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 http://www.archive.org/details/cu31924032483426 
 
RAILWAY RATE THEORIES OF THE 
 
 INTERSTATE COMMERCE 
 
 COMMISSION 
 
 M. B. HAMMOND 
 
 PROFESSOR OF ECONOMICS AND SOCIOLOGY 
 OHIO STATE UNIVERSITY 
 
 CAMBRIDGE 
 
 HARVARD UNIVERSITY 
 
 1911 
 
BEPKrNTED FROM THE 
 QTJABTEHLT JOTTENAL OF ECONOMICS 
 
 COPTEIGHTED 1910, 1911 
 BT HASVABD UNIVERSITT 
 
CONTENTS 
 
 CHAPTER I 
 
 PAGE 
 
 Inteodtjctobt . 3 
 
 An inductive study of rate theories 3 
 
 Decisions of the Interstate Commerce Commission as mate- 
 rial for such a study 6 
 
 I. Commisbign's preliminabt statement op the funda- 
 mental PRINCIPLE OF hate MAKING 9 
 
 The determining factors in the Commission's decisions . . 12 
 
 II. Value of commoditt as a hate basis 13 
 
 1. Competitive commodities 14 
 
 (o) In different stages of manufacture 15 
 
 (6) As possible substitutes for each other 27 
 
 2. Non-competitive coromodities 30 
 
 3. Market value the criterion . . 35 
 
 4. Social considerations 37 
 
 III. Cost of sebvice as a bate basis 42 
 
 1. Some special service rendered 44 
 
 2. Comparison with other coromodities 52 
 
 3. Comparison with rates elsewhere 60 
 
 4. Car load and less than car load shipments 63 
 
 5. Conclusion with reference to cost of service 68 
 
 CHAPTER II 
 
 IV. Distance as a factor in bate making 70 
 
 1. Rates increase with distance 73 
 
 2. Modifications of the distance principle 79 
 
 V. Natural advantages op location 82 
 
 1. Natural advantages due to lower costs ... 85 
 
 2. Natural advantages due to distance 94 
 
 3. Group rates 98 
 
 4. Natural advantages due to competition 105 
 
 V 
 
PAGE 
 
 VI. Competition as a rAcroE in rate making 108 
 
 1. Competition between carriers subject to and those not 
 
 subject to the act to regulate commerce HO 
 
 2. Competition between carriers subject to the act ... 114 
 
 3. Competition between places or sections 120 
 
 CHAPTER III 
 
 4. Export rates 128 
 
 5. Competition between producers 149 
 
 6. Competition to prevent a transportation monopoly . . 154 
 
 VII. Class and sectional interests 158 
 
 1. Domestic versus foreign producers 160 
 
 2. Vested interests . 161 
 
 VIII. Fair return on investment 170 
 
 1. Development of the theory 171 
 
 2. Rates in general 173 
 
 3. Particular rates 181 
 
 IX. General summary and conclusions 185 
 
 Essential points in a theory of government-regulated rates 192 
 
RAILWAY RATE THEORIES OF THE 
 
 INTERSTATE COMMERCE 
 
 COMMISSION 
 
RAILWAY RATE THEORIES OF THE 
 
 INTERSTATE COMMERCE 
 
 COMMISSION 
 
 CHAPTER I 
 
 SUMMARY 
 
 An inductive study of rate theories, 3. — Decisions of the Inter- 
 state Commerce Commission as material for such a study, 6. — I. 
 Commission's preliminary statement of the fundamental principle 
 of rate making, 9. — The determining factors in the Commission's 
 decisions, 12. — II. Value of commodity as a rate basis, 13. — 1. 
 Competitive commodities, 14. — (a) In different stages of manufacture, 
 15. — (b) As possible substitutes for each other, 27. — 2. Non-competitive 
 commodities, 30. — 3. Market value the criterion, 35. — 4. Social 
 considerations, 37. — III. Cost of service as a rate basis, 42. — 1. 
 Some special service rendered, 44. — 2. Comparison with other com- 
 modities, 52. — 3. Comparison with rates elsewhere, 60. — 4. Car 
 load and less than car load shipments, 62. — Conclusion with reference 
 to cost of service, 67. 
 
 The theory of railway rates does not seem to have 
 secured from American economists within recent 
 years that degree of interest which a couple of decades 
 ago was accorded to the subject. This lack of theo- 
 retical discussion is the more surprising when one 
 considers that there has been no lack of public interest 
 in railway matters, as is illustrated by the discussions 
 which have taken place both within and without 
 legislative halls. A great mass of literature, scientific 
 
 3 
 
as well as popular, dealing with various phases of the 
 transportation problem has been called forth by this 
 public interest in railways, and yet in all this literature 
 one finds Uttle trace of a serious effort once more to 
 examine and define the principles on which the prices 
 of railway transportation are based. 
 
 The probable explanation for this neglect of the 
 theoretical aspects of the transportation problem is 
 to be found in the shifting of interest which has taken 
 place from problems arising out of railway competition 
 to those due to threatened monopoly. A couple of 
 decades ago the fear of railway monopolies was not 
 seriously felt, or at best was only forcasted, not con- 
 sidered as a thing of immediate practical importance. 
 All dangers from that source, it was believed, were 
 effectually forestalled by the legislative prohibition 
 of pooling. Having disposed of the subject in this 
 summary fashion the public turned its attention to 
 that which was felt to be the more urgent problem, 
 — how to prevent discriminations between competing 
 shippers. 
 
 Railway managers, finding their efforts to maintain 
 high rates at non-competitive points hampered, if not 
 blocked, and compelled at the same time to continue 
 their struggles with rival roads at competitive points, 
 began to seek a relief from this situation by bringing 
 about a consolidation of the competing roads. The 
 pubUc has accordingly been confronted with the 
 danger of an actual railway monopoly. (The question 
 as to whether a given rate is equitable as compared 
 with rates charged on other commodities or with 
 rates charged to competing shippers has given way 
 in large measure to the question as to whether or not 
 an entire schedule of rates is too high. Such theo- 
 retical discussion of railway rates as we have had 
 
 4 
 
within recent years has therefore centered around 
 the question as to whether rates can be so adjusted 
 as to yield only a fair return on the value of railway 
 property and as to the best methods of determining 
 that value. 
 
 Important as this problem doubtless is, no one 
 would think for a moment that its solution would 
 solve all the difficulties of rate making, or that it would 
 furnish all the principles from which a satisfactory 
 theory of railway rates could be deduced. The im- 
 portance of a complete theory of railway rates, in 
 harmony with correct economic principles, will never 
 diminish as long as transportation costs continue to 
 form a considerable part in the total costs of pro- 
 ducing commodities, and as long as competing shippers 
 and competing locaUties continue to produce the same 
 commodities for sale in a conamon market. 
 
 The need of ascertaining the economic principles 
 which should govern the actions of those entrusted 
 with the power of rate making has even been em- 
 phasized by recent changes in railway laws and pro- 
 posals for further legislation. A number of the Ameri- 
 can states have created railway commissions or have 
 strengthened the powers of existing ones, and have 
 placed in their hands the power and responsibility 
 for fixing, in large measure at least, the actual rates 
 for transportation. The Hepburn Act of June 29, 
 1906, increased the power over rates possessed by the 
 Interstate Commerce Commission and a further in- 
 crease in its powers has now been made. The fact 
 that the final determination of rates does not rest 
 with the Commission but is left to a special Court of 
 Commerce is probably of little consequence in so far 
 as the final results are concerned. Experience else- 
 where shows, as in the case of the English Railway 
 
 5 
 
 ■^ 
 
Commission, and in the case of the courts of arbitra- 
 tion and minimum-wage boards of the Australasian 
 colonies, that wherever special tribunals are created 
 having authority to determine prices and wages, these 
 tribunals, provided only that they are not subject to 
 frequent changes in membership, tend to evolve from 
 their own experiences a set of principles in harmony 
 with existing economic relations and tendencies. 
 
 This fact suggests the possibility of evolving a 
 theory of railway rates from a study of the decisions 
 of such railway commissions as have already been in 
 existence. Such a study would be inductive in its 
 methods, in contrast to the deductive methods which 
 have usually been followed by those who have written 
 on this subject. Starting with some general principle 
 of valuation, such as the marginal utiUty of the service 
 to the shipper, the principle of joint cost, or the tax 
 principle of abiUty to pay, — various writers have 
 endeavored to show that this given principle was 
 fundamental in the explanation of the theory of rail- 
 way charges. Without raising here the question as to 
 the validity of the deductive method when applied 
 to the problem of railway rates, or without attempting 
 to discuss any of the principles mentioned above, it 
 may be stated without hesitation that such an induc- 
 tive study as is here proposed should go far towards 
 confirming or denying the conclusions derived by the 
 deductive method of handling the problem. 
 
 The decisions of the Interstate Commerce Com- 
 mission handed down during the years 1887 to 1906 
 appear to offer the best opportunity for such an in- 
 ductive study applicable to American conditions. 
 During those years the Commission was required to 
 report not only its conclusions in each case heard by 
 it but also " the findings of fact " upon which the 
 
 6 
 
conclusions were based. Since the passage of the 
 Hepburn Act the Commission has not been required 
 to report " the findings of fact," except in cases where 
 damages are awarded. Tho this is doubtless sufficient 
 for practical purposes, the absence from the reports 
 of the Commission's " findings of fact " makes the 
 later decisions of less value to the student who seeks 
 to follow the path of reasoning by which the Com- 
 naissioners were led to their final decision. 
 
 In view of the circumstance that in a number of 
 important cases the decisions of the Commission were 
 over-ruled by the courts, when the question considered 
 was not, " is this in accordance with social and economic 
 considerations ? " but rather, " Is the decision in 
 accordance with the law and the Constitution ? " 
 one may be inclined to question whether, after all, 
 the decisions of the Commission do reflect economic 
 tendencies and principles and thus afford valuable 
 material for a study of rate theories. It may be 
 admitted at the outset that since the Commission 
 was in duty bound to follow the decisions of the courts 
 in subsequent cases of the same sort, the later cases 
 do not afford as good an opportunity as do the earlier 
 ones for obtaining the Commission's unprejudiced 
 views as to the principles involved. These cases are, 
 however, in a minority and even in these cases the 
 Conunission usually makes it clear that in reaching 
 its conclusions it is merely following the orders of 
 the court, and is not presenting its own views on 
 the subject. In its reported " findings of fact," the 
 student will usually have no difficulty in discovering 
 the answer which the Commission would have given 
 in the particular case, had it been free to follow its 
 own reasoning to a logical conclusion instead of apply- 
 ing the precedents established by the courts. 
 
In seeking to discover from a study of the decisions 
 of the Interstate Commerce Commission what are 
 the underljdng principles in a complete theory of 
 railway rates, it is not intended to imply that the 
 Commissioners are infallible or that their conclusions 
 always reflect sound economic doctrines. On the 
 contrary the decisions are often open to criticism. 
 A division of opinion within the Commission itself 
 is not infrequent, and the strong pressure of conflicting 
 interests occasionally leads to compromises intended 
 to satisfy in a measure all parties concerned. Yet 
 owing to the fact that in the course of two decades 
 numerous cases involving the same principles have 
 come before the Commission for adjudication, and 
 that conclusions reached on the basis of unsound 
 reasoning have failed to give satisfaction and have 
 had to be corrected, it is believed that a study of the 
 cases will throw much light on economic tendencies 
 at work to establish the truth of fundamental prin- 
 ciples.' Certainly experience is the only safe method 
 for testing our theoretical conclusions, and Mill's 
 dictum that " practice long precedes science " should 
 hold true in this field of inquiry, as in other depart- 
 ments of human affairs. 
 
 The members of the Interstate Commerce Commis- 
 sion seem generally to have been appointed without 
 much reference to political considerations and they 
 have usually been men of such intellectual calibre 
 
 1 " The facts presented In this long series of cases are kaleidoscopic. A single fact 
 may appear a hundred times but it always comes again In different company. Never, 
 perhaps, does exactly the same group of facts reappear in exactly the same combina- 
 tion or relationship. Hence each group of facts embraced in a case and each decision 
 based upon the same has an Individuality of its own. Generally speaking, no two 
 cases are alike in every respect, and no rule of thumb can be devised by which a de- 
 cision can be rendered. Yet, tho each decision has its peculiar characteristics, an 
 analysis and comparison of many cases and decisions reveals certain common elements 
 or underlying principles and views." — B. H. Meyer, Railway Legislation in the 
 United States, p. 195. 
 
 8 
 
as to command the confidence of the public. While 
 the fact that for the most part they have been lawyers 
 has undoubtedly tended to give a legal bias to their 
 conclusions, membership on the Commission has 
 usually lasted long enough to give the Commissioners 
 familiarity with the practical side of railway affairs 
 and with the economic considerations involved. 
 Probably most students of American railway problems 
 would accept Professor B. H. Meyer's statement * 
 that the decisions of the Interstate Commerce Com- 
 mission offer to the public " the most varied, the 
 most widely distributed, the most concrete and the 
 best authenticated collection of facts relating to 
 railways in the United States that is available at the 
 present time." From the conclusions of the Com- 
 missioners who have been obliged to study this mass 
 of facts and pass judgment on the questions at issue, 
 it should be possible to obtain some insight into the 
 problem of determining the general principles of rate 
 making.^ 
 
 I. Commission's Preliminaey Discussion 
 OF Rate Theories 
 
 The original members of the Interstate Commerce 
 Commission did not approach the work of rate adju- 
 dication without a preconceived opinion as to the 
 principles on which railway rates should be based. 
 In their First Annual Report, under the heading 
 
 1 Railway Legislation in the United States, p. 196. 
 
 2 It may not be out of place for the writer to explain the methods by which he has 
 Bought to reach the conclusions to be set forth. From a study of the abstracts of the 
 Commission's decisions given in the annual reports he has selected those cases which 
 seemed most likely to offer a discussion of the principles involved in rate making. 
 135 cases were selected and the full reports of these cases were then studied in detail 
 and thoroly analyzed with the purpose of ascertaining what in each case was the 
 leading principle involved. The cases were then classified according to these leading 
 principles. 
 
 9 
 
" Classification," the Commissioners discuss the theory 
 of railway charges. Cost of service as a basis of rate 
 making they reject, not alone because of the difficul- 
 ties involved in determining the cost for each com- 
 modity separately, but because they believe that 
 such a method of apportionment " would restrict 
 within very narrow limits the commerce in articles 
 whose bulk or weight was large as compared with their 
 value." 
 
 Value of service, on the other hand, they accept as 
 the true principle of rate making. 
 
 Such method of apportionment would be best for the country 
 because it would enlarge commerce and extend communication; 
 it would be best for the railroads, because it would buUd up a large 
 business, and it would not be unjust to property owners, who 
 would thus be made to pay in some proportion to benefits received.* 
 
 Just how the value of the service is itself to be 
 measured or even estimated the Commissioners do 
 not undertake to say. In some of the early decisions 
 rendered by the Commission, where the statement 
 is repeated that value and not cost of service con- 
 stitutes the true principle for determining the reason- 
 ableness of a given rate, we do find something approach- 
 ing to a discussion of this subject. Thus, in one of 
 the Standard Oil cases, we are told that " the effect 
 of transportation upon market value is taken into 
 account by carriers in making rates," ^ and this the 
 Commissioners imply is the way to measure the value 
 of the service to the owner of the property carried. 
 
 1 First Annual Report of the Interstate Commerce Commission, pp. 30-32. 
 
 ! Rice V. Louisville & Nashville R. R. Co., 1 I. C. C. Rep. 503; 1 I. C. R. 722. 
 (There are two editions of the bound volumes of the Interstate Commerce Com- 
 mission's decisions. One edition contains only the decisiona and is always referred to 
 as I. C. C. Rep. The other edition contains Reports and Decisions and is referred to 
 as I. C. R. The set to which I have had access contains some volumes from both 
 editions.) 
 
 10 
 
Again in the case of the Imperial Coal Co. v. The 
 Pittsburg & L. E. R. R. Co.^ the Commissioners 
 declare that " the value of the service to the shipper, 
 in a gener al sense, is the abiUty to reach a mark et 
 and tnjTifl.kf^ his nmn modity a subject of commerc e," 
 aiidajittlc fi,irthor on th ry aOt^t " Iii ^ more definite 
 an3"accurate sense it consists in reaching a market 
 at a profit, being in effect what the traffic will bear 
 to be remunerative to the producer or dealer." 
 
 These statements all seem to imply that the value 
 of the service is measured by the difference in the 
 market value of the commodity at the point of ship- 
 ment and at the place of unloading. Both theory 
 and experience, however, teach us that this difference 
 is itself determined, in the long run, by the railway 
 rate. Thus, in the report made by the Commission 
 as a result of its investigations of Alleged Excessive 
 Freight Rates and Charges on Food Products,^ we are 
 told: — 
 
 The price of farm products at railway stations is usually the market 
 price in Chicago, St. Louis, New York, or other markets to which 
 shipments from such stations are usually made, less transportation 
 charges and commissions. 
 
 The statement that railway rates are fixed in accord- 
 ance with the value of the service is thus seen to be 
 little more than a truism. In the oil and the coal 
 cases just referred to, as well as elsewhere in the 
 Commission's decisions, the value of the service is 
 considered to have the same meaning as the railway 
 man's expression " what the traffic will bear," and 
 it is not difficult to see that what the traffic will bear, 
 or what the service is worth depends upon whether 
 one views this from the standpoint of the carrier, the 
 shipper, the producer, or the consumer. 
 
 ' 2 I. C. C. Eep. 618; 2 I. C. R. 436. > 4 I. C. C. Rep. 116; 3 I. C. R. 94. 
 
 11 
 
The term " value of service " may have some impor- 
 tance as an expression of an ideal relationship which 
 should exist between railway rates, but it will not, in 
 many instances at least, serve as a definite standard by 
 which railway rates may be measured and compared. 
 
 More assistance in the way of solving our problem 
 will be gained by an analysis of the Commission's 
 decisions. In this way we shall be able to discover 
 what concrete standards the Commissioners have 
 themselves set up for measuring the reasonableness 
 of a given rate when they have been brought face to 
 face with the problems of rate making. For it may 
 be stated at the outset that no single principle has 
 been used by the Commission for solving all the prob- 
 lems of rate making; or, at any rate, if the Commis- 
 sioners insist on their statement that value of service 
 is the underlying principle in all cases, this expression 
 is used in such a broad sense that it is made to include 
 a variety of considerations any one of which may at 
 times be made the leading factor in the Commission's 
 decisions. Opinions may differ somewhat as to the 
 best way of stating the factors involved. By the 
 present writer they have been classified as follows: (1) 
 the relative values of the commodities transported; 
 
 (2) the relative costs of transporting the commodities; 
 
 (3) the relative distances the articles are carried; (4) 
 the relative natural advantages of location possessed 
 by various places; (5) the special and pecuUar in- 
 terests of a given section or of a given class of pro- 
 ducers; (6) the importance of maintaining competi- 
 tion; (7) the extent to which a given rate tends to 
 yield a fair return on the actual capital investment. 
 
 By one or another of these standards it is believed 
 that in all the cases coming before the Commission its 
 members have (often times unconsciously) sought to 
 
 12 
 
measure the reasonableness of a given rate. It is 
 true that in many cases several of these standards 
 are employed, but a careful study of the case will 
 usually show that some one of the above considerations 
 has been made especially prominent in reaching a 
 conclusion; or, if the case is a very complicated one, 
 that one standard has been appUed for testing the 
 reasonableness of the rates in one part of the case and 
 another standard has been used elsewhere. This is 
 practically equivalent to treating the matter as two 
 or more cases, and it will be so treated in the following 
 pages. In those instances where one standard of 
 comparison has been made the primary test of the 
 equitableness of a given rate but there are other 
 considerations of secondary importance, the case has, 
 of course, been treated under the primary heading. 
 
 In the following pages we shall consider separately 
 each of the above-mentioned standards of comparison 
 and shall endeavor to show the extent to which the 
 Interstate Commerce Commission has made use of it 
 as a basis for determining the reasonableness of rates. 
 After this review it will be our task to endeavor to 
 harmonize these diverse and sometimes apparently 
 conflicting principles, and to see if their relations to 
 each other cannot be so adjusted as to make it possible 
 to evolve a complete theory of rate making. 
 
 II. Value op Commodity 
 
 In the discussion of rate theories which is found in 
 the First Annual Report ^ and to which reference has 
 already been made, the Commissioners declare that 
 " the value of the article carried [is] the most import- 
 ant element in determining what shalj; be paid upon 
 
 ■ Pp. 30-32. 
 
 13 
 
it." Practically the same position is taken in the 
 Second Annual Report/ where it is said that the ap- 
 portionment of rates according to the value of the 
 service " would seldom be burdensome to articles of 
 high value, but it would relieve cheaper articles from 
 burdens which, if apportioned strictly to the cost to 
 the carriers of their transportation would render 
 carriage for considerable distances out of the question." 
 The Commissioners are careful to state that the 
 value of the commodity is not the only consideration 
 which enters into value of service. The emphasis 
 which they place upon it, however, as being " the 
 most important element " in determining the value 
 of the service makes it desirable that we should first 
 take up for consideration those cases in which value 
 of commodity is made the standard for measuring the 
 equity of a given rate. 
 
 1. Competitive commodities 
 
 The first group of cases of this sort consists of those 
 in which the Commission has had to deal with the 
 rates on commodities closely related in character and 
 frequently competitive with each other in the open 
 market. This group may further be divided into 
 two sub-groups. The first sub-group includes articles 
 offered for transportation in different stages of manu- 
 facture. In such cases the relative rates charged 
 will often determine the place where the later stages 
 of manufacture shall be carried on. In the second 
 sub-group, the articles do not represent the same 
 commodity but are nevertheless substitutes for each 
 other and the transportation rates might easily de- 
 termine which commodity should be used. 
 
 1 p. 35. 
 14 
 
(a) In the first sub-group the case ' which first 
 demands consideration has to do with the rates to be 
 charged on " hub-blocks " for use in the manufacture 
 of wheeled vehicles " but upon which only so much 
 labor has been expended as is needful to put them 
 into condition for seasoning." The carrier, made 
 defendant in this proceeding, had been classifying 
 these blocks in the fifth class with unfinished wagon 
 materials. The Commissioners ordered a reduction 
 to sixth class and required that the same rates be 
 applied as were given to lumber. A difference in the 
 values of the commodities is given as a reason for their 
 decision. A car load of hub-blocks was worth only 
 $280, while a car load of the hubs, turned but not yet 
 mortised, would be worth about $5000. A case ^ of 
 the same general character was that which had to do 
 with the relative rates on partially manufactured 
 furniture and on the finished commodities. Com- 
 plaint was made that the carriers were charging the 
 same rate (30 cents per 100 pounds) on chair materials 
 shipped from Detroit to Omaha as they were charging 
 for the finished chairs. In the case of the materials, 
 the value at Detroit was only $7 per dozen chairs, 
 while the value of the finished chairs was $28 per 
 dozen at Detroit, and $30 at Omaha. 
 
 The counsel for the roads raised two points of 
 interest in connection with the claim of the defendant 
 that owing to the lower value of the chair materials 
 lower rates should be given than on the finished chairs. 
 (1) Owing to the fact that a car load of chair materials 
 weighed from 25,000 to 30,000 pounds while a car 
 load of finished chairs weighed only 7000 pounds, it 
 
 1 F. L. Hurlburt v. L. S. & M. S. R'y Co.; 2 I. C. C. Rep. 122; 2 I. C. R. 81. 
 
 2 Murphy, Wasey & Co. v. Wabash R. R. Co. et al., 5 I. C. C. Rep. 122; 3 I. C. R. 
 725. 
 
 15 
 
was said that the value of a car load of materials was 
 about the same as that of a car load of the finished 
 articles, and this he argued warranted charging the 
 same rate per 100 'pounds on the two shipments. (2) 
 It was said that the proper basis for making rates was 
 the " increased value of such car loads after their 
 arrival at Omaha." ^ 
 
 The Commission held: (1) ^ "that the proper 
 basis would seem to be their value at Detroit when 
 shipped"; (2) that while the carriers were justified 
 in making such charges as would yield " a greater 
 compensation in the aggregate for hauUng a large 
 than a small car load, as a general rule the rate per 
 100 pounds should be less in the former than in the 
 latter case." The Commission, therefore, left the 
 rates on the finished commodities at 30 cents per 100 
 pounds and fixed the rate on wooden materials at not 
 more than 20 cents per 100 pounds. 
 
 Precisely the same situation was revealed in another 
 case ' in which the Commission expressed the opinion 
 that unfinished bed-room sets should be given a rate 
 of 85 per cent of that granted to the finished articles, 
 because of " the difference in value of the unfinished 
 and finished furniture . . . and the greater tonnage 
 per car load which can be hauled of the former." In 
 both of these cases it will be noted that cost of service 
 as well as value of commodity is cited as a reason for 
 the difference in the rates. 
 
 The same principles applied in the above cases also 
 find expression in several other cases where the ques- 
 
 1 This seems to be a logical application of the Commission's theory that value of 
 service is measured by the " effect of transportation on market value." 
 
 2 For the purpose of clearly distinguishing the various points in the Commission- 
 ers' arguments I have numbered them in this case as in many succeeding cases. 
 
 s Potter Mfg. Co. v. Chi. & Grand Trunk R'y Co. et al., 5 I. C. C. Rep. 514; 4 
 I. C. R. 223. 
 
 16 
 
tion is raised as to what shall be the relation of rates 
 on raw or semi-finished materials as compared to 
 those on the finished commodities. Thus the Com- 
 mission refused ^ to give its approval to the practice 
 of certain carriers in classifying hatters' furs and fur 
 scraps and cuttings as double first-class with corre- 
 spondingly high rates, while at the same time hats, 
 the finished product, were placed in the first class of 
 the Ofiicial Classification. Here again other considera- 
 tions, such as competition and cost of service, enter 
 into the decision; but value of commodity is ap- 
 parently the consideration chiefly held in mind. The 
 Commissioners say : — 
 
 We should be inclined to say that fur scrap and cuttings must be 
 rated higher than second class were it not for the claim of the 
 defendants that this would lead to fraud in the billing of fur and 
 fur scraps. . . . Hatters' fur, the raw material, does compete in 
 a way with hats, the finished product, and we do not think that, 
 imder the circumstances of this case, the rate upon the raw material 
 ought to be greater than upon the finished product. 
 
 On the same grounds the Commission refused ^ to 
 allow leather scraps to be classed with sole leather 
 and to be given the same rates, when the complainant 
 in the case had proved that the value of the leather 
 scraps was only from 2 to 5 cents per pound while 
 sole leather was valued at from 25 to 45 cents per 
 pound. Even in this case the Commission adds a 
 cost of service argument to its decision in stating that 
 " liability to damage in case of scrap is practically 
 nothing." 
 
 The Commission also decided ^ that, altho carriers 
 were not obliged to adopt such a classification as 
 
 1 Myer v. C. C. C. & St. L. R'y Co. et al., 9 I. C. C. Rep. 78. 
 
 2 Newman v. N. Y. C. & H. R. R. R. Co. et al., 11 I. C. C. Rep. 517. 
 
 ' National Machinery & Wrecking Company v. P. C. & St. L. R'y Co. et al., 11 1. 
 C. C. Rep. 581. 
 
 17 
 
would provide one rate on new dynamos and another 
 on second-hand ones, in case the second-hand dynamo 
 was bought for the purpose of being converted into 
 junk and had actually no other value, carriers were 
 bound to apply rates offered on scrap iron. " Its 
 value is no greater than the selling price by the pound 
 of the metal which it contains, not indeed as great 
 since a certain amount of labor must be expended 
 before even that price can be obtained." Here again 
 the logic of the value of commodity argument is some- 
 what disturbed by the statement that a dynamo, as 
 such, can properly be charged a high rate because it 
 requires great care in handling. 
 
 What appears at first as a perversion of the under- 
 lying principle of the above cases, viz. that raw mate- 
 rials should take a lower rate than the commodities 
 made therefrom, is illustrated in a decision ^ of the 
 Commission that window shades could not lawfully 
 be charged a higher rate than the material from which 
 they were made. The decision was, however, true 
 to the value of commodity principle, for the evidence 
 clearly showed that the material (window hoUands) 
 was pound for pound more valuable than the finished 
 commodity. " The items of similar bulk and weight, 
 less value and risk of carriage, and important volume 
 of traffic, are all in the direction of giving window 
 shades a classification as low as that which is provided 
 for window hoUands." The carriers had been classi- 
 fying manufactured window shades in class one and 
 window hollands in class three of the Official Classi- 
 fication. The Commission ordered them both into 
 class three. The U. S. Circuit Court refused to 
 enforce this order of the Commission on the ground 
 that it " applied to shades having very high value as 
 
 " Page et al. v. D. L. & W. R. R., 6 I. C. C. Rep. 148; 49 I. C. R. 525. 
 
 18 
 
well as to the cheaper varieties." Accordingly the 
 Commission on a re-hearing of the case ^ issued a new 
 order which permitted the carriers " to restrict their 
 transportation of window shades at third-class rates 
 to those Umited to a specified maximum valuation 
 at the time of shipment." The effect of the court's 
 ruling was, therefore, to strengthen rather than to 
 weaken the value of commodity principle. 
 
 A case ^ similar to the above was that in which the 
 Commission decided that a rate on box shooks higher 
 than that on lumber was not justifiable, since investi- 
 gation showed that a car load of lumber weighed 
 about 36,000 pounds and was worth from $350 to $800, 
 while a car load of box shooks weighed about 30,000 
 pounds and was worth only $220. 
 
 Several cases coming before the Commission have 
 had to do with the relative rates on the principal 
 cereals and their products. In most of these cases 
 the Commission has based its decisions mainly on a 
 consideration of the competitive conditions surrounding 
 the shipping and marketing of grain and its products, 
 but to a sUght extent it has made the difference in 
 value between the grain and its products a reason for 
 allowing higher rates on the latter. The Commis- 
 sion's whole attitude on the question is well expressed 
 in its treatment of the matter of a differential between 
 corn and corn meal shipped from Missouri river points 
 to Louisiana.' Its statement is as follows: — 
 
 The Commission has, as a rule, approved a reasonable difference 
 between any raw material and the manufactured article, but when 
 the amount of labor, and increased value, and extra risk, were so 
 comparatively insignificant as upon grain whole and grain ground, 
 
 ' 6 I. C. C. Rep. 548. 
 
 2 Michigan Box Co. v. F. & P. M. R. R. Co. et al., 6 I. C. C. Rep. 335. 
 
 ' 11 I. C. C. Rep. 227. 
 
 19 
 
it has not found that any very great extra freight charge was war- 
 ranted by the needs of the carrier, as a protection to any industry 
 or just to the consumer, and wherever the carrier has seen fit to 
 waive its privilege of a slightly advanced rate for the carriage of 
 its product, and the rate on the raw material was reasonably low, 
 the Commission has not interfered with that discretion. 
 
 A differential of 3 cents per 100 pounds above the 
 freight charges on corn was allowed in the transporta- 
 tion of corn meal from the Missouri river to points 
 in Texas/ and a differential of 5 cents was allowed 
 to the Pacific coast.^ In these cases, as in most of 
 the others which we have considered, the carriers' 
 cost of service arguments based on the greater risk 
 involved and the greater expense of handling the 
 manufactured product were given some degree of 
 recognition by the Commission, tho less emphasis 
 was placed upon these considerations than upon the 
 difference in the values of the conamodities. 
 
 Milk and cream may for all practical purposes be 
 regarded as the same article in different stages of 
 manufacture and the Commission has recognized the 
 difference in their values as a suflB.cient justification 
 for charging 45 cents per can for transporting cream 
 whUe only 35 cents were charged for carrying milk.^ 
 At the same time the reasoning employed by the 
 Commissioners in reality resolves itself into a cost of 
 service argument. 
 
 The element of value in the commodity transported forms a proper 
 consideration to be taken into account in the establishment of a 
 rate. The liabihty of the carriers as an insurer of freight against 
 all loss except such as is occasioned by the act of God or of the 
 public enemy, is elementary, and the greater the value the greater 
 the risk. 
 
 1 11 I. C. C. Rep. 220. ' 11 I. C. C. Rep. 212. 
 
 ' N. W. HoweU et al. v. N. Y., L. E. & W. R. R. Co. et al., 2 I. C C. Rep 272- 
 2 1. C. R. 162. 
 
 20 
 
Two cases which bring out very clearly the in- 
 fluence which value of commodity should have, in 
 the opinion of the Commissioners, in determining the 
 reasonableness of railway charges have to do with 
 the relative rates on live stock and packing-house 
 products. At the same time these cases illustrate 
 the hmits fixed by competition to the application of 
 this principle. 
 
 In the first case, a complaint instituted by the 
 Chicago Board of Trade,i the defendants, a number 
 of carriers in the Middle West, were in the habit of 
 giving lower rates on packing-house products from 
 Sioux City, Iowa, and other western packing centers 
 to Chicago than they gave to hve hogs when shipped 
 to the same market. They defended their practice 
 on the grounds of (1) higher cost of service in the 
 case of live hogs; (2) larger traffic in packing-house 
 products and the materials used in these houses, such 
 as salt, ice, etc., which furnished return cargoes in 
 part; and (3) the necessity of protecting vested interests, 
 since large investments had been made in the western 
 packing industry, based on the expectation that lower 
 rates were to be given its products. 
 
 None of these reasons was found by the Commission 
 to be borne out by the evidence submitted or to be 
 sufficiently important to warrant the discrimination 
 in rates. On the contrary, the Commissioners de- 
 clared: — 
 
 As articles of commerce, the evidence shows without conflict, that 
 the hve hog and its products are in direct competition with each 
 other. This only brings out in a stronger light the discrimination 
 that is made against the traflBc in the live hog as compared with 
 the traflSc in the product. Of the two the product is very much 
 more valuable; it is transported at more expense to the carrier. 
 
 » Chicago Board of Trade v. C. & A. R. R. et al., 4 I. C. C. Rep. 163; 31 C. R. 233. 
 
 21 
 
The evidence submitted tended to show that the 
 value per 100 pounds of live hog was from about 
 $4.50 to $4.75, while an equal weight of the packing- 
 house product was worth about $7.50. 
 
 In view of the very great difference in the values 
 of the two commodities, we might naturally expect 
 that much lower rates on the live animals than on the 
 products would be ordered by the Commission. But 
 owing to the keen competition existing between the 
 Chicago packers and those of the western cities, the 
 Commission did not feel warranted in going so far. 
 They contented themselves with a notice to the 
 carriers that the " rates made by them on live hogs 
 should not be greater than upon packing-house 
 products." 
 
 In the second case of this sort with which the Com- 
 mission was called upon to deal, practically the same 
 complaint was made, the complainant being the 
 Chicago Live Stock Exchange.^ Some new conditions 
 in this case, however, demand our consideration. 
 
 During the years intervening between the earUer 
 Chicago Board of Trade decision and the hearing of 
 this case several of the carriers which were defendants 
 in the former case had extended their lines westward 
 beyond the Missouri river. Other hues, like the 
 Chicago & Great Western Railway, extended only to 
 that river. The roads extending beyond the river 
 were inclined to establish such rates as would favor 
 the traffic in live stock, since in this way shipments 
 to Chicago would be entirely over their own lines. 
 The roads terminating at the river were, on the other 
 hand, inchned to establish such rates as favored the 
 traffic in live-stock products ; since if the animals were 
 unloaded and slaughtered at the Missouri river towns, 
 
 ■ Chicago Live Stock Exchange v. C. & G. W. R'y Co. et al., 10 I. C. C. Rep. 428. 
 
 22 
 
these lines would share in the shipment of the products 
 to Chicago and the East. The real cause of the dis- 
 crimination was, therefore, competition between the 
 lines extending beyond the Missouri river and those 
 terminating at the river. 
 
 The testimony offered before the Commission 
 showed that the giving of lower rates on live-stock 
 products than on the live animals was due to the action 
 of the Chicago & Great Western Railway, whose lines 
 terminated at the Missouri river. The competition 
 of this line had forced the other roads, so it was claimed, 
 to depart from the order issued by the Commission 
 in the Board of Trade case. The defense offered 
 by the Chicago & Great Western was lower cost of 
 service in the case of the live-stock products. The 
 evidence, however, showed that the real purpose of 
 the discrimination was to secure for this carrier a 
 larger share of the traffic in the products of live stock 
 than it could otherwise hope to obtain. 
 
 The Commission found little evidence tending to 
 support the claim of the Chicago & Great Western 
 that the cost of service was higher for the live animals 
 than for their products. The officials of nearly all 
 the other roads represented in the investigation ex- 
 pressed the opinion that the rates on live stock should 
 not be higher than those on animal products, while 
 some of the officials claimed that the live-stock rates 
 should be lower than for the meat products. The 
 Commissioners themselves said: " Altho we think 
 cost of transportation is a very important element, 
 we do not consider it a controlling element in this 
 case." They ordered the carriers to give such rates 
 on five stock as should not exceed those on the five- 
 stock products. Their decision rested on the value 
 of commodity principle, expressed as follows : — 
 
 23 
 
In determining what the relation should be between the rates 
 charged for transporting two different freight articles, value is 
 often an important factor, but this is not alone because of the 
 greater risk connected with the transportation of the more valuable 
 article. Improvements made during recent years in the road-beds 
 and equipment of carriers have rendered the item of risk in many- 
 cases of little consequence. The value of the article is important, 
 principally, because of its bearing upon the value to the shipper 
 of the transportation service; and the value of the service is, and 
 has always been considered by carriers, one of the important 
 elements to be considered when fixing the rates to be charged for 
 transportation. As stated in the findings of fact, live-stock prod- 
 ucts, compared with the live animals, are about twice as valuable. 
 
 As in the Board of Trade case, so here also, the 
 Commission was not able to follow this argument 
 to its logical conclusion by requiring lower rates on 
 live animals than on packing-house products. The 
 nature of the competition between these two classes 
 of commodities was such that equal rates seemed to 
 be required. In describing this competition, the 
 Commissioners made it evident that the emphasis 
 which they placed on the relative values of the com- 
 modities was due to the fact that these values were 
 believed to reflect the competitive relationship which 
 existed between them. They said: — 
 
 Another very important factor is the relation existing between 
 the articles transported. If the relation is remote, such as that 
 between flour and silk, a change of a few cents per hundred pounds 
 in the rates charged for transporting one of them may not affect 
 traffic in the other; but if the relation is close, such as that between 
 raw material on the one hand and goods manufactured from that 
 material on the other, a slight change in the adjustment of trans- 
 portation charges between the two articles may be sufficient to 
 close manufacturing plants at some points and increase the output 
 of plants elsewhere. And it is because of this difference that some 
 discriminations made by the carriers are justifiable under certain 
 circumstances. 
 
 One of the cases most difficult to solve which has 
 come before the Commission is that of the Grain 
 
 24 
 
Shippers' Association of Northwest Iowa v. the Illinois 
 Central Railroad Company et al.^ The case presents 
 too many elements to enable us to consider them all 
 under a single heading, but value of commodity plays 
 such an important part in the discussion that the case 
 demands our attention here. 
 
 The rates complained of were those on corn, wheat, 
 and other grains from Sioux City and other points 
 in northwestern Iowa to Chicago and to points on 
 the east bank of the Mississippi river. The complain- 
 ants urged that the rates on these grains were too high 
 to enable them to be raised and marketed with a 
 profit. It was said that the rates were dispropor- 
 tionately high as compared to those on other commodi- 
 ties having a higher value and whose costs of trans- 
 portation were higher. Particular emphasis in this 
 connection was placed on the relatively low rates 
 given on hogs and cattle, and it was said that the 
 adjustment of rates was such that it favored the 
 farmers who fed their grain and shipped the live stock 
 and thus discriminated against the small farmers and 
 tenants who could not afford to buy stock for feeding. 
 When the case is looked at in this light it will be seen 
 that it involves the question as to what shall be the 
 rates on raw material (grain) as compared to those 
 on its manufactured products (hogs and cattle). 
 
 The answer of the defendants to the complaint that 
 rates on grain were excessive as compared to those 
 on other conunodities was that this complaint might 
 have some justification if rates were made under 
 " ideal conditions," but that under the " actual con- 
 ditions " with which the carriers had to deal, where 
 competition was the " controlling consideration," 
 such rates as were asked for by the complainants 
 
 • 8 I. C. C. Rep. 158. 
 25 
 
were impossible. In this connection the Commis- 
 sioners inquired of the traffic managers present " upon 
 what basis a freight rate was made, what elements 
 entered into it," and their questions seem to have 
 been particularly directed towards finding out what 
 part the value of the commodity played in determining 
 the rate charged for its transportation. The answers 
 of the traffic managers, as condensed and set forth 
 by the Commissioners, were as follows : — 
 
 In ideal traflBc conditions certain elements would be taken into 
 account in establishing a freight rate. These, among others, 
 would be value of the commodity, the cost of service, the volume 
 of traffic, etc. Under these conditions the witnesses rather thought 
 that value might be a pretty important factor in determining the 
 freight rate. Under actual conditions, while an attempt waa 
 made to regard these various considerations, as a rule, the con- 
 trolling influence was competition. The witnesses expressed the 
 opinion that the rates on grain would be, if such ideal conditions 
 could obtain, too low ' in proportion to the rates on manufactured 
 articles, but it was said that such ideal conditions did not and 
 could not obtain. ... In a word, the freight tariff was made as it 
 was, not because it ought to be that, but because it must be that. 
 The railways obtained all they could, which was still too little. 
 The witnesses aU said that the grain rates in question were entirely 
 the result of competition. 
 
 The Commissioners were inclined to agree with the 
 traffic managers in their statement that the rates in 
 question were established as a result of competition, 
 but they were not willing to admit that the carriers 
 were justified in neglecting the other elements which 
 should be considered in the fixing of freight rates. 
 This was particularly true of the value of the 
 commodity. The Commissioners say: — 
 
 Value is undoubtedly an element which should be considered in 
 the fixing of rates. It is often a most important element but 
 
 1 The reference here seems to be to rates on grain from Minneapolis and Kansas 
 City to Chicago, which the testimony showed were much lower than from northwest 
 Iowa, owing to excessive competition at those points. 
 
 26 
 
plainly cannot be made an arbitrary standard independent of all 
 other considerations. This case certainly shows that in the opin- 
 ion of these traffic men produced as witnesses, the present tariffs 
 do not represent an ideal relation in rates between different com- 
 modities, and perhaps fairly shows that if such ideal relations 
 could be obtaiaed the rates on grains are too high as compared 
 with those on some other commodities, especially manufactured 
 articles. 
 
 It was, however, the relation between the rates on 
 grain and those on live stock which seemed to the 
 Commissioners especially unfair. 
 
 Whether the grain shaU be shipped to market or fed in the vicinity 
 of where it is raised depends, in a measure, upon the freight rate 
 upon the graia and upon the live stock. For this reason there 
 ought to be, to some extent, a correspondence between the rates 
 upon these commodities, and a decrease in the rate upon one ought 
 ordiaarUy to be accompanied by a decrease in the other. 
 
 An investigation of the changes in rates between 
 1887 and 1898, when the case was heard, showed, 
 however, that the decline in the rate on live stock had 
 been much greater than in that on grain. " We are 
 of the opinion, too," say the Commissioners, " that 
 the rate on Uve stock at the present time is lower in 
 proportion to the service rendered than that on grain." 
 
 Without making any formal order in the case, the 
 Commissioners recommended a considerable lowering 
 of the rates on grain from Sioux City and surrounding 
 territory to Chicago. In reaching this conclusion 
 the members of the Commission were undoubtedly 
 influenced mainly by the showing made by the com- 
 plainants as to the relative rates on grain and live 
 stock when compared with the relation between their 
 market values. 
 
 (&) Coming now to the second sub-group of cases, 
 dealing with commodities which are competitive in 
 
 27 
 
character, we shall notice, first, a case which had to do 
 with the relative rates on Pearline and common soap.' 
 
 The carrier had undertaken to place PearUne in 
 class four of the Southern classification and to charge 
 a rate of 73 cents per one hundred pounds between 
 New York and Atlanta. Common soap was placed 
 in class six, which under ordinary conditions would 
 have given it a rate of 49 cents to Atlanta. Owing, 
 however, to the existence of water competition between 
 New York and Atlanta, conunon soap had received 
 a special rate to Atlanta of 33 cents per 100 pounds. 
 
 The presentation of the arguments in the case 
 brought out the following points: (1) Pearline was 
 an article in general use and was used for the same 
 purpose as was conamon soap, with which article it 
 was in direct competition. (2) The market value 
 of Pearline was about twice that of the common soap. 
 (3) The risks involved in its carriage were somewhat 
 greater than for the soap. (4) Water competition 
 at Savannah made necessary a lower rate on soap to 
 Atlanta than to other points, but Pearline, owing to 
 risks from dampness, could not be shipped by water, 
 hence no special rate was given it to Atlanta. 
 
 The Commission held that the discrimination against 
 Pearline was too great, that it should be placed in the 
 fifth class and be given a rate of 60 cents per 100 
 pounds. Common soap was to remain in the sixth 
 class and pay the full rates of that class, except to 
 Atlanta, where the competition of a through rail and 
 water route made the special rate of 33 cents per 100 
 pounds necessary. 
 
 In explaining the reason for allowing a difference 
 in the rates on the two coimnodities, the Commis- 
 sioners say: — 
 
 1 James Pyle & Soua v. East Tenn., Va. A Ga. R. R. Co., 1 I. C. G. Rep. 466. 
 
 28 
 
The very great difference in the value and also the risk in case 
 of serious accident in the transpori;ation of Peariine as compared 
 with common soap would seem to indicate that there is ground 
 for a reasonable difference in the freight rates on these two articles. 
 
 The decision seems to rest chiefly on the difference 
 in the values of the two commodities, tho it should 
 be noticed that two other considerations fiu-nish a 
 partial explanation, viz. the risks (i. e. the cost) of 
 transportation and, in the case of the special Atlanta 
 rate, the existence of water competition. 
 
 Value of commodity is again the controlling, tho 
 not the exclusive, consideration in the case of Coxe 
 Bros. V. The Lehigh Valley R. B. Co.^ The complainants 
 had asked that the same classification and rates be 
 given to anthracite coal that were given to the bitu- 
 minous product. 
 
 The Commissioners declined to make this concession 
 on the grounds that (1) the value of the anthracite 
 coal was greater and therefore the service of trans- 
 porting it was worth more to the shipper; (2) the 
 shorter distance from the mines to the principal 
 markets in the case of anthracite rendered its trans- 
 portation per ton-mile more expensive. This latter 
 argument, it will be noticed, is based on cost of service. 
 
 The Commission, however, ordered that some 
 reduction be made in the rates on anthracite, since 
 rates on coal are generally less than on such com- 
 modities as iron ore and pig iron, whose value is 
 greater, while the Lehigh road had in force higher rates 
 on coal than on these commodities. The evidence 
 showed, too, that this road had but recently raised the 
 rates on coal, after having for two years maintained 
 lower rates on the anthracite coal than on these iron 
 products. The long maintenance of the lower rates 
 
 » 4 I. C. G. Rep. 535; 3 I. C. R. 460. 
 29 
 
on coal satisfied the Commissioners that their rates 
 were profitable to the carrier. 
 
 Another coal case which falls within this group is 
 that of McGrew v. Missouri PaciHc R'y Co.^ The Com- 
 mission decided that the carrier might properly make a 
 distinction in classification between soft and lump coal, 
 used only for domestic purposes, and " mine-run, nut, 
 mill and slack" coal used only for steam purposes, and 
 might give a lower rate to the latter class. Such a 
 distinction clearly rests for a justification on differences 
 in the values of the two commodities. 
 
 In the case of Wolf Bros. v. Alleghany R'y Co. et al. ^ 
 it was decided that since paper bags were made of 
 cheaper paper, were packed in a different way, and 
 were used for a different pm-pose than were merchan- 
 dise envelopes, there was no objection to giving these 
 bags a lower classification and lower rates than were 
 accorded to the merchandise envelopes, even tho the 
 complainant called these envelopes paper bags and 
 was able to show that the cost of service in transporting 
 them was less than for the ordinary envelopes. 
 
 Still another concession to value of commodity 
 over cost of service appears in one of the Standard 
 Oil Cases.' The carrier was ordered to charge only 
 on the basis of the weight of the oil carried in barrels 
 when it charged for oil only, if carried in tanks, and 
 not to charge barrel shipments on the gross weight. 
 
 2. Non-competitive commodities 
 
 The second class of decisions in which the value of 
 the commodity is selected as the controlling consider- 
 ation in the determination of the railway rate has to 
 do with articles which, tho not of the same kind and 
 
 8 I. C. C. Rep. 630. ! 7 I. C. C. Rep. 40. 
 
 'ester 
 
 30 
 
 • Rice, Robinson & Wlnthrop v. Western N. Y. & Penn. R. R Co 4 I C C 
 Rep. 131; 3 I. C.R. 162. '' ■ ■ ^- 
 
not directly competitive, are nevertheless so similar 
 in character as to warrant similar treatment. 
 
 In the first case ^ of this sort the Commissioners 
 refused permission to the defendant carrier to classify 
 railroad ties in class five (manufactured wooden 
 commodities) while at the same time it classified 
 lumber and other unfinished wooden articles in class 
 six, and in addition gave a special low rate to lumber. 
 The defendant claimed as a reason for placing ties 
 in a higher class than lumber that " tie shipments are 
 less in quantity and require switching for single cars, 
 whereas in the case of lumber, we switch a large number 
 of cars together." The Conmiission rejected this 
 cost of service argument, not because it was based 
 on cost of service and was therefore incorrect in prin- 
 ciple but because the statement was " not convincing." 
 
 No special reason appears in the evidence why tie shipments are 
 not likely to be as large per day as lumber shipments, therefore 
 the distinction cannot be sustained on the ground of greater cost 
 of movement, for no such greater cost is established. 
 
 The Commissioners maintained that lumber and 
 ties were so alike in character and the conditions for 
 transporting them were so similar that they should 
 be classed alike and that such discrimination as was 
 shown by the defendant was not justified by the 
 relative values of the two commodities. 
 
 In another case ^ the Commissioners held that it 
 was unjust and unreasonable to put raisins in a higher 
 class, taking a higher rate, than was given to dried 
 fruits, since the market value of the raisins was uni- 
 formly lower than that of California dried fruits. 
 
 1 Reynolds v. Western N. Y. & Penn. R'y Co. et al., 1 I. C. C. Kep. 393; 1 1. C. R. 
 686. 
 
 ! Martin v. Southern Pacific Co. et al., 2 I. C. C. Rep. 1; 2 I. C. R. 1. 
 
 31 
 
The same conclusion was reached with reference 
 to the classification of celery. ' The carriers were 
 ordered to give it the same classification and rates as 
 were given to cauHflower, asparagus, lettuce, whether 
 shipped in car load or less than car load lots. It was 
 said that since the original classification was made, 
 celery had come into much more common use. 
 
 Its production has greatly increased and its market value has 
 declined. It certainly is no more a table luxury than some of the 
 vegetables which have a lower class in the Western classification. 
 
 A rather curious attempt to adjust rates in mathe- 
 matical proportion to the values of the conomodities 
 is furnished by a case "^ coming before the Conamission 
 where the question was as to the relative rates on 
 cabbages and potatoes. The Commissioners said: — 
 
 As the weight of a barrel of cabbage is three-foiarths of that of a 
 barrel of potatoes and its price or value only one-half (two fourths) 
 it would seem that there is a difference of one-fourth in favor of 
 cabbage. This is upon the assumption that bulk and value would 
 operate equally in proportion to amount in enhancing rates. Our 
 conclusion is that the rate on cabbage from Charleston should be 
 one-fourth less than the rate on potatoes. 
 
 It should be said, however, that this reasoning was 
 only incidental to a general discussion which dealt 
 with more important matters, and it would be a mis- 
 take to lay much emphasis upon it as an expression 
 of the views of the Commissioners. 
 
 In order to determine the importance which should 
 be attached to the value of a commodity in fixing the 
 rate which is to be paid upon it, the Commissioners 
 have at times taken into consideration the uses to 
 
 1 Tecumseh Celery Co. v. Cin., Jackson & Mackinaw R'y Co. et al., 5 I. C. C. 
 Eep. 663; 4 I. C. R. 318. 
 
 " Truck Farmers' Association of Charleston and Vicinity v. Northeastern R. R. 
 Co. of South CaroUna et al., 6 I. C. C. Rep. 295. 
 
 32 
 
which a given commodity is to be put. In one case ' 
 the question was raised as to whether cow peas were 
 to be classed with such commodities as corn and oats, 
 or whether they should go into a class with com- 
 mercial fertilizers and take the same rates as the latter 
 commodity. The complainants urged that cow peas 
 were used for fertilizing purposes, but the defendants 
 held that they were also used extensively as a feed 
 for cattle and even to some extent as an edible. The 
 Commissioners found the facts to be as stated by 
 the defendants. As a fertilizer it was shown that 
 the cow peas were not only more valuable than other 
 fertilizers, but were capable of fertilizing pound per 
 pound more land than cotton-seed meal and other 
 fertilizers : — 
 
 The planter can afford to pay a higher rate on cow peaa used in 
 the process of enriching his land than he can afford to pay upon 
 commercial fertilizers; while on the other hand, the carriers would 
 derive inadequate revenue from the carriage of this product if the 
 peas should be treated as complainant insists they should be. 
 There are other facts, however, which stUl further distinguish 
 cow peas from fertilizers ia general use. The vine is used as fodder 
 in stock feeding quite extensively throughout the Southern States, 
 and the pea itself is consumed by many as an edible, and its use as 
 food is quite general. Again, the value of cow peas per hundred 
 poimds is greatly in excess of that of the general fertilizer, a fact 
 which should be considered in fixiag rates. 
 
 Another case ^ which illustrates the same point, 
 — that the use to which a commodity is to be put 
 must be considered in determining the rate to be paid 
 upon it, — is that in which the Commissioners decided 
 that " the Scheidel outfit," an electrical apparatus 
 mainly employed in the production of the X-ray, 
 should be classified with medical and scientific instru- 
 ments and pay double first-class rates in the Official 
 
 ■ A. G. Swaffield v. Atlantic Coast Line R. R. Co. et al., 10 I. C. C. Eep. 281. 
 ! W. Scheidel & Co. v. Chi. & Northwestern R'y Co. et al., 11 I. C. C. Rep. 532. 
 
 33 
 
Classification, rather than be classified with " electrical 
 appliances not otherwise specified " which were charged 
 single first-class rates only. The Commissioners said, 
 however, that if later there should develop a con- 
 siderable demand for a similar mechanism for com- 
 mercial uses, then all such mechanic appliances, 
 including the Scheidel outfit, might be entitled to a 
 lower rating. 
 
 The case, however, which best illustrates the prin- 
 ciple appUcable throughout this entire group is that 
 of Rice V. Cincinnati, Washington & Baltimore Railroad 
 Co. et al.^ It shows that the importance which the 
 Commission is willing to attach to the value of a 
 commodity as a measure of the reasonableness of a 
 railway rate is less in the case of commodities non- 
 character than in the case of those which are in direct 
 competitive in competition with each other. 
 
 Complaint was made that the rate on refined petro- 
 leum oil was unreasonable as compared to that given 
 on cotton-seed oil, which, tho transported in much 
 the same way and having a higher market value, was 
 nevertheless given a lower rate. The Commission 
 declined to adjust the rates on these two commodi- 
 ties on the basis of their relative values, holding that 
 inasmuch as they were not competitive commodities 
 the discriminating rate given to one could not " appre- 
 ciably affect the market price of the other," and 
 therefore could not unjustly affect the shipper. The 
 two products were so dissimilar in character and 
 supplied such different demands that a low rate on 
 one could not be of any disadvantage to the shippers 
 of the other. 
 
 The Commissioners were willing to admit, however, 
 that since the methods of transporting the two com- 
 
 1 5 I. C. C. Rep. 193; 3 I. C. R. 841. 
 34 
 
modities were much the same, the rate given on one 
 commodity might have " some bearing " on the 
 reasonableness of the rate on the other, especially 
 when their relative values were taken into considera- 
 tion, and it was seen that the higher priced commodity 
 was receiving the lower rate. 
 
 In respect to the methods and cost of transportation, these com- 
 modities (cotton-seed oil and turpentine) have a notable resem- 
 blance to petroleum products, and the cheapest of them is several 
 times more valuable than illuminating oil. . . . Notwithstanding 
 the comparatively low value of refined petroleum, the amount 
 exacted for its transportation is in some instances 60% greater 
 than the sum accepted for carrying cotton-seed oil between the 
 same stations. It is impossible to reconcile such inconsistent 
 charges. The cotton-seed oil rate, in the cases referred to, is not 
 forced upon the railroad, and must, therefore, be presumed to be 
 remunerative; but if the lower rate for the higher priced article 
 is reasonable to the carrier, how can the higher rate for the lower 
 priced article be reasonable to the shipper? " 
 
 Other cases which have come before the Commis- 
 sion might be cited to show how the principle of value 
 of commodity has been made use of to determine the 
 rate on non-competitive articles, but other considera- 
 tions enter into these cases and their discussion would 
 not aid in the presentation of the argument. 
 
 3. Market value the criterion 
 
 The third class of cases in which the value of the 
 conamodity transported is accepted as a test of the 
 reasonableness of the railway rate is not a large one 
 nor in itself of great importance. Its importance 
 lies rather in the fact that these cases show that, in 
 judging of the values of the commodities in question, 
 the Commissioners have in mind the market values 
 rather than the intrinsic utilities of the articles. 
 
 35 
 
A manufacturer of patent medicines made objec- 
 tions ' to the Official Classification employed on 
 eastern railway lines, according to which patent 
 medicines were placed in first class when shipped in 
 less than car load lots and in third class when shipped 
 in car load lots; whereas beer, ale, etc., when shipped 
 in less than car load quantities, were given a third 
 class rating, and in car load lots were placed in fifth 
 class. The complainant asserted that not only were 
 the modes of packing, the methods of handling, and 
 the risks of transportation the same for the patent 
 medicines as for the beer, ale, etc., but that the " in- 
 trinsic value " of the patent medicines was no greater 
 than that of the beer, etc. The higher market value 
 of the patent medicines it was said was simply " the 
 result of skill in advertising." The Commissioners, 
 however, declared that : — 
 
 The value of an article to the manufacturer is the price it commands 
 and it seems only reasonable that carriers should take into account 
 the market value, a thing generally known and easily ascertained, 
 as one of the considerations in arranging their classifications and 
 fixing the rates that a commodity should bear. It is not seen how 
 the relations that any specific commodity should bear to other 
 commodities for classification purposes can be arrived at in any 
 other practicable way. 
 
 Since the evidence in this case showed that a car 
 load of the patent medicines in question had a market 
 value of 15400, while a car load of beer or ale sold for 
 about $1800 the Commission decided that the existing 
 differences in classification and rates were justified. 
 
 The same attitude was observed in the case of the 
 Andrews Soap Company v. Pittsburg, Cincinnati & 
 St. Louis Railway Co. et al.,^ where the complainant had 
 
 ' Warner v. N. Y. C. and H. E. R. Co. et al., 4 I. C. C. Rep. 32; 3 I. C. R. 74. 
 
 2 4 I. C. C. Rep. 41; 3 1. C. R. 77. 
 
 36 
 
urged that his soap, tho advertised as a toilet soap, 
 was in reality of the same character and utiUty as 
 laundry soap and therefore entitled to the lower rates 
 given to laundry soap. The Commissioners said: — 
 
 A manufacturer's description of an article to induce its purchase 
 by the public also describes it for transportation and carriers may 
 accept his description for pxuposes of classification and rates. 
 
 4. Social considerations 
 
 We come finally to a fourth class of cases in which 
 the value of the commodity is accepted as a criterion 
 of the reasonableness of the rates. Here social con- 
 siderations are cited by the Commissioners as reasons 
 why commodities having a high value should be called 
 upon to pay higher rates than commodities having 
 a low value. Such an idea finds frequent expression 
 in the Commission's decisions, as for example when 
 it is said in discussing the rate on hay: ^ " When the 
 market price of a commodity yields but scant return 
 for labor and expenses of production, the cost of 
 transportation needs to be as moderate as may be 
 consistent with justice to the carriers." The same 
 position with reference to the hay rate was taken in 
 the case of The National Hay Association v. The Lake 
 Shore & Michigan Southern Railway Company et al.^ 
 
 A more explicit enunciation of this doctrine is, 
 however, found in the discussion of the rates on iron 
 and steel products.' Low rates on these commodities 
 said the Commission are 
 
 1 Behlmer v. Memphis & Charleston R. E. Co. et al., 6 I. C. C. Rep. 257; 4 I. 0. 
 R. 870. 
 
 2 9 I. C. C. Rep. 264. 
 
 8 Colorado Fuel & Iron Company v. The Southern Facifio Company et al., 6 
 I. C. C. Rep. 488. 
 
 37 
 
largely due to the character of such commodities, the use to which 
 they are put, the demand for them in large quantities throughout 
 the country, their susceptibility of movement at less cost and risk 
 to the carrier than high class and more valuable freight, and other 
 like conditions. It is to the interest of the carriers as weR as the 
 public, that their rates be low enough, if not below a remunerative 
 point, to permit the general movement and distribution of these 
 commodities in general demand in larger quantities for construc- 
 tion, building, manufacturing, and other purposes. Reasonable 
 freedom of such movement and distribution stimulates the growth 
 and development of the country and thereby promotes all interests. 
 . . . Rates on steel rails and other low grade freights of the 
 character stated, sdelding per ton per mile the average received on 
 aU freight would be unjust. 
 
 A further indication of the importance which the 
 Commissioners attached to the market values of these 
 commodities in fixing the rates to be paid upon them 
 is shown by the fact that it was later decided ^ that in 
 cases where the carriers had reduced the rates on iron 
 and steel because of a reduction of the prices of such 
 articles due to commercial depression, they were 
 justified in advancing the rates when the commercial 
 depression was past. The Commissioners were care- 
 ful to repudiate the idea that freight rates in general 
 might be adjusted on the principle of the sliding 
 scale, but they found something akin to this system 
 in the traffic in iron and steel and did not care to dis- 
 turb it. 
 
 Iron rates seem to be pecuUarly susceptible to these commercial 
 influences. The charge for transporting pig iron from southern 
 producers to northern points of consumption has for a long time 
 varied directly with the value of the article transported. 
 
 Social considerations have seemed to the members 
 of the Commission to require that the rates on the 
 lower priced grains, corn and oats, should be lower 
 than those on wheat, ^ and that a considerable reduc- 
 
 ' In the Matter of Propoaed Advances in Freight Rates, 9 I. C. C. Rep. 382. 
 " 4 I. C. C. Rep. 48; 3 I. C. R. 93. 
 
 38 
 
tion in the price of wheat should be followed bj^ a 
 reduction ra the rates on that commodity charged 
 by the carrier.^ Generally speaking, the Commission 
 seems committed to the principle that where the 
 market price of a commodity is low and it is an article 
 in general demand, the interests of the public require 
 that the carrier should be satisfied with small profits 
 from the transportation of this commodity. 
 
 The equitable rule doubtless is that rates should bear a fair and 
 reasonable relation to the antecedent average cost of the trafiSc 
 as delivered to the carrier for transportation and the average 
 market price the freight wiU command, or, as it is termed, the com- 
 mercial value of the property.^ 
 
 It might be thought that the principle of value of 
 conmiodity could never be applied in connection 
 with the passenger trafiic. It is true that in most 
 countries, and to a limited extent also in the United 
 States, the passenger coaches are divided into com- 
 partments, having different accommodations and dif- 
 ferent rates. By so doing it is expected that people 
 of little means may nevertheless travel on the rail- 
 roads if they are content to accept accommodations 
 inferior to those furnished to the first class passengers. 
 There is no compulsion, however, on the part of 
 millionaires to travel first class and to pay the high 
 rates, if they prefer to take advantage of the low rates 
 offered to those who travel in the second or third class 
 compartments. 
 
 In one case,' however, the Interstate Commerce 
 Commission has upheld certain railroads in their 
 practice of putting immigrants into a special class 
 
 1 6 I. C. C. Rep. 520. 
 
 ' Delaware State Grange v. N.Y.,PhiIa. & Norfolk R. R. Co. et al., 4 I. C. C. 
 Rep. 588; 3 I. C. R. 554. 
 
 > Savery v. N. Y. C. and H. R. R. Co. et al., 2 I. C. C. Rep. 338. 
 
 39 
 
and giving them lower rates than were accorded either 
 to first or second class passengers, and in their refusal 
 to sell tickets to other persons at the same rates as 
 were given to immigrants even tho these other persons 
 were willing to ride in the immigrant cars. 
 
 The reason given by the Commission for sustaining 
 the carriers in this case was that immigrants are 
 
 a class of persons readily distinguisliable from the general public, 
 and so far constituting a special class that up to that time when 
 they are received upon the cars they are subject to exceptional 
 regulations for reasons, which being accepted as a basis of legislar 
 tion, must be deemed sufficient. 
 
 Altho the Commissioners do not here set forth value 
 of commodity as a reason for granting lower rates to 
 immigrants than to other persons, it seems difficult 
 to justify this discrimination on other grounds. The 
 cost of service would not be less in the case of immi- 
 grants than for other persons travelling in immigrant 
 cars. The fact that immigrants constitute " a legally 
 recognized class of persons subject to exceptional 
 regulations " would not of itself justify lower rates 
 than for native-born Americans any more than it 
 would justify higher rates. It is, however, logical 
 to consider immigrants as constituting a class of per- 
 sons possessing little means, having therefore little 
 ability to pay and thus subject to a lower rate than 
 that given to other passengers. Broad social and 
 governmental considerations therefore serve to justify 
 the lower rates given to these persons of little financial 
 ability. 
 
 This review of the more important cases in which 
 the Interstate Commerce Commission has based its 
 decision in large part on considerations involving the 
 value of the commodities, serves to show that while 
 
 40 
 
value of commodity has undoubtedly at times been 
 accepted as a test of the reasonableness of a given 
 rate, the use made of the principle has been much less 
 than one would naturally suppose, in view of the 
 strong assertion by the commission that " the value 
 of the article carried [constitutes] the most important 
 element in determining what shall be paid upon it." 
 There is Uttle, indeed, in the experience of the Inter- 
 state Commerce Commission to warrant Professor 
 E. R. Johnson's expectation that as governmental 
 regulation proceeds, rates will more and more be fixed 
 " with reference to the values of the commodities." ^ 
 In those cases in which the Commissioners have 
 referred to the principle of value of the commodity 
 as influential in determinimg the rate they have never 
 insisted that charges should be proportional to the 
 values of the commodities. 
 
 In many of the cases decided by the Commission 
 the value of the commodity has been referred to 
 because it indicated in some degree the risk assumed 
 by the carrier. In the most important group of cases 
 which we have considered, the Commission has felt 
 obliged to take into consideration the differences in 
 the values of finished and unfinished goods in order 
 to preserve competition in their production. In still 
 other cases the desire to preserve competition among 
 carriers has led to the consideration of the relative 
 values of the competing commodities. In only a 
 relatively small number of cases has the Commission 
 felt that social and economic considerations were so 
 urgent as to require that commodities entering largely 
 into general consumption and having a low value 
 
 1 JotmBon, American Railway Transportation, p. 281. Cf. " The Principles of 
 Governmental Regulation of Railways." Political Science Quarterly, vol. iv, pp. 
 46-47. 
 
 41 
 
should be given the benefit of low rates; and even in 
 these cases the argument might be advanced that it 
 was the general demand for the commodities rather 
 than their low values which led the Commissioners 
 to prescribe the low rates. 
 
 III. Cost of Service 
 
 The proposition that in the business of railway- 
 transportation, with its large proportion of fixed to 
 circulating capital, it is impracticable to determine 
 the costs of performing any particular service or of 
 transporting any particular commodity, has been so 
 often demonstrated that we need give it no further 
 consideration. If the theory of cost of service is to 
 be employed in explaining the principle of railway 
 charges, the term costs must, undoubtedly, be used 
 in the sense of joint costs. ^ 
 
 We have already observed that the original members 
 of the Interstate Commerce Commission held that the 
 cost of service principle was not applicable to railway 
 charges. Their attitude in this matter is well set 
 forth in the following quotation from their decision 
 in one of the earliest cases ^ which came before them : — 
 
 While cost, as has been said, is an element to be taken into account 
 in the fixing of rates and one of the very highest importance, it 
 cannot, for reasons well understood, be made the rate basis, but 
 it must in any case be used with caution and reserve. This is not 
 merely because the word " cost " is made use of in different senses 
 when applied to railroad traflB.c, it being often used to cover merely 
 the expense of loading, moving, and unloading trains, but also 
 because in whatever sense the word may be used, it is quite im- 
 
 ' Professor Taussig has stated fully this theory of joint cost in its application to 
 railway rates in the Quarterly Journal of Economics, vol. v, pp. 438-465. Re- 
 printed in part in Ripley's " Railway Problems," pp. 123-144. 
 
 ' In re petition of Louisville & Nashville Railroad Company, 1 I. O. C. Rep. 31; 
 1 I. C. R. 278. 
 
 42 
 
possible to apportion with accuracy the cost of service among the 
 items of the traffic. . . . Any attempt to apportion the cost, 
 therefore, would at the best and under the most favorable circum- 
 stances only reach an approximation. This is so well understood 
 the world over that the proposition which from time to time is 
 made in other countries to measure the charge of the carrier by 
 the cost of the carriage solely, have always been abandoned after 
 investigation. 
 
 It is well known that traffic managers and others 
 engaged in the business of transportation flatly deny 
 that the cost of service principle can be used as a means 
 of fixing railway rates.^ 
 
 In view of this strong agreement between railway 
 officials and the members of the Interstate Commerce 
 Commission as to the impossibiUty and undesirability 
 of using cost of service as a measure of the reasonable- 
 ness of a railway rate, it is somewhat surprising to 
 find that in defending rates which have been made 
 the subject of complaint to the Commission, railway 
 officials and railway attorneys have frequently — 
 perhaps most frequently — done so by the use of cost 
 of service arguments. Even more surprising, how- 
 ever, is the fact that the Conunissioners have not 
 only lent a wiUing ear to such arguments and sus- 
 tained them whenever the evidence seemed to support 
 them, but they have very frequently on their own 
 initiative entered into an investigation of the cost of 
 transportation with a view to rendering a decision 
 on the basis of the facts ascertained by this investi- 
 gation. The members of the Commission have, of 
 course, never pretended that they could ascertain the 
 exact proportion of the fixed and operating expenses 
 assignable to a given commodity. Such has not been 
 the purpose of their investigations, nor the tenor of 
 the decisions. The attempt has not been made to 
 
 1 Cf. Kirkman, Railway Rates and Government Control, pp. 73-70. 
 43 
 
apportion the charges, as the Commissioners say, 
 " strictly to the cost." But cost of service has never- 
 theless been used as a means of determining the 
 reasonableness of rates in four different classes of 
 cases. (1) When a rate higher than the ordinary 
 could be justified on the ground that some special 
 service had been performed or a special obUgation 
 incurred by the carrier. (2) Where a rate complained 
 of was judged as to its reasonableness by comparing 
 the ascertainable costs of transportation with those 
 incurred in transporting other commodities whose 
 rates were believed to be reasonable. (3) Where 
 comparison was made with costs on other roads or 
 on other parts of the system. (4) Where the costs 
 of shipping conamodities in car load lots were com- 
 pared with those incurred in shipping less than car 
 load quantities. By methods of comparison, there- 
 fore, rather than by attempting to ascertain the exact 
 and total costs of transporting a given commodity, 
 the Interstate Commerce Commission has made use 
 of the cost of service principle as appUed to railway 
 rates. We shall take up for consideration each of the 
 four classes of cases in turn. 
 
 1. Costs of rendering some special service 
 
 Under this heading, the first case with which we 
 have to deal is that of John P. Squire & Co. v. The 
 Michigan Central Railroad Co. et al.^ This case should 
 be compared with the Chicago Board of Trade and 
 the Chicago Live Stock Exchange cases which we 
 have already considered and in which, it will be re- 
 membered, the Commissioners made value of com- 
 modity the controlling principle. In the present case, 
 
 I 4 I. C. C. Rep. 611; 3 I. C. R. 515. 
 
 44 
 
however, much greater emphasis was placed upon the 
 cost of service. 
 
 The complainant in the case was engaged in the 
 business of slaughtering hogs in the vicinity of Boston. 
 For some time, the railroads had granted him a rate 
 of 30 cents per 100 lbs. on live hogs transported from 
 Chicago to Boston. The rate on dressed beef and 
 hog products had been fixed by the Trunk Line Asso- 
 ciation, after an exhaustive hearing, at 65 cents per 
 100 lbs. With this adjustment of rates the com- 
 plainant had been satisfied. Railway competition, 
 however, soon set in, and while the rates on live hogs 
 remained the same as before, those on hog products 
 fell lower and lower, being at times as low as 17 cents 
 per 100 lbs. With this relation of rates existing 
 between the live hogs and their products, the business 
 of the complainant was being ruined, since it was 
 brought out in the hearing of the case that virtually 
 the only difference in the cost of slaughtering hogs 
 in the East and West was the cost of transporting 
 the live animals. 
 
 The complainant asked that the rates be based on 
 purely " commercial considerations," wholly inde- 
 pendent of the cost of the service. He argued that 
 the railroads should justly make relative rates such 
 that both parties could live, and that the product 
 rate should be higher than the live-hog rate, even if 
 the cost of transporting the two articles were the 
 same, which he claimed was not the case. 
 
 The argument resting on the relative values of the 
 two commodities should have exerted an influence, 
 it seems, on the minds of the Commissioners, since 
 value of commodity had been accepted as the control- 
 ling principle in the earUer cases which dealt with the 
 same commodities. In the present case the Com- 
 
 45 
 
missioners did not accept this line of reasoning. They 
 admitted that the increased value of the product 
 might legitimately be taken into account in the fixing 
 of the rate, but they declared that to base rates upon 
 the theory advanced by the complainant would mean 
 that the rates on live hogs would have to vary with 
 every change in the market price of the animals in 
 the western markets. 
 
 The Commission therefore proceeded to make a 
 lengthy investigation into the relative costs of trans- 
 porting the two kinds of commodities and reached the 
 following conclusions : — 
 
 (1) The product is carried in more expensive cars. . . . The interest 
 on the increased original cost and the greater outlay for repairs are 
 constant expenses. (2) The weight of the refrigerator car, when 
 loaded with the product, including the ice for refrigeration, is 
 about 64,000 pounds, and that of the live-stock car when loaded 
 is 46,000 pounds. If the tariff was based solely upon tonnage, 
 that is, upon the weight of the car and its load when the carrier 
 charges 30 cents per hundred for carrsdng the live hogs, the charge 
 for carrjdng the product should be about 42 cents per hundred. 
 (3) The loading and unloading of the animals by the shipper instead 
 of the carrier is a continuing advantage. (4) The rapidity with 
 which the cars used in the live-stock traffic are loaded render them 
 less liable to detention, and they are returned to the traffic sooner 
 than when loaded with the product. (5) The refrigerator cars 
 have to be iced. Five tons of ice and salt per car are furnished 
 in the Chicago-Boston business. This is a constant expense in 
 summer months. (6) The product is more valuable than the live 
 animals. 
 
 All of these considerations except the last, it will 
 be noted, have to do with the extra costs incurred by 
 the carriers in transporting the meat products. The 
 costs, it is true, are not accurately determined. In- 
 deed there is much that seems arbitrary in the Com- 
 missioners' methods of computing the extra costs 
 due to the methods of handling the meat trafiic, 
 by which they arrive at the conclusion that the rates 
 
 46 
 
in force at the time of the hearing of the case, viz. 
 30 cents per hundred pounds for live animals and 
 45 cents per hundred for the products, furnish an 
 equitable adjustment of the dispute. The Commis- 
 sioners of the Trunk Lines had previously given the 
 question of the relative rates for these commodities 
 much thought and had concluded that when the 
 live-hog rate was 30 cents per 100 pounds, the rate on 
 the hog products should be 65 cents. We are interested 
 at present not in the merits of the decision but in the 
 theory by which the Commissioners reached their 
 conclusion; and concerning this their explicit state- 
 ment leaves us no way in doubt. 
 
 We are of the opinion that in the fixing of relative rates upon 
 articles strictly competitive, as these are, the proper relation 
 should be determined from the cost of the service, and if the di£fer- 
 ence in this respect between two competitive articles can be ascer- 
 tained, such a rate should be fixed for each as corresponds to the 
 cost of service. This is fair to the carrier and we believe that the 
 manufacturer has a right to demand of the companies that such a 
 relation of rates as to these articles should be maintained. 
 
 In the investigation made by the Commission in 
 1902-1903 into The Matter of Proposed Advances 
 in Freight Rates, ^ an inquiry was made into the reasons 
 for a recent advance in the rates on dressed beef from 
 40 cents to 45 cents per 100 pounds. The carriers 
 claimed that the 45 cent rate was not an advance but 
 a restoration of a rate which excessive competition 
 had made it impossible to maintain in the past. Com- 
 petitive conditions had now so changed that it was 
 beUeved that the old rates could be maintained. The 
 Commissioners after investigation concluded that 
 the explanation given by the carriers was satisfactory 
 and that the 45 cent rate was reasonable, — 
 
 > 9 I. C. C. Kep. 382. 
 47 
 
especially in view of the fact that while the rate is high the service 
 is expensive to the carriers. The loading of these cars is of special 
 construction, and heavier than the ordinary car; refrigeration 
 must be provided, which necessitates the hauling of large quanti- 
 ties of ice and salt, an express service is demanded and the car must 
 be returned empty. 
 
 The same line of argument was employed in the 
 case of the Truck Farmers' Association of Charleston 
 and Vicinity v. Northeastern Railroad Co. of South 
 Carolina et al.^ The complainants claimed that 62 
 cents a quart was exorbitant for transporting straw- 
 berries from Charleston, S. C, to Baltimore, Phila- 
 delphia, and New York, and that an undue disparity- 
 existed between the rates on strawberries and those 
 on potatoes and cabbages shipped in bulk. The 
 carriers defended the rates on berries in view of the 
 unusual costs incurred in their transportation, which 
 they described at length. They claimed, further- 
 more, that the rates were properly enough made higher 
 on berries than on the potatoes and cabbage because 
 the berries were worth more per pound. 
 
 The Commissioners attached little weight to this 
 value of commodity argiiment made by the defendants, 
 and in their decision placed the emphasis on the high 
 costs of the service. They went carefully over the 
 evidence submitted by the carriers and undertook 
 to calculate the necessary costs of getting the berries 
 into the New York market in good condition. They 
 concluded that the charge of two cents per quart for 
 icing was too high by about one half cent per quart, 
 but otherwise they appeared satisfied with the showing 
 made by the carriers as to the cost of service. They 
 announced, therefore, that a rate of six cents per 
 quart for transporting berries from Charleston to 
 
 1 6 I. C. C. Rep. 295. 
 48 
 
New York was not excessive, and this decision they 
 defended in the following manner : — 
 
 The rate per ton-mile under the charge above prescribed of six 
 cents per quart will be very much higher than that demanded by 
 carriers on ordinary freight. Relatively higher rates on straw- 
 berries, however, appear to be justified by the exceptional char- 
 acter of the service connected with their transportation. This 
 exceptional service is necessitated by the highly perishable char- 
 acter of the traffic, requiring refrigeration en route, rapid transit, 
 specially provided trains, and prompt delivery at destination. 
 There is also involved in this service extra trouble in handling at 
 receiving and delivering points, extra facUities at such points, the 
 " driUing " of cars in a train, reduction of length of trains to secure 
 celerity of movement, partially loaded cars, the return of cars 
 empty, and perhaps other similar incidentals. 
 
 In a case ^ analagous to the above the Commission 
 decided that 81 cents per 100 pounds was a reasonable 
 rate for transporting peaches in car load lots from 
 Atlanta to New York. The same considerations 
 creating an expensive cost of service were present in 
 this case as in the one just treated. " In view of 
 these considerations," said the Commissioners, " we 
 cannot say that the established rate is so excessive 
 as to call for condemnation." An interesting feature 
 of this case was the refusal of the Commission to 
 allow the carriers to increase their charges in a pro- 
 gressive rate whenever the value of the car load ex- 
 ceeded $500. The carriers sought to justify the 
 increase on the ground that the danger of damage 
 to freight was greater in the case of the heavier car 
 loads and that there was no other means of covering 
 these risks, since no charge was made for the excess 
 over the prescribed minimum weights for car loads. 
 It is evident that the higher rates could have been 
 upheld on the value of commodity principle, and the 
 
 ' Georgia Peach Growers' Association v. The Atlantic Coast Line R. R. Co. et a!., 
 10 I. C. C. Rep. 255. 
 
 49 
 
failure of the Commission to recognize this fact shows 
 how far its members had departed from their former 
 view that " the value of the article carried [is] the 
 most important element in determining what shall 
 be paid upon it." 
 
 In spite of the refusal of the Commissioners to 
 recognize unusual liability to damage as a reason for 
 charging higher rates in the above case, this has not 
 always been the attitude of that body. In the case 
 of the New Orleans Live Stock Exchange v. Texas 
 & PaciUc Railway Company,^ the peculiar argument 
 was advanced by the defendant that certain high 
 rates on cattle shipments, which were the subject of 
 complaint, were due to the fact that the carrier was 
 frequently obliged to pay excessive damages awarded 
 to Texas shippers by the Texas courts. The Com- 
 missioners were unwilhng to admit that " a judgment 
 rendered in the course of judicial procedure is unjust 
 or excessive," but they did recognize that the char- 
 acter of the live-stock traffic was such that large sums 
 for damages might have to be paid by carriers engaged 
 in this traffic, and that this was, " an incident in the 
 transportation of that commodity which may properly 
 be taken into account by the railroad in estabhshing 
 its tariffs." The higher rates in this given instance 
 were not allowed, however, for the reason that the 
 testimony seemed to show that the large claims for 
 damages were due to the carriers' own negligence; 
 and the Commission held that shippers of cattle ought 
 not to be called upon to pay higher charges for trans- 
 portation " to make good the negligence of the carrier 
 itself." 
 
 Higher rates on lumber shipped from Dalton, 
 Georgia, to points on the Ohio river than were charged 
 
 1 10 I. C. C. Rep. 327. 
 50 
 
from other places near Dalton were upheld by the 
 Commission ^ because of differences in the cost of 
 service which resulted from " dressing-in-transit " 
 privileges accorded Dalton but not the other places. 
 The Commissioners said : — 
 
 The dressing of the lumber results in a comparatively important 
 waste of raw material, which is by that amount loss of tonnage 
 to the carrier, a duphcation of terminal expense, a loss of time and 
 increase of expenses by reasons of delays in the through shipment 
 to destination. 
 
 The decision of the Commission in the case of the 
 Commercial Club of Omaha v. The Chicago & North- 
 western Railway Co. et al.^ that the carriers were 
 privileged to charge higher rates on goods sent from 
 Omaha, Nebraska, to points within the State of Iowa 
 than were charged to the same points from Council 
 Bluffs, Iowa (across the Missouri river from Omaha), 
 rested in the main upon the opinion of the majority 
 of the Commissioners that Council Bluffs was entitled 
 to its natural advantages of location for carrying on 
 a trade with Iowa cities. In part, however, the 
 majority of the Commissioners made use of the cost 
 of service argument as a defense of their decision; and 
 cost of service was the sole basis of the argument 
 employed by Commissioner Prouty, who supported 
 the majority in its decision but not in its principal 
 arguments. Even the dissenting Commissioners 
 admitted that the decision of the majority might 
 properly be upheld upon the basis of cost of service 
 arguments were it not for the fact that to all other 
 points than those in Iowa the carriers had estabUshed 
 equal rates from those two cities. 
 
 1 J. K. Farrar et al v. Southern R'y Co, et al., 11 I. C. C. Rep. 632. 
 
 2 7 I. C. C. Rep. 386. 
 
 51 
 
The cost of service argument rested upon the fact 
 that, in carrying goods from Omaha to Iowa points, 
 the railroads were obliged to make use of an expensive 
 bridge across the Missouri river and to pay the tolls 
 for the use of this bridge exacted by its owners. Messrs. 
 Knapp and Yeomans said, for the majority: — 
 
 These shipments to Iowa towns require a greater service from the 
 carriers than is performed for Council Bluffs merchants for they 
 are hauled a greater distance and over an expensive bridge. The 
 charge for this extra service is admitted to be reasonable and those 
 for whom it is performed cannot justly complain because it is not 
 gratuitously rendered. . . . The defendants which constructed 
 the bridge over this river, and the defendants which have leased 
 the right to run their trains across it are prima fade entitled to 
 some compensation for their outlay. 
 
 Enough cases have been cited to show that the 
 members of the Interstate Commerce Commission 
 have reached the very reasonable conclusion that 
 where the conditions of the traffic are such as to 
 require some special service on the part of the carriers, 
 involving unusual expenditures, the carriers are jus- 
 tified in demanding higher rates to cover these extra 
 costs, and that to this extent at least the cost of service 
 principle is applicable in the case of railway rates. 
 
 2. Comparison with other commodities 
 
 In this class of cases the Commission has sought 
 to make a study of the comparative costs of trans- 
 porting different commodities, oftentimes with a view 
 to determining their classification. But since in the 
 Commission's own words, " classification is the founda- 
 tion of all rate making," it follows that if the classi- 
 fication has been based on costs, these costs inevitably 
 determine the rates to be charged for their transpor- 
 tation. 
 
 52 
 
Possibly the best illustration of this class of cases 
 is the effort made by the Commission to determine 
 the relative rates on oranges and strawberries/ shipped 
 from Florida to the New York market. In an earlier 
 case the Commission had decided that a reasonable 
 rate on oranges was $120 per car. On the basis of 
 this decision the complainants asked for a reduction 
 of the rates on strawberries which, at the time of the 
 hearing of the case, averaged $361.80 per car. 
 
 The Commissioners proceeded to ascertain, what, 
 if any, were the considerations which would justify 
 different rates on strawberries than on oranges and 
 how great these differences should be. As stated by 
 the Commissioners these differences are as follows. 
 It will be noted that all but one of them have to do 
 with cost of service. 
 
 (1) The expense of handling berries at junction or terminal points, 
 berries not being handled with trucks, as are oranges. (2) Allow- 
 ances for hauling the berry cars on the passenger trains on the line 
 of the F. C. & P. railroad. (3) Extra dead weight of refrigerator 
 cars when loaded with berries instead of oranges, owing to the fact 
 that an average berry load is only half an orange load. (4) Extra 
 risk of loss in case of accident arising from negligence of carrier. 
 (5) Less value of the oranges. (6) Less volume of the berry traffic. 
 (7) Only one half the weight of the average car load of oranges 
 makes an average car load of berries. (8) Oranges can go by 
 water or ordinary trains. Berries must go by fast trains. (9) 
 Oranges do not require refrigeration, but refrigeration is indis- 
 pensable in the berry traffic. 
 
 On the basis of these considerations the Commis- 
 sion ordered a reduction in the rates on berries so 
 that they should pay only double first-class rates plus 
 30 cents a crate. This would make the rate on an 
 average car load $299.70. 
 
 ' C. p. Perry v. The Fla. Cent. & Pen. E. R. Co. et al., 5 I. C. C. Rep. 97; 3 
 I. C. R. 740. 
 
 53 
 
In a similar manner the Commissioners discuss the 
 relative rates on beans and tomatoes. ^ The defendant 
 carrier had placed beans in the second class of the 
 Southern Classification and tomatoes in the third 
 class, altho in weight and value the two commodities 
 were much the same. This classification resulted 
 in a rate of 70 cents per 100 pounds on beans shipped 
 from Verona, Miss., to East St. Louis, 111., while 
 tomatoes were charged only 44 cents for the same 
 distance. The Commission did not order a change 
 in rates or classification, but in the following words 
 declared that the existing rates were unwarranted: 
 " The present difference of almost one half in the rate 
 on beans and tomatoes, when the actual cost of trans- 
 portation is nearly the same, ought to be remedied." 
 
 In several cases which have come before the Com- 
 mission, having to do with the relative rates on corn 
 and corn products, that body has, as we have seen, 
 allowed slightly higher rates on the corn than on its 
 products, mainly owing to the higher value of the 
 latter commodities. In several other instances, how- 
 ever, the differences in the rates on these commodities 
 have been adjusted on the basis of the comparative 
 costs of transportation. 
 
 In the case of H. Bates and H. Bates, Jr. v. The 
 Pennsylvania Railroad Company et al.,^ complaint was 
 made by a firm of Indianapolis millers that owing to 
 a change in classification the carriers were charging 
 a rate of 23 cents per 100 pounds for transporting 
 corn meal from Indianapolis to Chicago, while a rate 
 of only 18| cents per 100 pounds was charged for raw 
 corn. This relation of rates was said to be proving 
 ruinous to the Indianapolis milling industry. The 
 
 ' W. R. Rea v. The Mobile and Ohio R. R. Co., 7 I. C. C. Rep. 43. 
 ' 3 I. C. C. Rep. 435; 2 I. C. R. 715. 
 54 
 
carriers based their defense mainly on the competi- 
 tive conditions surrounding the traffic, particularly 
 competition by the Great Lakes which affected the 
 rate on corn but not that on corn products. 
 
 The Commission did not believe that water com- 
 petition was very effective in the case of corn sent 
 from Indianapolis, owing to the distance of that city 
 from the Great Lakes. It declared that " no reason 
 founded on cost of service exists for a difference in 
 rates between corn and corn products," and tho it 
 was admitted that the manufactured product was 
 commercially a little more valuable than the corn, 
 other advantages existed in the transportation of the 
 product, so that " on the whole the transportation of 
 each at the same rate was equally valuable to the 
 carrier." The carriers were therefore ordered to 
 cease discriminating between corn and corn products. 
 
 The carriers succeeded in obtaining a rehearing of 
 the case,^ and having discovered that the Commission 
 was inclined to place more weight on differences in 
 the cost of transporting the two commodities than 
 on differences in the commercial values, the defense 
 prepared its brief on the basis of a cost of service 
 argument. Evidence was submitted to show that a 
 difference in the rates on corn and corn products was 
 justified by higher loading and terminal expenses for 
 the com products than for the corn. It was shown 
 that the difference in the rates which at the time of 
 the former hearing was 4| cents per 100 pounds had 
 now been reduced to 21 cents. The rates on corn 
 could not be raised, it was said, because if this were 
 done, it would shut the farmers of the Indianapolis 
 region out of the eastern market, since the rates would 
 then be higher than those from the North and West, 
 
 1 4 I. C. C. Eep. 281; 3 I. C. H. 390. 
 65 
 
where water competition compelled low rates. On 
 the other hand, if the rate on corn products was made 
 as low as that on corn, " the carrier would receive less 
 than a justifiable charge without substantial advan- 
 tage to the farmers." 
 
 On the basis of this showing the Commission decided 
 to vacate its former order which required equal rates 
 on the two commodities. The reasons for this re- 
 versal of its decision were stated as follows: — 
 
 (1) We think the additional testimony has established the fact 
 that the cost of service to the carrier including terminal expenses 
 properly chargeable as freight charges, is greater on the product 
 than on raw corn. (2) The present rate on corn is down to the 
 lowest point that railroads can possibly reach on corn and leave 
 any profit, and lower than they can go on the product without 
 loss. (3) The downward pressure of competition in the trans- 
 portation of corn is greater than on the products of corn. 
 
 The Commission felt that the reduction by the 
 carriers of the differential between corn and corn 
 products from 4| to 2| cents per 100 pounds had 
 remedied in large part the evils complained of. 
 Accordingly its former order was vacated and no 
 further order was issued. 
 
 In another case ^ which had to do with the difference 
 in rates on corn and corn meal shipped from Kansas 
 points to points in Texas, the Conamissioners said : — 
 
 We find that the difference in the cost of service in the transporta- 
 tion of corn and com meal does not exceed three cents per 100 
 pounds, and that there are no other conditions surrounding the 
 transportation of these two commodities like differences in value, 
 greater liability to injury, etc., which justify a difference in rate 
 of more than three cents. 
 
 The last case ^ in this group which we shall cite is 
 of much interest, for the decision of the Commission 
 
 ' Board of Railroad Commissioners v. The Atchison, Topeka & Santa Fe R'y Co., 
 8 I. C. C. Rep. 304. 
 
 « Cattle Raisers' Association of Texas v. Missouri, Kansas & Texas R'y Co. et al.. 
 11 I. C. C. Rep. 296. 
 
 56 
 
rests upon a careful balancing of the costs of service, 
 cited by the defense as a reason for high rates, against 
 certain other costs cited by the complainants or 
 discovered as a result of the investigation which 
 would have tended to make low rates on the traflfic 
 in question natural and desirable. The case deals 
 with the matter of an advance in rates on live cattle 
 shipped from Texas points to northern ranges and 
 also to the principal cattle markets, Chicago, St. 
 Louis, and Kansas City. The advances in rates had 
 extended over a period of several years; and by 1903, 
 when the complaint was filed, the rates were " higher 
 than any rate ever in effect since rates were filed with 
 the Commission." 
 
 The carriers claimed that the rates formerly in 
 force were the result of severe competition and fur- 
 nished no standard of reasonableness. They defended 
 the existing rates by an elaborate showing as to the 
 costs of service of the cattle traffic as compared to 
 the costs of transporting other commodities. Since 
 the costs cited by them appear in the Commission's 
 decision, presently to be quoted, it will not be neces- 
 sary to give them at this point. One thing in which 
 both the carriers and the Commission seemed to agree 
 was that the case should be decided on the basis of 
 cost of service. Even the usual practical objection 
 to this method of determining the rate disappears in 
 the light of the Commission's statement that " it is 
 possible to determine with reasonable accuracy the cost 
 of transporting a train of this live stock between any two 
 points." ^ 
 
 The Commission, however, did discuss other con- 
 siderations than cost of service which might justify 
 the increase of rates. It discovered that neither the 
 
 ■ Italics mine. 
 57 
 
carriers' need for revenue nor any increase in the value 
 of the commodity transported could legitimately 
 serve as an excuse for the advances. On the contrary 
 the ton-mile revenue from the cattle trafl&c was greater 
 and the cost of movement no larger than in the case 
 of other freight, while the cost of producing cattle in 
 Texas was greater than at the time the first advances 
 in rates were made. The new rates were not the 
 result of competition but were the result of concerted 
 action on the part of the roads acting through the 
 Southwestern Tariff Conamittee. 
 
 Returning then to the cost of service arguments 
 put forth by the defendants, the Commissioners said: — 
 
 These traffic officials all base their opinion upon the assumption 
 that the cost of handling this cattle traffic is much greater than 
 the average cost of handling all traffic. The reasons which they 
 give for this assumption do not, as we have seen, bear examination. 
 They aU say that the cattle traffic is more expensive because cattle 
 trains are shorter than other trains, but the testimony in this 
 record shows that they are in fact longer. It is said that the 
 loading of a cattle car is less than the average loading of other 
 freight cars, and, therefore, that the paying revenue of the train 
 in which they are transported is less, but, it appears that while 
 the loading of the individual car is lighter, the revenue freight in 
 the cattle train is as much or more than in the average dead freight 
 train. Other disabilities are pointed out. Some of these are 
 capable of being expressed in doUars and cents as the cost of main- 
 taining pens and shutes, the cost of bedding and disinfecting cars, 
 the cost of loading, the extra hazard pecuhar to this species of 
 traffic, etc. These aggregate from one to one and one half cents 
 per hundred pounds. In addition there are certain minor matters 
 like the use of a longer caboose, the return of the attendants, the 
 stopping to feed and water which are not susceptible of any estimate 
 upon this record, but of which the aggregate cannot be large. 
 There is the more important fact that this traffic must be given 
 an express service, but we have seen that the greater expense of 
 providing a fast service depends largely upon the fact that the 
 train loading of revenue freight is lighter, whereas here the loading 
 is at least equal to the average. There is a very substantial dis- 
 advantage growing out of the fact that a large percentage of cattle 
 
 58 
 
cars must be returned empty; but here again the difference is less 
 than one would suppose from a casual consideration of the subject. 
 The empty movement in case of all traffic is necessarily large, being 
 some thirty per cent as appUed to the entire car mileage of most 
 of the defendants as against forty or forty-five per cent in case of 
 stock cars. This, however, is a substantial disability against this 
 traffic. 
 
 If we turn to the rates themselves we find that the average 
 revenue per ton-mile which these stock rates yield is greater in all 
 cases and much greater in some cases than the average rate per ton- 
 rmle. We also find that while the average rate per ton-mile in 
 case of all these defendants decreased materially from 1892 to 
 1903 these stock rates, even before the advances of 1903, had in 
 most cases increased. . . . The cost of operation has increased 
 in some respects, but this has been more than offset by the intro- 
 duction of improved methods and especially by the large increase 
 in the volume of the traffic. 
 
 The Commission accordingly reached the conclu- 
 sion that the advances in rates made during 1903 
 were unjust and unreasonable and that the existing 
 rates were therefore " unjust and unreasonable by 
 the amount of said advances." The carriers having 
 made their defense strictly on the plea that the costs 
 of moving the live stock were higher than for ordinary 
 freight, the Commissioners followed this line of argu- 
 ment and declared that " the average cost of moving 
 live stock is not greater than the average cost of moving 
 all conunodities." To show, however, that they 
 fully agreed with the carriers that the decision should 
 be reached on the basis of cost of service arguments, 
 they say : "In determining a reasonable rate the 
 cost of performing the service, as has been just ob- 
 served, is one element in that rate, and cost of move- 
 ment is an important item in arriving at the entire 
 cost of service." 
 
 There are many other cases in which the Interstate 
 Commerce Commission has made use of the method 
 
 59 
 
of comparative costs to enable it to judge of the rea- 
 sonableness of a given rate. Usually, however, other 
 arguments are relied upon in part, and the cost of 
 service principle is therefore presented in less distinct 
 fashion than in the preceding cases. 
 
 3. Comparison with rates elsewhere 
 
 A second method of comparison employed by the 
 Commission in certain instances has been to judge of 
 the reasonableness of a given rate by comparing the 
 costs of performing the service with the costs incurred 
 on other roads or on other parts of the same road 
 where the rates were believed to be reasonable. There 
 are not many cases of this sort and they need not long 
 detain us. 
 
 Complaint was made in one case ^ that the rate for 
 transporting cotton from Meridian, Mississippi, to 
 New Orleans was too high. The investigation showed 
 that if more than 20 cents per 100 pounds, or about 
 a dollar a bale, were charged, it would be more pro- 
 fitable for shippers to send their cotton to the eastern 
 market by another route. At the same time, it was 
 apparent that such a low rate would be an unprofitable 
 one to the carrier, since, even with the rates then in 
 force, the carrier was earning little more than oper- 
 ating expenses. The Commissioners declared that 
 while the fact that a rate was unremunerative must 
 not be overlooked, this would not justify rates grossly 
 excessive. They decided that the costs of sending 
 cotton from Meridian to New Orleans could not be 
 more than the costs of sending it from Shreveport, 
 
 ' New Orleans Cotton Exchange v. Cincinnati, New Orleans & Texas Pacific E'y 
 Co. et al., 2 I. C. C. Rep. 375; 2 I. C. R. 289. 
 
 60 
 
Louisiana, to New Orleans, where the rate was $1.50 
 per bale. The carrier was accordingly ordered to 
 reduce the Meridian-New Orleans rate to $1.50 per 
 bale. 
 
 In another case^ the defendant carriers had been 
 shipping wheat to market over a route 478 miles in 
 length, having many heavy grades and curves, and 
 had charged 32§ cents per 100 pounds for such ship- 
 ments. There was, however, a shorter route, only 
 311 miles in length, having only a few ascending grades 
 and these exceedingly light. Wheat was not sent 
 by this route, altho it would have been much cheaper 
 thus to transport it. The Commissioners held that 
 the rate of 32 § cents might be presumed to be reason- 
 ably remunerative over the longer and more expensive 
 route and must therefore be excessive over the less 
 expensive and more direct route. " The complainants," 
 it was said, " have a just and reasonable right to have 
 the products of their farms carried to market by the 
 shortest and least expensive routes at a reasonable 
 through rate." 
 
 In the important case of George J. Kindel v. the 
 Boston & Albany Railroad et al.^ complaint was made 
 that rates on cotton piece goods in less than car load 
 lots shipped from Boston, New York, and other east- 
 em points, were charged $2.24 per 100 pounds to 
 Denver, while only $1.50 per 100 pounds was charged 
 to San Francisco, 1400 to 1600 mUes beyond Denver. 
 Car load lots were charged only $1.00 per 100 pounds 
 to San Francisco but a special car load rate was refused 
 to Denver. 
 
 1 Newland et al. v. The Northern Pacifiio R. R. Co. et al., 6 I. C. C. Rep. 131; 
 4 I. C. R. 474. 
 
 " 11 I. C. C. Rep. 495. 
 
 61 
 
The Commissioners concluded from their investi- 
 gation that the low rates to San Francisco were per- 
 missible under the circumstances, in order to meet 
 water competition, provided that these rates were not 
 so low as to cause the transportation of such merchan- 
 dise at a loss and thus compel other traflfic to make 
 up this loss. If, however, the existing rates to San 
 Francisco were sufficient to cover costs, then the high 
 rates to Denver which resulted from a combination 
 of several local rates must be regarded as unreason- 
 able. The Commissioners said : — 
 
 The actual cost of carriage is ignored, as an element in rate making 
 in this method of charging and collecting the local rates for through 
 shipments. The local rates are fixed by the carriers to cover all 
 terminal expenses on the shorter hauls, charges and delays to the 
 initial and terminal points, and it is not reasonable on a joint 
 through haul, where these terminal delays and expenses are spared 
 at the intermediate points, that such economy in transportation 
 should not be shared by the shipper who must bear the burden of 
 the long 2000 mUe haul, and it is unreasonable and unjust on the 
 part of the carriers that the long, uninterrupted through route, 
 even if no through rate is agreed to, should bear the full local 
 rates. 
 
 On the supposition then that the $1.50 rate to San 
 Francisco covered the costs of transportation, the 
 Commissioners claimed that the same rate would 
 prove sufficient to Denver. They remarked : — 
 
 It would seem that the $1.50 must pay a reasonable profit to the 
 carriers and it is our judgment that the rates in question should 
 not exceed that. Surely a rate which pays expenses for a 3400 
 mile haul will yield reasonable profits for a haul not much above 
 half that distance when the service actually rendered is far the 
 cheaper and easier half of the total haul. 
 
 62 
 
4. Car load and less than car load shipments 
 
 The rule that commodities shipped in car load lots 
 usually take lower rates per 100 pounds than when 
 shipped in less than car load quantities itself rests 
 upon the principle of cost of service. This fact has 
 been frequently emphasized by the Interstate Com- 
 merce Commission, as in the case of The Harvard 
 Company v. The Pennsylvania Company et al.^ where 
 it is said that the mere fact that one article is shipped 
 in greater quantities than another when there is no 
 considerable difference between them in " bulk, weight, 
 and value," and " in expense of handling and hauling," 
 constitutes no reason for a difference in their rates 
 and classification. 
 
 Mere quantity not measured by a recognized unit of quantity 
 adapted to the carriage, and lessening the expense of handling 
 and carriage, cannot be allowed to affect rates in the transportation 
 of property. . . . The lower rate in proportion upon car loads of 
 freight, treating a car load as a unit, than upon the same article 
 in less than a car load does not come within any such principle as 
 this, but is founded altogether on different considerations. 
 
 In the following cases the Commissioners make it 
 clear that these " different considerations " pertain 
 to the cost of transportation. Another Standard Oil 
 case ^ furnishes the first illustration. 
 
 Complaint was made, among other things, that 
 the carrier was charging exceedingly high rates for 
 barrels of oil when shipped in less than car load lots, 
 and these rates were shown to be in many instances 
 more than double the rates on barrels sent in car load 
 
 ' 4 I. C. C. Eep. 212; 3 I. C. R. 257. 
 
 ! W. C. Sohofield et al. v. Lake Shore & Michigan Southern E'y Co., 2 I. C. C. 
 Rep. 90; 2 I. C. R. 67. 
 
 63 
 
quantities. After hearing the arguments on both 
 sides, the Commissioners decided to sustain the exist- 
 ing difference in rates. They reached this conclusion 
 with great reluctance because the rates on less than 
 car load lots were so high that they seemed to be " in 
 their nature prohibitory." The Comnaissioners were 
 careful to say that such great differences in the rates 
 would not be permissible in the case of other kinds of 
 freight and were only allowed in the oil traffic because 
 " the cost of service is very considerably less in the 
 case of shipments in car load lots than in the less than 
 car load quantities." The reasons for this great 
 difference in costs were found to be as follows: (1) 
 The shipment by car load goes direct to destination. 
 It is loaded by the shipper and unloaded by the con- 
 signee. On the other hand, freight when sent in less 
 than car loads has to be taken out in parcels, and the 
 expense of loading and unloading is performed by the 
 company. (2) In the case of car load lots only one 
 bill of lading is necessary and only one entry is made 
 upon the way-bill. When less than car load lots are 
 taken a separate receipt or bill of lading has to be 
 given to each shipper and a separate entry for each 
 item is made upon the way-bill. (3) The time occupied 
 in transportation is less in the case of car load lots, 
 for smaller shipments must be sent by local freight 
 trains stopping at every station for which there is a 
 shipment. In this way the time occupied in transport- 
 ing the smaller lots is from two to three times as long 
 as that required for car load lots. (4) In the case of 
 car load lots there is only one collection of freight 
 charges while for the smaller shipments there are as 
 many collections as there are different parcels. (5) 
 In the case of less than car load lots there inevitably 
 
 64 
 
remains vacant space in the cars for which the carrier 
 receives nothing. (6) The risks from loss of fire are 
 greater in the case of oil sent in small lots, for these 
 small shipments are unloaded in the station house, 
 while car load shipments are unloaded at a distant 
 point. 
 
 It would be interesting, did space permit, to discuss 
 at length the case of Thurber et al. v. The New York 
 Central & Hudson River Railroad et al.,^ one of the 
 most perplexing cases which have come before the 
 Commission for its decision. The complaint con- 
 cerned the rates given on groceries shipped in less 
 than car load quantities from New York to retailers 
 in the central and western states. Much lower 
 rates were given on car load shipments, and it was 
 alleged that this discriminated against eastern dis- 
 tributors. Emphasis was placed by the complainants 
 on social considerations, especially the fact that the 
 normal mode of shipment of such commodities was 
 in small packages. They did not deny that some 
 difference might be made in the rates on car load and 
 less than car load quantities, but held that such 
 difference " should be so small as not to consume the 
 commercial profit on the goods." The carriers on 
 the other hand based their defense mainly on the 
 lower cost of handUng car load shipments. 
 
 The Commissioners denied that it was the business 
 of carriers so to fix their rates as to preserve a com- 
 mercial profit to manufacturers or jobbers, but they 
 also declared that cost of service was not the controlling 
 principle in this case. The controlling principle was 
 the interest of the general public. The public was 
 
 > 3 I. C. C. Rep. 473; 2 I. C. R. 742. 
 65 
 
more interested in miscellaneous shipments of gro- 
 ceries than in solid car load shipments. The carriers 
 should accordingly adjust their rates so as to conform 
 to the existing business of the country. At the same 
 time the Commissioners recognized that the car load 
 was a practicable unit of quantity and that if an article 
 moved in sufficient volume it was reasonable to give 
 it a car load classification. The difference between 
 car load and less than car load rates, they said, is 
 " based on the well known fact of a difference in the 
 cost of service by the carrier." 
 
 The Commissioners accordingly decided that the 
 carriers were not justified in charging more for car 
 load shipments when a full car load was sent from 
 many consignors to many consignees, than when sent 
 from one consignor to one consignee, but " in the case 
 of smaller shipments to many consignees at many 
 destinations, there is such material difference in the 
 cost of service, in the earnings of cars, and in car 
 detentions, as to justify a higher charge." 
 
 In spite, therefore, of the Commissioners' statement 
 that cost of service was not the controlling element 
 in the case, it would appear that, in the final analysis, 
 cost of service determined the Commission's decision 
 with reference to a difference in the rates on car load 
 and less than car load quantities. 
 
 In the case of The Buckeye Buggy Company v. The 
 C. C. C. & St. L. Railway et al. ^ the Commissioners 
 held that inasmuch as the practice of giving car load 
 rates on buggies had been followed by the carriers and 
 held legitimate because the cost of handling this 
 business was less, the same rule must be applied whether 
 the consignor or consignee was the owner. 
 
 1 9 I. C. C. Rep. 620. 
 66 
 
The defendants may clearly require that the goods shall be located 
 at one time and place, that but a single bUl of lading shall be issued, 
 that the shipment shall be from one consignor to one consignee, 
 but when these goods are so loaded, when by the terms of the sale 
 they become the property of the consignee upon dehvery to the 
 carrier, the carrier has no right to inquire whether the consignee 
 obtained his title from one or from several owners. If they accord 
 a car load rating in case the consignor is the owner, they should 
 extend the same privilege when the consignee is the owner. 
 
 In the last case ^ which we shall cite to illustrate 
 the application of the cost of service principle, the 
 Commission decided that if $100 was a reasonable 
 rate for " transporting twenty-five horses, which is 
 about an average car load, together with an attendant, 
 $99 is too much for transporting four horses with no 
 attendant." 
 
 To the average man the unreasonableness of the 
 latter charge would appear to be because the four 
 horses were worth less than twenty-five, and it would 
 seem that this consideration should have appealed 
 to a body of men who had declared " the value of the 
 article carried " to be " the most important element 
 in determining what shall be paid upon it." The 
 Commissioners did not however advance this argument 
 in the present case but explained their decision on the 
 basis of a difference in the cost of service. " The car 
 may perhaps weigh the same in either case, but the 
 total weight of the full car load is considerably more, 
 the actual cost of hauling is more, the expense of 
 unloading and reloading is more." It was accordingly 
 suggested that the defendant so modify its rates as 
 to charge no more than $72 in the aggregate for trans- 
 porting four horses, if the rate of $100 for a full car 
 load remained in force. 
 
 ' C. M. Barrow v. Yazoo & Mlsalsalppl Valley R. R. Co, et al., 10 I. C. C. Rep. 333. 
 
 67 
 
Our review of the cases in which differences in the 
 costs of service have been cited by members of the 
 Commission as reasons for differences in rates shows 
 that the Commissioners, as well as the traffic officials 
 of the various railroads, have made much greater use 
 of the cost of service principle than their preliminary 
 utterances would lead us to expect. 
 
 It has seldom happened, of course, that an effort 
 has been made to apportion the charges strictly in 
 proportion to the costs of rendering a specific service. 
 It is doubtful, however, whether any class of business 
 men to-day undertake to do this. Their method is 
 rather that followed by the Commissioners in the 
 cases which we have considered. A merchant or 
 manufacturer by comparing the receipts from one 
 department or one line of goods with the outlay for 
 this department and then comparing these net returns 
 with those in other departments, arrives at certain 
 conclusions as to the relative profits from the several 
 lines of business. The fixed expenses chargeable to the 
 business as a whole he assigns in a more or less arbi- 
 trary fashion according to labor costs, or to the cost 
 of the material or, even more loosely still, according 
 to floor space, it may be, or according to the amount 
 of sales or the number of employees, or whatever in 
 his business seems to be the best unit of measurement. 
 By carefully comparing the rates of growth of the 
 various departments with the growth of his profits, 
 he is able year by year to correct his former standards 
 of measurement. 
 
 In the same way railway managers sometimes 
 apportion their fixed expenses according to the ton- 
 mileage of their different kinds of freight. In applying 
 the comparative method of determining costs and of 
 
 68 
 
fixing charges in accordance thereto it would seem 
 that the Commissioners and the railway officials have 
 been merely pursuing the methods generally known 
 and accepted by most careful business men, and the 
 cost of service principle doubtless is capable of much 
 the same application in the railway business as it is 
 elsewhere, — unless it be in academic treatises on 
 economics. 
 
 69 
 
CHAPTER II 
 
 SUMMARY 
 
 IV. Distance as a factor in rate making, 69. — 1. Rates increase 
 with distance, 73. — 2. Modifications of the distance principle, 79. 
 — V. Natural advantages of location, 82. — 1. Natural advan- 
 tages due to lower costs, 85. — 2. Natural advantages due to dis- 
 tance, 94. — 3. Group rates, 98. — 4. Natural advantages due to 
 competition, 105. — VI. Competition as a factor in rate making, 
 108. — 1. Competition between carriers subject to and those not 
 subject to the act to regulate commerce, 110. — 2. Competition 
 between carriers subject to the act, 114. — 3. Competition between 
 places or sections, 120. 
 
 IV. Distance 
 
 Distance as a factor in rate making is of impor- 
 tance only as it affects the cost of transportation. It is, 
 of course, never true that costs are in exact proportion 
 to the distance, but it is true that the greater the 
 distance freight is transported, the greater is the 
 cost of carrying it. We might, therefore, have rightly 
 considered distance under the heading of cost of 
 service. But owing to the emphasis which the Com- 
 mission has often placed upon it as an element in rate 
 making, as well as because there is a respectable 
 school of economists and pubUcists who beUeve that 
 distance should play a larger part in rate making 
 than railway men are incHned to accord to it, we 
 shall here give it separate treatment. 
 
 The original members of the Commission, very 
 soon after they had begun their work, made it plain 
 that they had no intention of adopting distance as 
 the sole measure of the reasonableness of a given 
 
 70 
 
rate. In the case of the La Crosse Manufacturers' 
 & Jobbers' Union v. The Chicago, Milwaukee & St. 
 Paul Railway Company et al.^, complaint was made 
 to the general effect that rates on certain commodities 
 were not in proportion to the mileage covered by 
 their transportation. To this complaint the Com- 
 mission made answer as follows : — 
 
 It is a matter of general history that when the act to regulate 
 commerce was pending in Congress the mUeage basis was suggested 
 but not adopted. Many circumstances sometimes enter, and 
 sometimes compel a carrier to make rates on one line propor- 
 tionately less than are made on another. The volume of business, 
 the strength of competing forces, the direction of traffic, the con- 
 venience of exchange, the relations of carriers to each other, and 
 a multitude of other circumstances, have or may have an impor- 
 tant bearing. 
 
 While thus disclaiming any desire to put in force 
 a distance tariff, the Commissioners have made it 
 equally plain that distance as an element in fixing 
 railway charges must not be disregarded by carriers, 
 and that upon the raihoads rests the responsibility 
 of justifying departures from the rule that rates should 
 increase with the distance travelled. " Distance is 
 not always the controlUng element in determining 
 what is a reasonable rate," say the Commissioners, 
 " but there is ordinarily no better measure of railroad 
 service in carrjdng goods, than the distance they are 
 carried." ^ 
 
 The Commissioners do not, of course, mean by this 
 statement that rates should ordinarily be proportional 
 to distance. To fix rates in this fashion would be to 
 disregard the very obvious fact that the terminal 
 expenses remain the same whether the freight is 
 transported one mile or many miles. The general 
 
 I 1 I. C. C. Rep. 629; 2 I. C. R. 9. 
 
 ' Abbott V. East Tenn., Va. & Ga. R'y Co., 3 I. C. C. Rep. 225; 2 I. C. R. 609. 
 
 71 
 
rule to be applied in determining the extent to which 
 distance should cause an increase in the railway rate 
 has been repeatedly set forth by the Commissioners 
 and it shows very clearly that these gentlemen attach 
 importance to distance only so far as it reflects cost 
 of service. An explicit statement of the fact that 
 distance as an element in transportation owes its 
 importance to cost of service is found in a case ^ where 
 the complainants urged in behalf of their claim the 
 general principle accepted by the Commission that 
 the ratio of rates should decrease with the increase 
 of the distance travelled. In answer to this the Com- 
 missioners said: — 
 
 This principle is generally acknowledged when the rates are based 
 upon distance and cost of handling and are not affected by other 
 modifying conditions, and its justice arises from the very obvious 
 fact that the expense of transportation does not increase ia pro- 
 portion to the distance, many of the elements which unite to 
 make up the cost of handling freight being the same whether 
 the terminal points be more or less widely separated. 
 
 When we turn to a consideration of the cases in 
 which the Commission has made use of distance as 
 an important, if not controlUng, element in fixing 
 rates we find that these cases naturally fall into two 
 groups : (1) Those in which the general rule is followed, 
 that as distance increases the aggregate charge should 
 increase but the ton-mile rate should decrease; (2) 
 those in which the importance of distance as a factor 
 in rate making is admitted, but the general rule stated 
 above is modified to meet certain conditions and 
 circumstances. 
 
 ' Lincoln Board of Trade v. Burlington & Mlasourl River R. R. Co. et al., 2 I. C. C. 
 Rep. 147; 2 I. C. R. 95. Cf. the similar statement in W. B. Farrar v. East Tenn., 
 Va. & Ga. R'y Co., 1 I. C. C. Rep. 480. 
 
 72 
 
1. Rates increase with distance 
 
 A case which may be regarded as typical of the 
 entire group is that of The Commercial Club of Omaha 
 V. The Chicago, Rock Island & Pacific Railway Com- 
 pany et aU Omaha and Kansas City, it was shown, 
 were competitors for the trade of the west, southwest 
 and northwest. Because of this competition these 
 cities received the same rates to and from most points 
 in their common territory. For this reason it was 
 claimed on behalf of Omaha that she should receive 
 the same rates to certain points in Texas as were 
 given to her rival, altho Omaha is about 195 miles 
 farther from these Texas towns than is Kansas City 
 and traffic to and from Omaha must pass through 
 Kansas City. 
 
 The Commissioners did not discuss the question 
 as to whether Omaha and Kansas City were entitled 
 to the same rates to other points but they held that 
 the existence of such equaUty in rates constituted 
 no reason why distance should be ignored in fixing 
 rates to the Texas towns. They declared that carriers 
 had " no right to disregard distance and natural 
 advantages, in order to bring about commercial 
 equality," and they cited their earher decisions to 
 show that this had always been the attitude of the 
 Commission. Some of the complainants had admitted 
 that the rate to Kansas City from the Texas towns 
 was a reasonable one and the Commissioners said 
 that, if this were so, " the charge of the same rate 
 for the continuous haul 195 miles farther on to Omaha 
 would make no allowance for the expense and value 
 of that additional service." 
 
 1 6 I. C. C. Rep. 647. 
 73 
 
Competition of the same sort was found to exist ' 
 between Cinciimati and Louisville in the distribution 
 of merchandise to poiats in the south and south- 
 west. Cincinnati complained that differential rates 
 of from two to ten cents per 100 pounds were given 
 to Louisville as compared to Cincinnati and that 
 this constituted an undue preference in favor of Louis- 
 ville since the two towns were rival distributing centers. 
 
 The carriers defended the differentials on the fol- 
 lowing grounds: (1) Cincinnati being on the north 
 bank of the Ohio river, the expense of crossing the 
 river, sometimes on toll bridges, made it justifiable 
 to charge her higher rates than were given to Louisville 
 on the south bank of the river. (2) The distance 
 from Cincinnati to the south and southwest was 
 greater than from Louisville. (3) Cincinnati enjoyed 
 a better freight rate than did Louisville on goods 
 brought from the east and could therefore afford 
 to pay a higher rate on these articles when they were 
 sent forward for distribution. 
 
 The first point made by the defendants had to 
 do directly with cost of service and, altho it was recog- 
 nized by the Conunissioners as legitimate, we need 
 not now consider it. Concerning the second argument, 
 the Commissioners said : — 
 
 It is undoubtedly true that there are many instances in which 
 the element of distance may be overcome by other considerations, 
 but it is equally true that this Commission has always insisted 
 that distance was an important element in the determining of 
 rates, and in the absence of other influences a controlling element. 
 No circumstances are shown by the complainants which should 
 eUminate that element from consideration, or counteract its in- 
 fluence. 
 
 The Commissioners did not recognize the third 
 argument made by the defendants as legitimate, but 
 
 • Freight Bureau of Cincinnati Chamber of Commerce v. Cin., N. O. & Tei. Pao. 
 E. R. Co. et al., 7 I. C. C. Rep. 180. 
 
 74 
 
their answer nevertheless serves to emphasize the 
 importance attached to distance as a determining 
 factor in this case. 
 
 We do not give much weight to this consideration, as Cincinnati 
 is entitled to the benefits of location; the fact that it enjoys ex- 
 ceptional advantages in one respect is no reason why it should 
 be subject to discrimination in some other respect. If Cincinnati 
 by reason of its situation can obtain a better rate than LouisviUe 
 upon merchandise which it brings in for distribution to this southern 
 territory, that is the good fortune of Cincinnati and affords no 
 excuse for an unjust rate upon merchandise when shipped out. 
 There is, however, a degree of justice in the claim that the same 
 rule which is applied in favor of Cincinnati in respect to incoming 
 freight should be applied against it on outgoing freight and that 
 if it obtains the cheaper freight rates because of being situated 
 near the source of its suppUes, it ought in the same manner to 
 pay a higher rate by reason of the fact that it is further from the 
 territory in which it sells. 
 
 In spite of the emphasis placed on distance, it will 
 be noticed that the Commission is careful to consider 
 it, in both the above cases, as merely one element in 
 the cost of transportation. 
 
 The famous Eau Claire case ^ is of interest to stu- 
 dents of railway rates chiefly for other reasons than 
 those we are now considering. But it offers a good 
 illustration of the importance which the Commission 
 is inclined to attach to distance and to the natural 
 advantages of location as elements in rate making. 
 
 With reference to distance the defendants had 
 put forth the claim that Eau Claire was paying a 
 lower rate for the transportation of lumber than were 
 the Mississippi river towns, La Crosse and Winona, 
 " in proportion to their respective distances from 
 the common market," which in this case was certain 
 cities on the Missouri river. Since her ton mileage 
 
 1 Eau Claire Board of Trade v. C. M. & St. P. E. R. Co. et al., 5 I. C. C. Rep. 
 264; 4 I. C. R. 65. 
 
 75 
 
rates were less, Eau Claire, it was said, had no reason 
 
 to complain. To this the Commissioners replied 
 
 as follows : — 
 
 The doctrine that transportation charges should be in proportion 
 to the distance between different poiats, when these distances 
 are greatly dissimilar, has never been advanced by the railroads 
 or recognized by the Conunission. It may be the rule to which 
 tariff construction will some time approximate, but there is no 
 opportunity for its apphcation imder the present conditions. 
 The fixing of a rate for a thousand miles at twice the sum pre- 
 scribed for half the distance would be most arbitrary and intoler- 
 able. . . . The whole practice of rate making is opposed to the 
 principle of exact proportion, and even in theory there is little 
 reason for its adoption. But distance, nevertheless, is an ever 
 present element of the problem of rates, and not unfrequently 
 a controlling consideration. Where aU the distances brought 
 into comparison are considerable and the difference between them 
 relatively small, we shall expect substantial similarity in their 
 respective rates unless other modifying circumstances justify 
 a disparity. 
 
 Probably most of the cases in which the Commission 
 has felt obliged to insist upon the recognition of dis- 
 tance as an element in rate making have arisen under 
 the fourth section of the original act to regulate com- 
 merce which contains the well-known long and short 
 haul clause. Carriers have advanced a great variety 
 of considerations to show that they should be reUeved 
 from the operation of this section. The Commission 
 has invariably taken the position that upon the car- 
 rier falls the burden of proving that dissimilar cir- 
 cumstances and conditions exist in the case of the 
 long haul which make it necessary to charge less than 
 for the short haul. In the absence of such dissimilar 
 circumstances and conditions the element of distance 
 must be considered as a controUing factor. This 
 is made clear in the case of The Farrar Lumber Com- 
 pany V. Southern Railway Company et aU, where the 
 complaint was to the effect that rates on lumber 
 
 ' H I. C. C. Rep. 640. 
 76 
 
from Dalton, Georgia, to certain points in Virginia 
 and West Virginia were higher than to other points 
 further distant on the same hne. The carriers pleaded 
 competition as a reason for making the low rates 
 on the long distance traffic. The Commissioners, 
 after investigation, decided that the plea was not 
 warranted under the circumstances and said: — 
 
 The rate per ton-mile is not always the measure of a reasonable 
 rate and rigidly applied would make distance alone the gauge 
 for transportation charges, but it is always valuable as affording 
 a basis of comparison for relative rate burdens. 
 
 Even when the conditions surrounding the long 
 haul are dissimilar from those present in the case 
 of the shorter haul, they may not be such as to warrant 
 the carriers disregarding altogether the question of 
 distance. In the case of *S. Marten v. The Louis- 
 ville & Nashville Railroad Company, ^ complaint 
 was made that higher rates were charged for trans- 
 porting lumber from certain small places in Tennessee 
 to Detroit, Michigan, than were charged from Nash- 
 ville to Detroit, tho the points in question were from 
 23 to 100 miles nearer Detroit than was Nashville. 
 The carriers defended the lower rates from Nashville 
 on the basis of both rail and water competition. Par- 
 ticular emphasis was placed on the competition by 
 rail, and the defendants seemed to think that the 
 decision of the U. S. Supreme Court in the Troy case 
 (168 U. S. 144) had made it unnecessary to consider 
 the element of distance where competition existed. 
 The Commissioners admitted that competition existed 
 at Nashville, but said that the water competition 
 " would scarcely be a potent factor if the rates were 
 somewhat higher"; and as to the rail competition 
 they said that the defendants made the rate at Nash- 
 
 1 9 I. C. C. Rep. 681. 
 
 77 
 
ville and " other rail carriers there simply follow that 
 rate." A decision of the United States Supreme 
 Court 1 was quoted to show that competition to be 
 reUed upon must " be not artificial or merely con- 
 jectured but material and substantial." 
 
 As to the justice of the carriers' claim that distance 
 might be utterly disregarded whenever it was shown 
 that competition existed, the Commission quoted 
 with approval one of its early decisions in which its 
 chairman, Judge Cooley, had said that " while the 
 act does not require all rates to be proportional [to 
 distance] it nevertheless makes the element of pro- 
 portion an important one when the rates from any 
 locality are to be determined." The application 
 of this principle to the case under consideration is 
 stated as follows : — 
 
 Under these circumstances, the rule that after substantial dissim- 
 ilarity of circumstances and conditions has been shown, the longer 
 distance rate cannot in any case or to any extent be considered 
 by way of comparison in determining whether or not the shorter 
 distance rate is unreasonable or unduly prejudicial, particularly 
 when, as in this case, competition and other compulsory conditions 
 are not found to justify the whole disparity between the shorter 
 and longer distance rates, would be to reject a most appropriate 
 and necessary test of the reasonableness and justice of railway 
 charges. It seems to us that in a case involving shorter distance 
 charges higher than those to and from long distance points, the 
 carrier cannot rightfully claim justification for a greater dissim- 
 ilarity in the rates than may be indicated by the ascertained dis- 
 similarity in circumstances and conditions. 
 
 This case and the Eau Claire case both show that 
 the Commission is inclined to attach much importance 
 to distance as a measure of the reasonableness of 
 rates from two or more competitive points whenever 
 these competitive points are in the same territory 
 and are about equally distant from a common market. 
 
 1 Louisville & Nashville Railroad Company v. Behlmer, 175 U. S. 648. 
 
 78 
 
2. Modifications of the distance principle 
 
 Altho laying much emphasis on the general rule 
 that the aggregate rate continues to increase as the 
 distance covered in transportation increases, while 
 the ton-mile rate constantly grows less, the Com- 
 missioners are willing to admit that this rule cannot 
 always be applied even in those cases where distance 
 itself is not to be ignored as an element in rate making. 
 
 One instance in which " the rule that the rate per 
 ton-mile must be less for the greater distance " need 
 not apply is where competition with a water route 
 (or a railroad not subject to the act) is present in the 
 case of the short haul, but not present in the case of 
 the long haul.' Such instances are less frequent 
 than those in which the competition exists in case 
 of the long haul, but they are occasionally found. 
 
 In such instances the Commission has held that 
 competition in the case of the short haul may make 
 the rate unusually low, " often too low to be treated 
 as a fair criterion for points beyond." The railroad 
 having a long mileage to a given point may be met 
 by a railroad having a much shorter mileage, and 
 setting the rate which must be met if the longer road 
 would share the business. 
 
 When the given point is passed [the longer road] may fairly increase 
 its charges with some consideration of the absolute distance travelled 
 by its own lines from the originating point and in a ratio more 
 rapid than the proportionate charges would have otherwise shown 
 had it been able to grade its rates continuously throughout its 
 hne. The same effect is at times produced by water transportation, 
 competition, and other controlling causes.^ 
 
 * Business Men's Association of the State of Minnesota v. C, St. P., M. & O. R'y 
 Co., 2 I. C. C. Eep. 52; 2 I. C. E. 41. 
 
 ' Lincoln Board of Trade v. Burlington & Missouri River R. R. Co. et al., 2 I. C. C. 
 Rep. 147; 2 I. C. R. 95. 
 
 79 
 
In determining whether or not the general rule 
 should be held apphcable we must also consider, 
 say the Commissioners, the extent of the traffic and 
 the character of the country traversed. ^ The ratio 
 of rates charged through sparsely settled districts 
 cannot decrease in proportion to the distance without 
 depriving the carrier of necessary revenue; a region 
 whose interests are wholly agricultural does not offer 
 the possibihties of tariff reduction that is afforded 
 by regions which are largely fed by mineral resources, 
 quarries, and manufactures. 
 
 The Commission has also decided that tho mileage 
 is an element of importance in making rates, the 
 principle that the ton-mile rate decreases with the 
 distance travelled " cannot as a rule be considered 
 as a test in raUroad operations in case of local rates," "^ 
 and local rates need not necessarily correspond with 
 the division of the joint through rate over the same 
 line. 3 
 
 It has also been held that whenever a comparison 
 is made between distances varying greatly in length, 
 the ton-mile rate in one case need not necessarily 
 be regarded as a measure of the reasonableness of 
 the rate in the other case. That this is the Commis- 
 sion's point of view was shown by its utterances in 
 the Eau Claire case, but is more fully brought out 
 in the case of the Board of Railroad Commissioners 
 of the State of Kansas v. Atchison, Topeka & Santa 
 Fe Railway Company et al.,^ a case which is peculiar 
 in this respect, that the principle which the complain- 
 
 1 Ibid. 
 
 ' Business Men's Association of the State of Minnesota v. C. & N. W. R'y Co., 
 
 2 I. C. C. Rep. 73; 2 1. C. R. 48. 
 
 = H. MoMorran and E. B. Harrington v. Grand Trunk R'y Co. of Canada et al., 
 
 3 I. C. C. Rep. 252; 2 I. C. R. 604. 
 
 • 8 I. C. C. Rep. 304. 
 
 80 
 
ants wished to have applied in one instance they were 
 unwilling to see made applicable in the other matter 
 made the subject of dispute. 
 
 The complaint was (1) that lower ton-mile rates 
 were given from the Kansas grain fields to Galveston, 
 Texas, than were given on grain shipments to Kansas 
 City and St. Louis, and (2) that lower ton-mile rates 
 were given on Kansas grain sent to the Atlantic sea- 
 board than on that sent to the Gulf ports which were 
 the natural points of export for Kansas grain. The 
 Kansas Commissioners asked that the same ton-mile 
 rates be given to Kansas City and St. Louis as were 
 given to Galveston, and that in turn the Galveston 
 rate be not higher than the rates to the Atlantic 
 seaboard. Concerning the Kansas City and St. Louis 
 rates the Interstate Commerce Commissioners said: — 
 
 Distance is undoubtedly a factor, and perhaps ought to be a much 
 more important factor, in the determination of rates, but in the 
 present case where the distances from the grain fields of Kansas 
 to Kansas City, St. Louis, and Galveston vary from 100 to 1000 
 mUes, any attempt to adjust the rates on grain to those cities 
 upon the sole basis of the rate per ton per mile would be impracti- 
 cable. 
 
 The Commissioners were also unwilling to admit 
 the claim of the complainants that the Galveston 
 rates should be made as low as those to the Atlantic 
 ports. 
 
 If a lower rate per ton-mUe is made toward the east than toward 
 the south, it is for the purpose of enabling the same grain to reach 
 the same foreign markets by a different route and through different 
 intermediate markets. The grain producer of Kansas has a 
 satisfactory rate to the foreign market through Galveston. Can 
 it be claimed that he is injured by a rate which gives him two 
 routes instead of one to the ultimate market and two intermediate 
 markets instead of one ? 
 
 The reader has doubtless observed that in all these 
 cases in which the Commission has emphasized dis- 
 
 81 
 
tance as an influential factor in the determination 
 of a rate, it has been because differences in distance 
 seemed to express differences in the cost of service. 
 Tho it may not be so obvious in cases where the distance 
 principle has been modified or held to be not the 
 controUing factor, the Commissioners have neverthe- 
 less had the cost of service principle in mind. The 
 cases mentioned have had to do either with local rates, 
 where costs of handling made the rates dispropor- 
 tionately high, or with low rates which were forced 
 on the carrier by the competition of other carriers, 
 either rail or water. A little reflection will show 
 that the low rates in these latter cases have been 
 determined by the cost of conducting the business 
 by the cheaper route. Viewed from purely an economic 
 standpoint it may be questioned whether the more 
 expensive route should have been allowed to partici- 
 pate in the traffic under such circumstances. Over 
 this matter, however, the Interstate Commerce Com- 
 mission has had no control. The act to regulate 
 commerce was enacted by a body of men who beUeved 
 in giving full scope to the principle of competition 
 and the Federal courts have fully sustained them 
 in this position, even in cases where the Commission 
 has felt that competition was unwarranted. 
 
 V. Natural Advantages of Location 
 
 The question as to how far, in the making of rates, 
 recognition should be given to the natural advantages 
 possessed by a given place for the production or 
 marketing of certain commodities has received much 
 discussion by the Commission, and some of its most 
 important decisions have been based upon the principle 
 here involved. The practice of the railroads has 
 
 82 
 
often been to ignore these natural advantages; at 
 other times the carriers have attempted to equalize 
 them. This result, tho sometimes due to competition 
 between the railroads themselves, has been due more 
 often to competition between markets or between 
 places of production. The carrier leading to a certain 
 market or from a certain center of production has 
 felt pressure to make rates as low as, or lower than, 
 those given to competing centers of trade or production. 
 This concession by the carrier has in turn led to efforts 
 on the part of other places to induce the roads serving 
 them to reduce rates so as to meet this competition. 
 The final result has oftentimes been that the carriers 
 have entered into arrangements whereby they agree 
 to equahze the advantages of competing towns by 
 fixing the rates in inverse ratio to the natural advan- 
 tages of these towns, enabhng all competing locali- 
 ties to market their products at the same prices at 
 the same or different points of distribution. 
 
 The Interstate Commerce Commission has always 
 been slow to admit the claim of the railroads that 
 it was necessary and proper to make such rates as 
 would equalize the natural inequalities of competing 
 points and put them all on an equal footing in the 
 common market. " A place is entitled to its natural 
 advantages," say the Commissioners, " and a carrier 
 may not deprive it of these advantages which fairly 
 belong to it and because of which investments have 
 been made at this point for the purpose of carrying 
 on production in a more profitable manner than could 
 be done elsewhere." ' 
 
 A little reflection will show that the principle of 
 making rates which recognizes the right of a place 
 
 • Imperial Coal Company v. Pittsbiirg & Lake Erie Eallxoad Company et al., 
 2 I. C. C. Eep. 618; 2 I. C. R. 436. 
 
 83 
 
to its natural advantages is nothing more than a 
 corollary of the cost of service principle. Other 
 things being equal, a place having natural advantages 
 for the production of a given commodity will produce 
 that commodity and wiU be able to undersell other 
 places, unless the carrier charges more for transporta- 
 tion from this point to the common market than is 
 charged from competing points of production. Cost 
 of production must, of course, include the cost of trans- 
 portation and if a place which possesses advantages 
 for the production of a commodity is nevertheless 
 at a disadvantage as compared to its competitors, 
 owing to greater distance from the market, its apparent 
 advantages are offset by the greater cost of reaching 
 the market. To allow a railroad to make higher 
 charges from the more distant point under such cir- 
 cumstances is quite a different matter from acknowl- 
 edging the carrier's right to make such charges when 
 there is no greater cost of transportation. 
 
 The Commission has been consistent in its appU- 
 cation of the principle that a place is entitled to the 
 full advantage to be derived from a favorable geo- 
 graphical situation, but has insisted that this must 
 not be construed to mean that a place is entitled to 
 monopohze a given market, or to raise prices in that 
 market above the cost of securing commodities else- 
 where. In other words, natural advantages mean 
 differential advantages, not monopoly advantages. 
 The cases coming before the Commission which afford 
 an illustration of the application of this principle 
 may be divided into four classes: (1) Where the 
 natural advantages are due to lower costs. (2) Where 
 they are due to a shorter distance covered in transpor- 
 tation. (3) Where group rates are involved. (4) Where 
 the natural advantages result from competition. 
 
 84 
 
1. Natural advantages due to lower costs 
 
 In the case of the Boston Chamber of Commerce v. 
 the Lake Shore & Michigan Southern Railroad Company 
 et al.^, the petitioners asked that the raihoads from 
 the west be required to make the same rates on goods 
 transported from Chicago and other western points 
 to Boston when these goods were intended for domestic 
 consumption as when intended for exportation. To 
 understand the case fully, it must be said that, in 
 an earlier case ^ which had come before the Commission, 
 Boston exporters had asked that their city be given 
 the same rates on goods intended for export as were 
 given to New York and had urged that unless this 
 were done Boston would lose its export trade. The 
 Commissioners, for reasons not necessary to relate 
 here, had made this concession to Boston. The 
 Boston Chamber of Commerce was now using the 
 concession as a basis for demanding that the same 
 rates should be made on all commodities sent to 
 Boston, whether intended for exportation or for 
 domestic consumption. The argument of the peti- 
 tioners was that the cost of transporting the com- 
 modities was the same, regardless of their use, and 
 that the carriers made no such distinction between 
 domestic and export traffic at New York, Philadelphia, 
 and other places. 
 
 The Commissioners refused to allow the request 
 of the petitioners and declared that cost of service 
 was not the main consideration in fixing rates. " The 
 element of cost of service which may at one period 
 have been recognized as controlfing in fixing rates 
 has long ceased to be regarded as the sole or most 
 important factor for that purpose." 
 
 • 1 I. C. C. Rep. 436; 1 I. C. R. 754. 2 1 I. C. C. Rep. 24. 
 
 85 
 
The real grounds for making lower rates to New 
 York than to Boston, said the Conunissioners, are 
 the natural advantages possessed by the former place 
 over those possessed by the latter. 
 
 If differences in the condition of traffic to two or more points exist 
 which materially affect the cost or value of the service, it would 
 scarcely be reasonable to require a carrier to disregard these dif- 
 ferences and make good to every community the disadvantage 
 of situation or other disadvantages. 
 
 Altho the Commission denies the vaUdity of the 
 cost of service principle in this case when appUed 
 to the question of relative rates on domestic and export 
 traffic, it will be noted that New York's advantage 
 of situation as compared to that of Boston is shown 
 to rest on differences in the cost of transporting goods 
 to the two cities. This is brought out more fully 
 when the Commission recites the points in which 
 New York's situation is declared to be superior to 
 that of Boston: (1) There is more switching involved 
 at Albany in the case of Boston traffic. (2) The 
 heavy grades of the Boston and Albany railroads 
 necessitate smaller trains. (3) The cars are detained 
 longer in Boston than in New York. (4) The distance 
 from Albany to Boston is 56 miles greater than to 
 New York. (5) The volume of business to Boston 
 is smaller and " the universally accepted principle 
 of railroad transportation that a very large traffic 
 can be profitably conducted at lower rates than a 
 relatively smaller traffic " apphes. (6) Competition 
 by way of the Great Lakes, the Erie Canal, and the 
 Hudson river exists in the case of New York and 
 compels the carriers to accept a lower rate to that 
 city than they would be willing to accept in the absence 
 of such competition. 
 
 All of these points, with the exception of the last, 
 have to do with differences in the cost of service. 
 
 86 
 
Together they give New York a decided advantage 
 over Boston, and according to the Commissioners 
 they are " physical facts constituting inequaUty which 
 the carriers by rail are not required to make good 
 to the less favored locality at their own expense." 
 
 The low rates given to Boston on her export traffic 
 were declared to constitute an exception to the ordinary 
 rate and to be a distinct concession on the part of the 
 carriers to put Boston exporters on an equaUty with 
 their competitors at New York, Philadelphia, and 
 Baltimore. 
 
 We have already observed, under the heading 
 of " Distance," that in the Eau Claire lumber case ^, 
 the Commissioners held that, Eau Claire being about 
 the same distance from her market, the Missouri 
 river towns, as were her competitors. La Crosse and 
 Winona, it was incumbent on the carriers to consider 
 distance as an element to be taken into account in 
 determining the relative rates from these competing 
 points of production But the main thing emphasized 
 by the Commission in its decision was the fact that 
 Eau Claire had such natural advantages for producing 
 and shipping lumber that she could produce and 
 market this commodity at less cost than could her 
 competitors and that the system of rates in force 
 deprived Eau Claire of these natural advantages in 
 order that competing localities might meet her on 
 equal terms ia the common market. The favorable 
 situation enjoyed by Eau Claire is thus described 
 by the Commission : — 
 
 Eau Claire appears to be adapted by location and in other respects 
 for the manufacture and sale of lumber: it has a natural booming 
 ground or place for the safe storage of logs, cheap transportation 
 
 » Eau Claire Board of Trade v. C. M. and St. P. R'y Co. et al., S I. C. C. Rep. 
 264; 4 I. C. E. 65. 
 
 87 
 
from the stump to the mills, proximity to the timber, and locations 
 suitable for mills and yards. Being situated nearer the pine forests, 
 the sources of timber supply, and at the confluence of two rivers 
 which penetrate those forests, the Eau Claire and Chippewa, 
 it appears to have natural advantages over its neighboring com- 
 petitors [La Crosse and Winona]. . . . After lumber is in the 
 raft, the cost of its transportation by water down the Mississippi 
 is less than for the same distance by rail; but, including the rafting 
 and preceding expenses, the testimony is to the effect that lumber 
 can be shipped from Eau Claire by rail direct to Missouri river 
 markets at as Uttle, if not less, cost than it can be floated to Mis- 
 sissippi river points [La Crosse and Winona] and thence transported 
 by rail to those markets. 
 
 Tlie long controversy between the roads as to wliat 
 differences in the rates on lumber from these competing 
 towns should prevail had been referred by the roads 
 to a gentleman named Bogue, who had been called 
 upon to act as arbiter in the dispute. The decision 
 rendered by Mr. Bogue was in accordance with the 
 principle suggested by his own question: " What 
 rate will enable each line party to this arbitration 
 to place its fair proportion of lumber in the terri- 
 tory under consideration ? " This, say the Commis- 
 sioners, is equivalent to asking, what rate is necessary 
 to equaUze the relative disadvantages of location 
 possessed by La Crosse and Winona as compared 
 to Eau Claire ? That this was also the understanding 
 of the carriers is shown by the statement of the traffic 
 manager of the St. Paul road that 
 
 primarily the object of the Bogue award was to place each line in 
 a position to carry its fair share of the Missouri river lumber, and 
 further to place each manufacturing locality upon an even footing 
 with its competitors .... If Eau Claire could produce lumber 
 cheaper than Winona or La Crosse, the latter points were to have 
 a lower rate so as to enable them to compete. 
 
 The principle thus apphed in arbitrating the dispute 
 did not meet with the approval of the Commissioners. 
 They said: — 
 
We are not to be understood as endorsing this principle. On ttie 
 contrary, we consider it radically unsound. That rates should 
 be fixed in inverse proportion to the natural advantages of com- 
 peting towns with a view of equalizing commercial conditions 
 as they are sometimes described, is a proposition imsupported 
 by law and quite at variance with every consideration of justice. 
 Each community is entitled to the benefits arising from its location 
 and natural conditions, and any exaction of charges unreasonable 
 in themselves or relatively unjust by which those benefits are 
 neutralized or impaired contravenes alike the provisions and 
 the policy of the statute. 
 
 The Commission therefore ordered such a reduction 
 in the lumber rates from Eau Claire as should cause 
 these rates to exceed those from La Crosse and Winona 
 by not more than 2^ cents per 100 pounds. The 
 selection of this particular differential was admitted 
 to be more or less arbitrary and was left subject to 
 correction. But the principle involved was that the 
 rates should be such as to preserve for Eau Claire her 
 natural advantages for securing and handhng lumber, 
 and should impose upon her shippers no higher rates in 
 sending this forward to market than were justified 
 by a consideration of the relative distances of Eau 
 Claire, Winona, and La Crosse from the common 
 markets. 
 
 In two cases, 1 brought before the Commission by 
 the freight biireaus of Cincinnati and Chicago against 
 certain southern and western roads, and heard together, 
 complaint was made that the roads running south 
 from the Ohio river had so arranged their rates on 
 manufactured goods as to favor the merchants in 
 eastern seaboard territory (north of the Potomac 
 river and east of the Appalachian mountains) and to 
 give to them an " undue and unreasonable preference 
 or advantage " over the merchants in central territory 
 
 ' Freight Bureau of Cincinnati v. Cln. N. O. & Tex. Pac. R'y Co.; Chicago Freight 
 Bureau v. L. N. A. & C. R'y Co. et al., 6 I. C. C. Rep. 195; 4 I. C. R. 592. 
 
 89 
 
(north of the Ohio river and lying between the Ap- 
 palachian mountains and the Mississippi river). 
 The evidence submitted showed that the mileage 
 rates on articles in classes one to six inclusive, of the 
 OflBcial Classification, were higher from the eastern 
 territory into the south than from the central territory. 
 The defendant carriers offered as an excuse for this 
 discrimination the existence of water and rail com- 
 petition from New York, Philadelphia, and Baltimore, 
 but the Commission discovered that the rates from 
 the east were lower than were necessitated by water 
 competition. 
 
 The real grounds of the discrimination were found 
 to Ue in an agreement made in 1878 by the roads 
 running into the south, the consequence of a long 
 and bitter struggle between the lines from the east 
 to the south and those from the west to the south. 
 In order to end this struggle the Southern Railway 
 and Steamship Association had been formed, whose 
 object was 
 
 " to protect to eastern lines the business peculiar to their terri- 
 tory " and to the western lines the business relating to " their 
 peculiar commodities," ... in other words to secure to eastern 
 lines the transportation of " articles manufactured in the east 
 and in other countries and imported into eastern cities, embraced 
 under the general terms of dry goods, groceries, crockery and 
 hardware " and classified for the most part imder the first four 
 of the numbered classes, and to the western Unes the transporta- 
 tion of " articles of western produce, comprising the produce of 
 animals and the field " and embraced principally in the lettered 
 classes. 
 
 As a result of this agreement rates were so fixed 
 that on conamodities produced mainly in western 
 territory an advantage of at least ten cents per 100 
 pounds was given to the western lines over those 
 from the east, while on articles peculiar to the east 
 rates correspondingly low were permitted to the 
 
 90 
 
eastern lines; all with a view to effect the announced 
 object of the convention. 
 
 The Commissioners decided that however plausible 
 may have been the pretext for such a method of 
 adjusting rates in 1878, that justification no longer 
 existed; for "it is estimated that the manufacture, 
 in the central territory, of goods in the numbered 
 classes has increased 100 per cent in twenty years." 
 They were not wilUng to admit, however, that even 
 in 1878 such an adjustment of rates was justifiable. 
 
 It is not the duty of carriers, nor is it proper, that they undertake 
 by adjustment of rates, or otherwise, to impair or neutrahze 
 the natural commercial advantages resulting from location or other 
 favorable conditions of one territory, in order to put another 
 territory on an equal footing with it in a common market. Each 
 locality competing with others in a common market is entitled 
 to reasonable and just rates at the hands of the carriers serving 
 it and to the benefit of aJl its natural advantages. 
 
 The Commission, therefore, proceeded to order 
 a reduction of the maximum rates on commodities 
 in classes one to six, inclusive, from Chicago and 
 Cincinnati to southern territory on the following 
 basis : — 
 
 The cost of freight in general per ton per mile on the roads south 
 of the [Ohio] river appears to have been for the years named in 
 the tables heretofore given about 25% on an average greater 
 than the cost per ton per mile on the roads from Chicago to the 
 river. The tonnage of the latter roads is also greater than that 
 of the former. Rates from Cincinnati to southern territory from 
 33% to 50% higher per ton per mile than those from Chicago 
 to Cincinnati and other Ohio river crossings wiU in our opinion 
 make full allowance for these differences in cost and tonnage, 
 and be at least not imreasonably low as maximum rates. 
 
 It appears from this statement that while the Com- 
 mission concedes the right of a certain territory to 
 the advantages arising from its favorable situation 
 with reference to a market, the degree to which these 
 
 91 
 
advantages are recognized is determined by a strict 
 adherence to the cost of service principle. 
 
 Distance, competition, and cost of service are all 
 made use of by the Commission in reading a decision 
 In the Matter of the Transportation of Salt from points 
 in Michigan to Missouri River Points,^ but the em- 
 phasis placed on natural advantages of location makes 
 it desirable to treat the case under this heading. 
 
 Salt producers in and around Detroit, Michigan, 
 were inclined to complain of the combination of rates 
 made between a boat line on Lake Michigan owned, 
 or at least controlled, by the International Salt Com- 
 pany and the railroads running from Chicago. These 
 combination rates enabled salt to be carried from 
 its point of production near Ludington and Manistee, 
 Michigan, to its markets on the Missom-i river at 
 rates lower than were given to the Detroit producers 
 by the roads leading from that city. The boat line 
 received from 30 to 33f per cent of the through rate. 
 
 In spite of the suspicious elements involved in the 
 case the Commission concluded, after investigation, 
 that this apparently large percentage received by the 
 boat line was justified by the cost of the service which 
 it rendered in connection with the transportation 
 of salt and by competitive conditions over which the 
 roads at Chicago had no control. 
 
 The consideration which had most weight with 
 the Commission in causing it to justify the existing 
 rates was the fact that Ludington and Manistee 
 apparently enjoyed natural advantages of produc- 
 tion and location which enabled them to produce 
 salt and ship it to the Missouri river at less expense 
 than could producers at Detroit. (1) They were 
 250 miles nearer to the western markets. (2) They 
 
 1 10 I. G. C. Rep. 148. 
 92 
 
had the advantage of a combined rail and water route, 
 whereas Detroit must ship by an all-rail route. (3) 
 Their costs of manufacturing salt were from 75 to 
 90 cents less per ton than those at Detroit. (4) They 
 had the advantage of shipping by way either of Mil- 
 waukee or Chicago, and hence enjoyed competition 
 on the part of the carriers leading from those cities. 
 
 The Detroit producers did not contend that the 
 rates from Detroit were in themselves unreasonable, 
 nor did the Commission so find them to be. The 
 only way, therefore, in which Detroit could find 
 reUef was either by a voluntary reduction of rates 
 on the part of carriers transporting salt from Detroit 
 or by a condemnation of the division of the through 
 rate awarded to the boat company. This latter 
 alternative, however, would result in higher rates 
 on salt from northern Michigan and this in turn 
 would raise the price of salt to western consumers. 
 The Commission said : — 
 
 We do not conceive it to be our duty to take away from Manistee 
 and Ludington tlie natural advantages which they enjoy and 
 place them on an equity with Detroit in the manufacture and 
 shipment of salt, in order that the price of that article in western 
 territory may be increased, thereby enabUng Detroit producers 
 to do business at a profit in that market. It is the duty of the 
 Commissioners to keep in view not only the rights and interests 
 of producers, but those of the consumers as well. 
 
 It can be no duty of the Commission to equalize natural advan- 
 tages between locaUties through the adjustment of tarifif rates. 
 If any carrier desires to foster languishing industries situated on 
 its hne for the purpose of increasing the traffic of such carrier, 
 it has, we think, the right to do so; and if the roads leading west 
 from Detroit, with their connections, wish to make a rate whereby 
 the salt producers of Detroit may be enabled to market their 
 product on the Missouri river, they are so privileged; but this 
 fact can in no wise affect the through rate from Manistee and 
 Ludington, nor can it in any way determine the reasonableness 
 of the division received by the boat Une. 
 
 93 
 
It is clear that the decision of the Commission in 
 this case was based primarily on the principle of 
 preserving the natural advantages of location. It 
 is also clear that these natm-al advantages possessed 
 by Ludington and Manistee were due to the fact 
 that they could produce salt and put it in the Missouri 
 river territory at less expense than could the salt 
 producers in and about Detroit. But since their 
 ability to do so was dependent upon the maintenance 
 of a boat line on Lake Michigan and the granting 
 to this boat line of a large percentage of the through 
 rate, it may not be so clear to the reader that the 
 granting of this large percentage was itself warranted 
 by considerations affecting the cost of service. It 
 may be explained, therefore, that the apparently 
 large percentage received by the boat line covered 
 a number of expense items other than transportation, 
 such as dockage charges, pay for stowing and unload- 
 ing, cooperage charges, insurance fees, and some 
 minor items. In view of this extensive service per- 
 formed, the share of the through rate received by the 
 boat line did not appear to the Commissioners to 
 be excessive and it further appeared that the ownership 
 of the boat line by the International Salt Company 
 grew out of the fact that otherwise there woiild have 
 been a lack of adequate shipping facilities from north- 
 ern Michigan points. 
 
 2. Natural advantages due to distance 
 
 Since distance is merely one element in the cost 
 of transportation, it follows that a place which enjoys 
 natural advantages of location because it is nearer 
 the market or its source of supplies than are its com- 
 petitors, will be able, other things equal, to produce 
 
 94 
 
and market its products at less expense than can 
 competing localities. The same reasons, however, 
 which led us to treat distance as a separate factor 
 ia rate making make it desirable to consider separately 
 those cases in which natural advantages arise from 
 differences iu distance. 
 
 The natural advantage which a short distance 
 poiat has over a long distance one is so obvious that 
 the cases illustrating this point can be very briefly 
 treated. 
 
 In the case of The Anthony Salt Company et al. v. 
 The Missouri Pacific Railway Company et al}, one 
 question at issue was whether salt from Michigan 
 might be given a rate to points in Texas as low as that 
 given to salt-producing regions in Kansas. It was 
 discovered that the rate on Michigan salt as far as 
 St. Louis was determined by conditions over which 
 the defendants had no control. The Commissioners 
 therefore treated the rate to St. Louis as merely " an 
 element of the original cost " of preparing the Michigan 
 salt for market and in judging as to the proper relation 
 between rates on Kansas salt and Michigan salt 
 made the comparison between rates to the Texas 
 points from St. Louis and Hutchinson, Kansas, re- 
 spectively. 
 
 St. Louis is 743 nules from Ft. Worth, Texas; Hutchinson is 427 
 miles from the same point. If the common rate 35^ cents per 
 hiindred is the proper rate for the 427 miles haul from Hutchinson 
 to Ft. Worth, then the excess of haul from St. Louis to Ft. Worth, 
 which is 316 nules, without any reason shown in the record, is 
 a carriage without charge. While many other considerations 
 than distance may be considered in determining what shall con- 
 stitute a proper rate, yet in this case nothing is shown to justify 
 the apparent discrepancy of charge, and it is behaved to work 
 an undue preference to Michigan salt over Kansas salt going to 
 Texas and southerly points. 
 
 ' 5 I. G. G. Rep. 299; i I. G. R. 33. 
 95 
 
It can hardly be disputed that here is a disadvantage brought 
 about to the Kansas, and a preference given to the Michigan salt, 
 both undue and unreasonable. ... We see nothing in the situa^ 
 tion, as proven, which can be given as a vaUd reason for not putting 
 the Kansas salt fields in possession of all these natural advantages 
 in the territory traversed by these lines. We think that in all 
 this territory where the Texas points are as near to Hutchinson 
 as to St. Louis, the Kansas salt should, by a rearrangement of 
 rates, be carried for an equal charge and where Hutchinson is 
 nearer than St. Louis, the Kansas salt should have the reasonable 
 advantage of its proximity to the market. 
 
 The danger that such a rearrangement of rates 
 would give to Kansas salt producers monopolistic 
 power, enabUng them to raise the price of salt to 
 Texas consumers, seems to have been forestalled 
 by the Commission's discovery that the productive 
 capacity of the Kansas salt fields was " practically 
 unmeasured, and probably equal to any demand 
 that is likely to exist for the product." 
 
 In the case of the Colorado Fuel and Iron Company 
 V. The Southern Pacific Company et al. S complaint 
 was made that a rate of $1.60 per 100 pounds on certain 
 iron and steel products shipped from Pueblo, Colorado, 
 to San Francisco was unfair and unreasonable when 
 compared to the rate of 60 cents or less per 100 pounds 
 on the same iron and steel when shipped to San 
 Francisco from Chicago and from Mississippi and 
 Missouri river points. Many considerations, such 
 as cost of service, competition by water, value of 
 commodity, and social considerations, played a part 
 in the discussion and affected more or less the decision 
 of the Commissioners. On the whole, however, 
 the discrimination was shown to be due primarily 
 to a desire on the part of the carriers to equalize the 
 natural disadvantages of location held by eastern 
 producers of iron and steel with reference to the 
 
 1 6 I. C. C. Rep. 488. 
 96 
 
western markets. This method of rate making did 
 not, of course, commend itself to the Commissioners, 
 who declared: " The off-setting of natural disad- 
 vantages at one place as compared to like business 
 at another, by discrimination in freight charges, is 
 inconsistent with the equality provisions of the statute." 
 Pueblo had certain disadvantages for producing and 
 shipping steel, — inferiority of coal and iron ore, 
 high cost of labor, and high terminal charges; but 
 these did not outweigh her natural advantages due 
 to location. As a result, a large iron and steel industry 
 had sprung up the financial success of which was in large 
 measure dependent on its ability to retain its advantages 
 over its competitors iu the western markets. This 
 natural advantage due to less distance the Commission 
 concluded the Pueblo company had a right to retain. 
 After allowing for the greater terminal expenses, 
 when compared with the distance the conunodities 
 were hauled, it was decided that 
 
 the rates from Pueblo to San Francisco should not exceed 45 cents 
 per 100 lbs. on steel rails and railway fastenings, or 37i cents 
 per 100 lbs. on bar iron, cast iron water pipe, etc., nor should the 
 rates from Pueblo to San Francisco on such traffic or on other 
 iron and steel articles be greater at any time than 75 per cent 
 of rates contemporaneously in force on like traffic from Chicago 
 to San Francisco over any of the different roads. 
 
 The basing-point system of rate making generally 
 followed ia the southeastern section of the country 
 affords numerous examples of discrimination against 
 the shorter distance points. The Commission has 
 justified these discriminations wherever active water 
 competition has seemed to compel lower rates to the 
 long distance points, and it has also been compelled 
 by court decisions to uphold these discriminations 
 wherever active rail competition has proved a potent 
 factor. But the Commission has acted very un- 
 
 97 
 
willingly in so deciding, and it has thrown upon the 
 carriers the responsibility of showing that circumstances 
 and conditions were so dissimilar as to warrant the 
 lower charges to the long distance point. 
 
 In the Cordele Machine Shop case ^ the Commission 
 decided that the fact that the more distant point 
 was a greater producing and distributing center 
 might be due to no natural advantages possessed 
 by this place but merely to the fact that it was arbi- 
 trarily made a favorite by the carrier. 
 
 In the Hampton, Florida, case ^ the carriers had 
 been charging rates to that city which were made 
 up of the through rate to Palatka, a point beyond 
 Hampton, plus the local rate back to Hampton. 
 Water competition at Palatka was said to control 
 the rate at that point but this the Commission did 
 not find to be the case, and it declared that under 
 the circumstances the basing-point system of rate 
 making was unfair to surrounding locaUties because 
 the effect of such a system 
 
 is to enable the basing-point merchants to compete with the local 
 merchants at their own doors on equal terms, while the latter 
 are debarred from such competition with the former, and as to 
 territory intermediate between the basing points and surrounding 
 locaUties merchants at the basing points are given such an advantage 
 in rates as to enable them to undersell merchants at surrounding 
 locahties and drive them out of the jobbing business in such in- 
 termediate territory. 
 
 3. Group rates 
 
 No cases which have come before the Commission 
 better illustrate the application of the principle that 
 a place is entitled to the advantages of its geographical 
 location but is not entitled to push this claim beyond 
 
 ' Cordele Machine Shop v. L. & N. R. R. Co. et al., 6 I. C. C. Rep. 361. 
 
 > Board of Trade of Hampton, Fla. v. N. C. & St. L. R'y Co., 8 I. C. C. Rep. 503. 
 
 98 
 
the bounds set by cost of service, than do those cases 
 which deal with group rates, that is, rates which are 
 common to all points within a given area which are 
 reached by the same Unes, irrespective of their distance 
 from the basing point. Such a system of rate making 
 is exemplified in the zone tariffs of Austria and Hungary, 
 where the principle of group rates may be said to 
 have found its logical appUcation. 
 
 In one of the earUest cases ^ of this sort heard by 
 the Commission it was shown that the carriers were 
 in the habit of making uniform rates on milk trans- 
 ported to New York from points on their Unes which 
 were situated at distances varying from 21 to 183 
 miles from the point of destination. The complain- 
 ants lu-ged that in this way undue preference was 
 given to the more remote points, inasmuch as the 
 amount of service rendered to these places was greater 
 than that given to the points nearer the market altho 
 the charge was made the same for aU. The com- 
 plainants were apparently seeking to make use of 
 the value of service principle which the Commission 
 had akeady declared to be the fundamental principle 
 in rate making. Unfortunately for their cause, the 
 complainants in their brief made the following ad- 
 mission with reference to the costs of conducting 
 the business of transporting milk: — 
 
 It will be observed that the character of the service rendered 
 is the same and every element which goes to make up the expense 
 account of the raUroad for performing this service is identically 
 the same whether the milk is taken to its cars 183 miles from New 
 York or 21 miles from New York, except in the length of the haul. 
 
 This admission the Commissioners took advantage 
 of to bolster up their decision that the group rate 
 
 » N. W. Howell et al. v. N. Y., L. E. & W. R. E. Co. et al., 2 I. C. O. Eep. 272; 2 
 I. C. R. 162. 
 
 99 
 
was justifiable in this case, since the greater part 
 of the expense of transporting milk by special trains 
 was independent of distance. 
 
 The special equipment and trains, the extra labor and cars, the 
 terminal services and supervision, are aU employed upon the 
 TTiilV business as a unity . . . and it may well be doubted whether 
 the length of the haul establishes in this case any very material 
 difference between the expenses at the different localities. 
 
 The Commission's decision was accordingly made 
 to rest on the basis of cost of service; and the case 
 would have been treated under this heading were it 
 not for the fact that in a later case the Commissioners 
 shifted their ground and, altho they did not admit 
 that there was any inconsistency, practically reversed 
 their decision. 
 
 In the later case ^ much the same situation was 
 revealed, but in this instance the blanket rate on 
 milk and cream shipped by special milk trains appUed 
 to all places within 335 miles from New York by some 
 of the defendant Unes. The complainants were careful 
 not to weaken their case as they did in the former 
 instance by admitting that the cost of service was 
 practically the same from the more distant points 
 as from those near at hand. On the contrary, they 
 declared that the rates 
 
 are purely arbitrary and are not at all grounded upon the distance 
 of the terminal from the shipping points, nor based to any extent 
 upon the value of the products carried or upon the cost of carriage 
 to the defendants, or upon any special service rendered. 
 
 They also declared that the milk rates were higher 
 than for other farm products whose character was 
 the same and whose costs and risks of transportation 
 were greater. Yet the real burden of their complaint, 
 
 • Milk Producers' Protective Association v. D., L. & W. R. R. Co. et al., 7 I. C. C. 
 Rep. 92. 
 
 100 
 
tho it was not boldly stated, was that the blanket 
 rate took from those shippers who lived near New 
 York their geographic advantage of situation near 
 a market. 
 
 The defendants in their answer laid stress on this 
 argument, through an exaggeration of statement, 
 when they alleged that the object of the petition was 
 to create 
 
 a monopoly of the milk business in favor of a limited class of shippers 
 by securing lower rates to them than are granted to more distant 
 shippers, the practical effect of which will be to drive the latter 
 out of business and thus enable the petitioner and those it represents 
 to secure higher prices from the consumers. 
 
 The carriers presented a strong argument in support 
 of the group rates on milk, which they contended were 
 better for consumers as well as producers than were 
 rates based on distance. 
 
 The Commissioners made an elaborate investigation 
 of the facts concerning the distances of the various 
 milk-shipping stations from New York and the amounts 
 of milk shipped from each station, of the methods 
 of packing milk and the cost of moving the milk 
 traffic, of the amount of milk handled by each line 
 and the rates charged on other farm produce. The 
 result was that they decided against the continuance 
 of the blanket rate on milk from all points within 
 335 mUes, altho they stUl upheld the principle of group 
 rates. In place of the one uniform rate from all 
 points on the defendants' lines they suggested the 
 following method of grouping: First group, all places 
 within 40 miles of the terminal, with a uniform rate 
 of 23 cents per can (40 quarts) of milk, and 41 cents 
 per can of cream. Second group, all places from 40 
 to 100 miles from the terminal, with a common rate 
 of 26 cents on milk and 44 cents on cream. Third 
 
 101 
 
group, all places from 100 to 190 miles from the ter- 
 minal, with a rate of 29 cents on milk and 47 cents 
 on cream. Fourth group, all places beyond 190 miles 
 from the terminal, with a rate of 32 cents on milk 
 and 50 cents on cream. 
 
 This system of group rates, it will be noticed, is 
 quite different from that upheld in the HoweU case, 
 where the distances covered by the blanket rate were 
 practically the same as those included in the first 
 three groups of the above classification. The Com- 
 missioners maintained that they were guided by the 
 same principles as controlled their decision in the 
 earlier case, and that the situation differed in this 
 respect, " that the addition of new territory has 
 operated to the prejudice of the old." The real 
 difference between the two cases was that in the 
 HoweU case the evidence seemed to show that it 
 was necessary for the carriers to collect milk from 
 places as far distant as 183 miles from the terminal 
 in order to secure a supply sufficient to satisfy at 
 moderate prices the demand of consumers in New 
 York City. As long as the milk traffic was confined 
 to this territory all producers within the territory 
 could market their product at prices which yielded 
 a fair profit. When the carriers later extended the 
 milk service and the uniform rate to all places within 
 335 miles from New York, the effect was to widen 
 the source of supply to such an extent as to make 
 it impossible for aU producers within the enlarged 
 territory to dispose of their product. Some of the 
 near-by producers were therefore crowded out of 
 the market by those at a distance. The Commissioners 
 declared it to be the 
 
 duty of carriers to establish rates which will not deprive producers 
 more favorably situated with reference to a dependence upon 
 
 102 
 
that market of part of their trade in a limited traffic, or prevent 
 their supplying their share of the greater demand due to the increase 
 in the city's population or in the consumption per capita. Fur- 
 nishing an extra perishable article like milk in no greater quantities 
 than is required for daily use in a given city is a business which 
 falls naturally to those producers nearest the city who are able 
 to provide the needed supply. 
 
 That the Commissioners were of the opinion that 
 a system of rate making which had respect for the 
 rights of the near-by producers would be in accord 
 with the cost of service principle emphasized in the 
 Howell case is shown by their statement that, " Pru- 
 dence would influence railroad managers to confine 
 the collection of milk within the territory in which 
 it can be most cheaply handled and to extend the 
 milk system no further than the increase and growth 
 of the demand should require." 
 
 We have already' given some consideration to the 
 case of the Commercial Club of Omaha v. Chicago and 
 Northwestern Railway Company et al.^ and have seen 
 that a majority of the Commission refused to sanction 
 the demand of the complainants that since Omaha, 
 Nebraska, and Council Bluffs, Iowa, had a group 
 rate to points in Nebraska, they should also have a 
 group rate to points in Iowa. A difference in the 
 cost of service from the two places was given, it will 
 be remembered, as one reason for refusing the demand 
 of the complainants. Another argument which found 
 a large place in the reasoning of two of the three 
 Commissioners who constituted the majority was 
 that jobbers of Council Bluffs were entitled to their 
 natural advantages of location for carrying on the 
 Iowa trade. Their argument was as follows: — 
 
 As respects the distributing trade in Iowa it cannot well be denied 
 that Council Bluffs has some natural advantages of location. . . . 
 
 ' See p. 54. '7 I. C. C. Rep. 386. 
 
 103 
 
If Council Bluffs is more favorably situated with reference to 
 the trade of western Iowa, the carriers are not to be condemned 
 for recognizing that fact in adjusting their charges. It does not 
 necessarily foUow that rates should be the same from Omaha and 
 Council Bluffs into Iowa because they are the same from those 
 places into Nebraska. If Council Bluffs has an undue advantage 
 in the matter of west-bound rates, the correction of any resulting 
 injustice to Omaha must be sought in an appropriate proceediag. 
 
 This reasoning would meet with more ready ac- 
 ceptance by the student of railway rates had not 
 previous decisions of the Commission ah-eady recog- 
 nized the vahdity of group rates under circumstances 
 and conditions which leave little room for doubt 
 that its members would have held them applicable, 
 as a general rule, to Omaha and Council Bluffs, had 
 that question been directly before them. Indeed, 
 the argument of the majority in this case shows that 
 they recognized the vahdity, or perhaps the necessity, 
 of group rates for Omaha and Council Bluffs to and 
 from all parts of the country except to points in Iowa. 
 To permit the continuance of a group rate from these 
 cities to all places except Iowa points, and then to 
 fall back upon " natural advantages of location " 
 as a reason for refustag group rates to points in Iowa 
 seems illogical and it brings up the question as to 
 whether group rates are ever justifiable, — that is, 
 whether they can be given without taking away from 
 certain places their natural advantages of location. 
 
 The two dissenting Commissioners la the case 
 did not object to the argument that Council Bluffs 
 was entitled to its natiu^al advantages of location. 
 Their refusal to agree with the majority was due 
 wholly to the fact that they held that the agreement 
 entered into between the roads, " to estabhsh and 
 maintain absolute equality in in and out rates for these 
 towns " did create a claim for the maintenance of this 
 
 104 
 
agreement in respect to Iowa points if it were main- 
 tained for other points. 
 
 4. Natural advantages due to competition 
 
 Competition might be thought to create artificial 
 advantages rather than natural ones and doubtless 
 this is true in many instances. There are certain 
 conditions, however, in which a place has an advantage 
 over its competitors owing to the fact that it is so 
 situated by nature as to enjoy the advantages of 
 competing routes. Chicago, situated at the lower 
 end of Lake Michigan, where the railway lines running 
 from the east to the northwest must round the lake, 
 is a notable example of a place naturally located to 
 enjoy competition. In most of the cases involving 
 competition the Commission has rested its decision 
 squarely on the basis of this competition, without 
 endeavoring to show that this was a natm-al advantage 
 possessed by the competitive point. Accordingly 
 most of these cases considered will be dealt with 
 in a subsequent section of this paper. There are, 
 however, a few cases in which the Commission has 
 seen in a competitive situation a natural advantage 
 which entitled the one town to lower rates than those 
 granted to its rivals. 
 
 Two cases ^ in which the city of Sioux Falls, South 
 Dakota, was the real complainant will suffice to illus- 
 trate this point, since in the one case the Com- 
 missioners found that competition created a natural 
 advantage for one city and in the second case no such 
 natural advantage appeared. 
 
 In the first case complaint was made that rates 
 from Chicago to Sioux Falls were unjust and un- 
 
 1 E. J. Daniels r. C. R. I. 4 P. R'y Co. et al.; E. J. Daniels t. Great Northern 
 R'y Co., 6 I. C. C. Rep. 458. 
 
 105 
 
reasonable as compared with the rates from Chicago 
 to Sioux City, Iowa. The short hne route from 
 Chicago was slightly less to Sioux City than to Sioux 
 Falls but both places were well served with railroads 
 connecting them not only with Chicago but also with 
 Duluth, Milwaukee, and other points on the Great 
 Lakes. The Commissioners did not think that under 
 the circumstances the slight difference in distance 
 was a sufficient cause for a difference in the rates to 
 the two cities. They said: — 
 
 Confining the issue to location alone and taking into account 
 only the relation of the carriers to these two towns, we should 
 have little hesitation in prescribing for Sioux Falls substantially 
 the same rates from Chicago as are granted to Sioux City. But . . . 
 other considerations incline us to a somewhat different conclusion. 
 
 These other considerations grew out of the fact 
 that Sioux City is situated on the Missouri river 
 whUe Sioux Falls is not. It had been for a long time 
 the practice of the western railroads to make rates from 
 the east somewhat more favorable to cities situated 
 on the Missouri river than to other near-by points. 
 This practice had its origin in the fact that at one 
 time water competition by Missouri river boats 
 had been a potent element in the determination of 
 railway rates; and, altho this competition by water 
 had almost ceased, the business interests of the Mis- 
 souri river towns had appeared to be more or less 
 dependent on the maintenance of the old rates and 
 they had accordingly been continued. 
 
 The Commission, altho expressing its displeasure 
 with the basing-point system of rate making which 
 gave such a preference to the Missouri river towns, 
 saw no way of correcting the evil without disturbing 
 the entire rate situation in the west and creating 
 commercial disturbances in the Missouri river cities 
 
 106 
 
as well. The only practicable remedy was, therefore, 
 to reduce rates to Sioux Falls. Yet, while they ordered 
 some reduction in the rates to that place, the Com- 
 missioners were unwiUing to add another to the list 
 of Missouri river towns. The reason for allowing 
 a difference in the rates to the two towns could hardly 
 have been actual competition in the one case which 
 did not exist in the case of the other, for as we have 
 seen the two places seem to be equally favored in this 
 respect; nor could it have been distance, for the 
 Commission ignored the slight difference in the dis- 
 tances. Sioux City's advantage lay rather in the 
 fact that it was a Missouri river town and thus shared 
 in the favors granted by the carriers to those towns. 
 
 The peculiar advantage possessed by Sioux City 
 in the above case will perhaps be better understood 
 after a consideration of the second case brought by 
 the Sioux Falls complainant. In this case complaint 
 was made that rates from Duluth were higher to 
 Sioux Falls than to Sioux City, which was 78 mUes 
 farther from Duluth. The Conamissioners found in 
 this case no reason for a difference in the rates to the 
 two places. " The location of Sioux Falls, its distance 
 from Duluth, and the conditions under which trans- 
 portation is effected, seem to require as low rates to 
 Sioux Falls as those accorded to Sioux City." In 
 some respects this decision might be regarded incon- 
 sistent with the decision in the Chicago-Sioux 
 Falls case; since the later decision would seem to 
 require that rates from Chicago to Sioux Falls be 
 reduced in order to meet the reduction in the Duluth- 
 Sioux Falls route. It did not appear from the Com- 
 mission's investigations, however, that the Duluth 
 route was an active competitor with the Chicago 
 route for Sioux Falls traffic. 
 
 107 
 
Attention must once more be called to the fact 
 that the natural advantages recognized in this series 
 of cases are always due to differences in cost of pro- 
 duction or transportation. The natural advantage 
 possessed by a place may be due to lower costs of 
 production as in the Eau Claire case, or to lower 
 costs of transportation as in the Boston Chamber 
 of Commerce case, or to a combination of these two 
 as in the Michigan salt case. The natural advantage 
 may be due to a shorter distance covered in trans- 
 portation, in which case lower costs are reflected. 
 Group rates which would tend to annul differences 
 in distance or costs of transportation are justifiable 
 only when these differences are slight and when the 
 group rates do not deprive any of the more favorably 
 located producers of a market for their products; 
 for they have the first claim on that market. Natural 
 advantages which are ascribed to competition are 
 the hardest to explain on the grounds of differences 
 in cost; but in the one case cited it may be said that 
 the preference given to Sioux City was originally 
 due to the fact that she had the advantage of a cheap 
 water route to market, and that even after this water 
 route had been abandoned it continued to fiu-nish 
 potential competition which had been given recogni- 
 tion in the system of rate making. 
 
 VI. Competition 
 
 The act to regulate commerce was passed by a 
 Congress which was strongly of the beUef that com- 
 petition between raihoads was salutary in its workings 
 and was to be fostered. The purpose of regulation 
 was not to thwart competition but to check monopoly^ 
 The framers of the act and those who voted for it 
 
 108 
 
may not have rightly understood the nature of railway 
 competition and its effect in producing discriminations, 
 but there can be no doubt that they intended that 
 the act should promote competition between carriers 
 and between places, and that they placed reliance 
 on competition as a rate-making force beneficent in 
 its results. 
 
 The members of the Interstate Commerce Com- 
 mission appointed to carry out the provisions of the 
 act were fuUy aware of the intention of Congress 
 in this matter, and in good faith undertook to apply 
 the competitive principle to railway rates.' This 
 is not the place to enter into a discussion of the ways 
 in which the Interstate Commerce Commission grad- 
 ually modified its views as to the beneficial effects 
 of competition between railroads and came to the 
 conclusion that competition between carriers could 
 be made an excuse for discrimination between places 
 only in those cases where the lower rates were forced 
 by the competition of carriers not subject to the 
 act to regulate commerce. Nor do we need to explain 
 at length the way in which this tendency of the Com- 
 mission was thwarted by the decisions of the Federal 
 courts ^ to the effect that competition between the 
 carriers subject to the act might create such dis- 
 similar circumstances and conditions as to warrant 
 their being taken into account by the Commission 
 " as having due regard to the interests of the pubhc 
 and of the carriers." 
 
 It is important to note, however, that the difference 
 of opinion between the Commission and the courts 
 concerning the extent to which, under the act, com- 
 petition might be allowed to influence rates, makes 
 
 1 See the First Annual Report of the Commission, p. 40. 
 
 « Social Circle Case; 162 U. S. 184. Troy case; 168 U. S. 144. 
 109 
 
it uncertain how far the real opinion of the Com- 
 missioners is reflected in some of the cases to be con- 
 sidered under the heading of competition. Since 
 the purpose of the present inquiry is to show how a 
 consideration of the economic and social conditions 
 affecting rate making has led the Interstate Commerce 
 Commission to develop certain fundamental prin- 
 ciples controlling railway rates, we are less interested 
 in those cases in which the decisions of the Commission 
 have resulted simply from obedience to the orders 
 of the courts. But in many of the cases which have 
 come before it the Commission has of its own volition 
 decided that competition was the controlUng factor 
 in the determination of the rates in question. These 
 cases may be classified as follows: (1) Those in which 
 the controlling competition is between carriers subject 
 to and those not subject to the act to regulate com- 
 merce. (2) Those cases in which the competition 
 is between carriers subject to the act. (3) Where 
 the competition is between places or between different 
 sections of the country. (4) Export rate cases. (5) 
 Where competition between shippers or between 
 producers is the controlling factor. (6) Where com- 
 petition is necessary to prevent the growth of monopoly. 
 
 1. Competition between carriers subject to and 
 those not subject to the act 
 
 The act to regulate commerce did not include 
 within its scope carriers engaged in the transportation 
 of passengers and goods entirely by water. And 
 for obvious reasons it could not include those carriers, 
 whether by rail or by water, which were wholly subject 
 to a different poUtical jurisdiction but which never- 
 theless might at times actively compete with American 
 
 110 
 
railroads for certain kinds of traffic. It was clear 
 that unless the carriers made subject to the act were 
 to be deprived of their fair share of this highly com- 
 petitive traffic they must be allowed to meet the 
 low rates set by carriers not subject to the act; even 
 if this involved the granting of lower rates on the 
 competitive traffic than were accorded to traffic 
 not competitive. Brief mention will suffice of the 
 cases in which the Commission has upheld rate dis- 
 criminations which were clearly shown to have re- 
 sulted from the competition of carriers not subject 
 to the act. The only cases in which the Commission 
 has refused to recognize such competition as a legiti- 
 mate force controlling rates is where the carrier subject 
 to the act was shown to be the active and not the 
 passive factor, that is, where it was shown to have 
 forced the low rates on its competitors, instead of 
 having had the low rates forced upon it. The Com- 
 missioners have also insisted that where a carrier 
 has accepted a low rate on a portion of its traffic 
 because this low rate was forced upon it by competition, 
 the low competitive rate must be high enough to 
 cover the additional costs of handling this traffic. 
 Otherwise it would be necessary to increase the rates 
 on the non-competitive traffic to make up for the 
 loss occasioned by the addition of the competitive 
 traffic. 
 
 In the case of Lehmann, Higginson & Co. v. The 
 Southern Pacific Company et al. ^, the Commission 
 decided that a rate of 85 cents per 100 pounds on 
 sugar carried from San Francisco to Humboldt, Kansas, 
 was not unlawful, altho only 65 cents were charged 
 for like shipments to Kansas City, Kansas, which 
 was 100 miles farther from San Francisco than was 
 
 • 1 1. G. C. Rep. 1. 
 Ill 
 
Humboldt. " Actual water competition of control- 
 ling force " was shown to have determined the low 
 rate to Kansas City and at the same time it was shown 
 that this low rate afforded to the carrier some revenue 
 above the cost of moving the traffic. The rate to 
 Humboldt on the other hand was shown to be not 
 unreasonable and to be even lower than it would 
 have been except for the influence of the competitive 
 conditions at Kansas City. 
 
 For the same reasons the Commissioners upheld '■ 
 the practice of the raihoads in granting lower rates 
 to the Standard Oil Company on petroleum shipments 
 to certain points in CaUfornia from the oil fields in 
 Pennsylvania and Ohio than were granted to the 
 Standard's competitors located at intermediate points 
 on the railroads. Competition of part-rail and part- 
 water lines and of part-pipe and part-water lines 
 existed in case of the Standard's product which did 
 not exist in case of its competitors. 
 
 Water competition of " controlling force " was 
 held to justify ^ carriers in charging less on traffic 
 sent from New York City to Memphis, Tennessee, 
 than to Chattanooga in the same state. Lower 
 rates to Nashville than to Chattanooga were not 
 upheld because the Commission did not believe that 
 water competition at Nashville was sufficient to 
 compel the low rates to that point. The United 
 States Supreme Court refused ' to enforce the order 
 of the Commission with reference to the Nashville 
 rate and on a rehearing * of the case the Commission 
 
 1 George Rice v. A. T. & S. F. R. R. Co. et al., 4 I. C. C. Rep. 228. 
 
 ' Board of Trade of Chattanooga v. East Teiiu., Va. & Ga. R'y Co. et al., 5 I. C. C- 
 Rep. 546. 
 
 ' 181 U. S. 29. 
 
 ' Chamber of Commerce of Chattanooga v. Southern R'y Co. et al., 10 I. C. C. 
 Rep. 111. 
 
 112 
 
decided that " the traffic from New York and other 
 eastern points is carried to Nashville and Chattanooga 
 under substantially different circumstances and con- 
 ditions"; hence the higher rate to Chattanooga was 
 not unlawful. 
 
 In the case of W. S. King & Co. v. The New York, 
 New Haven, and Hartford Railroad Company et al. ^, 
 complaint was made that a through rate of nine cents 
 per 100 pounds was given on flour sent from New 
 York to Boston, but to Readville, Massachusetts, 
 eight mUes nearer to New York the rate was 18 cents, 
 the sum of the combined local rates to that point. 
 The Commissioners upheld the discrimination against 
 Readville on the following grounds: (1) The low 
 rate to Boston was forced by water competition and 
 was under the circumstances allowable. (2) There 
 was no evidence that the local rates to Readville 
 were in themselves unreasonable. (3) The traffic 
 seciu-ed by doing the Boston business at the low rates 
 and which could otherwise not be secured enabled 
 the carriers to " make the local rates considerably 
 lower than they would otherwise be." 
 
 With reference to this latter point it may be said 
 that it is difficult to see how the local rates could be 
 made less by means of the revenue derived from the 
 through business, if, as the carriers claimed, the 
 rates to Boston were " but little in excess of the actual 
 cost of doing the work." 
 
 The Canadian Pacific Railway, not being subject 
 to the act to regulate commerce, has always been 
 a disturbing factor in the rate situation, particularly 
 in the transcontinental freight and passenger business. 
 The Interstate Commerce Commission when brought 
 
 1 4 1. C. C. 251; 3 1. G. R. 272. 
 113 
 
face to face with the situation created by the com- 
 petition of this foreign route has declared : ^ — 
 
 The competing American lines must either meet the reduced rates 
 of such foreign carrier or lose their share of the traffic, and they 
 cannot make such reduced rates apply at intermediate points 
 without suffering large loss of necessary revenue. 
 
 The Commission has under such circumstances 
 generally relieved the American carriers from the 
 operation of the long and short haul clause of the 
 act in order to enable them to meet the competition 
 for through traffic. 
 
 These are only a few of the cases in which com- 
 petition by carriers not subject to the act to regulate 
 commerce has been held by the Commission to justify 
 carriers subject to the act in lowering their rates 
 at competitive points. Viewed piu-ely as an economic 
 and social proposition, it is at least debatable whether 
 one carrier should be allowed to take traffic frpm 
 another which can carry it at less expense, but in 
 view of the fact that not all carriers were made subject 
 to government rate regulation, and since it was clearly 
 the intention of the framers of the act to promote 
 competition wherever competition was possible, it 
 is evident that the Commission has pursued the only 
 way open to it in permitting these competitive rates. 
 
 2. Competition between carriers subject to the act 
 
 That competition between carriers subject to the 
 act to regulate commerce could create such dissimilar 
 circumstances and conditions that carriers might 
 feel themselves justified in making it an excuse for 
 departing from the rule laid down by the long and 
 
 • In the matter of the application of the A. T. & S. F. R'y et al. for a suflpeuslon 
 of the fourth section. 7 I. C. C. Rep. 593. 
 
 114 
 
short haul section of the act, was quite foreign to 
 the minds of the Commissioners during the early 
 years of their service. As explained in the Commission's 
 Seventh Annual Report/ the Commission had held, 
 prior to the decisions of the Federal courts placing 
 a different interpretation upon the language of the 
 fourth section of the act, that " the only railroad 
 competition which may justify carriers in fixing rates 
 contrary to the long and short haul principle was 
 in ' rare and pecuhar cases '." 
 
 The decision of the United States Supreme Court 
 in the Troy case (168 U. S. 144) compelled the Com- 
 mission to admit that competition between carriers 
 subject to the act was a factor which must be taken 
 into consideration in determining the reasonableness 
 of a given rate. Many of the later cases coming 
 before the Commission are decided, therefore, on the 
 principle that the rates in question are made necessary 
 by the competition of other roads. As already stated, 
 these cases are of less value to us in our search for 
 economic principles than those in which the decision 
 was not forced upon the Commission, and for that 
 reason we shall give them scant attention. We must 
 not, however, fail to note those " rare and peculiar 
 cases " in which the Commission, on its own initiative, 
 has decided that competition between carriers subject 
 to the act is a controlling factor in the determination 
 of a rate. 
 
 In the first case ^ of this sort to be considered, ap- 
 plication was made by a carrier to be reUeved from 
 the operation of the long and short haul clause during 
 the progress of the Columbian Exposition in Chicago 
 in 1893. This carrier had in connection with other 
 
 ' p. 33. 
 
 2 Petition of C. H. & D. R. R. Co., 6 I. C. C. Rep. 323. 
 115 
 
carriers established a through passenger service to 
 Chicago from Lima, Dayton, and other points in Ohio. 
 The distance from these places to Chicago by the 
 combination route was much greater than the dis- 
 tance by direct and competing hnes. The petitioner 
 therefore desired to be allowed to meet the rates 
 of its competitors to Chicago without reducing the 
 rates from intermediate and non-competitive points. 
 The Commission granted the petition, and in so doing 
 said : — 
 
 In the case under consideration it is shown that additional trans- 
 portation facilities and accommodations for passengers travelling 
 from Lima through Dayton to Chicago and return, during the 
 World's Fair Exposition, are necessary to the convenience and 
 safety of travellers to and from the Exposition. The petitioner 
 has made provision for such increased facilities by estabUshing 
 a new route which can only be utilized by the acceptance of the 
 lower rate from Lima, $9, wiiich has been established by a com- 
 peting carrier having a more direct route. ... It also appears 
 that this lower rate will yield to the petitioner something more 
 than the cost of the service. 
 
 Other cases of the same sort have frequently arisen 
 where a carrier having a long and circuitous route 
 has desired to enter into competition with a carrier 
 having a more direct route but has felt unable to 
 make the rates at intermediate points as low as at 
 the competitive points. When appUcation has been 
 made to the Commission for relief from the fourth 
 section, the petition has usually been granted, ^ pro- 
 vided the petitioners were able to show: (1) that 
 the circuitous route had not forced the low rate but 
 that it was forced upon it; (2) that the low rate at 
 competitive points would yield to the carrier some 
 net revenue, that is, something more than the costs 
 of handling the traffic; (3) that the rates at the in- 
 
 > See for Illustration petitions of C. & E. I. R. R. Co., and of D. L. & W. R'y Co., 
 Commission's Eleventh Annual Report, pp. 102-103. 
 
 116 
 
termediate points were not unreasonable, and that 
 they would not be raised; (4) that business interests 
 along the line would be promoted by allowing such 
 competition. 
 
 Since November, 1897, when the Supreme Coiart 
 in the Troy case decided that competition between 
 carriers subject to the act might create such dis- 
 similar circumstances and conditions as to warrant 
 a greater charge for a short than for a long haul, 
 there have been many cases in which the Commission 
 has given competition between railroads as a reason 
 for upholding certain rates brought in question before 
 it. In some of these cases it is evident that the Com- 
 mission is merely following the precedents established 
 by the com-ts. In other cases it is not so clear that 
 the Commission is not expressing the opinions of its 
 own members in regard to the influence which com- 
 petition between railroads may properly exercise 
 on rates. The Commissioners at times have adopted 
 a line of reasoning which seems to show that even 
 without the guidance of the courts they would have 
 given much weight to railway competition as an 
 influence tending to establish fair and reasonable 
 rates. One or two references to some of the later 
 decisions wiU make this point clear. 
 
 In the case of the Mayor and City Council of Wichita 
 V. The Atchison, Topeka & Santa Fe Railway Co. 
 et al.^, complaint was made that the city of Wichita, 
 Kansas, was being unjustly discriminated against 
 because on grain intended for export the rates to 
 Galveston, Texas, from Wichita were higher than 
 from Kansas City, Missoxu-i, which was a more distant 
 point. It was also claimed that the Wichita rate 
 was in itself unreasonable. 
 
 1 9 I. C. C. Rep. 534. 
 117 
 
The Commission discovered that conditions at 
 Kansas City made the rates from that point highly- 
 competitive, since grain intended for export was sent 
 by several routes, to Atlantic as well as to Gulf ports, 
 and these rates had long been the resultant of this 
 active competition. They were, therefore, beyond 
 the control of the defendant carriers. Under the 
 circumstances the rates from Kansas City to Galveston 
 were all that the tarriff would bear, while the Wichita 
 rates were not subject to such highly competitive 
 conditions. The Commissioners beUeved, however, 
 that the discrimination against Wichita was too great 
 and that rates from there to Galveston were excessive 
 to the extent of two cents per 100 pounds. In ren- 
 dering their decision to this effect the Commissioners 
 paid some attention to cost of service and to other 
 considerations, but in the main their opinion was 
 based on the fact that competition had tended in the 
 long run to establish a rate of 28i cents per 100 
 pounds from Wichita to Galveston and this rate must 
 therefore be regarded as a reasonable one. Their 
 argument was as follows : — 
 
 One test of a reasonable rate is to inquire what has been the result 
 of competition between different carriers; when several different 
 lines of railway could, and did bid for the same traffic, at what 
 price have these carriers transported that traffic ? Where such 
 competitive conditions, operating through several years, have 
 settled down into a certain rate, we think that fact is of great 
 weight. Now in the case before us competition, after being sub- 
 jected to all the restrictions then possible, resulted in an actual 
 rate from Wichita not exceeding 28| cents on the average. While 
 not conclusive, this is certainly important in attempting to de- 
 termine what is a reasonable charge. 
 
 This statement, which seems to place impUcit con- 
 fidence in competition as a force tending to estabUsh 
 reasonable rates, is not the only one which might 
 
 118 
 
be cited in support of this point of view. Generally- 
 speaking, whenever the Commission has upheld " a 
 long existing rate " (and such cases are frequent), 
 the decision has apparently rested on this view con- 
 cerning the permanent results of competition. 
 
 Another appUcation of the doctrine that differences 
 in rates may sometimes be justified by differences 
 in competitive conditions is found in the case of Weil 
 Brothers & Company v. Pennsylvania Railroad Com- 
 pany et al.^ The question raised was whether it was 
 lawful and just to charge 62 cents per 100 pounds 
 for transporting " wool in the grease " from Phila- 
 delphia to Fort Wayne, Indiana, when at the same 
 time a rate of 43 cents per 100 pounds was given on 
 the same commodity transported in the other direction. 
 The Commission upheld the difference in rates on 
 the following grounds: — 
 
 A great and increasing volume of freight is a factor of much in- 
 fluence towards the depression of rates. The great volume of 
 freight from the west produces a competition to secure the traffic 
 which, with the facilities provided for its handUng, serves to secure 
 ... a rate to the seaboard which may not be taken as a fair 
 measure of rates on the same commodities in chance shipments 
 in the opposite direction. 
 
 Altho it does not fall within the class now under 
 discussion it is interesting to note here that another 
 case ^ was decided by the Commission within three 
 weeks of the time when the case just quoted was 
 settled, in which the decision rested on precisely the 
 opposite grounds. The question involved the right 
 of carriers to charge higher rates on screen doors 
 shipped from Fenton, Michigan (near Detroit), to 
 Winsooki, Vermont, than were charged from Winsooki 
 
 1 11 I. C. C. Rep. 627. 
 
 2 The A. J. Phillips Company v. G. T. W. R'y Co. et al., 11 I. C. C. Rep. 659. 
 
 119 
 
to Detroit. The Commission gave the following 
 reason for allowing the discrimination to continue: — 
 
 To a considerable extent the bulky products of the west require 
 for their transportation equipment in excess of that necessary 
 to the carriage of west-bound freight, so that there is a greater 
 movement of empty cars under lighter power westward, which 
 increases the expense of transportation to the carriers. . . . Some 
 disparity, therefore, between the rates on east-bound and west- 
 bound traffic seems to be justified by the conditions resulting 
 from the empty car movement in one direction. 
 
 Here it is evident that cost of service is the control- 
 hng principle. The Commission seems unaware of 
 the inconsistency between these two decisions. 
 
 3. Competition between places or sections ■ 
 
 Competition between places or sections is frequently- 
 more intense than that between carriers and is, indeed, 
 not seldom the cause of the latter. The desire to 
 preserve competition between places has, however, at 
 times been used by the Commission as an argument 
 for restricting within certain limits the competition 
 between carriers. Most of the cases in which this 
 attitude has been taken have arisen since the decision 
 of the Supreme Court in the Troy case and doubtless 
 the Commission's decisions have been considerably 
 affected by the ruling of the Court. 
 
 A case which affords a good illustration of this 
 sort of competition is that of The Wilmington Tariff 
 Association of Wilmington, North Carolina, v. the 
 Cincinnati, Portsmouth, and Virginia Railroad Com- 
 pany et aU The city of Wilmington had long served 
 as a distributing center to many interior towns of 
 North and South Carolina not only for goods imported 
 by water, but likewise for goods brought from the 
 west. Through a readjustment of freight rates 
 
 ' 9 I. C. C. Rep. 118. 
 120 
 
made by the eastern trunk lines, Wilmington's chief 
 competitors, Norfolk and Richmond, Virginia, were 
 given rates from the west much lower than had hitherto 
 prevailed, — rates which were substantially the same 
 as were given to Baltimore, Maryland. Water com- 
 petition at all these points was made the excuse for 
 the lower rates. Water competition of the same 
 sort existed at Wilmington, but it obtained no recog- 
 nition from the railroads and the higher rates by rail 
 to that port remained in force. As a result of this 
 change in rates Wilmington steadily lost ground 
 as a distributing center and was being gradually 
 supplanted in this trade by Norfolk and Richmond. 
 This was especially true in the case of such traffic 
 as originated at St. Louis or Chicago or at points 
 west of those cities. So far as the traffic originating 
 at Ohio river points, like Cincinnati and Louisville, 
 was concerned, the relation of rates to Wilmington 
 and Norfolk seemed to the Commission to be fair 
 and reasonable. For traffic originating at points 
 beyond the Ohio river and billed to Wilmington, 
 the carriers were found to be charging the full local 
 rates to the Ohio river cities plus the through rates 
 from Cincinnati or Louisville to Wilmington. In 
 case the traffic was billed to Norfolk or Richmond 
 the western roads accepted as their share of the through 
 rate from Chicago or St. Louis less than the local 
 rates to Ohio river points, so that this made the 
 total through rate less for Norfolk and Richmond 
 than for Wilmington. 
 
 The Commissioners believed that the readjustment 
 of rates had unjustly discriminated against Wilmington. 
 In their decision, they said: — 
 
 After giving the case most careful study, and keeping in view 
 the rights and just interests of all concerned, we see no escape 
 
 121 
 
from the conclusion that the present adjustment of rates which 
 operates largely to deprive Wilmington as a competing point 
 for wholesale distribution of the benefits of such great primary- 
 markets as Chicago and St. Louis and limits her to such inter- 
 mediate points of supply as Cincinnati and Louisville (from which 
 the related rates appear to be fair and reasonable), subjects Wil- 
 mington to prejudice and disadvantages which are in substantial 
 degree undue and imreasonable; that the carriers operating the 
 defendant through hnes are to that extent responsible and that 
 the regulation provided for in the Statute should be appUed to 
 remove and prevent these wrongs. 
 
 Competition between carriers was claimed i by 
 the Southern Railway as an excuse for granting lower 
 rates to and from Lynchburg, Virginia, than were 
 accorded to Danville in the same state, the two towns 
 being rival distributing centers. The argument of 
 the defendant may be analyzed as follows: (1) Com- 
 petition of the trunk Unes leading to the Atlantic 
 seaboard has resulted in the estabUshment of a very 
 low rate to Baltimore. (2) The Chesapeake and 
 Ohio Railway, in order to develop an export business 
 for its own Hne at Norfolk, has given the same rates 
 to Norfolk as were given to Baltimore. (3) Lynch- 
 biu-g, being an intermediate point on the Chesapeake 
 and Ohio and on the Norfolk and Western Railway, 
 has been given the same rates as were given to Norfolk, 
 in order that the long and short haul clause of the 
 act to regulate commerce may be observed. (4) In 
 order to share in the Lynchburg traffic the Southern 
 Railway is obhged to meet the low rates established 
 by the other roads. (5) Danville does not possess 
 the same competitive situation as Lynchburg and 
 therefore the Southern Railway did not reduce rates 
 to Danville at the time it entered into competition 
 with other roads for the Lynchburg traffic. Nor 
 is it bound to do so, since the United States Supreme 
 
 ' City of Danville et al. v. Southern R'y et al., 8 I. C. C. Rep. 409. 
 122 
 
Court has held in the Troy case that competition 
 between carriers may create such dissimilar circum- 
 stances and conditions as to warrant them in making 
 lower rates to the long distance competitive points 
 than to the short distance non-competitive ones. 
 
 To this argument the Commission repUed as follows: 
 (1) The low rates to Norfolk are not due wholly to 
 the competition at Baltimore but " the two rates 
 have mutually interacted. The Norfolk rate may 
 have operated to reduce the Baltimore rate quite 
 as frequently as the reverse." (2) The Chesapeake 
 and Ohio Railway is not alone responsible for the 
 low rates to Lynchbiu-g and Norfolk and these low 
 rates have not been forced on the Southern Railway. 
 On the contrary, the low rates to these cities are the 
 result of active competition in which the Southern 
 Railway has shared. " It cannot be found as a fact 
 that the Southern Railway has simply accepted the 
 rates named by its competitors." (3) Competition 
 by rail formerly existed at Danville and has been 
 ended only by a consolidation of the competing lines 
 under the Southern Railway. 
 
 In announcing its decision to the effect that rates 
 to Danville were too high, the Commissioners declared 
 that the Southern Railway in estabhshing rates much 
 higher to Danville than to Lynchburg had consulted 
 only its own interests, not those of the pubhc. In 
 offering as an excuse for this discrimination the exis- 
 tence of railway competition it did not consider at 
 all the nature of the competition between the cities 
 of Lynchburg and Danville, but it had on the contrary 
 by means of a consolidation of competing hnes de- 
 stroyed " the competitive advantages which the 
 enterprise of [Danville's] citizens in one way or another 
 had secured." The Cominission continued: — 
 
 123 
 
Danville is situated 66 miles south of Lynchburg. It is in com- 
 petition with Lynchburg. Now these carriers have no right to 
 put in effect a system of rates which prohibits the city of Danville 
 from transacting business in competition with the city of Lynch- 
 burg. . . . Rates to Danville must be adjusted with relation 
 to competitive locaUties like Lynchburg. 
 
 The Commission therefore recomimended a reduction 
 of rates to Danville. It did not, however, recommend 
 that the rates be made as low as those to Lynch- 
 burg. While fully convinced that the location of 
 Danville and the competition of carriers which had 
 formerly existed at that point required that rates 
 to that city be reduced, the Commissioners were 
 sufficiently impressed with the showing made by the 
 railroads as to the more active competition at Lynch- 
 burg to cause them to hestitate to recommend that 
 equal rates be given to the two cities. 
 
 Pursuing a similar hne of argument to that employed 
 in the Wilmington and Danville cases, the Commission, 
 in what is known as the St. Cloud case,^ refused to 
 admit the right of a carrier having a long and cir- 
 cuitous route from Duluth to St. Paul, Minnesota, 
 to enter into competition for traffic between these 
 two points unless the carrier was prepared to make 
 the rates as low to intermediate points. The de- 
 fendant claimed that it was merely meeting the existing 
 rates at St. Paul established by its competitors, but 
 the Commission rephed that the moment it entered 
 into competition for traffic between Duluth and St. 
 Paul " it became a factor in the determination of that 
 rate." The long route would not be satisfied with 
 the small amount of traffic which would go to it if it 
 merely met rates estabhshed by shorter lines but 
 would seek to attract additional traffic by lowering 
 
 1 George TUeaton Milling Co. v. Nor. Pacific R'y Co., 8 I. C. C. Rep. 346. 
 
 124 
 
its rates and would thus discriminate still further 
 against the intermediate points. 
 
 The defendant also declared that the existing rate 
 at St. Cloud, the intermediate point, was " reasonable 
 in and of itself," but the Commission replied: — 
 
 A rate can seldom be considered in and of itself. It must be taken 
 almost invariably in relation to and in connection with other 
 rates. The freight rates of this country both upon different 
 commodities and between different localities are largely interde- 
 pendent, and it is the fact that they do not bear a proper relation 
 to one another, rather than the fact that they are absolutely either 
 too low or too high, which most often gives occasion for complaint 
 and which is the ground for complaiat here. 
 
 If we look at this case not from the legal standpoint 
 but from that of the broader economic and social 
 interests involved, the most obvious objection which 
 can be made to permitting the long and circuitous 
 route to share in the flour traffic between St. Paul 
 and Duluth is that this would be an unnatural and 
 needlessly expensive method of transportation. Altho 
 the Commission did not make this the basis of its 
 decision it did refer to the matter in these words: 
 " Wasteful competition by circuitous routes is to 
 the disadvantage of railways as a whole, for ultimately 
 there must be some relation between rates and the 
 actual cost of transportation." 
 
 In the case of F. J. Hoerr v. Chicago, Milwaukee, 
 and St. Paul Railway Company,^ the Commission 
 held that competition between markets and between 
 producers may compel low rates at competitive points 
 in which near-by non-competitive points may share, 
 altho they are not entitled to rates as low as those 
 given to the competitive points. In this case, the 
 complainant, located at Mankato, Minnesota, claimed 
 that on potatoes shipped to eastern cities he was 
 
 » 11 I. C. C. Rep. 647. 
 
 125 
 
entitled to rates as low as were given to shippers 
 at St. Paul, 100 miles further distant, where a through 
 rate was in force. The defendant carrier, on the 
 other hand, insisted that the St. Paul rate was due 
 to competitive conditions which did not exist at Man- 
 kato and that the absence of this competition at 
 Mankato " absolves it from its obligations to maintain 
 the relation in rates between St. Paul and Mankato 
 which ordinarily obtains." The Commission did not 
 accept either argument in full. It declared that 
 
 if Miimesota-growii potatoes are to compete with others upon 
 the Atlantic coast, a distance of about 1300 nules . . . and 
 compete at the end of the haul with a similar commodity produced 
 much nearer the point of consumption, [they] must of necessity 
 be given a rate of transportation which is lower than the ordinary 
 class rate estabhshed for much shorter distances. ... If potatoes 
 marketed at St. Paul cannot compete in the east without a low 
 rate, the same thing is true of potatoes when marketed at Mankato. 
 
 In order to do " substantial justice " to the com- 
 plainant, however, the Commission decided that 
 it was not necessary to make the rate from Mankato 
 as low as that from St. Paul since 
 
 there were competitive conditions at St. Paul which did not obtain 
 at Mankato. . . . These rates are the outgrowth of a variety 
 of competitive conditions, of market competition, of competition 
 upon the Atlantic seaboard, and of competition at St. Paul. Some 
 of these competitive forces act equally in case of both St. Paul 
 and Mankato. Some apply mostly to St. Paul. In some the 
 defendant is an important factor, and in some it is not concerned. 
 
 The Commission accordingly decided that a rate 
 at Mankato 4 cents per 100 pounds higher than at 
 St. Paul would work substantial justice to all parties 
 concerned. 
 
 The competition which has thus far been considered 
 and which has been held by the Commission to be 
 of " controlling force " in determining rates has been 
 either that between carriers or that between places. 
 
 126 
 
In some instances the competition between carriers 
 has been opposed to that between places and the 
 Commission has been obUged to decide which form 
 of competition should be allowed to continue. A 
 form of competition far more intense and more diffi- 
 cult to regulate is that which results when an alliance 
 is formed between a place or a section of the country 
 and the carriers serving that place or section, and 
 these allied forces then enter into a contest for traffic 
 with other cities and other carriers which also have 
 united forces. The best illustration of this intensified 
 competition is that which has for years existed between 
 the Atlantic port cities and the carriers leading thereto 
 for the export traffic of the country. The development 
 of the export rate controversy before the Commission 
 and the latter's efforts to find a solution for it will 
 be discussed in the concluding article of the series. 
 
 127 
 
CHAPTER III 
 
 SUMMARY 
 
 VI. Competition (continued), 128 — 4. Export rates, 128 5 
 
 Competition between producers, 149 6. Competition to prevent 
 
 a transportation monopoly, 154 VII. Class and sectional interests, 
 
 158 1. Domestic versus foreign producers, 160 2. Vested in- 
 terests, 161 VIII. Fair return on investment, 170 1. Develop- 
 ment of the theory, 171 2. Rates in general, 173 3. Particular 
 
 rates, 181 IX. General summary and conclusions, 185 Essen- 
 tial points in a theory of government-regulated rates, 192. 
 
 VI. Competition (continued) 
 4. Export rates " 
 
 Two questions are raised in connection with this 
 interesting group of cases: (1) Do carriers serving 
 different seaports have a right so to adjust their 
 rates as to promote the export trade of the ports 
 served by them ? (2) If this is done, is the carrier 
 thereby placed under obUgation to grant the same 
 rates on goods carried to these ports for domestic 
 consumption as it gives to the export traffic ? 
 
 In attempting to answer these difficult questions 
 the Interstate Commerce Commission has had to 
 consider a vast amount of evidence and listen to 
 many able arguments presenting various views as 
 to the principles involved. Its own conclusions 
 show the influence exerted on the minds of the Com- 
 missioners by these opposing arguments and con- 
 flicting testimony, and make it difficult for the analyst 
 to discover the leading principle involved in the 
 final decision. Yet, throughout all the reasoning 
 
 128 
 
of the Commissioners, there is evident a desire on 
 their part to preserve competition between the various 
 ports and between the carriers leading to these ports, 
 and also to make it possible for American producers 
 to meet the competition of foreigners in the over-sea 
 market. We may, therefore, without much hesita- 
 tion, treat these cases under the heading of competi- 
 tion. 
 
 The questions just presented first came before 
 the Commission shortly after its organization in the 
 shape of a request ^ for its decision as to whether or 
 not it was illegal " for raihoad companies connecting 
 Boston with western points to make the rates from 
 such points to Boston upon grain and provisions for 
 export as low as the rates to New York, altho the 
 rates upon like property for local consumption are 
 higher to Boston than to New York, the distance 
 being somewhat greater." The Commissioners ren- 
 dered no formal decision in the matter but informally 
 replied that it was not illegal. The desire to preserve 
 competition between the two ports with reference 
 to the export trade of the country was the reason 
 given for this informal opinion. 
 
 Not long after this a formal hearing was given to 
 a case brought before the Commission ^ in which 
 that body was asked to grant an order compelling 
 the defendant carriers to make as low rates on goods 
 sent to Boston for domestic consumption as they 
 gave on the same traflac when taken to New York. 
 The contention was that since equal rates were given 
 to the two cities on goods intended for export and 
 it cost no more to haul goods for domestic consump- 
 
 ' In re Export Trade of Boston, 1 1. C. C. Rep. 24. 
 
 ' Boston Chamber of Commerce v. L. S. & M. S. R'y Co. et al., 1. I. C, C. Rep. 
 436. 
 
 129 
 
tion than when they were to be exported, the two 
 cities should have the same rates on their domestic 
 traffic. We have aheady seen ^ that the Commission 
 denied this plea on the ground that the natural ad- 
 vantages possessed by New York entitled her to 
 lower rates on goods intended for domestic consump- 
 tion. 
 
 The next case to bring these questions before the 
 Commission was that of The New York Produce 
 Exchange v. The New York Central and Hudson 
 River Railroad Company et al.^ It appeared from the 
 evidence submitted that the carriers known as the 
 Trunk Lines were in the habit of accepting as their 
 share of the through export rate to European ports 
 ten cents or more per hundred pounds less than the 
 published domestic rates to New York City. The 
 purpose of the discrimination was evidently to favor 
 the export trade of New York. The Commission 
 seems to have preferred not to discuss at this time 
 the question as to whether it was legitimate as a 
 general principle to charge lower rates on traffic in- 
 tended for export than on that intended for domestic 
 consumption. Its decision in the present case was 
 against the continuance of lower export rates at New 
 York, but the reason cited was that " any method 
 for making rates should be practicable, and not afford 
 a cover for discrimination and injustice." The only 
 practicable method of making export rates, it was 
 said, was to add the estabUshed inland rate from the 
 interior to the seaboard to the ciu-rent ocean rate. 
 
 The task of attempting a settlement of the con- 
 troversy between the seaboard cities as well as between 
 the trunk hues over export rates could not much 
 
 ' Quarterly Journal of Economics, February, 1911, vol. ixv, pp. 294-296. 
 
 2 3 I, C. C. Rep. 137. 
 
 130 
 
longer be evaded and in 1898 such a settlement was 
 attempted by the Commission, after a thoro in- 
 vestigation, in the case of The New York Produce 
 Exchange v. The Baltimore and Ohio Railroad Com- 
 pany et al.^ 
 
 The complainant in the case attacked the differen- 
 tials on grain, fioiu", and provisions made by the various 
 lines from the West in favor of Philadelphia, Baltimore, 
 and other cities. As compared to New York rates 
 these differentials favored Philadelphia to the extent 
 of 2 cents per 100 pounds, while Baltimore, Newport 
 News, and Norfolk received a differential of 3 cents 
 per 100 pounds. Boston, on the other hand, paid 
 the same rates on export traffic as were paid to New 
 York. The differentials appUed to freight of all 
 classes shipped from Chicago and from territory 
 between Pittsburg and the Mississippi river and 
 between the Ohio river and the Great Lakes. The 
 differentials were somewhat less on traffic coming 
 by the Great Lakes and on that carried on commodity 
 tariffs, but in all cases the rates on export traffic 
 were lower to Philadelphia and Baltimore than to 
 New York. 
 
 The history of the differentials showed that they 
 had been applied in one form or another since 1869. 
 They had given rise to many contentions between 
 the cities on the Atlantic seaboard and had caused 
 many destructive rate wars between the carriers 
 leading to the several ports. The struggles " were 
 mostly over export traffic and the differentials were 
 insisted upon and were allowed for the purpose of 
 permitting the various carriers to enjoy a portion 
 of that traffic." The contest between the cities was 
 more bitter than that between the roads; and some 
 
 ' 7 I. C. C. Rep. 612. 
 131 
 
of the carriers, weary of the long struggle, requested 
 certain eminent men with legal training and judicial 
 experience to act as an advisory commission to aid 
 in finding a solution to the problem. These gentlemen 
 made an elaborate investigation covering several 
 months and reported in July, 1882. 
 
 The conclusion at which they arrived was that distance could not 
 be used as a measure of these differentials; neither could cost of 
 service. Competition which embraced these two, and all other 
 factors, if properly conducted through a series of years was the 
 most reliable guide. Competition, after many years, had resulted 
 in fixing the differentials in force. Those differentials were justi- 
 fied to a certain extent by distance and to a certain extent by cost 
 of service. The purpose of the differential was to equalize the cost 
 of exporting grain and other merchandise through the various 
 ports to which they were applied. A difference in ocean freight 
 rates from those respective ports, corresponding generally to the 
 inland differentials, was found to exist. Upon the whole, there- 
 fore, the [advisory] commission declined to recommend that the 
 differentials which had been agreed upon should be disturbed.* 
 
 When the case came before the Interstate Com- 
 merce Commission the complainant urged: (1) that 
 the differential was not fair in principle, and (2) that 
 even if the conclusion reached by the advisory com- 
 mission in 1882 were sound, conditions had so changed 
 since that time that the decision of that year could 
 no longer be held applicable. Philadelphia and Balti- 
 more claimed that the differentials in their favor 
 gave only proper recognition to the fact that the 
 distance from Chicago to those ports was less than 
 to New York. New York interests, however, declared 
 that the wheat of Wisconsin, Minnesota, and the 
 Dakotas was in a territory naturally tributary to 
 New York and that the differentials thus robbed 
 that city of its natural geographical advantages. 
 
 1 7 I. C. C. Rep. 619-620. 
 132 
 
To offset this claim, however, Baltimore declared 
 that the corn territory was naturally tributary to 
 that city. The Commission found it impossible to 
 determine the origin of the traffic, as it varied from 
 year to year. 
 
 The New York interests further claimed that dif- 
 ferences in cost of service did not justify the discrim- 
 ination against New York, and that if the object of 
 the differentials was to equalize the cost of exporting 
 grain through the various ports, " then the cost of 
 grain in Europe should be the same by each port 
 whereas, in point of fact, it had been less through 
 the outports than through New York." The results 
 of this discrimination were shown in the decline of 
 the export trade of New York in flour, grain, and 
 provisions since 1873, especially during the '90s, 
 while during those years exports had remained about 
 the same at Philadelphia and had greatly increased 
 at other ports. The Commission discovered on in- 
 vestigation that New York had certain advantages 
 over the other ports for conducting the export business, 
 such as were due to her large and accessible harbor, 
 the accumulation of wealth and business which brought 
 many ships there, her elevator storage capacity, 
 and the Erie Canal. On the other hand, the port of 
 New York labored under certain disadvantages due 
 to the heavy port charges, especially for lighterage, 
 and perhaps to more rigid grain inspection than at 
 other ports. The Commission concluded that " so 
 far as the full cargo business is concerned, there is 
 no appreciable difference in cost, and no appreciable 
 difference in the ocean rates from the three ports. 
 New York, Baltimore, and Philadelphia." In respect 
 to " berth rates " (for quantities less than a full cargo) 
 New York appeared to have an advantage over other 
 
 133 
 
ports owing to the large number of steamships saiUng 
 from that port. 
 
 On the whole, however, efforts to reach a solution 
 of the problem based on a comparison of differences 
 in distance or on the relative costs of service did not 
 yield satisfactory results to the Interstate Com m erce 
 Commission, any more than it had to the Advisory 
 Commission of 1882, or to Mr. Albert Fink, or to the 
 other traffic experts who had at various times grappled 
 with the problem. The Commissioners agreed with 
 the earUer investigators that the differentials were 
 based not on differences in distance or in the cost of 
 service but on competition, and that if they were to 
 be justified at all it must be on the principle of pre- 
 serving competition between the ports and between 
 the carriers which served these ports. 
 
 The primary purpose of these differentials is not to do justice to 
 a particular port but to enable the various competing lines to 
 obtain a fair proportion of this traffic. In other words, the reason 
 for these differentials is competition between railways. Cost of 
 service and distance are very hkely taken into account by the 
 defendants in determining whether under the operations of the 
 differentials a particular line has obtained more than its share of 
 the traffic, but the underlying principle is competition. 
 
 Having concluded that competition was the prin- 
 ciple upon which the differentials were based, the 
 Commissioners next discussed the question as to 
 whether this principle was itself just. They quoted 
 from decisions of the United States Supreme Court ^ 
 to show that competitive conditions do not necessarily 
 but " may justify the preference of one locality to 
 another, provided the interests of the pubUc are not 
 unduly sacrificed to those of the carrier." This 
 
 ' Tex. & Paclf. E'y Co. v. Interstate Commerce Commlaaion, 162 U. S. 197; 
 5 I. C. R. 405. Interstate Commerce Commission v. Alabama Midland R'y. 168 
 U. S. 144. 
 
 134 
 
however is clearly a legal argument; not an economic 
 one. It is more important to observe the grounds 
 on which the Commission attempted to sustain the 
 existing differentials. 
 
 Since competition was the basis, the object of the 
 differentials, it was shown, was to make the cost of 
 transporting such articles as grain from Chicago to 
 Liverpool the same through all ports. 
 
 Any difference in the expense of ocean carriage should be equahzed 
 by a corresponding difference in the cost of inland carriage. . . . 
 Broadly speaking, the differential is supposed to correspond with 
 and make good a difference in the ocean freight rate. 
 
 While, however, the differentials at the time of 
 making the investigation (1896) were the same as 
 when first established in 1878, " the gradual lowering 
 of rates, the shrinking of values, the increase of com- 
 petition, have all operated to make the differentials 
 in favor of Baltimore and Philadelphia mean more 
 today than they did when agreed upon." The Com- 
 mission however declared (as had the advisory com- 
 mission of 1882) that while neither considerations 
 of distance nor cost of service could justify entirely 
 the existing differentials, the most satisfactory means 
 of testing them was " the result of their operation." 
 New York was of course quick to point out that this 
 result had been a great decline in her export trade 
 since the differentials went into effect. But the 
 Commissioners, while admitting that there had been 
 a decHne, expressed the opinion that this was in keep- 
 ing with the natural development of the nation and 
 that New York's early preeminence in the export 
 trade had been due largely to artificial conditions 
 which had since been changed by " other strong 
 influences " operating in favor of other ports. 
 
 135 
 
The Commissioners agreed, however, that owing 
 to the fact that the differences in ocean freight rates 
 from the different ports were at that time less than 
 the amount of the differentials, and that the differen- 
 tials were having more effect than they had in 1877, 
 these two circumstances " would point strongly to 
 the conclusion that they ought to be modified," The 
 Commissioners did not order any modification, how- 
 ever, and their explanation for not doing so is the 
 least satisfactory portion of their reasoning. 
 
 The differentials, it was said, applied to all classes 
 of freight and accordingly affected all commodities. 
 But the exports of higher grade than wheat went 
 almost entirely to New York, where they could find 
 quicker service to all parts of the world. Now, said 
 the Commissioners, 
 
 if the quantity of these exports, which the differential does not 
 divert to Baltimore or Philadelphia has been increased in late 
 years, it is manifest that this offsets to that extent any increased 
 diversion of grain to the outports. ... So it is by no means 
 certain that more grain ought not to go through the outports to 
 offset the increased exports of other kinds from New York. 
 
 According to this pecuhar reasoning the advan- 
 tages possessed by Baltimore and Philadelphia do 
 not entitle them to as large differentials as they are 
 actually receiving, but this is " offset " by the fact 
 that New York's natural advantages enable her, 
 in spite of the differentials, to secure a larger percentage 
 of the high-grade exports than formerly. This fal- 
 lacious argimaent is made still weaker by the Com- 
 missioners' plea that 
 
 if we have made an error, it is in favor of the weak and against 
 the strong. ... It is almost impossible for us to feel that a 
 locality which engrosses one-half of all the exports and three-fourths 
 of all the imports upon the seaboard can justly complain of any 
 undue diversion of its commerce. 
 
 136 
 
Since our piirpose is to interpret rather than to 
 criticise the Commission's conclusions we will not 
 follow the argument further, but will conclude our 
 presentation of this case with the Commission's own 
 summary, which shows clearly that in rendering their 
 decision the Commissioners were convinced that 
 competition long maintained afforded the best method 
 of judging as to the reasonableness of the rates in 
 question. 
 
 The principle upon which these differentials have been established 
 is legitimate. Looking to the basis of the differentials themselves, 
 while there is much to indicate that they should perhaps be some- 
 what modified, it cannot be afiirmed with certainty that they are 
 wrong. Considering their effect as exhibited through a long series 
 of years, it is impossible to say that they have exercised any un- 
 toward or unnatural influence upon traffic. 
 
 The decisions of the Interstate Commerce Com- 
 mission in the later cases dealing with export rates 
 which have come before it have been much influenced 
 by the decision of the United States Supreme Court 
 in the Import rate case ^ in which the Court, over-ruling 
 the Commission, held that 
 
 among the circumstances and conditions to be considered, as weU 
 in the case of the traflac originating in foreign ports as in the case 
 of traflSc originating within the Hmits of the United States, com- 
 petition that affects rates should be considered, and in deciding 
 whether rates and charges made at a low rate to secure foreign 
 freights which would otherwise go by other competitive routes are 
 or are not undue and unjust, the fair interests of the carrier com- 
 panies and the welfare of the community which is to receive and 
 consume the commodities are to be considered. 
 
 By inference, at least, this decision of the Supreme 
 Court would apply to the export as well as to the 
 import traffic, especially since competition is dis- 
 
 1 Tex. & Paclf. R'y Co. v. Interstate Commerce Commission, 162 U. S. 197; 5 I. 
 C. R. 405. 
 
 137 
 
tinctly set forth as a reason why lower rates might 
 be granted by carriers to commodities intended for 
 export than were granted to the same articles when 
 intended for domestic consumption. With this case 
 as a precedent, therefore, the Commission decided 
 in the case of Boston export traffic ^ that even tho 
 these goods were not shipped on a through rate, they 
 might legitimately be charged lower rates than were 
 accorded to the same goods intended for domestic 
 consumption. " The export rate to Boston," said 
 the Commissioners, " is not in reahty a Boston rate 
 at all but is in essence the inland division of a through 
 rate through that port to foreign ports." 
 
 The principle underlying this decision is clearly 
 not cost of service but competition. The decision 
 is in accord with the informal opinion rendered in 
 the case of the Export Trade of Boston,^ but is not ia 
 agreement with the rule laid down in New York 
 Produce Exchange v. New York Central and Hudson 
 River Railroad Company et al.^ The language of the 
 Commissioners also indicates that they beheved it 
 correct in principle to apply a different ruUng in 
 the case of Boston export traffic than they would 
 apply at New York. For, while they admitted that 
 their decision in the present case was influenced 
 more or less by the Supreme Court's decision in the 
 import rate case, they practically assumed full re- 
 sponsibility for their own decision by stating that the 
 decision of the Supreme Court did not carry with it 
 any obhgation on the part of the Commission to 
 sanction lower rates on import or export traffic than 
 on domestic traffic, but merely required that " in 
 determining whether such rate constitutes an unjust 
 
 ' Kemble v. B. & A. R. R. Co. et al., 8 1. C. C. Rep. 110. 
 " II. C. C. Rep. 24. ! 3 I. G. C. Rep. 137. 
 
 138 
 
discrimiiiation or an undue preference, the interest 
 of the carrier and the consumer should be taken into 
 account as well as that of the producer." The Com- 
 mission therefore declared that " if any individual 
 or locality feels itself aggrieved by the rates made 
 upon export or import business as compared with 
 domestic business, the Commission has full authority 
 to consider and pass upon that grievance." So far 
 as Boston export traflfic is concerned, therefore, there 
 appears to be no difference in the opinions of the 
 Court and the Commission. Both tribunals agree 
 that competition is the controUing principle in the 
 case. 
 
 The real difference iu the opinions of these two 
 bodies is best revealed in the Commission's report 
 on an investigation made by it in 1899, In the matter 
 of relative rates on export and domestic traffic in grain.^ 
 Two questions were involved: (1) To what extent, 
 if at all, might the carriers make a different rate on 
 grain intended for export than that given to the same 
 commodity when intended for domestic use ? (2) 
 Might there be a legitimate difference made between 
 the export rate on grain and that on its chief products, 
 flour and meal? 
 
 With reference to the first point, the evidence 
 showed that the railroads connecting the Middle 
 West with the Atlantic seaboard were giving a rate 
 of 12 cents per 100 pounds on grain shipped from the 
 Mississippi river to New York when it was intended 
 for export, and at the same time were charging 19§ 
 cents per 100 pounds on the grain when it was intended 
 for domestic consumption. The carriers claimed that 
 " it is a matter of no consequence to the eastern con- 
 sumer what rate is charged to the foreigner, provided 
 
 i 8 I. C. C. Rep. 214, 
 139 
 
the domestic rate is a reasonable one." This argument 
 did not appeal to the Commissioners. They repUed : — 
 
 To this proposition we cannot fully assent. In the first place 
 the foreigner is to an extent in competition with the American. 
 Both are engaged in the production of articles sold in the same 
 market either abroad or in the United States. If the Englishman 
 can procure the necessities of life cheaper than his American com- 
 petitor, that gives him the advantage. . . . Unless there is some 
 good reason for the distinction, the rate to the American ought 
 not to be higher than to the foreigner. If our carriers, in the 
 absence of any constraining reason, can transport corn from the 
 Mississippi river to New York for 12 cents per hundred pounds 
 for export, that of itself shows that a rate of 19j cents to the do- 
 mestic consumer is unreasonable. 
 
 The carriers made some effort to show that the 
 cost of service was less for the export than for the 
 domestic traffic owing to bulk of shipments, methods 
 of unloading, etc., but the Commission dismissed this 
 argument with the statement that the evidence on 
 this point was insufficient. The main ground of 
 defence occupied by the carriers was that competitive 
 conditions existed in the case of the export traffic 
 in grain which did not exist in the case of grain intended 
 for domestic consumption. The competitive con- 
 ditions were of two sorts: (1) competition in the 
 European market between American producers and 
 those of other grain exporting countries; (2) com- 
 petition between the carriers engaged in transporting 
 export grains. 
 
 With reference to the first form of competition 
 the defence claimed that the price of wheat was fixed 
 both at home and abroad by the foreign market and 
 it was said that if the price of wheat abroad were 
 lower than the price in this country plus the estabhshed 
 rate for transportation, then either the price of wheat 
 must be reduced or the rate of transportation must 
 
 140 
 
be lowered. By pursuing the latter course, the car- 
 riers claimed that the American producer received 
 the entire benefit from the reduction of railway rates. 
 This patriotic and philanthropic mode of procedure 
 on the part of the railroads did not greatly appeal 
 to the Commissioners. They did not accept the 
 statement that the foreign market fixed the price 
 of American grain and said, "As an actual fact it is 
 doubtless true that the price of grain, certainly wheat, 
 abroad is fixed neither by the foreign nor by the Ameri- 
 can supply alone, but by the one acting upon the 
 other." The facts, furthermore, did not show that 
 at the time of the investigation the low rates on export 
 grain had been rendered necessary by the condition 
 of the foreign market, but they did show, according 
 to the Commissioners, that " the American producer 
 has derived no substantial benefit from these rates; 
 that the American carrier has lost enormously by 
 them, and that the foreigner alone has had the benefit 
 of them." 
 
 The Commission was wilUng to attach more im- 
 portance to the second form of competition cited 
 by the defence, viz. that between the carriers them- 
 selves. This competition was three-fold in character: 
 (1) that between the trunk lines and those running 
 to the Gulf ports; (2) that between the trunk fines 
 themselves; and (3) that between the railroads and 
 the water routes, especially the Great Lakes, St. 
 Lawrence river, and the Erie Canal. This com- 
 petition, the Commissioners were compelled to admit, 
 must be considered in judging as to the reasonableness 
 of the export rates, tho they declared it had " sacrificed 
 miUions of dollars " of revenue of American railroads. 
 " Nor would we," said they, " permit the continuance 
 of such a system if we had the power to prevent it." 
 
 141 
 
Owing, however, to the influence of water competition, 
 as well as to the fact that " the purpose of the act 
 was to foster competition," and " the highest judicial 
 authority has declared that competition between 
 railways may be a reason for making a lower charge 
 to the more distant point," the Commission confessed 
 itself powerless to order carriers to make their rates 
 on domestic traffic as low as that given on the export 
 traffic. 
 
 The question as to whether or no it was legitimate 
 to charge a higher rate on grain products than on 
 grain, when both were intended for export, was an- 
 swered by the Commission on much the same principle 
 as was apphed to the settlement of the controversy 
 over the domestic and export grain rates. The car- 
 riers sought to justify the higher rates on flour than 
 on grain on several grounds: (1) Cost of service. 
 Flour was said to be more Hable than -ji^heat to injury; 
 wheat moved in train load lots; wheat was delivered 
 in New York at the ship's side, flour over the ship's 
 side. The Commission admitted some difference in 
 the cost of service but thought it would not exceed 
 one or two cents per hundred pounds. (2) The car- 
 riers urged that the general rule that manufactured 
 products should pay a higher rate than raw materials 
 was appHcable to this case and that the value of the 
 flour was greater than that of the wheat. The Com- 
 mission said that " when it is remembered that the 
 cheaper grades of flour are usually exported, it is 
 questionable whether the difference is material." 
 (3) Water competition, a prominent factor in connection 
 with the movement of wheat, was shown to be of 
 less importance in case of the flour traffic. Hence, 
 in spite of strong evidence submitted by the millers, 
 showing that the profits from manufacturing flour 
 
 142 
 
for export were only from one to two cents per hundred 
 pounds, the Commissioners said: " We think and find 
 that the lake competition fairly fixes the rate on 
 flour at from two to four cents per hundred pounds 
 above the wheat rate." In spite of the fact that 
 water competition as well as competition between 
 the railroads was a real factor in the case, and that 
 both the law and the courts compelled its recognition, 
 the Commission evinced throughout the entire case 
 a strong feeling that this competition was bad policy 
 not only for the pubUc at large but even for the car- 
 riers. This feehng, as well as the desire to go as far 
 as they could go in sustaining American millers ia 
 their competition with the milling industry abroad, 
 led the Commissioners to decide that " the rate upon 
 flour for export ought not to exceed that upon wheat 
 by more than 2 cents per hundred pounds." 
 
 Three years after the Commission had rendered 
 its decision in the above case, the trunk lines leading 
 to the East from Chicago and the Mississippi river 
 gave notice of an advance to be made in the rate on 
 grain from a former published rate of 17^ cents per 
 100 pounds (which, however, was seldom maintained) 
 to a rate of 20 cents per 100 pounds. When the 
 Commission undertook an investigation i of the causes 
 and justification of the increase, the carriers gave 
 as reasons: (1) changes in commercial conditions, 
 and (2) cessation of competition to a degree which 
 made it easier to maintain published rates. The 
 Conomission did not discover that there had been 
 any such change ia the commercial conditions for 
 producing, shipping, and marketing grain as would 
 warrant an advance in the rates, but the second 
 
 > In the Matter of Proposed Advances in Freight Rates, 9 I. C. C. Rep. 384. 
 
 143 
 
reason advanced by the carriers seemed a more plau- 
 sible explanation for the increase. 
 
 The intense competition which had for years existed 
 between the lines leading from the West to the Atlantic 
 seaboard had been, if not ended, at least in a measure 
 brought under control by purchase of large blocks 
 of stock in the most troublesome of these competing 
 lines by the two strongest lines, the Pennsylvania 
 and the New York Central railroads. This purchase 
 and resulting control of the weaker lines by the stronger 
 ones made it seem much more hkely that in the future 
 the published rates could be maintained. 
 
 The Commission refused to justify the advance 
 in the published rates from 174 to 20 cents per 100 
 pounds. They called attention to the fact that the 
 language of the act to regulate commerce and the 
 decisions of the Supreme Covu-t in interpreting that 
 act and the Sherman Anti-Trust Act showed that 
 public opinion reflected in legislation and judicial 
 decisions was unwilling to concede that competition 
 in the railway business was not a proper means of 
 regulating freight and passenger business. The Com- 
 mission's discussion of the matter shows clearly its 
 own belief that competition between railways was 
 frequently of such a character as not to guarantee 
 reasonable rates. 
 
 It has been frequently observed that competition in rates under 
 the act to regulate commerce is a misnomer. This grain rate 
 between Chicago and New York must be the same by aU lines. 
 If any one hne reduces that rate, every other line must make a 
 corresponding reduction or withdraw from the business. No line 
 can, therefore, hope to gain a permanent advantage by a reduction 
 in the published tariff. So long as rates are observed there can be 
 no competition in the rate, altho there may be in facilities. Such 
 competition necessarily consists in departures from the published 
 rate. Such competition does not, however, materially increase 
 the total amount of traffic. It may turn additional tonnage to a 
 
 144 
 
particular line temporarily, but the total result is a reduction in 
 the aggregate gross and net revenues of aU lines and probably in 
 the net revenue of every individual Une. 
 
 To the Commission, therefore, the mere fact that 
 competition in rate making is shown to exist is not 
 a sufficient proof that the resulting rates are reasonable. 
 Competition may make the rates too low. The 
 railroads insisted that this was true in the present 
 instance and claimed that even the former pubhshed 
 rate of 17| cents per 100 pounds was so low that it 
 was unremunerative. To decide this point the Com- 
 missioners made an investigation iato relative costs 
 of moving graru and other commodities, with the 
 following results : — 
 
 Of all commodities grain is among the very most desirable species 
 of traffic. It moves between Chicago and the Atlantic seaboard 
 in large quantities, frequently in train loads. Cars can be loaded 
 to their full capacity. The nature of the business permits prompt 
 loading and unloading. The character of the service required 
 allows the most economical handling of trains with respect to rate 
 of speed and other operating conditions. There is hardly any 
 kind of traffic moving from Chicago to the Atlantic seaboard 
 which can be transported at less cost to the carriers than grain. . . . 
 The first reason urged by the carriers for advancing these rates 
 beyond the competitive point is not therefore sustained. Whether 
 tested by the actual cost of movement, by what carriers have 
 voluntarily accepted in the past, or by comparison with other 
 somewhat similar kinds of traffic, this rate is not, in our opinion, 
 extravagantly low. 
 
 While the Commission, therefore, still held to the 
 theory that competition was the controlling factor 
 in the case, the competition which they recognized 
 as legitimate was that limited in its operation by cost 
 of service. 
 
 The ever-perplexing problem of the differential 
 rates between the North Atlantic ports came up 
 
 145 
 
once more in the year 1904, when the Conunission, 
 at the request of the commercial organizations of 
 Boston, New York, Philadelphia, and Baltimore, 
 instituted an inquiry ^ into the reasonableness of the 
 railway rates to and from these cities with the purpose 
 of determining whether the existing differentials 
 should be aboUshed, or, if retained, be modified. 
 The Commission admitted that it had no authority 
 to compel the carriers to accept its conclusions, but 
 for our purpose this fact is of no importance, since 
 we are interested only in the Commissioners' views 
 as to the principles involved. 
 
 On the whole, the conclusions reached did not 
 differ materially from those arrived at in the earher 
 investigations. The Commission seems to have felt 
 that the earher decisions were not based on any fun- 
 damental principle of rate making and in the present 
 instance they declared: "We have endeavored to 
 find some fundamental principle by the apphcation 
 of which this dispute might be laid to rest, but entirely 
 without success." The evidence showed that since 
 the last hearing on the subject the differentials which 
 had formerly existed in favor of Baltimore and Phila- 
 delphia had been greatly reduced, especially on grain 
 and on iron and steel, where they amounted to only 
 one-half the old differentials. The reason for the 
 change was that there was no longer any considerable 
 difference in the ocean rates from the various ports. 
 Baltimore claimed indeed that " on the basis of dis- 
 tance the present rates did not give that -locality 
 anything hke the advantage to which it was entitled." 
 To this argmnent the Commission pertinently 
 replied: — 
 
 ■ In the matter of Differential Freight Rates to and from North Atlantic Ports, 
 11 I. C. C. Eep. 13. 
 
 146 
 
It must be evident that distance is properly regarded as a factor 
 in rate making mainly because it is supposed to express differences 
 in the cost of service. . . . The grades by the New York Central 
 lines between Chicago and New York are easier than those by the 
 Pennsylvania and it is quite conceivable that the actual cost of 
 transportation over the longer haul might be less than over the 
 shorter, and in that event New York, while more distant in geo- 
 graphical mUes, might be nearer in transportation facilities. 
 
 The Cominissioners did not concede, however, 
 that cost of service could be made use of as a principle 
 for findiQg a solution to the problem. Thfey said : — 
 
 Nothing of aU that need be considered by us. There is no testi- 
 mony in this record which attempts to show the relative cost of 
 handling this traffic from Chicago to the different ports, and indeed, 
 as was said by the Advisory Commission in 1882, the elements 
 which enter into the determination of that question are so complex 
 and so various as to render it impossible of satisfactory solution. 
 
 Having declared that in this case " there is no 
 fundamental principle which can be appUed," the 
 Conunission nevertheless insisted that " there are 
 certain fundamental considerations which should be 
 kept hi mind." In the opinion of the Commission, 
 these fundamental considerations were: (1) the maia- 
 tenance of competition between the ports; (2) the 
 maintenance of competition between the carriers. 
 
 (1) If it can be properly done, these ports should all be kept 
 open for the transaction of this export business upon such terms 
 that each one may fairly compete for it. No marked advantage 
 should be given, certainly not by the creation of artificial condi- 
 tions, to any one port over the other. The ideal conditions would 
 he the establishment of such rates that enterprise at either port in the 
 way of improvement in service or facilities might he rewarded hy in- 
 creased husiness and that there might exist that healthy- struggle of 
 locality against locality which is the hest security for proper com- 
 mercial development. 
 
 (2) If again it can properly be done, then rates should be so 
 adjusted that this competitive traffic will be fairly distributed 
 between the different lines of railway which serve these ports. 
 
 147 
 
Each one of these four cities is reached by two or more great rail- 
 way systems. The prosperity of these cities and systems cannot 
 be separated. The ability of a railroad to adequately discharge 
 its duty for a reasonable charge depends upon the business which 
 it can obtain, and no one of these systems should be deprived of 
 its fair portion of this enormous export traffic. The purpose of 
 these differentials from the first has been to distribute this business 
 between the different carriers and we said in our former report 
 that this was not improper unless the means used were improper. 
 
 This double competition between cities and between 
 raiboads was the fundamental consideration which 
 in former times had led to the granting of a differen- 
 tial rate of three cents in favor of Baltimore and of 
 two cents in favor of Philadelphia. Under changed 
 conditions this same competition had in 1899 caused 
 a reduction of these differentials by one half. For 
 the same reasons which had led it to uphold the former 
 differentials the Commission in the present case 
 declared: "We are satisfied that the differentials of 
 one cent and one and one-half cents, which were then 
 [18'99] estabUshed and which are still in effect, are 
 sufficiently large." Some slight modifications were 
 recommended in the existing differentials on flour 
 and on grain coming by way of the Great Lakes. 
 
 It would appear from this long discussion of the 
 export rate cases that while competition was selected 
 by the Commission as the ruling factor in the deter- 
 mination of rates, its selection was a matter of ex- 
 pediency rather than of principle. The Commis- 
 sioners seem to have felt that this competition did 
 not itself represent any " fundamental principle." 
 Much in their reasoning indicates that they would 
 gladly have reached a decision on the basis of cost 
 of service if the facts showing such cost had been 
 at hand. Yet it is by no means certain that they 
 
 148 
 
would have preferred to rest their decision on cost of 
 service. The idea that competition creates " the 
 ideal condition " for the distribution of traffic among 
 the ports is carried so far in the last case considered 
 that the majority of the Commissioners said: "It is 
 possible that in the future it may become evident 
 that Boston cannot fairly compete for this traffic 
 upon the present basis," and hint that should this 
 prove to be the case it might become necessary to give 
 Boston a lower rate than that given to New York; 
 this too in spite of the fact that the cost of moving 
 trafl&c to Boston is admitted to be greater than to 
 New York. 
 
 The same emphasis on competition is shown in 
 answer to New York's claim that the maintenance 
 of any differential forces traffic out of its natural 
 channels and imposes a burden on the public. The 
 Conamission rephed: "To decree that traffic should 
 always move by the cheapest route would be to en- 
 tirely eliminate competition, which within reasonable 
 bounds is for the interest of the general pubhc." 
 
 It would be hard to say how far this un-economic 
 sentiment, which makes of competition an end instead 
 of a means to an end, expresses the real judgment of 
 the Commission; how far it is merely a reflection of 
 the spirit of the act to regulate commerce and of the 
 decisions of the courts. 
 
 5. Competition between producers 
 
 Besides seeking to maintain competition between 
 the carriers themselves and between places, the Com- 
 mission has shown no little concern over the main- 
 tenance of competition between producers. Generally 
 speaking, its efforts in this direction have been made 
 
 149 
 
in behalf of the small producer or dealer who was in 
 danger of being driven out of business by a more 
 powerful competitor. The Commission has appar- 
 ently felt that it was charged with the duty of checking 
 the growth of monopoly in the field of production as 
 well as in that of transportation. 
 
 In the case of The F. Schumacher Milling Company 
 et al. V. The Chicago, Rock Island, and Pacific Railway 
 Company et al.,^ the complainant asked that the car- 
 riers be required to give the same rates on a mixed 
 car load of cereal products as they gave to a car load 
 of only one of these products. The defendants had 
 been in the habit of charging the ordinary less than 
 car load rates on such shipments. Generally speaking, 
 the Commission has been inclined to favor the granting 
 of car load rates on mixed car loads of similar prod- 
 ucts.^ In the present instance it declined to order 
 a car load rate on the mixed car load shipments. 
 The advantage of such a rate would fall to a single 
 producer, the complainant, since no other producers 
 of these commodities could ship in car load quantities. 
 
 To grant a mixed car load rate would enable the complainant to 
 crush out all competition on the part of those who make only one 
 or two of the products in controversy. It is undoubtedly true 
 that neither the Commission nor carriers are charged with any 
 particular oversight over locahties or authorized to stimulate 
 them with artificial helps to prosperity. But when a method of 
 regulation would have the effect of throwing many competitors 
 out of the trade, and centraUzing it in the hands of one or more 
 dealers, it would not be permissible if another method, without 
 doing wrong to any one, would have the effect of leaving the mar- 
 ket open to aU competitors. The rule is simply a limitation put 
 upon the extension of the car load rate, and should be proven by 
 the complainant to be unfair, unjust and discriminative, if its 
 abrogation is sought. 
 
 • 6 I. C. C. Rep. 61; 4 1. C. R. 373. 
 
 ' See for example 5 1. C. C. Rep. 633 and 9 1. C. C. Rep. 602. 
 150 
 
For the same reasons the Commissioners ordered ^ 
 a reduction in the rates on soap shipped in car load 
 lots. The carriers had recently changed the classi- 
 fication so that soap, having been placed in fourth 
 class when shipped in car load lots, was thereafter 
 to pay " 20 per cent less than third-class rates." At 
 the same time shippers who shipped soap as part of 
 a mixed car load from one consignor to one consignee 
 were to be charged only the " highest minimum car 
 load rate provided for any of the articles " so shipped. 
 It was shown that the only soap manufacturers who 
 could avail themselves of this privilege were the big 
 meat packers who by making up a mixed car load of 
 provisions and soap could receive fifth-class rates on 
 the entire car load, while their competitors who manu- 
 factured only soap would be obhged to pay the 20 per 
 cent less than third-class rates. The Commissioners 
 held that such discrimination was opposed to the 
 principles of competition between producers and 
 assisted materially in the fostering of monopoly. 
 
 StiU another illustration of the same principle is 
 found in the case of Brownell et al. v. Columbus and 
 Cincinnati Midland Railroad Company et al.^ The 
 complainant demanded that the rates on a car load 
 of eggs be made less than the rates given on less than 
 car load lots. This demand the railroad had refused. 
 The complainants claimed that the cost of gathering 
 eggs by the carrier was much less when they were 
 shipped by the large dealer than when shipped by 
 the small dealer and that if the carrier made no dif- 
 ference in the rates it was guilty of a discrimination 
 against the large dealer. The defendants, on the 
 
 ■ The Proctor and Gamble Company v. C. H. & D. R'y Co. et al., 9 I. C. C. Eep. 
 440. 
 
 > 5 I. C. C. Rep. 638; 4 I. C. E. 285. 
 
 151 
 
other hand, claimed that they had for years been 
 developing a system of reaching the small dealer 
 in eggs and that this was to the interest of the public 
 at large as well as to the interest of the carriers, since 
 the effect of granting lower rates on car load lots 
 would be to concentrate the egg business into the 
 hands of the large dealers who could then, by threaten- 
 ing to throw all their business to one road, compel 
 unfair concessions from the carriers. 
 
 It was this argmnent of the defendants which 
 prevailed in the minds of the majority of the Com- 
 missioners and led them to refuse the request for a 
 car load rate. They gave some consideration to 
 the cost of service arguments of the complainants 
 but declared that only a few points of difference in 
 the cost of car load and less than car load shipments 
 had been shown to exist. On the other hand, they 
 said: — 
 
 The evidence shows that at the present time 83 per cent of the 
 business is controlled by these large shippers, and it would seem 
 that an order granted as prayed for by complainant would go far 
 towards concentrating the whole business in their hands. The 
 tendency of the times, deplored by all, is the concentration of the 
 transportation business of the country in the hands of a few in- 
 dividuals who control large amounts of business. This interferes 
 with competition, and works an injury to many who are almost 
 as well equipped for the business as those who in the end succeed 
 by a concentration of power in the hands of a few to rule out all 
 below them. 
 
 Commissioner Knapp, who united with the majority 
 of the Commission in the final decision, declared that 
 carriers were not bound as a matter of right to offer 
 special car load rates. " It is one thing to concede 
 the right to make a car load rate, it is quite another 
 to require it." Commissioner Morrison, on the other 
 hand, dissented from the conclusions of his fellow 
 
 152 
 
commissioners and held that when, as ia the present 
 instance, a lower cost of service for car load shipments 
 could be shown to exist, car load rates were required 
 as a matter of principle. 
 
 In another instance ^ where the right of a carrier 
 to give a lower rate on a cargo or train load of wheat 
 than on single car load shipments was brought in 
 question, the defendants were able to show that the 
 costs of handUng and shipping the wheat in train 
 loads was less and the time saved was greater than 
 in the case of single car load shipments. The Com- 
 mission held that such a practice " must tend very 
 strongly to throw business into the hands of the larger 
 dealer exclusively," and was therefore not permissible. 
 
 In the case of Glade Coal Company v. Baltimore & 
 Ohio Railroad Company,^ it was shown that the de- 
 fendant carrier was chargiag 50 cents per ton more 
 on coal loaded from wagons or sleds than when it was 
 loaded from a tipple. The reason given for the dis- 
 crimination was that loading from tipple could be 
 done at less expense to the carrier and usually in less 
 time than when the cars were loaded from a wagon. 
 
 The Commission acknowledged that the costs of 
 loading cars were less when the loading was from a 
 tipple than when it was from wagons, but it did not 
 consider the difference in costs sufficient to warrant 
 the discrimination in rates. Such discrimination was 
 fovmd to result in a reduction in the number of shippers 
 and the Commission said: — 
 
 We do not consider it at all clear that the interests of the pubUc, 
 in the true sense of the term, would be subserved by a reduction 
 in the number of shippers and shipping points. On the contrary 
 we think such interests demand that all persons wishing to ship 
 
 • Paine Bros. & Co. v. L. V. R. R. Co. et al., 7 1. C. C. Rep. 218. 
 
 • 10 I. C. C. Rep. 226. 
 
 153 
 
goods to market shall be given a reasonable opportunity to do so. 
 Competition is considered a public benefit and the greater the 
 number of shippers the greater the competition among them will 
 be. . . . If carriers are allowed to make differences in the cost 
 of transportation, and see fit to do so regardless of the effect upon 
 shippers and localities, the ultimate result must be that the bulk 
 of the traffic will be handled by comparatively few shippers and 
 from and to large centers. We cannot believe such a result was 
 either intended or desired by the framers of the regulating statute. 
 
 In all the cases in this group it will be observed 
 that the Commission has given competition a distinct 
 preference over costs of service as a means of deter- 
 mining the reasonableness of the rates in question. 
 
 6. Competition to prevent a transportation monopoly 
 
 We have already observed that in numerous in- 
 stances the Commission has considered that competi- 
 tion between carriers was a sufficient excuse for certain 
 discriminations in rates. It has also appeared that 
 the decisions of the courts have compelled the Com- 
 mission to enlarge the number of these cases. In 
 view of the importance thus given to competition 
 as a regulator of rates, it goes without saying that 
 the Commission would view with displeasure all 
 efforts on the part of the carriers to take advantage 
 of the disappearance of rivalry to raise their rates 
 above the point at which a normal competition would 
 have tended to fix them. The progress of railway 
 consolidation within the last fifteen years has brought 
 about numerous instances of such rate increases. 
 Some of these increases have been brought to the 
 attention of the Commission by shippers seeking 
 relief. 
 
 In the case of the Central Yellow Pine Association 
 V. The Illinois Central Railroad Company et al.,^ an 
 
 ' 10 I. G. G. Rep. 505. 
 154 
 
association of persons engaged in the manufacture of 
 lumber in the southern states east of the Mississippi 
 river complained of a steady advance, covering a 
 period of several years, in the rates on lumber to 
 points on the Ohio river and beyond. The carriers 
 gave two reasons for the advance: (1) The increasing 
 value of the service; the business of manufacturing 
 lumber was yielding increasing profits and the carriers 
 by their rate advances were seeking to share in the 
 general prosperity. (2) Cost of service; higher wages 
 and increased cost of materials made it necessary to 
 increase the rates on lumber, which had not been 
 yielding its fair proportion of the revenue^ needed. 
 
 Postponing for the present the Commissioners' 
 discussion of the carrier's claim to share in the increased 
 prosperity of the shippers, we may say that they did 
 not find that either cost of service or value of service 
 warranted the increase in rates. These advances 
 in rates, it was shown, had been brought about as a 
 result of an agreement reached between the roads 
 east of the Mississippi river and the roads west of that 
 river engaged in the lumber traflBc. The majority 
 of the Commission decided (Messrs. Knapp and 
 Fifer dissenting) that this agreement, whether unlawful 
 or not, had resulted in the elimination of competition 
 and " competition is favored by the laws." 
 
 The ground upon which competition is favored is that it conduces 
 to the reasonableness of rates or to the protection of the public 
 from unreasonably high or excessive rates. In United States v. 
 Freight Association (168 U. S. 339) the Supreme Court says " com- 
 petition will itself bring charges down to what may be reasonable." 
 The act to regulate commerce (section 1), in prohibiting unrea- 
 sonableness of rates, in effect forbids whatever conduces to such 
 unreasonableness. In any event it is incumbent upon this Com- 
 mission, when the reasonableness of rates is in issue before it, to 
 consider how those rates were brought about — whether they 
 are the product of untrammeled competition or the result of a 
 
 155 
 
concert of action or combination between the carriers establishing 
 and maintaining them. The advanced rates complained of cannot 
 be claimed to be the outcome of competition, because " the na- 
 tural, direct and immediate effect of competition is to lower" 
 (177 U. S. 577) rather than to advance rates. 
 
 The case of H. H. Tift et al. v. Southern Railway 
 Company et al.^ presented much the same situation 
 as the above case and the Commissioners reached the 
 same conclusion as to the necessity of maintaining 
 competition. 
 
 In another case, ^ altho the Commission did not 
 claim any jurisdiction, it expressed the opinion that 
 railroads subject to the act to regulate commerce 
 had no right to refuse to enter into an agreement 
 with a boat line engaged in the coasting trade when 
 at the same time it had made such an agreement 
 with another Une engaged in this business. The 
 Enterprise Transportation Company was a steamship 
 company which in June, 1905, began to engage in 
 traffic by boat between Fall River, Massachusetts, 
 and New York City. Prior to its establishment 
 the various boat lines operating on Long Island Sound 
 were consolidated under the name of the New England 
 Navigation Company, which was controlled by the 
 New York, New Haven, and Hartford Railroad Com- 
 pany. In this way the New Haven road had secured 
 a virtual monopoly on transportation between south- 
 ern New England and New York. The establishment 
 of the Enterprise Company had resulted in lower- 
 ing considerably the rates of transportation between 
 Fall River and New York; but the railroads running 
 west from New York had refused to enter into any 
 
 » 10 I. C. C. Rep. 548. 
 
 3 In the matter of alleged unlawful discriminations against the Enterprise Trans- 
 portation Company by railroad lines leading from New York City, 11 I. C. C. 
 Eep. 687. 
 
 156 
 
joint rates with this company, altho they had such 
 arrangements with the New England Navigation 
 Company. This compelled the Enterprise Company 
 to depend entirely on local traffic, as the low through 
 rates furnished by the joint-rate agreement between 
 the New England Navigation Company and the 
 railroads made it impossible for others lacking such 
 arrangements to compete with them. 
 
 The railroads upheld their refusal to enter into 
 joint-rate agreements with the Enterprise Company 
 on what they called " business principles." Such a 
 joint rate they held would not increase the amount 
 of traffic from Fall River but would merely put them 
 to the trouble of receiving goods from two lines instead 
 of one. The Commissioners admitted that there 
 was force in the arguments of the carriers, but main- 
 tained nevertheless that this throttling of competition 
 was detrimental to the pubUc interests. They said : — 
 
 It is undoubtedly true that better and more efficient service is 
 obtained when competition exists than when the business is entirely 
 transacted by one concern. . . . When the competition of the 
 Enterprise Company had disappeared, rates would be restored to 
 what they formerly were, which, it fairly appears, were higher than 
 reasonable competition would produce. The existence of the 
 Enterprise Company as a competitive factor is of distinct value 
 to the pubUc, and that existence may depend upon its right to 
 engage in through business. 
 
 It would be useless, after this long review of the 
 cases in which the Interstate Commerce Commission 
 has seized on competition as the deternaining factor, 
 to attempt to show that the Commission has been 
 always consistent in its argument as to the part which 
 competition should play in matters of rate making. 
 At times it has seemed to argue that competition 
 itself represents " no fundamental principle " but is 
 only a " consideration which should be kept in mmd "; 
 
 157 
 
at other times it has given a distinct preference to 
 competition over cost of service as a principle. At 
 times the Commission has believed that competition 
 has made rates too low; at other times too high. 
 Some of the apparent inconsistencies can doubtless 
 be attributed to the changes in membership of the 
 Commission. Other and more serious inconsistencies 
 are due to a desire to preserve the spirit of the act and 
 to respect the decisions of the courts, even when the 
 Commissioners themselves have personally had dif- 
 ferent views concerning competition. In spite of 
 these inconsistencies, apparent and real, a careful 
 consideration of the cases which we have reviewed 
 and of others not covered will show that it is not 
 merely competition itself which the Commission has 
 sought to preserve and upon which it has at times 
 rehed as a guide to the solution of the problems pre- 
 sented; it is rather that type of competition which 
 represents the normal state of business affairs, the 
 competition which leaves to railway owners a reason- 
 able return for the services rendered and which in 
 turn requires them to render these services at what 
 the economist means when he speaks of cost prices. 
 
 VII. Class and Sectional Interests 
 
 In the discussion of railway rate theories to be 
 found in the First Annual Report of the Interstate 
 Conmierce Commission,^ to which reference has sev- 
 eral times been made in this series of papers, we find 
 mentioned among the " considerations which may 
 justly affect rates " the following: — 
 
 Every section of the country has its peculiar products which it de- 
 sires to market as widely as possible, and is not unwUling that 
 
 ' P. 31. 
 
 158 
 
classification should be made use of by the railroads which serve it 
 as a means of favoring and thus extending the traffic in local pro- 
 ductions; favoring them by giving them low classification, and 
 thus low rates, and discriminating against those of other sections 
 through a classification which rated them more highly. 
 
 The principle that common carriers engaged in 
 interstate commerce and subject to the regulation 
 of a federal statute may legitimately make rates which 
 openly favor one section of the country and discriminate 
 against other sections is a notion so contrary to the 
 spirit of the act to regulate commerce as weU as to 
 the Constitution, that we might well hesitate to 
 beUeve that the Interstate Commerce Commission 
 had intended to give its approval to the above state- 
 ment were it not for the fact that in its Second Annual 
 Report, as well as in certain decisions, it restates 
 this doctrine in such a fashion as to leave us no longer 
 in doubt as to its approval of this form of discrimina- 
 tion under certain circimistances. The statement 
 in the Second Annual Report ^ reads as follows : — 
 
 Every railroad serves a certain territory and every part of the 
 coimtry has to some extent interests to be served which are special 
 and pecuhar to it, and these it will naturally desire to have specially 
 considered by local, official and corporate authorities, whether 
 the business in hand be the imposition of taxes or the adjustment 
 of rates for transportation; and as many other circumstances 
 besides cost of transportation and value of service must always 
 be taken into account, such as bulk or weight of articles, conven- 
 ience of handling, special liability to injury and necessity for speedy 
 delivery, and the field of production or of consumption, so that 
 there can never be any fixed or definite rule for the measurement 
 of the charge to be made upon any particular traffic, it is always 
 possible for the railroad manager in making rates to yield some- 
 thing to the special interests of his section, and still keep in view 
 the general principles upon which he will professedly act. 
 
 It is not our purpose in these articles to criticise 
 the work of the Interstate Commerce Commission 
 
 ' p. 35. 
 
 159 
 
or, except incidentally, the theories which it has 
 promulgated. It will be sufficient, therefore, to say- 
 that it is fortunate that there are not many cases 
 heard by the Commission which have been decided 
 strictly on the basis of sectional or class interests, 
 altho there are several cases in which the strong claims 
 put forth in behalf of certain communities or certain 
 classes of persons have received a degree of recognition. 
 
 1. Domestic versus foreign producers 
 
 Perhaps the best example of this form of discrimina- 
 tion, at least the one which will excite the least criti- 
 cism, is where the Commission has undertaken to assist 
 the domestic producer at the expense of the foreigner. 
 A good illustration is afforded by the case of The 
 National Hay Association v. The Lake Shore and 
 Michigan Southern Railway Company et al.^ Prior 
 to the passage of the Dingley Tariff Act in 1897 hay 
 from Canada had competed actively with hay from 
 the Middle West in the eastern markets of the United 
 States. At this time the rates on Canadian hay 
 under the Official Classification adopted by the eastern 
 trunk Unes were commodity rates lower than fifth- 
 class rates while hay from the Middle West paid 
 sixth-class rates. In order to protect the domestic 
 producer of hay the Dingley Tariff Act increased 
 the tariff on hay coming from foreign countries from 
 two dollars to four dollars a ton. This increase in 
 the tariff rate checked the importation of hay from 
 Canada, tho it did not actually prevent it. 
 
 On January 1, 1900, the roads operating under the 
 Official Classification changed the classification of 
 American hay from sixth class to fifth class with a 
 
 ' 9 I. C. C. Rep. 264. 
 160 
 
corresponding increase of rates, but left the commodity 
 rates on Canadian hay as they had been. Under 
 this readjustment of rates the importation of Canad- 
 ian hay rapidly increased and the competition was 
 proving a hindrance to the American producer. The 
 roads gave as reasons for the change in rates cost 
 of service and need of more revenue, neither of which 
 arguments the Commission was inclined to recognize. 
 On the other hand, the Commissioners called attention 
 to the fact that the advance in rates had in reality 
 thwarted the purpose of Congress in increasing the 
 tariff on Canadian hay. They said : — 
 
 That advance interfered with a long standing relation of charges 
 from the two producing sections which operated to give an advan- 
 tage to Canadian hay compared with the pre-existing situation, and 
 such change in a long existing rate adjustment was in favor of a 
 producing section in an adjacent foreign country from which hay 
 shipments into the United States are required by law to pay a 
 duty as great as $4 per ton. 
 
 The effect of the Commission's decision was, of 
 course, to favor the producer of hay in the Middle 
 West against not only the Canadian producer but 
 also the eastern consumer. Whatever our ideas 
 may be as to the necessity or desirability of a tariff 
 on hay, we shall all probably agree that the Commission 
 was bound to reach a decision which did not interfere 
 with the interests of the nation at large as those in- 
 terests had been interpreted by the Dingley Tariff 
 Act. 
 
 2. Vested interests 
 
 Less justifiable to the present writer appear to be 
 those cases in which the Commission has by its decisions 
 upheld existing methods of production or distribution 
 in which certain sections or certain classes of pro- 
 
 161 
 
ducers have appeared to have a particular interest 
 at the expense of new and cheaper methods which 
 were coming into use. Probably the best illustra- 
 tion of this class of cases comes from the cotton 
 traffic.^ 
 
 By the method commonly employed throughout 
 the South, cotton after being ginned at the plantation 
 gin is made into a square bale having a density of 
 about 12| pounds to the cubic foot. The rates are 
 the same per 100 pounds for this uncompressed cotton 
 as they are for cotton which has been further com- 
 pressed. But before cotton is carried long distances 
 it is usually taken by the carrier to a compress situated 
 on the route, and frequently owned by the railroad, 
 and the plantation bales are further compressed 
 until the average bale has a density of about 23 pounds 
 per cubic foot. When compressed in this way about 
 25,000 pounds of cotton can be conveniently carried 
 in a single car. 
 
 For some years prior to the bringing of the com- 
 plaint there had been coming into use a new method 
 of compressing cotton into round bales by means of 
 a patent device belonging to the complainant. The 
 device was relatively inexpensive, costing from $3500 
 to $4000 each, and could be used in connection with 
 the plantation or neighborhood gin. Cotton when 
 compressed by this method has a density of about 
 45 to 47 pounds per cubic foot and about 46,000 
 poimds can be shipped in a single car load. When 
 compressed by this method immediately after ginning 
 it is in condition to be shipped to its final destination. 
 It has been shown that cotton compressed by this 
 method is in better condition when it reaches the 
 
 ' Plantera' Compress Company v. C. C. C. & St. L. R'y. Co. et al., 11 I. C. C. 
 Rep. 382. 
 
 162 
 
manufacturer and is more in demand than when baled 
 by the usual methods.* 
 
 Owing to the fact that a much larger quantity of 
 cotton in round bales could be shipped in a single 
 car load than when it was sent in the old-fashioned 
 square bales, the carriers made defendants in the 
 case had for two years prior to 1900 given a net rate 
 of 20 cents per 100 pounds to the cotton compressed 
 by the complainant's process, while at the same time 
 cotton in square bales had been charged a rate of 
 30 cents per 100 pounds. The complainant asked 
 that this adjustment of rates be continued. It was 
 shown that steamship companies exporting cotton 
 granted lower rates on round-bale cotton than on 
 cotton baled in the ordinary way. " This," acknowl- 
 edged the Commission, " is because its greater density 
 permits a greater weight to be loaded in the same 
 space, and perhaps to some extent because it is easier 
 to handle." 
 
 In spite of the obvious advantages of transporting 
 cotton in the more compact bales, the majority of the 
 Commission were opposed to granting lower rates 
 to car load shipments of 45,000 pounds or more than 
 were granted to car load shipments with 25,000 pounds 
 as the average car load. The reasons for the decision 
 were long-standing custom and the fear of monopoly. 
 It was said that to adjust rates in the way asked for 
 by the complainant would encourage the use of com- 
 plainant's device throughout the South in order to 
 get the benefits of the lower rates. This in turn would 
 result in having cotton compressed at the gin houses 
 
 ' See for a discussion of the relative merits of the square and the round bale, H. 
 Hammond, The Handling and Uses of Cotton, in Bulletin No. 33, Office of Experi- 
 ment Stations, U. S. Dept. of Agric. pp. 360-365; also the present writer's, Cotton 
 Culture and Cotton Trade, Pubs. American Econ. Assoc, New Series, No. 1, pp. 361- 
 355. 
 
 163 
 
and this, thought the majority of the Commissioners, 
 would make difficult the classification of cotton and 
 its separation into different grades. They did not 
 question the contention of the complainant that the 
 costs to the carrier of shipping cotton compressed 
 by the complainant's method were less than when 
 the older method of baling was used, but they claimed 
 that this did not impose upon the carrier " the obliga- 
 tion to recognize this saving of expense by a corre- 
 sJ)onding reduction of charges." The majority held 
 that the thing of chief importance was to secure rea- 
 sonable rates on commodities in the form in which 
 they were commonly prepared for transportation, 
 and held that when rates so estabhshed were reasonable, 
 the same rates did not become unreasonable to the 
 shipper who preferred to prepare his shipment in a 
 form which might afford the carrier a greater profit 
 per hundred pounds. " To adjust rates on different 
 articles on the basis of comparative cost to the carrier," 
 said the majority report, " would involve a wide 
 departure from accepted theories of rate making: 
 to adjust rates on the same article with reference to 
 cost of carriage under different conditions would be 
 still more radical." 
 
 Commissioner Prouty wrote a vigorous dissenting 
 opinion in the case in which he argued for the logical 
 application of the cost of service principle. He openly 
 accused his colleagues of trying to shield themselves 
 behind trivial and irrelevant analogies and of reach- 
 ing a decision which tended to hinder the course of 
 industry and progress. He declared that car capacity 
 more than any other one thing was generally made 
 use of by the carriers in determining rates and said 
 that the Commission had " repeatedly recognized 
 the substantial accuracy of this position." He de- 
 
 164 
 
clared that he agreed with the complainant that if 
 30 cents per 100 pounds was a reasonable rate for 
 transporting 25,000 pounds of cotton in a car, then it 
 was entirely unreasonable to apply that rate to a car 
 of 50,000 pounds. The carrier would be compelled 
 to haul two car loads of the square-bale cotton to earn 
 the same amount of money which it received for 
 a car load of round bales. 
 
 Taking up the arguments made by the majority, 
 Mr. Prouty discussed the objection made to cost 
 of service as follows : — 
 
 It is said that cost of service is not the test of a reasonable rate. 
 This is undoubtedly true in many cases. There are many instances 
 in which there is no intimate connection between cost of carriage 
 and the rate charged for that carriage. But with respect to a 
 staple commodity like cotton I beheve that there should be a very 
 intimate connection between cost of carriage and the rate charged 
 the public, and that if in any way the cost of carriage has been or 
 can be actually reduced one-third, the public should be given the 
 benefit of that reduction. 
 
 Mr. Prouty next pointed out what was likely to be 
 the effect of the majority decision on the business 
 of the complainant and on progress in the direction 
 of reducing the costs of marketing the cotton crop. 
 
 The only advantage of the round bale is that it produces a bale of 
 greater density and thereby reduces the actual cost of movement 
 materially. If this advantage in transportation is not recognized, 
 it has no value and cannot come into use. If the railways dechne 
 to accord to this form of compression the saving in cost of 
 transportation which it actually makes, or some reasonable part 
 of it, that bale never can be offered for transportation in very large 
 quantity. 
 
 Mr. Prouty also pointed out that recognition of 
 the complainant's claim would redound to the ad- 
 vantage of several other owners of devices for making 
 compact bales. So far from creating a monopoly, 
 
 165 
 
it would tend to modify the semi-monopoly wh^ch 
 the railroads enjoyed of compressing cotton en route 
 in their own compresses. 
 
 It has already been noted that it has been the 
 general practice of the carriers, upheld by the Com- 
 mission, to give the same rates and classification to 
 wheat and to wheat flour. In two cases, ^ however, 
 which have been brought before the Commission 
 that body has upheld the carriers in their practice 
 of charging five cents more per hundred poimds for 
 transporting flour from points in Missouri and Kansas 
 to points in Texas than they charged for carrying 
 wheat from the same points of origin to the same 
 points of destination. The carriers made their defence 
 partly on the basis of differences in the values of the 
 two commodities and partly on differences in the cost 
 of service. The Commission could not sustain these 
 arguments, since they would have been appHcable 
 under any circumstances, and it was shown that the 
 same carriers as were made defendants in this case 
 were transporting wheat and flour in other directions 
 at the same rates on both commodities, and such an 
 equalization of rates, as we have just said, has fre- 
 quently been upheld by the Commission. 
 
 The investigations conducted by the Commission 
 in these cases showed that in both instances the five- 
 cent differential rate on wheat had been made for the 
 purpose of protecting the large and growing milUng 
 industry of Texas. The Texas mills it was said widened 
 the market for Texas wheat growers but were at a 
 disadvantage compared to St. Louis mills owing to 
 higher costs of fuel, labor, and the like. The de- 
 
 1 Kauffman Milling Co. v. Mo. Pacif. R'y Co. et al., 4 I. C. C. Rep. 417; 3 I. C. R. 
 400. Mayor and City Council of Wichita, Kaneae v. Mo. Pacif. R'y Co. et al., 10 
 I. C. C. Rep. 35. 
 
 166 
 
fendants claimed that the complainants were not 
 injured by the existence of the differential since they 
 could still compete in the Texas markets. The ma- 
 jority of the Commission decided to uphold the dif- 
 ferential in the first of the above cases because of its 
 long continuance; because the milling industry of 
 Texas was in a flourishing condition and had had 
 beneficial effects on raising the price of wheat in Kansas 
 and Missouri as well as in Texas, and because the 
 differential seemed necessary in order " to place the 
 competitive milling interests upon a substantial parity." 
 
 Commissioner Morrison dissented from the con- 
 clusions of the majority of the Commission in this 
 case. He said that the decision assumed " to put 
 the millers of Texas on a parity with their competi- 
 tors iu the Texas markets, by depriving Missouri 
 and Kansas mills of whatever advantages they have 
 in their favorable location." This he pointed out 
 was in direct conflict with previous decisions of the 
 Commission. 
 
 In the second of the above cases the Commission 
 abandoned its contention that the differential on 
 wheat was necessary to maintain competition between 
 Texas mills and those in Kansas and Missouri. On 
 the contrary it declared that " the Commission has 
 no more authority to place competing millers in dif- 
 ferent states upon precisely the same footing than 
 it has to equaUze conditions iu all locafities and in 
 every industry." It nevertheless upheld the dif- 
 ferential on the ground that many new and flourishing 
 mills had recently sprung up in Texas as a result of 
 an accidental crop yield and that to equalize the rates 
 on wheat and floxu- would handicap these mills in their 
 competition with the Kansas mills. The Commission 
 therefore aimounced that it must " decline to disturb 
 
 167 
 
relations of rates " since such disturbance " could 
 scarcely fail to be injurious to important vested rights." 
 It also declared that the maintenance of competition 
 between the Texas mills and those in Kansas was a 
 direct benefit to the Kansas farmers in that it tended 
 to raise the price of their grain, and the Conamissioners 
 said: "Anything which increases the value of the 
 products of the soil to the producer seems so desirable 
 a result, that if the Commission was endeavoring to 
 adjust the conditions investing various localities, 
 that which led to the prosperity of the agriculturist 
 must receive favorable attention." 
 
 Whether one looks at this case from the stand- 
 point of the Texas millers or of the Kansas wheat 
 growers it is apparent that the Commission's decisions 
 were based on the special and pecuUar interest of 
 these particular classes of persons. 
 
 In spite of the fact that neither Los Angeles nor 
 San Bernardino, California, is situated on the coast, 
 the Commission decided in the case oi A. W. Holdzkom 
 V. Michigan Central Railway Company et al.^ that the 
 carriers from the east were justified in considering 
 Los Angeles a " terminal point," enjoying the benefits 
 of water transportation from the east and therefore 
 entitled to the same rates as San Francisco received 
 while San Bernardino must continue to pay the through 
 rates to Los Angeles plus the local rates from Los 
 Angeles to San Bernardino. The Commission set 
 forth its reasons for permitting this discrimination as 
 follows: — 
 
 In coming to this conclusion we have been largely influenced by 
 the consideration that while this action upon the part of the car- 
 riers has certainly worked a preference in favor of Los Angeles aa 
 against towns like San Bernardino, it has at the same time bene- 
 
 » 9 I. C. C. Rep. 42. 
 168 
 
fitted southern California as a whole. The result has been to 
 transfer the wholesale business of southern California in so far as 
 it is transacted upon the Pacific Slope, mainly from San Francisco 
 to Los Angeles. Before Los Angeles enjoyed this rate San Fran- 
 cisco jobbers covered that territory. Now they have given place 
 to the jobbers of Los Angeles, and in many instances San Francisco 
 houses have established branches at Los Angeles. It is probable 
 that this arrangement results in somewhat cheaper prices for 
 southern California than would be secured by a distribution from 
 San Francisco, since the cost at the two centers of distribution 
 is now the same, while the expense of distributing from Los Angeles 
 is somewhat less. WhUe, therefore, Los Angeles has been bene- 
 fitted, it would appear that this whole section shares to an extent 
 in such benefit, nor is it easy to perceive how San Bernardino has 
 been materially injured since that city could not become a jobbing 
 center as against San Francisco under original conditions. 
 
 The groiinds for the Commission's decision are 
 therefore the interest of southern California as a 
 whole. That the decision, whUe favorable to the 
 jobbers of Los Angeles and perhaps to the consumers 
 of southern CaUfomia, was opposed to the interests 
 of San Francisco jobbers was a fact which apparently- 
 received little consideration from the Commissioners. 
 
 In all the cases which we have considered under 
 the heading of class and sectional interests, the Com- 
 mission does not seem to have been guided by what 
 it terms " fundamental principles." The cases have 
 been disposed of, as the Commissioners said in the 
 Kauffman Milling case, " with a view to what is best 
 for the public interests immediately concerned, and 
 upon facts found to exist rather than upon theories 
 of transportation." Perhaps the most fundamental 
 consideration involved was the desire to preserve 
 competition among producers or producing sections, 
 and this the Commission has undertaken to do even 
 when at times it has been necessary to depart from 
 economic principles and to sacrifice in a measure 
 the interests of the consumers. 
 
 169 
 
VIII. Fair Return on Investment 
 
 During recent years there has been an urgent demand 
 on the part of many writers and pubUc officials that 
 the Federal government attempt to make a valuation 
 of the physical property of the railroads of the United 
 States and that it also take steps to control the further 
 issue of railway securities. This demand, represent- 
 ing what Professor Adams calls " the pubUc interest 
 in the property accounts of railways," as opposed to 
 the interest of the railway management and the in- 
 terest of the investor, " rests upon the fact that a rea- 
 sonable rate for transportation services is a rate which 
 contributes a reasonable return upon necessary in- 
 vestments." 1 
 
 The argument for a physical valuation of railway 
 property and a limitation of railway securities may 
 be briefly stated as follows. The railways are com- 
 mon carriers, concerned in the business of performing 
 a service essentially public in character. Their cor- 
 porate existence is furthermore due to franchises 
 granted by the pubUc authorities. In the performance 
 of a pubUc service their owners are not entitled to 
 charge more than a fair return upon the actual capital 
 invested and this can only be known when the value 
 of the property has been ascertained. In the future 
 the issues of railway securities should be made to cor- 
 respond to the actual investment of capital. Rates 
 in general can then be so regulated as to yield only 
 normal rates on the capital investments and on the 
 par value of the new stock issues. 
 
 ' Twenty-first Annual Report on the Statistics of Railways in the United States 
 (1908), p. 11. 
 
 170 
 
1. Development of the theory 
 
 This theory of rate making received but little at- 
 tention during the early years of the existence of the 
 Interstate Commerce Commission. It was, however, 
 not entirely overlooked; it was dealt with, tho in a 
 piirely incidental way, in some of the earUer decisions. 
 Thus in one case ^ where the complainants had urged 
 that the defendant's rates on wheat were too high 
 when compared to rates on the same commodity 
 charged by other roads, and the defendant had pleaded 
 as an excuse the high cost of constructing and main- 
 taining the road and the low rate of return on its 
 paid-up stock, the Conmaissioners had repUed that 
 the roads with which the complainant had made com- 
 parison 
 
 have a greater variety of local and way freights, and are not com- 
 pelled to depend, as is the defendant, so largely upon what they 
 receive for the transportation of any one local commodity, such 
 as wheat. They, therefore, derive revenue from these other 
 sources of local and way freights to a much greater extent than 
 the defendant, and can with confidence rely upon them, and for 
 this reason alone can safely make their rates less than the defendant. 
 
 A more significant utterance appears in the Com- 
 mission's report on Alleged Excessive Freight Rates 
 and Charges on Food Products.^ The shippers had 
 advanced the claim that the railway rates from the 
 West should be so adjusted as to enable farm produce 
 to be sold in the East at a profit. The Commissioners 
 could not admit that the railroads were bound so to 
 adjust their rates that " shippers may in all cases 
 reahze actual cost of production." Such a basis of 
 
 ' Milton Evans et al. v. The Oregon Railway and Navigation Co., 1 1. C. C. Rep. 
 325. 
 
 2 4 I. C. C. Rep. 48; 3 I. C. R. 93. 
 
 171 
 
rate making they said " will hardly stand the test 
 of fair deahng. It would compel those who invest 
 in or operate railroads to assume and bear the losses 
 resulting from the improvidence, mismanagement, 
 or unprofitable employment of others." At the same 
 time the Commissioners declared that the roads should 
 offer such rates, if they are " fairly remunerative," 
 as would encourage and warrant the movement of 
 commodities and such a rule was particularly appli- 
 cable to the staple agricultural commodities. The 
 Commission was careful to state that in deciding 
 what rates were " fairly remunerative " it must not 
 be implied that a dividend on watered stock was to 
 be included, and they laid down this further principle : — 
 
 In fixing reasonable rates the requirements of operating expenses, 
 bonded debt, fixed charges, and dividends on capital stock from the 
 total traffic are all to be considered, but the claim that any par- 
 ticular rate is to be measured by them as a fixed standard, below 
 which the rate may not lawfully be reduced, is one rightfully sub- 
 ject to some qualifications, one of which is the obligations must 
 be actual and in good faith. 
 
 Another limitation on the principle of fair remunera- 
 tion is stated in one of the Standard Oil cases ^ where 
 it is said that a carrier 
 
 may establish its rates to yield fair remuneration for its services, 
 subject to prescribed limitations, but it may not treat every divi- 
 sion of its system serving a common territory as an independent 
 property, and vary its rates to suit the conditions of each piece 
 of property, and thereby arbitrarily exact charges that make a 
 profitable market for one portion of its patrons and that exclude 
 others similarly situated from the same market. 
 
 The limited use which the Commission made of the 
 principle that rates must be so limited as to yield 
 only normal returns on investment during the early 
 
 ' Rice, Robinson & Wlnthrop v. The Weatern N. Y. and Penn. R. R. Co., 
 4 I. C. C. Rep. 131; 3 I. C. R. 162. 
 
 172 
 
years of its existence doubtless finds its chief explana- 
 tion in the fact that nearly all of the earlier decisions 
 had to do with rates on particular conunodities rather 
 than with an entire schedule of rates. Altho, as we 
 shall see, the Commission has made a limited use of 
 this principle in dealing with rates on a few important 
 commodities, it has never been seriously urged by 
 members of the Commission or others that this theory 
 of rate making could be rigidly applied to determine 
 what was a reasonable rate on a specific commodity 
 carried a specific distance. The principle has found 
 its widest application in those cases in which the Com- 
 mission has had to consider the question as to whether 
 or not a general advance in rates, or at least an advance 
 on an entire class of commodities, by a single railway 
 system or by several railroads acting in conjunction, 
 was legitimate. 
 
 2. Rates in general 
 
 In seeking to make use of the principle that a rea- 
 sonable rate is one that yields a fair return on capital 
 actually invested, the Commission has been greatly 
 handicapped by the fact that there has never been 
 furnished to it any authoritative statement as to 
 what is the actual capital investment of our railroads, 
 either singly or in the aggregate, or as to what con- 
 stitutes a reasonable rate of return on this capital. 
 The United States Supreme Court in the Nebraska 
 Freight Rate case ^ established the rule that a carrier 
 is entitled to earn a " fair return upon the value of 
 that which it employs for the pubUc convenience," 
 but this, in the absence of any standard for deter- 
 mining what is that value, is, as the Commission 
 
 I 169 U. S. 466. 
 173 
 
says,' much like reasoning in a circle, since the value 
 of a railway's property is in large part dependent 
 on the rates which it is permitted to charge. The 
 Commission expressed the opinion in this case that 
 the cost of reproducing a railway's property could not 
 well be made a test as to the value of the investment, 
 tho it might furnish some assistance in determining 
 that value. Even this standard of measurement is 
 lacking, and the Commission stated the difficulties 
 which it confronts in seeking to determine what con- 
 stitutes a reasonable rate schedule in these words: — 
 
 It is plain that until there be fixed either by legislative enactment 
 or judicial interpretation, some definite basis for the valuation 
 of railway property and some hmit up to which that property shall 
 be allowed to earn upon that valuation, there can be no exact 
 determination of these questions. 
 
 In the absence of such official standards the Com- 
 mission in seeking to judge as to the reasonableness 
 of a proposed general advance in rates has thrown 
 upon the railroads the burden of proving that they 
 were not prospering under existing rates. The most 
 notable decisions of this sort were handed down only 
 a few months ago and are still fresh in our minds; 
 but the principles upon which the Commissioners 
 acted in refusing to allow the recent proposed advances 
 in freight rates are not new and need have caused no 
 surprise to those who have followed the Conunission's 
 line of reasoning in earlier cases. In the case which 
 we have just been considering the carriers had de- 
 clared that rates had been reduced in bad times; the 
 prices of materials and labor had risen with the 
 return of prosperity; the roads hence were entitled 
 to raise their rates. The Commission itself has so 
 
 ' Proposed Advances in Freight Rates, 9 I. C. C. Rep. 382. 
 
 174 
 
succinctly stated the argument of the carriers that 
 its words deserve to be quoted. 
 
 The present prices of commodities are high, therefore they can pay 
 a higher freight charge. Times are good and railroads should 
 share in the general prosperity; but high prices of materials and 
 labor add to the expense of operation and gross revenues must 
 therefore be increased. 
 
 This argument, it will be observed, is a combination 
 of cost of service and of value of service, or " charg- 
 ing what the traffic will bear " arguments. So far 
 as the cost of service argument is concerned its validity 
 would of course depend on the evidence as to increased 
 costs submitted by the carriers. If value of service 
 is, however, to be made the test, and if any meaning 
 is to be given to this elusive term, it is hard to see 
 why the carriers' argument is not conclusive. For 
 in times of prosperity and high prices the railroads 
 certainly do by means of the transportation of com- 
 modities increase the value of service both to pro- 
 ducers and consumers. We have already seen ^ that 
 the Commissioners permitted the increase in rates 
 to be made in the case of iron and steel on the ground 
 that the rates on these commodities had been reduced 
 because of business depression. 
 
 With reference to other commodities, particularly 
 grain, the Commission shifted its ground. It declared 
 that it was not called upon to consider alone the ques- 
 tion as to whether the proposed rate was reasonable 
 when " estimated by the cost and value of the service, 
 and as compared with other commodities," but that 
 it must decide whether the rate was " reasonable in 
 the absolute, regarded more nearly as a tax laid upon 
 the people who ultimately pay that rate." This 
 statement might seem to introduce into the Com- 
 
 1 Quarterly Journal of Economics, November, 1910, vol. xrv, p. 36. 
 175 
 
mission's decisions a new theory of rate making, viz. 
 the tax principle so much emphasized by Professor 
 Cohn.i That this was not the intention of the Com- 
 missioners, however, is shown by their further state- 
 ment that every inquiry into the reasonableness of a 
 given rate " involves the idea of some limit beyond 
 which the capital invested in railways ought not to 
 be allowed to tax other species of property." 
 
 While the Commissioners could not, in the absence 
 of any judicial or legislative standard, declare just 
 what the limit should be, they applied this apparently 
 negative conclusion to the case under discussion in 
 the following manner. The statistics of earnings 
 and expenses of the leading lines covered by the in- 
 vestigation showed that these roads had shared in 
 the general prosperity of the country simply by an 
 increase of their traffic. Railway transportation being 
 subject to the law of increasing returns, this increase 
 of traffic had caused an increase in the net earnings 
 of the roads. The investigation further showed that 
 rates in general, and on grain in particular, had not 
 been reduced during the period of financial depression. 
 The Commission therefore held that rates long estab- 
 lished, which had been fixed by competition and were 
 fairly remunerative, could not be advanced merely 
 in order that in this way the railroads might share 
 in the prosperity of the country. 
 
 The report of an investigation made by the Com- 
 mission In the Matter of Class and Commodity Rates 
 from St. Louis to Texas Common Points, etc? is in 
 many respects analogous to the case we have just 
 
 1 G. Cohn, Die englische Eiaenbahn Politik der letzten zehn Jahre, pp. 65-84. 
 For a discussion of Cohn's theory see Professor Taussig's Contribution to the Theory 
 of Railway Rates, Quarterly Journal of Economics, vol. v^, pp. 438-465. 
 
 2 11 I. C. C. Rep. 238. 
 
 176 
 
considered. The roads in the Southwest had an- 
 nounced an iacrease in rates and gave as their reasons 
 for the advance: (1) an increase in " the cost of labor, 
 materials, and everything which enters into the con- 
 struction and operation of a railroad "; (2) an increase 
 in the prosperity of the country, in which it was said 
 the raih-oads were entitled to share. As a proof of 
 the increase in prices the railroads offered a com- 
 parison between prices paid in 1903 and those paid 
 in 1897, to which the Commission made answer: — 
 
 It is evident that a comparison between the panic prices of 1897 
 and the inflated prices of 1903 would produce startling results of 
 this nature and it is equally evident that such comparisons are 
 utterly worthless for determining a legitimate basis for freight 
 rates. 
 
 The Commission instituted an investigation of its 
 own into the relative prices paid by the railroads 
 for steel rails, equipment, fuel, and labor in the years 
 1892, 1896, 1902, and 1903 and concluded that " the 
 total cost of moving a ton of freight one mile upon 
 the lines of these respondents as a whole was probably 
 as low in 1903 as it had ever been." 
 
 In answer to the claim of the carriers that they 
 should share in the prosperity of the country the 
 Commissioners replied : — 
 
 To the proposition that the raUroads of this country are entitled 
 to share in the prosperous conditions of the present we entirely 
 assent. . . . When the claims of these respondents are carefuUy 
 examined that is not at all the thing for which they contend, but 
 rather that because the prices of the commodities which they 
 transport have advanced the rate of transportation should also be 
 advanced. To that we do not assent. The freight rate is not a 
 commodity the price of which should ordinarily vary with the price 
 of the commodities which are transported. A railroad may not 
 advance its passenger fares simply because the people who ride 
 are making more money. The question is rather whether the fare 
 charged allows the carrier a fair return for its services. 
 
 177 
 
The Commissioners admit that if the roads reduce 
 a rate to enable a manufacturer to continue in business 
 during a business depression " there is no reason why 
 with the return of prosperity the rate should not be 
 restored," but this was not the case with the advance 
 announced. To show how illogical was the argument 
 that the announced increase of rates was justified 
 by the increase of prosperity the Commission quotes 
 the argument of the representative of one of the roads 
 that owing to the ravages of the boll-weevil in Texas 
 his road did not get the usual amount of cotton for 
 transportation and, 
 
 for these reasons it had become necessary to advance rates in order 
 to obtain sufficient revenue with which to operate the road and pay 
 a fair return upon the investment. Here, therefore, we have in the 
 same case and by parties of the same general system a claim upon 
 the one hand that these advances are justified by general conditions 
 of prosperity and upon the other hand that they are justified by 
 general conditions of adversity. 
 
 The way in which the roads should share in the 
 prosperity of the country the Commission then pro- 
 ceeds to indicate. 
 
 Railroads should share in the general prosperity. They should do 
 this partly by being able to advance those rates which have de- 
 clined under commercial conditions. They should do it still more 
 by the increased traffic which they obtain. In times of prosperity 
 when money is plenty and business is good people ride more, buy 
 more, new industries are being estabhshed and old industries are 
 active, traffic increases and out of such increased traffic the rail- 
 way obtains, by automatic action so to speak, without any advance 
 in its rate a large share in the general prosperity. 
 
 Declining to admit, therefore, that the proposed 
 advance was to be justified either by cost of service 
 arguments or by increases in the values of the com- 
 modities transported, the Commission turned to the 
 question as to whether the rates charged before the 
 
 178 
 
advance was made were sufficient to allow the car- 
 rier a fair return for the services rendered. The 
 statistics as to cost of reproducing the property and 
 as to the increase in gross and net earnings between 
 1892 and 1903 showed on the whole favorable condi- 
 tions. Most of the roads were shown to be earning 
 six per cent or more on the cost of reproducing the 
 property. The Commission nevertheless hesitated 
 to issue an order for a restoration of rates to their 
 former level, their hesitation being due to the fact 
 that in spite of improved conditions the earning power 
 of these roads was still below that of the roads in other 
 parts of the country. 
 
 The final test is the actual result of actual operations and it cannot 
 be denied that the financial showing of these respondents, es- 
 pecially those roads which operate in the state of Texas, is not 
 favorable. The railroads embraced in this discussion are mainly 
 con fined to Groups VIII and IX [of the Commission's classifica- 
 tion]. If these groups are combined and treated as one, the aver- 
 age net earnings per irdle are much lower than those in any other 
 group LQ the United States. The percentage of cost of operation 
 to gross revenue is larger than in any other group in the United 
 States. While many of these respondents are yielding a munificent 
 return upon any fair basis of valuation, and while most of them are 
 earning six per cent, at least upon the cost of reproducing the prop- 
 erties today, nevertheless it is true that many of them do not now 
 and have not for years paid dividends to their stockholders. This 
 is partly due to the fact of over capitalization and partly, perhaps, 
 to the peculiar state of the law ia Texas, which as applied to these 
 railroads virtually requires that the net earnings be retained in 
 the property, as previously explained. But in any view of the 
 matter the fact cannot be overlooked that those Texas lines as 
 compared with other roads in this country are poor. 
 
 While firmly convinced that the advances had been 
 due to rate agreements among the carriers, the Com- 
 missioners concluded that a general reduction ought 
 not to be ordered " imless it is perfectly clear that the 
 rates in effect are unreasonable." 
 
 179 
 
The statement just quoted from the Commission's 
 decision that the rates might be too low since some 
 of the roads had been unable to pay dividends on stock 
 which was at least in part " water," might lead one 
 to suppose that the Coromission was ready to concede 
 the right of a road to earn dividends on watered stock 
 as well as on capital actually invested. We have 
 already seen ^ that this is not the case. Additional 
 proof, however, is furnished by two other cases ^ which 
 have come before the Commission in which the plea 
 was made that if rates were reduced the carriers would 
 be unable to pay dividends. The answer of the 
 Conmaission was practically the same in both cases. 
 In the Danville case they said concerning the common 
 stock of the defendant carrier : — 
 
 It does not appear that the persons to whom this stock was orig- 
 inally issued ever paid one dollar in actual value for it. It simply 
 appears that the stock is out-standing. This is not enough. Some- 
 thing more is needed when a claim of this kind is set up than the 
 mere fact of the existence and amount of capitalization. 
 
 The Commission has, however, gone farther than 
 merely to hold that there is no obligation on the part 
 of carriers to maintain high rates in order to pay 
 dividends on stock which represents no real invest- 
 ment. In at least one case ^ it has put itseK on record 
 to the effect that railway managers who have made 
 unwise ventures are not entitled to exact unreasonably 
 high charges from shippers in order that their roads 
 may become profitable investments. The defendant in 
 this case sought to justify a greater charge for a short 
 haul than for a long haul on the ground that com- 
 
 • Above, p. 174. 
 
 ' Grain Shippers' Association of Northwest Iowa v. 111. Cent. R. R. Co., 8 I. C. C. 
 Rep. 158. City of Danville v. Southern R'y Co., 8 I. C. C. Rep. 571. 
 
 ' Cary V. Eureka Springs R'y Co., 7 I. C. C. Rep. 286. 
 
 180 
 
petition necessitated a low rate for the long haul, 
 whUe if the rate for the short haul were made equally 
 low the earnings of the carrier would be insufficient 
 to jdeld a fair return on the capital investment. The 
 financial statements of the road for several years 
 past were submitted in proof of this statement. The 
 Commission had no authority to prescribe a rate 
 for the future owing to the decision of the United 
 States Supreme Court to that effect. ^ It nevertheless 
 recommended a reduction of the short haul rate in 
 this case and said : — 
 
 That transportation charges should be liberal until the earnings 
 are fully sufficient for a fair return on actual investment will hardly 
 be questioned, but it does not foUow that rates long maintained 
 and grossly discriminative must be contiuued and may be lawfully 
 exacted year by year, tho it be assumed that railroad investment 
 of property is so much more inviolable than other property that 
 its owners must bear none of the losses or disadvantages incident 
 to industrial and financial disarrangement, and that transporta- 
 tion charges are never excessive when the annual net earnings are 
 less than the amount necessary to the reasonable annual income 
 on such property and investment. 
 
 So far as a general schedule of rates is concerned, 
 therefore, it may be said to be the opinion of the 
 Commission that these rates may be only high enough 
 to earn a fair return upon a legitimate investment of 
 capital in the construction and operation of the road. 
 
 3. Particular rates 
 
 A charge made for hauhng a particular commodity 
 or for the performance of a specific service may not 
 properly be judged by the same standard as is applied 
 to an entire rate schedule. Some rates need to be 
 lower, while others may properly be higher than the 
 
 1 Maximum Rate Case. 167 U. S. 479. 
 181 
 
average rate needed to yield a fair return upon the 
 capital investment. In the case of the Central Yel- 
 low Pine Association v. The Illinois Central Railroad 
 et al.,^ the Commission has well explained why in 
 measuring the reasonableness of a rate on a given 
 commodity different standards must be apphed than 
 are used to measure the reasonableness of an entire 
 system of rates. 
 
 The defendants had attempted to justify an advance 
 in the rates on lumber shipped from points in the 
 southern states to places on the Ohio river and beyond, 
 partly on the ground of an increase in costs of opera- 
 tion, but mainly on the ground that " lumber, con- 
 sidering its character and the conditions attending 
 its transportation, was not yielding its proportion 
 of the revenue required by the defendants to meet 
 their expenses." 
 
 To this argument the Commission replied: — 
 
 The question of the reasonableness in this sense of a rate on a 
 single article of traffic is one of almost insuperable difficulty. . . . 
 The value of the entire property of a road employed for the public 
 convenience can shed but little, if any light upon the question 
 whether the rate on a single one among thousands of articles of 
 traffic yields its proper proportion of a fair return on that value. 
 The rate on one article of traffic may be reasonably high and the 
 carrier faU to earn a fair return on the value of the entire property 
 employed for the public convenience because of unreasonably 
 low rates on other traffic, and vice versa, the rate on one article 
 of traffic may be unremimerative or imreasonably low and the 
 return to the carriers from its entire business may be fair or reason- 
 ably high, the deficiency under the rate on one article of traffic 
 being made up by the rates on the balance of the traffic. . . . 
 While the Supreme Court has imdertaken to point out " certain 
 elements " to be considered in determining the reasonableness 
 of an entire system of rates, it has not named any as shedding 
 light upon the reasonableness of a rate on a single commodity 
 like lumber. It is evident that such elements are widely variant 
 in the two cases. Where an entire system of rates is involved, 
 
 I 10 I. C. C. Rep. 505. 
 
 182 
 
the principal, if not the only question, is whether the revenue 
 yielded by the rates on all traffic is a " fair return on the value 
 of that which is employed for the pubhc convenience " — a ques- 
 tion, the determination of which, — as we have shown, can have 
 only a very remote, if any, practical bearing on the reasonableness 
 of a rate on a single article of traffic. On the other hand, where 
 the rate on a single article is in issue, the question (which could 
 not arise in the former case) whether the rate is im justly discrimi- 
 natory or unduly preferential, may be presented, and the reason- 
 ableness of the rate depends upon the value, volume and other 
 characteristics affecting the transportation of the particular com- 
 modity to which it is applied. 
 
 In the present case the majority of the Commission 
 decided that neither the increase in the cost of operat- 
 ing the roads, nor the carriers' need for increased 
 revenues, nor yet the increased prosperity of the 
 lumber manufacturers, warranted the increase of rates. 
 The advance in rates was due to concert of action 
 between the carriers and this concert of action had 
 eliminated competition. The Commission held that 
 the rates should be restored to the level at which 
 competition had left them. 
 
 Practically the same arguments were advanced 
 and the same conclusions reached in another lumber 
 case, that of H. H. Tift et al. v. Southern Railway 
 Company et al.^ The same principle is also expressed, 
 tho perhaps less clearly, in several of the earlier de- 
 cisions.^ 
 
 The Commission has given weight, however, to 
 the argument that need of revenue may justify a 
 carrier in maintaining discriminatingly high rates 
 under certain exceptional circumstances. Certain of 
 the southern states have within recent years established 
 uniform passenger rates of 3 cents a mile on the roads 
 
 1 10 I. C. C. Rep. 548. 
 
 2 See for example Jerome Hill Cotton Co. v. M., K. & T. R. R. Co., 6 I. C. C. Rep. 
 601. Brewer & Hanleiter v. L. & N. R. R. Co., 7 1. C. C. Rep. 224. 
 
 183 
 
within their borders. The roads have protested 
 against lowering their interstate rates to the same 
 figure, claiming that to do so would reduce their 
 revenues to such a point as to yield them less than a 
 fair return on their investment. Very reluctantly 
 the Commission has permitted, in some instances, the 
 higher interstate rates to remain in force. In one ' 
 of the cases the Commission said : — 
 
 A reduction of this interstate passenger fare would not contribute 
 to the development of the section or increase materially the pas- 
 senger business of the line. Reducing the fare to three cents per 
 mile would render the earnings of this part of the system less than 
 the average upon the whole system and less than the average of 
 other roads in that part of the country. 
 
 In another case ^ where the Commission decided 
 that the interstate rate complained of was not un- 
 reasonable the Commission added: " What the com- 
 pany is entitled to ask is a fair return upon the value 
 of that which it employs for the public convenience." 
 
 Of more significance, however, is the Commission's 
 statement in the case of Board of Trade of the City 
 of Hampton, Florida v. Nashville, Chattanooga & 
 St. Louis Railway Company ' where financial necessity 
 was made one of the excuses by the defendant for 
 accepting rates at competitive points which did httle 
 more than cover the operating expenses and which 
 could therefore not be extended to non-competitive 
 points. The Commission replied : — 
 
 Rates cannot be said to be reasonable which are not reasonably 
 remunerative to the carrier, and rates which do not pay their full 
 proportion of operating expenses, fixed charges and reasonable 
 dividends are not per se, or in and of themselves, reasonably re- 
 
 ' A. L. Artz V. Seaboard Air Line Railway, 11 I. C. C. Rep. 458. 
 
 2 R. C. Brabham et al. v. Atlantic Coast Line R'y et al., 11 1. C. C. Rep. 464. 
 
 » 8 I. C. C. Rep. 503. 
 
 184 
 
munerative. While it may be that carriers, under certain excep- 
 tional conditions, are justified in accepting rates which pay any- 
 thing in excess of operating expenses or the cost of movement, 
 yet as a general rule all traffic should be made, if possible, to pay 
 its due proportion of operating expenses, fixed charges and rea- 
 sonable dividends. 
 
 It may then be held to be the well-estabhshed 
 opinion of the Interstate Commerce Commission, 
 as well as of the courts, that the test to be apphed 
 to determine the reasonableness of an entire system 
 of rates is whether these rates yield only a " fair return 
 on the value of that which is employed for the public 
 convenience." Much still remains to be done in the 
 way of measuring that value, but the Commission 
 at any rate is clearly inclined to the opinion that it 
 must include only bona fide investments of capital. 
 Tho the same test cannot be apphed with the same 
 degree of accuracy in the case of particular rates, 
 the priaciple may be said even here to have found 
 recognition that unless exceptional conditions prevail, 
 a particular rate must be so arranged as to cover 
 the commodity's " due proportion of operating ex- 
 penses, fixed charges, and reasonable dividends." 
 
 IX. General Summary and Conclusions 
 
 We have attempted in the course of these papers 
 to set forth as fully as space would permit the theories 
 of the Interstate Conomerce Commission concerning 
 the bases of railway charges. These views have been 
 enunciated in the course of many decisions rendered 
 during a period covering two decades. Since the 
 membership of the Commission has been changing 
 in the meantime, the theories do not always represent 
 the changing views of the same individuals. In 
 spite of the obvious difficulty in attempting to re- 
 
 185 
 
state and classify other men's opinions, it is believed 
 that the preceding discussion, in which the funda- 
 mental principles in each case have been given as 
 frequently as possible in the Commission's own words, 
 has not greatly misrepresented or exaggerated the 
 views of that body. 
 
 We must now attempt such an interpretation of 
 the Commission's views as shall show how the leading 
 principles revealed by our classification may be in a 
 large measure harmonized and reduced to their lowest 
 terms. If this can be done in a satisfactory manner 
 we shall be able to indicate the tendencies which are 
 likely to be followed in our system of government- 
 regulated railway rates in future years. It is perhaps 
 unnecessary to say that the members of the Commission 
 must in no degree be held Uable for this interpreta- 
 tion. The present writer assumes full responsibility. 
 
 The Commission began its work with the idea that 
 value of service was the underlying principle of railway 
 rates. It was unable, however, to furnish such a 
 precise definition or explanation of this term as would 
 enable it to be used as a concrete measure of a reason- 
 able rate. How uncertain is the meaning of the phrase 
 and how different may be the interpretation of it 
 given by the railway manager from that which the 
 Conomission clearly had in mind is shown by the use 
 made of it to defend the rate on cotton charged by 
 one of our southwestern roads.^ The vice-president 
 of the road had stated before the Commission that 
 the rate in question had been made in accordance 
 with the principle of " the value of the service." 
 Upon being asked to explain the method of applying 
 the principle in this case, he rephed that two rules 
 had been followed by his company: (1) " to give 
 
 ' Jerome Hill Cotton Co. v. M. K. & T. E. R. Co., 6 1. C. C. Rep 601 
 186 
 
[secure] the largest revenue the traffic will bear"; 
 (2) " to find a market for the stuff." Keeping both 
 these principles in mind, he declared that " any rate 
 is reasonable under which traffic will move absolutely. 
 I* all moves out every season. If it moves out, it 
 must be a reasonable rate." 
 
 If this pragmatic explanation of what constitutes a 
 reasonable rate be accepted as a fair indication of what 
 we may expect when rates are fixed according to value 
 of service, it is plain that we shall find that value of 
 service is merely equivalent to the well-known monop- 
 olistic principle of charging that price which will 
 yield the highest net return. It is also evident that 
 the Interstate Commerce Commission could never 
 consent to the use of such a principle as a basis for 
 determining reasonable rates. 
 
 The great advantage which cost of service has over 
 value of service is that it furnishes a concrete standard 
 of measurement. It states a quid pro quo as a reason 
 for making the charge. It is the standard of reason- 
 ableness which has been adopted in all our economic 
 relations. To make charges less than costs would 
 mean that other commodities or other industries 
 would have to make up the deficiency, or else the 
 railroads of the country would run at a loss. To 
 charge more than costs, on the other hand, would 
 mean that the railway industry was forcing other 
 industries to surrender to it a portion of their legiti- 
 mate earnings. The fact that it is universally ac- 
 cepted in other transactions as a test of reasonableness 
 explains why the Commission has naturally turned 
 to a consideration of costs when the equity of a given 
 rate has been brought in question, and it also explains 
 why railway officials have naturally made cost of 
 service their defence whenever their rates have been 
 attacked. 
 
 187 
 
At the outset of its labors the Commission was not 
 inclined to place much confidence in cost of service 
 as a principle for determining rates. The feeUng that 
 rates fixed in this way would prevent the free m6ve- 
 ment of certain commodities explains in part the 
 attitude of the Commissioners, but the main objection 
 has seemed to be the practical impossibility of deter- 
 mining the exact cost of transporting a particular 
 commodity. That there are obstacles — insuperable 
 ones — to any direct determination of the costs of 
 performing a specific service in transportation no 
 one familiar with the subject would deny. It has 
 not been by means of a direct determination of the 
 costs, however, that the Commission has sought a 
 solution. The method followed, as we have seen, 
 has been that of comparison. The ascertainable 
 costs of moving a certain commodity have been com- 
 pared with the costs of moving the same commodity 
 in a different manner or under different circumstances. 
 The method of comparative costs does not yield abso- 
 lutely accurate results but it is oftentimes sufficient 
 for practical purposes and we must remember that 
 economics, like law, does not concern itself with trifles. 
 
 The method of comparative costs has not always 
 been applicable however. The Conunission has then 
 been confronted with the task of discovering some 
 other means of measuring rates which would yield 
 the same results as would be attained by a comparison 
 of costs, were that method practicable. In some 
 cases, as we have seen, distance may be used as a 
 means of measuring the reasonableness of rates. 
 Considered as the sole element in the determination 
 of rates distance would of course yield unsatisfactory 
 results; but it is nevertheless, as the Commission 
 says, " in the absence of other influences a controlling 
 
 188 
 
element." Its value as a measuring instrument 
 lies not in the fact that it is independent of costs but 
 that in the absence of other influences it reflects costs. 
 
 The same thing may be said of the effort of the 
 Commission to preserve for a place its natural ad- 
 vantages of location. A place can have no advantage 
 of location which a carrier is bound to respect other 
 than that which is due to its ability to place its products 
 on the market at less cost than can its competitors. 
 Rates based on the principle of recognizing natural 
 advantages of location are therefore true to the cost 
 of service principle. 
 
 Even in the absence of these indirect methods of 
 determining costs, the Commission has found it pos- 
 sible to reach the same goal by other methods. It is 
 a fundamental principle of economics that free and 
 untrammeled competition, operating over a long period 
 of time, tends to reduce prices to a cost basis. We 
 have therefore only to apply this principle to railway 
 rates to see that rates which have been fixed by com- 
 petition, provided that this competition has been of 
 a normal sort, will be the same as they would be if 
 all the costs of service had been calculated and rates 
 had then been based on costs. In spite of all the 
 inconsistencies and contradictions involved in the 
 Commission's discussion of competition, — many of 
 which, as we have observed, are due to an effort to 
 preserve the spirit of the law, — we see running 
 throughout the Commission's decisions a tendency to 
 fix rates at the point where a normal and healthy 
 struggle between competing interests has tended to 
 leave them. Competitive rates are therefore true 
 to a cost of service principle. 
 
 One other alternative has been presented to the 
 Commission in certain cases where it has been unable 
 
 189 
 
to calculate the costs of service and this, too, has 
 been in accordance with well-known economic prin- 
 ciples. What the economist always means by cost 
 price, is that price which covers not only actual ex- 
 penditures made in production but which also leaves 
 a normal rate of return upon all the capital invested. 
 In those cases, therefore, in which the Commission 
 has been called upon to deal with a whole system of 
 rates; where it would have been clearly impossible 
 to have calculated aU the costs; where even the 
 comparative method was lacking because the increase 
 of rates had been made general, and where competition 
 was not present, — it has stUl been possible to ask 
 whether these rates have yielded the same results, 
 measured by their effect on earning power, as would 
 have resulted if the cost of service principle had been 
 applied. 
 
 In accepting different methods of measuring the 
 reasonableness of railway rates the Interstate Com- 
 merce Commission has been confronted with the 
 same difficulty that we find when we come to measure 
 the size or magnitude of physical objects, and it has 
 solved the problem in the same way. In some cases 
 we use dry measiu-e, in others liquid measiu-e, in others 
 cubic measure, and in still others measure by weight. 
 In the metric system, the fundamental unit is the 
 metre, but for practical purposes it is often con- 
 venient to use as the unit of measurement the litre 
 or the gram, both of which are, however, based upon 
 the metre. In the same way the Commission in its 
 efforts to base rates upon cost of service has found it 
 practically advantageous at times to use other methods 
 of measurement, — distance, advantage of location, 
 competition, fair return on investment; all of which 
 in the sense in which they are employed by the Com- 
 mission are merely expressive of cost relations. 
 
 190 
 
Two other considerations emphasized by the Com- 
 mission, value of commodity, and sectional or class 
 interests, still remain to be dealt with. With reference 
 to the last-named consideration it is hard to see how 
 it can be made to fit in with any defensible theory of 
 railway rates. Possibly the decisions rendered in 
 most of the cases coming under this head are entitled 
 to a degree of justification on the ground that the 
 Commission was endeavoring to preserve competition 
 among producers. Many of the cases in which value 
 of commodity was made the basis of the Commission's 
 decision might easily have been grouped under the 
 heading of cost of service. This is because differences 
 in rates, measured by differences in values of com- 
 modities, were allowed because the carrier was assumed 
 to have accepted greater risks in transporting the 
 more valuable commodities. In other cases where 
 low rates were prescribed for low-grade commodities, 
 for example such articles as are usually given com- 
 modity rates, it is obvious that the low rates could 
 have been justified as easily on the principle that the 
 costs of moving these commodities were low as on the 
 basis of their low values. If the carriers had been 
 able to show that it actually cost more to move a 
 commodity having a low value than it did to transport 
 one having a higher value it is doubtful if the Com- 
 mission would ever have insisted that the less valuable 
 commodity should receive the lower rate. In many 
 cases we have observed that the values of commodities 
 were allowed to affect rates because the Commission 
 felt under obligation to maintain competition between 
 establishments located at different points and engaged 
 in turning out products in different stages of manu- 
 facture. Here again it is often possible to trace, 
 indirectly through competition, a relation between 
 
 191 
 
the value of the commodity and the cost of transpor- 
 ting it. It is of course not pretended that all cases 
 in which value of commodity is selected as the basis 
 of rate making can thus be brought under the cost of 
 service principle. 
 
 If the conclusion be accepted, which these articles 
 seem to support, that the tendency of the Interstate 
 Commerce Commission's decisions is, on the whole, 
 towards a cost of service theory of rate making,^ there 
 still remains the task of so stating a theory of rates 
 as to bring in the various considerations which we 
 have seen the Commission has emphasized as factors 
 in rate making, and show how they can be related 
 to the fundamental principle. It is perhaps well to say 
 that nowhere has the Commission undertaken to state 
 such a comprehensive theory of rate making. 
 
 1. In any system of government-made or govern- 
 ment-regulated railway rates, it would seem that 
 this fundamental economic principle should be kept 
 
 1 These articles do not profeas to discuss the decisions of the Commiasion since 
 the Hepburn Act became operative or to consider the theories of other writers. It 
 seems worth while, however, to call attention to the fact that a consideration of the 
 later decisions of the Commission and especially its decision in the recent " advances 
 in rates " Investigation in western trunk line territory would do much to strengthen 
 the idea that the Commission was tending towards a cost of service theory. Several 
 books and articles by recent writers also tend to support the argument that cost of 
 service is both practicable and desirable as a basis of railway charges. See especially 
 the article by Commissioner Halford Erickson of the Wisconsin Railway Commission 
 explaining the methods followed by that Commission; The Basis of Reasonable 
 Railway Rates, Publications of the American Economic Association, Third Series, 
 vol. ix (1908), pp. 95-102. See also Standards of Reasonableness in Local Freight 
 Discriminations by Professor John M. Clark of Amherst College in Columbia Uni- 
 versity Studies in History, Economics and Public Law, vol. xxxvil, no. 1; also 
 Professor M. H. Robinson's articles on Railway Passenger Rates and Railway Freight 
 Rates, Yale Review, vol. xvl, pp. 355-399; vol. xvii, pp. 121-153. Professor Robinson 
 believes that there is a tendency towards the fixing of rates on the basis of costs deter- 
 mined by a scientific and elaborate system of cost-keeping, but points out that at 
 present this is not practicable owing to the unscientific character of railway accounts. 
 It may be said that rates on the eastern trunk lines have for some years been fixed In 
 accordance with a cost of service theory. See Professor Ripley's article, The Trunk 
 Line Rate System: A Distance Tariff, Quarterly Journal of Economics, vol. xx (1906), 
 pp. 183-210; reprinted in Ripley's Railway Problems, pp. 309-332. See also Johnson 
 and Huebner, Railroad Traffic and Rates, vol. 1, ch. ixi, and McPheraon, Railroad 
 Freight Rates, pp. 70-78. 
 
 192 
 
in mind: to perform the service of transporting per- 
 sons and goods with the least possible expenditure 
 of social energy. 
 
 2. One transportation route or one transportation 
 system should never be allowed to take from another 
 route or system, merely as a consequence of competi- 
 tion, traffic which the latter route or system can carry 
 at less expense. 
 
 3. Rates should be so adjusted as never to take 
 from a place its natural geographical advantages of 
 location; but natural advantages should not be so 
 construed as to mean monopoly privileges. 
 
 4. Railway rates as a whole should just cover 
 costs as a whole, allowing for a normal rate of return 
 on capital actually invested, a normal return for labor 
 of all sorts, and for depreciation, but not for better- 
 ments. This would not mean that superior efficiency 
 in railway management was not entitled to reap the 
 rewards of its superiority in the same way it does 
 in the ordinary industrial establishment where com- 
 petition rules. On the other hand, the rule must 
 not be construed to mean that any investment in a 
 railroad, no matter how foolishly or recklessly made, 
 is entitled to exact high rates from persons and 
 industries along the Une in order to earn current 
 interest rates or dividends. Railway property is not 
 more sacred than other property, nor are railway 
 investors immune from the consequences of their 
 own acts. 
 
 5. Each commodity transported should, as far as 
 possible, be made to defray its own share not only 
 of operating and terminal costs but also of the fixed 
 costs and dividends. It is possible under modern 
 accounting methods to determine these costs with 
 an approximate degree of accuracy for the principal 
 
 193 
 
commodities and classes of traffic. The rates on other 
 commodities may be determined by comparing their 
 ascertainable costs with those of the principal com- 
 modities, and to a lesser extent by a comparison of the 
 relative values of the commodities. 
 
 6. Differences in distance may be made a test of 
 the reasonableness of differences in rates where other 
 conditions appear to be similar; yet the general rule 
 must be kept in mind that tho the aggregate charge 
 should increase as distance increases, the ton-mile 
 rate should decrease. 
 
 7. Where the application of none of the above 
 principles seems practicable, competition, which has 
 been conducted in a normal manner over a period of 
 several years, may be assumed to have established a 
 fair relation of rates. 
 
 8. A reasonable rate is one which yields a reasonable 
 compensation for the service rendered. If a given 
 rate is reasonable in this sense, an increase in the price 
 of the commodity or in the profits to the producer 
 will not be a vaUd excuse for increasing the railway 
 rate. The carrier will justly share in the increased 
 prosperity of the producer by securing a larger traffic 
 in this commodity. 
 
 The possibiUty of applying these rules to the business 
 of railway transportation is proved by the fact that 
 the application of every one of them can be shown by 
 illustrations taken from the Commission's decisions. 
 Their consistent application would mean that the 
 railroads would neither tax the industries of the 
 country nor have their own investments sacrificed; 
 they would not build up one place or industry at the 
 expense of some other place or industry; they would 
 not take from some persons or commodities their 
 proportionate share of the costs of transportation 
 
 194 
 
and impose them upon other persons and commodi- 
 ties; and finally they would not by their system of 
 rate making retard industrial progress or have their 
 own development hindered by failing credit or lack 
 of revenue. 
 
 195 
 
TABLE OF CASES CITED 
 
 PAGE 
 
 Abbott V. East Tenn., Va. & Ga. R'y Co 71 
 
 Alleged Excessive Freight Rates and Charges on Food Products. 
 
 4 I. C. C. Rep. 48; 3 I. C. R. 93 38, 171 
 
 Alleged Excessive Freight Rates and Charges on Food Products. 
 
 4 I. C. C. Rep. 116 11 
 
 Alleged Unlawful Discriminatiorjs against Enterprise Transporta- 
 tion Co., In re 156 
 
 Andrews Soap Company v. Pittsburg, C. & St. L. R'y Co. et al. . 36 
 Anthony Salt Company et al. v. Missouri Pacific R'y Co. et al. . 95 
 Application of A. T. & S. F. R'y et al. for a Suspension of the 
 
 Fourth Section, In re 114 
 
 Artz (A. L.) V. Seaboard Air Line R'y 184 
 
 Barrow (C. M.) v. Yazoo & Mississippi Valley R. R. Co. et al. . . 67 
 Bates (H. & H. Jr.) v. the Pennsylvania R. R. Co. et al. . . . 64, 55 
 
 Behhner v. Memphis & Charleston R. R. Co. et al. 37 
 
 Board of Railroad Commissioners of Kansas v. Atchison, Topeka 
 
 & Santa Fe R'y Co 56, 80 
 
 Board of Trade of Chattanooga v. East Tenn., Va. & Ga. R'y Co. 
 
 etal 112 
 
 Board of Trade of Hampton, Fla. v. N. C. & S. L. R'y Co. 98, 184 
 Boston Chamber of Commerce v. L. S. & M. S. R. R. Co. . . 85, 129 
 
 Brabham (R. C.) et al. v. Atlantic Coast Line R'y et al 184 
 
 Brewer & Hanleiter «. L. & N. R. R. Co 183 
 
 Brownell et al. v. Columbus & C. M. R. R. Co. et al. . . . 151 
 
 Buckeye Buggy Co. v. C. C. C. & St. L. R'y Co. etal 66 
 
 Business Men's Association of the State of Minnesota v. C. & N. W. 
 
 R'y Co 80 
 
 Business Men's Association of the State of Minnesota v. C, St. 
 
 P., M. & O. R'y Co. . . . ... 79 
 
 Cary v. Eureka Springs R'y Co 180 
 
 Cattle Raisers' Association of Texas v. Missouri, Kansas & Texas 
 
 R'y Co. etal. . . . . ... ■ 56 
 
 Central Yellow Pine Association v. Ilhnois Central R. R. Co. et 
 
 al . . • 154,182 
 
 Chamber of Commerce of Chattanooga v. Southern R'y Co. et al. 112 
 
 Chicago Board of Trade v. C. & A. R. U. et al 21 
 
 197 
 
PAGE 
 
 Chicago Freight Bureau v. L. N. A. & C. R'y Co. et al 89 
 
 Chicago Live Stock Exchange v. C. & G. W. R'y Co. et al. . . . 22 
 
 City of Danville et al v. Southern R'y et al 122 
 
 City of DanviUe v. Southern R'y Co 180 
 
 Class & Commodity Rates from St. Louis to Texas Common 
 
 Pomts 176 
 
 Colorado Fuel & Iron Co. v. Southern Pacific Co. et al. . . . 37 
 Commercial Club of Omaha v. C. & N. W. R'y Co. et al. . . 61, 103 
 
 Commercial Club of Omaha v. C, R. I. & P. R'y Co. et al. . . 73 
 
 Cordele Machine Shop v. L. & N. R. R. Co. etal 98 
 
 Coxe Bros. v. The Lehigh Valley R. R. Co 29 
 
 Daniels (E. J.) v. Great Northern R'y Co 105 
 
 Daniels (E. J.) v. C, R. I. & P. R'y Co. etal 105 
 
 Delaware State Grange v. N. Y., Phila. & Norfolk R. R. Co. el al. 39 
 Differential Freight Rates to and from North Atlantic Ports, 
 
 In re 146 
 
 East Tenn., Va. & Ga. R'y Co. v. Interstate Commerce Commis- 
 sion. 181 U. S. 29; 21 Sup. Ct. Rep. 512 112 
 
 Eau Claire Board of Trade v. C, M. & St. P. R. R. Co. et al. 75, 87 
 
 Evans (M.) et al. v. The Oregon R'y & Nav. Co 171 
 
 Evans (M.) v. Union Pacific R'y Co. et al. 6 I. C. C. Rep. 520 . 39 
 Export Trade of Boston, In re. 1 I. C. C. Rep. 24 . . 85, 129, 138 
 Farrar Lumber Co. v. Southern R'y Co. et al. 11 I. C. C. Rep. 
 
 640 76 
 
 Farrar (W. B.) v. East Tenn., Va. & Ga. R'y Co 72 
 
 Farrar (J. K.) et al. v. Southern R'y Co. et al 51 
 
 Freight Bureau of Cincinnati Chamber of Commerces. Cin., N. O. 
 
 & Tex. Pac. R.U. Co. etal 74 
 
 Freight Bureau of Ciacinnati v. Cin., N. O. & Tex. Pac. R'y Co. 89 
 
 George Tileston Milhng Co. v. Nor. Pacific R'y Co 124 
 
 Georgia Peach Growers' Association v. Atlantic Coast Line R. R. 
 
 etal 49 
 
 Glade Coal Co. v. Baltimore & Ohio R. R. Co 154 
 
 Grain Shippers' Association of Northwest Iowa v. Illinois Central 
 
 R. R. Co. et al ... . 25, 180 
 
 Harvard Company v. The Pennsylvania Co. et al 63 
 
 Hoerr (F. J.) v. C, M. & St. P. R'y Co 125 
 
 Holdzkom (A. W.) v. Michigan Central R'y Co. etal 168 
 
 Howell (N. W.) et al. v. N. Y., L. E. & W. R. R. Co. et al. . . 20, 99 
 
 Hurlburt (F. L.) v. L. S. & M. S. R'y Co 15 
 
 Imperial Coal Co. v. Pittsburg & Lake Erie R. R. Co. et al. . . 83 
 Interstate Commerce Commission v. Alabama Midland R'y et al. 
 
 (Troy Case) 168 U. S. 144 109, 115, 134 
 
 Interstate Commerce Commission v. Cin., N. O. & Tex. Pac. R'y 
 
 Co. (Social Circle Case) 162 U. S. 184 109 
 
 198 
 
Interstate Commerce Commission v. Cin.j N. O. & Tex. Pac R'y 
 
 Co. 167 U. S. 479 18i 
 
 Jerome HiU Cotton Co. v. M. K. & T. R. R. Co. . 183, 186 
 
 Kauffman Milling Co. v. Mo. Pacif. R'y Co. etal ' 166 
 
 Kemble v. B. & A. R. R. Co. et al . 138 
 
 King (W. S.) & Co. V. N. Y., N. H. & H. R. R. Co. et al. . . '. 113 
 
 Kindel (G. J.) v. B. & A. R. R. Co. et al. 11 I. C. C. Rep. 495 . 61 
 La Crosse Manufacturers' & Jobbers' Union v. C, M. & St. P. R'y 
 
 Co 71 
 
 Lehmann, Higginson & Co. v. Southern Pacific Co. et al. ... Ill 
 Lincoln Board of Trade v. Burlington & Missouri River R. R. Co. 
 
 etal 72,79 
 
 Louisville & Nashville R. R. Co., In tc petition of 42 
 
 Louisville & Nashville R. R. Co. v. Behlmer. 175 U. S. 648 . . 78 
 
 McGrew v. Missouri Pacific R'y Co 30 
 
 McMorran (H.) and Harrington (E. B.) v. Grand Trunk R'y Co. 
 
 of Canada et al 80 
 
 Marten (S). u. L. & N. R. R. Co 77 
 
 Martin v. Southern Pacific Co. et al 31 
 
 Mayor & City Council of Wichita v. Atchison, T. & S. F. R'y Co. 
 
 etal. . . . . 117 
 
 Mayor & City Council of Wichita v. Mo. Pacif. R'y Co. et al. 166 
 
 Michigan Box Co. v. F. & P. M. R. R. Co. etal 19 
 
 Milk Producers' Protective Association v. D., L. & W. R. R. Co. 
 
 etal. . . 100 
 
 Myer v. C. C. C. & St. L. R'y Co. ei aZ 17 
 
 Murphy, Wasey & Co. v. Wabash R. R. Co. et al 16 
 
 National Hay Association v. L. S. & M. S. R'y Co. et al. . 37, 161 
 National Machinery & Wrecking Co. v. P., C. & St. L. R'y Co. et 
 
 al. . . 17 
 
 Newland et al. v. The Northern Pacific R. R. Co. et al 61 
 
 Newman v. N. Y. C. & H. R. R. R. Co. et al 17 
 
 New Orleans Cotton Exchange v. Cin., N. O. & Tex. Pac. R'y. Co. 
 
 etal 60 
 
 New Orleans Live Stock Exchange v. Texas & Pacif. R'y Co. . . 50 
 New York Produce Exchange v. B. & O. R. R. et al. 7 I. C. C. 
 
 Rep. 612 ... . 131 
 
 New York Produce Exchange v. N. Y. C. & H. R. R. R. et al. 130, 137 
 
 Page et al. v. D., L. & W. R. R. Co 18, 19 
 
 Paine Bros. & Co. v. L. V. R. R. Co. et al. .. . . ... 153 
 
 Perry (C. P.) v. The Fla. Cent. & Penn. R. R. Co. etal 53 
 
 Petition of C. H. & D. R. R. Co 116 
 
 PhUUps (A. J.) Co. V. G. T. W. R'y Co. etal 119 
 
 Planters' Compress Co. v. C. C. C. & St. L. R'y Co. et al. 162 
 
 Potter Mfg. Co. v. Chicago & G. T. R'y Co. et al. ... 16 
 
 199 
 
Proctor & Gamble Co. v. C, H. & D. R'y Co. et al . 
 
 Proposed Advances in Freight Rates, In re 
 
 Pyle (James) & Sons v. East Tenn., Va. & Ga. R. R. Co. . . 
 Rates on corn and com products from Missouri river points to 
 
 Texas, In re. 11 I. C. C. Rep. 220 
 
 Rates on corn and corn products from Missouri river points to 
 
 Washington, Oregon & California. 11 1. C. C. Rep. 212 
 Rates on corn and com products from Missouri river points to 
 
 Louisiana, In re. 11 I. C. C. Rep. 227 
 
 Rea (W. R.) v. Mobile & Ohio R. R. Co 
 
 Relative Rates on Export & Domestic Traffic in Grain, In re. 
 Reynolds v. Western N. Y. & Penn. R'y Co. et al. . 
 
 Rice (G.) V. A., T. & S. F. R. R. Co. et al 
 
 Rice V. C. W., & H. R. R. Co. et al ... 
 
 Rice y. L. & N. R. R. Co 
 
 PAGE 
 1.51 
 
 38, 47, 144 
 
 28 
 
 20 
 
 20 
 
 19 
 54 
 139 
 31 
 112 
 34 
 10 
 
 Rice, Robinson & Winthrop v. Western N. Y. & Penn. R. R. Co. 30, 172 
 Roth (C.) V. Texas & Pacif. R'y Co. 9 I. C. C. Rep. 602 .. . 150 
 Savery v. N. Y. C. & H. R. R. R. Co. et al. . . . 39 
 
 Scheidel (W.) & Co. v. Chicago & N. W. R'y Co. et al. . . 33 
 
 Schofield (W. C.) et al. v. Lake Shore & M. S. R'y Co. . . 63 
 
 Schumacher Milling Co. et al v. C, R. I. & P. R'y Co. et al. . 150 
 
 Smyth V. Ames. 169 U. S. 466 173 
 
 Squire (J. P.) & Co. v. Michigan Central R. R. Co. et al 44 
 
 Swaffield (A. G.) v. Atlantic Coast Line R. R. Co. et al. . . . 33 
 Tecumseh Celery Co. v. Cin., J. & M. R'y Co. et al. . . 32, 150 
 
 Tex. & Pacif. R'y Co. v. Interstate Commerce Commission 134, 137 
 
 Tift (H. H.) et al. v. Southern R'y Co. et al. . . . 156, 183 
 
 Thurber et al. v. N. Y. C. & H. R. R. R. Co. et al 65 
 
 Transportation of Salt from points in Michigan to Missouri river 
 
 points. In re. 92 
 
 Truck Farmers' Association of Charleston v. Northeastern R. R. 
 
 Co. of South Carolina etal 32, 48 
 
 United States v. Freight Association 155 
 
 Warner v. N. Y. C. & H. R. R. R. Co. et al. 36 
 
 Weil Brothers & Co. v. Pennsylvania R. R. Co. et al. ... 119 
 Wilmmgton Tariff Association v. C, P. & V. R. R. Co. el al. . 120 
 Wolf Bros. V. Alleghany R'y Co. et al 30 
 
 200 
 
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