 
 divided, and this provision to be enforced and competition 
 averted by a system of deposits subject to forfeit. On this 
 simple basis, the Chicago-Omaha Pool met with great 
 success, passing unchanged through the Granger period 
 and lasting many years thereafter — in fact, until several other 
 roads came in and destroyed the original conditions of com- 
 petition. 
 
130 Railroad Co-operation in the United States. 
 
 Rare as are such early cases of its successful working, the 
 pool has certainly demonstrated thereby the fact that it did 
 contain the possibilities of checking rate warfare, and has, 
 therefore, justified the railroads, — admitting their desire to re- 
 strain competition, — in using this form of restraint with increas- 
 ing frequency until the year 1887, when it was forbidden by 
 the Interstate Commerce Act. 
 
 § 2— D. We have seen now: (1) That the period from 1867 
 to 1877 was most distinctively the time of Granger agitation, 
 but that closely allied with the causes of this movement came 
 the beginnings of railway co-operation in restraint of compe- 
 tition ; (2) that such restraint was by our carriers alleged to 
 be necessary to prevent competition from becoming destructive ; 
 (3) that traditional reliance upon competition, unusual hostility 
 to our railroads, and the especial endeavor to reduce rates 
 below their accredited "extortion" point, combined to arouse 
 bitter public opposition to all railway efforts in " restraint of 
 trade ;" (4) that the courts, in accordance with the common 
 law, refused to recognize contracts aiming at the elimination 
 or restriction of competition ; and (5) that the railroads, though 
 seriously hampered by the extra-legal character of pooling 
 contracts, yet continued to attempt restraint in thfs form 
 despite public hostility and legislative prohibition, and despite 
 the small success attending their efforts. Such, then, was the 
 general course of our problem in its earliest days. 
 
 The Period From 1877 to 1887. 
 
 The period of general railway history from 1877 to 1887 is 
 essentially different from the preceding decade. Granger days 
 had been distinctively a time of agitation and upheaval, of new 
 forces and new efforts, of radical changes and rapid evolution 
 in railway problems. Very different was the succeeding 
 decade. The ten years preceding the passage of our Interstate 
 Commerce law were not a time of great innovations, but 
 mark, rather, a gradual adjustment to the results of the 
 
Co-operation of Competing Lines. 131 
 
 Granger movement. Certain principles of thought and action 
 had been rapidly determined in the fierce warfare between the 
 public and the carriers. A cessation of hostilities now gave 
 opportunity to test the more permanent contributions of 
 the Granger agitation and of its allied questions. In the 
 evolution of railway problems, therefore, the period upon 
 which we now enter is not one of great comparative signifi- 
 cance ; and yet withal, by 1887, we find that certain important 
 changes have taken place. 
 
 § 3— A. In the first place, a new phase of the rate question 
 had taken the lead in exciting popular interest and condemna- 
 tion. The fear of extortion had assumed a subordinate place 
 in the eyes of the public, and discrimination in charges was 
 now the great problem. The change had been so gradual, 
 however, that it would be rash indeed to venture any date. 
 The mere diminution of rates effected by the Granger legisla- 
 tion did not at once destroy the interest in regulation of 
 absolute charges. The desired result had indeed been accom- 
 plished in so far that there was no longer any pressing need of 
 further reduction, yet the remembrance and fear of excessive 
 charges remained for a long time the leading factor in deter- 
 mining popular feeling toward the railroads. However, with 
 the rapid and continued reduction of rates, resulting not from 
 government regulation but from cheapened cost of transporta- 
 tion service, the public began slowly to see how remote was 
 the future probability of really excessive charges ; and, abso- 
 lute extortion no longer being dreaded, a desire to insure 
 relatively just rates as between different shippers and localities 
 gradually became the chief end of popular agitation. 
 
 § 3— B. The fact that the abolition of discrimination had 
 superseded reduction of rates as the matter of chief moment to 
 the popular mind, is significant in the present discussion, for 
 two reasons : 
 
 I. The new question was far less than the old a subject of 
 dispute between the carrier and the public. 
 
132 Railroad Co-operation in the United States. 
 
 2. It was not so closely allied to the specific problem of 
 co-operation — at least not in popular estimate. 
 
 1 . As to the first point, we find that although discrimination 
 was undoubtedly the leading object of popular hostility by the 
 later eighties, yet this feeling never assumed the bitterness 
 attendant upon the anti-extortion movement of earlier times. 
 To begin with, the public had a newly acquired sense of 
 security. The presence of commissions expressly to guard 
 public welfare by controlling our carriers, and the conscious- 
 ness that new powers could, if needed, be delegated to these 
 bodies by the State, tended to lessen public suspicion, fear, and 
 watchfulness of railway methods. The improvement in railway 
 policy and the growing recognition of railroad and public 
 interdependence would also, in any case, have taken much of 
 the former bitterness out of popular feeling on all these mat- 
 ters. In addition to such general reasons for a lessened public 
 interest in railway questions, however, the very nature of dis- 
 crimination made it far less than the leading Granger question 
 a subject for violent anil unanimous condemnation by the 
 community at large. Extortion and its cure had constituted 
 a comparatively simple problem — one within the comprehen- 
 sion of all, and one whose solution was of like importance to 
 all. If as the Grangers believed, rates had been too high for 
 general prosperity and at the same time more than sufficient 
 to insure a fair return to the railroads, then it was evidently 
 the welfare of the community forcibly to lower such rates, 
 their continuance being a menace to all. Discrimination, on 
 the other hand, was a less direct, and, therefore,. not so evident 
 an attack on the average man's economic well-being, and was 
 for many years opposed chiefly because it conflicted with 
 American ideals of fair play. We see this very clearly from 
 the fact that the "pass" system, though of comparatively 
 little economic importance, aroused an antagonism fully as 
 vigorous and widespread as that felt toward any form of dis- 
 crimination. Moreover, there were then, as now, many 
 
Co-operation of Competing Lines. 133 
 
 desirous of continuing the system of " special " rates, in the 
 belief that under such a system they were the favored parties ; 
 and frequently, therefore, we find the larger and more influen- 
 tial shippers unwilling to countenance an anti-discrimination 
 law. With the public thus divided on the railway question of 
 the day, and with even the opponents of discrimination failing 
 to realize the full economic significance of that abuse, we find 
 that from the nature of the problem as well as from a lessened 
 public fear of railway methods, there was naturally not so 
 great general interest in the leading question of the eighties as 
 had been evinced toward the topic of Granger days. 
 
 The significance of this fact to the problem of co-operation, 
 as indeed to all subordinate problems in the eighties, is that 
 the leading question did not awaken sufficient public interest 
 throughout the period to result in legislative action. True, 
 the Granger laws had quite frequently contained clauses pro- 
 hibiting discrimination, and further legislation along the same 
 line was thus rendered less necessary ; but aside from such 
 additional reasons accounting therefor, the fact of significance 
 is that popular feeling from 1877 to 1887 did not reach such 
 a pitch as to make necessary further statutory enactments 
 against discrimination, although that was the leading question 
 of the day. We do not, therefore, find any further action 
 taken at this time against co-operation of competing lines, as 
 might well have been the case had our law-making bodies 
 been brought to consider any great railway question ; for when 
 legislatures are finally set in motion to reform a particular 
 abuse in a given field, they are apt to consider also such minor 
 evils as are thought to exist therein. In the seventies, for 
 example, this species of legislative momentum caused Granger 
 laws to contain, not only such clauses as aimed to reduce rates 
 but many also seeking to remedy abuses that would not in 
 themselves have led to statutory enactment. The change from 
 " extortion " to " discrimination " as the leading railway topic 
 was, therefore, of significance to the problem of co-operation, 
 
134 Railroad Co-operation in the United States. 
 
 in the fact that it resulted in lessening the dispute between 
 public and carrier ; because, from this fact, we can account in 
 large measure for the absence of legislative enactment against 
 restraint of competition throughout the decade. 
 
 2. The change was also of significance from the fact that 
 discrimination was not an abuse that could in any way be laid 
 at the door of insufficient competition. Unlike the old ques- 
 tion of extortion, therefore, its solution did not seem to call 
 for a prohibition of restraint in active rate warfare, and the 
 problem of co-operation in the eighties is not complicated by 
 its supposed alliance with the leading object of popular antag- 
 onism. In other words, whatever feeling there was against 
 discrimination did not include within its field of condemnation 
 the efforts of our carriers to check interline competition, and 
 such efforts are, therefore, less opposed on sympathetic grounds 
 than in the days when " extortion " had been the great object 
 of public hostility. 
 
 The fact, then, that owing to the lessened fear of extortion, 
 discrimination had become the leading railway question by 
 1 887, has the double significance we have noticed. It removed 
 that cause of statutory enactment against restraint of railway 
 competition that I have called "legislative momentum," and 
 it tended also to lessen popular hostility consciously directed 
 toward such restraint. . In other words, prior to 1887 discrimi- 
 nation was not a question that led to great agitation culminat- 
 ing in legislative enactment against all alleged railway abuse, 
 and it was not a question that aroused public hostility directly 
 toward the co-operation of competing railroads. The whole 
 influence of the change in problems, therefore, was to lessen 
 the opposition to pooling — a tendency that was largely 
 counteracted, however, by an increase in the old unreasoning 
 feeling against restraint of competition. 
 
 § 3— C. During the eighties concentration of capital, chiefly 
 through consolidation in industry, greatly increased the 
 number of large business concerns generally throughout the 
 
Co-operation of Competing Lines. 135 
 
 United States ; and this movement, of Undoubted economic 
 advantage in reducing the cost of production, was viewed 
 askance by the public at large. Seeing only the difficulty of 
 organizing new and effective competition with such gigantic 
 rivals already in the field, and dreading the time when consoli- 
 dation would reduce each branch of industry to a condition 
 of practical monopoly, the people were frightened at the 
 rapidity with which we appeared to approach this end, and 
 came to fear any further restraint upon competition. We 
 find, therefore, a bitter opposition springing up against co-opera- 
 tion among competitors throughout the business world. Per- 
 haps this was in part due to a definite belief that co-operation 
 might pave the way to such harmony as would hasten consoli- 
 dation, but it would seem more nearly accurate to say that 
 there was really no definite reasoning upon this question. It 
 merely seemed to the public that competition, in which they 
 had such unlimited faith, was threatened with annihilation, and 
 dreading such a result, they were, therefore, led to condemn 
 indiscriminately, and with greater bitterness than before, all 
 forms of restraint upon trade. 
 
 Now, this general tendency to oppose co-operation through- 
 out industry, held true of course, as a tendency, in the business 
 of transportation, and may well have counteracted the influ- 
 ence of the change in "problems," from extortion to discrimi- 
 nation. Had there been no other causes of a change in 
 public sentiment, therefore, opposition to pooling might well 
 have remained with its former net intensity. That such was 
 not really the case in 1887, however, we know from authentic 
 data, — such as are furnished in the Cullom Report,^and to 
 account for the very much lessened feeling against pools, we 
 must turn to the actual course of pooling prior to this time. 
 
 § 3—D. From their start about 1870, pooling contracts had 
 spread rapidly. They had grown not merely in number; but, 
 as the railroads began to realize the wider significance of com- 
 petition in rates, had also developed by including in one 
 
136 Railroad Co-operation in the United States. 
 
 " association " or under one organization, a greater number 
 of lines and a corresponding extent of territory. Such exam- 
 ples as the Southern Railway and Steamship Association, 
 started in 1873, and the Trunk Line Association, organized 
 in 1877 as the product of Albert Fink's genius, will readily 
 call to mind the development at this time of large co-opera- 
 tive organizations devoted chiefly to harmonizing competitive 
 rates. The increased number and size of these traffic associa- 
 tions with the pooling feature doubtless tended at first to 
 augment public opposition to this form of co-operation ; but 
 if so, the fact does not seem to have checked their develop- 
 ment. Our railroads, continuing to advance their old plea 
 that unchecked competition becomes destructive, kept up their 
 pooling agreements despite public condemnation. This con- 
 demnation, moreover, might have continued indefinitely had it 
 not been for the failure of pooling to eliminate even the most 
 violent forms of rate warfare, and for the consequent despera- 
 tion of the public in their desire to check discriminations. 
 
 The non-success of pooling at this time is unquestioned. 
 Among the trunk lines especially there was never a period 
 of such fierce and destructive competition as that from 1876 
 to 1886. Added to the rivalry of the roads themselves, was 
 a most bitter competition between the Eastern terminal cities. 
 Rates were at nominal figures during the conflicts, and the 
 intervals of peace were of the shortest so that this period, rich 
 alike in pooling contracts and in rate wars, might seem to 
 prove the inability of co-operative endeavor to limit destructive 
 competition. 
 
 Such is not the case, however, for to begin with, many 
 possibilities of pooling were obscured or prevented by the 
 fierce rivalry between cities. That element eliminated, the 
 strife would have been much more brief and far less intense. 
 The history of the trunk-line wars shows conclusively that 
 long after all the roads were anxious to enter into a lasting 
 form of co-operative association, a varying number of them 
 
Co-operation of Competing Lines. 137 
 
 were kept from such a course by the rivalry between our great 
 Atlantic ports. This period has sometimes been quoted as 
 showing the futility of pools without real harmony of effort 
 behind them. The conclusion can scarce be questioned, but 
 it does seem a false interpretation of the history of that par- 
 ticular time, the railroad wars of the decade seeming rather to 
 exemplify the truth, that however great the harmony of effort 
 and the desire for good faith among the carriers, no pooling 
 contract can nullify the effects of competition between markets 
 and between industrial regions. 
 
 Even, however, if we concede that all the trunk-line wars 
 were directly due to a wanton breach of faith on the part of 
 the contracting roads, we do not thereby deny all good in the 
 pooling arrangements of the day. Conditions were undoubt- 
 edly bad, but would they not have been worse in the absence 
 of any attempt at restraint ? Certainly, the fact that most of 
 the roads were earnestly striving the greater part of this period 
 to secure a stable agreement, ought to have lessened in some 
 degree the evils of destructive competition. The persistency 
 with which the railroads sought to secure a firm association at 
 least shows their faith in such co-operative organization. We 
 must remember, too, that the pool was still, as in Granger 
 days, extra legal, and that whatever experience in the eighties 
 may or may not show with regard to this institution, a definite 
 conclusion should not be based thereon with reference to the 
 pool as a legalized form of contract. 
 
 However, let the facts accounting for the failure of pools at 
 this time be what they may, certain it is that rate wars were 
 numerous and violent, and that the disastrous nature and 
 results of these conflicts were the chief factors in causing a 
 large part of public opinion to cease its opposition to railway 
 pooling. The injury done to carrier and to shipper from the 
 fierce struggle between competing lines was far more evident 
 than at any previous time. So absurdly low had competitive 
 rates become that even the general public could in part 
 
138 Railroad Co-operation in the United States. 
 
 appreciate the ruinous character of such charges for the rail- 
 roads ; while, on the other hand, owing to the violent fluctua- 
 tions in tariffs, and even more especially because of the open and 
 secret discrimination practiced, the shipper and the community 
 as a whole did not profit by the " cut rates " offered. 
 
 Realizing for the first time that interline rivalry is not a 
 desirable thing in its most extreme instances, the public began 
 to question the merit of prohibiting all restraint upon railway 
 competition. Might our carriers not be right in their persist- 
 ent claim that pools would not lead to extortion but would 
 merely tend to check "destructive" competition, and so per- 
 form what even the public was now beginning to recognize as 
 a necessary service ? Certainly, experience of pooling as an 
 extra legal institution had not led to the dire results dreaded 
 and predicted therefrom. It was just possible that the public 
 had all along exaggerated the evils of such restraint upon 
 competition, and that these would really be felt less than 
 the existing abuses resultant from unchecked rate war- 
 fare. True, it was generally held to be a choice of evils so 
 far as the alternative lay between pooling and discrimination, 
 but at least there was a choice concerning which the public 
 were led to think and upon which there was difference of 
 opinion. Some would have liked to see pooling legalized ; 
 some continued to desire its absolute prohibition ; while per- 
 haps the great bulk of the people, — still unwilling to risk the 
 former extreme and no longer sure that the latter was advis- 
 able, — were in complete indecision. 
 
 § 3— E. By 1887, then, the one great change in the pooling 
 situation was the modification of public opinion that had taken 
 place during the decade. No important legislative enactments 
 had been passed, nor were the efforts and claims of our rail- 
 roads and the attitude of our courts in the question of compe- 
 tition versus co-operation, materially different from what they 
 had been ten years earlier. Public opinion, however, had 
 greatly changed. Despite the fact that in the light of an 
 
Co-operation of Competing Lines. 139 
 
 accredited tendency toward "monopoly," there was, through- 
 out the business world generally, a greater dread than ever of 
 any restraint upon competition, such was not the case in the 
 railway industry. There, the old problem of extortion, the 
 solution of which had from the public standpoint been so 
 pressing a need of Granger days, had now declined in impor- 
 tance, so that there was no longer either the same bitterness 
 of feeling between public and carrier or the same connection 
 between the leading object of popular attack and the efforts 
 of our roads to check interline rivalry. This fact, together 
 with the destructive rate wars prevalent throughout the period 
 and so evidently injurious to the community at large as well 
 as to the railroads, — so evidently creative of instability and 
 discrimination in transportation charges, — was more than suffi- 
 cient to counteract the growth of indiscriminate dislike to 
 every restraint of competition. The net result of all these 
 influences, therefore, was greatly to lessen popular antagonism 
 toward railway pooling, so that while we do not find very 
 much enthusiasm for such restraint, yet, if we consider the 
 community as a whole in 1887, there seems to have been at 
 least a near approach to neutrality on this question. Pooling, 
 of course, had still many bitter enemies, but it had also new 
 and enthusiastic champions, and if the latter rather overrated 
 the merits of the pool, at least the former exaggerated its 
 dangers. The one extreme view tending to counteract the 
 other, then, and the bulk of the community being in a state 
 of more or less close approach to indifference or indecision, 
 we can at least say that the tendency was toward neutrality, 
 and that since 1877, therefore, the public had greatly modified 
 their views on railway pooling. 
 
 § 3— F. Another great change that took place in popular 
 feeling during this period, was the growth of a desire for 
 national regulation of our carriers. So far, we have not con- 
 sidered this change, because it had no real bearing upon the 
 question of co-operation prior to 1887; but, inasmuch as its 
 
140 Railroad Co-operation in the United States. 
 
 tangible result, — the Interstate Commerce Act, — has been at 
 least the basis of all subsequent railway regulation, some atten- 
 tion should be given to this law before we take up the period 
 since its passage. 
 
 In the first place, the demand for national regulation fol- 
 lowed inevitably upon the growing inefficiency of our States 
 to control the " quasi-public " industry of transportation. Ex- 
 perience had long since demonstrated the desirability of some 
 governmental regulation, and the growth of our railway system 
 was bringing out more clearly day by day the fact that our 
 States should not be left as sole agents in this task. By the rapid 
 development of our transportation system through the build- 
 ing of new lines, and by the still more rapid process of con- 
 solidation, our companies had come to cover an enormous 
 extent of territory and had at the same time grown to a 
 corresponding degree in wealth and power. Under such 
 circumstances, the lack of uniformity in State railway laws was 
 naturally becoming more and more objectionable, while the 
 great prestige and the financial strength of the corporations 
 was making them each year a more dominant and corrupting 
 influence in State politics. It is not surprising, therefore, to 
 find throughout this period a growing demand for national 
 regulation. We see, for example, that as early as January 20, 
 1874, Mr. McCreary, Representative from Iowa, and chairman 
 of the House Committee on Railways and Canals, introduced 
 into the House a bill looking to the Federal regulation of 
 interstate railways. This measure was aimed primarily at the 
 prevention of extortionate charges in both the freight and the 
 passenger service ; and in the especial emphasis laid upon this 
 feature, as also in its general tenor, was not dissimilar to the 
 early State "Granger" laws. Although this bill passed the 
 House in March, after full discussion, it was never considered 
 by the Senate. Four years later, on May 2, 1878, Repre- 
 sentative Reagan, of Texas, began a vigorous attempt to secure 
 Federal railway regulation. The measure he then introduced, 
 
Co-operation of Competing Lines. 141 
 
 — as a substitute for three other bills proposed, — was sup- 
 ported by Mr. Mills, of Texas, Mr. Townshend, of Illinois, 
 Mr. Thompson, of Pennsylvania, and others, and finally passed 
 the House on December 11, 1878. Like its predecessor, how- 
 ever, this bill was never passed in the Senate, and failed, 
 therefore, to become a law. A more nearly successful attempt 
 at national regulation was made some five years later. On 
 March 1, 1884, a "bill to establish a board of commissioners 
 of interstate commerce and to regulate such commerce," was 
 reported to the House, and finally passed that body on Jan- 
 uary 8, 1885. Meanwhile, on April 28, 1884, a measure for 
 Federal railway regulation was introduced into the Senate by 
 Senator Cullom from the Committee on Railroads, and the 
 debates following developed pretty definite ideas on the ques- 
 tion. When, therefore, the House bill came before the 
 Senate, — as it did January 17, 1885, — that body, while accept- 
 ing the measure, did so only after radical amendment. Re- 
 turned to the House, the bill as amended, was killed on 
 February 27, 1885. Within a month, however, the first steps 
 were taken that ultimately led to the passage of the Interstate 
 Commerce Act. It was no later than March 21, 1885, that 
 a special commission was appointed in conformity with a reso- 
 lution of the Senate (March 1 7) to investigate existing railway 
 conditions. The report of this famous " Cullom " committee 
 was ready for publication on January 18, 1886, and upon its 
 able picture of the railway situation and upon its recommenda- 
 tions for national regulation, was based the Interstate Com- 
 merce Act. 
 
 That this law should have passed in 1887 may indeed be 
 chiefly due to the slowly developed recognition of national 
 control as inherently superior to regulation by our States, 
 but it is also true that the Supreme Court decision in the case 
 of the Wabash, St. Louis & Pacific Railway Company vs. the 
 State of Illinois (1 18 U. S. Rep. 557), made national regulation 
 almost necessary. Prior to this decision the States had 
 
142 Railroad Co-operation in the United States. 
 
 exercised control, such as it was, over all our railroads, for each 
 State claimed jurisdiction over all traffic by rail while that traffic 
 was within the State's own borders. The Supreme Court 
 now stepped in, however, and said that Congress, having 
 power to regulate interstate commerce, only the traffic that is 
 confined wholly to one State is subject to that State's control. 
 Of course this decision at once freed a large part of our rail- 
 way system from all governmental restraint, and led immedi- 
 ately to a vigorous demand for national regulation as a remedy 
 for this state of affairs. * Whatever would have resulted in the 
 absence of the Supreme Court decision, therefore, we can at 
 least say that the influence thereof was certainly very great in 
 bringing about the passage (in February, 1887), of the Inter- 
 state Commerce Law. 
 
 § 3— G. The first section of this act is introductory in charac- 
 ter and states the scope of the measure. Roughly, it is to apply 
 to " common carriers," transporting passengers or property 
 wholly or in part by rail, under arrangement for a continuous 
 carriage from the United States to any foreign country, or 
 from any State or Territory or from the District of Columbia 
 to any other State or Territory or to the District of Columbia. 
 This clause also states that charges must be reasonable. Sec- 
 tions two and three prohibit personal and local discriminations. 
 Section four, the famous " Long and Short Haul Clause," 
 specially prohibits that form of local discrimination involved 
 in a greater charge for a shorter than for a longer haul, over the 
 same line, in the same direction, and under "substantially 
 similar circumstances and conditions." The commission is 
 given discretionary power to suspend this rule for special cases, 
 however. The fifth section prohibits pooling of freight or 
 earnings. Section six provides at some length for publicity of 
 rates. Section seven declares illegal any combination or agree- 
 ment, expressed or implied, to prevent continuous carriage. 
 The remaining seventeen sections provide in considerable 
 detail for the enforcement of the above provisions, but it is 
 
Co-operation of Compeii?ig Lines. 143 
 
 sufficient for our purpose to note that a commission of five 
 men, appointed by the President, was made the chief agency 
 of our national regulation. True, the courts were also assigned 
 a considerable part in the scheme of control, but Congress 
 seems to have intended that they should play the lesser role ; 
 that they should merely act as a court of appeal to prevent 
 the commission from overstepping its lawful authority, or that 
 they should use their judicial powers at call of the commis- 
 sion to enforce the lawful orders of that body. If this inter- 
 pretation be correct, the commission created by the Interstate 
 Commerce Act was more mandatory than advisory in char- 
 acter, though not wholly of either type. 
 
 From what has already been said of public opinion at this 
 time, it must be evident how much the law of 1887 is an 
 embodiment thereof. That a scheme of national railway 
 legislation should then have been adopted is of itself, in the 
 light of previous failures in this respect, partly at least a proof 
 of the new and broadened concept of railway and public needs. 
 Again, that the commission should have been intended to con- 
 form so nearly to the mandatory type, is evidence of the 
 growing favor of regulation in the latter form rather than by 
 means of an advisory commission, or directly by legislative 
 enactment. 
 
 More important, however, are the reflections of popular 
 opinion that are to be found in the directly regulative clauses 
 of the act. In the last analysis these come under three 
 heads: (1) Ordering reasonableness in rates; (2) forbidding 
 discriminations in every form; and (3) prohibiting pools. 
 Publicity in rates might perhaps be made a fourth division, but 
 after all, this provision seems scarcely so much a distinct 
 feature as a means for the enforcement of the other three 
 leading purposes. The relative stress laid upon the second, 
 as compared with the first of these leading purposes, brings 
 out very clearly the trend of public thought upon railway 
 matters. The demand for reasonable rates is embodied in one 
 
144 Railroad Co-operation in the United States. 
 
 short sentence, and this fact, together with the insignificant 
 position afforded that sentence, — almost as an after thought in 
 the introductory section, — shows how thoroughly time had 
 dispelled the great fear of really burdensome rates. In dis- 
 tinct contrast is the prominence afforded the clauses prohibiting 
 discrimination. Worded closely after the English law of 
 1854, they constitute three entire sections of the act, whilst, 
 indeed, the remainder of the statute is largely auxiliary to an 
 evident leading purpose of preventing discrimination. With 
 nothing but the text of the act before us, then, it would not be 
 difficult to infer how pressing a question was discrimination, 
 and how relatively insignificant the problem of extortion by 
 1887. 
 
 Of the anti-pooling section, on the other hand, the history, 
 rather than the content, was indicative of popular opinion. 
 Pools had not been forbidden in the bill as originally drafted 
 by the Cullom committee, for that body, while recognizing no 
 great benefit in pooling, was none the less opposed to its 
 prohibition. In their report, for example, they said that " the 
 evils to be attributed to pooling are not those which most need 
 correction, and, if agreements between carriers should prove 
 necessary to the success of a system of established and pub- 
 lished rates, it would seem wiser to permit such agreements 
 rather than by prohibiting them to render the enforcement and 
 maintenance of agreed rates impracticable." In other words, 
 the committee seem to have realized the utter inconsistency of 
 a legislative enactment attempting to abolish discrimination 
 and at the same time forbidding the pool — the one means that 
 had hitherto availed our carriers in their efforts to prevent 
 destructive rate warfare. Whether the committee did or did 
 not fully recognize the necessary sequence of competition and 
 discrimination, however, they at all events presented a measure 
 containing no reference to pooling. In such form, moreover, 
 the bill was accepted by the Senate, but upon reaching the 
 House was amended so as to include the present fifth section, 
 
Co-operation of Competing Lines. 145 
 
 with which it finally passed. Thus, the history of the anti- 
 pooling clause is but typical of popular doubt, uncertainty and 
 difference of opinion on the whole question of railway compe- 
 tition. 
 
 With the passage of the Interstate Commerce Act, there 
 was a very evident change in railway conditions throughout 
 the United States. Co-operation was especially affected 
 because, by denying the right of pooling, the law really 
 knocked the prop from under former efforts in restraint of 
 railway competition, and thus, completely altered the status of 
 the phase of co-operation most distinctively a problem. In 
 utilizing the year 1887, therefore, to inaugurate the third and 
 last period of our study, there is at least nearer approach to 
 accuracy than in the earlier arbitrary points of division in a 
 subject that is after all a real unit. 
 
 The Period From 1887 to the Present. 
 
 § 4— A. It may be well to explain at the outset that from 
 1887 on, the activity of our States as regulators of railway 
 affairs has become of relatively less and less importance. The 
 natural extension of our lines in response to new demands for 
 transportation facilities ; their consolidation, fostered by the 
 inability to enforce rate agreements ; and the new concept that 
 the termini of the journey rather than the termini of the 
 railroad fix the interstate character of traffic — all tended to 
 make national regulation increasingly important as compared 
 with State control. True, State legislation has by no means 
 ceased to be important, but the necessary limits of time and 
 space in the present essay force us to confine our attention in 
 studying this decade from 1887 to 1897 to the national law, 
 its enforcement, its changes and the effects which it has had 
 upon railway co-operation. 
 
 The years since 1887 have been an active time in the history 
 of railway problems, but the events have been different in 
 nature from those of any earlier period. In Granger days the 
 
146 Railroad Co-operation in the United States. 
 
 carriers, having abused their freedom from restraint, thereby- 
 aroused public antagonism and evoked strict legislative enact- 
 ments. Then followed a decade in which the results of 
 Granger agitation were tested in the light of experience, 
 public opinion gradually coming to the conclusion that dis- 
 crimination ought to be more effectually prevented. With 
 this end in view, as well as to continue such regulation as 
 experience had shown to be expedient and the decision of 
 1886 had so largely taken out of State hands, the Interstate 
 Commerce Law was enacted. Since the passage of this act, 
 however, our activity in railway regulation has passed out of 
 legislative into judicial hands, or, rather, has become a species 
 of "judicial legislation." In the problem of co-operation 
 especially, the great changes that have taken place since 1887 
 have arisen from court decisions, while public opinion, legisla- 
 tion, and even the activity of the commission have played a 
 comparatively unimportant part. 
 
 It is not strange that a loss of general popular interest in 
 railway questions and a consequent lack of legislation thereon 
 should be found after the passage of the Interstate Commerce 
 Act, for in that law the public accomplished in a lump the 
 results for which they had been striving, and there followed a 
 natural cessation of effort. Even had the law been a failure, 
 therefore, it would probably have taken some time for the 
 community again to become sufficiently aroused to demand 
 further legislation ; but the very beginnings of such a move- 
 ment were prevented by the smooth and satisfactory workings 
 of the act in its first few years of active operation. The 
 improvement in the railway situation, owing to the wise orders 
 of the commission and the ready obedience of our carriers, 
 quickly led the public to assume that the machinery of railway 
 regulation would in future run on smoothly without their 
 further attention. Having all faith in the commission, there- 
 fore, the community quickly relaxed its direct watchfulness of 
 the situation. 
 
Co-operation of Competing Lines. 147 
 
 This extreme confidence in the commission has by no 
 means been misplaced, for that careful and conservative body 
 of able men, devoting its sole attention to railway matters, 
 has acted as eyes for the public, and has done what it could 
 to carry out the Interstate Commerce Act as an effective 
 measure of regulation. That its later efforts have not been 
 very successful is no discredit to the commission, therefore, 
 but must, I think, be attributed almost wholly to the fact 
 that judicial decisions have stripped it of so many of its 
 powers that it has, as the commission declares, " ceased to 
 be a body for the regulation of interstate carriers," and has 
 become powerless to protect the public. 
 
 Without going further afield to discuss the general regulative 
 situation, however, let us turn to the actual course of railway 
 efforts in restraint of competition during the present decade. 
 
 § 4— B. With the passage of the Interstate Commerce Act, 
 pooling, as we have seen, became illegal, and railway rate 
 agreements, although theoretically unchanged, were made far 
 less effective in practice. Of this there can be little doubt, for 
 while the service of the pool in enforcing interline contracts 
 has probably received considerable exaggeration at the hands 
 of its champions, yet the most conservative will scarce deny 
 that an agreement in restraint of competition is rendered more 
 binding if accompanied by a pooling arrangement. Indeed, it 
 is hard to see how we could doubt this fact when we remem- 
 ber that for nearly twenty years our carriers, in their desire to 
 check rate warfare, had almost invariably sought the pool as 
 the one form of agreement that offered any reasonable chance 
 of stability. Unquestionably, therefore, the law declaring 
 such contracts illegal had considerable influence in weakening 
 all efforts in restraint of competition. Technically, however, 
 the rate agreement remained as before, legal though not 
 enforceable at law, and the only immediate direct effect of the 
 Interstate Commerce Act upon the various co-operative asso- 
 ciations of railroads was to cause their reorganization without 
 
148 Railroad Co-operation in the United States. 
 
 the pooling feature. Efforts in restraint of competition were 
 not discontinued because their most effective form was no 
 longer lawful. Just as the extra-legal pool had been better 
 than no pool at all, so now the rate agreement, even without 
 any pooling feature, was preferable to absolutely unlimited 
 competition in charges. The railroads might not be able so 
 well as before to check rate warfare, but at least they would 
 do all in their power toward accomplishing that result. 
 
 Indeed, the case was not really so bad as might at first 
 sight appear ; for, after all, the great increase in the stability 
 of our railway conditions more than counterbalanced the fact 
 that the more effective form of agreement was no longer 
 available, and we find several instances throughout the decade 
 where rate wars have for a considerable time been prevented. 
 One of the most notable, perhaps, is that of the Southern 
 Railway and Steamship Association, including, as it did, most 
 of the lines east of the Mississippi and south of the Ohio and 
 Potomac. Denied the right of pooling in 1887, that organi- 
 zation yet managed, by a system of fines, to maintain rates for 
 six years, and went to pieces only in the extremely unstable 
 conditions arising from the crisis of 1893. Since January, 
 1896, when its articles of agreement went into effect, the 
 Joint Traffic Association has furnished us with another exam- 
 ple of a rate agreement maintained despite the absence of a 
 pooling feature. Indeed, it is very probable that as our rail- 
 way conditions became more stable, and as the companies 
 realized more clearly the need of a non-fluctuating rate sheet, 
 the rate agreement, even without the pooling feature, would 
 have come to be a fairly effective form of interline co-opera- 
 tion. Whether the problem of railway competition would 
 thus eventually have been solved, it is hard to say ; but at all 
 events, the chances of this result were suddenly destroyed by 
 a court decision declaring the rate agreement illegal under the 
 Sherman Anti-Trust Law of 1890. 
 
Co-operation of Competing Lines. 149 
 
 § 4-C. The so-called " Sherman Anti-Trust Law " of July 
 2, 1 890, is entitled " An Act to Protect Trade and Commerce 
 against Unlawful Restraints and Monopolies." Its chief influ- 
 ence upon railway questions has arisen under its first section, 
 which reads : " Every contract, combination in the form of a 
 trust or otherwise, or conspiracy, in restraint of trade or com- 
 merce, among the several States, or with foreign nations, is 
 hereby declared to be illegal." 
 
 On March 15, 1889, — more than a year before the passage 
 of the above act, — the Trans-Missouri Freight Association had 
 been formed. In the articles of agreement, the purpose of 
 the organization had been set forth as "mutual protection 
 by establishing and maintaining reasonable rates, rules and 
 regulations on all freight traffic, both through and local." 
 A committee, made up of one representative from each 
 road in the association, — the representatives having full 
 power over the rates of their respective roads, — was to meet 
 monthly and vote upon all proposed changes in rates. If any 
 road should make a rate differing from the agreed charge, 
 such a violation of agreement should subject the offending 
 carrier to fine. Any underbilling or false classification was to 
 be regarded. as a violation of agreement. 
 
 The above agreement went into effect April 1, 1889, and 
 on July 6, 1 892, the United States as complainant filed a bill 
 against the Trans-Missouri Freight Association in the Circuit 
 Court for the district of Kansas, to have the agreement set 
 aside and declared illegal, and to have the association dissolved. 
 The United States lost the case here, as also later in the 
 Circuit Court of Appeals, but upon carrying the matter to the 
 Supreme Court, secured, on March 22, 1897, a decision of 
 five to four against the association. 
 
 Judge Peckham, voicing the decision of the court, answered 
 two questions of interest to us : (1) Does the Anti-Trust Law 
 apply to the transportation industry? (2) Granting that it 
 
150 Railroad Co-operation in the United States. 
 
 does so apply, was the Trans-Missouri Freight Association in 
 violation of that law ? 
 
 On the first point, the court decided that common carriers 
 engaged in interstate commerce are subject to the act of 1890. 
 Judge Peckham's arguments, briefly paraphrased, are as 
 follows : 
 
 (a) The text of the law by itself would certainly seem to apply 
 to the business of transportation, for railroad companies are 
 instruments of commerce and their business is itself commerce. 
 When, therefore, the act prohibits contracts in "restraint of 
 trade or commerce," its jurisdiction certainly extends to con- 
 tracts between competing roads and relating to traffic rates for 
 the transportation of articles of commerce, provided said 
 contracts constitute a " restraint." The latter question is 
 merely one of fact, however, and upon its answer depends the 
 validity of the particular contract in dispute ; but the right of 
 the courts to take cognizance of such contracts, lies not in this 
 question, but in the principle that said contract could constitute 
 a restraint of trade or commerce. 
 
 (B) There is no evidence that the intent of Congress was 
 other than the above interpretation. The court does not think 
 that the Interstate Commerce Act, either directly or by fair 
 implication, authorized agreements as to competitive rates, so 
 that there is no validity in the argument that the law of 1 890 
 does not in plain language repeal any part of the act of 1887 
 and is, therefore, not intended to apply to the transportation 
 business. Neither being inconsistent with each other, both 
 statutes stand in their entirety. The fact that the act of 1887 
 is not repealed or modified in any way, therefore, is owing to 
 the fact that the two laws could not in any event have con- 
 flicted, and is no evidence that Congress did not intend the 
 Anti-Trust Law to apply to railroads. Nor do the records of 
 Congress prove anything conclusive on this point. In the 
 judgment of the court, they merely show that opinion differed 
 on this question of jurisdiction. The fact that an attempt to 
 
Co-operation of Competing Lines. 151 
 
 amend the bill of 1 890 so as to make it apply specifically to 
 the business of transportation, was defeated, may merely 
 indicate a consensus of opinion that the measure as it stood 
 was all sufficient for that purpose. Moreover, in the language 
 of the court, " There were many and loud complaints from 
 some portions of the public regarding the railroads and the 
 prices they were charging for the service they rendered, and 
 it was alleged that the prices for the transportation of persons 
 and articles of commerce were unduly and improperly enhanced 
 by combinations among different roads." The general history 
 of the times, therefore, does not admit the conclusion that 
 Congress had in mind only industrial trusts referring to the 
 manufacture and sale of commodities. Nor, again, would the 
 exception of the railway business from the jurisdiction of the 
 act have been likely from a realization by Congress that trans- 
 portation differs from other industry. Even if competition 
 between railroads were different from its nature in other busi- 
 ness, the public character of the railway industry would more 
 than counteract all other points of difference, and Congress 
 would, therefore, be inclined to legislate upon transportation 
 rather than upon other forms of industry. Besides, the state- 
 ment that a railway rate-agreement will not tend to increase 
 actual charges, has nothing to do with the question. The 
 whole point lies in the fact that by a combination of capital, the 
 contracting roads have the power to raise rates. In this essen- 
 tial, there is really no difference between the railways and other 
 industries, and we have no reason, therefore, to suppose that 
 Congress would make an exception of the railway business. 
 
 (c) The language of the statute is not sufficiently uncertain 
 to allow the court, — by a species of judicial legislation, — to 
 except the railway business. Indeed, in this case the difficulty 
 lies rather in applying the law to the manufacture and sale of 
 commodities than to their transportation. 
 
 On these grounds, then, the court held that the statute of 
 1890 applies, and was intended to apply, to common carriers 
 
15 2 Railroad Co-operation in the United States. 
 
 by rail, and on this decision proceeded to condemn the Trans- 
 Missouri Freight Association, as follows : 
 
 In the common law, " contracts in restraint of trade and 
 commerce " are illegal only when such contracts are an " un- 
 reasonable " restraint. Claiming, then, that the agreement in 
 question is not an "unreasonable" restraint, — aiming as it 
 does to secure merely reasonable rates, — and that the Anti- 
 Trust Law intended to prohibit only those agreements held 
 illegal in the common law, the defendants assert that the 
 articles of the Trans-Missouri Freight Association are not a 
 violation of the statute. This assertion is an error. The 
 court denies in toto that the Anti-Trust Law intended to pro- 
 hibit only those agreements held " unreasonable " at common 
 law. The language of the title — " An Act to Protect Trade 
 and Commerce Against Unlawful Restraints and Monopolies " 
 — does not show that the purpose of the act was to include 
 only contracts which were " unlawful " at common law, but 
 refers to and includes also restraints and monopolies made 
 unlawful in the act. Referring to the body of the act then for 
 elucidation of the phrase " unlawful restraints," we find the 
 clear statement, that "every contract; combination, etc., in 
 restraint of trade or commerce among the several States or 
 with foreign nations is hereby declared to be illegal." It is 
 evident, therefore, that the prohibition is not limited to merely 
 "unreasonable" restraints, and the mere fact that certain 
 "contracts in restraint of trade " are valid at common law, has 
 nothing to do with a statute expressly prohibiting all such 
 contracts. Furthermore, the fact that one road may charge 
 what is reasonable, is no ground for allowing an agreement to 
 maintain what rates competitive roads may adjudge reasonable. 
 In charges made by each road separately, competition is an 
 element and insures the public against extortion, but when 
 rates are fixed by agreement, competition is eliminated and the 
 public has no guarantee of a merely reasonable charge. In 
 conclusion, then, the court said that the intent of those in the 
 
Co-operation of Competing Lines. 153 
 
 agreement to receive no more than a fair remuneration, does 
 not really enter into the case. Without questioning the 
 reasonableness of the restraint, therefore, the court is com- 
 pelled to declare the agreement invalid on the mere fact that 
 it does impose a restraint. 
 
 Such, then, is the famous Peckham decision, which, having" 
 determined the present unlawful status of rate agreements, is 
 certainly of the greatest importance, but whether or not it is 
 also a valid interpretation of the case in hand, does not so 
 readily appear. At least, many eminent authorities still think 
 that the Anti-Trust Law does not really prohibit such agree- 
 ments as that of the Trans-Missouri Freight Association ; and, 
 as perhaps the best expression of this view, the dissenting 
 opinion, voiced in the above case by Judge White and sup- 
 ported by three other justices, is of considerable interest. 
 
 Judge White takes as premises two concessions of the court,. 
 (1) that only "unreasonable" restraints violate the common 
 law ; and (2) that the agreement in question is not " unrea- 
 sonable." From these, he endeavors to prove that the articles- 
 of the Trans-Missouri Freight Association are not unlawful 
 under the act of 1890, because that statute did not mean to 
 abolish restraints held to be " reasonable " at common law. 
 
 (a) To begin with, if the Anti-Trust Law does make illegal 
 such an agreement as that in question, the act is a departure 
 from the general principles of law, for by destroying the 
 " right of individuals and corporations to enter into very many 
 reasonable contracts .... the act of Congress is itself 
 unreasonable." On the ground of reason, therefore, it seems 
 highly improbable that Congress meant to abolish " reason- 
 able " restraints upon competition. 
 
 (b) Nor is such a conclusion justified by the wording of the 
 act. Judge Peckham's view, — that " contracts in restraint of 
 trade" are either "reasonable" or "unreasonable," but that 
 when you say "every contract;" etc., you include both kinds, — 
 is erroneous. The meaning is really not dependent upon the 
 
154 Railroad Co-operation in the United States. 
 
 word "every," but upon the true meaning of the phrase "in 
 restraint of trade." However accurate a use of the English 
 language it maybe to call a "restraint of trade" "reasonable," 
 restraint has come to have a generic meaning in the common 
 law, and in that meaning is confined to " unreasonable 
 restraints." When, therefore, the statute prohibits "every 
 restraint of trade or commerce," it really means to abolish 
 " restraints " in their technical significance, namely, " unrea- 
 sonable" restraints. 
 
 (c) The latter part of the argument gives reasons additional 
 to (a) above, why Congress could not have intended to abolish 
 reasonable restraints. The use of the word " unlawful " in 
 the title of the act seems to indicate a clear recognition of the 
 fact that certain restraints are not unlawful. Again, the plain 
 intent of the statute is to protect liberty of contract and free- 
 dom of trade. It could not, therefore, reasonably deny liberty 
 of contract by declaring illegal such agreements as do not 
 infringe freedom of trade — that is, "reasonable" agreements. 
 
 With these and a few minor arguments, Judge White con- 
 cludes that the Anti-Trust Law applies, and was intended to 
 apply, only to "unreasonable" restraints of trade, and that a 
 reasonable agreement such as that of the Trans-Missouri 
 Freight Association is not invalid under the act of 1 890. As 
 we have seen, however, it was the contrary opinion that had 
 back of it the majority of the court, and the ultimate result of 
 the case was to make illegal all agreements as to competitive 
 rates, and to cause traffic associations either to dissolve or to 
 reorganize, omitting the now unlawful feature of contract. 
 
 One exception to the general rule is found in the case of the 
 Joint Traffic Association. The agreement of this organization 
 had been attacked in the Circuit Court for the Southern Dis- 
 trict of New York, on January 8, 1896, and had there been 
 held legal. The case was then carried to the Circuit Court 
 of Appeals and another favorable decision rendered. The 
 matter having progressed this far when the Peckham decision 
 
Co-operation of Competing Lines. 155 
 
 was announced, our Eastern trunk lines did not recall their 
 agreement, but continued to operate thereunder as before — 
 awaiting the decision of the Supreme Court to which the 
 "Joint Traffic" case was appealed. There was even then 
 little doubt in any mind but what that decision would force 
 the carriers to forego their restraint of competition ; and this 
 expectation has received subsequent fulfillment by the court of 
 last resort. 
 
 The Supreme Court, in 1897, by its interpretation of the 
 Anti-Trust Law, has prohibited even those restraints upon 
 trade and commerce that are admitted to be reasonable. 
 Unsatisfactory as such a decision would in any case have 
 seemed to those desirous of railway prosperity, the judgment 
 of the court is the more objectionable because not based upon 
 a general consensus of judicial opinion. The Supreme Court 
 decision was not only obtained on the narrowest possible 
 margin, but was also in practical opposition to the views of 
 four lower tribunals. Of course we must recognize the fact 
 that the judgment was made in good faith, not on a bias of 
 opinion as to what should be ; but at least it is unfortunate 
 that our railroads should be deprived of all protection against 
 " destructive " competition without greater certainty that 
 Congress intended such a result. 
 
 § 4— D. Aside from the actual change that took place during 
 the present decade in the lawful field of railway co-operation, 
 it is of interest to note the attitude of court and commission, — 
 the two bodies most directly concerned in the course of rail- 
 way regulation since 1887, — toward the question of interline 
 competition. The disputed point of how far competition is an 
 element for consideration in the fourth section of the Interstate 
 Commerce Act is perhaps the best from which to infer the 
 great prominence our courts have accorded to competition. 
 The no less conservative, but far more rational, view of our 
 commission is also strikingly illustrated in this question. To 
 its investigation, therefore, let us turn. 
 
156 Railroad Co-operation in the United States. 
 
 § 4-D 1 . By 1887, one form of discrimination had become 
 especially prevalent, or at least it appeared especially evident 
 and obnoxious to the public. Competition had early forced 
 rival lines to reduce rates to and from certain " common " 
 points. Tariffs remaining unchanged for intermediate stations, 
 it was not long before the greater charge was made for the 
 shorter haul. In other words, there had arisen, from the fact of 
 competition, a practice of charging more for a shorter than for 
 a longer haul over the same line in the same direction. This 
 phase of discrimination, Congress unquestionably intended to 
 abolish in the fourth section of the Interstate Commerce Act, 
 although the possibility of injustice in an iron-clad law led to 
 the insertion of a provision giving the commission power to 
 suspend the rule for particular cases where the discrimination 
 seemed justifiable. The dispute over this section is not as to 
 its general intent or discretionary exception, however, but 
 arises wholly from the fact that the prohibition is restricted not 
 only to hauls " over the same line in the same direction," but 
 also to hauls made under " substantially similar circumstances 
 and conditions." It is the meaning of this phrase that has 
 been the fruitful source of difference of opinion. 
 
 To quote the commission : " There was apparently little 
 question at the outset as to the meaning of this section. The 
 words ' similar circumstances and conditions ' evidently took 
 the place of the words ' same circumstances ' in the English 
 act, and the meaning of that phrase had already been defined 
 by the English decisions " — as having reference — " entirely to 
 the carriage of the merchandise itself and not to other 
 conditions leading up to or surrounding such carriage." 
 Furthermore, " it was generally understood that the words 
 ' substantially similar circumstances and conditions ' would 
 receive an interpretation upon the same lines." This has in 
 actual practice not been the case, neither the commission nor 
 the courts having confined their decisions within the scope of 
 the above principle. 
 
Co-operation of Competing Lines. 157 
 
 Examining first the view of the commission, we find that 
 body almost from the start recognizing as an element of 
 " dissimilarity," the competition of transportation agents not 
 subject to the act. Evidently such an interpretation is just, for 
 in the absence of this exception to the general prohibition, an 
 interstate railroad, obliged to reduce intermediate charges 
 along with competitive rates, would be placed at a great and 
 unwarranted disadvantage in competing with a rival not sub- 
 ject to the act and, therefore, not under such obligation. 
 There seems no element of injustice, then, in the decision of 
 the commission that competition not subject to the act, creates 
 the necessary dissimilarity of circumstances and conditions 
 under the fourth section, while competition subject to the act 
 does not. This view not only satisfies the claims of equity, 
 but has been found a " reasonable and practicable interpreta- 
 tion " of the law. As the commission has stated: "Under 
 this interpretation of the section, if the rate was controlled by 
 unregulated competition, the carrier might meet it without an 
 application to the commission. If competition between car- 
 riers subject to the act afforded a sufficient excuse, as it might, 
 the commission could grant leave, upon application and after 
 full hearing, to make the lower rate to the more distant point. 
 This apparently effectuated the intention of the act. It gave 
 the carrier all the liberty to which it was entitled in the first 
 instance, and it provided that it might obtain from the com- 
 mission whatever relief the circumstances warranted." Except 
 in a part of the Southern territory, our railroads throughout 
 the country accepted the above interpretation of the section 
 and made their rates in conformity thereto. 
 
 As a matter rather of interest than of importance, it may be 
 well to note the fact that the above quotation from the com- 
 mission is open to criticism when applied to the early prac- 
 tice of that body. It might be inferred from the passage 
 referred to, that the commission was, from the first, in the 
 habit of permitting exemptions from the fourth section only on 
 
158 Railroad Co-operation in the United States. 
 
 and after a full hearing and approval of the reasons alleged for 
 such a privilege. In truth, however, while this was unques- 
 tionably the theory of the act, the commission found that in 
 practice the number of petitions for relief under section four 
 was far greater than they had either time or machinery to 
 adjudicate. The commission was therefore led to adopt the 
 more expedient plan of allowing the roads to discriminate 
 without first obtaining permission so to do ; the commission 
 reserving the right to pass upon such a de facto breach of the 
 law, if and when complaint was made to it because of the 
 said discrimination. In other words, the commission followed 
 the policy that when a road chose to consider itself as having 
 a meritorious reason for exemption, the said road might act 
 on this belief without a prior application to the commission ; 
 but such discriminations as might thereby arise, would be at 
 the peril of the road permitting them, and subject to correction 
 and redress by the commission if, upon complaint to that 
 body, it was there decided that the circumstances were not, as 
 the road had assumed, " dissimilar" in the sense of justifying 
 discrimination. After all, however, this is wholly a question 
 of practice, and perhaps of no moment in our discussion even 
 as relating to past conditions. Certainly it is a question 
 without value to-day, for the commission has long since so 
 improved its administrative facilities as to be able to hear, — 
 and therefore to insist upon hearing, — all pleas for exemption 
 before permitting any deviation from the anti-discrimination 
 features of the act. 
 
 The judicial interpretation of " dissimilarity in circum- 
 stances " has differed both in fact and in effect from the 
 opinion of the commission. The list of cases in which the 
 question has been mooted in our courts is indeed formidable, 
 but the trend of judicial opinion has ever been the same with 
 reference to this fourth section. In order to set forth the view 
 toward which our courts have progressed, therefore, the 
 attitude of the Supreme Court November, 1897, in the case 
 
Co-operation of Competing Lines. 159 
 
 of the " Interstate Commerce Commission versus the Alabama 
 Midland Railway Company et at." is all-sufficient. In this 
 "Troy Case," as it is popularly called, the court held that 
 competition, even when between carriers subject to the 
 Interstate Commerce Act, creates a dissimilarity of circum- 
 stances sufficient to justify a greater charge for the shorter 
 distance. Such a decision practically nullifies the " Long and 
 Short Haul " clause. As already stated, the intent of 
 Congress was to abolish a particular form of discrimination 
 arising from interline competition. When, therefore, the 
 Supreme Court holds that the presence of competition is in 
 itself a valid reason to regard the prohibitory part of the fourth 
 section as of no effect, the worth of the whole clause is thereby 
 destroyed. As the commission has expressed it : " Com- 
 petition is the only reason why a carrier would desire to 
 charge less to the more distant point, and if competition 
 justifies him in so doing, there is nothing left for the section 
 to act upon." In this particular instance of judicial legis- 
 lation, then, our courts have decided that exemption from 
 the fourth section is really to be granted as a premium on 
 competition. 
 
 The railroads readily appreciated the full significance of this 
 decision, as we see from its effect upon their methods of rate- 
 making. For instance, charges to Denver and other common 
 points in Colorado, over lines from Chicago, the Mississippi, 
 and the Missouri, had, prior to the decision of November, 
 1897, practically all conformed to the provisions of the 
 fourth section. Within less than a week after the Troy Case 
 was settled, however, through rates were on the whole less 
 than half as high as charges from intermediate points. This 
 one example is but typical, and is, therefore, significant of the 
 general readiness with which rates revert to their old dis- 
 criminations in the absence of any restraint upon competition. 
 " Unless the country," — in the words of the commission, — " is 
 satisfied to undergo a recurrence to the practices which existed 
 
160 Railroad Co-operation in the United States. 
 
 before the passage of this section (the fourth) it must, in some 
 form or other, be re-enacted." 
 
 § 4— D 2 . Evidently the commission is not so prone as our 
 courts to overestimate the value of competition, but seems 
 clearly to recognize the fact that evil results can and do arise 
 from interline rivalry, and that such abuses are to be abolished 
 despite the fact that competition must thereby be rendered 
 less fierce. Indeed, our commission has recently gone a step 
 further and has in certain instances undertaken directly to 
 regulate the "relativity of rates" — that is to say, the ratio of 
 charges upon one line to those in vogue on another road. In 
 the absence of any control over minimum rates, however, such 
 regulation had hitherto been of a purely advisory character, as, 
 for example, in the " Eau Claire Lumber Case " (5 I. C. C. 
 264). 
 
 Certain parties here alleged that rates on lumber from Eau 
 Claire to common markets were high as compared with 
 charges in vogue from Winona and La Crosse. The com- 
 mission, convinced that the complaint was just, ordered that 
 in future the Eau Claire roads should not charge more than a 
 prescribed differential, somewhat lower than the one prevalent. 
 The roads from Eau Claire at once obeyed the order by reduc- 
 ing their charges until at the required ratio to tariffs over the 
 Winona and La Crosse lines. The latter, however, immedi- 
 ately lowered their rates also so as to restore the old relativity, 
 and gave notice that any subsequent reductions at Eau Claire 
 would be followed by a corresponding cut in their own 
 charges. The commission, having no authority to forbid a 
 reduction in rates, was of course unable to prevent the execu- 
 tion of this threat, and was, therefore, forced to let charges 
 remain at whatever ratio the carriers or competition might 
 decide. 
 
 Deploring its helplessness in this respect, our commission 
 is to-day urging that it be given power effectually to regulate 
 the relativity of rates, and such a demand is of the greatest. 
 
Co-operation of Competing Lines. 161 
 
 significance when we remember that to exercise the desired 
 power, must be, in so far, to annihilate direct competition in 
 rates. Indeed, this statement is a truism, for competition in 
 rates means an effort to change the relativity of charges, and 
 such an effort forbidden, it is needless to say that there can 
 be no rate warfare. In reality, then, our commission has not 
 only come to recognize a fact to which, as we have seen, the 
 courts appear still to be blind, — the fact, namely, that certain 
 practices arising from competition are extremely undesirable 
 and should be abolished, — but has actually called for a grant 
 of powers to eliminate competition in certain cases where the 
 relativity of rates, as determined thereby, is not to the welfare 
 of the community. 
 
 § 4— D 3 . In the attitude that the commission has adopted 
 toward pooling, however, we see the climax of its progres- 
 sive conservatism. In reporting the present situation, it is 
 said that while violations of published tariffs are of course 
 misdemeanors under the Interstate Commerce Act, yet there 
 is abundant evidence of " facts which are morally convincing, 
 although not of a character to secure a legal conviction," to 
 show that " at the present time very large quantities of competi- 
 tive traffic are carried at other than published rates." In other 
 words, the commission, whose judgment on such a point we 
 have no reason to question, asserts in plain terms its own in- 
 adequacy to prevent this secret cutting and discrimination. That 
 such departures from published rates are an evil, is admitted 
 by carrier and public alike, and there is thus a pressing desire 
 to remedy present conditions. Now, the railroads almost 
 unanimously claim that the one proper, because effective 
 remedy, lies in legalization of pooling, and certainly, as the 
 commission says about this opinion of the carriers, " they are 
 in better position to judge than anyone else, and they consti- 
 tute so important a part of the whole public that they are 
 entitled to careful attention in a matter which they insist is 
 vital to them." Besides, a majority of the commission is itself 
 
1 62 Railroad Co-operation in the United States. 
 
 of the opinion that pooling would at least tend to cure the ills 
 of discrimination, the only fear being that the attendant destruc- 
 tion of competition, — at present the " only protection against 
 unreasonable exactions," — would give the carriers absolute 
 power over rates and so lead to extortion. To prevent this, 
 the recommendation is made that before legalizing the pool, 
 certain restraints should be imposed upon the "enormous 
 power which such a measure would place in the hands of 
 railroad companies." We thus see that, while still clinging in 
 part to the old dread of extortion, the commission has, never- 
 theless, come to believe that government regulation can be 
 made sufficiently effective to prevent abnormal charges, and 
 that this result assured, pooling would no longer be open to 
 serious objection, but would be advisable because desired by 
 the railroads and because tending to lessen the abuse of dis- 
 crimination. 
 
 § 4— E. If now we briefly summarize the situation, since 1 887, 
 we find in the general field of railway regulation : 
 
 1. That the public, in reliance upon their agent, the com- 
 mission, have ceased to take such direct active interest in 
 railway problems as was prevalent during Granger days or 
 even in the following decade ; 
 
 2. That in this absence of strong public feeling, legislative 
 activity has not been called into play to pass any important 
 measure upon exclusively railway matters ; 
 
 3. That the commission has ably striven to execute its 
 trust, but has seen "judicial legislation" strip it of power 
 after power until, on its own statement, it is to-day not in a 
 position to protect the public ; and, 
 
 4. That the courts have been the dominating factor, for by 
 their interpretation of the Anti-Trust Law all railway co- 
 operation in restraint of competition has become unlawful, and 
 by their interpretation of the Interstate Commerce Act, the com- 
 mission has become bankrupt in all real powers of regulation. 
 
Co-operation of Competing Lines, 163 
 
 In the theoretic problem of co-operation as it stands to-day 
 under the above regulative situation, there are three great 
 sources of active opinion — the railroads themselves, the 
 courts and the commission ; and, summarizing in brief what 
 must be evident from the material already given, we find : 
 
 1. That the railroads maintain, with unabated zeal, their 
 old position in favor of legalized pooling ; 
 
 2. That the courts are strongly the champions of free com- 
 petition ; and, 
 
 3. That the commission is in favor of legalizing the pool, 
 provided proper precautions be first taken to prevent " extor- 
 tion." 
 
 The attitude of the railroads is not surprising. Convinced 
 by experience of the destructive effects of competition, what 
 more natural than that they should desire its restraint by 
 legalization of the means in past found most effective to that 
 end ? Nor should we wonder at finding the courts in favor of 
 "free competition." As interpreters of law and custom, they 
 are apt to be extremely conservative, giving great weight to 
 traditions of the past, and in the question of competition this 
 means, of course, an attitude of opposition to all restraint 
 thereof. 
 
 The really significant present opinion is that of the com- 
 mission. This body has no bias of personal gain, and no 
 reason to accept what has been or what is, as of necessity 
 right. A group of able and intellectual men, devoting their 
 whole attention to railway questions, they have at length 
 decided after ten years of experience under the Interstate 
 Commerce Act, — a ten years in which they have been rather 
 non-commit,tal on the question, — that legalization of pooling is 
 on the whole to be desired. Whatever tangible results this 
 expression of opinion may eventually have, certainly emanating 
 from so impartial and capable a source, it should be given 
 great weight. Upon the question of pooling, we may say of 
 
164 Railroad Co-operation in the United States. 
 
 the commission, as it has said of the railroads, "certainly .they 
 are in a position to know." 
 
 On the whole, then, we find to-day that the courts, on the 
 one hand, and the railroads, supported by the commission, on 
 the other, differ almost as radically in their views upon the 
 question of co-operation to restrain competition, as did ever 
 public and carrier in Granger days. Of course, there is no 
 longer the same deep and widespread interest in the matter, 
 nor is there the old bitterness of feeling between the dispu- 
 tants, but the problem itself remains and is now as heretofore 
 a fruitful source for argument. 
 
 III. Railway Co-operation to Unify Freight Classification. 
 
 § 1. Since making brief mention of co-operation between 
 connecting lines at the outset of the present essay, our atten- 
 tion has been confined to the rate agreements and pooling 
 contracts of competing carriers. We have looked at the 
 motives first leading the railroads to favor, and the public to 
 oppose, restraint of interline competition ; we have noted 
 decade by decade the different sources and the varying inten- 
 sity of the feeling for and against the pool and rate-agreement; 
 and we have observed the actual status of these co-operative 
 efforts in each period. In other words, we have traced the 
 evolution of the one great problem in the field of railway 
 co-operation. It would be a mistake, however, to suppose 
 from our almost exclusive attention thereto, that the adjust- 
 ment of competitive charges and the pooling of traffic or of 
 money receipts were the only immediate subjects of joint 
 railway endeavor. Publicity of tariff schedules ; regulations 
 for the examination of books and accounts, and for the 
 weighing and inspection of goods shipped ; rules as to the 
 discharge of employees found guilty of giving special rates, 
 and concerning the degree of responsibility resting upon each 
 
Co-operation to Unify Freight Classification. 165 
 
 road for such action on the part of its agents — these and 
 countless other allied details were arranged by interline 
 co-operation. It must be evident that such ends were merely 
 contributory to the effectiveness of a pool or rate agreement., 
 and would not, in and of themselves, have had any signifi- 
 cance — perhaps not even any existence. Not so, one other 
 phase of railway co-operation, for while unquestionably con- 
 tributing alike to the promotion of through traffic and to the 
 effectiveness of contracts in restraint of competition, the 
 development of railway freight classification has also proven 
 of independent merit. Moreover, while never really a " prob- 
 lem," — the answer being almost self-evident, — it has certainly, 
 during the last ten years, been a question of considerable 
 import. Before leaving the evolutional phase of our subject, 
 therefore, it may be well briefly to note the development of 
 freight classification in the United States. 
 
 § 2. In our early railway history, it was quickly realized 
 that a separate rate for each commodity carried would not 
 only render impossible any scientific principles of tariff-making, 
 but would result in the formation of a rate-sheet so unwieldy 
 as to be of no practical utility. It was seen, moreover, that 
 many articles are not materially different in value, bulk, method 
 of shipment or the other points of distinction that would 
 necessitate a dissimilarity in transportation charges. It was 
 found both practicable and expedient, therefore, to group 
 together certain kinds of freight as subject to a common 
 charge. By this means rate-making was greatly facilitated 
 and the published schedule became at least a less difficult 
 puzzle than before. Freight classifications were quickly 
 adopted, therefore, on all our railroads. 
 
 Prior to the first beginnings of railway co-operation, each 
 road was perfectly independent of all others, and naturally 
 adopted a classification wholly its own, so that until the middle 
 of the century there were practically as many different freight 
 classifications as there were roads in the country. When, 
 
1 66 Railroad Co-operation in the United States. 
 
 however, it became necessary to establish rates by joint agree- 
 ment, — at first, with reference to through shipments, but later, 
 for competitive traffic also, — simplicity and economy made 
 necessary a common basis for these agreed tariffs. With the 
 spread of co-operative rate-making among our railroads, 
 therefore, freight classifications were rapidly unified, until by 
 1886 their number had been reduced to about fifty. 
 
 Up to this time, the movement to unification had been prac- 
 tically on the sole initiative of the railroads interested. Indeed, 
 for many years after classification was well under way, the 
 public had paid little or no attention either to classification or 
 to the actual rate-sheets in vogue. Every shipper had made 
 his own terms with the carrier, and naturally, therefore, freight 
 classifications had been commonly regarded as mere guides 
 for soliciting agents, and not as documents of any importance 
 to the community at large. The question of classification was 
 looked upon as one of interest to the railroads alone, a mere 
 technical matter, a detail of administration that the carriers 
 might settle as they pleased, the results in nowise concerning 
 the shipper. 
 
 By the middle eighties, however, the public had abandoned 
 their old attitude of indifference. This was a time of strong 
 popular antagonism to all forms of discrimination. The estab- 
 lishment of a clear and simple rate-sheet to which carrier and 
 shipper should alike conform, was felt to be extremely desir- 
 able in the field of railway reform. Moreover, the public had 
 come to see that neither clearness nor simplicity was possible 
 in the rate for a given long-distance shipment that happened 
 to pass over roads with differing bases of classification. As 
 an inseparable part of the movement against discrimination, 
 therefore, there was a strong feeling that freight classification 
 ought to be unified throughout the United States. As the 
 commission says of the fifty-odd classifications in force in 
 1886: "Even these comparatively few had given rise to 
 
Co-operation to Unify Freight Classification. 167 
 
 serious and almost universal complaints, and the Senate (' Cul- 
 lom ') Committee reported that shippers were unanimously in 
 favor of a single classification for the whole country." 
 
 Our carriers, fully recognizing that enforcement of the Inter- 
 state Commerce Act would require a greater unification than 
 was then existent, and fearing that in the absence of action 
 on their own volition there was serious danger of legislative 
 interference in the matter, had already begun taking steps to 
 reduce the number of different classifications. In view of this 
 voluntary activity, the committee did not recommend any 
 definite enactment on the subject, and consequently, the Inter- 
 state Commerce Act makes no reference to freight classifica- 
 tions other than to order their publication under direction of 
 the commission. 
 
 Nor did any legislative spur seem necessary. The carriers 
 appeared to be both willing and able to adopt a uniform classi- 
 fication and advanced so rapidly toward their goal that even 
 before the passage of the act there were left but three great 
 classifications in the whole country: (1) The "Official," cov- 
 ering on the whole the Trunk Line region — the territory north 
 of the Ohio and Potomac Rivers and from the Atlantic Coast 
 to a line connecting Chicago, St. Louis and Cairo; (2) the 
 "Western," in vogue throughout the territory west of the 
 Mississippi; and (3) the "Southern," used by lines south of 
 the Ohio and Potomac and east of the Mississippi. It is true 
 there were still a few others in 1887, but they were of such 
 little comparative importance that it is no practical error to 
 name the above great classifications as at this time covering 
 the entire United States. 
 
 The public and the commission continuing to urge further 
 unification, a serious effort was made within the year to satisfy 
 this demand by consolidating the Official and the Western classi- 
 fications. The attempt was unsuccessful, but not through any 
 fault of the carriers concerned. Indeed, there seemed every 
 
1 68 Railroad Co-operation in the United States. 
 
 promise that the union would take place, when a sudden out- 
 break of violent rate warfare led to the breaking off of negotia- 
 tions. 
 
 In 1888 another attempt at consolidation was made, and 
 this time the endeavor was to unite the entire country under a 
 single freight classification. Congress had not yet gotten over 
 the " momentum " of interference in railway matters, and in 
 recognition of the undoubted need of a single basis for rate- 
 making, the House of Representatives passed a resolution 
 calling upon the commission to establish a uniform classifica- 
 tion before January 1, 1889. The Senate, however, upon 
 representation of the commission that the time set was too 
 short to allow of their considering in full a subject so compli- 
 cated as freight classification, and that the railroads seemed 
 willing to undertake the matter on their own volition, took no 
 action. It was a close call though, and the carriers, realizing 
 that there was very imminent danger of a single classification 
 prescribed by law, at once took steps to establish one of their 
 own framing. Representatives of the various associations held 
 a convention in Chicago, and after several months of careful 
 deliberation at length worked out a scheme of uniformity. 
 
 Unfortunately this never went into effect, for it was at once 
 rejected by the Eastern trunk lines. The failure to adopt the 
 plan recommended by the convention does not indicate, how- 
 ever, that the idea of a single classification was at this time 
 really unpalatable to the carriers, for the objections of the 
 trunk lines were directed, not against the principle of unifica- 
 tion or even against the actual classification suggested, but 
 wholly against the proposed machinery for its revision. It 
 appears that this consisted of a board of twenty-two members, 
 only six of whom were to represent the interests of the roads 
 in the " official " territory. Expenses, on the other hand, 
 were to be levied on a basis of tonnage. Now, the Eastern 
 trunk lines claimed to carry three-fourths of all interstate 
 traffic at this time, and would, therefore, have had to pay the 
 
Co-operation to Unify Freight Classification. 169 
 
 greater part of total expenses while represented by less than 
 one-third of the board of management. Objecting to any such 
 arrangement, the " official " lines withdrew, and thus the first 
 and only serious effort on the part of our carriers to secure a 
 uniform classification fell through at the last minute. 
 
 Since 1889 there has not even been an attempt at voluntary 
 unification, nor has Congress taken any steps to further the 
 adoption of a single classification. The latter fact is to be 
 explained, I think, by the decline of direct popular interest in 
 railroad problems and by the resultant fact that Congress has. 
 gotten out of* the way of legislating upon railway matters. 
 Certainly the need of uniform classification has not lessened. 
 It is, of course, probably true that discriminations have become 
 much less numerous within the past ten years, owing to the 
 growing stability of our railway conditions, to the good offices 
 of our commission, to the prevalence of a better spirit among 
 our carriers, and to other causes of a like nature. Whether 
 this be so or not, however, there is unquestionably much 
 room for further improvement. Discriminations are still 
 abundant and continue to be a great source of dissatisfaction 
 to shipper and to carrier. Nor is it any more apparent to-day 
 than in 1889 that we can ever secure complete freedom from 
 this abuse without first establishing a single basis for rate- 
 making. Unification is, what it must ever be until accom- 
 plished, a pressing need of the day. As the commission says : 
 " That the present diversity results in many discriminations 
 and losses can not be doubted, and there is no single step that 
 may be taken by the carriers which will go so far to secure the 
 establishment of stable rates as the adoption of a single and 
 comparatively fixed classification. It would take out of the 
 hands of importunate shippers and irresponsible railroad agents 
 the power of interfering with rates, as they now too frequently 
 do." 
 
 On the whole then, freight classification has been an impor- 
 tant feature of co-operative endeavor. The move toward 
 
170 Railroad Co-operation in the United States. 
 
 uniformity on the basis of rate-making, — begun to meet a 
 purely administrative need in framing through freight charges, 
 fostered later by the extension of co-operative rate-making to 
 cover competitive traffic, and, after discrimination became the 
 popular bugbear, vigorously supported, or rather urged, by 
 public opinion, — had by 1887 far outgrown the other fields of 
 co-operation. In that year, with many different rate-agree- 
 ments, pools and associations throughout the United States, 
 the entire country was covered by but three freight classifica- 
 tions. Unfortunately, the number has not subsequently been 
 reduced although there has been, and is, unanimity of opinion 
 in favor of further consolidation. A single classification is 
 bound to come, however, the only question being how and 
 when the much needed reform will be accomplished. 
 
 This query brings us again to the " future " of our subject, 
 and having now completed our sketch of past evolution in the 
 three great fields of railway co-operation that have developed 
 in the United States, let us briefly examine into present wants 
 and their satisfaction. In other words, let us ask ourselves 
 for each of the leading phases of co-operation, the two ques- 
 tions : (1) What ought to be ? (2) How can we best accom- 
 plish it ? 
 
PART II. 
 
 The Present Needs of Railway Co-operation. 
 
 I. Through Routing and Through Rating. 
 
 § I . At the outset of the present essay, we discussed a 
 form of railway coactivity which was the first to develop in 
 the United States — namely, that of connecting lines to facili- 
 tate through traffic. We saw that throughout the history of 
 such co-operation, there has been practical unanimity of 
 opinion as to what is desirable. Shipper and carrier have 
 agreed that every effort to promote the smooth workings of 
 through traffic is a decided benefit alike to the public and to 
 the railroads. The end to be sought, therefore, is such 
 complete co-operation of the companies concerned as will 
 result in providing all reasonable facilities for through routing 
 and through rating over connecting lines. Neither cost nor 
 delay nor inconvenience of any sort should be materially 
 greater in shipping a consignment of freight over a composite 
 route than in sending the same traffic a like distance on a single 
 road. 
 
 § 2. We are at present far from realizing this ideal, owing 
 to the fact that our carriers in many cases refuse to co-operate 
 with connecting lines. This statement may seem at first sight 
 to contradict the assertion that our railroads desire to promote 
 such joint activity. The contradiction is only apparent, how- 
 ever. The co-operation of connecting lines had always been, 
 in and of itself, desirable, and as we have seen it is only when 
 competition is a disturbing factor and seems to offer an even 
 more alluring alternative, that there is any hesitation to inter- 
 change traffic on the most favorable terms. While there are 
 exceptions to this general rule, — as notably in the South, where 
 through routes are by common practice established only for 
 
 (171) 
 
172 Railroad Co-operation in the United States. 
 
 certain points, and intermediate stations in receiving shipments 
 are burdened by having to pay the through rate up to the 
 nearest of these basic points plus the local charge from there 
 on, — it remains true, upon the whole, that the situation with 
 reference to connecting lines would be satisfactory were they 
 never competitors. 
 
 § 3. Whatever its course, however, the lack of all-sufficient 
 through routing and through rating is unquestioned, and it 
 seems in every way expedient to make co-operation to that 
 end compulsory. The slight reduction in profits that might 
 thereby result for carriers not at present deeming a through 
 rate to their advantage, would in most cases be a mere loss of 
 monopoly earnings (note the case of the N. Y., N. H. & H. 
 R.R., page 1 1 1), and would at any rate be many-fold outweighed 
 by the gain to other roads and to the public at large. The 
 change would undoubtedly be for the welfare of the commu- 
 nity as a whole, and there is really no legitimate, vested 
 interest to stand in the way of carrying out this needed 
 reform. 
 
 Nor would it in practice be a difficult task. The Interstate 
 Commerce Act requires that carriers " afford all reasonable, 
 proper and equal facilities for the interchange of traffic between 
 their several lines, and for receiving, forwarding and delivering 
 of passengers and property to and from their several lines and 
 those connected therewith." Moreover, our commission has 
 already decided that the word "facilities" here refers to 
 through rates as well as to through routes. It is only neces- 
 sary, therefore, to take the clause as it stands and to follow 
 the example of England with respect to a similar provision 
 of the Act of 1854, by providing machinery for its enforce- 
 ment. An amendment to the present law, giving the com- 
 mission power, upon complaint of a carrier or shipper, to 
 enforce the above quoted clause under suitable penalty, when 
 satisfied by investigation that its purposes are being violated 
 — such an amendment would practically eliminate unjust 
 
Uniform Classification of Freight. 173 
 
 refusals of connecting lines to co-operate and would, thereby,, 
 meet all present needs in this phase of railway coactivity. 
 
 II. Uniform Classification of Freight. 
 
 § 1. In the question of freight classification, the end to be 
 sought is no less obvious than in the matter of through routing 
 and through rating. There is, as we have seen, practical 
 unanimity of opinion in favor of a single basis for rate-making. 
 No one to-day questions the desirability of a uniform classifi- 
 cation for the whole country, and it only remains to utilize the 
 most expedient means to that end. 
 
 § 2. In view of the fact that since 1887 our railroads have 
 made no serious efforts to consolidate existing classifications, 
 the commission began in 1891 to abandon their former advo- 
 cacy of a laissez faire attitude on the part of Congress and 
 have since that date steadily favored a reverse policy. In 
 their 1897 report, it is urged upon Congress that the railroads 
 be required within a given time ("not longer than one year") 
 to adopt a uniform classification for the whole United States ; 
 that a failure to comply be sufficient warrant for the commis- 
 sion to prescribe a classification of its own under suitable 
 penalty to insure its adoption ; and that, in either case, the 
 commission have full power at any time to amend said classi- 
 fication in such degree as may upon investigation appear 
 "reasonable and necessary." 
 
 The plan thus suggested is so evidently a satisfactory solu- 
 tion of the difficulty that it is scarce necessary to say anything 
 in its defence. Obviously it is desirable that we secure the 
 needed consolidation as soon as possible. Again, we must 
 not forget that our carriers have far more than Congress, the 
 commission, or any other available body, the knowledge and 
 experience prerequisite in framing a satisfactory classification. 
 It is evidently advisable, therefore, that the adjustment and 
 consolidation of existing classifications be undertaken in the 
 
174 Railroad Co-operation in the United States. 
 
 first instance by the railroads in co-operation, and that resort 
 be had to another source for the desired reform only in case 
 of the evident unwillingness or inability of our companies 
 themselves to accomplish the task within a reasonable time 
 limit. Furthermore, a scheme adopted in even the most 
 favorable way would probably contain many errors of detail, 
 and to insure remedy of such as might in practice come to 
 work injustice, it is certainly well that the commission should 
 have amendatory power. Now all these features, — the cer- 
 tainty of a single classification in the near future, every oppor- 
 tunity for railroad initiative, and effective control by the 
 commission, — are insured by the passage of legislation as 
 proposed by that body. Obviously, therefore, the plan sug- 
 gested is a desirable remedy for the present lack of a uniform 
 classification. 
 
 III. Co-operation in Restraint of Rate Competition. 
 
 § I. If now we turn to the third great field of railway co- 
 operation, that involving restraint of competition, we encounter 
 at the outset a difficulty not present in the other two, for we 
 find, instead of unanimity, the greatest diversity of opinion as 
 to what is really desirable. There is nothing in the attitude 
 of the community or any part thereof upon which we may 
 base an a priori conclusion in this matter. The railroads, the 
 commission, the courts, and the public at large, — so far as these 
 groups may be said each to have a distinctive view, — express 
 the most varied degrees of favor or opposition toward restraint 
 of interline competition. True, the railroads and the commis- 
 sion, the two groups best qualified to pass judgment on the 
 question, are agreed in saying that absolutely unchecked 
 rivalry is not desirable. Our carriers at least might put forth 
 such a claim, however, and yet know in their hearts (if " soul- 
 less corporations " have such organs) that the welfare of the 
 
Co-operation in Restraint of Rate Competition. 175 
 
 community demanded "free" railway competition. Self- 
 interest being a strong factor in the case, their expressions of 
 opinion carry no necessary conviction. On the other hand, 
 there is no presumption that the courts and the people are 
 right. They seem on the whole to agree in opposing a 
 restraint of competition, but then, judicial decision is based so 
 largely on precedent, and popular opinion on unreasoning 
 acceptance of traditions, — both are so apt to move in grooves, — 
 that we cannot accept either as of certainty correct. It is 
 evident, then, that in taking up the question of co-operation 
 to restrain competition, we must, at the outset, cast aside all 
 prejudice, precedent and self-interest, and endeavor to decide 
 the problem impartially upon its own merits. 
 
 The task is not an easy one, and it might even at first sight 
 appear that the conclusion must after all be predominantly a 
 matter of personal opinion. This is not so true as it would 
 seem to be, however. A mere presentation of the facts in the 
 case will, I think, be sufficient to lead inevitably to one con- 
 clusion. The differences of opinion that to-day exist on the 
 advisability of checking railway competition, are, after all, 
 differences that arise from greater or less ignorance on the 
 question at issue. If every one were wholly free from per- 
 sonal bias and in full possession of all the facts bearing upon 
 the matter, we should find about the same harmony of opinion 
 as in the other great questions of railway co-operation. What 
 that opinion would be will appear as we proceed. 
 
 The first question to be answered concerns the merits of 
 railway competition. We must, at the outset, discover 
 whether or not interline rivalry is on the whole productive of 
 satisfactory results. Do the carriers, the shippers, the public 
 at large, any one or more of these classes, find their best 
 interests under free railway competition ? 
 
 § 2. Concerning the railroads themselves, there can be little 
 doubt as to the answer. Rate warfare is, for them, beyond 
 question destructive. In every industry, of course, profits 
 
176 Railroad Co-operation in the United States. 
 
 are greatest when, other things being equal, active rivalry is 
 least intense. Competition among producers has always a 
 tendency to diminish net gains by increasing cost and by 
 lowering the market price. The latter, however, cannot in 
 most industries remain permanently below the cost of produc- 
 tion for the producer least favorably situated. If the return 
 does not at any given time reimburse this " marginal " man, 
 he will cease to produce, and, the supply being thus lessened, 
 prices will tend to rise. If, on the other hand, they be much 
 above the cost of production under the least favorable condi- 
 tions, the chance of profit will tempt new competitors into the 
 field until the supply is so increased that, to be disposed of in its 
 entirety, the commodity must be sold for a lower return. 
 Prices under free competition tend, therefore, ever to an 
 equitable adjustment. They will be not too low to at least 
 reimburse all producers, and not so high as to admit of being 
 called extortionate. 
 
 While this theory is pretty generally applicable to other in- 
 dustries, the fact remains that for our carriers it does not hold 
 true. An investment in a railroad is doubly permanent in that 
 railway capital can neither be withdrawn from the realm of 
 industry nor utilized for other than transportation purposes. 
 When, therefore, competition reduces charges to a point 
 unprofitable for the least favored company, that company can- 
 not retire or utilize its enormous "plant" save to carry pas- 
 sengers and freight. Indeed, owing to the nature of railway 
 expenses, a road must continue to perform its function at 
 losing rates, for to cease operations would involve even greater 
 loss. Fixed charges and the cost of keeping tracks and 
 rolling-stock in repair, together constitute by far the greater 
 part of railway expenses. Mere cost of operation is a com- 
 paratively unimportant item. This latter, however, is the only 
 expense that ceases when a road lies idle. Fixed charges and 
 repairs go on, for a road "rusts out as quickly as it wears 
 out," and interest on bonded indebtedness must be met under 
 
Co-operation in Restraint of Rate Competition. 177 
 
 any circumstances. It can never "pay" a company, there- 
 fore, to cease operations while there is a chance of clearing 
 more than running expenses. The surplus, however small, is 
 just so much toward meeting fixed charges and repairs, 
 obligations that would otherwise be a total loss. 
 
 It is obvious, then, that an interline rate-war means a very 
 different thing from competition in most industries. Of course, 
 rivalry tends in the one case, as in the other, toward such a 
 reduction of prices that the marginal producer finds it just 
 barely to his interests to continue operations. ' While in the 
 average business, however, that point corresponds to the point 
 of equality between total receipts and total expenditures, and 
 the least favored producer, while a man of "no profits" is 
 also a man of "no losses," the case is very different for our 
 railroads. Competition among our carriers will continue to 
 lower charges long after they have in the aggregate ceased to 
 meet total expenses, for, as we have seen, the peculiar condi- 
 tions of railway investment make traffic at " losing " rates 
 preferable to no traffic at all. While, therefore, it is perhaps 
 tautological to speak of " destructive competition," — for all 
 competition is to some extent destructive, — the railroads find 
 this effect so much less a mere potentiality and so much more 
 a grave reality than do other industries, that the phrase is not 
 without its value. Applied to interline rivalry, it serves a 
 useful purpose by emphasizing the most marked feature 
 thereof, for unquestionably railway competition is in the very 
 fullest sense of the word "destructive." 
 
 This is not simply a theory. It is, on the contrary, a fact 
 very much in evidence under present railway conditions. As 
 it was said in 1896 by an eminent authority on railway 
 matters, — the Honorable Martin A. Knapp, — " Making all 
 allowance for dishonest construction, excessive capitalization 
 and wasteful methods of operation, it is yet startling to learn 
 that 60 per cent of our railways never paid a dividend on stock 
 and that more than one-fourth of our mileage has recently 
 
178 Railroad Co-operation in the United States. 
 
 been in the hands of a receiver through inability to meet 
 interest on mortgages." Certainly, we must agree that such 
 a condition of affairs is "not reconcilable with a just and 
 defensible theory of railway operations." 
 
 § 3. Not only is unrestrained competition an evil for the 
 carriers, however, but, from the very fact of annihilating rail- 
 way profits, is also a blow at public welfare. Aside even from 
 being a direct loss to the not inconsiderable portion of our 
 populace financially interested in railway projects, a rate war, 
 by rendering transportation companies less desirable as a 
 future form of investment, inflicts a very real injury upon the 
 community at large. Our railroads proving unprofitable, 
 capital is led to seek other channels, and railway growth and 
 development are checked. New lines will not be built except 
 for speculative purposes, and those already in operation will 
 be run at a lower standard of safety and general excellence. 
 How quickly and how seriously such a result would react 
 against public welfare needs no proof in our present-day 
 knowledge of dependence upon an efficient transportation 
 service. 
 
 The convenience of the public is further sacrificed by that 
 lack of railway harmony often a contributing cause, generally 
 a result, and always an accompanying feature of active interline 
 rivalry. As the Honorable Thomas M. Cooley expressed it r 
 " Railroad companies cannot be accommodating to the full 
 extent of the public needs unless they are accommodating to 
 each other ; for a very large proportion of those who have 
 occasion to use their facilities, desire to pass in person or with 
 their property, from one road to another, and wish to do this, 
 without unnecessary cost of transfer or unnecessary delay." 
 In other words, to repeat a fact already noted, it is almost 
 wholly due to more or less direct rivalry between the carriers 
 concerned, that through routing and through rating over con- 
 necting lines, are at present in an unsatisfactory condition. 
 Indeed, not only this phase of joint effort, but every other 
 
Co-operation in Restraint of Rate Competition. 179 
 
 form of railway co-operation is less fully developed than 
 would be the case were competition restrained or wholly 
 eliminated. Warfare, save in the lessons it teaches, is not 
 conducive to peace ; and strife does not promote good feeling. 
 How then can we look for the most satisfactory co-working 
 of independent railroads in any field so long as active rate 
 contests continue ? We may, of course, make compulsory a 
 uniform classification, through routing and through rating and 
 other desirable features of railway co-operation ; but after they 
 are established, competition still remains an element of 
 discord to prevent their attaining the best possible results. 
 
 Far more serious than a lack of harmony between our rail- 
 roads, — desirable as it is that the unity of our transportation 
 system receive conscious recognition in practice as in theory, — 
 are the evils of discrimination and instability in rates, and of 
 these, railway competition is the prime cause. Violent fluc- 
 tuations in charges are indeed less the result than the very 
 essence of interline warfare. Active competition expresses 
 itself in a changing rate-sheet. " Cuts " are the weapons of the 
 conflict, while even the briefest cessation of hostilities is nor- 
 mally marked by a rise in tariffs. An unstable schedule of 
 charges is, therefore, inseparable from railway competition, and 
 is unquestionably a serious evil. So sharp is competition 
 among producers to-day that their profits depend on a 
 very narrow margin, and net gain or net loss is often deter- 
 mined by a slight change in transportation charges. What we 
 normally call "legitimate" industry is really made a pure 
 speculation. Circumstances over which a manufacturer has 
 no control may double his profits or annihilate them. On a 
 calculation of his productive capacity for a month or more, he 
 orders a great bulk of raw materials from a distance and pays a 
 given rate to have them transported to his establishment. The 
 next week, by a sudden cut in railway tariffs, a rival concern 
 is enabled to lay in an exactly similar stock at lower cost. 
 The difference will probably be such that a loss is certain for 
 
180 Railroad Co-operation in the United States. 
 
 the first producer, no amount of industry or ability being able 
 to counterbalance his competitor's chance advantage in cost of 
 material. Certainly there is just as much real "discrimina- 
 tion " in this instability of rates as could be found in contem- 
 poraneous differences to different shippers, the intention only 
 being wanting to make the cases parallel. There can be no 
 question either but what rate warfare, with its attendant fluc- 
 tuations in charges, greatly emphasizes the speculative features 
 of industry in general and is, therefore, a serious evil for the 
 whole community. 
 
 Discriminations, properly so called, special rates to certain 
 shippers and to particular localities, lead to abuses long recog- 
 nized and almost universally condemned. The American 
 ideal is that every man shall have equal industrial opportunities, 
 but evidently, so long as the great overland highway of the 
 modern world does not levy its tolls with the strictest impar- 
 tiality, the desired equality is impossible. The adjustment of 
 rate-sheets on a basis of special contract with each shipper, is 
 no less destructive of fair competition among producers and 
 among consumers than would be a like method in the appor- 
 tioning of government taxes on the materials and products of 
 industry. The result in either case is to foster industrial 
 trusts and monopolies, and the abuse of discrimination is 
 scarcely greater than would be a lack of uniformity in taxa- 
 tion. Indeed, Mr. Knapp is led to say that " no alliance of 
 capital, no aggregate of productive forces, would prove of real 
 or at least of permanent disadvantage if rigidly subjected to 
 just and impartial charges for public transportation." 
 
 This great evil of discrimination has been an inevitable con- 
 sequence of railway competition. A reduction in rates is not 
 the result of philanthropic motives, but is made because a 
 carrier hopes thereby either immediately or ultimately to pro- 
 tect or increase its aggregate receipts, and these depend much 
 more upon the amount of freight hauled than upon the unit 
 charge for its transportation. A struggle for traffic tends, 
 
Co-operation in Restraint of Rate Competition. 181 
 
 therefore, very greatly to lessen the charges thereon, and as 
 the intensity of the struggle varies, so will the extent of the 
 reduction. Thus it is that at common centres there always 
 prevail relatively lower rates than at non-competitive points, 
 and that big shippers, whose traffic means a great deal and 
 whose patronage is eagerly striven for, can obtain favors not 
 accorded to small dealers. Discriminations against the small 
 shipper and against the locality with but one available rail- 
 road are natural results of unchecked rivalry among our 
 carriers. 
 
 Furthermore, despite the most stringent legislative prohibi- 
 tion, these abuses cannot be eliminated while competition 
 remains unchecked. Experience under the Interstate Com- 
 merce Act has clearly demonstrated the fact that while the 
 law can compel the publication of tariffs free from any sugges- 
 tion of discrimination, this evil will yet continue ; for rates will 
 in secret depart from the printed schedule and vary, as before, 
 in favor of the common centre and the large shipper. The 
 fact is not surprising either, when we remember that the origi- 
 nal motives to discrimination are in nowise lessened and that a 
 legal prohibition is really not enforceable. As the commission 
 says, while they " have no doubt that at the present time very 
 large quantities of competitive traffic are carried at other than 
 published rates," the facts are " not of a character to secure a 
 legal conviction." Evidently the railroads have but to exer- 
 cise ordinary care to grant their favors only where self-interest 
 will insure the silence of the recipient, — that is, to show favor 
 only to large shippers, — and there is no practical means to 
 make good a prohibitory law. Congress might pass statute 
 after statute on the question, but none would be effective 
 until attack was made on the very root of the evil — until inter- 
 line rivalry was checked. If this were done sufficiently to 
 free our carriers from the necessity of yielding to the demands 
 of large shippers, then we might hope that secret as well as 
 open discriminations would be abolished. 
 
1 82 Railroad Co-operation in the United States. 
 
 On the whole, we have seen that there are many evils 
 arising from unrestrained railway competition. It is destruc- 
 tive, not only of railway profits, but of interline harmony and 
 of stable and uniform rates as well. The companies them- 
 selves, the shippers, and the entire community are in greater 
 or less degree sufferers from rate warfare. The finances of 
 the railroads are thereby depleted ; shippers are subjected to 
 the injustice and loss associated with a regime of fluctuating 
 charges and secret departure from published rates ; while 
 throughout the community, prices are unsettled by the intro- 
 duction of a speculative element, an element of chance, into 
 even the most legitimate industries. 
 
 § 4. With such results from direct railway competition in 
 rate-making, its continuance without restraint is justified only 
 if there are greater evils to be feared from a cessation of 
 active rivalry than from its continuance ; and whether this 
 be so or not, is largely dependent upon the proposed form 
 of restraint. 
 
 Government management, a remedy urged by some, seems 
 utterly impracticable. Such a scheme is not adapted to the 
 spirit of our institutions, and would in practice yield no satis- 
 factory results. In our present lack of an able administrative 
 system, Federal control would not only involve a great 
 increase in the cost of management, but would make it 
 doubtful whether, at any cost, present standards of efficiency 
 in railway service could be maintained. Besides, as Mr. 
 Aldace F. Walker says : " No greater injury could befall our 
 republican institutions than the establishment of a branch of 
 the public service which would throw open to the field of 
 politics the railway service of the land." 
 
 Eliminating, therefore, all question of government control, 
 as at best a doubtful improvement over the evils of rate 
 warfare, we find that private management offers two possible 
 restraints of railway competition, namely, co-operation and 
 consolidation. Against both of these, there is raised the 
 
Co-operation in Restraint of Rate Competition. 183 
 
 objection that to check interline rivalry under private manage- 
 ment is to insure exorbitant " monopoly " charges. Were it 
 not for this fear however, co-operation would probably be 
 acceptable to the great mass of its present opponents. With 
 consolidation, the case is different. In opposition to this 
 remedy, there are many charges aside from that of causing 
 extortion. The concentration of capital involved, the increased 
 power, political and social, that would be placed in the hands 
 of a small and decreasing number of men ; the fact that our 
 railroads are themselves averse to the scheme, each being 
 unwilling to yield its separate existence by absorption into 
 another organization — these and many additional objections 
 are, with some truth, urged against the consolidation of our 
 railroads to cure competitive ills. The remedy might be 
 worse than the disease. 
 
 It is not our province, however, to discuss the relative 
 merits of consolidation and unchecked rate warfare, but it is 
 important to note the fact that if a restraint upon competition 
 is desirable, it is most desirable in the form of railway 
 co-operation, and within that field a pooling contract is of 
 course preferable. Our problem really narrows down, there- 
 fore, to the question of whether or not pooling will result in 
 extortion and thereby lead to an abuse generally considered 
 more serious than the aggregate of competitive evils. \l 
 exorbitant charges are a certain outcome of the pool, then no 
 restraint of competition is wholly satisfactory; but if the 
 reverse assumption be true, then, having established pooling 
 as harmless, the relative merits of less desirable restraints are 
 immaterial. It only remains, therefore, to discover the 
 probable danger in an agreed division of traffic or earnings. 
 Is it true that such an arrangement will break down the one 
 existing barrier against extortion, and so expose the commu- 
 nity to a flood of excessive rates ? 
 
 § 5. An affirmative answer is often made to this query, on 
 the assumption that a railway pooling contract will wholly 
 
184 Railroad Co-operation in the United States. 
 
 eliminate competition as a restraint upon the carriers con- 
 cerned. Even were such the case, the dire results supposed 
 to follow upon this state of affairs are greatly exaggerated. 
 Even if our railroads had autocratic power over rates, it is at 
 least questionable if they would find the point of maximum 
 profits in a really exorbitant charge. Railway welfare would 
 more probably lie on the line of building up industry by fix- 
 ing aggregate rates at the lowest point compatible with a fair 
 return on invested capital. 
 
 Whatever be true of a complete annihilation of railway 
 competition, however, the pooling contract could not thereby 
 be proven undesirable ; for the fact remains that a pool does 
 not destroy all active rivalry. When two or more carriers 
 agree as to the proportion of competitive traffic or the per- 
 centage of total earnings that shall be assigned to each, they 
 do so on the basis of the division that would be made by and 
 under the workings of free competition. Now, it is evident 
 that our unstable railway conditions would lead the carriers to 
 make rather frequent adjustments of the agreed apportionment, 
 so as to keep it in close conformity to the relativity that would 
 exist in the presence of unrestrained rivalry. In view of these 
 periodic readjustments, each company will, of course, strive to 
 show that the existing arrangement is not equitable, and that, 
 on the basis of its facilities and management, it ought to have 
 a larger share of the total business. The fact that a road has 
 entered into a pool with its rivals, therefore, does not destroy 
 the motives to attract an increased tonnage. Competition in 
 rates may be eliminated, but competition will continue in ser- 
 vice. As Judge Cooley says : " Rivalry for public favor will go 
 on as before, though it may be expected that some of the 
 features of rivalry, which, when it is hostile, are peculiarly 
 injurious to the public, will be eliminated by the agreement to 
 work in harmony." 
 
 It may be urged with considerable truth, however, that the 
 public is to-day in greater need of lower rates than of a more 
 
Co-operation in Restraint of Rate Competition. 185 
 
 efficient railway service, and that the fact of continued rivalry in 
 the latter feature is not a sufficient compensation for the loss of 
 competition in the former. The argument is a good one, but 
 it has a great fault — it does not apply to the point at issue. 
 There is really no question of "compensation," for the simple 
 reason that pooling will not remove the element of competi- 
 tion even from the field of rate-making. The phase of rivalry 
 that we are apt to associate most clearly with rate warfare, the 
 rivalry of parallel lines, will indeed be checked, but there will 
 remain a species of competition no less potent in its effects. A 
 reasonable maximum of tariffs is not dependent solely upon 
 direct competition, and the undue prominence in past attached 
 thereto, has been the result of its " marginal " effects. Being 
 the last factor tending to reduce rates, direct competition has 
 attracted chief attention, so much so indeed, that in its absence 
 the public is led to fear a "monopoly" with its attendant 
 extortion. 
 
 In reality, however, exorbitant charges would be prevented 
 by forms of competition that are not directly a phase of interline 
 rivalry, and that are, for that very reason, utterly beyond rail- 
 way control. With the cessation of rate wars between paral- 
 lel lines, tariffs would indeed rise, but not, as alleged, without 
 other limit than that set by railway "greed." The influence 
 of direct competition once removed, the other checks to ex- 
 tortion would become " marginal " in their effects. The possi- 
 ble increase in rates would depend, therefore, wholly upon the 
 difference between the old and the new margin, and, as a matter 
 of opinion, I venture to assert that the chance of " extortion " 
 would be far less than the danger of continued " destruction." 
 In other words, the new limit would more likely be too low 
 than too high. It would tend rather to leave undue checks 
 upon railway prosperity than to overburden the shipper with 
 unreasonable tolls. 
 
 In the absence of direct competition in rates, charges will 
 be controlled by the competition of markets and of industrial 
 
1 86 Railroad Co-operation in the United States. 
 
 regions. Take for instance, the familiar example to be found 
 in the rivalry of New York and New Orleans as points of ex- 
 port for Western wheat. Every new facility for handling grain 
 at New Orleans, not followed by a corresponding improvement 
 at New York, is just so much inducement for wheat to leave 
 the country by the former rather than by the latter gateway. 
 If, therefore, the railroads from the Northwest to New York 
 would not see their former traffic diverted, they must reduce 
 their rates ; and if, on the other hand, the roads to New 
 Orleans would secure the natural advantages of their shorter 
 haul, they must adopt a similar plan. Thus the competition 
 of two " markets," — of an Atlantic and a Gulf port, — will 
 result in a species of railway competition that, if less destruc- 
 tive than a direct rate war, will at least be equally effective in 
 preventing extortion. Aside from the case quoted, there are 
 many other examples of this indirect competitive influence 
 that might be taken from present conditions. Dr. E. R. 
 Johnson states that " Pennsylvania and Virginia coal com- 
 petes in New England with that from Nova Scotia ; the various 
 coal fields west of the Alleghenies compete with each other ; 
 the Southern iron and the Northern iron are competitors. Cali- 
 fornia and Florida and the Mediterranean countries are all 
 producing for markets in Northern States. Producers of 
 American export commodities are competing with foreign pro- 
 ducers in the markets of the world." On the basis of such 
 facts, Dr. Johnson concludes that " the cost of goods in the 
 consumers' market being in part determined by transportation 
 charges, the railroads serving competing industrial regions are 
 unable to fix their rates at will. Industrial competition deter- 
 mines what they may charge." 
 
 Even aside from the active competition of different regions, 
 however, there is a potential competition in the relative oppor- 
 tunities in one locality as compared with another, and this too 
 is effective in preventing extortion. Suppose, for instance, 
 two industrial regions, one in the Eastern part of the United 
 
Co-operation in Restraint of Rate Competition. 187 
 
 States and the other in the extreme West, each producing a 
 given commodity for an adjacent area of five hundred miles 
 radius. It would seem, at first glance, as if there could be no 
 possible rivalry between these two centres of production, and 
 yet there is a very real competition in the relativity of oppor- 
 tunity, no mean part of which is to-day a question of transpor- 
 tation charges to respective markets. Other things being 
 equal, if the Eastern region be favored with lower rates than 
 those prevailing in the Western, fresh capital and mobile 
 industries will leave the former and seek the latter centre. As 
 all trade and manufactures of old followed the coast or river 
 banks for the free highway there afforded, so to-day the 
 producer locates chiefly on the line of cheapest railway 
 communication. The amount of traffic available for a given 
 road is, therefore, in the long run dependent largely upon the 
 rates of that road in relation to those prevailing upon every 
 other line in the country. There is thus a very real form of 
 competition that traffic associations could not eliminate and 
 that will prevent at least the continuance of extortion. 
 
 Upon the whole, then, we may say that no pooling agree- 
 ment could give the carriers absolute control over rates. 
 Competition of markets and of industrial regions, as also the 
 varying relativity of charges throughout the country, creating 
 a difference of industrial opportunity, will together tend to keep 
 rates below an unreasonable maximum. The public is not 
 justified, therefore, in fearing any serious evil from a lessened 
 intensity of direct interline rivalry, and since its continuance 
 unrestrained does involve objectionable results, there seems 
 every reason, on the merits of the case, to encourage railway 
 pooling as being the most satisfactory restraint. 
 
 § 6. Indeed, to legalize the pool would be expedient even 
 if it were not recognized as inherently desirable, for a restraint 
 of railway competition is certain to come, and if denied the 
 path of interline agreement it will seek the way of consolida- 
 tion. As has been well said, " unless railway managers can 
 
1 88 Railroad Co-operation in the United States. 
 
 associate, railway owners must combine." Nor could legisla- 
 tive prohibition of consolidation be made effective. If railway 
 history has shown anything, it has clearly demonstrated the 
 futility of such statutes. Like usury laws they can be so 
 readily evaded that in the absence of strong motives for volun- 
 tary obedience in spirit as well as in letter, there is no real 
 significance in these legislative enactments. In practice, there- 
 fore, consolidation is a resort always open to competing lines, 
 and if forbidden the more desirable check upon rate warfare, — 
 if denied the right of co-operating, — they will be certain, in the 
 long run, to avoid the destructive effects of direct competition 
 by uniting under one management. In view of this fact, and 
 admitting that a pool is preferable to railway consolidation, 
 the legalization of pooling should meet with favor even among 
 those who deny its inherent merits. 
 
 Of course we must not go to the extreme of imagining that 
 the pool will accomplish everything claimed for it by its most 
 ardent admirers. Legal recognition of pooling contracts will 
 not inaugurate a millennium in the railway world. On the 
 other hand, it is equally certain that co-operation in restraint 
 of competition will not lead to serious abuses. In their unrea- 
 soning fear of extortion, the opponents of pooling are more in 
 error than its advocates, for while the latter exaggerate certain 
 beneficial effects that would follow the co-working of rival 
 lines, the former lay great stress upon a wholly non-existent 
 danger. Surely, therefore, without attempting to discover just 
 where between the two extremes of opinion the real truth lies, 
 we can say, with perfect conservatism that pooling is, on the 
 whole, a good thing and should be given a fair trial. Just how 
 far it would in practice accomplish a reform of present evils it is 
 impossible to say, but at least we may assert that its tendency 
 would be to eliminate destructive competition in rates, to 
 foster thereby the growth and development of our railway 
 system, to abolish discriminations, to promote stability and 
 publicity in rates, to check the movement toward railway 
 
Co-operation in Restraint of Rate Competition. 1 89 
 
 consolidation, to create a better feeling between the carriers 
 and the public at large, and, by fostering interline harmony 
 and allowing the form of co-operation chiefly desired by our 
 carriers, to promote all phases of railway co-activity. When 
 we further remember that the only serious objection ever 
 urged against legalizing the pool is based upon a misconcep- 
 tion of its results and does not in reality hold true, we cannot 
 but wonder that pooling has so long been denied our carriers. 
 Certainly it is not desirable that the present attitude of repres- 
 sion be continued. 
 
 § 7. Despite the many advantages that seem to lie in 
 legalization of pooling, it would be well in carrying out this 
 needed reform to take every reasonable precaution to insure 
 the absence of abuse. It is always possible that a measure 
 free from theoretical objection will in practice have some un- 
 desirable features. This may be the case with legalization of 
 railway pooling, and it is advisable, therefore, to adopt proper 
 safeguards in advance. 
 
 To begin with, the commission should be given power, 
 upon investigation of a complaint, to fix maximum and mini- 
 mum rates, to issue and enforce general orders, and to do 
 whatever else may be necessary with certainty to correct and 
 prevent unreasonable charges. Evidently there would then 
 be no further need to fear " extortion " from a pooling bill. 
 Such a measure would then receive the hearty favor of the 
 commission, and could hardly be objectionable to the thinking 
 public. Assured of a just and reasonable tariff, there is no 
 longer any cause to question either its origin or the way it is 
 maintained. Our commission given effective control over rates 
 the public seems to be fully protected against the one dreaded 
 danger of legalized pooling. 
 
 To make assurance doubly sure, however, — to remove the 
 possibility that even the most unexpected abuses could arise 
 and continue from co-operation of competing lines, — it might 
 be well to establish effectual control over the contents and 
 
190 Railroad Co-operation in the United States. 
 
 existence of all pooling contracts. The scheme proposed by 
 Mr. Knapp seems to meet all the requirements in this respect. 
 He suggests that pooling contracts be legalized under the 
 following limitations : 
 
 1 . That such contracts be filed with the commission and go 
 into effect after a certain time has elapsed, unless previously- 
 opposed by said commission ; in which case, the contract shall 
 be invalid unless and until declared lawful by a designated 
 tribunal upon appeal thereto. 
 
 2. That the commission have power to cancel a pooling 
 agreement at any time upon due notice to the carriers con- 
 cerned and after they have been heard on the question ; and 
 that, in case of such cancellation, the contract shall be and 
 remain invalid unless and until declared lawful by a competent 
 court upon appeal thereto. 
 
 With these provisions adequately enforced and the commis- 
 sion vested with real control over rates, there could be noth- 
 ing to fear from the pool. Certainly therefore, in view of the 
 more than probable benefits that would follow its legalization, 
 it is to be hoped that before long, under the above safeguards, 
 the fifth section of the Interstate Commerce Act will be 
 repealed and pooling be declared lawful. 
 
 § 8. On the whole, then, the railroads of the United States 
 have carried co-operative endeavor into three great fields, in 
 each of which the end sought has been for the welfare at 
 once of the carriers and of the public at large. The universal 
 establishment of through routes and through rates, the con- 
 solidation of freight classifications, and the restraint of direct 
 interline competition, are all much to be desired ; and in seek- 
 ing to bring about these results, our railroads have tended to 
 promote not alone their own best interests but also the 
 greatest good of the community. The fact has not indeed 
 been so fully recognized in regard to the co-operation of rival 
 lines as for the other two features of railway coactivity ; but 
 it is, on that account, none the less true that the aims and 
 
A Railway Clearing-House. 191 
 
 purposes of joint railway effort have in all three cases really- 
 fostered general welfare. 
 
 Yet, as we have seen, the present situation is not satisfac- 
 tory. While there is no fault to be found with what our 
 carriers have sought to do, much can be said of what they 
 have failed to accomplish. There are still many cases where 
 connecting lines refuse to " afford all reasonable, proper and 
 equal facilities for the interchange of traffic ;" freight classifica- 
 tions have not yet been unified ; and agreements looking to a 
 restraint of competition can be formed only in violation of the 
 law. Evidently the present status of railway co-operation is 
 not above criticism. 
 
 To remedy existing evils, a legislative enactment is in each 
 case the best expedient. The co-operation of connecting 
 lines should be make compulsory ; the immediate formation 
 by our carriers of a single freight classification should be 
 assured, — as practically it would be, — by an effective threat of 
 a classification prescribed by governmental authority ; and the 
 restraint of destructive competition should be inaugurated by 
 legalization of pooling. If Congress were to carry out this 
 program of reform, with the details already suggested, I cannot 
 see but what the forms of interline co-operation existing in the 
 United States would be in as satisfactory condition as we could 
 hope, by government interference, to place them. 
 
 IV. A Railway Clearing-House. 
 
 § 1. Before closing our discussion of railway co-operation, 
 we should note briefly one other form thereof, which, while it 
 has not in the past had any real development in the United 
 States, is at least a probability and a desirable probability 
 of the future. This form of co-operation is a railway clearing- 
 house system. 
 
192 Railroad Co-operation in the United States. 
 
 An organization of our carriers to settle the receipts of 
 different companies on joint through traffic by a system of 
 balancing accounts, has been a long-felt need in this country. 
 England established a railway clearing-house as early as 1 842, 
 and has continued thereunder to the present day. Indeed so 
 clearly recognized were the benefits of this organization, that 
 in 1850, it was chartered and its finding given a legal stand- 
 ing. To-day nearly every road in the United Kingdom is a 
 member. In our own country, however, there has been no 
 great effort to introduce among our railroads the clearing- 
 house principle. True, the Southern Railway and Steamship 
 Association was originally organized with this desirable feature, 
 but unfortunately the experiment was discontinued, and to the 
 best of my knowledge has not been repeated by any of our 
 other traffic associations. In 1888, there seems indeed to 
 have been some thought of organizing a clearing-house in the 
 West, but the idea was never put into practice, probably because 
 of the fact noted by Mr. Charles Francis Adams, that " it was 
 at once characterized in the papers as a vast ' trust ' . . . 
 and denounced as a conspiracy. " 
 
 § 2. From the standpoint of railroad administration, there 
 is to-day an obvious need of a clearing-house system. The 
 enormous quantity and value of through traffic is such that 
 the number of separate transactions between connecting lines 
 is almost countless, the more so, as practically all our railroads 
 are really more or less directly " connecting lines." Evidently, 
 therefore, the mass and complexity of the settlements to be 
 made, — on such questions as the apportionment of through 
 traffic receipts, the liability for loss or damage, the propor- 
 tionate share of each company in the general expense of the 
 through service, and similar matters, — call for the formation of 
 a clearing-house or a number of territorial clearing-houses in 
 the United States. The time has certainly come when econ- 
 omy of management demands the erection of some such 
 central organization to settle separate railway claims by 
 
A Railway Clearing-House. 193 
 
 canceling mutual indebtedness and paying balances in checks 
 or certificates. The present cumbrous and wasteful method of 
 individual settlements between our carriers, has long been out 
 of date and should be replaced by the more modern machinery 
 so effective among banking institutions. 
 
 The advantages of a clearing-house system are not alone a 
 question of the cheaper and more accurate settlement of inter- 
 railway claims, however, but include also the maintenance of 
 stable and non-discriminate rates. Suppose, for instance, an 
 organization on the English basis, receiving all through traffic 
 receipts, and then, after deducting from the returns of any one 
 haul the clearing-house charges and the terminal expenses, 
 dividing the balance on a mileage basis among the carriers par- 
 ticipating in the haul. Evidently under such a plan, the admin- 
 istration of through traffic and the maintenance of published 
 tariffs therein will lie, not with a number of separate roads, 
 each anxious to swell its own receipts by drawing traffic from 
 its neighboring rivals ; but will be vested in a central organiza- 
 tion of many roads and in a responsible head, whose business it 
 is to see that every through consignment under given con- 
 ditions is rated at just so much, neither more nor less. In 
 this way we have the enforcement of non-discriminate charges, 
 and obviously also, a strong tendency to keep rates stable. 
 By preventing secret cutting, we at least make less likely its 
 natural consequence of open warfare, and so reduce the prob- 
 ability of violent fluctuations in charges. On the whole, as 
 Mr. Adams expresses it, " Nothing will tend more directly 
 and immediately to raise the standard of commercial morality 
 in railroad circles, than the organization of our railroads into 
 some public and recognized clearing-house system through 
 which the traffic management of the country can be taken out 
 of the hands of irresponsible subordinates, who now so vilely 
 abuse it, and restored to those who should be responsible, in 
 fact as well as in name, for the companies of which they are 
 the heads." 
 
194 Railroad Co-operation in the United States. 
 
 § 3. These effects of a clearing-house are largely reaction- 
 ary, however, for after all, such an organization is not alone 
 productive of, but must be based upon, a strong spirit of unity 
 among our carriers and upon such tangible results thereof as 
 a common classification and a unified through tariff. Before 
 we can hope to establish and maintain a clearing-house, there- 
 fore, we must secure a considerable degree of stability in 
 charges, of conformity to published rates, and of other features 
 that are not to be found under conditions of destructive com- 
 petition. 
 
 This is really the secret of our never having developed a clear- 
 ing-house. In the absence of any effectual restraint upon 
 interline competition, our railway conditions have heretofore 
 been too unstable to admit of the continued existence, much 
 less of the successful working of such an organization. It is 
 to the future, therefore, and to such promise as the future may 
 hold of checking the destructive forms of interline rivalry, 
 that we must look for the establishment of a clearing-house. 
 When conditions are ripe for such a step, — when pooling is 
 made lawful or rate-wars are in some other way eliminated, — 
 then we may expect almost at once to see such an organization 
 developed upon railway initiative. Direct government inter- 
 ference is neither necessary nor desirable, therefore, in this 
 field of co-operation. From the mere legalization of pooling 
 we may look for the organization of a clearing-house at the 
 earliest expedient time. When it does come, however, then 
 Congress should step in and at least give it recognition and 
 encouragement, and perhaps make its decisions binding. 
 
 § 4. In added emphasis, therefore, to what has already 
 been said of the indirect effects of legalized pooling, — its tend- 
 ency to foster general interline harmony and thus to promote 
 through routing and uniform classification, — we must now add 
 its probable tendency in like manner to develop a new and 
 eminently desirable phase of co-operation, — the railway clear- 
 insr-house. 
 
A Railway Clearing House. 195 
 
 Co-operation of competing lines has, therefore, not only 
 been the great transportation problem of the past, — a problem 
 in that its answer has never been determined to the general 
 satisfaction of the community as a whole, — but evidently from 
 an analysis of its nature and from a decision on the merits of 
 the case, is the question to-day most in need of immediate 
 practical solution. The emphasis laid upon pooling in the 
 evolutional part of our subject, we must re-endorse for the 
 "future." In the general field of railway co-operation, for its 
 present defects, legalization of pooling is the most necessary 
 remedy. Not only will such a measure directly promote gen- 
 eral welfare by tending to abolish discriminations, increase 
 stability, and check the movement toward consolidation ; but 
 it will also conduce toward the promotion of all other forms 
 of railway co-operation. In concluding, therefore, we cannot 
 avoid again voicing the hope that Congress will not long 
 delay in giving favorable attention to a measure for the legal- 
 ization, — under proper safeguards, — of railway pooling. 
 
APPENDIX. 
 
 Traffic Associations. 
 
 Discussion taken from the Twelfth Annual Report (1898) 
 of the Interstate Commerce Commission. 
 
 After referring briefly to the history of traffic associations, 
 the commission discusses the organizations in the following 
 language : 
 
 Almost all these combinations embodied the pool in one form or another as a 
 part of the agreement. Indeed the pool was the vitalizing force, the sanction of 
 the contract. The parties consented in effect that the association might fix the 
 rate, and agreed to observe the rate so fixed, upon condition that each received a 
 given proportion of traffic or a given proportion of earnings, no matter whether 
 the traffic was actually carried or the amount actually earned. 
 
 It should be noticed, therefore, that prior to the passage of the act the railways 
 had applied to the competitive railway business of the country the principxe of 
 railway combination for the making and maintenance of rates, incorporating as an 
 essential part of that principle the pooling idea. It should be further noticed 
 that the results thus obtained were by no means satisfactory. Rates were not 
 stable. The grossest discriminations of all kinds existed, and rate wars were 
 frequent. It was largely this condition, which the application of railway combi- 
 nations had failed to cure, that induced the passage of the act. 
 
 The act prohibited the formation of pools. This prohibition, however, did not 
 lessen the need for some common understanding as to competitive charges, but on 
 the contrary that need was emphasized by the fact that all rates were required to 
 be published. For the purpose of agreeing upon competitive rates most of the 
 traffic associations then in existence were continued, the pooling provisions being 
 omitted from their agreements and an attempt being made in most cases to supply 
 the want of those provisions by a money penalty for breach of the agreement. 
 In point of fact these associations in one form or another were perpetuated and 
 they increased in number until, at the time the Trans-Missouri Case was decided, 
 there were some nineteen of them in active operation. 
 
 When the Trans-Missouri decision was first announced the impression was 
 sought to be created that all agreements between railways were thereby forbidden, 
 
 (197) 
 
198 Appendix. 
 
 and that this must seriously interfere with the public convenience. But such a 
 view has little foundation. Agreements having reference to the formation of 
 through lines, the interchange of business, the use of cars, the keeping of mutual 
 accounts, the making of uniform classifications, the establishment of whatever 
 rules may be necessary for the handling of railway traffic, are not affected. 
 Indeed, most of these matters never were within the purview of traffic associa- 
 tions. They belong rather to car-service associations, the Master Car Builders' 
 Association, the Association of American Railway Accounting Officers, and many 
 others of similar character, which are not believed to be in any way obnoxious to 
 the anti-trust law. 
 
 The cardinal purpose of traffic associations is the restraint of competition 
 between rival lines. This was the purpose which called them into being and 
 formed the central idea of every such combination. An examination of the 
 articles of agreement of the various associations as they existed before the Trans- 
 Missouri decision will show that the object in every instance was in some form 01 
 other to substitute the will of the association for the will of the individual member 
 in the matter of the rate and whatever pertained to the rate. The association in 
 effect made the rate, and each member was required to publish and maintain that 
 rate. 
 
 Take as an illustration the Joint Traffic Association. That agreement was 
 originally signed by thirty-two railroad companies, many of them the most power- 
 ful in America. The traffic controlled by it, generally speaking, was that from a 
 point within to a point without, or from a point without to a point within, or which 
 passed through New England, New York, Pennsylvania, New Jersey, Maryland, 
 and a large portion of Virginia and West Virginia. It embraced the ports of 
 Boston, New York, Philadelphia, and Baltimore, thus covering three-fourths of 
 all the exports and practically all the imports of the United States. 
 
 The affairs of the association were managed by a board of nine members, from 
 whose decision an appeal lay in the matter of rates to. a board of control, and in 
 other matters to a board of arbitration. The decision of these boards was final. 
 Practically, as the Supreme Court held, no rate could be altered without the con- 
 sent of* the association. If the association named a rate, every member was 
 virtually compelled to observe that rate. Manifestly, if the purposes of this asso- 
 ciation could have been carried out, its effect must have been to eliminate the factor 
 of railway competition between its members in the matter of the rate as to all 
 the traffic subject to its control. There might be and there would be other causes 
 which would influence the rate, but this potent factor would be mainly removed. 
 
 As a matter of fact, the orders of this association in reference to rates, called 
 recommendations in the agreement, were seldom enforced ; for while the associa- 
 tion was in all cases able to secure the publication of tariffs named by it, it was 
 unable to secure the maintenance of those tariffs. Freight was habitually carried 
 at less than the published tariff, and in making these cut rates each company acted 
 independently and was therefore an independent competitor. 
 
 This feature of the case should be carefully noted in considering the advisability 
 of the legislation sought by the railways. They are not simply asking of Congress 
 
Appendix. 199 
 
 the right to form in the future the same kind of organizations as they were accus- 
 tomed to form in the past, but to make contracts with each other which are illegal 
 at common law independent of statutory prohibitions. It was this disability that 
 deprived the joint traffic agreement of any real vitality and prevented its effective 
 enforcement ; and it is for this reason that no other traffic agreement has ever 
 been enforced, except for a limited time and in a limited section. The want of legal 
 sanction was always the inherent weakness of these combinations. If they agreed 
 to anything which in terms effected an actual check upon rate competition they 
 violated the law, and their contracts failed for lack of legal support ; and if they 
 did not in fact violate the law, it was because their contracts in this respect were 
 so elastic or unimportant as to have no practical value. Therefore, in spite of 
 every effort to restrain competition by agreements between railways, that compe- 
 tition was all the while active and potent because the agreements themselves were 
 not legally enforceable. 
 
 The right is now asked to make agreements of this sort which shall be enforce- 
 able, and the effect of these associations when legal can not be accurately esti- 
 mated by their effect when illegal. Whether, even with legislative sanction, 
 railways can and will make and enforce such contracts between themselves is a 
 matter of much doubt, but in determining whether they should be given the privi- 
 lege it must be assumed that they can and will. It must be assumed that the 
 Joint Traffic Association, for instance, would in fact exercise the power which it 
 possessed during its existence only in theory. 
 
 It is important, therefore, to bear in mind that the relief sought by the railways 
 is much more than exemption from the anti-trust law or repeal of the anti-pooling 
 section of the act. The demand for legislation is not primarily occasioned by 
 those laws or by the construction given them by the courts. When the Trans- 
 Missouri Case was decided it was said that demoralization of railway rates would 
 immediately ensue. But it is difficult to see that any marked change has resulted 
 from that decision. 
 
 Rate wars often happened before that case, and there were frequent departures 
 from and fluctuations in the published tariffs. The situation has certainly not 
 improved, but neither does it seem noticeably worse than it was before. Follow- 
 ing this decision, traffic associations generally dissolved or materially modified the 
 scope of their activities. So far as we are aware, the Joint Traffic Association was 
 the only one that continued its former functions and claimed the sanction of 
 validity. While this attitude was maintained there was apparently no reason why 
 the restraint of its agreement should be affected by the Trans-Missouri Case. Yet 
 it may be fairly doubted whether during the interval between the Trans-Missouri 
 decision and the Joint Traffic decision there was any section of the country where 
 the abuses which that association was intended to correct were more flagrant than in 
 the very territory covered by its operations. The real question, therefore, is not 
 whether the railroads shall be relieved from the effect of these decisions, but 
 whether they shall be granted a right of contract which they never possessed. 
 
 The carriers insist that agreements of this sort ought to be permitted and that 
 the business of transportation cannot be conducted in accordance with , the 
 
200 Appendix. 
 
 inter-state commerce law unless this is done. They allege various reasons for 
 this contention. Among the most prominent are the following, which it may be 
 instructive to restate here : 
 
 In order to be ..table, rates on competitive traffic must be uniform by all lines, 
 or at least equalized by agreed differentials or other similar concessions. This is 
 a self-evident proposition, but it may not be generally understood how slight a 
 difference in rate will effect a diversion of traffic. It was asserted at a recent 
 hearing before the commission that a difference of one-eighth of a cent a bushel 
 in the freight rate between Chicago and Liverpool determined the route which 
 grain would take. The same thing would be true between Chicago and New 
 York. There are certain kinds of freight the movement of which may be influenced 
 to a considerable extent by facilities, but with reference to most classes of dead 
 freight the rate is the controlling factor. 
 
 It is alleged, in the second place, that the interests of different lines of trans- 
 portation, different localities, and different commodities can not be properly 
 adjusted, so that rates shall be reasonable and non-discriminatory within the terms 
 of the act, without the power to confer, discuss, and determine by mutual agree- 
 ment what the rate shall be. 
 
 There is great force in this claim. The freight rate is a complex problem when 
 applied to almost all competitive traffic. Very few people not acquainted with 
 the subject have any idea how difficult the solution of that problem is. Rates 
 between points which to a superficial observer have no connection are often in fact 
 interdependent. The rate from New York to New Orleans by water may control 
 the rate from Chicago to St. Louis by rail. In fixing particular rates the claims 
 of different transportation lines, different markets, and different commodities all 
 have to be considered and offset one against another. 
 
 It is extremely difficult to see how carriers can intelligently adjust their rates so 
 as to fulfill the general requirements of the act without the right to organize in 
 some form for the purpose of obtaining necessary information and applying that 
 information as occasion requires. To one familiar with actual conditions it seems 
 practically out of the question to establish rates that are relatively just without 
 conference and agreement. But when rates have once been established, the act 
 itself requires that they shall be observed until changes are announced in the 
 manner provided. Certainly it ought not to be unlawful for carriers to confer and 
 agree for the purpose of doing what the law enjoins. 
 
 A railroad is essentially a monopoly. This is literally true as to all local points 
 upon its line which are reached by it alone. It is only at competitive points — 
 that is, at points where traffic can be carried by two or more lines — that the rail- 
 roads become actual competitors. It results from this fact that as a rule competi- 
 tive points gain at the expense of noncompetitive points. Competition forces 
 down the rate where it operates, and either leaves the rate unaffected or induces 
 its advance at noncompetitive points to make good the reduction at competitive 
 points. The natural result of railway competition, it may be fairly said, is to 
 create preferences between localities. 
 
Appendix. 20 1 
 
 The same thing is true of preferences between individuals. One person is so 
 located that his business must of necessity pass over a particular line of railway ; 
 another person can avail himself of either one of two or more lines. Naturally the 
 latter obtains the better rate. Considered a priori, therefore, we should expect 
 that railway competition would produce preferences and discriminations between 
 communities and between persons. What might to a large extent be expected has 
 actually occurred beyond all legitimate excuse. 
 
 One of the outcomes of these railway abuses was the act to regulate commerce. 
 The purpose of that act was largely to do away with preferences and discrimi- 
 nations. It also aimed to keep alive competition between railways by prohibiting 
 pooling arrangements. In other words, it endeavored to eradicate the results and 
 to perpetuate the cause. Many people insisted at the time the act was passed 
 that these two purposes were inconsistent and could not stand together. 
 
 The act provides for the publication by the carriers of their tariffs for the trans- 
 portation of persons and property, and that requirement has been almost univers- 
 ally complied with. If it be admitted that these published tariffs, with certain 
 important exceptions, are in the main free from those obnoxious features which the 
 law was intended to prevent, and that, as a general rule, the published rates are 
 reasonable and not seriously discriminative, except when the long and short haul 
 rule is disregarded, nevertheless it is true that a great part of the competitive rail- 
 way business at the present time is not done upon the published tariffs, but upon 
 secret rates, which are less than those specified. It results, therefore, that while 
 discriminations and preferences have been ostensibly removed, or at least dimin- 
 ished, they still exist in a most aggravated form. The railways insist that they 
 always must exist and that the provisions of the act in this respect can not be made 
 effective unless they have the power to combine and thereby control the com- 
 petition which provokes these violations of law. 
 
 The act also provides that the rate shall in all cases be adhered to, and that 
 departure from that rate shall constitute a criminal offence. The corporation 
 itself is not, under the law as interpreted by the courts, amenable to the penalty, 
 but the individual who acts for the corporation is. Apparently, therefore, when 
 the rate has once been determined and published the business of the railway 
 manager is extremely simple. It consists merely in charging every person that 
 published rate. If the open rate on grain from Chicago to New York is 20 cents 
 per hundred pounds, it is difficult for one not acquainted with the business to 
 understand why a railway should transport wheat for 15 cents per hundred pounds 
 between those points. The railway manager insists, however, that this must be 
 done in some cases, and that under existing conditions he frequently cannot get 
 traffic without making such concessions. It may be well to consider for a moment 
 what the situation is from his point of view. 
 
 A railroad is constructed in a particular place and can only be used in that 
 place. It is intended to transport certain traffic and is only available for the 
 transportation of that traffic. Its roadway, stations, rolling stock, and office 
 force must be maintained, whether the business done in a given year is large or 
 
202 Appendix. 
 
 small, at substantially the same expense, and this constitutes the greater part of the 
 entire outlay. The actual cost of moving the traffic is usually very much less than 
 the amount received. Within certain limits, therefore, it is good policy for the 
 railway manager to increase his tonnage, even at the expense of reducing the rate 
 per ton. Just how far this rule applies no one can tell. The merchant who buys 
 an article for a definite price knows when he sells it whether he makes or loses by 
 the transaction ; and the manufacturer, as a rule, has a pretty accurate idea of the 
 cost of production, but the railroad operator cannot ordinarily say whether he 
 should or should not as a matter of good policy take traffic at a certain price. 
 Generally speaking, he feels that he must have the traffic. His road is there 
 and it can be used for nothing else. The property with which he stands 
 charged may be seriously injured without that particular traffic, and he must 
 get it when it is moving. He cannot lie idle for better prices or more pros- 
 perous conditions. 
 
 There is, therefore, a constant temptation to obtain it at any cost. Now, the 
 rates between two competitive points have been published. The manager of one 
 road finds that business has abandoned his line, and he believes that it is moving 
 by a rival route. He can draw but one inference, and that is that his competitor 
 has secretly reduced the rate. Under these circumstances what shall he do ? 
 Shall he maintain the published rate and thereby abandon the business ? But 
 that means disaster to his road, the loss of his reputation as a manager, and ulti- 
 mately of his employment. What most managers actually do is to get the business 
 by making whatever rate is necessary. 
 
 It has sometimes been said that the secret rate should be met by a published 
 rate ; but this is not always practicable as the law now stands. A notice of three 
 days is required to effect a lawful reduction in tariff charges ; and before the rate 
 can be legally reduced by one road, a still lower secret rate may be offered by a 
 rival road. In many cases a secret rate can be successfully met by an open rate 
 only when the latter is far below any secret cut and far below any compensatory 
 basis. This is not competition but warfare, disastrous alike to the railway and 
 the public. 
 
 The shipper, of course, assiduously cultivates the impression that lower rates 
 obtain upon a rival road. Indeed, it is said that large shippers have actually 
 diverted their entire traffic from a particular line for the purpose of convincing 
 that line that better rates could be obtained elsewhere, and thereby extorting from 
 it a reduced rate as the price of restoring a portion or all of their business. 
 
 The commission does not intimate that the above causes justify the alleged 
 results, nor concede for a moment that it is impossible for a carrier to maintain its 
 published rates. It is perfectly clear that the observance of tariff rates is entirely 
 within the power of the railway managers themselves, and it is equally clear that 
 such a course would be vastly to the advantage of the railways as a whole. It 
 must, however, be admitted that it would be difficult and often ruinous for a given 
 railway to maintain rates so long as its competitor made secret concessions. It 
 must furthermore be admitted that whether justified or not the results are sub- 
 stantially as claimed by the carriers. 
 
Appendix. 203 
 
 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 quarters the exaction of the published rate is the exception. From this 
 two things naturally and frequently result. First, gross discriminations between 
 individuals and gross preferences between localities ; and these discriminations and 
 preferences are almost always in favor of the strong and against the weak. There 
 is probably no one thing to-day which does so much to force out the small operator, 
 and to build up those trusts and monopolies against which law and public opinion 
 alike beat in vain, as discrimination in freight rates. Second, the business of 
 railroad transportation is carried on to a very large extent in conceded violations of 
 law. Men who in every other respect are reputable citizens are guilty of acts 
 which, if the statute law of the land were enforced, would subject them to fine or 
 imprisonment. This is true both of the traffic operator and the shipper. It is 
 difficult to estimate the moral effect of such a condition of things upon a great 
 section of the community, and almost impossible to believe that it can be allowed 
 to continue without some attempt at reformation. 
 
 This condition the present law is powerless to control. If it is asked why the 
 criminal remedies are not applied, the answer is that they have been, and without 
 success. The most earnest efforts have been made by the commission and by 
 prosecuting officers in various parts of the United States to punish infractions of 
 this law. While some fines have been imposed, no substantial effect has been 
 produced. It is plain to the commission that satisfactory results cannot be 
 obtained from this course. The difficulties in the way of securing legal evidence 
 necessary to a. conviction are such as to be in most cases insurmountable. The 
 fact may be morally certain, but the name, the date, the amount cannot be shown 
 with the particularity and certainty required by the criminal law. While some 
 of the^difficulties of obtaining convictions might be removed by suitable amend- 
 ment, we are convinced that criminal remedies as applied to the present situation 
 are utterly inadequate to prevent departures from published rates. 
 
 The logical way to remove these evils would be to remove their cause. If un- 
 restricted competition produces discrimination, one obvious way to prevent such 
 discrimination is to restrict competition. Just how far existing conditions would 
 be improved by legalizing combinations would depend upon the extent to which 
 such agreements were made and actually enforced among the carriers. This in 
 turn would depend largely upon the temper of railroad managers. The results 
 which attended similar agreements previous to the passage of the act were not 
 such as to hold out hopes of complete success. Moreover, such agreements must 
 be voluntary and if any one line of considerable importance refuses to participate 
 the whole attempt might come to naught 
 
 But it is claimed that hitherto such contracts were not legally enforceable ; that 
 railroad managers did not realize ten years ago as they do flow the disastrous con- 
 sequences of competition ; and that if the government should now authorize the 
 formation of railway associations and traffic agreements and thereby restrain in 
 
204 Appendix. 
 
 some degree railway competition, we might expect as a result the establishment 
 and maintenance of uniform and equitable rates. 
 
 As above stated, many thoughtful persons contended, when the act to regulate 
 commerce was passed, that unrestricted competition was inconsistent with the pur- 
 poses aimed at by that act. We are inclined to think that this view is correct, and 
 that time has demonstrated the futility of attempting by criminal enactments to 
 secure absence of discrimination in railway rates so long as independent owner- 
 ship and unrestrained competition exist. We are inclined to think that competition 
 should be restricted ; but if the railroads are allowed to agree for that purpose, 
 such conditions should be imposed as will fully protect the public interest. 
 
 While railway transportation in this country is carried on by private capital, it 
 is essentially a government function. This appears from the necessary conditions 
 of railroad construction. It is a universal maxim that private property cannot be 
 taken for private uses, but only for the public use. Yet no railroad can be built 
 without the appropriation of private property. It equally appears from the rela- 
 tion of the carrier's business to the community. A merchant may sell to one 
 customer for one price and to another customer for another price, as best subserves 
 his interest, without violating any sense of right and wrong, but it is to-day 
 universally felt that the rates of public transportation should be uniform to all. 
 As we have already said, the railway is, from its very nature, in respect to the 
 greater part of its business, a virtual monopoly. The essential feature of a gov- 
 ernment function or of a monopoly is that it excludes the idea of competition, and 
 this notion prevails in almost every civilized country to-day. So far as we can 
 obtain information, there is no great nation at the present time which endeavors to 
 enforce competition between its railways, although in many cases that method has 
 been tried and abandoned. 
 
 But if the business of transportation is essentially a government function, then 
 the government must see that it is properly discharged. If it is in essence a 
 monopoly, then it must be regulated. The two things of necessity go hand in 
 hand. Just as no other great nation to-day enforces competition between rail- 
 ways, so there is no other great nation to-day which does not regulate and control 
 the railway rate. If this country is to change its theory of railway regulation, it 
 should adopt the new theory in its entirety. The carriers ask that they be 
 allowed to combine with each other to fix and maintain reasonable rates. But 
 who shall decide what rates are reasonable ? Is that to be left to the carriers who 
 fix their own rates, or should the people who grant this extraordinary privilege 
 reserve to themselves the right to determine that question ? It does not necessa- 
 rily follow, therefore, that permission should be given to make these combinations. 
 The evils attendant upon restricting competition might be greater than the benefits 
 derived from it. The rate should be reasonable as well as stable and uniform, 
 and hitherto competition has been mainly relied upon for that purpose. It is said 
 that railway rates are lower in the United States than in any other part of the 
 world. This may not be exactly true ; but to whatever extent it is true, it is 
 largely due to railway competition. Now, if this competition is to be removed, 
 what is to take the place of it? 
 
Appendix. 205 
 
 Our conclusion in reference to agreements of this sort, and the degree of con- 
 trol over rates which should be exercised by public authority, is substantially as 
 announced in our last annual report. The two propositions are closely identified 
 in principle and properly go together. The railroad situation in respect to the 
 maintenance of rates is conceded to be deplorable, and the experience of eleven 
 years has shown that the present law is wholly inadequate to deal with that situa- 
 tion. As to this, the commission has no specific remedy to suggest which would 
 not involve resort to measures of so radical a nature as would doubtless preclude 
 their adoption. We are of the opinion that, to avoid the discriminations and 
 grievous inequalities now existing, the government must ultimately, in some form 
 or other, assume such measure of control over railroad rates and management as 
 will restrict excessive competition and insure to all shippers, large and small, rich 
 and poor, strong and weak, the same rights and privileges in everything pertain- 
 ing to railway service. The carriers ask for authority to try the remedy of legal- 
 ized co-operation. If they are permitted to do so, then ample safeguards against 
 abuse should.also be provided. 
 
 The commission indicated in its last annual report the amendments which in 
 its judgment are needful to confer upon it the requisite power over rates. Those 
 amendments would not invest the commission with any different or greater 
 authority than it was long supposed to possess^; they would simply enable it to 
 carry out the purposes of the act as declared in its first three sections. We are 
 still of the opinion that public authority should be endowed with that measure 
 of regulative control over the railways of this country, and if the commission is 
 not qualified to discharge that trust then a more competent tribunal should be 
 created. 
 
 If traffic agreements which will have the effect to restrain competition are to be 
 permitted, then, in order to insure uniformity and equality as well as reasonable- 
 ness of rates and for the better protection of the public, two or three general 
 observations should be borne in mind : 
 
 1. The experiment can not be fairly tested by limited and insufficient measures. 
 The proposition is to correct the present abuses which result from competition by 
 restricting the competition itself, and unless the restraint is effectual the result will 
 not follow. Such attempts have failed of their purpose in the past because 
 agreements of this nature were not enforceable. To permit only a limited and 
 feeble restraint would be to doom the experiment to failure before it was tried. 
 On the other hand, and in view of the objections to the policy proposed, it might 
 be well to provide that such a law should expire after a certain number of years 
 by its own limitation. It may be urged with great force that it is much easier to 
 limit the duration than to secure the repeal of a measure of this character, and 
 that if such a law were once placed upon the statute books it would be difficult to 
 get rid of it, no matter how disappointing or obnoxious might be its effect. A 
 time limit sufficiently long to fairly test the experiment would remove this appre- 
 hension. 
 
 2. The contract itself and everything done under the contract should be open 
 to public inspection. The very fact that a great combination works in secret 
 
206 Appendix. 
 
 often produces the impression that something is wrong and sometimes actually 
 occasions the wrong. 
 
 3. We believe it would be to the advantage both of the public and the railways 
 if the public had some voice or some representation in organizations of the kind 
 under consideration. Taking the Joint Traffic Association as a model — and that 
 probably represents the best railway thought upon the subject — if the public 
 appointed one or more of the board of managers, who would be unbiased and 
 impartial in its deliberations, to whom the shipper would feel free to submit his 
 complaint, and who would bring the shipper's views to the attention of the asso- 
 ciation, it might do much to promote just conduct and harmonious relations 
 between the railways and the public, and thus prove mutually beneficial to a high 
 degree. If this is a practical suggestion it may deserve to be included in such a 
 scheme of legislation. 
 
 Whatever view may be taken of this phase of the subject, the necessity for a 
 thorough revision of the act can not be overstated. The principles of this law as 
 set forth in its first three sections are conceded to be sound and beneficent, but at 
 present they amount to little more than the declaration of a sentiment. Some of 
 the minor features of the statute are fairly sufficient, but the machinery for 
 enforcing its substantive provisions is fatally defective. Every consideration of 
 private justice and public welfare demands that railway rates should be reason- 
 able, uniform to all shippers, and equitable between all communities. Until 
 needful legislation is supplied that demand must remain unsatisfied and the 
 commission must continue to rest under the responsibility of a duty which it is 
 powerless to discharge 
 
INDEX. 
 
 Act to Regulate Interstate Commerce : 
 based on Cullora Committee Report, 
 71,141; analysis of the Act, 142; em- 
 bodied public opinion, 143 ; prohibited 
 pooling, 59; evolution of traffic agree- 
 ments, 61 ; change in railroad condi- 
 tions, 145 ; at first closely adhered to, 71 ; 
 has gradually lost its power, 147 ; diffi 
 culties in application, 72; summary of 
 results, 78 ; powerless to prevent abuses 
 arising from competition, 205 ; should be 
 thoroughly revised, 206. 
 
 Agreements to Divide Traffic: (see 
 Pools, Co-operation, etc.) 
 
 Agreements to Sustain Rates : first at- 
 tempt in 1855, 21 ; next attempt in 1858, 
 22; by the Trunk Lines, 23; failure 
 almost universal, 27; rate-cutting by 
 subordinates, 27 ; inability of officers to 
 prevent abuses, 28 ; unscrupulous mana- 
 gers also responsible, 29 ; in the South, 
 30; problem solved by removing the 
 temptation to cut rates, 31 ; mere agree- 
 ments to sustain rates of no avail, 128. 
 
 Anthracite Coal Combination : ruin- 
 ous competition led to organization in 
 1872, 45 ; later history, 46. 
 
 Capital, Railroad : permanent nature of 
 investment, 15, 176. 
 
 Central Traffic Association : agree- 
 ment adopted in 1893, 64 ; merged into 
 Joint Traffic Association, 66. 
 
 Chicago-Omaha Pool : organized in 1870, 
 32, 126, 129 ; not illegal by State law, 33 ; 
 unpopular in Iowa, 33 ; merged into 
 Western Freight Association in 1884, 34. 
 
 Classification of Freight: railway co- 
 operation to unify, 164 ; early classifica- 
 tions, 165; "Official," "Western" and 
 
 "Southern" Classifications, 167; at- 
 tempts to consolidate in 1887 and 1888, 
 167 ; no steps taken since 1889, 169 ; ne 
 cessity of securing a uniform system. 
 173 ; plan suggested by Interstate Com 
 merce Commission, 173. 
 
 Clearing House, Railway : established 
 in England in 1842, 192; no effort to es- 
 tablish one in United States, 192 ; obvi- 
 ous need of, 192 ; a feature of the South- 
 western Railway Rate Association, 37, 
 192 ; a means of preventing discriminat- 
 ing rates, 193. 
 
 Colorado Railway Association : 35. 
 
 Colorado-Utah Association : 35. 
 
 Commissions, State Railroad : appointed 
 in Michigan, Minnesota, Illinois, etc., 
 118 ; advisory type developed in New 
 England, 121. 
 
 Common Law Status of Pools: extra- 
 legal, 58, 91 ; opposed to public policy, 
 128. 
 
 Competition : popularly regarded as the 
 regulator of all industry, 14, 127 ; rail- 
 road problem due to failure of, 14; 
 failure due to three inherent qualities 
 of railroad industry, 15; causes rate- 
 wars, 15 ; personal discriminations, 16 ; 
 place discriminations, 19 ; at first relied 
 on absolutely to regulate the railway, 80 ; 
 intensity of, in the railroad industry, 177, 
 201 ; responsible for unsatisfactory con- 
 dition of through routing and rating, 
 178 ; results in discrimination and unsta- 
 bility of rates, 179, 200 ; two possible re- 
 straints are consolidation and co-opera- 
 tion, 182. 
 
 Competition, Co-operation to Restrain : 
 (see Agreements to Maintain Rates, Co- 
 operation, Pools, etc.) 
 
 (207) 
 
208 
 
 Index. 
 
 Competition in Rates: not absolutely 
 eliminated by pooling, 184. 
 
 Competition in Service : not eliminated 
 by the pool, 184. 
 
 Competition of Markets: examples of, 
 86, 186 ; exists under pooling agreement, 
 84,185. 
 
 Competition Under the Pool : contradic- 
 tory views of opponents and supporters 
 of pools, 84 ; competition of markets, 86, 
 185 ; principle of increasing returns, 86 ; 
 not wholly destroyed, 87, 184 ; competi- 
 tion in service, 184. 
 
 Competition with Carriers by Water : 
 constantly disturbed the Trunk Line 
 pools, 51. 
 
 Consolidation : a possible means of re- 
 straining competition, 182 ; would result 
 in exorbitant monopoly rates, 183 ; will 
 result if pooling be not allowed, 187 ; leg- 
 islative prohibition of, could not be ef- 
 fective, 188 ; of connecting lines begun 
 about 1860, 10 ; public apprehension, 10. 
 
 Co-operation op Competing Lines to Re- 
 strain Competition (see, also, Pooling, 
 etc. ) : 113 ; diversity of opinion as to what 
 Is desirable, 174 ; most desirable form of 
 restraint of railway competition, 183. 
 
 CO-OPERATION OP CONNECTING RAILROADS : 
 
 earliest combinations of railroads In the 
 United States, 9, 107 ; conditions giving 
 rise to, 9, 107 ; rapid growth, 108 ; con- 
 solidation of connecting links, 10 ; fast 
 freight line, 11 ; consequent stimulus to 
 competition, 13 ; not strictly part of rail- 
 road problem, 109 ; but has often been 
 hindered to prevent competition, 111 ; 
 authorized by Congress in 1866, 109; 
 regulated in 1887, 110. 
 Co-operation op Connecting Lines to 
 Promote Through Traffic : necessity 
 of securing through routing and through 
 rating, 171 ; often retarded by refusal of 
 carriers to co-operate, 171 ; compulsory in 
 England, 172; necessity of securing a 
 uniform classification of freight, 173. 
 
 CO-OPERATION TO PROMOTE THROUGH TRAF- 
 FIC : by means of separate organization, 
 112. 
 
 Cullom Bill : introduced in 1897, 106. 
 
 Cullom Committee Report : basis of In- 
 terstate Commerce Act, 71, 141. 
 
 Discrimination : results from active com- 
 petition, 179, 200 ; leads to abuses univer- 
 sally condemned, 180 ; caused industrial 
 
 monopolies, 180 ; legislation powerless to 
 eliminate, 181, 203 ; became by 1887 the 
 leading railway question, 134 ; prohibited 
 by Act of 1887, 201 ; belief of the Inter- 
 state Commerce Commission that large 
 part of present traffic is based on illegal 
 rates, 73, 203. 
 
 Discriminations Between Localities : 
 arise from partial application of compe- 
 tition, 19, 81 ; injury to railroads, 20 ; for- 
 bidden by Act of 1887, 71 ; prohibition 
 evaded, 73 ; difficulty of detection, 74 ; 
 place discrimination arising under the 
 Act of 1887, 155 ; " Long and Short Haul" 
 clause nullified by decision in the " Troy 
 Case," 159 ; " Eau Claire Lumber Case " 
 (5 1. C. C, 264), 160. 
 
 Discriminations between Shippers : 
 causes of, 16, 81 ; existed everywhere, 17 ; 
 in the West, 18; injurious effects, 18; 
 forbidden.by Act of 1887, 71 ; prohibition 
 evaded, 73 ; difficulty of detection, 74 ; 
 strong inducement to discriminate, 76 ; 
 present injurious effects, 77. 
 
 " Eau Claire Lumber Case :" 160. 
 
 Eveners : nature of the scheme, 46 ; pro- 
 voked great public censure, 46 ; resulted 
 in monopoly, 47 ; started the growth of 
 the Standard Oil Company, 47. 
 
 Fast Freight Lines : means of facilitating 
 through traffic, 11. 
 
 Fink, Albert : General Commissioner of 
 Southern Railway and Steamship Asso- 
 ciation, 40 ; Chairman of Joint Execu- 
 tive Committee, 48 ; classic " Report on 
 Adjustment of Railroad Transportation 
 Rates," 49. 
 
 Government Management: utterly im- 
 practicable, 182. 
 
 Granger Period : covered decade 1867 to 
 1877, 114 ; beginning of co-operation of 
 competing lines, 123 ; general course of 
 railroad problem, 130. 
 
 Granger Legislation: unexpected re- 
 sults, 119; established the quasi-public 
 character of the railway, 120 ; established 
 superiority of the mandatory commission 
 over advisory or direct legislative con- 
 trol, 120. 
 
 Granger Problem : Inter-relation with 
 railroad problem, 123. 
 
 Interstate Commerce Commission : latest 
 opinion on the proposed legalization of 
 pooling, 205. 
 
Index. 
 
 209 
 
 Joint Traffic Association : went into op- 
 eration January 1, 1896, 66.; system of 
 fines, 67 ; action brought in United States 
 Courts, 66, 151 ; dissolved promptly after 
 held to be illegal, 70; maintained a rate 
 agreement without a pool, 148 ; cardinal 
 purpose was the destruction of competi- 
 tion, 198. 
 
 Legislation : powerless to prevent dis- 
 criminations, 181 ; could not effectively 
 prevent consolidation, 188 ; should com- 
 pel connecting lines to co-operate, 191. 
 
 Legislation, Federal: Act to Regulate 
 Interstate Commerce, passed in 1887, 59, 
 71, 142 ; Act to Protect Trade and Com- 
 merce Against Unlawful Restraints and 
 Monopolies, passed in 1890, 59, 149. 
 
 Legislation, State : pools prohibited, 58; 
 prescribing maximum rates or establish- 
 ing state commissions, passed after 1870, 
 118. 
 
 McCreary Bill for Federal Regula- 
 tion : introduced in 1874, 140. 
 
 Maximum Rates : prescribed by Michigan, 
 Arkansas, Iowa, Ohio, Wisconsin, etc., 
 118. 
 
 Monopolies : result from discrimination, 
 47, 180. 
 
 Northwestern Traffic Association : 84. 
 
 Pacific Coast Association : 35. 
 
 Panic of 1873 : rapid railway development 
 during six years preceding, 115 ; conse- 
 quent abnormal stimulus to competi- 
 tion, 116. 
 
 Patterson Bill : 95. 
 
 Pooling Agreements : idea at the basis 
 of, 31 ; " intractableness " of managers, 
 38 ; weakness due to illegality, 38 ; dis- 
 turbed by competition with water car- 
 riers, 51, 54 ; other disturbing factors, 52; 
 in principle these combinations were all 
 alike, 53 ; in theory they destroy all 
 motive to vary from prescribed rates, 
 128 ; in practice merely a temporary 
 expedient, 129 ; unsuccessful in early 
 period, 136 ; do not destroy all competi- 
 tion, 54, 87, 184 ; application of principle 
 of increased returns, 86 ; possible abuses, 
 87 e( seq.; should be legalized, 188 ; argu- 
 ments of railroad men, 200 ; should be 
 regulated, 92, 189 ; form of regulation, 94; 
 Mr. Knapp's plan of regulation, 190. 
 
 Pools : early history obscure, 31 ; first ap- 
 peared in New England, 32, 126 j became 
 important about 1870, 53, 126; rapid 
 spread after 1870, 135; did not raise 
 rates, 89, 90. 
 
 Pools in the North ; " Anthracite Coal 
 Combination, "45; "Evener" schemes, 
 46 ; organization of Trunk Lines in 1877, 
 47 ; constant break-downs, 49 ; organi- 
 zation adopted in 1885, 50 ; disturbed 
 constantly by water competition, 51; 
 other disturbing factors, 52 ; fierce ri- 
 valry between Eastern Terminal Cities, 
 136 ; actual course of rates from 1877 to 
 1887, 52 ; traffic transferred to settle bal- 
 ances, 53. 
 
 Pools in the South : excessive competi- 
 tion, 39 ; first effort to divide traffic in 
 1873, 39 ; Southern Railway and Steam- 
 ship Association, 40; Southern States 
 Freight Association, 68 ; Southeastern 
 Freight Association, 68. 
 
 Pools in the West: Chicago-Omaha 
 Pool, 32 ; minor pools, 34 ; by 1885, all 
 competitive traffic in the West and 
 Northwest pooled, 35 ; failure of a single 
 gigantic Western Pool, 35; Southwest- 
 ern Railway Rate Association, 36 ; new 
 associations after Federal prohibition of 
 pools, 68. 
 
 Public Opinion: during Granger Period 
 demanded lowering of extortionate 
 rates, 122 ; during decade 1877 to 1887, 
 abolition of discriminations, 131 ; in this 
 decade opposition to pools decreased, 
 139; desire for national regulation of 
 carriers, 139. 
 
 Public Opposition to Railroad Combi- 
 nations : popular alarm after Saratoga 
 Conference, 55 ; two forms of opposition 
 to pools, 55 ; position taken by opponents 
 of pooling, 57. 
 
 Rate Wars: due to excessive competi- 
 tion, 15 ; destructiveness to the railroads, 
 175; to the public welfare, 178; con- 
 tinued even during pooling, 137. 
 
 Rates : instability of, results from active 
 competition, 179 ; industrial evils result- 
 ing from instability of, 180. 
 
 Reagan Bill for Federal Regulation : 
 introduced in 1878, 140. 
 
 Regulation of Railways, Federal: 
 movement for, begun in 1874, 140 ; vigor- 
 ous attempt in 1878, 140 ; became almost 
 necessary after Supreme Court decision 
 
2IO 
 
 Index. 
 
 in Wabash Railway Co. v. Illinois (118, 
 U. S. 557), 141 ; summary of situation in 
 general field of railway regulation since 
 1887, 162. 
 
 Saratoga Conference : meeting held in 
 1884, 25 ; resulted in failure, 26 ; public 
 alarm occasioned by, 55. 
 
 Shekman Anti-Tkust Law: passed in 
 1890, 59 ; influence on railway question, 
 149. 
 
 Southeastern Freight Association : 68. 
 
 Southern Railway and Steamship As- 
 sociation : organized in 1875, 40 ; con- 
 stitution, 41 ; monthly deposit system, 
 42 ; difficulty of a fair apportionment, 
 42 ; did not completely eliminate com- 
 petition, 42 ; did not raise rates, 88 ; co- 
 ercion of rivals, 43; organization after 
 1887, 67, 148 ; dissolved in 1895, 67 ; suc- 
 ceeded by Southern States Freight Asso- 
 ciation, 68. 
 
 Southern States Freight 'Association: 
 68. 
 
 Southwestern Railway Rate Associa- 
 tion : organization, 86 ; clearing-house, 
 37, 192 ; disrupted in 1879, 87 ; re-organ- 
 ized, 38. 
 
 Standard Oil Company : excessive 
 " evener " advantages, 47. 
 
 Through Routing and Rating ; lack of, 
 172; necessity of further securing, by 
 co-operation of connecting lines, 171 ; 
 compulsory in England, 172. 
 
 Thurman, Washburne and Cooley : 
 board of arbitrators unable to solve 
 problem of differentials, 49. 
 
 Traffic Agreements (see Co-operation, 
 Pools, etc.) : evolution of, since Act of 
 1887, 61. 
 
 Traffic Associations (see Pools, etc.) : 
 almost always included a pooling agree- 
 ment, 197. 
 
 Transcontinental Association : con- 
 trolled traffic to and from the Pacific 
 coast, 85-69. 
 
 Trans-Missouri Freight association: 
 founded in 1889, 149 ; nature of the agree- 
 ment, 149 ; action in United States 
 Courts, 149 ; Peckham decision, 59-149. 
 
 Trans-Missouri Decision : Circuit Court, 
 60 ; Circuit Court of Appeals, 60 ; former 
 decisions reversed by Supreme Court, 
 the opinion by Peckham, J., holding 
 that rate agreements were unlawful, 60, 
 149 ; dissent by White, J., 153 ; effect of 
 the decision, 154 ; did not prohibit alj 
 agreements between railways. 197. 
 
 Transportation : a government function, 
 80, 204 ; exceptional position in indus- 
 trial world, 79 ; competition relied on as 
 a regulator, 80. 
 
 Trunk Line Agreements to Sustain 
 Rates : severe competition beginning in 
 1869, 23 ; Saratoga Conference in 1875, 25; 
 attempt a failure, 25. 
 
 Trunk Line Association : organized after 
 Act of 1887, 62; new articles of agreement 
 adopted in 1889, 63 ; fairly successful, 64; 
 merged into Joint Traffic Association, 
 66 ; actual result was to lower rates, 88. 
 
 Wabash Railway Co. v. Illinois (118 U. 
 S., 557): 81,141. 
 
 Western Freight Association : absorbed 
 the Chicago-Omaha Pool in 1884, 34 ; 
 after 1887, controlled the traffic between 
 Chicago and the Missouri River, 68 ; su- 
 perseded after Trans-Missouri decision 
 by Western Joint Traffic Bureau, 70. 
 
 Western Joint Traffic Bureau: suc- 
 ceeded the Western Freight Association 
 after Trans-Missouri Decision, 70. 
 
 Western Passenger Association: after 
 1887 controlled traffic between Chicago 
 and the Missouri River, 68. 
 
 Western Traffic Association : founded 
 January 31, 1891, 69. 
 
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