CORNELL UNIVERSITY LIBRARY Date Due CCT ° 19B0 ""? "A 'IV . „ - '"'•^-^A §8&0. PRINTED IN U. =.. A. (WJ CAT - NO. 23233 Cornell University Library HE2112 .F49 Regulation of railway rates on interstat olin 3 1924 030 121 523 The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030121523 REGULATION OF RAILWAY RATES ON Interstate Freight Traffic Henry Fink NEW YORK : The Evening Post Job Printing Office, Broadway and Fulton Street. 1905. TABLE OF CONTENTS. REGULATION OF RAILWAY RATES ON INTERSTATE FREIGHT TRAFFIC. I. Regulation by the Railroads, or Self-Government. pages Adjustment of Freight Rates. How are Tariffs made?. . 3 to 9 Competition and its Effects 10, 13 Regulation of Rates through Traffic Associations. .„,-... 13, 15 Southern Railway and Steamship Association 16, 24 Trunk Line Association 24, 33 Joint Executive Committee 33, 37 Joint Traffic Association 37, 39 Central Traffic Association 39, 43 Western and Southwestern- Traffic Associations 43, 45 Railroad Consolidations 45, 48 Community of Interest 48, 49 Mergers 49, 50 II. Regulation by the Federal Government. The Act to Regulate Commerce 50, 59 Expedition Act 59, 60 Safety Appliances Act 60, 63 Fifth or Antipooling Section of the Act 63, 69 Defects of the Act to Regulate Commerce 70, 71 ■ Elkins Act 71, 73 Sherman Antitrust Act, and its Effects 73, 77 Can Railroad Corporations become Monopolistic Trusts? 77, 85 Reduction in Rates 86, 93 A Foreign Expert's Opinion of American Railways 94, 95 IV TABLE OF CONTENTS. III. Additional Legislation. pages Agitation for Enlargement of Commission's Powers 95, 102 Discrimination against Persons. Rebates 102, 105 Discrimination against Localities 105, 111 Discrimination against any particular description of Property. Classification 112, 115 Have Discriminations created Trusts ? 115, 118 The Townsend Bill 118, 123 Recommendations of President Roosevelt 123, 126 The President misled as to Effect of Power to Revise Rates 126 Act to Regulate Commerce not intended to confer Rate- making Power upon Commission 127 The Commission did not exercise Rate-making Power without Protest by Railroads , 128, 130 Is Rate-making by the Government practicable ? 130, 134 Is Rate-making by the Government necessary ? 134, 141 Senate Document No. 257 142, 149 Effects of Rate-making by the Government 149, 150 Government Rate-making has a Tendency to Obstruct Commerce 150, 151 Government Rate-making would encourage Rebating, and congest the Courts with Interstate Commerce Cases . . 152, 153 Rate-making by the Government would produce unjust discrimination against Localities, and subject Com- merce to the Control of a Government Bureau 153, 155 Rate-making by the Government would result in Mileage Tariffs 156 Rate-making by the Government would give the Commis- sion control of the Commerce of the Country 157 Port Differentials 158 155 Government Rate-making would necessitate making Water-Routes subject to the Provisions of the Act to Regulate Commerce 1Q5 V TABLE OF CONTENTS. PAGES Rate-making by the Government would be unjust to the Railroads and injurious to the Public 166, 168 Government Rate-making would deprive Railroad Prop- erties of the equal Protection of the Law 168, 172 Government Rate-making would impair the credit of rail- roads and the efficiency of their service 172, 173 Rate-making by the Government has a tendency to pro- duce labor strikes 173—174 The Maximum Rate Cases an Object-Lesson in Rate- making by the Government 174, 192 Some legal questions involved in Rate-making by the Government 192, 216 Rate-making by the Government in England 217, 218 Rate-making in Prance 218, 223 Summary 223, 231 Suggestions as to what Legislation is necessary and practicable 232, 233 Conclusion 234, 236 INTRODUCTION. At a time when the question of the regulation of rail- way freight rates by the Federal Government is engaging public attention, and demands are being made that the powers of the Interstate Commerce Commission be en- larged, it may serve a useful end to invite attention to some of the facts and principles involved in the adjust- ment of rates on interstate freight traffic ; to inquire into the methods of freight-rate regulation which have been adopted in the past, into the effects of existing legisla- tion, and what additional legislation is needful and prac- ticable in order to abate the evils attending the operation of railroads in this country. I have pointed out the facts bearing upon rate regula- tion as it was given to me to see them from my own observation, and from documents in my possession or to which I have had access. The thoughtful reader will make his own deductions. I have thought that my own opinions and conclusions might be of some interest from the fact that they are based on experience acquired dur- ing my continuous connection with American railroads from 1851 to the present time. New York, August 1, 1905. Regulation of Railway Rates INTERSTATE FREIGHT TRAFFIC. FOE THE PURPOSE OP THIS INQUIRY, THE SUBJECT UNDER CONSIDERATION WILL BE DIVIDED INTO I. Regulation by the Railroads Themselves. II. Regulation by the Federal Government. III. Additional Legislation. REGULATION BY THE RAILROADS, OR SELF- GOVERNMENT. It is necessary to a correct understanding of the sub- ject of freight-rate regulation, to first consider the Adjustment of Freight Rates. Hon; are Freight Tariffs Made? It cannot be said that the establishment of railroad tariffs is* a science in the sense that science is organized knowledge. So many considerations, and such an end- less variety of circumstances and conditions, affect the question, that it is impossible to organize the knowledge that is obtained from observation and experience so as to formulate general rules, or establish workable theories for guidance in the complex work of rate adjustment. For example: It may be said that a railroad favor- ably located in respect to the sources of its traffic, and ADJUSTMENT OF FREIGHT RATES. economically constructed and operated, should yield to its owners a fair return on the capital actually invested, and that rates should be so fixed that each article of freight carried over the road should pay the cost of its transportation, and, in addition thereto, an equitable proportion of the fixed charges, and of the dividends to be paid to the stockholders. But the cost of transporting any particular article of freight is not known, and cannot be ascertained ; nor can the amount and character of the traffic which is to be assessed Avith these charges be known in advance. More- over, the principles that should govern the equitable dis- tribution of such charges remain to be discovered. But assuming that freight rates could be made ac- cording to this theory, it might and probably would be found that they were in many cases higher than the rates in effect on a competing railroad or water line; so that the rates made upon mathematical principles and ac- cording to rules of equity would be of no practical use. How, then, are railway freight tariffs made? They are not made, but are the products of evolution. In my monograph on "The Adjustment of Bailway Freight Tariffs," published in 1894, I called attention to the fact that the prejudices against railroad corporations are due, in a measure, to> an impression that the mana- gers of railways have the absolute power to establish freight tariffs for their respective roads, that they exer- cise such power arbitrarily, solely for selfish purposes, and without regard to the public interest. This impres- sion is erroneous. The facts are that railroad companies have a very limited control over their freight tariffs; that the cases are exceptional where they have the power to make or establish rates; that generally they can only adjust their rates of transportation in accordance with certain conditions and circumstances over which they ADJUSTMENT OP PEEIGHT RATES. have no control. This is not only true of competitive traffic and interstate traffic, but also as to rates on traffic within a State, and on local traffic for which there may be no direct competition. I also pointed out some of the difficulties attending the adjustment of railway freight tariffs, as follows : "The adjustment of railway freight tariffs in compli- ance with the requirements of the law, and of the rules of equity, and in accordance with the circumstances and con- ditions that are of controlling force, is surrounded by many and formidable difficulties. In treating of the sub- ject of the 'reasonableness of charges', the Interstate Com- merce Commission, in its First Annual Keport, page 36, uses the following language : " 'Of the duties devolved upon the Commission by the Act to Regulate Commerce, none is more perplexing and difficult than that of passing upon complaints made of rates as being unreasonable. The question of the reason- ableness of rates involves so many considerations and is affected by so many circumstances and conditions which may, at first blush, seem foreign, that it is quite impos- sible to deal with it on purely mathematical principles, or on any principles whatever, without a consciousness that no conclusion which may be reached can by demonstra- tion be shown to be absolutely correct. Some of the diffi- culties in the way have been indicated in what has been said on classification ; and it has been shown that to take each class of freight by itself and measure the reasonable- ness of charges by reference to the cost of transporting that particular class, though it might seem abstractly just, would neither be practicable for the carriers nor con- sistent with public interest.* "The difficulties here referred to of passing upon the question of the reasonableness of rates, are doubtless very great. But how much greater must be the difficulties that are encountered by the railroad officials in adjusting their freight tariffs. The rates of freight must be sufficiently low to result in the development of the largest amount of traffic ; and, at the same time, they must be high enough to ADJUSTMENT OF FREIGHT RATES. produce sufficient revenue to pay for the cost of # main- tenance and operation of the roads, and, if possible, in- terest on the investment. The rates must in no case ex- ceed the value to the public of the services rendered, which is determined by commercial laws, by competition with all-rail lines, with rail and water lines, and with water lines; by competition between markets, by competition of products with products, by the value of the articles of freight at the places of production or manufacture and the places of consumption, and by other circumstances and conditions. The rates must be adjusted in compliance with the laws of the States, and with the Act to Regulate Commerce. They must be just and reasonable in and of themselves, as required by the first section of the Act to Regulate Commerce; they must comply with the second section of the Act, which prohibits unjust discrimination against persons ; they must comply with the third section of the Act, which provides that there shall be no undue or unreasonable preference or advantage given to any par- ticular person, company, firm, corporation or locality, or to any particular description of traffic, in any respect whatsoever; and they must also comply with the fourth section of the Act, which declares that it shall be unlawful to charge or receive any greater compensation in the ag- gregate for the transportation of property for a shorter than for a longer distance over the same line, in the same direction, except under circumstances and conditions which the Act does not define, and of which the carriers are required to judge in the first instance, at least so far as regards their similarity, or dissimilarity. "It is obvious that the officers of railways, in endeavor- ing to meet all these requirements, and many others that might be mentioned, have a very difficult task in the ad- justment of their freight tariffs, and that they will nearly always find themselves in a dilemma. "It is not sufficient that their rates may be just and reasonable in and of themselves. They must also be rela- tively reasonable. They may be both reasonable in and of themselves, and relatively reasonable, and yet may be claimed to be in conflict with the short and long haul sec- tion of the Act. If, in order to remove that difficulty, the ADJUSTMENT OF FREIGHT KATES. rates to and from terminal points are advanced so as to conform to the alleged requirements of the long and short haul section of the Act, the rates may be higher than the value to the public of the service, in which case the com- pany must lose the traffic. If, on the other hand, the rates to and from intermediate points are reduced, the loss of revenue may be so great that the railroad companies may find themselves unable to pay the cost of maintaining and operating their roads." Since the above was written, the difficulties surround- ing the proper adjustment of railway freight tariffs have been greatly increased by the decisions of the Supreme Court of the United States in the Trans-Missouri and Joint Traffic Association cases, which prohibit the estab- lishment of rates by agreement between competing rail- roads. The power to establish tariffs is vested in the Boards of Directors of railroad companies, under charters granted by the States which created these corporations. And the power is exercised through the executive officers, — the Presidents or Vice-Presidents — and a department known as the traffic department, or commercial depart- ment. The officials of this department should be, and gener- ally are, men gifted with no ordinary ability. They must have a thorough knowledge of their profession : and this knowledge can only be acquired by practical experience. They must bring to the performance of their duties, good judgment, great energy, and untiring industry. They must familiarize themselves with the commercial and industrial" conditions in the country tributary to their respective roads ; and, by frequent intercourse with ship- pers, acquaint themselves with their needs and require- ments. It has been said that they should know the busi- ness of the shippers almost as well as the shippers do themselves. ADJUSTMENT OF FREIGHT KATES. As above stated, the establishment of tariffs is not a science. Modern freight tariffs are the products of evo- lution. It would be interesting to trace their develop- ment from the simple rate-sheets of the earliest days of railroads to the modern, highly organized freight tariffs, with their elaborate classifications, embracing thousands of articles; and to note the influence and effect of sur- rounding circumstances that necessitated, from time to time, modifications and additions; and, especially, the effect of ever-increasing competition. Unfortunately, the information necessary is not obtainable. In my monograph on "The Adjustment of Railway Freight Tariffs," I endeavored to show why the cost of transportation is not, and from the nature of the case cannot be made, a factor in the adjustment of rates. To treat this subject here at length would be too great a digression. Attention can only be called here to some of the results of that investigation. All computation of the cost of transporting freight over a road must be based upon a division or apportion- ment of the expenses pertaining to the conduct of both the passenger and freight service; and this apportion- ment cannot be made with any reasonable approach to accuracy, because there is no basis for a division of a large proportion of those expenses. An analysis of the expenses of railways of the United States which made reports to the Interstate Commerce Commission for the year ended June 30, 1891, shows that 31.4 per cent, of the operating expenses, and 52.6 per cent, of the total expenses, including taxes and fixed charges, cannot be properly apportioned between the passenger and freight service. All attempts to apportion these expenses are mere guess-work, which, of course, is also true of the alleged average cost per ton, per mile, of all freight carried over ADJUSTMENT OF FREIGHT KATES. a road. The mere cost of movement — that Is, the expense of receiving, transporting and delivering freight — can be estimated with a reasonable approach to accuracy, when all the conditions and circumstances are known under which the service has to be performed. These conditions vary on each railroad, and often vary on different sec- tions of the same road. But the cost of movement is only a portion, and the smallest portion, of the cost of transportation. Assuming, however, that the cost of transportation could be ascertained, it cannot be made the basis of freight tariffs. It is safe to say that since the construc- tion and operation of the first railroad up to the present time, no freight tariff has ever been constructed on the basis of the cost of transporting any article, nor on the average cost per ton, per mile, of the entire freight traffic ; and it is also safe to predict that such actual cost and average cost will not be factors in the construction of future freight tariffs. This is true not only because these factors are unknown, and cannot be ascertained, but also because they cannot be considered in the estab- lishment of freight tariffs. Before the Sherman Act was applied to railroads, the rates on interstate traffic were generally adjusted by agreement between the traffic officials of the roads interested, under the rules of traffic associations. In most cases, unanimity was required to fix a rate; and in cases of a failure to reach agreements, the questions at issue were decided by arbitration. Most of the questions involved in the adjustment of freight tariffs are of a commercial and economic char- acter, and subject to commercial and economic laws. One of the most important and in many cases the con- trolling factor, is competition, — either competition be- tween carriers by rail, competition with rail and water 10 COMPETITION AND ITS EFFECTS. lines, competition with water lines, competition between markets, or competition of product with product. COMPETITION AND ITS EFFECTS. Competition is defined as the act of striving for some- thing that is sought by another at the same time, — a contention of two or more for some object, or for superi- ority. There are two kinds of competition, and which should be distinguished one from the other ; viz. : Legitimate or healthy competition, which is said to be the life of trade, and Illegitimate or unhealthy competition, which results in the ruin of trade, and the ruin of competing traders. Competition between railroads is legitimate when their managers strive to put their properties in the best condition for efficient, safe and economical operation, and to render their services at rates that are reasonable and just to the public, as well as to the owners of the roads. It is to be presumed that it was this kind of compe- tition which was in the minds of legislators when they made the rule of free competition the basis of railway legislation. Legitimate competition between railroads degener- ates into illegitimate or unhealthy competition when conducted without restraint. It then becomes a strug- gle to enforce claims to a larger share of competitive traffic, or claims for a more favorable correlation of rates, or for some other advantages, — a struggle that is generally conducted by illegitimate methods, and always without regard to cost or consequences; a struggle that can benefit no one, and, when long continued, must end in the ruin of the competitors. 11 COMPETITION AND ITS EFFECTS. This strife is known as a war of rates, — the principal weapon employed being radical reductions of rates; that is, rate-cutting either made openly, or by rebates, and until the prices for the services rendered fall far below their actual cost. Rate wars are invariably inconclu- sive in respect to the controversies that produce them. Some of the competitors may be forced into bankruptcy ; but this does not mean victory for the survivors, who cannot obtain war indemnities, nor annex a part of the properties of the vanquished. At the close of the war, the matter at issue remains unsettled, and the bankrupt roads can resume the contest with renewed vigor under receiverships, being freed from the obligation of paying interest. Such contests have justly been regarded as a disgrace to railroad management, and to civilization. The law of evolution which decrees that the fittest shall survive, does not apply to these struggles for existence. American railroad managers have been severely criti- cised for engaging in such strifes ; their conduct has been characterized as criminal; for it is said that officers of railroad companies are only agents and trustees, and have no right to involve the property placed in their charge in a strife which, if continued, would bring that property to ruin. This is true; but it is only true in respect to a very small minority to whom it can be justly applied. The majority of railroad men do not willingly engage in such contests; they drift or are forced into them by circum- stances over which they have no control. The fault lies with the system rather than with the men. It is un- limited individualism, also known as "free competition," which results in a war of each against all. Each railroad corporation has the right to take indi- vidual action in the adjustment of rates on interstate competitive business. Indeed, modern laws require each 12 COMPETITION AND ITS EFFECTS. corporation to act independently, harmonious co-opera- ation being prohibited. So long as this is the case, there will he rate-cutting, and periodic rate-wars, unless some legal means can be found to restrain competition. The injury inflicted by such independent action is not confined to the railroads. Long-continued strife af- fects a large class of the population; viz., the railroad employees, and still further, the manufacturing inter- ests connected with railroad operation. The extremely low rates caused by these wars deplete the revenues of the railroads to an extent that necessitates a reduction of wages ; and this may lead to riots and bloodshed, as it has actually done. Manufacturing interests connected with the railroads are made to suffer by a reduction of expenses enforced upon railroads by diminished earnings. But the most serious evils that result from unre- strained competition are felt by the mercantile com- munities, whose best interest requires that rates of trans- portation shall be just, reasonable and indiscriminatory, and, as far as practicable, permanent — discriminatory and fluctuating rates being very injurious to commerce. The law requires public carriers to furnish the people with such rates; but under the rule of free competition, it is impossible for the railroads to fully comply with the law. It has been said that competition is stronger than any law that Congress can make; and, so far, legislation of the most drastic kind has failed to wholly eradicate the evil of unjust discrimination, which has for many years been the cause of complaint by the public against the railroads. And it is safe to predict that, so long as each of the carriers can make its rates and charges dif- ferent from those of all the others for the same service, there can be no stability of rates, and unjust discrimina- tions of all kinds cannot be entirely prevented. 13 REGULATION OF RATES THROUGH TRAFFIC ASSOCIATIONS. It should be borne in mind that competition between railroads differs materially from commercial competi- tion. The effects of the latter are generally local and and confined to certain branches of commerce, while the former affects all branches, and even the entire com- merce and industries of a large section of the country. Owing to the interdependence of rates, a war between two railroads of one section may involve many other railroads — even those in sections remote from the con- flict. REGULATION OF RATES THROUGH TRAFFIC ASSOCIATIONS. The earliest attempt on record to regulate rates by co-operation of the railroad companies was made at a Convention of representatives of southern railroads and steamship companies, held at Macon, Georgia, December 21, 1874, and presided over by Hon. Jos. E. Brown, ex- Governor of Georgia. This Convention, after a full discussion of the situa- tion, appointed several committees on division of business, agreed upon rates on certain competitive traffic, and passed a resolution pledging each company to every other company represented, to carry out in spirit and in letter, the proposition agreed to. Adjourned meetings of the Convention were held in January, 1875, for the purpose of strengthening the agreements. At one of these meetings the following reso- lution was adopted. It is of interest as showing the de- moralization of rates, and the disreputable practices re- sorted to by the agents of competing lines which had brought about this demoralization : "Whereas, The ruinous competition now existing be- tween railway lines here represented demands a speedy 14 REGULATION OF BATES THROUGH TRAFFIC ASSOCIATIONS. change and prompt return to remunerative rates of trans- portation; and "Whereas, The disreputable custom that has, in the past few years, grown up of paying bribes to freighters to ob- tain their business over competing lines, has so demoral- ized railway management and the communities through which they operate, that a prompt and radical change is called for by every consideration of honor and honesty; therefore "Resolved, That standard rates of transportation shall be established and maintained, by which stockholders may enjoy with their patrons the benefits created by their respective lines. "Resolved, That all kinds of 'bribery' and 'corruption' in the form of 'drawbacks' and 'rebates' paid to obtain patronage shall, in the future, be regarded as disrepu- table, dishonest and unbecoming railroad management, demoralizing to railroad employees and their patrons; and we hereby pledge ourselves and our companies to discontinue business relations with railroad companies or individuals that shall continue these disreputable practices. "Resolved, That it is the sense of this Convention that the best interests of the stockholders of our respective companies require that in all future Conventions, called for the purpose of regulating freight and passage rates, and the like, the Presidents or General Superintendents, and such other persons as the management shall appoint, should attend such conventions and represent their com- panies." The railroad managers continued to struggle with the problem, and during the year 1875 held a number of meetings for the purpose of effecting an efficient organ- ization. A meeting held in Atlanta, October 13, 1875, adopted certain rules and regulations proposed by Albert Fink, and which led to the organization of the Southern Kail- way and Steamship Association. Until this organiza- tion was in operation the first attempts in the South 15 REGULATION OF BATES THROUGH TRAFFIC ASSOCIATIONS. necessarily resulted in failure, as was the case with efforts made in later years upon the same lines by north- ern railroad companies, notably the "Agreement be- tween Gentlemen." These failures were due to the fact that compliance with the obligations of these agreements depended entirely upon the good faith and enlightened self-interest of the contracting parties. Not that there was a want of good faith — the railroad men were will- ing and anxious to carry out their agreements. But even in those early days, competitive forces had become so strong as to seriously impair the control of the Presidents over rates of freight on their own roads. The condition of railroads in the South in 1875 was of a unique character. At the close of the War in 1865, most of these railroads were in a broken-down condition physically and financially. They were dependent for their revenues mainly upon the transportation of agri- cultural products of an impoverished country, whose sys- tem of labor was deranged. Although the volume of traffic was not sufficient to support the older lines, new lines had been and were being constructed. The natural result was a fierce struggle for traffic, and reckless com- petition and incessant rate-cutting, openly and by re- bates. As we have seen, agreements to regulate competition had proved ineffectual. Several of the railroads had already been sold at public auction. Others, aggregating over one thousand miles, were in the hands of receivers ; and others not in the hands of receivers had defaulted in the payment of interest on their bonded debts. Millions of dollars invested in railroad properties had been sunk, and a large portion of the capital of railroads yielded no return, and was threatened with destruction. Mindful of their obligations to protect the properties entrusted to their care, and not discouraged by previous 16 SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. failures, the Presidents continued their efforts, and suc- ceeded in October, 1875, in organizing. THE SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. The creation of this Association is an important event in the history of the self-government of railroads, and deserves more than passing notice. The agreement to form this Association, made by and between twenty-two railroad companies and three steam- ship companies, took effect in October, 1875. The objects of the Association are stated as follows : 1. To facilitate the transaction of business between said parties, and between said parties and other trans- portation companies, relating to such of the freight and passenger traffic in which any one of said par- ties is directly or indirectly interested with any other or others of said parties, or with any other transportation company. 2. To provide proper means to adjust promptly and amicably all differences that may arise between the parties on account of the traffic named in article first. 3. To provide proper means to enforce effectively and promptly all agreements that may be entered into between the parties on account of the traffic named in article first. Hon. Joseph E. Brown Avas elected President of the Association, and served as such for many years. Albert Pink agreed to act as General Commissioner for a period of six months. Shortly after the formation of the Association, it published an address to the public, describing the de- plorable condition of southern transportation matters, and which had necessitated this organization, and appeal- ing to the public sentiment for approval and co-operation 17 SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. in carrying out the measures that had been adopted. The fact that such an appeal was published is of great inter- est, as showing the friendly relations then existing be- tween the railroads and the people. It would seem that the community of their interests was recognized, and that both parties cordially co-operated in efforts to build up the fallen fortunes of the South. That these efforts were successful, so far as success depended upon them, is evidenced by the present prosperity of the South ; and that the railroads have contributed no small share in the work of developing the great resoures of that section, cannot be questioned. Experience having shown that agreements to main- tain rates which depend solely upon good faith cannot be carried out, the Southern Railway and Steamship Association adopted the plan of a division of competitive traffic in order to remove, as far as practicable, the incen- tive to rate-cutting. It used two methods of dividing such traffic. According to one method, the business at competitive points was divided between the carriers interested, the division being made either by mutual agreement or arbi- tration ; and each road was required to carry the propor- tions allotted to it. In some cases the rates were from time to time adjusted so as to bring about this division. This was called a physical division. The other and far more effectual method was to re- quire the companies which had carried an excess over their allotted proportion, to pay to those in deficit, in money, such balances as were due them. They were, how- ever, allowed to retain an assumed cost of transporta : tion of such excess. This method was known as a money division. The public, however, called it a pool; and when we come to consider the regulation of interstate commerce by the Federal Government, we shall find that 18 SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. this bad name contributed in no small degree to the weak- ening of all traffic associations, and to their final de- struction. The Southern Railway and Steamship Association was in continuous operation until October, 1895, when it was succeeded by the Southern States Freight Associa- tion, which, in turn, was succeeded by the Southeastern Freight Association in April, 1897. This Association is still in existence. The agreements of the Southern Eailway and Steam- ship Association, by a process of evolution, passed through several modifications suggested by experience, and which greatly improved and strengthened it ; so that, prior to 1887, when the Act to Regulate Commerce neces- sitated the abandonment of the money division of traffic, it had become the most efficient association for the self- government of railroads in this country. It may be of interest to students of the railway prob- lem to quote here, the preamble of an agreement of the Association, made July 15, 1886, and to give the sub- stance of some of its provisions : "Witnesseth, That whereas, the establishment and maintenance of tariffs of uniform rates, and the preven- tion of unjust discrimination, such as necessarily arises from the irregular and fluctuating rates which inevitably attend the separate and independent actions of transpor- tation lines, is important for the protection of the public ; and "Whereas, it is deemed to be to the mutual advantage of the public, and the transportation companies, that busi- ness in which they have a common interest should be so conducted as to secure a proper correlation of rates, such as will protect the interests of competing markets without unjust discriminations in favor of or against any city or section ; and "Whereas, these objects can be attained only by co- operation on the part of the various transportation lines 19 SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. engaged in the traffic of the territory south of the Potomac and Ohio Bivers, and east of the Mississippi river. "Now, therefore, In order to secure such co-opera- tion among said transportation lines, hy providing means for the prompt adjustment of the differences which may arise between them ; by placing all of their traffic, common to two or more companies, under the control of officers jointly elected ; by the general conduct of the same under well-defined rules and regulations, and by just and equitable division of business, such as will naturally in- sure the maintenance of rates, or by actual apportion- ment ; it is mutually agreed as follows : "First. — That the organization herein provided for may include all such railways east of the Mississippi and south of the Potomac and Ohio rivers, and the steamship lines connecting them with Boston, Providence, New York, Philadelphia and Baltimore, which transact busi- ness with each other; Provided '_, such parties are included in this agreement, or may hereafter be admitted as parties thereto by the action of a general convention ; and that the association herein formed shall be styled 'The Southern Bailway and Steamship Association.-' " The fourth article of this agreement creates an Exe- cutive Committee composed of representatives designated by certain members of the Association — the General Commissioner to be their Chairman. The fifth article provides that this Committee shall meet at the call of the Chairman, or at the request of three of its members, absent members being represented by the General Commissioner. This Committee has juris- diction over all matters relating to joint traffic, but shall act only by unanimous consent of its members. In the event of a failure to agree, questions at issue shall be settled by the Board of Arbitration. The seventh article gives the Executive Committee the right to appoint a Bate Committee, or other sub-com- mittees, either of their own number, or from among the 20 SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. officers and agents of companies members of the Associa- tion, and to delegate to such Committee, jurisdiction over such matters as may be specially committed to their charge. The Rate Committee so provided shall have sole authority to make all rates and classifications to and from all points east and west into Association territory ; but the sub-committees shall act only by unanimous con- sent, and failing to agree, the questions at issue must be referred to the Executive Committee for settlement. The General Commissioner is e-r-offxcio Chairman of all sub-committees, and as such, shall be the medium of com- munication between the sub-committees and the Execu- tive Committee. During the interim between the refer- ence of any matter of difference from a sub-committee to the Executive Committee, and the final determination of such matter, the General Commissioner shall, if it be a matter requiring prompt action, have authority to decide it temporarily, and his decision shall be binding on all parties until reversed by the Executive Committee, or by arbitration. The eighth article provides for the election at the annual meetings, and to hold office until the next an- nual meeting, and thereafter until their successors are elected, of a President, Secretary, General Commis- sioner, Auditor, and three Arbitrators. The ninth and tenth articles define the duties of the President and Secretary, substantially as in the first contract. The eleventh article defines the duties of the General Commissioner, who shall be chief executive officer of the Association, and as the representative of its members both severally and jointly, shall act for them in all mat- ters which come within the jurisdiction of the Associa- tion, in conformity with the requirements of the con- tract, and the instructions of the several committees. 21 SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. provided for. The General Commissioner shall also take charge of the Reports and Claims, and appoint such clerks and claim agents as may be necessary. The twelfth article provides that the Board of Arbi- tration shall hear and determine all questions submitted to them under the Association agreement, or by consent of the parties members of the Association; and the deci- sion of the Board of Arbitration shall be final and con- clusive. The thirteenth article defines the duties of the Au- ditor, who shall have charge of the Clearing House, and shall keep full and accurate accounts of all joint traffic, making reports of the same to all the members of the Asso- ciation. He shall keep a ledger account with the General Commissioner, and with each member of the Associa- tion, from which he shall furnish each company a state- ment of their account monthly, showing the debits and credits to them at each point at which business is ap- portioned. He shall furnish copies of a general balance- sheet monthly to the Executive Committee and General Commissioner, who shall cause settlements of balances to be made promptly. The sixteenth article provides that when all parties interested in the joint traffic at any point are willing to maintain rates without apportionment of the business, no apportionment shall be required; but if any one of the initial roads insists upon apportionment, the matter shall be referred to the Board of Arbitration to deter- mine whether or not such apportionment shall be made. The seventeenth article provides that on all business apportioned on the basis of revenue, there shall be de- ducted as an initial charge and deposited to the credit of the General Commissioner by the company which re- ceives the freight, an amount equivalent to twenty per cent, of the revenue to be divided, such deposit to be 22 SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. made in such bank or banks as the Commissioner shall designate, subject to his order. The amount so deposited shall be credited by the Auditor to the companies or lines by which they are contributed, and shall constitute a fund which shall be applied to the payment of any balances due by such companies ; but after settlement of such balances, if there be any remainder, it shall be returned to the companies to whom it belongs. The eighteenth article provides that the Auditor shall be furnished with copies of all manifests issued by the companies, members of the Association, for freights that are shipped from or destined to points at which the busi- ness is divided by apportionment. The tonnage books of every company in the Association shall be open at all times to the inspection of the Auditor, or such agent as he may from time to time appoint. The nineteenth article provides that any apportioned business — cotton and any other freight -which it may be practicable to divide in kind, shall be so divided, and not by allotment of revenue. Bach company or line shall be required to carry its allotted proportion as nearly as possible, settlements to be made monthly except when otherwise specially agreed between the parties inter- ested. No penalty shall be imposed upon a company or line which carries an excess, for the benefit of any com- pany or line that refuses or wilfully neglects to carry its allotted proportion., The twenty-first article provides for equalizing any difference in the rate or premium for insurance against marine risks, and authorizes rail and water lines in competition with all-rail lines to issue insured bills of lading. The twenty-second article provides that the Execu- tive Committee shall organize such a system for the ren- dition of tonnage and revenue reports of the joint traffic, 2?, SOUTHERN RAILWAY AND STEAMSHIP ASSOCIATION. as shall enable the General Commissioner to be at all times informed of the movement thereof, in order that he may promptly detect any violation of rates, and keep the several companies informed as to whether they are in excess or deficit. The twenty-fourth article reads : "Members of the Association are forbidden to reduce the rates made by the Rate Committee on the plea that they are violated by others, or because of any violation of agreements, or because of the action of any outside line. All such cases of violation shall be reported to the General Commissioner, whose duty it shall be to check such viola- tions if possible, and in case he cannot do so he shall call the Executive Committee together, who shall use their influence to have such offending member or members con- form to the agreements and rules. "Whenever the General Commissioner shall have rea- son to believe that the rates established by the Rate Com- mittee are not being fully maintained by any line or lines, or any transportation company or companies, members of this Association, it shall be his duty to make a full in- vestigation of the facts in such cases, and if in his judg- ment there has been any violation of this agreement on the part of said member or members of the Association, he shall submit the evidence in such cases to the Board of Arbitration; and if the Board of Arbitration shall find, after a full hearing of the case, that such members are guilty of violating this agreement, as charged by the Gen- eral Commissioner, it shall impose such penalties therefor as it may deem proper and necessary to secure the main- tenance of the rates of this Association, and the General Commissioner shall enforce such penalty. "The Board of Arbitration shall make such rules of procedure for the trial of such cases as it deems proper." The above agreement was modified in 1887, when the Act to Regulate Commerce took effect — the article pro- viding for a monej' division being eliminated. The phy- sical division, however, was continued, by advice of coun- 2i TRUNK LINE ASSOCIATION. sel that such division was not prohibited by the fifth section of the Act. In order to provide for the punish- ment of offending members for violations of the agree- ment, a fund known as the penal fund Avas created, by requiring a deposit with the Association of $5 per mile of road, not exceeding $5,000 in the aggregate for any one road. The application of the Sherman Act to the railroads of course put an end to these provisions. TRUNK LINE ASSOCIATION. The traffic conditions in the North and Northwest in 1876 and 1877 were as bad, or perhaps worse, than those of the territory of the Southern Railway and Steam- ship Association in 1875. The railroads in those sec- tions were in a much better condition physically and financially. The volume of their traffic, and their earn- ings per mile of road, were considerably larger than those of the southern railroads. But the long business depression which followed the panic of 1873 had greatly diminished their earnings, and the strenuous efforts of each company to secure for itself a larger share of com- petitive traffic, had resulted in fierce and long-continued rate-wars. The consolidation of the roads forming the New York Central and Hudson River Railroad was completed in 1860, and after 1874, when the Baltimore and Ohio Rail- road Company had extended its road to Chicago, a fierce struggle took place for through traffic, both east and west bound, between the New York Central and Hudson River Railroad, the Erie Railway, the Pennsylvania Railroad and the Baltimore and Ohio Railroad — each road endeavoring to get an advantage over the others in the relative position of the respective ports they serve, and especially in the matter of export grain. 25 TRUNK LINE ASSOCIATION. This controversy was temporarily settled in April, 1ST7, by the execution of the following contract, estab- lishing differentials on competitive east and west bound business : "Memorandum of agreement made this 5th day of April, A. D. 1S77, between the New York Central and Hudson River Railroad Company, the Erie Railway Com- pany, by H. J. Jewett, Receiver, the Pennsylvania Rail- road Company and the Baltimore and Ohio Railroad Com- pany, WITNESSETH : "To avoid all future misunderstanding, in respect to the geographical advantages or disadvantages of the cities of Baltimore, Philadelphia and New York, as affected by rail and ocean transportation, and with the view of effect- ing an equalization of the aggregate cost of rail and ocean transportation between all competitive points in the west, northwest and southwest, and all domestic or foreign ports reached through the above cities; it is agreed : "First. — That in lieu of the percentage difference here- tofore agreed upon, there shall be fixed differences upon the rates on all eastbound traffic from all competitive points beyond the western terminus of the trunk lines, whether on freight shipped for local consumption or shipped locally, and afterward exported or shipped for direct export. These differences shall be as follows : "Three (3) cents less per hundred to Baltimore, and two (2) less per hundred to Philadelphia than the agreed rates established from time to time to New York, and all such traffic shall be billed at the rate thus fixed and no export or other drawback shall be paid thereon ; it being further agreed that the cost to the shipper of delivering grain at each port from the terminus of each of the roads, to the vessel in which it is exported, as well as the number of days free storage allowed thereon, shall be the same. "Second. — That the rates to Boston shall at no time be less than those to New York on domestic or foreign freights. 20 TRUNK LINE ASSOCIATION. "Third. — Should rail and ocean steam through bills of lading be issued, neither of the parties hereto will accept as its proportion, less than its current local rates to its seaboard termini; but no joint rail and ocean sail bills of lading shall be given or recognized by the parties hereto. "Fourth. — That on all westbound traffic passing over the roads of the parties hereto, from competitive points, at or east of their respective eastern termini, to all competi- tive points west, northwest or southwest of their western termini, the differences in rates from Baltimore and Philadelphia below New York shall, on third class, fourth class and special, be the same as the differences fixed on eastbound business, and on first and second classes eight (8) cents less per hundred from Baltimore and six (6) cents less per hundred from Philadelphia than the agreed rates from New York, and that after existing contracts governing foreign business can be terminated, neither of the parties hereto will accept as its proportion of the through ocean, steam and rail rates, less than the estab- lished local rates. "Fifth. — All agreements inconsistent herewith are hereby annulled. "In witness whereof, the parties hereto have affixed their signatures, the day and year aforesaid, to this agree- ment, which is intended to be permanent; but if either party desires modification, three months' notice must be given of such desire, said modification to be made by mu- tual agreement." On June 8, 1877, the New York Central, Erie, Penn- sylvania, and Baltimore and Ohio Railroad Companies entered into an agreement "for the purpose of maintain- ing reasonable and uniform rates of freight to all ship- pers, and of preventing unnecessary and injurious com- petition." The agreement covered all westbound freights from and through New York, whether local or competitive, to 27 TRUNK LINE ASSOCIATION. points beyond and including Buffalo, Black Rock, Sus- pension Bridge, Erie, Dunkirk, Salamanca, Pittsburgh, Wheeling, Belleaire and Parkersburg; and it provided for a physical division of traffic, each company party to the contract being allotted a certain percentage of the freight covered by the contract. A Joint Agent, afterwards termed a Commissioner, was appointed, whose duty it was to make up accounts from waybills forwarded to him, of the proportion of the freight carried by each party, and to require the par- ties that had carried an excess of each class above the agreed percentage, to deliver such excess to the parties in deficit for the purposes of equalization. The agreement became effective July 1, 1877. It covered only westbound freights from and through New York. But in 1878, Boston westbound freight, and in 1879, Philadelphia and Baltimore westbound freight, were placed under the jurisdiction of the Commission. In March, 1882, the agreement was revised so as to cover the eastbound as well as the westbound traffic. The Trunk Line Association contract was from time to time modified and strengthened. On November 6, 1885, a new contract was executed between the Grand Trunk Railway of Canada, the New York Central and Hudson River Railroad Company, the Delaware, Lacka- wanna and Western Railroad Company, the Pennsyl- vania Railroad Company, and the Baltimore and Ohio Railroad Company. It begins with the preamble : "Whereas,, past experience has fully established the fact that the joint action of competing railroad companies in establishing and adhering to uniform rates of transpor- tation for like services to the public is necessary in order to avoid the evils of unjust discrimination and fluctuating rates, so injurious to commercial as well as to the rail- road interests; 28 TRUNK LINE ASSOCIATION. Therefore, the parties above named enter into the following contract for the purpose of jointly establishing tariffs over their respective roads on competitive traffic, both passenger and freight, * * * and of publishing said tariffs and strictly maintaining the same." The main provisions of the contract are, that all measures necessary to carry out its purposes shall be taken jointly by the parties directly interested; that no party shall take separate action in any matter affecting the interest of one or more of the other parties, and that all questions upon which they cannot agree shall be determined by arbitration. The parties agree to enter into arrangements with other connecting roads for the establishment of through tariffs, upon condition that the connecting roads will strictly adhere to established tariffs and comply with established rules and regulations, and that the Trunk Lines will refuse to become parties to any traffic arrange- ments with connecting roads that decline or fail to co-operate with them. Each Trunk Line undertakes to control the maintenance of agreed rates on its own road, as well as over affiliated roads. The contract provides for a division of traffic "in order to secure the maintenance of agreed tariffs by re- moving the motive for their violation openly or secretly." Such contract to take effect November 7, 1885, and con- tinue in full force and effect until December 31, 1886, and from year to year thereafter, unless terminated by any party thereto by giving three months' prior notice. The main features of the organization are: Trunk Line Presidents' Committee. This Committee to be composed of the Presidents or chief executive officers of the parties to the contract. It is presided over by a Chairman elected from its own 20 TRUNK LINE ASSOCIATION. members, and has power to decide upon all measures necessary to carry out the purposes of the contract. All joint measures upon which the Presidents' Committee cannot agree to be finally decided by arbitration. Trunk Line Executive Committee. To be appointed by the Presidents' Committee, and to consist of an officer of each company, and which is charged with the duty of carrying out in detail, the in- structions of the Presidents' Committee. The Presi- dents' Committee shall also appoint a Commissioner, who shall act as Secretary of said Committee, and as Chairman of the Trunk Line Executive Committee, and shall carry out any measures agreed, upon or decided by arbitration, acting as their executive officer. In case the Trunk Line Executive Committee is not unanimous upon any question, and the Commissioner failing to secure an agreement, the question at issue to be submitted to the Presidents' Committee for their action; and they failing to agree, to arbitration. Any question upon which the Trunk Line Executive Committee cannot agree, and which requires immediate decision, shall be decided by the Commissioner at the request of two-thirds of the members of the Committee; but the Commissioner's de- cision shall be temporary, and subject to the final action of the Presidents' Committee, or arbitration. Freight Committees. The Trunk Line Executive Committee shall appoint a special committee for the Freight Department, to be called the Freight Committee, and consisting of the Traffic Managers or General Freight Agents of the re- spective companies, parties to the contract. This Com- mittee shall transact such business as may be delegated to it. A Commissioner appointed by the Executive Com- 30 TRUNK LINE ASSOCIATION. mittee shall preside over the Freight Committee. In ease of failure to agree in said Freight Committee, the question at issue shall be referred to the Executive Com- mittee, etc. Sub-Committees. The Freight Committee may appoint sub-committees for special purposes as may be deemed necessary to facili- tate the transaction of business. Arbitration. A permanent Arbitrator (or Board of Arbitration) shall be appointed by the Trunk Line Presidents' Com- mittee, to whom shall be submitted for final decision all questions arising under the contract upon which the parties thereto cannot agree. It shall be the duty of said Arbitrator to devote his whole time to the duties of the office, to attend the meetings of the various commit- tees as far as practicable, and to keep himself informed as to the facts bearing on all questions which are likely to arise, and which he may be called upon to adjudicate. Questions upon which the Trunk Line Executive or Freight Committees cannot agree, may also be decided by the Chairmen of the respective committees, when sub- mitted to them by agreement of the parties interested. Relations with Affiliated Roads. To facilitate transaction of business between the Trunk Lines and their affiliated roads, the chief manae- ing officers of said affiliated roads, and the members of the Trunk Line Executive Committee shall constitute a committee to be called a Joint Committee, whose dutv it shall be to establish all through tariffs and classifica- tions, to agree upon divisions of through rates, and to make such rules and regulations as may be deemed neces- 31 TRUNK LINE ASSOCIATION. sary to secure uniformity and stability. The Chairman of the Trunk Line Executive Committee shall act as Chairman of the Joint Committee, with the same duties as under the organization of the Trunk Line Executive Committee. The Joint Committee shall appoint the fol- lowing sub-committees : Eastbound Classification Committee, Cotton Rate Committee, Tobacco Rate Committee, and such other committees as may be considered neces- sary to facilitate the transaction of business. If the Joint Committee cannot agree upon joint tariffs, etc., the Trunk Line Executive Committee shall decide the question under its rules. General Rules. Each Trunk Line shall not only conform to the intent and spirit of the contract, so far as its own road is con- cerned, but shall also take responsibility for the acts of its affiliated roads. The rules provide for the investi- gation of cases of violation of the established tariffs, and for such measures as will remove the cause of complaint. One of the rules prohibits the party complaining from meeting any alleged reduction in rates, or taking any sepa- rate action, pending the investigation and action by the Executive Committee. One of the rules authorizes the Trunk Line Executive Committee, under the direction of the Presidents' Com- mittee, to enter into agreements with competing roads not parties to the contract, for the establishment of joint tariffs, and the maintenance of the same. But none of the affiliated roads shall enter into arrangements with roads whose tariffs affect the tariffs established under the Trunk Line contract, except upon condition that such roads shall maintain the said tariffs. 32 TRUNK LINE ASSOCIATION. The concluding section, No. 43, provides that none of the Trunk Lines, nor their affiliated roads, shall make reductions in established tariffs on the plea that some competing road, not party to the contract, has made re- ductions affecting said tariffs; but that the case shall be reported through the Commissioner to the Executive Committee for joint action. This contract was modified in 1887 so as to conform to the Interstate Commerce Act, the provisions for a divi- sion of business being eliminated. The revised contract provided for a Trunk Line Board of Presidents, consisting of the Presidents or chief officers of the companies, parties to the agreement, with a Chairman elected from its own members ; a Trunk Line Executive Committee, appointed by the Board of Presidents, and to consist of a Vice-President of each company; and a Commissioner, who shall act as Secre- tary of the Board of Presidents and as Chairman of the Trunk Line Executive Committee. All measures upon which the Board of Presidents or the Trunk Line Execu- tive Committee cannot agree to be submitted to arbitra- tion. The Trunk Line Executive Committee shall appoint two sub-committees, one for the Freight Department, and to be called the Freight Committee, and consisting of the Traffic Managers or General Freight Agents, and one for the Passenger Department, to be called the Pas- senger Committee; with a Commissioner for the Freight Department, and a Commissioner for the Passenger De- partment, who shall act as Chairmen for their respective committees. The Freight and Passenger Committees may appoint sub-committees for special purposes. The contract also provides for the establishment of a statistical bureau, which, under the direction of the Com- missioner, shall compile statistics of the traffic with which the Trunk Line Association deals. 33 JOINT EXECUTIVE COMMITTEE. It provides for a Joint Committee for the purpose of facilitating the transaction of business between the mem- bers of the Trunk Line Association and the members of the Central Traffic Association, and other roads and companies with which the Trunk Lines exchange traffic, and who desire to co-operate with the Trunk Lines. It is made the duty of the Joint Committee to estab- lish joint tariffs and classifications, and to make such rules and regulations affecting the tariffs as may be necessary. The Chairman of the Trunk Line Executive Com- mittee shall act as Chairman of the Joint Committee; and the Chairman of the Central Traffic Association shall act as Western Vice-Chairman, and the Commis- sioners of the Freight and Passenger Departments of the Trunk line Executive Committee shall act as the Eastern Vice-Chairmen, of the Joint Committee. The Joint Committee shall appoint such other committees as may be considered necessary to facilitate the transac- tion of business. The Trunk Line Executive Committee shall act as the Standing Committee of the Joint Committee. If the Joint Committee cannot agree upon joint tariffs or upon rules or regulations affecting such tariffs, or upon the proportion of rates and fares with common connections of two or more Trunk Lines, the Trunk Line Executive Committee shall decide the question under its rules, after hearing the arguments of the various parties interested. THE JOINT EiXECUTIVE COMMITTEE. During 1877 the representatives of certain western connections of the Trunk Lines held meetings for the purpose of putting an end to rate-cutting and other irregularities in the conduct of their eastbound business. 34 JOINT EXECUTIVE COMMITTEE. It was found that these objects could not be attained without the co-operation of the Trunk Lines, and a com- mittee was appointed to petition the Trunk Lines to en- force the maintenance of eastbound tariffs. This the Presidents of the Trunk Lines agreed to do, and they notified their connections that they would not partici- pate in any cuts by the Western railroads, but would charge their local rates on all shipments that were con- tracted for at less than established through rates. At a meeting of Western Lines in December, 1877, the Western Executive Committee was formed, with J. N. McCullough as Chairman, and N. Guilford as Com- missioner. But all efforts to stop rate-cutting having failed, an agreement was made at a meeting held in New York in March, 1878, to divide the eastbound business from Chicago, Milwaukee, Detroit, Port Huron, Toledo, St. Louis, Louisville, Mississippi River points, Cincinnati, Indianapolis and Peoria. A number of meetings were held during 1878 for the purpose of determining the percentages of division. These efforts to stop rate-cutting having proved un- successful, the representatives of Western roads con- cluded that arrangements for dividing traffic could not be made effective by separate action; so a Joint Execu- tive Committee of the Western and Eastern Lines was formed in December, 1878. Albert Fink was elected Chairman, retaining, however, his position as Commis- sioner of the Trunk Lines; and N. Guilford was elected Secretary. The rules of this organization provided: That the office of the Committee should be in New York City. That the object of organization was the maintenance of agreed rates. That the Committee should have cognizance of all 35 JOINT EXECUTIVE COMMITTEE. through competitive freight and passenger traffic in both directions. That any case brought before the Committee that failed to receive its unanimous action, should be decided by the Chairman upon its merits, and that his decision should have the same force and effect as the unanimous vote of the Committee. That all negotiations between the Committee and companies not represented by the Committee should be carried on solely through the Chairman. That western members of the Joint Committee should represent and act for all western companies which the Western Executive Committee had heretofore represented or acted for. That parties to the agreement were not to take any steps to meet alleged abatements or evasions of rates by other lines until the Committee had acted thereon. That the Committee was authorized to enforce against all companies, such rules and regulations as it might from time to time adopt. At a meeting of representatives of traffic associations, held at Chicago, October 20 and 21, 1886, Commissioner Blanchard submitted a memorandum of rules and regu- lations for the conduct of the Joint Committee, proposed by Commissioner Fink and himself, and which were adopted. The memorandum refers to the fact that the Trunk Line organization and rules provide for the establish- ment of a Joint Committee for the purpose of establishing joint tariffs with all roads with which the Trunk Lines have traffic arrangements, and that the organization of the Central Traffic Association provides that through joint rates and fares between points in its territory and points in the territory of other similar organizations, shall be made by co-operation, and issued or authorized 86 JOINT EXECUTIVE COMMITTEE. by the Central Traffic Association in its territory; and that, in order to carry out these provisions in the organ- izations of both associations, the members of the Trunk Line Executive Committee, and of the Central Traffic As- sociation, and all companies having traffic arrangements with both organizations, under their several contracts, who are not members of these organizations, shall con- stitute a Committee to be called the Joint Committee. It is made the duty of the Joint Committee to establish all joint tariffs, both freight and passenger, on traffic pass- ing through the western termini of the Trunk Lines ; also all classifications and other conditions governing said tariffs; to agree upon division of through rates and through fares, where such divisions affect maintenance of uniform tariffs between competing lines, and to make such other rules and regulations as are necessary to secure uniformity and stability in joint tariffs. That the Commissioner of the Trunk Line Executive ( 'ommittee shall act as Chairman of the Joint Committee. That the Commissioner of the. Central Traffic Asso- ciation shall act as the Western, and the Commissioner of the Freight or Passenger Department of the Trunk Line Executive Committee shall act as the Eastern, Vice- Chairman of the Joint Committee. The Western Vice-Chairman, with the concurrence of the Chairman, has authority to appoint such sub-commit- tees as may be necessary to facilitate the transaction of business, from representatives of the roads west of the western termini of the Trunk Lines. Said committees shall report to the Chairman and the Western Vice- Chairman of the Joint Committee, and their reports shall be submitted for the vote of all the members of the Joint Committee. In like manner the vote of the Joint Com- mittee shall be taken upon any question presented to it by the Trunk Line Executive Committee or by the Cen- 37 JOINT TRAFFIC ASSOCIATION. tral Traffic Association. If the vote upon any question is not unanimous, the Trunk Line Executive Committee, under its rules, shall decide the question at issue, after duly considering the vote of each member of the Joint Committee. The Joint Executive Committee continued in opera- tion until the formation, in 1886, of the Central Traffic Association, when it was known as the Joint Committee, of which J. F. Goddard was Chairman, and G. R. Blan- chard was Vice-Chairman. During the year 1893, Aldace F. Walker was Chairman, and Messrs. Goddard and Blanchard Vice- Chairmen. During 1894-1895, Mr. God- dard was Chairman, and Mr. Blanchard Vice-Chairman. On January 1, 1896, the Joint Committee was superseded by the Joint Traffic Association. JOINT TRAFFIC ASSOCIATION. In 1889 Albert Fink resigned as Commissioner of the Trunk Line Association, and J. F. Goddard was elected to succeed him, and the organization continued until 1895. During that year the Presidents of the Trunk Lines had several meetings, which resulted in the organ- ization of the Joint Traffic Association, taking effect January 1, 1896. The Association had jurisdiction over all competitive traffic (coal, coke, iron-ore, mill-cinder, limestone and petroleum being excluded) passing to, from or through the western termini of the Trunk Lines, and all traffic which may pass through other junctions of the companies parties to this agreement, except traffic destined to or coming from points south of the south line of the Chesa- peake and Ohio Railway. First. — The contract provides for a Board of Con- trol, consisting of the Presidents of the companies form- 38 JOINT TRAFFIC ASSOCIATION. ing the Association. Each member of the Board was en- titled to one vote, and it required three-fourths of the entire number of authorized votes to adopt any proposi- tion coming before the Board of Control. Second. — It provided for a Board of Managers, to consist of not less than nine members, each of the nine systems, parties to the agreement, designating one mem- ber. Their action as to rates and fares ( except differen- tials) was subject to appeal only to the Board of Con- trol. The Board of Managers shall appoint not more than three Commissioners, and shall define their powers and duties. The powers conferred upon the Managers shall be so construed and exercised as not to permit a violation of the Act to Regulate Commerce, and the Managers shall co-operate with the Interstate Commerce Commission to secure stability and uniformity in rates, fares, charges and rules established hereunder. The Managers were charged with the duty of secur- ing each company, party to the agreement, equitable pro- portions of the competitive traffic covered by the agree- ment, so far as can be legally done. Third. — The contract provides for a permanent Board of Arbitration, consisting of three disinterested persons, to which appeals shall be made, and which shall decide all differences between the parties to the agree- ment as to any lawful measure necessary to carry out the objects of the Association, except as to rates and fares. Pending decisions by the Arbitrators, the deci- sions and orders of the Board of Control and Managers shall prevail. The Board of Control elected G. R. Blanchard as Commissioner. It was against this Association that the Government brought suit under the Sherman Act, and 39 CENTRAL TRAFFIC ASSOCIATION. which resulted in the decision of the Supreme Court of the United States in October, 1898, declaring the Asso- ciation to he illegal. The Joint Traffic Association continued in opera- tion until about December, 1S98. CENTRAL TRAFFIC ASSOCIATION. In the early part of 1886, the western connections of the Trunk Lines formed the Central Traffic Association, and elected G. R. Blanchard Commissioner. This Association operated west of the Trunk Lines' termini, east of the Mississippi River, and north of the Ohio River. The object of the Association was the maintenance of reasonable rates, thereby preventing unjust discrimina- tion, and fairly distributing competitive traffic between the parties. Business included all freight and passengers originating at or west of certain points hereinafter named, which may be destined to or through the western termini of the Trunk Lines ( eastbound business ) . The following were some of its rules and regulations, suggested by J. W. Midgley and adopted by the Associa- tion: 4. Provides for division of business by sectional or group pools at Chicago, Peoria, ' St. Louis, Cincinnati, Indianapolis, Toledo, Detroit, and other points as may be agreed upon. 6. The conduct of the grouped pools to be left, as far as practicable, to local committees. 7. Business of the Association shall be conducted by a Board of Managers, to consist of the managing officer of each road, party to the Association. 40 CENTRAL TRAFFIC ASSOCIATION. 8. In matters wherein co-operation of Trunk Lines is requisite, the Board of Managers, or a committee to be designated by it, shall, in conjunction with the Executive Committee of the Trunk Lines, form a Joint Executive Committee, which shall meet at the call of the Commis- sioner of the Trunk Lines. 9. A Commissioner may be appointed by the Associa- tion. 11. All questions brought before the Board of Mana- gers shall be decided by a majority vote, except such as relate to revenue, which shall require a unanimous vote for their adoption. , 13. The Commissioner may direct a road or roads that may be in excess, to deliver to the road or roads that may be in deficit, as much tonnage of any or all classes as may be required to make good the shortage. 14. Any controversy arising during the effort to agree on percentages, and also for the settlement of all differ- ences that may arise, shall be determined by a plan of arbitration which shall be adopted. 17. Tonnage and revenue statistics shall be kept in the office of the Commissioner of the Trunk lines at New York. 18. Bates on eastbound business from the territory of the Association shall be made by the Association, and issued by the Commissioner. In the latter part of 188(5 this Association had as members forty railroads, operating 18,300 miles, whose earnings from freight in 1885 were $79,337,000, and from passengers, |32,469,000, or |111,806,000. 41 CENTRAL TRAFFIC ASSOCIATION. Owing to the large area of the territory of this Asso- ciation, the great mileage, the great number of its mem- bers, the competition between them, the diversity of their interests, and the competition with water routes both by lake and river, the operation of the Association involved greater difficulties and complications than those of any other association in this country ; and even so able and ex- perienced a traffic official as G. R. Blanchard found him- self unable to cope with these difficulties. In one of the Commissioner's reports to the Association, in October, 1886, he calls attention to the fact that while the Trunk Line Commission comprises only seven railroads, with but two competitors outside of it, and has only two freight pools, including all eastward short and long haul local and through tonnage, and one westwardly, covering only New York City, the Central Traffic Association have six eastbound freight pools, and ten others recommended to be formed ; that while the eastwardly Trunk Line pool has only nineteen junctions, which are all combined for settlement purposes, there are five hundred and seventy- six junction points in the district of the Central Traffic Association, from two hundred and eighteen of which eastward percentages are recommended; that while the Trunk Lines have only two competitors outside of its Association, the Central Traffic Association has in its territory more than forty railroads that are not members. He also calls attention to the fact that the Commission- er's powers are extremely limited, and that agreements authorizing him to divert freight for the purpose of de- feating cut rates are nullified by the refusal of the parties to carry them out. A report made in September, 1886, by a committee on the revision of the Association agreement, contains some interesting statements of the working of different methods of dividing traffic. 12 CENTRAL TRAFFIC ASSOCIATION. The first agreement for the control of through east- ward traffic from the territory of the Association was made in 1879, and provided for a physical division— the excesses or deficits of tonnage being adjusted between the carriers so as to allow the actual transporters of an excess, the assumed cost of carrying the various classes of such excess, or by turning over to the railroads that were in deficit in one class, so-called converted or equated tonnages in other classes. This plan failed to accomplish the object of the division. Not only did the roads that were in deficit receive less than their share of the revenue allotted to them, but the plan failed to remove the motive for rate-cutting. For as the roads in excess were paid an assumed cost of transportation in addition to receiv- ing their regular percentages of traffic, they were per- fectly willing to struggle for more business with the view of securing increased percentages in a new division, while the roads in deficit naturally struggled to recover their lost traffic. The next forms of contract for a division of eastbound traffic, made in 1882 and 1883, came nearer to a gross money adjustment by providing that percentages of the New York rate should be paid for current over-carriage : but as the final cash settlements reinstated the former allowances of assumed cost for carrying the various classes, the same difficulties were experienced as under the first plan. Under the third plan, all uniformly averaged gross earnings of the competing lines on eastbound through traffic were divided, and actual gross settlements were made bi-monthly, the balances so found being then paid for over-carriage; and these balances could not be re- covered except by an under-carriage to an equal amount in subsequent periods. This plan is known as a gross money pool, and proved to be the most effectual of all methods of dividing traffic. 4 a WESTERN AND SOUTHWESTERN TRAFFIC ASSOCIATIONS. The Central Traffic Association was succeeded in April, 1896, by the Central Freight Association, which is practically a continuation of the freight department of the Central Traffic Association. WESTERN AND SOUTHWESTERN TRAFFIC ASSOCIATIONS. During the time of the operation of the Joint Com- mittee and the Central Traffic Association, several traffic associations were formed in the West and Southwest. One of them was the Interstate Commerce Railroad Asso- ciation, of which ex-Interstate Commerce Commissioner Aldace F. Walker was Commissioner. It was formed in 1889, but its existence was short. It was superseded by the Western Traffic Association, which consisted of various railroads extending westward of a meridian drawn from Lake Superior through Chicago to the Gulf. It had several divisions, such as the Lake Division, which extended as far as the Missouri River Line, of which J. W. Midgley was Commissioner; the Texas Division, known as the Southwestern, J. N. Faithorn, Commis- sioner, which covered the territory from St. Louis to all points in Texas; the Trans-Missouri Division, James Smith, Commissioner, consisting of the Trans-Missouri Lines as far West as and including Colorado; and the Trans-Continental Division, E. P. Vining, Commissioner, which included all traffic to and from the Pacific Slope and terminals on the Coast. Aldace F. Walker was the Chairman of the Western Traffic Association. The organization had an Advisory Board, consisting of the President and one Director of each constituent company; and the Board of Commis- sioners was empowered to decide all controversies pend- ing their submission to the Advisory Board. 44 WESTERN AND SOUTHWESTERN TRAFFIC ASSOCIATIONS. In 1885 the Trans-Continental Association was or- ganized, with George W. Ristine as Commissioner. It continued until April, 1893, when it was superseded by the Trans-Continental Freight Rate Committee, which, in its turn, was superseded in 1897 by the Trans-Con- tinental Freight Bureau. The Texas Traffic Association was formed in July, 1885, with J. Waldo as first Commissioner. He was suc- ceeded by J. N. Faithorn. The Trans-Missouri Association was first organized in March, 1889; and it was against this organization that suit was commenced which resulted in the decision of the IT. S. Supreme Court of March 22, 1897, dissolving the same. In the course of a few years additional traffic associa- tions were formed in different sections of the country, and several changes took place in the older associations. The following is a list of the main traffic associations in operation January 1, 1897, or about a year before the decision in the Joint Traffic Association case. Since that time local freight and statistical bureaus have taken the place of most of the associations : Name of Association. Commissioner or Chairman. Joint Traffic Association George R. Blanchard. Trunk Line Association J. F. Goddard. Central Freight Association J. F. Tucker. Middle States Freight Associa- tion C. W. Bullen. Western Freight Association .... J. W. Midgley. Southwestern Traffic Association. . . L. F. Day. Southern States Freight Associa- tion H. S. Haines. Southeastern Mississippi Valley Freight Rate Association M. P. Washburn. Southern Freight Association. .... S. Frink. Associated Railways of Virginia and the Carolinas W. H. Fitzgerald. 45 RAILROAD CONSOLIDATIONS. The underlying principle of the traffic associations is the same as that which forms the basis of civil society. Each member voluntarily agrees to refrain from commit- ting any acts that might result in injury to the associa- tion, or of any member thereof, and otherwise retaining that free individuality so essential to progress. We have seen that the object of these associations is the establishment and maintenance of tariffs of uniform rates. The methods to attain this object that were adopted by the important associations were very similar : but the organizations themselves varied with the traffic conditions and circumstances prevailing in different sec- tions of the country.* RAILROAD CONSOLIDATIONS. Consolidations have proved a very important factor in rate regulation by the railroads; and their causes and effects will be the subject of one of the most interesting as well as instructive chapters in a future history of the development of railroads, from their modest beginning about seventy years ago with a few isolated, short, local roads, aggregating a few hundred miles in length, to the present network of about 208,000 miles, covering the en- tire country, and organized into strong systems that give the people the most efficient service and the lowest rates in the world. Most of the railroads in this country were built by private enterprise and capital, and, generally, in antici- pation of the needs of the people ; so that the traffic neces- sary to support them had to be created largely through the instrumentality of the roads themselves. But it was soon found that short, local roads did not have sufficient * In concluding the inquiry of this branch of the subject, it may not be amiss to state that I am conscious of having treated the traffic associations and their organi- zations more fully and in detail than can be agreeable to the average reader. I have thought, however, that this information might prove of historic interest to some future students of the railroad problem. 46 RAILROAD CONSOLIDATIONS. strength to become important factors in the development of the resources of the country; and as these resources did not afford a sufficient volume of traffic to support them, a large number of them, after a struggle for exist- ence, passed into the hands of receivers. From 1876 to 1889, 448 roads (46,700 miles), were sold under foreclosure. On June 30, 1894, 192 roads were in the hands of receivers, having a capital of two and one- half billions of dollars, or one-fourth the railroad capital of the country, and with a mileage of 40,818 miles. And on June 30, 1895, 169 roads, with a mileage of 37,855 miles, were in the hands of receivers. While these bankruptcies caused enormous losses to investors in railroads, the general public was the gainer ; for every reorganization strengthened the railroad sys- tems. Additional capital was furnished for the purchase of the bankrupt railroads, and to put them in good con- dition ; in extending them ; and in forming, by consolida- tions, strong through lines that afforded- the public im- proved facilities, and enabled them to send their products to distant markets. At the beginning of these consolida- tions, and for some years thereafter, they excited a fear on the part of the public that they might become great trans- portation monopolies, and prove injurious to the public welfare. But experience has shown that these fears were groundless, and that these consolidations conferred great benefits upon the country without any serious disadvan- tages. It is not too much to say that the marvelous de- velopment of the resources of this country, and the growth of commerce and manufactures during the last fifty years, are due in a great measure to the unparalleled ex- pansion of its railway system, and especially to the con- solidation of the weak, short, local lines into strong through lines and railroad systems. And it is highly probable that the same economic conditions which have 47 RAILROAD CONSOLIDATIONS. heretofore resulted in these consolidations, will continue to operate in the future. The natural consequence of the laws prohibiting the regulation of rates by agreement between the carriers, is to stimulate the effort of self-protection by further con- solidations; and it may be that instead of single rail- roads, whole systems of roads will be consolidated, where State and Federal laws place no obstacles in the way. As stated above, the elimination of some of the weaker railroads by consolidation has, to a considerable extent, facilitated the regulation of rates by the railroads them- selves. As these weak roads were unable to secure a share of the competitive traffic at rates equal to those made by the stronger lines, they were necessarily com- pelled to cut rates. The agreements for a division of traffic, while they did not entirely put a stop to rate- cutting, had at least a restraining influence; and when that restraint was removed by the prohibition to divide traffic, the weaker roads again became disturbers of the peace. The following statement made by Hon. Martin A. Knapp in 1895 is very interesting as showing what has been the effect of consolidations in the New England States. At that time Mr. Knapp was a member of the Interstate Commerce Commission, of which he is now Chairman : his statement was made in a correspond- ence with Mr. Chandler, and is printed in Senate Docu- ment No. 39, Fifty-fourth Congress : "In the New England States the process of absorption in one way or another, has gone on, until there is now practically no competition in the railway service in that section. So far as I am aware, this consolidation has not resulted in any increase in charges ; but, on the contrary, has been attended by a considerable reduction in rates, by improved facilities, and the better accommodation of the public. Fewer complaints come to us from that re- 4S COMMUNITY OF INTEREST. gioii than from any other part of the country. My obser- vation and inquiries lead me to believe there is less dis- satisfaction with railroad charges and practices in New England, than is found elsewhere in the United States, and that the people in that territory will not welcome a return to competitive conditions." The concluding part of Commissioner Knapp's state- ment also confirms what we have seen to be the effect of unrestrained competition. The following extract from an article on railway statistics, in the Sixth Annual Report of the Commis- sion (for 1892), shows the extent to which consolida- tions had been effected in a single year, to June 30, 1891 : "There were on June 30, 1891, 1785 railway corpora- tions, of which 889 were independent companies and 747 were subsidiary companies, the remainder being private lines. The report shows that 16 roads have been abandoned during the year and that 92 companies, repre- senting a total mileage of 10,116.2.5 miles, have disap- peared by purchase, merger or consolidation. On June 30, 1891, there were 42 companies, each of which con- trolled mileage in excess of 1,000 miles, and 80 companies each of whose gross income exceeded $3, 000,000. These 80 companies control 69.48 per cent, of the total mileage of the country, receive 82.09 per cent, of the amount paid by the public for railway service, and perform 83.76 per cent, of the total passenger service, and 82.66 per cent, of the total freight service of the country." COMMUNITY OF INTEREST. It is obvious that railroads operating in the same sec- tion of country have a natural community of interest, whether they are direct competitors between the same points, or whether they participate in competition between markets. We have seen that reckless management of one of these roads must result in great injury to all the others. After 49 MERGERS. the destruction of efficient traffic associations by the inter- pretation of the Sherman Act, the managers of some of the roads adopted a plan of rendering the natural com- munity of interest more effective in the practical opera- tion of certain railroads, by acquiring a sufficient interest in the capital stock of these roads to entitle them to a voice in their management. So far the plan has had but a lim- ited application ; but it has worked fairly well in prevent- ing friction, and in contributing in some degree to the bet- ter self-regulation of the railroads in the sections of the country where the experiment has been tried. Whether it will withstand the stress of the struggle for traffic in times of great business depression, remains to be seen. That community of interest can be considered a violation of the Sherman Act is not conceivable, for it is not a com- bination, nor is it in restraint of trade. MERGERS. In the Spring of 1901, the Northern Pacific Railway Company and the Great Northern Railway Company, two roads which were regarded as parallel and competing lines, united in purchasing nearly the entire capital stock of the Chicago, Burlington and Quincy Railway Com- pany, and becoming joint sureties for the payment of the bonds of the Chicago, Burlington and Quincy Railway Company, whereby the purchase was accomplished. In November, 1901, the Northern Securities Company tt-as organized under the laws of the State of New Jersey, with a capital stock of $400,000,000. Shortly after its organization that company acquired a large majority of all the stock of the Northern Pacific Company, and also a majority of the stock of the Great Northern Company, paying for these stocks with its own stock. A suit was brought by the United States against the Northern Securities Company in the Circuit Court of the 50 REGULATION BY THE FEDERAL GOVERNMENT. United States for the Circuit of Minnesota. On April 9, 1903, that Court held (four judges sitting) that all the stock of the Northern Pacific and Great Northern Railway Companies held and owned by the Northern Securities Company, was acquired in virtue of a combina- tion or conspiracy in restraint of trade prohibited by the Sherman Antitrust Act. Its officers, agents, etc., were enjoined from voting the aforesaid stock, or from attempt- ing to vote it at any meeting of the stockholders of either of the railway companies, etc. The decree, however, al- lowed the Northern Securities Company to return and transfer to the stockholders of the Northern Pacific and Great Northern Companies, respectively, all the shares of stock in either, which said Securities Company had re- ceived in exchange for its own stock. An appeal having been taken from this decision to the Supreme Court of the United States, that Court on March 14, 1904, affirmed the decision of the lower court, four of the nine judges dissenting. II. EEGULATION BY THE FEDERAL GOVERNMENT. The Act to Regulate Commerce. Until 1887, railroad regulation in this country had been confined within State limits. With the exception of the Act of June 15,* 1866, which authorized railroads to carry passengers and freight from State to State, to receive compensation for the service, and to connect with roads of other States so as to form continuous lines ; and * This Act of June 15, 1866, entitled: " An Act to facilitate Commercial, Postal and Military Communication among the States," is as follows: "That every railroad company in the United States whose road is operated by steam, its successors and assigns, be, and is hereby, authorized to carry upon and over its road, boats, bridges and ferries, all passengers, troops, government supplies, mails, freight and property on their way from any State to another State, and to receive com- pensation therefor, and to connect with roads of other States, so as to form continuous lines for the transportation of the same to the place of destination. 11 Revised Statutes, Section 5258. 51 ACT TO REGULATE COMMERCE. the Act of March 3, 1873, in respect to the carriage of animals from State to State, Congress had not exercised the power conferred by Article I, Section VIII, Para- graph 3, of the Federal Constitution, known as the Com- merce Clause, viz. : "To regulate commerce with foreign nations, and among the several States, and with the In- dian tribes." Under authority of a resolution dated March 17, 1885, the President of the Senate appointed, March 21, 1885, a Select Committee of five Senators : "To investigate and report upon the subject of the regulation of the transportation by railroad and water routes in connection or in competition with said rail- roads, of freights and passengers between the several States, with authority to sit during the recess of Con- gress," etc. This Committee performed its duties in an admirable manner. It inquired into the causes of complaints then existing against railroad corporations, and endeavored to ascertain the opinion of the people as to what remedies could be applied by Congress ; and for this purpose, it vis- ited several important trade centers of the United States, and took testimony of the representatives of various in- terests. It also corresponded with the railroad commis- sions of the several States, boards of trade, chambers of commerce, agricultural societies, railroad managers, and men generally who were known to have given special at- tention to the transportation question. The report of the Committee, made in January, 1886, is, in the opinion of the writer, the ablest document we have on the subject of railroad regulation by the Govern- ment. It is the most valuable contribution to the liter- ature of the subject that we possess. It is a mine of use- ful informaion ; indeed, it is a classic. Even now it can be read with great interest and profit by legislators and 52 ACT TO REGULATE COMMERCE. people who desire to make themselves familiar with the railroad problem. While the development of the rail- road system, and the great growth of traffic of this country since the report was made, have produced important changes in railway transportation, the principles that should govern in the regulation of railroads, so clearly, fairly and correctly set forth by the Committee, are not affected, and should be applied to any additional legisla- tion that may be needed, allowance being made for changed conditions. Congress, after careful consideration of the facts bear- ing on railroad legislation, and after an exhaustive dis- cussion in both Houses, passed the Act to Regulate Com- merce, approved February 4, 1887, and taking effect April 5, 1887. Experience having disclosed some weak points in the Act, some of the articles were amjended in 1889, and a new section was added March 2d of that year, giving the Cir- cuit and District Courts of the United States jurisdiction to issue writs of mandamus compelling carriers to furnish cars or other transportation facilities. A supplementary act was approved February 11, 1893, compelling the at- tendance of witnesses, and the production of documentary evidence. Another supplementary act was approved March 2, 1893, to promote the safety of employees and travelers upon railroads by compelling carriers to equip their cars with automatic couplers and continuous brakes, etc. The Senate Select Committee, in its report, said: "That a problem of such magnitude, importance and intricacy can be summarily solved by any master stroke of legislative wisdom, is beyond the bounds of reasonable belief." While this is true, it is nevertheless a fact that the Act to Regulate Commerce, notwithstanding some imper- ACT TO REGULATE COMMERCE. fections, is a monument of legislative wisdom, and that the people of this country owe a debt of gratitude to the Forty-ninth Congress for inaugurating the Government regulation of railroads in a wise and statesmanlike manner. The amount of mischief that would have resulted from radical measures such as were, under pressure of popular prejudices, clamored for, it is impossible to conjecture. For example, if, notwithstanding the opinion of the Com- mittee that the establishment of schedules of rates by Con- gress or by a Commission appointed by Congress is im- practicable, Congress had seen fit to delegate to the Com- mission the power to make rates, what chaos and confu- sion would have followed the attempt to exercise such powers, and how injuriously such an experiment would have affected the commercial and industrial interests, as well as the interests of the owners of railroad properties ! The investigations of the Select Committee having shown that the principal cause of complaint against the transportation system of the country was based upon the practice of discrimination in one form or another, the Act to Regulate Commerce was designed mainly to abate this evil as far as practicable. The underlying purpose of the Act is to prohibit these practices, and to create the necessary machinery to attain that object. In considering the provisions of the Act, it will be convenient to classify them as follows : 1. Regulation of rates. What the Act forbids. 2. Publicity of Rates. 3. Powers and duties of the Commission. 4. Enforcement of the Act. Penalties for Violation. Regulation of Rates — What the Act Forbids. Sections one, two and three of the Act provide that charges for services rendered must be reasonable and just, and forbid any unjust and unreasonable charge, and any unjust discrimination by any special rates, rebates, 54 ACT TO REGULATE COMMERCE. drawbacks or other devices, and any undue or unreason- able preference or advantage to any particular person, company, firm, corporation or locality, or any particular description of traffic. Section four forbids the charge of a greater sum for the shorter than for the longer distance over the same line in the same direction, under substantially similar- circumstances and conditions. Section five forbids the pooling of freights and the division of earnings. Section seven provides for the continuous carriage of freights, and forbids any combinations or devices which prevent the continuous carriage of freights from point of shipment to place of destination. Publicity of Rates. Section six requires common carriers to print and keep open to public inspection their schedules of rates and fares, with classification of freight, terminal charges, and rules and regulations affecting rates. Schedules showing through rates to all points in the United States and to foreign countries must also be printed and kept open to public inspection. The Act forbids any deviation from the rates so published, and provides that ten days' public notice of an advance, and three days' notice of a reduction, be given. It also provides that carriers shall file with the Commission copies of their schedules of rates, fares and charges, and shall promptly notify the Commission of all changes made in the same. All con- tracts, agreements or arrangements with other common carriers, and all joint rates, fares and charges on con- tinuous lines, must also be filed with the Commission; and no advance in such joint rates, etc., can be made except on ten days' notice to the Commission, and no re- duction except upon three days' notice. 55 act to regulate commerce. Powers and Duties of the Commission. The Commission is required to execute and enforce the provisions of the Act. Section six confers power upon the Commission to prescribe the publicity of rates and the filing of tariffs. It has the power, and it is its duty, to inquire into the business of the carriers, and keep itself informed in regard thereto; and it can require the car- riers to furnish full and complete information. Section thirteen provides that the Commission shall have power to investigate, by such means as it shall deem proper, any complaints made by any firm, corporation, association, etc., of anything done or omitted to be done by any common carrier; and to- institute an inquiry on its own motion in the same manner and to the same effect as though complaint had been made. It has the power to require the attendance of necessary witnesses and the production of documentary evidence, and to invoke the aid of courts to compel witnesses to attend and give testi- mony; and the claim that giving testimony may tend to incriminate the witness shall not excuse such person from testifying. Section fourteen makes it the duty of the Commission to report in writing its findings of fact and its conclusion, with its recommendations as to what reparation, if any, should be made by the common carrier to any party or parties who may be found to have been injured, such find- ings to be prima facie evidence in all judicial proceedings as to each and every fact found. It has authority to inquire into the management of the business of the carriers, and keep itself informed as to the manner and method in which the same is con- ducted. It has the right to obtain from such carriers full and complete information necessary to enable it to perform its duties, and carry out the objects for which it was created. And it is authorized and required to execute 56 ACT TO REGULATE COMMERCE. and enforce the provisions of the Act, and upon request of the Commission it shall be the duty of any District Attorney of the United States, to whom the Commission may apply, to institute in the proper court and to prose- cute under the direction of the Attorney General of the United States, all necessary proceedings for the enforce- ment of the provisions of the Act, and for the punishment of all violations thereof; and it shall have power to re- quire, by subpoena, the attendance and testimony of wit- nesses, and the production of all books, papers, tariffs, contracts, agreements and documents relating to any matter under investigation. Section fifteen provides that if, in any case in which an investigation shall be made by the Commission, it shall be made to appear to the satisfaction of the Commission that anything has been done or omitted to be done in violation of the provisions of the Act, or of any law cog- nizable by the Commission, by any common carrier, or that any injury or damage has been sustained by the party or parties complaining, or by any other parties aggrieved because of such violation, the Commission shall cause a copy of its report in respect thereto to be de- livered to the carrier, with a notice to such carrier to cease and desist from such violation, or to make reparation for the injury found to be done, or both, within a reasonable time to be specified by the Comimission. Section twenty gives the Commission power to require carriers to render annual reports to the Commission, to prescribe what these reports shall contain, and the method of keeping accounts. Enforcement op the Act. Penalties for Violation. In case of disobedience of the order of the Commission by any carrier when the controversy does not require a trial by jury, the Commission has power to apply in a 57 ACT TO REGULATE COMMERCE. summary way by petition to the Circuit Court of the United States sitting in equity in the judicial district in which the carrier complained of has its principal office, or in which the action complained of shall happen, alleg- ing such violation or disobedience; and the court shall have power to hear and determine the matter. On such hearing the findings of the Commission shall be prima facie evidence of the facts therein stated ; and if the court shall find that the lawful order or requirement of the Commission has been violated or disobeyed, it shall be lawful for such court to issue a writ of injunction or other process, mandatory or otherwise, to restrain the carrier from further continuing such violation or dis- obedience of such writ of injunction or other proper process against such common carrier; and if a corpora- tion, against one or more of the directors, officers or agents of the same; and the court may, if it shall think proper, make an order directing such common carrier or other person so disobeying the writ of injunction, to pay such sum of money, not exceeding for each carrier or person in default, f 500 for every day after a day to be named in the order, that such carrier shall fail to obey such injunction. When the subject of dispute shall be of the value of $2,000 or more, either party may appeal to the Supreme Court of the United States, but such appeal shall not operate to stay or supersede orders or writs issued by the court. When trial by jury is necessary, any company or per- son interested in such order or requirement of the Com- mission can apply in a summary way by petition to the Circuit Court of the United States sitting as a court of law in the judicial district in which the carrier complained of has its principal office, alleging such violation or dis- obedience, as the case may be; and the court shall order a trial of said cause, the findings of fact of the Commis- 5s ACT TO REGULATE COMMERCE. sion to be prima facie evidence of the matters therein stated. A new section, added March 2, 1889, provides : The Circuit and District Courts of the United States, upon the relation of any person or persons, firm or cor- poration, alleging such violation by a common carrier of any provisions of the Act as prevents the relator from having interstate traffic moved by such common carrier at the same rates as charged, or upon terms or conditions as favorable as those given by the carrier to any other shipper under similar conditions, shall have jurisdiction to issue a writ or writs of mandamus commanding such carrier to move the traffic or furnish cars or other facili- ties for transportation for the party applying for the writ. Such peremptory mandamus may issue notwith- standing that proper compensation of the carrier may be undetermined. An Act approved February 11, 1893, provides that no person shall be excused from attending and testifying, or from producing books, documents, etc., before the Com- mission, or in obedience to the subpoena of the Commis- sion, on the ground that the testimony or evidence may tend to criminate him or subject him to a penalty or for- feiture. And any person who shall neglect or refuse to attend and testify, or to answer any lawful inquiry, or to produce any books, papers, documents, etc., if in his power to do so, shall be guilty of an offense; and upon convic- tion thereof by a court of competent jurisdiction shall be punished by a fine of not less than $100, nor more than $5,000, or by imprisonment for not more than one year, or by both such fine and imprisonment. Section eight of the Act to Regulate Commerce makes the carriers liable for damages sustained in consequence of any violations of its provisions, to be paid to the per- sons injured, together with a counsel fee. "jfjiij THE EXPEDITION ACT. Section nine gives persons claiming to be damaged the right to elect whether to complain to the Commission or to bring suit in United States Court; and the officers, directors, etc., of the carrier may be compelled to testify. Section ten provides that any common carrier violat- ing the Act, or any director or officer thereof, or any re- ceiver, trustee, lessee, agent or person acting for or em- ployed by such corporation, shall, upon conviction, be subject to a fine of not to exceed $5,000 for each offence; and in case such violation shall be an unlawful discrim- ination in rates, fares or charges for the transportation of passengers or property, such person shall, in addition to such $5,000 fine, be liable to imprisonment in the peni- tentiary for a term of not exceeding two years, or both such fine and imprisonment, in the discretion of the court. And any common carrier, whenever such common carrier is a corporation, any officer or agent thereof, or any per- son acting for or employed by such corporation, who, by means of false billing, false classification, or false report of weight, or by any other device or means, shall assist, or shall willingly suffer or permit, any person or persons to obtain transportation for property at less than the regular rates then in force, shall be guilty of a misde- meanor, and shall, upon conviction, be subject to a fine of not exceeding $5,000, or imprisonment in the penitentiary for a term not exceeding two years, or both, in the discre- tion of the court. The Expedition Act. An Act approved February 11, 1903. The first sec- tion provides that in any suit in equity pending or here- after brought in any Circuit Court of the United States under the Act entitled "An Act to protect trade and com- merce against unlawful restraints and monopolies," ap- proved July 2, 1890, "An Act to regulate commerce, ap- 60 SAFETY APPLIANCES ACTS. proved February 4, 1887, or any other acts having a like purpose that hereafter may be enacted, wherein the United States is complainant, the Attorney General may file with the clerk of such court a certificate that, in his opinion, the case is of general public importance, a copy of which shall be immediately furnished by such clerk to each of the circuit judges of the circuit in which the case is pend- ing. Thereupon such case shall be given precedence over others and in every way expedited, and be assigned for hearing at the earliest practicable day. The second section provides that in every suit in equity pending or hereafter brought in any Circuit Court of the United States under any of said acts, wherein the United States is complainant, including cases submitted, but not yet decided, an appeal from the final decree of the Cir- cuit Court will lie only to the Supreme Court, and must be taken within sixty days from the entry thereof. The Safety Appliances Acts. An Act requiring common carriers engaged in inter- state commerce to make full reports of all accidents to the Interstate Commerce Commission. This Act, approved March 3, 1901, provides that it shall be the duty of the general manager, superintendent, or other proper officer of every common carrier engaged in interstate commerce by railroad, to make to the Inter- state Commerce Commission a monthly report, under oath, of all collisions of trains, or where any train or part of a train accidentally leaves the track, and of all accidents which may occur to its passengers, or employees while in the service of such common carrier and actually on duty, which report shall state the nature and causes thereof, and the circumstances connected therewith. Section 2 makes failure to make such report within thirty days after the end of any month a misdemeanor 61 SAFETY APPLIANCES ACTS. and prescribes a penalty of not more than one hundred dollars for each offence, and for every day during which it shall fail to make such report. Section 4 provides that the Interstate Commerce Com- mission is authorized to prescribe for such common car- riers, a method and form for making the reports. An Act to promote the safety of employees and trav- elers upon railroads by compelling common carriers en- gaged in interstate commerce to equip their cars with automatic couplers and continuous brakes, and their lo- comotives with driving-wheel brakes, and for other pur- poses. This Act was approved March 2, 1893, and amended April 1, 1896. It provides that from and after the first day of January, 1898, it shall be unlawful for any com- mon carrier engaged in interstate commerce by railroad to use on its line any locomotive engine in moving inter- state traffic not equipped with a power driving-wheel brake and appliances for operating the train-brake sys- tem, or to run any train in such traffic that has not a suf- ficient number of cars in it so equipped that the engineer on the locomotive can control its speed without requiring brakemen to use the common hand-brake. Section 2 provides that on and after January 1, 1898, it shall be unlawful for any such common carrier to haul or permit to be hauled or used on its line, any car used in moving interstate commerce not equipped with couplers coupling automatically by impact, and which can be un- coupled without the necessity of men going between the ends of the cars. Section 3 authorizes common carriers to refuse cars from connecting lines or shippers, when not properly equipped in accordance with the first section of the Act. Section 4 provides that from and after the first day of 62 SAFETY APPLIANCES ACTS. July, 1895, it shall be unlawful for any railroad com T pany to use any car in interstate traffic that is not pro- vided with secure grab irons or handholds in the ends and sides of each car for greater security to men in coupling and uncoupling cars. Section 5 authorizes the American Railway Associ- ation to designate to the Interstate Commerce Commission the standard height of drawbars for freight cars, meas- ured perpendicular from the level of the tops of the rails to the centers of the drawbars, and to fix maximum vari- ation from such standard height to be allowed between the drawbars of empty and loaded cars. In the event of the failure of the association to determine such standard, it is made the duty of the Interstate Commerce Commis- sion to do so before July 1, 1894 ; and after July 1, 1895, no cars, either loaded or unloaded, shall be used in inter- state traffic which do not comply with the standard above provided for.* This Act was amended April 1, 1896, Section 6 pro- viding a penalty of f 100 for each and every violation of its provisions. It is made the duty of the Interstate Com- merce Commission to lodge with the proper district at- torneys information of any such violations as may come to its knowledge. Section 7 of the amended Act gives the Interstate Commerce Commission authority from time to time, upon full hearing and for good cause, to extend the period within which any common carrier shall comply with the provisions of the Act. This Act was again amended March 2, 1903, so as to make it apply in the Territories and the District of Co- lumbia, and to apply in all cases, whether or not the couplers brought together are of the same kind, make or type ; and the provisions and requirements of the acts re- * Prescribed standard height of drawbars; Standard gauge roads, 34J inches; narrow gauge roads, 36 inches; maximum variation between loaded and empty cars, 3 inches. 63 FIFTH OR AXTIPOOLING SECTION OF THE ACT TO REGULATE COMMERCE. lating to train brakes, automatic couplers, grab irons and the height of drawbars shall be held to apply to all trains, locomotives, tenders, cars and similar vehicles used on any railroad engaged in interstate commerce, and in the Territories and District of Columbia, and to all other locomotives, tenders, cars and similar vehicles used in connection therewith, except those exempted by the pro- visions of Section 6 of the Act of March 2, 1893. Section 2 of the amended Act provides that power or train brakes shall be on not less than fifty per cent, of cars in trains, and that the Commission may increase the mini- mum percentage of power or train brake cars to be used. Section 3 provides that the provisions of the Act shall not take effect until September 1, 1903. The Act to regulate commerce has been in effect about eighteen years. That in its practical operation it has ■conferred great benefits upon the people, as well as on the railroads, cannot be questioned. Some of the causes of complaint have been removed; other evils have at least been restricted. That the purposes of the Act have not been fully attained, is due in a measure to the difficulties inherent in the subject of railroad regulation by the Gov- ernment, and to the fact that the rule of free competition has been embodied in the law. It is manifestly impossible to cover by legislation, all the details of the various and varying conditions that have to be considered in the establishment of rates ; hence such regulation can only be of a general character, and the co-operation of the railroads is absolutely necessary to the proper enforcement of the Act. Such co-operation can best be secured through organized bodies such as traffic associations. The fifth section of the Act greatly weakened these 64 FIFTH OR AXTIPOOLING SECTION OF THE ACT TO REGULATE COMMERCE. associations by depriving them of one of the most effective means of restricting unjust discrimination. This was well known at the time the Act was passed. The Select Committee, in its report, does not recommend that a di- vision of traffic, improperly called pooling, be prohibited. It says : "For these reasons the committee does not deem it prudent to recommend the prohibition of pooling, which has been urged by many shippers, or the legalization of pooling compacts, as hasi been suggested by many rail- road officials and by others who have studied the ques- tion. "The prohibition of pooling is asked only to prevent the evils incident to the operation of the system as it has been conducted, and to avert the political dangers appre- hended from combinations of aggregate corporate power. Its legalization is asked because pooling has thus far failed to accomplish its purpose by reason of the impossi- bility of enforcing the compacts made. The ostensible object of pooling is in harmony with the spirit of regula- tive legislation, but it is admitted that it has failed to accomplish its avowed purpose. "The effect of pooling under a wise system of regula- tion cannot, perhaps, be fairly judged by its operation in the past under entire freedom from legislative restric- tions, nor can it be safely assumed that it would be sub- ject to the same objections and give rise to the same com- plaints under legislative regulation, as it has under the conditions which have heretofore governed its operation. "It is believed that the evils which have been com- plained of can be largely remedied under the method of regulation proposed in the bill herewith reported. If this should prove to be the case, the prohibition of pool- ing is unnecessary. If it should not, this defect in the system of regulation can readily be corrected by addi- tional legislation. "But, in any event, the evils to be attributed to pool- ing are not those which most need correction, and, if agreements between carriers should prove necessary to 65 FIFTH OR ANTIPOOLING SECTION OF THE ACT TO REGULATE COMMERCE. the success of a system of established and public rates, it would seem wiser to permit such agreements, rather than by prohibiting them, to render the enforcement and main- tenance of agreed rates impracticable. The majority of the committee are not disposed to endanger the suc- cess of the methods of regulation proposed for the pre- vention of unjust discrimination by recommending the prohibition of pooling, but prefer to leave that subject for investigation by a commission when the effects of the legislation herein suggested shall have been developed and made apparent." The practical operation of the Act demonstrated the correctness of this conclusion, and efforts were made to amend the fifth section of the Act. In 1892, the Acting Chairman of the Commission addressed a letter to the officials of railroads, merchants, State railroad commis- sioners and others, as follows: "Interstate Commerce Commission, "Washington, November 10, 1892. "Dear Sir: "Will you kindly address a communication to the In- terstate Commerce Commission, giving your opinion as to whether it is practicable, and if so, advisable, to amend the fifth section of the act to regulate commerce so as to legalize such contracts between competing roads as would tend to diminish unlawful discrimination and preferences in rates, and to maintain lawfully authorized reasonable rates; and stating the form of amendment that you think will best accomplish such result. Your paper will be confidential as to its source, if you desire; but we prefer to be at liberty to give it the authority of your name. "A reply as early as practicable is desired." Of the 54 answers published by the Commission, 17 were in favor of amendment of the section. The majority included the railway commissions of ten States, several 66 FIFTH OR ANTIPOOLIXfi SECTION OF THE ACT TO REGULATE COMMERCE. commercial organizations, and Hon. Charles Francis Adams. These letters are of great interest, as showing that the fifth section had operated to defeat the purpose for which the Act was passed. The following was one of the letters : "Knoxville, Tennessee, Novr. 26, 1892. "Hon. W. G. Veazey, Acting Chairman "Interstate Commerce Commission, "Dear Sir: "Washington, D. C. "I have the honor to acknowledge the receipt of your communication of the 1st inst., in which you request me to give you my opinion as to whether it is practicable, and if so, advisable, to amend the 5th Section of the Act to Kegulate Commerce, so as to legalize such contracts be- tween competing roads, as would tend to diminish unlaw- ful discrimination and preference in rates, and to main- tain lawfully authorized reasonable rates, and to state the form of amendment that I think will best accom- plish such results. I beg to submit the following : First. — The unjust discriminations in rates which are prohibited by the act to regulate commerce are the inevitable result of unrestrained competition. Second. — Congress, in passing the act to regulate commerce, had two objects in view, — the desire to give the people all the benefits of free, unrestrained competition between carriers, and at the same time protect them from the evils which necessarily result from such competition. It is obvious that these objects are inconsistent. One must defeat the other. This inconsistency must always prove fatal to a proper enforcement of the act to regulate commerce. Third. — In order to prevent unjust discrimination in rates, it is necessary to restrain and regulate competi- tion. The Government alone cannot regulate competi- tion. It must have the co-operation of the railroads, and 67 FIFTH OR ANTIPOOLING SECTION OF THE ACT TO REGULATE COMMERCE. such co-operation can be made most effective by means of associations of transportation lines, formed for the pur- pose of establishing and maintaining reasonable rates, and of enforcing proper rules for the conduct of competi- tive business. Fourth. — Experience has shown that no matter how perfect the organizations of such railroad associations may be, and no matter how earnestly its members may desire to carry out in good faith, the provisions of the contracts, the object of such associations ; that is, the strict maintenance of rates on competitive traffic, can never be attained so long as the railroads are not allowed to divide competitive traffic, and to pay in money any bal- ances that may become due to the weaker lines. Fifth. — The fifth section of the act to regulate com- merce prohibits such division of traffic, improperly called pooling, and deprives the railroads of the only means in their power to prevent unjust discrimination in rates. The fifth section thus defeats the very object of the act to regulate commerce. In view of the above propositions, which experience has rendered self-evident, I do not hesitate to express the opinion that in order to carry out the provisions of the Interstate Commerce Act, it is not only advisable, but ab- solutely necessary, to amend said act so as to permit such contracts between competing lines as would tend to regu- late competition by means of a division of traffic, and such reasonable rules and regulations as will best serve the purpose of diminishing unlawful discrimination and preference in rates, and maintaining lawfully authorized reasonable rates. As to the form of amendment, I am of opinion that good results would be accomplished if the fifth section were eliminated from the act to regulate commerce. Such elimination appears to be entirely practicable. Still better results would be accomplished by an amendment of the fifth section legalizing such contracts between competing lines, and providing for their enforce- 63 FIFTH OE ANTIPOOLING SECTION OF THE ACT TO EEGDLATE COMMERCE. ment in the courts when approved by the Interstate Com- merce Commission. While I am of opinion that such an amendment would be for the best interests of the people as well as of the railroads, I am not prepared to say that it is practicable, in view of the opinion so generally pre- vailing that such contracts are against public policy. The opinion is erroneous. It is based upon the fear that com- binations between railroads would result in monopolies and extortionate rates. This fear is groundless because competition between the carriers themselves, competi- tion with water lines, and competition between markets, must always prevent unjust and unreasonable charges for transportation, even if the Interstate Commerce Com- mission and the State Commissions did not protect the people against such charges. "Yours very respectfully, "Henry Fink, "Eeceiver East Tenn., Va. and Ga. Ky. Co., etc." One of the defects of the Act to Eegulate Commerce is to be found in the underlying idea that competition must be left without restraint. This idea is embodied in the fifth or anti-pooling section, which has impaired the efficiency of the Act, The prejudice against the division of traffic furnishes an illustration of the influence of a mere catchword upon the public mind. There is no analogy between the apportionment of business or of revenue between the railroads, and a combination of bet- tors in a race, a stake in a gambling game, or a specula- tion in stocks. Yet the word "pool" proved to be a death sentence to one of the most useful methods of rate regula- tion, a method to which no objection can be made. For it is well known that divisions of business have in no case put an end to competition, nor have they resulted in un- reasonable rates. On the contrary, rates steadily and materially decreased while pooling was permitted. So long as the public enjoys just, reasonable and indis- (39 FIFTH OR ANTIPOOLING SECTION OF THE ACT TO REGULATE COMMERCE. criminatory rates, it can have no interest what- ever in the division of traffic, or of revenue between competing railroads; and it is immaterial to it whether such division is the result of free competition, or whether it is made by agreement. There must, neces- sarily, be some division; and the interesting fact was brought to light at the time the rate-wars between the Trunk Lines were of frequent occurrence, that the propor- tion of traffic which each competitor obtained was prac- tically the same during such wars, as when there was peace, and rates were fairly well maintained. This shows that these proportions are dependent in a great measure upon the respective facilities that competitors can offer to the public. Efforts to amend the fifth or anti-pooling section of the Act proved unsuccessful. The House of Representa- tives, Fifty-third Congress, Third Session, passed, De- cember 11, 1894, an Act to amend an act to Eegulate Com- merce, and which provided that under certain conditions it should be lawful for common carriers to enter into agree- ments enforceable between the parties thereto — the condi- tions being that the contracts should be subject to ap- proval by the Interstate Commerce Commission, which was to observe the workings and effects of such contracts as have become operative; and if the Commission found that rates and charges were excessive or unrea- sonable, or resulted in any unjust discrimination, it should issue an order requiring such rates, etc., to be modified or corrected; or the Commission might, if it should deem necessary, make an order disapproving the contract, in which case it should become illegal. This Bill failed to pass the Senate. Bills embodying substantially the t same provisions were introduced by Mr. Patterson in the House, January To DEFECTS OP THE ACT TO REGULATE COMMERCE. 13, 1896 (Fifty-fourth Congress, First Session), and by Mr. Foraker in the Senate, March 30, 1897 (Fifty-fifth Congress, First Session), by Mr. Harris of Kansas in the Senate, May 11, 1897), (Fifty-fifth Congress, First Ses- sion) ; and by Mr. Culloin by request, May 25, 1897. All these bills provided for permission to make contracts under certain conditions. No further action seems to have been proposed to amend the fifth section of the Act, until Senator Elkins, during the First Session of the Fifty-seventh Congress, introduced his first bill, one section of which contained a pooling clause, which, however, the Senate Committee on Interstate Commerce refused to report. The clause was therefore eliminated; and the other section, with some modifications, was passed, and is now known as the Elkins Act, It was found that no legislation permitting a division of traffic, or so-called pooling, could be enacted, because the same popular apprehension that such agree- ments between railroads might result in monopolies, and which had compelled Congress to put the section into the Act, continued to prevail. Another serious defect, and which prevented its effi- cient enforcement, has been found to be the fact that it is impossible for the Commission, however able and indus- trious its members have proved to be, to discharge the various duties of the office. They were required to see that all the provisions of the Act are carried out, that tariffs filed and published are adhered to ; and they must act as detectives and discover any violations of the law. They are required to investigate the numerous complaints that come before them, and also such as they institute themselves, and determine judicially whether or not the law has been violated ; and if so, they must act as prose- cutors and see that the offending parties are punished. In addition to these duties, and others that might be 71 THE ELKINS ACT. mentioned, the supplementary acts require them to see that the railroads equip their cars with automatic coup- lers, and an adequate proportion of their engines and cars with air-brakes. They must require monthly acci- dent reports, and endeavor to ascertain the causes of these accidents. It cannot be questioned that the Commission has en- deavored to conscientiously and faithfully perform the duties assigned to it; but the burdens imposed upon the Commissioners largely exceed the power of five men, no matter how great their ability and industry may be. THE ELKINS ACT. During the Fifty-fifth and Fifty-sixth Sessions of Congress, several bills were introduced, having for their object the strengthening of the Act to Regulate Com- merce, so as to insure a more prompt and efficient en- forcement of the law. As none of the proposed amend- ments were adopted, it is not necessary to examine their provisions here. One of the most important laws regulating railroad rates was enacted by the Fifty-seventh Congress. It is the Elkins Act, approved February 19, 1003. It deals in a thorough and practical manner with unjust discrimina- tions caused by the non-observance of tariffs published and filed with the Commission. The effect of this law has already been beneficent; and it is safe to say that it& enforcement will ultimately abate the evil of unjust dis- crimination, so far as it is practicable for Government regulation to do so. The Act provides that anything done or omitted to be done in violation of the Act to Regulate Commerce, and of the Elkins Act, committed -by any director or officer of a corporation, shall be held to be a misdemeanor com- 72 THE ELKINS ACT. mitted by such corporation, and upon conviction thereof shall be subject to like penalties prescribed by these Acts. The failure to file tariffs and to strictly observe them, makes the offending corporation subject to a fine of not less than $1,000, nor more than $20,000, for each offence. The same penalties are imposed upon corporations or persons who offer, grant, give or solicit, accept or receive any rebate for the transportation of any property which shall by any device whatever, be transported at a less rate than that named in the tariffs published and filed by such carrier. The Act, however, abolished the penalty of imprison- ment of such persons. Under this Act, the rates filed with the Commission are conclusively deemed to be the legal rates; and any departure therefrom is deemed an offence under the Act (Section 1). Section three provides that whenever the Commission shall have reasonable ground for belief that any common carrier is engaged in the carriage of passengers or freight traffic at less than the published rates on file, or is com- mitting any discriminations forbidden by law, a petition may be presented alleging such facts, to the circuit court of the United States sitting in equity having jurisdiction; whereupon it shall be the duty of the court to inquire into the circumstances in such manner as the court shall direct, and to make such other persons or corporations parties thereto as the court may deem necessary; and npon being satisfied of the truth of the allegations of said petition, said court shall enforce an observance of the published tariff, or direct a discontinuance of such dis- crimination by proper orders, writs and processes, sub- ject to the right of appeal as now provided by law. This Act makes it the duty of the several district at- torneys of the United States, whenever the Attorney-Gen- n THE SHERMAN ANTITRUST ACT, AND ITS EFFECTS. eral shall direct, either of his own motion or upon request of the Commission, to institute and prosecute such pro- ceedings; and the proceedings provided by the Act shall not preclude the bringing of suit for the recovery of dam- ages by any party injured, or any other action provided by the Act to Eegulate Commefce and the Acts amend- atory thereof. And the courts shall have power to com- pel the attendance of witnesses, who shall be required to answer on all subjects relating to the matter in controv- ersy, and to compel the production of all books and papers both of the carrier and the shipper, which relate to such transaction; and the claim that such testimony or evi- dence may tend to criminate the person giving such evi- dence shall not excuse such person from testifying, or such corporation from producing its books and papers; but no person shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter or thing concerning which he may testify, or pro- duce documentary or other evidence in such proceeding. THE SHEEMAN ACT. "An Act to protect trade and commerce against un- lawful restraints and monopolies," and known as the Antitrust or Sherman Act, was approved July 2, 1890. It declares to be illegal, "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." It provides that every person who shall monopolize or attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be guilty of a misdemeanor, and on conviction thereof, shall be punished by a fine not ex- ceeding five thousand dollars, or by imprisonment not 74 THE SHERMAN ANTITRUST ACT, AND ITS EFFECTS. exceeding one year, or by both said punishments, in the discretion of the court. At the time of the passage of this Act, the opinion generally prevailed that it was designed by Congress to curb the bad commercial and industrial trusts that public opinion had condemned, and that it was not intended to apply to railroad corporations. This opinion seemed to be justified by the fact that only a few years previously, in 1887, Congress had passed the Act to Eegulate Com- merce, which applied solely to these corporations; and that the fifth section of that Act rendered it unlawful for any common carrier to enter into any contract, agreement or combination with any other common carrier for the pooling of freights of different and competing railroads, or to divide between them the aggregate or net proceeds of the earnings of such railroads. The decision of the Supreme Court of the United States of March 22, 1897, in the Trans-Missouri Freight Association case, came as a surprise, indeed as a shock, to the owners of railroads. Five of the judges of that court (the remaining four judges dissented) held in this case that "the Anti-trust Act applies to railroads, and renders illegal all agreements which are in restraint of trade or commerce." (The court below held that the Act did not apply to railroads. ) The agreement of the Joint Traffic Association having been drawn with the view of avoiding the objections to the contract of the Trans-Missouri Association, it was hoped that upon a further consideration of the Act, the Supreme Court might modify its opinion. The Joint Traffic Association case came to the Supreme Court on an appeal from the Circuit Court of the United States for the second circuit (Southern New York), which had held that the Sherman Act did not apply to railroads. But the Supreme Court reversed the decision of the Circuit 75 THE SHERMAN ANTITRUST ACT, AND ITS EFFECTS. Court, by its decision of October 24, 1S98, and again held that the Act applies to railroads. Five of the Supreme Court judges so held, three dissented, and one took no part in the decision. When the traffic official undertakes to apply the pro- visions of the Act, as interpreted by the Supreme Court, to the practical conduct of his business, some very puzzl- ing questions obtrude themselves upon his mind. He reads in the Act that "Every contract, combination in the form of trust or otherwise * * *' in restraint of trade or commerce, among the several States, or with foreign nations, is hereby declared to be illegal." He naturally desires to inform himself as to what constitutes restraint of trade; but he is unable to find in the Act a definition, which, to himself, seems applicable to railroad trans- portation. If there is any such definition in the decision of the Court in the Trans-Missouri Freight Association case, or the Joint Traffic Association case, he is unable to discover it. Ignorant of the principles of jurisdiction, he comes to the conclusion that the decisions in these cases rest upon the assumption that traffic associations are, and necessarily must be, in their operation, in restraint of trade or commerce. But he is unable to learn upon what facts or grounds this assumption is based. His own practical experience has taught him that the effect of these associations is to promote and facilitate commerce, by preventing, in a great measure, unjust discrimination, which necessarily obstructs com- merce. Upon further examination of these decisions he finds that his mind is unable to grasp the distinction between a reasonable rate of freight which has been made by agreement, and a reasonable rate which has not been made by agreement. The former is declared to be obstruc- tive to commerce, and, therefore, illegal; and the other THE SHERMAN ANTITRUST ACT, AND ITS EFFECTS. not obnoxious to the law. He understands that a rate not made by agreement might be lower than one so made; but he does not see why the higher rate, if reasonable in itself, should operate to obstruct commerce. Kates lower than those which are reasonable may be considered as un- reasonable in respect to the carrier, whose interests are to be considered in the adjustment of rates, as the U. S. Supreme Court has declared in its decision in Texas and Pacific Fail may Co. vs. Interstate Commerce Commission, 5 I. Com. Rep., pp. 405-J/37. But when the traffic official is told that, according to the decisions in these Association cases, it is immaterial whether the restraint is reasonable or unreasonable — that one is prohibited by law as well as the other, — he wonders why Congress has not changed the phraseology of a law that compels a construction which appears to himself so unreasonable, and, indeed, repugnant to com- mon sense. We have seen that the fifth section of the Act to Regu- late Commerce greatly weakened the traffic associations, and prevented the efficient co-operation of the railroads in rate regulation. The decision of the court in the Joint Traffic Association case has impaired the usefulness of traffic associations to a degree that practically destroys them'. If it is true that the Sherman Act was not de- signed to apply to railroads, then the destruction of these important associations, the result of twenty years of labor and experiments of the railroad managers, and which have conferred such great benefits upon the railroads and the people, was due to an accident, — probably the omis- sion of a few words in framing the Act, or to phraseology that does not clearly express the intention of Congress. We have here an illustration of the irony of fate, and the fact that slight causes often produce important re- sults. The Act does not even permit traffic officers to 77 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? meet and agree upon uniform rates. This is declared to be a misdemeanor, and punishable by a fine not exceeding $5,000, or by imprisonment not exceeding one year, or by both. We have seen that the establishment of uniform rates is a necessity, if the transportation business is to be con- ducted in an orderly manner. It is said that ''necessity knows no law :" but the traffic men do, and are bound to observe it. Necessity is said to be the mother of inven- tion; but it is not to be expected that ingenuity of the highest order, when stimulated by necessity, can devise a method of establishing uniform rates without holding meetings of traffic officials, — which are prohibited by law ! As telepathy, or some occult science, cannot be utilized in rate-making, it is manifest that the desired end can only be attained by restoring to the railroads the right of self-government : and this can only be done by legislation. In the course of our inquiry into rate regulation by the Federal Government, we have seen that existing legislation has been largely influenced by the popular fear that railroad corporations might become great monopolies. Before entering upon the subject of ad- ditional legislation, it may serve a useful purpose to con- sider the question : CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? So far, experience has shown that this fear is ground- less. It can be demonstrated that, owing to the geo- graphic situation of this country, and the operation of economic laws, these corporations can never acquire such a control of transportation systems as to enable them to exact unreasonable rates of transportation from the public. 78 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? It is well known that the free highways of the ocean, the lakes, navigable streams and canals, are great regu- lators of railroad freight rates. I can give no better illus- tration than to quote from my monograph above referred to, — taking as an example, the section of country south of the Ohio and east of the Mississippi rivers : "It will be seen from a glance at the map, that the Southern territory is exceptionally and favorably situ- ated in respect to transportation facilities, and cheapness of transportation. About five-sixths of the territory is surrounded by navigable water, the Atlantic Ocean on the east, the Gulf on the south, the Mississippi on the west, and the Ohio Eiver on the north. Navigable streams penetrate far into the interior of the country. The Savannah River connects the Atlantic Ocean with Augusta, a city only 171 miles by rail from Atlanta, an important city situated near the center of the terri- tory. The Chattahoochee River, which empties into the Gulf, is navigable to Columbus, 127 miles from Atlanta by rail. The Alabama River empties into the Gulf at Mobile, and connects Selma and Montgomery with the Gulf. The City of Montgomery, the capital of Alabama, is only 175 miles by rail from Atlanta. The Coosa River, which empties into the Alabama River, is navigable to Rome, a city only 72 miles from Atlanta. The Tombigbee River, which empties into the Ala- bama River, is navigable some distance above Demopolis, which is 275 miles from Atlanta. One hundred and thirty-eight miles north of Atlanta, we strike, at Chattanooga, the Tennessee River, which has been made navigable to its mouth by the Government 79 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? at great expense. From Chattanooga, the Tennessee River is also navigable as far as Knoxville. At the City of Nashville, 289 miles from Atlanta, we strike the Cumberland River, navigable all the way to the Ohio River. A circle drawn with Atlanta at its center, with a radius equal to the distance by rail from Atlanta to Au- gusta, will strike all these navigable rivers except the Cumberland and Tombigbee Rivers. Atlanta is distant 309 miles from Charleston by rail, and 294 miles from Savannah, 278 miles from Bruns- wick, and 354 miles from Mobile. The following steamship companies have lines of steamers plying regularly between Northeast Atlantic and South Atlantic, and Gulf Cities: Name of Steamship Ports Between Which Its Steam- Company, ers Ply. 1. Merchants and Min- ers' Transportation Company Boston, Norfolk, Washington and Baltimore. 2. Merchants and Min- ers' Transportation Company Providence, Norfolk, West Point and Baltimore. 3. Merchants and Min- ers' Transportation Company Savannah and Baltimore. 4. C 1 y d e Steamship Company New York and Charleston, and Jacksonville, Fla. 5. C 1 y d e Steamship Company New York and Wilmington and Georgetown. 6. Old Dominion S. S. Company New York and Norfolk, Ports- mouth and Newport News. 80 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? 7. Old Dominion S. S. Company New York and Kichmond. 8. Old Dominion S. S. Company New York and West Point, Va. 9. Ocean S. S. Com- pany Boston and Savannah. 10. Ocean S. S. Com- pany New York and Savannah. 11. Ocean S. S. Com- pany Philadelphia and Savannah. 12. Mallory Steamship Company New York and Brunswick, and Brunswick and Fernandina. 13. Mallory Steamship Company New York and Galveston. 14. Morgan Line Steam- ers New York and New Orleans. 15. Cromwell Steamship Company New York and New Orleans. 16. Balto., Ches. & Rich- mond S. S. Co Baltimore and West Point. 17. Norfolk and Wash- ington Steamboat Company Washington and Norfolk. 18. Balto. Steam Packet Company Baltimore, Norfolk and Ports- mouth. The following are the main rail lines connecting with these steamships at the Atlantic and Gulf Ports, and forming through lines between Northeastern Cities and the Southern territory : — Name of Port. Railroads Connecting With Such Ports, and Forming Through Lines to the South. West Point, Va Southern Railway (Pied- mont Air Line). 81 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? Norfolk, Ya 1. Norfolk and Western road, and Virginia. Rail- Ten- Portsmouth, Va Kichmond, Ya 1. 2 Wilmington, N. C 1. nessee and Georgia Air Line. Norfolk and Carolina Rail- road ( Atlantic Coast Line ) . Seaboard and Roanoke Rail- road ( Seaboard Air Line) . Southern Railway (Pied- mont Air Line). Atlantic Coast Line. Cape Fear and Yadkin Val- ley Railroad. 2. Carolina Central Railroad (Seaboard Air Line). 3. Wilmington and Weldon Railroad ( Atlantic Coast Line). Georgetown, S. C Georgetown and Western Railroad ( Atlantic Coast Line). Charleston, S. C 1. Atlantic Coast Line. 2. South Carolina and Georgia Railroad. Savannah, Ga 1. Central Railroad of Georgia. 2. Florida Central and Penin- sular Railroad. 3. Savannah, Florida and Western Railway. Brunswick, Ga 1. Southern Railway. 2. Savannah, Florida and Western Railway. Fernandina, Fla Florida Central and Penin- sular Railroad. Jacksonville, Fla 1. Florida Central and Penin- sular Railroad. 2. Savannah, Florida and Western Railway. 3. Jacksonville, Tampa and Key West Railway. 82 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? Mobile, Ala 1. Louisville and Nashville Railroad. 2. Mobile and Ohio Railroad. 3. Mobile and Birmingham Railway. New Orleans, La 1. Louisville and Nashville Railroad. 2. Queen and Crescent System. 3. Illinois Central Railroad. 4. Yazoo and Mississippi Val- ley Railroad." (Since 1894, when the above was written, several new railroads have been built in the South, and, with some of the older ones, annexed to the strong systems. ) "We have seen that nearly all the main lines, or sys- tems, reach Atlanta from the seaboard, either with their own lines or by means of their connections. Atlanta may be considered as the railroad center of the Southern ter- ritory. The rates of freight from Eastern Seaboard Cities to Atlanta, necessaril}' have a controlling influence upon the rates in the entire Southern territory ; — that is to say, they are the maximum rates that can be maintained to points of competition. The rates from New York to Chat- tanooga, Rome, Anniston, Birmingham, Selma and Mont- gomery, are the same as the rates from New York to At- lanta, and cannot be higher. North of Chattanooga the influence is felt of the low rates by the Eastern Trunk Lines to Cincinnati, Louisville, and Nashville, and com- petition by the Cumberland River. East and south of Atlanta, the rates have to be graded down until they reach the steamers' rates to the ports on the Atlantic. Rates to the territory south of Montgomery, and Sel- ma, are affected by the steamers' rates to the Gulf Ports, and the rates to the territory west, and northwest, of Sel- ma, Birmingham, and Anniston, are affected by the low rates to Vicksburg, Memphis, and points in the Missis- sippi Valley. It must be obvious that under these circumstances the S3 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? rates cannot be established on a percentage distance basis. Distance is not a controlling, nor even a very important factor, in the establishment of rates in the Southern ter- ritory. The idea that rates in the Southern territory can be established, arbitrarily, by the transportation lines, or through the medium of the Southern Railway and Steam- ship Association, is erroneous. The fact is, that neither the lines separately, nor the Southern Railway and Steamship Association, have the power to make, or estab- lish the rates from Eastern Seaboard Cities to Southern territory. They can only adjust them from time to time in accordance with conditions and circumstances over which they have no control. The maximum rates from Northeastern Cities to At- lanta are made by reference to the rates of the Steamship Companies from such Northeastern Cities to Savannah, Ga., added to the rates established by the Railroad Com- mission of the State of Georgia from Savannah to At- lanta. The former rates are unreasonably low by reason of the competition between the steamships and between the steamships and sailing vessels. The rates made by the Georgia Commission are, as might be expected, reason- ably low; and the sum of the two rates; that is, the maxi- mum rates that can be charged from Northeastern Cities to Atlanta, and the Southern territory, are unreasonably low." Throughout the North and West, the Atlantic and Pacific Oceans, the Great Lakes, the Mississippi, Missouri and Ohio Rivers and their tributaries, and the artificial water-ways, are also great regulators of freight rates. And the Panama Canal, when completed, will exercise a potent influence on freight rates to and from the Pacific Coast. The importance of cheap transportation between Chi- cago and New York by the Great Lakes and Erie Canal 84 CAN RAILROAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? and Hudson River, can hardly be over-estimated. About twenty years ago it was proposed to extend and strengthen the system of water transportation by the construction of additional canals connecting and shortening natural water routes. But practically little has been done in this direction, — probably because the railroads have fur- nished such excellent service at reasonable cost, that the large expenditures necessary to extend the waterways were deemed unnecessary. In recent years the State of New York has determined to Aviden and deepen its Erie Canal; but it may be doubted whether the advantages that will accrue to the people from this work will be adequate compensation for the burden of additional taxation. The influence of water transportation is not confined to the localities that are accessible by navigable streams, but is felt at places remote from points of direct com- petition with the railroads. This has been clearly shown by investigations of the Interstate Commerce Commission and of the courts, of cases that have arisen under the fourth, or long and short haul section, of the Act to Regu- late Commerce. Another important feature in the regulation of rail- road rates is competition between markets. It is mani- fest that the railroads must always put the producers on the lines of their respective roads on an equality as to rates, as far as it may be practicable, with the producers in other sections of the country that ship to the same markets. And another factor in the regulation of freight rates, which is second only in importance to the influence of the water lines, is the enlightened self-interest of the owners of railroads. Experience has taught them a severe lesson,— that extortionate rates mean bankruptcy for their corporations. They know that in order to get a 85 CAN EAILEOAD CORPORATIONS BECOME MONOPOLISTIC TRUSTS? fair return on the capital invested, they must establish rates with the view of developing the resources of the country, thus increasing the volume of the traffic. It is a question of large business and small profits. And this lesson has been heeded. As early as 1887, the investi- gation before the Senate Select Committee showed that there were few complaints of extortionate rates: and in recent years, we have had the testimony of the Chairman of the Interstate Commerce Commission that rates un- reasonable per se were practically obsolete. The enormous growth of the traffic of this country has compelled the railroad companies to enlarge their facili- ties, to provide additional tracks, to improve their road- beds by reducing grades, and revising alignments, re- visions that in many cases amounted to reconstruction; and to increase their equipment. This has necessitated enormous capital expenditures, and furnishes an addi- tional reason why the owners of railroads cannot afford to charge extortionate rates, as such rates would kill their business, prevent the development of their traffic, and im- pair the earning powers of their roads. The thoughtful observer, after due consideration of these facts, must come to the conclusion that railway monopolies are not possible in this country, and that this would be true even in the absence of restrictive legislation. The following table shows the mileage operated, the tons hauled one mile, and the average rate per ton per mile, on American railroads, from 1882 to 1903, both inclusive : 86 REDUCTION IN RATES. Railways op the United States. Year. Mileage Operated. Tons Hauled. Tons Hauled, One Mile. Average rate per ton per mile. 1882 104,971 110,414 115,704 133,320 135,185 137,028 145,387 157,758 163,597 168,402 171,563 176,461 178.708 180,657 182,776 184,428 186,396 189,294 193,343 197,237 203,471 307,977 360,490,3 75 400,453,439 399,074,749 437.040,099 483.245.254 552,074,752 590,857,353 539,639,583 636,541,617 675,608,333 706,555.471 745,119,482 638,186,553 696,761,171 765.891,385 741,705,946 879,006,307 959,763,583 1,101,680,238 1.089,336,440 1,200,315,787 1.304,394.323 39,303,209.249 44,064,933,445 44,725,207,677 49,151,894,469 52,802,070,529 61.561.069,996 65,423.005,988 68,727,223,146 76,207,047,298 81,073,784,131 88,241,050,225 93,588,111,833 80,335,104,702 85,237,515,891 95,338,360.278 95,139,022,225 114,077,576,305 123.667,257,153 141,599,157,270 147,077,136,040 157,289,370,058 173,221,278,993 1.236 cts. 1883 1.236 ' 1.124 ' 1.057 ' 1.042 ' 1.034 ' 0.977 ' .922 ' .941 ' .895 ' .898 ' .878 ' .860 ' .839 ' .806 ' .798 ' .753 ' .724 ' .729 ' .750 ' .757 ' .763 ' 1884 1885 1886 1837 1888 1839 1900 1891 1893 1893 1894 1896 1897 1898 1899, 1900 1901 1902 (The above figures, 1883 to 1888, inclusive, are from Poor's Manual for 1890. The figures, 1889 to 1903, inclusive, are from the annual Statistics of Railways in the United States, issued by the Interstate Commerce Commission.) It will be seen that during the twenty-one years from 1882 to 1903, the mileage operated increased 103,006 miles, or over 98 per cent., and the tons hauled one mile increased 133,919,069,744, or over 340 per cent., and that the average rate per ton per mile decreased .473, or over 38 per cent. It was during this period that many of the consolida- tions of railroads were effected. The above figures speak more eloquently than any words could do, of the material development of this coun- try during the last twenty-one years, the enormous growth of the traffic, due to the enterprise of the people and the efficient work of the railroads. 87 REDUCTION IN KATES. The following tables, compiled from the Interstate Commerce Commission's "Forty- Year Eeview of Changes in Freight Tariffs," show the great reductions that have been made in competitive rates. Freight Rates Charged for the Transportation of Classified Traffic, via All-Rail Routes, from New York to Chicago from January 1, 1862, to April 1, 1902. 3LASSES( RATES IN CENTS PER 100 POUNDS). Classes(rates in cents per 100 pounds). 1 i 2 i 3 4 e | Special 1 or 6. 1 2 3 50 SO 4 '5 45 37 30 24 Special or 6. 1862.. Oct. 9 160 128 107 180 150 125 66 75 1871.. 1872. . 1873.. ,1874.. 1875.. 1876.. 1877.. 1878.. 1881.. 1882.. 1885.. 1888.. July 8 Sept. 1 Dec. 15 Aug. 1 Oct. 14 Aug. 13 Dec. 1 Jan. 1 Aug. 3 Jan. 20 May 18 Dec. 22 Jan. 10 July 28 Dec. 18 March 12.... Dec. 10.... Feb. 15 Aug 6 Not. 14 Jan. 24 Not. 1 Jan. 26 Not. 18 Nov. 12 Dec. 17 to April 1, 1902 75 65 SO 1 30 1863.. 1864.. 1865 . May 14 Nov. 23 July 25 Sept. 20 May 8 160 117 94 180 150 124 200 166111 215 180 120 215180 106 55 85 85 90 Mr 1' 125 110 85:65 50 75 70 60 '45 35 125 110i85j65 50 100 90 75160 45 27 27 18 18 17 75 70 60 45 35 100' 90,75:60 45 1866. . Oct. 16 Feb. 5 215'180 90 82 .. 215 170 82 82 . . 188 160 127 S2 . . 202 170 138 86'.. .. 188 160 127 82 .... 70 60 55 50 . . . 202 170 138 86 .... 188 160 127 82 55 ... 45 45 45 45 46 . . 25 25 25 25 25 35 35 35 85 35 50 50 50 50 50 75 75 7575 50 150 130 100 80 55 140 125 100 80 50 80 70 60 50 35 42 1867. . March 5 75 ' 70 100 90 40 40 30 25 60 45 35 75160 146 35 35 25 20l20 115 1868. . Oct. 1 1869.. Dec. 7 Feb. 1 Feb. 7 Aug. 11 Sept. 24 Oct. 4 75 70 60 15 15 15 50 45 40 75 70 6' 100 80 60 75. 60 50 45. 32 26 60' 50 '40 45' 3226 75' 60 '45 45 35 10 10 30 ,25 45 ! 45 45 ! .. 40 .. Oct 9 19 .. Nov 29 April 14 Aug. 12 Nov. 28 Feb. 20 May 18 28 .. 1870 19 .. 35 .. 1871.. 50 50 5C 160 130 10C 15(1 130 10C 75 65 5C 5C 65 7C 45 40 ... 50 ... 55 37 5C 7c 5( 1 ?f 40 60 65 40 65 1 30 45 50 35 150 25 18 35 .. 38J33 30 25 35 130 1 1 25 27A 20 25 88 REDUCTION IN RATES. Rates in Cents per 100 Pounds upon Grain, All Rail, prom Chicago, III., to New York, N. Y., from March 28, 1864, to April 1, 1902. Date. Rate. Date. Kate. Date. Eate. Date. Rate 1864.. Mar. 28 100 1870. Jan. 22 55 1878. Mar. 11 30 1885. Mar. 10 20 Apr. 14 75 Mar. 22 45 May 17 20 Nov. 33 2b July 28 80 May 23 40 Nov. 25 35 Nov. 12 100 Nov. 22 60 1886. Dec. 20 30 Dec. 24 160 1H7H. Mar. 24 20 1871. Mar. 4 50 June 9 15 188V. Mar. 23 25 1865.. Apr. 22 May 5 100 July 10 45 Aug. 25 30 70 Oct. 25 65 1888. Jan. 8 m Sept. 6 62j Oct. 10 20 Oct. 27 105 1H72 Mar. 25 60 1880. Mar. 1 35 Dec. 15 25 Nov. 9 130 Aug. 26 Oct. 14 45 65 Apr. 14 30 1889. July 13 20 1866.. Jan. 9 80 June 7 60 1873. Apr. 14" 16 1881. Apr. 1 30 1890. May 12 22 Oct. 10 90 Dec. 8 60 June 8 25 Dec. 29 25 105 Nov. 1 20 1874. Apr. 15 May 6 40 Dec. 9 124-20 1892. May 9 20 1867. . Feb. 7 80 45 Oct. 10 25 Apr. 15 50 1882. Mar. 13 25 June 8 75 1875. Oct. 1 30 Dec. 1 30 1893. Dec. 7 20 Sept. 23 85 Dec. 1 45 1883 Apr. 19 25 Dec. 25 15 1868.. Sept. 1 60 1876. Mar. 7 40 Nov. 26 30 1894. Jan. 1 25 Dec. 7 75 1877 May 5 Jan. 2 20 35 1884. Jan. 5 Mar. 21 20 15 Feb. 27 Nov. 12 20 25 1869.. Jan. 25 Mar. 11 70 50 i Oct. 17 40 July 21 25 1895. 1896. Feb. i July 8 July 15 Oct. 31 20 20 15 20 Date. Rate. Date. Rate. 3 u a 3 % a si o fi o fc '£ Q b & O 1897.. Jan. 20 20 20 15 1900. . Mar. 5 15 15 15 Oct. 15 23£ 22S 22J Nov. 1 (Export) 17£ 16 16 1898. . Jan. 1 20 20 174 1901 . . June 1 15 15 15 June 27 18 18 17i June 1 (Export) Oct. 21 15 18J 16 13.J 161 1899. . Feb. 1 20 17i 17J 1902.. Mar. 17 (Export) 15 16 16 1 Apl. 7 (Export) 20 12 12 "29 " 15 13 13 Sep, 18 17 20 18 Apr. 14 •' 17j 16 16 1899.. Sept. 18 (Export) Nov. 1 17 22 14 20 14 20 89 REDUCTION IN RATES. Freight Rates per Ton of 2,240 Pounds Charged for the Transportation of Anthracite Coal from Collieries on the Lehigh Valley Railroad in the Lehigh, Mahanoy, and Wyoming Regions to Perth Amboy, from June 7, 1875, to April 1, 1902. Date. Per Ton, 2,240 Pounds. Date. Pee Ton, 2,240 Pounds. Prom Lehigh and Mahanoy Regions. From Wyoming Region. From Lehigh and Mahanoy Regions. From Wyoming Region. • ■o ■rt * •o «s "8 12 §3 ■a ■«$ c3 O G3_M E H M3 a* a t. m ti 4 tn *f b 3 o Oh 3 O 04 Ph 3 3 O 8* C4 a Q If W s ffl $ $ « m % 8 $ % % $ $ $ $ 1875 June 7 July 1 2.56 2.54 2.86 1.84 1882 May 29 July 10 1.75 1.90 2.11 Oct. 1 2.60 2.90 1876 Feb. 1 2 41 « 71 1884 1.77 1.57 1.571.86 1 66 1.66 Sept. 1 1.59 1.89 1885 Feb. 2 1.57 1.37 1.37 1.66 1.46 1.46 Nov. 1 1.62 1.92 Aug. 27 1.37 1.17 1.17|1.46 1.26 1.26 1877 April 1 1.36 1.57 1886 Oct. 1 1.47,1.27 1.27 1.56 1.36 1.36 Oct. 29 1.41 1.70 1887 April 4 1.56 1.41 1 41 1.67 1.52 1 52 Nov 21 1.81 1.68 1.66 1.92 1 77 1.77 187H Feb. 1 June 26 1.62 1 75 1.83 1 96 1888 Dec. 12 March 12.... 1.90,1.75 1.75 1.70 1.55 1.55 2.00 1.80 1.85 1 65 1 KR 1 65 May 1 1.7011.40 1.20 1.80 1.50 1.30 1871 1 «!> 1 83 1K8M April 15 Sept. 12 1 70 1 40 1 M0 1 75 1 45 1 Vfl March 19 1.25 1.46 1892 1.85 1.55 1 35 1.85 1.55 1.35 April 14 1,111 1 21 1893 1.7011.40 1 2(1 1 75 1 45 1 25 Nov. 1 Nov. 24 1.15 1.40 1.36 1.61 1894 1896 May 10 Sept. 7 1 1.501.40 1.5511.40 1.35 1.20 1.50 1.55 1.40 1.40 1 35 1.20 1880 Jan. 4 1.40 1.61 ( Apr. 1 to ) April5 1 75 1.96 1901 1 Y4 1 ' f 1.55.1.40 1 25 1.55 1.41. 1 25 Sept. 13 1.90 2.11 90 REDUCTION IN RATES. Freight Bates, per Ton of 2,240 Pounds, Charged for the Transportation of Anthracite Coal from Collieries on the Lehigh Valley Railroad, in the Wyoming and Lehigh Regions, to Buffalo, N. Y., prom August 1, 1875, to April 1, 1902. Date. From Wyoming Region. From Lehigh Region Date. From Wyoming Region. From Lehigh Region. Coal Cars. Box Cars. Coal Cars. Box Cars. Coal Cars. Box Cars. Coal Cars. Box Cars. 1875.. Aug. 1 Sept. 1 June 1 Sept. 1 Oct. 37 Mar. 1 Aug. 20 Oct. 22 Feb. 1 May 1 Apr. 1 Dec. 1 Apr. 1 Dec. 1 Jan. 1 Apr. 25 Apr. 17 Nov. 1 Apr. 33 Sept. 1 May 1 Aug. 1 $4.09 4.12 3.73 2.83 3.22 2.61 3.41 2.74 3.90 3.53 3.00 3.58 3.77 3 13 3.26 2.93 2.84 3.11 2.74 2.93 2.62 3.71 1885.. 1886.. 1887. . 1888.. 1889.. 1892. . 1894.. 1895.. 1896.. 1699.. 1900. . 1901.. Mar. 1 Nov. 2 May 1 Nov. 15 Apr. 31 Nov. 7 Apr. 16 Sept. 1 Apr. 15 May 3 Sept. 19 Apr. 3 Aug. 5 Nov. 15 Sept. 7 May 8 Jan. 1 Mar. 14 Apr. 6 to 1 Apr. 1, 1902. f $2.35 2.50 2.20 2.30 2.00 2.35 3.00 3.25 3.00 2.25 2.50 2.00 1.75 2.00 2.25 2.00 2.25 2.00 2.00 $3.15 2.30 2.00 3.15 3.00 2.25 2.00 2.25 2.00 2.25 2.50 2.00 1.75 2,00 3.25 2.00 2.25 2.00 2.00 $2.74 2.97 2.57 2.72 2.32 2.25 2.00 2.25 2.00 2.25 2.70 2.00 1.75 2.00 2.25 2.00 2.25 2.00 2.00 $2.62 2.77 1876.. 2.47 3.62 2.32 1877. . 2.25 2.00 2.25 1878.. 2.00 2.25 1879.. $1.85 3.38 3.47 2.83 2.96 2.63 2.54 2.81 2.44 2.63 2.32 2.41 2.70 2.03 1880.. 1.75 1881.. 1883.. 1883. . 1884.. $3.68 3.06 3.25 2.94 3.03 $3.29 3.58 3.25 2.96 3.38 2.76 2.95 2.64 3.73 2.00 2.25 2.00 2.25 2.00 2.00 Average Freight Rates Charged during Each Year from 1873 for the transportation of bituminous Coal from Collieries in the Clearfield Begion, on the Pennsylvania Bailroad, to Jersey City, N. J., Philadelphia, Pa., and Baltimore, Md. Year. Jersey City. Phila- del- phia. Balti- more. Year. Jersey City. Phila- del- phia. Balti- more. Year. Jersey City. Phila- del- phia. Balti- more 1873.. $4.05 $3.55 $3.55 1883.. $3.33 $2.50 $2.50 1893 $2.25 $2.00 $3.00 1874. . 4.05 3.55 3.55 1884.. 2.93 2.20 2..;o 1894 2.25 2.00 3.00 1875.. 8.80 3.55 8.55 1885.. ■i. 45 2.00 2.00 1895 2.25 2.00 3.00 1876 . 3.55 3.55 3.55 1886.. 2.45 2.00 2.00 1896 2.25 2.00 3 00 1877. . 3.55 3.25 3.35 1887. . 2.25 2.10 2.10 1897 1.78 1.57 1 57 1878.. 3.55 3.25 3.25 1888.. 2.25 2.10 2.10 1898 1.70 1.50 1 50 1879.. 3.55 2.50 3.50 1889.. 2.25 2.00 2.00 1899 1.44 1.19 1 19 1880.. 3.75 2.50 2.50 1890. . 3.25 2.00 2.00 1900 1.61 1.36 1.36 1881.. 3.33 2.50 2.50 1891.. 2.35 2.00 2.00 1901to Apr. j-1.70 1882.. 3.33 2.50 2.50 1892.. 2.25 2.00 2.00 1, 1902 1.45 1.45 9.1 REDUCTION IN RATES. Freight Rates Charged for the Transportation of Classified Traffic and Important Commodities via All-Rail, from Cincinnati,, Ohio, to Atlanta, Ga., from September 19, 1879, to April 1, 1902. Date. Classes AND Commodities. Rates in Cents per 100 Pounds Rates in Cents per Barrel. 1 2 3 4 5 6 a o o u •a . a & §.8 a '& Sf m Lard, meats, bacon, pork, and packed and loose meats (carloads). M o ea a u 3 E a 4 a u &i id o 3 o o & a J? m 3 to 'a) u c3 a n u 3 o E a « ■a s n 1879. . Sept. 19 130 110 119 95 95 95 118 107 88 107 107 107 107 112 95 104 85 85 85 102 92 32 92 92 93 92 94 80 89 75 75 75 88 81 28 81 81 81 81 76 64 76 65 65 65 73 68 24 68 68 68 68 63 53 61 55 55 55 59 56 20 56 56 56 56 49 40 46 45 45 45 46 46 16 46 46 46 46 46 37 28 34 34 28 28 28 16 22 < 22 22 28 50 47 47 38 43 34 47 36 51 43 43 34 39 31 34 31 46 38 38 31 36 28 33 27 55 54 52 52 57 48 52 48 76 65 71 61 66 55 62 53 92 77 81 66 76 66 66 54 170 1880.. Apr. 8 180 130 1881.. Sept. 1 115 Nov. 25 131 1888.. July 10 Sept. 1 102 141 1885.. Feb. 18 8fi 1894 35 35 35 85 88 24 24 24 24 21 24 84 36 36 36 86 53 53 53 53 48 48 48 48 35 1900 . Oct. 12 85 1901 35 1902.. Jan. 1 to Apr. 1. . 35 92 REDUCTION IN RATES. Freight Rates Charged for the Transportation of Classified Traffic and Important Commodities via All-Kail, from Cincinnati, Ohio, to Charleston, S. C, and Savannah, Ga., from April 1, 1879, to April 1, 1902. -- Classes and Commodities. Rates in Rates in Cents per 100 Pounds Cents Date. Barrel. a Lard, meats, bacon, pork and packed and loose meats (Car loads). ■d 1 2 3 4 5 6 S o o ■o . 3.8 a '£> to a m t3 » 3 to a t. 3 o s t. C3 5 i= rt u .a a s •a o o Se a >. a w '2, is % C8 a a u a o 5 a O Yj IS ■■t-i the Commission the power to prescribe a tariff of rates which shall control for the future.* The decision in the Maximum Rate cases excited the apprehension of the Commission that its own usefulness would be impaired to a degree that must render the Act to Regulate Commerce of no value to the public. In a lengthy review of this decision and its effects, in its- Eleventh Annual Report (1897), it takes a gloomy view of the past as well as the future operations of the Act* It says on page 37 : — "The enactment of the Act to Regulate Commerce was in obedience to a popular demand, and to remedy ad- mitted evils. The experience of ten years has demon- strated the necessity and justice of such an act. Nearly every essential feature of that Act has failed of execution There is to-day, and there can be under the law as now interpreted, no effective regulation of interstate carriers. If there is to be under this Act, it must be amended." * The Hon. Edward Baxter, of Nashville, Tennessee, has for a number of years repre- sented the Southern railroads as their special counsel in Interstate Commerce cases. His distinguished services in the Maximum Rate cases alone, not to mention his success- in other important cases, would entitle him to the gratitude of the owners of American railroads. Judge Baxter's great ability as a lawyer, combined with a knowledge of the business of railway transportation, enables him to present clearly, fairly and forcibly, the complex questions of law and fact arising under the Act to Regulate Commerce. 97 AGITATION FOE THE ENLARGEMENT OP THE COMMISSION'S POWERS. In referring to the remedy that, in view of the decision of the Supreme Court, a shipper who has paid an excessive rate has against the carrier, it says on page 21 of the Report : — ■ "One cardinal purpose of the Act to Regulate Com- merce was to secure uniformity of rates ; and presumably Congress intended to, and understood that it had, pro- vided some means by which this intent could be made effectual ; but the application of this remedy, which the Supreme Court says is the only one, produces, not uni- formity and equality, but the direst confusion and the grossest discrimination." On page 26, the Commission says : "It is apparent, therefore, that practically all the cases which this Commission can be called upon to hear and formally determine in the future, will be those arising under either the first or third section. * * * yy e f ee l that the Commission should be given by additional legis- lation the power in these respects which it was supposed to have at the outset." Most railway managers will dissent from the opinion of the Commissioner as to the results in the past, of the operation of the Act to Regulate Commerce. But assum- ing its correctness, the fact that nearly every essential feature of the Act has failed of execution during the ten years the Commission exercised the rate-making power, does not lend support to its claim that it ought to have that power; nor does it seem to justify its predictions of such disastrous effects in the future. Happily, experience has demonstrated that the Com- mission was mistaken in its pessimistic views. There has been a steady and marked improvement in respect to com- pliance with the Act, — especially with the provision for- bidding rates unreasonable per se: so that the Commis- 98 AGITATION FOE THE ENLARGEMENT OP THE COMMISSION'S POWERS. sion, in its Sixteenth Annual Report (1902) was enabled to report to Congress that notwithstanding the defects of the Act, it had not failed to bring about important re- forms ; that on the contrary, it had furnished a consider- able restraint upon the carriers subject to its provisions, and had promoted in a substantial degree, the ends which it was designed to secure (See page 6 of Report for 1902). And Chairman Knapp of the Commission testified before a Congressional Committee that complaints of unreason- able rates are practically obsolete. In subsequent reports to Congress, the Commission renewed its recommendations that the Act be amended, and that its powers be enlarged. It called attention to the effects of consolidations in suppressing competition between carriers that had been relied upon to secure reasonable rates, and pointed out the inadequacy of the law in dealing with the conditions created by the most far-reaching and powerful combinations. In its efforts to obtain additional legislation, the Commission secured the co-operation of certain commercial associations in the West, such as the Millers' Association and its successors. At a convention in Chicago in 1899, at the call of this Association, the representatives of national commercial organizations formally approved of a bill introduced in the Senate by Senator Cullom. This League of National Associations, and the Interstate Commerce Law Associ- ation which succeeded it, were formed for the purpose of creating sentiment in favor of legislation enlarging the powers of the Commission, this work being entrusted to an executive committee which made strenuous efforts to induce other associations to join, and to inform the public and members of Congress of their views on the subject of railway rate regulation. In December, 1899, the Commission passed a resolu- tion instructing as follows : — 99 AGITATION FOR THE ENLARGEMENT OF THE COMMISSION'S POWERS. "Co-operation with certain mercantile organizations to secure the adoption of an amendment of the act to regu- late commerce being under consideration, it was unani- mously voted to instruct the secretary to co-operate with the representatives of these organizations for the purpose of securing the adoption of the necessary amendments, and particularly the passage of a bill which has been ap- proved by such organizations at a meeting held in Chi- cago on November 22, 1899, and to that end to give the public information as to the present state of the law and the necessity of amending it by distributing such reports, papers, and documents, as are designed to accomplish that purpose, and to devote himself assiduously to such duties." The Secretary of the Commission faithfully complied with these instructions. He sent out circular letters en- dorsing a bill conferring the rate-making power upon the Commission, and requested parties to use their influence with their Senators and Representatives to aid in securing its passage. This agitation resulted in the introduction (First session, Fifty -sixth Congress) of the Cullom Bill. This bill provided for amendment of the Act to Regu- late Commerce in accordance with recommendations of the Interstate Commerce Commission. Its main features were : — 1. The delegation to the Commission of the power to pre- scribe rates. This power to fix rates included power : {a) To fix a maximum rate covering the entire cost of the service. (b) To fix both a maximum and minimum differential in rates, when necessary to prevent discrimina- tion. (c) To determine the division between carriers, of a joint rate, and the terms and conditions under which business shall be interchanged, when that is necessary to an execution of the provisions of the Act. 100 AGITATION FOK THE ENLARGEMENT OF THE COMMISSION'S POWERS. (d) To make changes in classification. (e) To amend the rules and regulations under which traffic moves, so as to bring them in conformity with the provisions of the Act. These powers to be exercised by issuing so-called ad- ministrative orders, subject to an appeal to the Circuit Court, which may suspend the operation of the order pending the proceedings. 2. The bill requires the Commission to prescribe a uniform classification to be observed by all carriers sub- ject to the Act. The most important feature of the bill, next to the delegation of the rate-making power, is the amendment of the fourth, or long and short haul clause, by striking out the words, "under substantially similar cir- cumstances and conditions," — making it an absolute, rigid mileage rule, and thus nullifying the rational construction placed on this section by the Supreme Court of the United States. The dispensing power of the Commission ; that is, their authority, upon application of the carriers in special cases, to charge more for the shorter distance, is retained, thus giving the Commission power to adjust the relations of rates between localities, — a power, the exercise of which, Judge Cooley, in the First Annual Report of the Commission (1887), declared would be superhuman in a country so large as ours, with so vast a railroad mileage. The Cullom Bill failed of passage. In January, 1902, the Nelson-Corliss Bill was intro- duced, at the First Session of the Fifty-seventh Con- gress, — Mr. Corliss introducing it in the House, and Mr. Nelson in the Senate. This bill amends the Act to Regulate Commerce so as to give power to the Commission, by means of so-called "definitive" orders, to determine, upon investigation, Avhat rates, relation of rates, classification, or other practice 101 BILLS TO ENLARGE THE POWERS OF THE COMMISSION. should be observed for the future, — these "definitive" orders to be subject to review by the Circuit Courts, which may suspend their operation during the pendency of the proceedings. The bill also provided that upon petition of the Com- missioners, the courts shall enjoin carriers from giving,, and shippers from receiving, any concession or rebate, or drawback; and provides for penalties. As we have seen, the first Elkins Bill was introduced at the First Session of the Fifty-seventh Congress. The pooling clause it contained was eliminated; and the re- mainder, with modifications, was passed and approved, February 19, 1903. In December, 1903, at the Second Session of the Fifty- eighth Congress, the Quarles-Cooper bill was introduced. This bill provided that any order made by the Commis- sion declaring any existing rate or rates, or any regulation or practice affecting such rates, or facilities afforded in connection therewith, to be unjustly discriminative or un- reasonable and declaring what rate or rates, regulation or practice would be just and reasonable and requiring them to be substituted therefor, should become operative within thirty days after notice, or in case of a proceeding for review, within sixty days after notice. The bill also provided that the Commission shall have power over the divisions of joint rates, and to determine the just relation of rates to or from common points on the lines of the carriers, parties to the proceeding. It also provides for the enforcement of the orders of the Commis- sion by writ of injunction, which shall be issued by any Circuit Court of the United States on petition of the Commission. The decisions of the Commission were made reviewable within twenty days from the service of the order, by any Circuit Court of the United States for any district through which any portion of the road of any 102 DISCRIMINATION AGAINST PERSONS,, REBATES. carrier named in such order shall run ; and pending such review, the court may, upon application and hearing, sus- pend said order. The Committees on Interstate and Foreign Commerce devoted considerable time to the consideration of these various bills, and took voluminous testimony of the repre- sentatives of the commercial organizations and the man- agers of railroads. No great interest seems to have been taken in the proceedings by the general public, until the President, in his message of December 6, 1904, declared that "in my judgment, the most important legislative act now needed is one to confer on the Interstate Commerce Commission the power to revise rates, the rates at once to go into effect." This message gave a new impetus to the agitation for additional legislation; and the powerful influence of the President caused the passage, February 9, 1905, by a large majority of the House of Representatives, of the Esch- Townsend Bill, the representatives of both political par- ties, with few exceptions, voting for the measure. As the President's message deals largely with the sub- ject of unjust discriminations, and especially with the payment of rebates, it is necessary to a proper under- standing of the question as to whether additional legis- lation is needful and practicable, and if so, whether the proposed measure is likely to attain this object, to inquire further into the subject of discriminations, before we con- sider the provisions of the Townsend Bill. DISCRIMINATION AGAINST PERSONS, COM- PANIES, FIRMS, CORPORATIONS. Discrimination is the underlying principle of all rail- road tariffs,, whether they have been established by State railroad commissioners, or by the railroads themselves. 103 DISCRIMINATION AGAINST PERSONS, REBATES. This is so necessarily. Were it otherwise, railroads could not be successfully operated. Instead of promoting and facilitating commerce, they would hamper and obstruct it, and cause great injury to the public. It is important, however, to distinguish between dis- criminations that are just, which the law permits, and unjust discriminations, which it prohibits. With few ex- ceptions, discriminations against persons in rates or facili- ties of transportation, are repugnant to man's natural sense of justice, and are prohibited under severe penalties. The exceptions in the Act to Regulate Commerce are, the carriage of property for the United States or State or municipal governments, or for fairs, expositions, and for charitable purposes. The most despicable form of discrimination, and which aroused the hostility of the people against the railroad corporations, is the payment of rebates. It is one of the greatest evils that unrestrained competition has pro- duced. This practice can be traced to the custom that prevailed largely in the early days of railroads, of grant- ing special rates to shippers. Eailroad managers sup- posed they had a right to conduct the commercial part of the business of their companies upon the same principles and by similar methods as are employed by merchants, — that they might sell transportation at any prices that were obtainable, provided the maximum prescribed by the charters of some of the corporations was not exceeded. This supposed right was recognized by customers, who claimed and obtained special reduced rates upon large shipments, upon the ground that they were wholesale transactions ; while the shipper of small quantities had to pay regular tariff rates. This practice was general, a large portion of the traffic being handled by this method. In fact, the rates on almost all larger shipments were made by bargains between the railroads and the shippers. 104 DISCRIMINATION AGAINST PERSONS, REBATES. This practice continued after railroad officials had been made to understand that the statute law requires common carriers to treat all shippers alike under like circum- stances. But they only changed their methods. Instead of making the special rates openly, they made secret con- tracts with shippers, and carried out their part of the bar- gains by paying rebates. With the great increase of com- petition, the practice of paying rebates also grew, and at one time assumed enormous proportions. The roads or lines that were unable to furnish facilities of transporta- tion equal to those of the stronger lines, were compelled, in order to obtain a share of the competitive traffic, to offer their customers some inducement in the way of re- duced rates. If this had been done openly, these roads would have derived no advantage from the reductions, because their stronger competitors would also have re- duced their rates. The prohibition of rebating by the Act to Eegulate Commerce furnished an additional and most potent inducement to secrecy. The pernicious prac- tice has at all times been condemned by railroad man- agers. We have seen that, in 1875, at a convention of railroad men, the practice of rebating was denounced as a disreputable custom, as bribery and corruption^ dishonest and unbecoming to railroad management, and demoraliz- ing to railroad employees and their patrons. The practice was condemned by railroad managers not only because it is illegal and wrong in itself, but also be- cause of the general demoralization it produced in the traffic conditions of the country, and the enormous losses it caused to the railroad companies. Curses loud and deep have been heaped on the heads of traffic men who have made long-time contracts with shippers at cut rates during rate- wars, or in anticipation of such wars. These contracts always presented a serious obstacle to the re- storation of rates, and prolonged the wars. We have seen J05 DISCRIMINATION AGAINST LOCALITIES. that railroad managers have made continuous and most strenuous efforts to abolish an evil so injurious to the interests of their companies, as well as to the interests of the public. They have welcomed legislation designed to correct this abuse, such as the Elkins Act. But rebates are but symptoms of a disorder, and, so far, legislation has been directed to a removal of the symp- toms. To be effectual it should strike the evil at its root, — which is "free competition." DISCRIMINATION AGAINST LOCALITIES. Discriminations which result from the diversity of cir- cumstances and conditions that have controlling influence in the adjustment of rates, are not unjust. It is not within the power of man to equalize these conditions ; and the establishment of uniformity, and absolute equality of rates, is not only impracticable, but undesirable. The Act to Regulate Commerce does not prohibit such discriminations. It provides, however, that preferences (shall not be "undue or unreasonable." The law does not define what constitutes unjust discrimination against lo- calities; for, owing to the great diversity of conditions, no such definition can be made; and no general rule ap- plicable to special cases can be established. Each case must be determined by itself, upon its own merits, in ac- cordance with the surrounding circumstances and con- ditions. At first sight it might appear that the fourth section of the Act to Regulate Commerce furnishes a rule for the determination of the question as to what constitutes un- just discrimination against localities. But this long and short haul rule is not absolute and inflexible. It is qualified by the words, "under substantially similar circumstances and conditions ;" so that these conditions have to be inves- 100 DISCRIMINATION AGAINST LOCALITIES. tigated before any conclusion can be reached as to the justice or injustice of the discrimination. Complaints of unjust discrimination against localities were very numerous in the early history of railroads. They arose soon after railroads were compelled to form continuous lines, and, by consolidations and traffic ar- rangements with connecting lines, to reach out for ad- ditional traffic, the volume of local traffic of the roads having proved insufficient for their support. As stated in my monograph, "The Adjustment of Rail- way Freight Tariffs :" "No action of the railroad companies in the United States has contributed so much to the creation of the un- reasonable prejudices that have existed in the past, and which even now prevail to some extent, as the practice which is forced upon the railroad companies of charging the local shippers more per 100 pounds for carrying their freights over a road, than is charged at the same time to shippers at distant points for the transportation of through freights over the same road in the same direction and for the same distance, or even for a greater distance. "Communities on the line of a railroad, who had taxed themselves for the purpose of aiding a company in con- structing a railroad, naturally thought it an intolerable hardship that such corporation should discriminate in favor of shippers residing in other States who had no in- terest in the road, and who never contributed anything to its construction. "The theory prevailed almost universally that railroad companies should charge each of their customers in pro- portion to the use they make of the road ; that such use, or the cost and value of the service, can be measured by the distance the freight is carried over the road; and that, therefore, the freight rates should be in proportion to the distance an article is carried over a railroad, re- gardless of the point of origin and destination of such article, and regardless of all other considerations. "Attempts were made to carry this theory into practi- cal operation by legislation. It was proposed to enact 107 DISCRIMINATION AGAINST LOCALITIES. so-called 'equal mileage laws,' and also to prohibit un- der all circumstances, greater charges for shorter than for longer hauls. As might have been expected, these at- tempts had to be abandoned. It was found, upon investi- gation, that such regulation of railroad freight rates is impracticable; that the theory of equal mileage, which was doubtless derived from transportation over common country roads or turnpikes, cannot be applied to railroad transportation; and that the enforcement of such laAvs would result in irreparable injury to the public, as well as to the railroads. It is obvious that a railroad tariff that is constructed upon the equal mileage theory, and based upon a reasonable rate for the short haul, must make the rate for the long haul unreasonably high, — so high as to exclude the shipper from distant markets. If,, on the other hand, such a tariff is based upon a reason- able rate for the long haul, so as to enable shippers to send their freights to distant markets, the rate for the short haul may be unreasonably and unnecessarily low. In fact, it may be made so low that the company would not be able to earn sufficient revenue to maintain and operate its road. * * * ''The railroad problem has numerous paradoxes. For instance, it is difficult for one who has not studied the question, to believe that any circumstances could exist which would justify a greater aggregate charge for a shorter than for a longer distance on the same article of freight, over the same road, and going in the same direc- tion. Xo doubt it must appear absurd to persons who are not familiar with the conditions under which railroad tariffs have to be established. And yet the proposition is perfectly true in fact ; and is recognized as true in every country in the world where railroads exist. "Upon investigation it was found that the principle underlying the practice of charging more for the shorter than for the longer haul, under certain circuntstanccs and conditions, is correct; that the practice does not neces- sarily result in unjust discrimination against localities; and that an absolute prohibition to charge more for a short than for a long haul would, under many circum- stances, work great hardships to the public, as well as to 10S DISCRIMINATION AGAINST LOCALITIES. the railroads, by stifling competition, by depriving the country of the benefit of Ioav through rates for long dis- tance transportation, and by depriving the railroads of a large portion of the revenue they need to enable them to operate their roads. "It was also found that the circumstances and condi- tions which will justify a greater charge for the shorter than for the longer haul, are by no means exceptional; that in certain sections of the country, and notably so in the Southern territory, these circumstances and condi- tions prevail generally. Congress in its wisdom did not adopt the Reagan bill, which proposed to prohibit, abso- lutely, a greater charge for a shorter than for a longer haul under any circumstances; on the contrary, the fourth section of the Act to Regulate Commerce expressly permits carriers, under certain circumstances and condi- tions, to charge more, in the aggregate, for the shorter, than for the longer haul." Soon after the organization of the Commission in 1887, it exercised the dispensing power conferred upon it by the fourth section of the Act, upon the application of a large number of railroads, principally operating in the South, by granting them temporary relief. As these ap- lications Avere based upon an erroneous interpretation of the fourth section by some of the railroad managers and their legal advisers, the necessity for the exercise of the dispensing power ceased when the correct interpretation of the fourth section prevailed. In the earliest cases that came before the Co'mmission, notably in the case of the Southern RuHictti/ and Steam- ship Association, 1 I. C. Rep., 278-291, the Commission held that the following circumstances and conditions justi- fied the carriers in charging more for the short than for the long haul : — 1. Competition of controlling force in respect to traf- fic important in amount, with carriers by water that are not subject to the Act to Regulate Commerce : Provided, 109 DISCRIMINATION AGAINST LOCALITIES. however, that such competition is legitimate, and a -greater charge for the short haul does not result in un- just discrimination, — such competition not being limited in force strictly to the points of contact of the water and rail lines, but extends its influence to an indefinite dis- tance therefrom. 2. Competition of railroads subject to the Act to Regulate Commerce when such competition is legitimate, and the application of the inflexible short haul rule would be destructive of such competition. 3. In cases where the expenses of the carrier of the short haul traffic are exceptionally greater than on long haul traffic. In its later decisions the Commission materially modi- fied these opinions, holding that the conditions and cir- cumstances created by competition between carriers sub- ject to the Act did not justify a greater charge for the short than for the long haul. But the United States Su- preme Court, upon appeal from the decision of the Com- mission, notably in the case of Interstate Commerce Com- mission vs. AJalxima Midland Railroad Co., 168 Sup. Court Rep., 169, held that: "Competition between rival routes may lawfully be considered in making rates, and substantial dissimilarity of circumstances and conditions may justify common car- riers in charging greater compensation for the trans- portation of like kinds of property for a shorter than for a longer distance over the same line." Since the enactment of the Act to Regulate Com- merce, a large number of railroads have modified their tariffs so as to conform, either strictly or more nearly, to the fourth section of the Act. The northern Trunk Lines had already adjusted their tariffs on a basis that did not involve discrimination against the short haul traffic. The rates between Chicago and New York, which are very low, •being determined by competing water routes, were taken 110 DISCRIMINATION AGAINST LOCALITIES. as a basis of the tariffs ; and a percentage table, based ap- proximately upon the relative distance of their points to points of destination of the freight, gave the correspond- ing rate from other cities in the territory east of the Mis- sissippi river and north of the Ohio river. Complaints that local rates are higher in proportion than through rates, have become less numerous; and the frequent discussion of the subject has led the people to understand that such preferences are often justified by surrounding conditions, and are not undue and unreason- able. It is reasonable to expect that discriminations against the short haul traffic that prevail in the South and some parts of the West, will gradually diminish as the volume of the traffic and the earnings of the roads in- crease, and with the construction of additional railroads in those sections of the country. The principal complaints of discrimination against localities now come from large business communities and trade centers which are also railroad centers; and these complaints will continue so long as commercial rivalry exists between such communities. This is one of the alleged evils that can never be remedied either by legislation or by the railroads them- selves. The competition is really between the rival com- munities ; but the railroads naturally take sides with the communities they respectively serve, and do all in their power to place them in a position to compete upon the most advantageous terms. They have frequently engaged in costly rate-wars in order to gain some advantages for their constituents; and as these wars generally end in compromises or agreements by means of arbitration, the rates throughout the country may be regarded as being in a state of equilibrium, — an equilibrium, however, which is unstable;— it can easily be disturbed by the action of one or more of the competing carriers. Ill DISCRIMINATION AGAINST LOCALITIES. On this subject the Interstate Commerce Commission, in its Annual Report for 1904, said : — "It is worth observing that some at least of the most important controversies involving the rates and methods of railway carriers are rather between competing com- munities or producing regions than between rival lines of railway. Railway development has extended far beyond the point at Avhich any of the greater systems finds its interests so identified with a single community as to feel wholly indifferent to the demands and needs of all com- peting communities." As early as 1893, it was well understood by the Com- mission that the demands for absolute equality among localities can never be satisfied. In an address by Inter- state Commerce Commissioner W. G. Veazey, before the Railway Congress at Chicago, which is published in an appendix to the Seventh Annual Report of the Commis- sion, it is said : — ■ "We should not, however, expect to arrive at purely ideal results. It is idle to look forward to an adjustment of rates which as applied to localities and differently cir- cumstanced persons, will bear no heavier upon one than upon another. Such mathematical equality is manifestly unattainable through human endeavor. Not even com- mon control of all railways through consolidated owner- ship, or government purchase, could accomplish such a task of equalization for thousands of places and millions of persons. Certainly, the much vaunted theory of uni- form charges for all traffic would, under the greatly di- versified conditions which now prevail throughout the country, have the opposite effect, and inflict greater dis- criminations than arise under the existing general prac- tice of fixing charges which attract traffic to the various lines. A uniform rate per mile on all traffic for any dis- tance would arbitrarily limit commerce to sections and greatly restrict production." 112 DISCRIMINATION AGAINST ANY PARTICULAR DESCRIPTION OF' PROPERTY. CLASSIFICATION. DISCRIMINATION AGAINST ANY PARTICULAR DESCRIPTION OF PROPERTY. Prior to the passage of the Act to Regulate Commerce, there were complaints of an alleged improper adjustment of freight classifications of the railroads. It was said that improper discriminations were made between articles of freight and branches of business of a like character, and between different quantities of the same class of freight. Hence, the prohibition of such discrimination found a place in the Act. The classification is an essential part of the freight tariff, and all classifications are based on discrimination between articles of freight, — discriminations in rates be- ing the very object for which classifications are arranged. As stated in my monograph : — "It is obvious that every article of freight that is trans- ported over a railroad should, in addition to the cost of movement, be charged with its proportion of the expense of general administration, maintenance of roadway, tracks, bridges, buildings, taxes, rents, and, if practicable, interest on the capital invested. It is manifest that if a uniform charge per 100 pounds were made on every ar- ticle of freight, the rates on the articles of comparatively small value would be prohibitory, and the articles could not be transported, while the rates on articles of greater value would be unnecessarily low, and would not afford the railroad companies sufficient revenue. "Railroad classifications are made for the purpose of distributing this charge in accordance with the freight rates that each article can reasonably bear, considering the value of the service to the shipper or consignee, and having in view the greatest possible development of traf; fie by means of the lowest practicable rates ; so that a rail-' road company may realize the largest possible earnings obtainable from the traffic under the circumstances. "These are the main consideration's in grouping to- gether into classes the articles of freight to be trans- 113 DISCRIMINATION AGAINST ANY PARTICULAR DESCRIPTION OF PROPERTY. CLASSIFICATION. ported over a road, the rates on the several classes having previously been established. "There are other considerations, such as the character of the freight, whether light or bulky, perishable or easily damaged, requiring special care in handling, Avhether car- ried at owner's or carrier's risk, whether the cost of load- ing and unloading is exceptionally high, whether the ar- ticles are moved in carload quantities, or in quantities less than carload, and many others that could be men- tioned. It cannot be expected that the classification be adjusted according to fixed rules or principles, or with any approach to mathematical accuracy. All classifica- tions are necessarily tentative, and subject to frequent changes suggested by actual experience in the practical working of the road. In fact, the present classifications are a growth, and not a manufacture. "The conditions and circumstances bearing upon rates and classifications are of an endless variety. The traffic men who are charged with the adjustment of classifica- tions must have large experience, and thorough knowledge of the conditions and circumstances surrounding each case, and must possess good sound judgment and untir- ing industry in order to adapt a classification to the needs and requirements of the largest possible number of ship- pers in any particular territory. These conditions and requirements vary in different sections of the country, and in the same section of the country at different times. Hence, the establishment of one uniform classification for the entire country, while it is extremely desirable, is impracticable. Such uniformity could only be established either at a great and unnecessary sacrifice of revenue to the railroads by making rates on certain articles unneces- sarily low, or by excluding many articles from distant markets that under a properly adjusted classification can be transported at a profit to the shipper and to the rail- roads. Even if such uniformity were once established, it could not be maintained, because of the changes that necessarily have to be made in order to adapt a classifi- cation to the varying conditions in different sections of the country at different times." 114 DISCRIMINATION AGAINST ANY PARTICULAR DESCRIPTION OF PROPERTY. CLASSIFICATION. Efforts were made some years ago to regulate classi- fication by legislation, and a bill was introduced in Con- gress enforcing uniformity. The Interstate Commerce Commission, however, after a careful investigation of the subject, concluded in its Annual Keport for 1891, as fol- lows : — "The Commission desires to repeat, what it has in sub- stance said before, that it is its firm conviction that no public agency can possibly be so competent to deal with this question as the carriers themselves. The existing classifications, are the result of long study in immediate practical connection with the transportation interests of the different sections of the country represented by them ; and the experts who have made them, have, in gradually bringing them to the condition in which they are now found, represented quite as much the conflicting and com- peting interests of different sections as they have the conflicting and competing interests of the carriers them- selves. Any tribunal which should be created or designed for the purpose of unifying their work would necessarily begin with making careful study of these several interests on all sections, understanding as it must that while unifi- cation would be to the general benefit of the country, there must unavoidably be changes which, while benefit- ing some interests and some sections, must throw cor- responding loss or injury upon other interests or sections, and this not infrequently in the same line of business." There have been few complaints in recent years of un- just discrimination against articles of freight. What the people desire most is a uniform classification operating throughout the whole country. As already stated, such uniformity could only be attained if the circumstances under which different articles are produced, manufac- tured and shipped were uniform, and remained so in all sections of the country. But this is not the case, and uniformity of classification, even if it could be established and maintained, would be destructive of its very object. 115 HATE DISCRIMINATIONS CREATED TRUSTS? Some years ago a committee of railroad experts were appointed, charged with the duty of revising the classifi- cations so as to secure uniformity. But after many months of arduous lahor, they found it impracticable to reach a conclusion. While these efforts have failed, con- siderable progress has been made in reducing the number of classifications other than those local in this country; and now we have three main classifications, viz. : 1. The Trunk Line Classification, which covers the terri- tory from 2 Ohio River. torv from New York to Chicago, and north of the •-> The Southern Classification, covering territory east of the Mississippi and south of the Ohio Rivers. 3. The Western Classification, covering territory west of Chicago. HAVE DISCRIMINATIONS CREATED TRUSTS? We have found in the course of this inquiry, that com- petitive warfare between railroads, if long continued, must result in ruin of these properties. This is also true of reckless competition between industrial and commer- cial enterprises. Railroad consolidations and industrial trusts have their origin in a common cause, — the effort to protect invested capital against the evils resulting from unrestrained competition. Efforts to attain this end by means of agreements between the managers of these en- terprises having proved futile, as was the case with the agreements between railroads, a plan similar to that of community of interest was at first applied to the operation of industrial enterprises. Combinations or so-called trusts were formed, which acquired all or a majority of the stock in several important corporations, and exercised a general supervision and control of the operations of the 116 HAVE DISCRIMINATIONS CREATED TRUSTS? constituent members, — without, however, extinguishing their individual organization, or their titles to their prop- erties. The objects and the main weapons of defence, of these combinations, are a reduction of the cost of production to a minimum ; increased efficiency in operation by means of good organizations, enlargements of the markets, especially foreign markets, the employment of the most modern, labor-saving machinery, and production on a large scale, so that small margins of profits may result in adequate remuneration. This necessitated the combination of large capital, great resources being needed in the extension of modern industries. The elimination of rival industries by inducing the owners to join the trusts, or by crushing them out of existence in case of refusal, was, of course, essential to the successful operation of these trusts. It has been said that rate discrimination in favor of large shippers has created these trusts. This is erroneous. It is true that, in some cases, trusts have been assisted to some extent by these discriminations in attaining their objects sooner than they would otherwise have been able to do. It is reasonable to suppose, however, that sooner or later, the command of a larger capital and superior organization would have driven some of their rivals out of the field, even without these discriminations. It is obviously not for the interests of the owners of railroads to encourage the concentration in the hands of a few trusts or combinations operating at places beyond the termini of their roads, of a considerable portion of the traffic upon which they have to depend for their revenue. Their interests are best served by a large number of smaller industries located on or adjacent to the lines of their respective roads. This Avas fully recognized; and long before the law made rebates a crime, railroad man- 117 HAVE DISCRIMINATIONS CREATED TRUSTS? agers knew that unjust discrimination was a great blunder. But they were powerless to enforce the maintenance of established tariffs by voluntary agreements betAveen com- peting roads, legislation having deprived them of the best means of preventing rate-cutting ; that is, by a division of traffic, which removed, to some extent, the motive for rate- cutting. The large shippers were not slow to take advantage of free competition. They used one road against the other, giving their business to the lowest bidder. In fact, they practically dictated their own terms, in some in- stances boycotting railroads that refused to submit to their dictation. It is highly probable that if contracts for a division of traffic had been legalized and made en- forceable, rates would have been better maintained, and the trusts would not have acquired such great powers over the railroads. The trusts were looked upon with suspicion by the pub- lic, which naturally sympathized with the weaker parties that were being forced to the wall. Some of the objection- able methods they adopted aroused the hostility of the people, which found expression in State and Federal anti- trust laws, compelling the trusts to reorganize, aban- don their less dangerous ownership of stock, and acquire the ownership and consolidation of the titles to the prop- erties they had theretofore controlled by stock ownership. This led to a closer amalgamation of these properties, and extinguishment of individual titles. The antitrust legis- lation, instead of being directed against the evils inciden- tal to the trusts, was designed to extinguish the trusts al- together ; and it has proved ineffective, as all attempts to control commercial methods by legislative interference must fail. Mr. Justice Peckham, of the U. S. Supreme Court, said in the Trans-Missouri Freight Association case : — 118 THE TOWNSEND BILL. "To exclude agreements as to rates by competing rail- roads for the transportation of articles of commerce be- tween the States, would leave little for the act to take effect upon. * * * It is readily seen from these cases that if the act does not apply to the transportation of commodities by railroads from one State to another, or to foreign nations, its application is so greatly limited that the whole act might as well be held inoperative." It would seem that the Sherman Antitrust Act not only failed to accomplish the purpose for which it was enacted, but that by its application to railroads, it has had a tendency to assist the operation of trusts, so far as discrimination in rates can do so. Paradoxical as it may seem, it is nevertheless true, to some extent, that "free competition" has had a tendency to foster and develop the trusts. THE TOWNSEND BILL. An Act to Supplement and Amend "An Act to Regu- late Commerce/-' Approved February Fourth, 1887. This Bill, like the Cooper-Quarles Bill, practically confers the rate-making power upon the Commission. Its provisions to which it is necessary to call attention here, are: — Section 1. That whenever upon complaint duly made under section thirteen of the Act to Regulate Commerce, the Interstate Commerce Commission shall, after full hearing, make any finding or ruling declaring any exist- ing rate for the transportation of persons or property or any regulation or practice whatsoever affecting the trans- portation of persons or property to be unreasonable or unjustly discriminatory, the Commission shall have power, and it shall be its duty, to declare and order what shall be a just and reasonable rate, practice or regulation 119 THE TOWNSEND BILL. to be charged, imposed, or followed in the future in place of that found to be unreasonable or unjustly discrimina- tory, and the order of the Commission shall, of its own force, take effect and become operative thirty days after notice thereof has been given to the person or persons di- rectly affected thereby ; but at any time within sixty days from date of such notice, any person or persons directly affected by the order of the Commission, and deeming it to be contrary to law, may institute proceedings in the court of transportation sitting as a court of equity, to have it reviewed, and its lawfulness, justness or reason- ableness inquired into and determined. Sec. 2. Provides that when the rate substituted by the Commission is a joint rate, and the carriers, parties thereto, fail to agree upon the apportionment thereof among themselves within twenty days after notice of such order, the Commission may, after a full hearing, issue a supplemental order declaring the portion of such joint rate to be received by each carrier, party thereto, which shall take effect of its own force as part of the original order. The second section also provides that any rate, whether single or joint, which may be fixed by the Commission, shall for all purposes be deemed the published rate of such carrier, and subject to the provisions of the Elkins Act. Sec. 4. Provides that if any party shall at any time neglect to obey or perform any order of the Commission mentioned in sections one and two of this Act, the Com- mission may apply by petition to the court of transporta- tion to enforce obedience to its order by writ of injunction or other appropriate process ; and in addition thereto, the offending party shall for each day of the continuance of such refusal, be subject to a penalty of f 5,000. 120 THE TOWNSEND BILL. Sec. 5. Provides that the word "person" or "persons" wherever used in this Act, shall be deemed to include cor- porations. Sec. 6. Increases the number of Interstate Commerce Commissioners from five to seven, and their salaries to ten thousand dollars each, per annum, — the President to appoint the two additional Commissioners. Not more than four Commissioners shall be appointed from the same political party. Sec. 7. Provides for the establishment of a court of record, with full jurisdiction in law and equity, to be called the court of transportation, which shall be com- posed of five circuit judges of the United States, three of whom shall constitute a quorum, who shall be desig- nated by the President for terms of one, two, three, four, and five years, respectively. Sec. 8. Provides that the court of transportation shall hold four regular sessions each year at the City of Wash- ington, beginning on the first Tuesday in March, June, September and December, and that a quorum of said judges may appoint special sessions of the court to be held at other places. Sec. 9. Provides for the appointment by the President of five additional circuit judges. Sec. 10. Gives the court of transportation exclusive original jurisdiction of all suits and proceedings of a civil nature in law or equity, brought in the name of the United States or the Interstate Commerce Commission, to enforce the provisions of this Act, the Act to Regu- late Commerce and amendments thereto, approved Febru- ary 4, 1887, and of the Elkins Act, and any law that may be enacted hereafter amendatory of or supplementary to 121 THE TOWXSEND BILL. those Acts. The court of transportation also has ex- clusive original jurisdiction of all suits and proceedings of a civil nature in law or equity, brought to enforce obedience to or to restrain, enjoin or otherwise prevent the enforcement and operation of any order, ruling, or requirement, made and promulgated by the Commission under the authority of any power conferred upon it by either of the aforesaid Acts, etc. Sec. 11. Provides that in the exercise of the juris- diction defined and conferred upon it by this Act, the court of transportation shall possess all the powers of a Circuit Court of the United States, so far as the same may be practicable. Sec. 12. Provides that in every suit or proceeding brought in the court of transportation to enforce orders, rulings or requirements of the Commission, or to restrain, enjoin or otherwise prevent their enforcement and opera- tion, the findings of fact made and reported by the Com- mission shall be received as prima facie evidence of each and every fact found ; and no evidence shall be admissible which was not offered, but which, with the exercise of proper diligence could have been offered, upon the hearing before the Commission: but any evidence not existing, or which could not, with due diligence, have been known to the parties at the time of the hearing before the Commis- sion, may be admitted. Sec. 14. Provides amongst other things that any jus- tice of the court of transportation niay, upon reasonable notice to the parties, make and direct and award at cham- bers, and in vacation as well as in term, all such process, commissions, orders, rules, and other proceedings, in- cluding temporary restraining orders, wherever the same are grantable, as of course, according to the rules and practice of the court. 122 THE TOWNSEND BILL. Sec. 15. Provides that in all cases affected by this Act, where, under the law heretofore in force, an appeal or writ of error lay from the final order, judgment or decree of any Circuit Court of the United States to the Supreme Court, an appeal or writ of error shall lie from the final order, judgment or decree of the court of trans- portation to the Supreme Court, and that court only, and must be taken within thirty days from the entry thereof : and said Supreme Court shall give precedence to the hear- ing and decision of such appeal over all other cases except criminal cases ; and the rules and regulations which under existing law govern appeals and writs of error from the several Circuit Courts to the Supreme Court, shall govern appeals and Avrits of error from the court of transporta- tion, except as herein otherwise provided. The thoughtful reader upon an examination of the provisions of this bill, is amazed at its radical departure from the wise and conservative policy that was inaugu- rated by Congress, when, in 1SS7, it passed the Act to Eegulate Commerce, which policy was continued during the last eighteen years. He naturally inquires : have any great changes taken place in the railroad situation that necessitate legislation so drastic as to practically wrest from the owners of railroads, the control of their prop- erties ? The answer must be that there have been changes, but that they have all been for the better ; that complaints of unjust discrimination in the form of rebates have greatly diminished, and that it is reasonable to expect that the enforcement of existing laws will result in still further improvements. How, then, is this radical departure to be accounted for? There is but one adequate explanation. The House of Eepresentatives, in passing the Townsend Bill, was 123 RECOMMENDATIONS OF PRESIDENT ROOSEVELT. actuated by the desire to comply with the wishes of the President, so vigorously and earnestly expressed in his message, and also to meet what it had been made to be- lieve to be a general demand of the people for Government rate-making. We have already alluded to the agitation for additional legislation, and its source, or origin; and we will now consider the RECOMMENDATIONS OF PRESIDENT ROOSE- VELT IN HIS MESSAGE TO CONGRESS. "Above all else, we must strive to keep the highways of commerce open to all on equal terms ; and to do this it is necessary to put a complete stop to all rebates. Whether the shipper or the railroad is to blame makes no differ- ence; the rebate must be stopped; the abuses of the pri- vate car and private terminal-track and side-track sys- tems must be stopped, and the legislation of the Fifty- eighth Congress, which declares it to be unlawful for any person or corporation to offer, grant, give, solicit, ac- cept, or receive any rebate, concession, or discrimination in respect of the transportation of any property in inter- state or foreign commerce whereby such property shall by any device whatever be transported at a less rate than that named in the tariffs published by the carrier, must be enforced. "For some time after the enactment of the Act to Regu- late Commerce, it remained a mooted question whether that act conferred upon the Interstate Commerce Com- mission the power, after it had found a challenged rate to be unreasonable, to declare what thereafter should, prima facie, be the reasonable maximum rate for the transportation in dispute. The Supreme Court finally re- solved that question in the negative, so that as the law now stands the Commission simply possess the bare power to denounce a particular rate as unreasonable. "While I am of the opinion that at present it would be undesirable, if it were not impracticable, finally to clothe the Commission with general authority to fix railroad 124 RECOMMENDATIONS OF PRESIDENT ROOSEVELT. rates, I do believe that, as a fair security to shippers, the Commission should be vested with the power, where a given rate has been challenged and after full hearing found to be unreasonable, to decide, subject to judicial review, what shall be a reasonable rate to take its place ; the ruling of the Commission to take effect immediately, and to obtain unless and until it is reversed by the court of review. "The Government must in increasing degree supervise and regulate the workings of the railways engaged in interstate commerce; and such increased supervision is the only alternative to an increase of the present evils on the one hand, or a still more radical policy on the other. In my judgment the most important legislative act now needed as regards the regulation of corporations is this act to confer on the Interstate Commerce Commission, the power to revise rates and regulations, the revised rate to at once go into effect, and to stay in effect unless and until the court of review reverses it. "Steamship companies engaged in interstate commerce and protected in our coastwise trade should be held to a strict observance of the Interstate Commerce Act." The President's vigorous denunciation of rebates, and his declaration that the highways of commerce must be kept open to all on equal terms, produced a universal echo in the hearts of the people ; and in no quarter was this part of the message received with a warmer welcome than by the owners and managers of railroads, who had labored long and earnestly to suppress the evils of unjust dis- crimination. But the impartial observer is astonished to find that the Townsend Bill does not contain a single provision that has a direct bearing on the rebate question. Moreover, he knows that Congress had previously dealt in the most effective way with the subject by passing the Elkins Act, of which the Interstate Commerce Commission in its Seventeenth Annual Beport says : — "It has proved a wise and salutary enactment. It has 125 RECOMMENDATIONS OP PRESIDENT ROOSEVELT, corrected serious defects in the original law, and greatly aided some of the purposes for which that law was en- acted." If any additional legislation were needed, would the delegation of power to the Commission to fix rates, cure the rebate evil? It is obvious that rates fixed by the Commission can be cut as easily and as often as rates made by the railroads. Upon a further examination of the President's mes- sage, the reader, if he is at all familiar with railroad transportation, will find that the President was not aware of the fact that to give the Commission power to revise rates, to take effect immediately, would be to finally clothe the Commission with general authority to fix railroad rates; and this, he declares, would be "at present unde- sirable, if it were not impracticable." For it is a well known fact that, owing to the interdependence of rates, such revision of rates need only be exercised in compara- tively few cases, in order to fix rates for a large section; and that, by a continued process of revision, the rates for all the railroads in the country could be fixed by the Com- mission. This was well expressed by the Supreme Court of the United States in its decision of the Maximum Rate cases, viz. : — "There is nothing in the act requiring the Commission to proceed singly against each railroad company for each supposed or alleged violation of the act. In this very case the order of the Commission was directed against a score or more of companies and determined the maximum rates on half a dozen classes of freight from Cincinnati and Chicago respectively to several named southern points and the territory contiguous thereto ; so that if the power exists, as is claimed, there would be no escape from the conclusion that it would be within the discretion of the Commission of its own motion to suggest that the in- terstate rates on all the roads of the country were unjust and unreasonable, notify the several roads of such 126 THE PRESIDENT MISLED AS TO EFFECT OF FOWER TO REVISE RATES. opinion, direct a hearing, and upon such hearing, make one general order, reaching to every road and covering every rate." The President was manifestly misled by the specious arguments of some advocates of drastic legislation, who,, conscious of the fact that the proposition to empower a Government bureau to fix rates for all the railroads in this vast country, would prove repugnant to the common sense of the people, have declared that they do not ask that general rate-making power be conferred upon tbe Commission, — that they concede to the railroads the right to make their rates in the first instance: but that what they do ask is that the Commission, when it has found a rate made by a railroad to be unreasonable, shall have the power to fix what it considers to be a reasonable rate, and that such rate be effective in the future. They fur- ther say that this power was exercised by the Commission without protest from the railroads, for six, and some say for ten, years. They claim that Congress intended to confer the rate-making power upon the Commission by the Act to Regulate Commerce of 1887, and that it was generally believed that purpose had been attained until the Supreme Court in the Social Circle and Maximum Rate cases interpreted this power out of the Act, thus emasculating it, and rendering it of no value to the pub- lic. And these advocates ask that Congress shall restore to the Commission, the power which it previously pos- sessed, and which the court is alleged to have taken away from it. These claims seem very plausible, but become wholly fallacious when examined in the light of all the facts bearing on the question. As we have seen, they have even misled so intelligent a man as President Roosevelt. It is not true that Congress intended to confer the rate- 127 ACT TO REGULATE COMMERCE NOT INTENDED TO CONFER RATE-MAKING POWER UPON COMMISSION. making power upon the Commission. The Senate Select Committee expressly advised against it, saying, after a full discussion of the subject : — "Those who have asked the adoption of this plan of regulation have suggested the establishing of rates by a commission, but it is questionable whether a commission, or any similar body of men could successfully perform a work of such magnitude, involving, as it would, infinite labor and investigation, exact knowledge as to thousands of details, and the adjustment of a vast variety of con- flicting interests." At the time this report was written, there were only 125,000 miles of railroad in operation in this country. The debates that preceded the enactment of the law conclusively prove that there was no such intention on the part of Congress. When the Act was under discus- sion, the writer followed the debates in both Houses of Congress very closely; and he distinctly remembers that the rate-making power was not seriously considered. In fact, at that time that question did not cause any anxiety to the managers and owners of railroads. What did give them great concern was the insertion of the fifth or anti- pooling article, and the question whether Congress would make the fourth or long and short haul section an in- flexible mileage rule, as proposed by Mr. Reagan. Senator Cullom, who, in 188<>, was Chairman of the Senate Select Committee, and is a member of the present Senate Committee on Interstate Commerce, recently stated at a session of that Committee, in reply to a ques- tion by Senator Foraker : — "There is nothing in the law that justifies the conduct of the Commission in making rates to take effect in fu- ture ; and nobody ever pretended there ever was any such thing. But they had power, we supposed (and I think that has been sustained ) , to determine whether a rate now 128 THE COMMISSION DID NOT EXERCISE THE KATE-MAKING POWER WITHOUT PROTEST BY THE RAILROADS. existing is reasonable or unreasonable. Then it is for the railroads to reduce the rate in accordance with the order." The impression that the Commission exercised the power of rate-making for six or ten years without oppo- sition on the part of the railroads, is also erroneous. As early as December, 1888, in an official communica- tion to the Commission, the writer called its attention to the fact that it has not the power to make rates generally, but only to determine whether rates imposed by the rail- roads are in conflict with the statute. This was in ac- cordance with the Commission's own opinion expressed in the case of Thatcher vs. Fitchburg R. R. Co., 1 I. C. Rep., 356. It is true that this case did not call for the exercise of the power of fixing rates ; but it is interesting as showing that the Commission knew at that time that it had no power to fix rates. In 1889 and 1890 the question came before the Circuit Court of the United States (37 Fed. Rep., p. 567, and 43 Fed. Rep., p. 37) ; and that court held in substance that the Commission had no power to make future rates. In my monograph on The Adjustment of Railway Freight Tariffs, and the analysis of the opinion and de- cision of the Commission in the Maximum Rate cases, published in 1894, will be found a chapter headed, — "Authority of the Interstate Commerce Commission to establish Rates for Common Carriers," from which the following are extracts: — "The Act to Regulate Commerce leaves the important function of establishing tariffs for the transportation of passengers and property to the responsible officers of the transportation companies. It would be impossible for the five Commissioners, even if they had the requisite knowledge and experience of the business of transporta- tion, to establish tariffs on interstate traffic for the 1890 railroads, aggregating 170,461 miles (see page 11, Sixth 129 THE COMMISSION DID NOT EXERCISE THE RATE-MAKING POWER WITHOUT PROTEST BY THE RAILROADS. Annual Report on the Statistics of Railways in the United States, for the year ending- June 30, 1893), that is to say, to perforin the work which requires the constant labor of several thousand trained officials, who are thor- oughly familiar with the conditions and circumstances that govern in the establishment of such tariffs. "The Commission has no power to make the tariffs for the carriers subject to the Act to Regulate Commerce. "The only power which the Commission has in regard to the reasonableness of rates, is to decide, upon the com- plaints of shippers, the question of the reasonableness of the specified rates complained of; and if the Commission shall find, upon a proper investigation of specific charges or complaints, that the particular rates complained of are unreasonable, it has the power to order such carriers to cease and desist from charging the particular rates which the Commission decides to be unlawful. But it does not follow that the Commission has the power to prescribe what the maximum rates shall be in the cases that come before it. "In view of the interdependence of rates in the same ter- ritory, and even in territories widely separated, it is plain that the Commission could by the frequent exercise of the power to prescribe maximum rates, which it has recently assumed to exercise, accomplish indirectly what the law does not authorize it to do directly; that is, to establish maximum rates for the carriers that are subject to the act. * * * It follows from what has been stated that the Act to Regulate Commerce does not confer authority upon the Interstate Commerce Commission to establish for carriers subject to it, their freight tariffs on inter- state traffic; and that the Commission cannot by an in- genious process of indirection accomplish what it cannot accomplish directly." It is true that the railroad managers have acquiesced in a large number of decisions and recommendations of the Commission* They have done so both before and * President Spencer stated in his testimony before the House Committee on Inter- state Commerce, that of the questions which have been presented to the Commission during the last eighteen years, 90 per cent, have been disposed of without formal hear- ings and decisions on the part of the Commission; 10 per cent, have been the subject of formal hearings and decisions, and less than one-fitth of that 10 per cent., viz., 2 per cent, of the total, have been the subject of litigation under the decisions of the Com- mission. 130 IS RATE-MAKING BY THE GOVERNMENT PRACTICABLE? after the decision of the TJ. S. Supreme Court in the Maximum Eate cases. But this is no proof that they were ignorant of the provisions of the Act until it was inter- preted by the Supreme Court. It only shows that they earnestly desired to co-operate with the Commission, and to comply with its just and reasonable conclusions. IS RATE-MAKING BY THE GOVERNMENT PRACTICABLE? At the beginning of this inquiry I endeavored to show how railroad freight tariffs are made in this country; and I pointed out some of the difficulties attending the adjustment of freight rates, and related at length Avhat efforts had been made by railroad managers and by the Government, to regulate rates so as to avoid unjust dis- crimiuation. The impartial reader who has followed me can have no hesitancy in concluding that rate-making by the Government is wholly impracticable. Indeed, it is obvious that it is not within the mental and physical powers of five commissioners, however learned in the pro- fession of the law, or for any other bureau, no matter how constituted, to do the work of hundreds of trained traffic officials. If any argument were needed, it would be furnished by the Commission itself. In its First Annual Report of December, 1887, in referring to the petition for relief under the dispensing clause of the fourth or long and short haul section of the Act, Judge Cooley, Chairman of the Commission, a distinguished jurist who was very familiar with railroad transportation, says: — "Moreover, an adjudication upon a petition for relief would in many cases be far from concluding the labors of the Commission in respect to the equities involved, for questions of rates assume new forms, and may require to 131 IS RATE-MAKING BY THE GOVERNMENT PRACTICABLE? be met differently from day to day ; and in those sections of the country in which the reasons, or supposed reasons for exceptional rates are most prevalent, the Commission would, in effect, be required to act as rate-makers for all the roads and compelled to adjust the tariffs so as to meet the exigencies of business while at the same time en- deavoring to protect relative rights and equities of rival carriers and rival localities. This in any considerable state would be an enormous task. In a country so large as ours, and with so vast a mileage of roads, it would be superhuman. A construction of the statute which should require its performance would render the due adminis- tration of the law altogether impracticable, and that fact tends strongly to show that such a construction could not have been intended." If this is true of the adjustment of rates under onlj' one of the sections ( fourth ) of the Act to Regulate Commerce, what Herculean labor would it require to establish all the interstate rates for all the railroads of this large country ! It is a matter of surprise that men so intelligent as the Commissioners, and who have such good opportunities to observe the facts bearing upon the adjustment of rates, should, through misapprehension of the character of the work involved, fail to realize the greatness of the work, and of the power for which they ask, — the insuperable difficulties, and the immense responsibility attending the exercise of this power. Can it be that under the stimulus of the love of power natural to man, their earnest desire to promote the public welfare has acquired the force of a passion that blinds them to the fact that rate-making by the Covernment is impracticable? We have seen that, owing to the interdependence of rates, there is no escape from the conclusion that the exercise of the power of revision must gradually but in- evitably bring all the important rate adjustments of the 132 IS RATE-MAKING BY THE GOVERNMENT PRACTICABLE? country under the control of the Commission. And it is obvious that rate-making, from the nature of the work, must be continuous. It does not admit of spasmodic or intermittent action. Piecemeal adjustment or tariff tin- kering is impracticable. Rate adjustment is not only a continuous work, but must be carried on simultaneously in every section of the country. As the Commission has well said, "Matters of importance frequently require prompt action in various parts of the country at the same time." And rate-making by the Government would be- come cumulative. Owing to the interdependence of rates, every new adjustment the Commission prescribes makes new Avork ; and it may be said that this work increases at almost a geometrical ratio. We shall endeavor to illus- trate the interdependence of rates further when we come to inquire into the effects of rate-making by the Govern- ment. In its Fourth Annual Report ( 1890 ) , the Commission says : — • "The railway mileage of this country in round num- bers is about 160,000 miles. The number of railway em- ployees exceeds 700,000, and adding to these the number connected with railroad transportation in various capaci- ties, such as officials of roads, officers and employees of associations, traffic solicitors, legal advisers, and others, the aggregate is not far from a million, or nearly one- twelfth of the adult male population of the country. The business done includes the carriage of 540,000,000 tons of freight and 472,000,000 of passengers. The enormous ex- tent of the subject-matters of regulation is shown by these statements. Any criticism upon the efficiency of regula- tion would obviously be defective if it failed to take note of the vast number of persons and the extent of the busi- ness to be regulated. The extent of the country is also of vast importance. Railway regulation in a small and compact country, where all the carriers arc easily kept under observation, and where the circumstances of car- riage in all parts are substantially alike, is a small mat- IS RATE-MAKING BY THE GOVERNMENT PRACTICABLE? ter compared with the regulation in a country so exten- sive as this, where the transportation is subject to such variety of circumstance and where differences in condi- tion of carriage in the different sections are so striking and so peculiar. That which may he a simple task to a regulating commission in any other country is obviously a far more complicated and difficult undertaking in the United States, and one that calls for ceaseless exercise of vigilance and exacting labor. A commission in this country has a field of jurisdiction of enormous extent, necessarily giving rise to a great variety of duties de- manding daily attention. Matters of importance fre- quently require prompt action in various parts of the country at the same time* A performance of such impera- tive duties as to make investigations, to keep watch over the filing and publication of tariffs, to examine and re- vise classification and rates, to collect and tabulate sta- tistics, and to prepare decisions upon controverted ques- tions, leaves little if any opportunity for the commission- ers personally to do more than to lay down general rules for the regulation of the business under the law. Prose- cution of offenders for violations of the law are un- doubtedly necessary and important means for the. effec- tual enforcement of its provisions; and several prosecu- tions of this character have been instituted and carried on at the instance of the commission. But the enforce- ment of the rules laid down, and especially of the penal provisions of the statute, must largely be left to the par- ties injured by their violations, or to the public authori- ties in the sections where the violations occur." If the performance of the imperative duties mentioned by the Commission left it little if any opportunity to do more than to lay down general rules for the regulation of business under the law at the time when the railway mile- age of this country was about 160,000 miles, the number of employees exceeding 700,000, and the business done in- cluded the carriage of about 540,000,000 tons of freight, and about 470,000,000 passengers, could the Commission * Italics are mine. 134 IS EATE-MAKING BY THE GOVERNMENT NECESSARY? discharge its duties more efficiently now that the railway system has expanded so that the mileage in 1903, was about 208,000 miles, the number of employees over 1,300,000, the freight tonnage carried during the fiscal year ended June 30, 1903, being about 1,300,000,000 tons, and the number of passengers carried nearly 695,000,000? As a matter of fact, the enormous work imposed upon the Commission, and the variety of its duties, have pre- vented an efficient enforcement of the Act to Kegulate Commerce. Can any reasonable person say that the Com- mission, in addition to its present duties, could fix the rates for all the railroads of this country, and keep them adjusted to the various and varying commercial con- ditions? Is not such an idea preposterous? It might be said that the fabled work of Sisyphus was a pleasant pastime as compared with the enormous task such labors would impose upon the Commission. IS EATE-MAKING BY THE GOVERNMENT NECES- SARY, IF IT WERE PRACTICABLE? The answer involves the question : what are the exist- ing evils that cannot be corrected by existing legislation? Some idea of these evils can be obtained from an ex- amination of the complaints that have been made to the Commission in recent years. The subjects of these com- plaints range from overcharges on small shipments, al- leged wrongful freight classifications, failure to furnish cars, excessive demurrage charges, etc., to the relative adjustment of rates that affect large business communi- ties and sections. Of course numerous complaints arise from the fact that shippers will always want lower rates of freight, just as they always want lower prices on what they have to 135 IS RATE-MAKING 1!Y THE GOVERNMENT NECESSARY? buy. In the case of the price of transportation, the di- vergent opinions of the buyer and seller cannot be recon- ciled nor adjusted by bargaining, as the law forbids rail- roads to grant special rates. Hence, naturally, shippers complain tbat the rates are arbitrary, and unreasonably high. The Commission publishes in each annual report, a list of these complaints, classifying them as formal and informal. The formal complaints are those that are in- vestigated upon formal petitions filed with the Commis- sion under section thirteen of the Act. Informal com- plaints are those presented by letter under the twelfth section, and which the Commission endeavors to adjust by correspondence with shippers and carriers. The Commission has submitted to the Senate Com- mittee on Interstate Commerce, in reply to a Resolution of the Senate of January 16, 1905, a report showing its work in respect to formal and informal complaints, hear- ings, decisions of the courts, exorbitant rates, unreason- able rates, and rebates. It appears from an abstract of this report made by Joseph Nimmo, statistician, formerly Chief of the Bureau of Statistics, and a well known writer on economics, that from January 1, 1900, to March 1, 1905, 2,296 informal complaints were made to the Commission, of which num- ber 2,171 have been disposed of without the interposition of the courts. The Commission states in its report that it is not able to give the number of informal complaints prior to Janu- ary 1, 1900. The total number of formal complaints made to the Commission from April 6, 1887, to March 1, 1905, were 770. 136 IS RATE-MAKING BY THE GOVERNMENT NECESSARY? Which were disposed of as follows : Number which have come to a final hearing 400 Settled or discontinued 206 Indefinitely postponed 74 Heard, but not decided 20 Partially heard 27 No hearing 43 770 According to Mr. Nimmo's abstract, the total number of formal com- plaints, from 1887 to 1905, alleging exorbitant rates, were 351 Of which there were disposed without formal hearing 188 Disposed of without decision 24 Decided by Commission , 139 351 The total complaints involving unjust discrimination were 366 Settled without formal hearing 175 Disposed of without investigation 27 Decided by Commission 164 366 The abstract also gives the cases involving exorbitant rates, appealed by the Commission to the courts, from April 5, 1887, to March 1, 1905, as 15 In effect sustained by the Courts 3 Not sustained 12 15 During the same period there were 32 cases of unjust discrimination appealed to the Courts, in which; The Commission was sustained 8 Not sustained 24 32* " The Commission reports 27 formal complaints for violations of published rates, or failure to publish rates, since the enactment of the Elkins Law of February 19, 1903, of which ten have been heard and one dismissed. These 27 complaints embrace all the offences denounced by the Act; namely, failure to file or publish tariffs of rates and charges, rebates, concessions and discrimina- tions in respect to the transportation of property." The abstract concludes with the following re'sume' : "The general conclusion from this elaborate report by the Commission is, that out of many millions of freight transactions yearly, the following results in the nature of regulation have been reached : "1. Only three cases of exorbitant rates have been 'in effect' sustained by the courts ; or, on the average, one case during each six years of the life of the Commission. "2. Only eight cases of unjust discrimination have been proved in the courts, which, on the average, is less than one case during each two years of the life of the Com- mission. * It is proper to say in justice to the Commission, that the cases in which the Courts did not sustain it include a number of cases which were decided by the Commission when it supposed it had power to name rates for the future. 137 IS RATE-MAKING BY THE GOVERNMENT NECESSARY? "3. The total number of formal and informal com- plaints reported by the Commission is 3,066, of which only 45 or iy 2 per cent, have been appealed to the courts; the rest (QS 1 ^ per cent.) having been disposed of by the Com- mission. "4. The total number of decisions rendered by the Com- sion and by the courts as to exorbitant rates and unjust discriminations is really infinitesimal as compared with the many millions of freight transactions yearly. "The foregoing statements clearly prove the efficiency and sufficiency of the Act to Regulate Commerce as amended. They also reflect great credit upon the conduct of the American Railroad system, as well as upon the ad- ministration of the present statutory regulation of the railroads. At the same time they utterly repel the revo- lutionary idea of establishing bureaucratic government in this country for the regulation of interstate commerce. The very assumption that more drastic statutory legisla- tion than that now in force is needed is upon its face pre- posterous." From a statement made by Walker D. Hines in his testimony before the Senate Committee on Interstate Com- merce, it appears that from January 1, 1900, to January 1, 1905, the Commission issued 13 orders in cases of un- reasonably high rates, of which 10 were obeyed by the carriers, 2 were not obeyed, and 1 was not sustained by the court. During the same period the Commission issued 6 or- ders in long and short haul cases, 3 of which were com- plied with, and 3 were not sustained by the courts. There were only 3 orders made by the Commission in cases of discrimination between localities, of which 1 was obeyed by the carrier, 1 sustained by the court, and 1 not sustained by the court. This makes 22 orders in all in five years, of which 14 were obeyed by the carriers, 3 were not obeyed, and 5 were not sustained by the courts. 138 IS RATE-JIAKING BY THE GOVERNMENT NECESSARY? It is safe to say that no fair-minded person will seri- ously contend that existing legislation is inadequate to deal with the existing evils, as indicated by the compara- tively few cases that have come before the Commission and before the courts. The Act to Eegulate Commerce, supplemented by the Elkins Act, confers ample power upon the Commission to deal with every complaint of un- just discrimination. The Commission is required to execute and enforce the provisions of the Act. It has the power to prescribe the publicity of rates and the filing of tariffs. It has the power to inquire into the business of carriers, and to re- quire them to furnish full and complete information. It has the power to investigate by such means as it shall deem proper, any complaints made by any person, firm, corporation, association, etc, as to anything done by any carrier; and it can institute an inquiry on its own motion. It has the power to require the attendance of wit- nesses, the production of documentary evidence, and to invoke the aid of the courts to compel witnesses to testify ; and the claim that giving testimony may tend to incrimi- nate a witness does not excuse. It can award damages, and prescribe the measure of reparation to any injured parties ; and if its order is not obeyed, it can institute proceedings in the courts at the expense of the Government and without cost to the com- plainant, to enforce its orders ; and in the event the courts sustain the decision, the carrier must not only pay the cost of the defence, but also the attorney fees for the prosecution. If any argument were needed in support of the fact that existing legislation can correct existing evils, it can be found in the reports of the Commission itself. In its annual report for 1903, it says : — "No one familiar with railway conditions can expect 139 IS RATE-MAKING BY THE GOVERNMENT NECESSARY? that rate-cutting and other secret devices will immediately and wholly disappear, but there is basis for a confident belief that such offences are no longer characteristic of railway operations. That they haYe greatly diminished is beyond doubt, and their recurrence to the extent formerly known is altogether unlikely. Indeed, it is believed that never before in the railroad history of the country have tariff rates been so well or so generally observed as they are at the present time. "While the amended law is a potent factor in doing away with rate-cutting, other influences have contributed to the improved conditions now prevailing. Among these, of course, is the great increase in traffic, which in most parts of the country continues to move in unprecedented volume. * * * * "The test of the law will come when a lessened volume of competitive traffic invites sharp contest for business. In that case, however, we believe the law has now so much more vitality and can be so much better enforced that un- lawful rates will never again reach their former magni- tude. In its present form the law appears to be about ail- that can be provided against rate-cutting in the way of prohibitive and punitive legislation. Unless further ex- perience discloses defects not now perceived, ive do not anticipate the need of further amendments of the same character and designed to accomplish the same purpose."* In quoting from this (Seventeenth) Annual Eeport of the Commission, it is proper to state, however, that not- withstanding the improvements in the operation of the law referred to, the Commission renews its suggestion to Congress that the rate-making power be conferred upon it; and among other reasons which, in its opinion, give special force to that recommendation, is a matter growing out of the Elkins amendment, the effect of which, it says, has in many cases been to bring about an increase of rail- road charges. It says : — "Although the injustice occasioned by secret conces- * Italics are mioe. 140 IS RATE-MAKING BY THE GOVERNMENT NECESSARY? sions was largely removed, the shippers who had formerly been favored were compelled to pay higher rates of trans- portation. * * * Barring discriminations between shippers caused by the payment of rebates, the secret rates actually applied were perhaps, in some cases less unfairly adjusted, as between different localities and articles of traffic, than were the rates named in the tariffs. When these tariff rates are exacted from all shippers, as they now are for the most part, and such rates remain un- changed or are materially advanced, the effect is to accen- tuate any injury which is suffered by the public. In other words, the application of tariff charges which the amend- ed law quite effectually secures, brings into stronger light and calls. more attention to rates claimed to be unjust or unfairly related." As we shall inquire later into the advances that have been made in the rates during recent years, and also into the effect of Government rate-making upon the relation of rates affecting different localities, it is not necessary .to comment here on this part of the Commission's Report. No doubt the restriction of the practice of rebating must tend to increase the complaints of shippers, and many former beneficiaries of the practice will favorably consider any proposition looking to the establishment of a tribunal that would aid them in compelling the railroads to give them such rates as they may consider themselves entitled to. In the same Report (Seventeenth) the Commis- sion refers to the evils resulting from excessive pay-' ments by railroad companies for the use of private cars, particularly those owned or controlled by shippers, such as refrigerator cars, tank cars, and stock cars. As we have seen, the President in his message refers to the same evil, as well as to the abuses of the private terminal track and sidetrack systems, which he says must be stopped. It is claimed that the earnings of private cars are ex- cessive (one cent per car per mile run, and in some cases three-fourths of a cent), and that this allowance enables 141 IS RATE-MAKING BY THE GOVERNMENT NECESSARY? the owners to pay rebates, or in cases where they are themselves the shippers, the arrangement produces unjust discrimination ; and that this also applies to the all >w- ance of an excessive proportion of the freight rate to the owners of short railroads and sidings. The private car line question has been the subject of an investigation by a sub-committee of the House Com- mittee on Interstate Commerce, and has also been be- fore the Senate Committee. It is not necessary to ex- amine the merits of the question here, it being sufficient to say that if these allowances are excessive, it is clearly within the power, as it is for the interest, of the rail- roads themselves, to apply the necessary correction; and that, failing to do so, Congress can easily amend the Act. But it should be borne in mind that it is impossible to frame a law that effectively deals with all the causes and devices that may produce unjust discrimination, and that it ought to be sufficient to prohibit discrimination itself, however produced. It is clear, however, that rate-making by the Government would in no manner affect or cure such evils. In view of all the facts we have stated, and many •others which might be mentioned, the conclusion seems irresistible that existing legislation can cure all existing •evils, and that rate-making by the Government is un- necessary even if it were practicable. The advocates of additional legislation must have felt that the relatively few complaints of unjust discrimina- tion afforded no adequate pretext for enlarging the powers of the Commission: for they called the attention of the public to some advances in rates made by the railroads since the long depression in business was succeeded by the present general prosperity; and they expressed the fear that consolidations, community of interest, and mergers, might result in further advances. 142 SENATE DOCUMENT NO. 257. Among the documents that were circulated during the campaign for additional legislation, one which excited the interest of the public until its numerous inaccuracies were pointed out, is SENATE DOCUMENT NO. 257. During the long-continued depression of business, be- ginning in the early nineties, the railroads made consid- erable reductions in their freight rates, as they usually do during dull times, in order to stimulate traffic, and to meet the necessities of shippers. Owing to these reduc- tions, which were made mainly by changes in classifica- tions, and to the severe competition between railroads, the average rate per ton per mile in 1899 reached the lowest level in the history of railroads ; viz. : 724 thousandths of one cent per ton per mile. In 1900, or a few years after the beginning of the busi- ness revival, the railroads revised their classifications with the view of restoring former rates, and to abolish many unjust discriminations which had been created by the struggle for traffic during the dull times. They also made some direct advances in the rates during that year; and in 1901, 1902 and 1903, additional revised classifications were filed with the Commission. In some cases the changes in rates made them higher than they were pre- vious to their reduction. The advocates of additional legislation did not fail to call the attention of the public and members of Congress to those advances; and on March 11, 1904, on motion of Mr. Quarles, the Senate adopted the following Resolu- tion: "Resolved, that the Interstate Commerce Commission is hereby directed to furnish the Senate as speedily as may be practicable, a report showing the principal changes in 143 SENATE DOCUMENT NO. 257. railway tariff rates, whether resulting from the adoption of new rates or the amendment of freight classifications, and an estimate of the effect of such changes upon the gross and net revenues of railway corporations in the United States during each of the fiscal years ending June thirtieth, nineteen hundred, nineteen hundred and one, nineteen hundred and two, and nineteen hundred and three, as compared with the gross and net revenues that would have been derived by them under the rates and freight classifications in force during the fiscal year end- ing June thirtieth, eighteen hundred and ninety-nine; and also report the changes in cost of operation and mainte- nance of said railways for said years.'' The letter of the Commission in response to this reso- lution, with its appendix consisting of its Auditor's re- port, is known as Senate Document No. 257. Upon an examination of the resolution, the reader who is familiar with railroad accounting will see at a glance that to show the principal changes in the railway tariffs, and the effect of such changes upon the gross and net revenues of the railway corporations during the four years ending June 30, 1903, as compared with the rates and freight classifi- cations in force during the fiscal year ending June 30, 1899, would necessitate the examination of hundreds of thousands of freight tariffs, and of millions of freight way- bills. (It appears that during the year ending June 30, 1903, over 165,000 tariffs were filed with the Commission.) And after obtaining by such examination, the increase in gross earnings of the railroads, it would require an elabo- rate and intricate calculation to ascertain the amount of net revenues the railroads had derived from these ad- vances. It is obvious that no intelligent answer could be made within any reasonable time. The Commission, however, responded promptly under date of April 7, 1904, stating in substance that it was un- able to furnish this information, that "no accurate or 144 SENATE DOCUMENT NO. 257. even approximate estimate of the actual effect of specific changes in rates upon the revenues of the carriers can be 1Yj q r\ p "' But the Commission adds an Appendix that contains a statement of its Auditor, and which, it says, is in con- formity with the requirements of the resolution as far as practicable. The Auditor also states that the information called for by the resolution is not available, and "even if it could be obtained, the undertaking would be so enormous as to render it virtually impracticable." He however furnishes a statement showing the number of advances and reductions made in the Official Classifi- cation, the Southern Classification, and the Western Classification during the year 1900. It has been shown by parties who have investigated the report that this statement is erroneous; and moreover, that he has omitted reference to the changes made in classification in 1901, 1902 and 1903, during which years a large number of reductions were made. However, this is of no im- portance, because a mere statement of the number of these changes can throw no light upon the subject-matter of the inquiry. But the Auditor publishes the following table, "showing the total tonnage and freight revenue of all the railways in the United States for the years ending June 30, 1899, 1900, 1901, 1902, and 1903, with the aver- age rate per ton for each year, except that the figures given for the year last named represent about 98 per cent, of the total operated mileage." Year ending June 30. Total number of tons of freight carried. Total freight revenue. Average rate per ton. 959,763,583 1,101,680,238 1,089,226,440 1,200,315,787 1,221,475,948* $913,737,155 1,049,256,323 1,118.543,014 1,207,228,845 1,318,320,604 $0.9520 .9524 1.0269 1.0058 1.0793 * Represents about 98 per cent, of total mileage. 145 SENATE DOCUMENT NO. 257. And in connection with this table, he publishes another statement ; viz. : Statement Showing the Total Number of Tons op Freight Carried by the Railroads op the United States for the Fiscal Years Ending June 30, 1899, 1900, 1901, 1902, and 1903, with the Total Reve- nue Accruing Therefrom; also the Revenue Which Would Have Accrued at the Average Rate op 95.2 Cents per Ton for the Years Ending June 30, 1900, 1901, 1902 and 1903, this being the Aver- age Bate for the Year Ending June 30, 1899, and the Increase in the Revenue for the Years 1900, 1901, 1902, and 1903 Resulting from the Increase in the Average Rate per Ton for those Years. Tear end- ing June 30. Number of tons of freight carried. Total freight rev- enue as charged. Amount of freight revenue at aver- age rate per ton of 95.2 cents, be- ing the average rate for the year ending June 30, 1899. Increase. 1899 959,768,583 1,101,680,238 1,089,226,440 1,200,315,787 1,221,475,948 $913,737,155 1,049.256,323 1,118.543,014 1,207,228,845 1,318,320,604 $913,737,155 1,048,799,587 1,036.943,571 1,142,700,629 1,162,845,102 1900 1901 1902 1903a $456,736 81,599,443 64.528,816 155,475,502 $302,059,897 a The figures for the year 1903 represent about 98 per cent, of the total mileage. What made the above statement so effective as a cam- paign document, was the information it seemed to convey to the people that the railroads had overcharged them during the four years ending June 30, 1903, by over 1300,000,000 : and the inference was drawn that this enor- mous sum would have been saved to the people if the Com- mission had been clothed with the rate-making power. One would think that the Commission, in common fair- ness to the railroads, would have published in connection with their revenue, a statement showing the actual serv- ices they rendered to the public in the transportation of freight. 146 SENATE DOCUMENT NO. 257. Strange as it may appear, Senate Document No, 257 does not contain this information. It will be seen from the above table that the Auditor only gives the number of tons transported, and that he has made the average reve- nue per ton in 1899, the basis of his comparison between the revenues received for that year, and for the subse- quent four years. It is to be presumed that the Commission, in its haste to answer the question submitted to it, overlooked an error so vital as to vitiate the conclusions it reported to the Senate. For the Commission must know that the mere number of tons of freight hauled over the roads does not represent the actual work performed, for which the railroads receive compensation. Some freights are car- ried a few miles; others are hauled hundreds and even thousands of miles. The Auditor's statement does not distinguish between services consisting of one ton of freight hauled ten miles, and one ton of freight hauled a thousand miles; all the tons are put together indiscriminately, regardless of the distances carried. The Commission is also aware of the fact that the work actually performed in the transportation of freight, is the number of tons hauled one mile, and that the unit of measure is one ton hauled one mile. It must impress the reader as strange that the Com- mission did not use the ton mileage and the average rate per ton per mile, instead of the number of tons and the average rate per ton. In order to supply the information omitted in Senate Document No. 257, I have prepared the following state- ment showing the service rendered by the railroads, and the compensation received therefor, during the years end- ing June 30, 1899, 1900, 1901, 1902, and 1903 : 147 SENATE DOCUMENT NO. 257. P. £ gBS inoj ID O Hi S B 3 Per .B S? M '- — a) a o CO a o 10 "JS cb a) ^ 1 Cent. .9 2 1899 r?A 123,667.257,153 $913,737,155 1,049,256,323 19HU .729 141,599,157,270 17,931,900,117 14.5 1901 .750 147,077,136,040 23.409,878,887 18.9 1,118,543.014 1902 .757 157,289,370,053 33,622,112,900 27.2 1,207,228,845 1903 .763 173,221,278,993 49,554,021,840 40.0 1,338,020,026 124,517,913,744 100.6 85,626,785,363 Per Cent. Increase in Earn- ings due to In- creased Rate per Ton per Mile over 1899. Per Cent. $135,519,168 204,805,859 293,491.690 424,282,871 14.8 22.4 32.1 46.4 $7,079,957 38,240,055 51.905,492 67,556,298 0.77 4.18 5.68 7.39 $1,058,099,588 115.7 $164,781,802 18.08 It will be'seen that in 1900, the service rendered shows an increase of 14.5 per cent, over 1899, that the compensa- tion increased 14.8 per cent., and that the increase due to increased rate per ton, per mile, was 0.77 per cent. In 1901, the increase in service was 18.9 per cent., in- crease in revenue 22.4 per cent., and the increase in earn- ings due to increased rate was 4.18 per cent. In 1902, the ton miles increased 27.2 per cent, the revenue increased 32.1 per cent., and the increase in earn- ings due to increased rate was 5.68 per cent. In 1903, the tonnage increased 40 per cent., the reve- nue 46.4 per cent., and earnings due to increased rate, 7.39 per cent. The statement also shows that the in- crease in earnings due to increased rate per ton, per mile, was $67,556,298 in 1903, instead of 155,475,502 as stated by the Auditor; and that the total increase during the four years ended June 30, 1903, was $164,781,802 instead of 302,059,897 as stated in Senate Document No. 257. So that the Auditor's statement is subject to a discount of at least 43 per cent, in favor of the railroads. Of course comparisons based upon the average rate 148 SENATE DOCUMENT NO. 257. per ton, per mile, are not conclusive as to either increase or decrease in rates on particular articles of freight. They are only approximately correct, because they are affected by the relative quantities of the different classes of freight carried, which are not the same in each year. Senate Document No. 257 also gives an estimate of the effect of advances in rates on certain commodities such as hay, sugar, iron, steel, bituminous coal, lumber and other products of the forest, and showing a large in- crease in revenue derived from these advances. But in the absence of definite information, the Auditor has based his estimate upon assumptions as to the average advances per ton, and the amount of traffic to which they apply, that are not warranted by the facts. Hence, the results of the estimate are misleading. Senate Document No. 257 bears the impress of hasty preparation and lack of necessary information. It is of no practical value. It has no rational bearing, and throws no light, upon the question of rate-making by the Government. Its interest is derived solely from the fact that it illustrates one of the methods that have been adopted to influence Congress and the public, in favor of legislation conferring the rate-making power upon the Commission. The impartial observer, upon an examination of all the surrounding circumstances and conditions, must come to the conclusion that such advances as the railroads have made were fully justified by the increased cost of opera- tion due to increased wages and increased prices of ma- terials. Moreover, justice would seem to require that the railroads, after having made large reductions in these rates and sharing with the people the burden of hard times, should be allowed to participate in the benefits accruing from the general prosperity. Senate Document No. 257 contains a summary show- 149 EFFECTS OF KATE-MAKING BY THE GOVERNMENT. ing gross earnings, ratio of operating expenses to earn- ings, and mileage of the railways operated in the United States, for the years ending June 30, 1899, 1900, 1901 and 1902. A summary comparing these items with those of 1903 would have afforded much useful information to the Senate, in showing the effects of increased wages and increased prices of materials on the income of railroads. Unfortunately, the returns for 1903 were not complete when the Commission made its report. The following summary will supply the omission : — 1899. 1903. Increase. Per Cent. $1,313,610,118 7,005 $1,900,846,907 9,358 $587,236,889 2,353 44.7 33.1 Operating Expenses; $180,410,806 150,919,349 486,159,607 38,676,883 803,454 $366,481,774 340,429,742 703,509,818 47,767,947 409,571* $86,010,968 89,510,493 216,850,211 9,091,064 392,883 47.7 59.3 44.5 23.5 48.8* $856,968,999 4,570 65.24 187,634.68 928.924 533,967,896 $1,857,538,852 6,125 66.16 207,977.22 1,312,537 757,331,415 $400,569,853 1,555 46.7 34 Percentage of expenses to earnings. 0.93 20,442.54 883,613 234,353,519 10.9 41.3 44.8 It will be seen that while the gross earnings from operation increased 44.7 per cent., the operating expenses in 1903 as compared with 1899 increased 46.7 per cent, and the compensation of employees increased 44.8 per cent. EFFECTS OF RATE-MAKING BY THE GOVERNMENT. That the interests of the people and of the railroads are identical, has become proverbial. This mutuality has been recognized from the earliest days of railroads to the * Decrease. 150 GOVERNMENT RATE-MAKING HAS A TENDENCY TO OBSTRUCT COMMERCE. present time : and the co-operation of the people and the railroads has been fruitful of the most beneficent results. It may be said that the two are in partnership in the work of developing the resources of this country. The proposed intrusion of a Government rate-making bureau as a third party, one that has no adequate knowl- edge of the business and no responsibility for results, naturally excites serious apprehension. We have seen that such a bureau would be unable to do the work that is now performed by hundreds of trained railroad men who are in close touch with the shippers, and who know and can promptly meet their needs and requirements. It remains for us to inquire : what would be the effects if the adjustment of rates were taken out of the hands of these traffic officials, and transferred to a Government bureau? The thoughtful reader who has given careful consid- eration to the facts and circumstances bearing upon the adjustment of rates, that were developed in the course of this inquiry, will regard as self-evident, the following propositions : — I. GOVERNMENT RATE-MAKING HAS A TENDENCY TO OBSTRUCT COMMERCE. Amongst the characteristics of Americans are: their practical common sense, their versatility, and powers of adaptation, their ability to deal promptly and efficiently with new conditions and exigencies in applying the most direct and suitable means to the desired ends, and the energy and perseverance with which their objects are pursued. And in no department have these qualities had a bet- 151 GOVERNMENT RATE-MAKING HAS A TENDENCY TO OBSTRUCT COMMERCE. ter and wider field for exercise, than in the construction and operation of the railroads of this country. This is particularly true of the operation of the traffic depart- ments of the railroads. One of the most important factors that has contrib- uted to the usefulness of the railroads to the people, is the flexibility of the tariffs, — their adaptability to the chang- ing commercial conditions. It is obvious that if the ad- justment of rates is taken out of the hands of the traffic officials and transferred to a rate-making bureau in Wash- ington, this flexibility would be destroyed ; it would give place to rigidity. The bureau could not fix maximum rates, leaving the railroads some margins for their ad- justment. It would have to fix absolute rates : and these rates, when fixed, could not be changed except with the consent of the bureau. In vain would the shipper apply to the traffic men for a rate that might enable him to send his commodities to certain markets. The officials could no longer afford the desired assistance, however anxious they might be to do so. Hence, the shippers would have to apply to the bureau in Washington. But that bureau would have to investigate the case before it could render its decision. Experience has shown that these investigations consume considerable time; and as the Commission would always have a large number of cases before it, shippers would in most cases get a decision only after the opportunity for making the shipment had passed. It is safe to predict that it would not be long after the bureau had commenced rate-making, that this unfortunate condition would pre- vail in large sections of the country; and it is no exag- geration to say that the commerce of the country would become seriously obstructed, so far as it is dependent upon railroad transportation. 152 GOVERNMENT RATE-MAKING WOULD ENCOURAGE REBATING, AND CONGEST THE COURTS WITH INTERSTATE COMMERCE CASES. II. GOVERNMENT RATE-MAKING HAS A TENDENCY TO ENCOURAGE REBATING. The inability of the bureau to act promptly upon ap- plication for relief, would render the situation so intoler- able that great pressure would be brought to bear upon the traffic officials to induce them to anticipate a decision of the bureau favorable to the applicants; and if the of- ficials should yield to this pressure, as they might, there would be a revival of the pernicious practice of paying rebates. There is no escape from the conclusion that unwise legislation has a tendency to produce the very evils it is designed to cure. III. GOVERNMENT RATE-MAKING WOULD HAVE THE EFFECT OF CONGESTING THE COURTS WITH INNUMERABLE INTERSTATE COM- MERCE CASES. It is one of the objections that have been made to the operation of the Act to Regulate Commerce, that there is great delay in reaching final decisions in the cases that are appealed to the courts. In order to cure this defect, the Townsend Bill provides for the establishment of a special court of record, to be called the court of transpor- tation, which would have exclusive jurisdiction over suits and proceedings arising under the Act to Regulate Com- merce, etc. ; and in order to expedite work, the President is authorized to appoint five additional circuit judges. We have seen that comparatively few cases have come before the courts since the enactment of the Act to Regu- late Commerce. If, however, a Government bureau 153 GOVERNMENT RATE-MAKING WOULD PRODUCE DISCRIMINA- TION AGAINST LOCALITIES AND SUBJECT COMMERCE TO THE CONTROL OP A GOVERNMENT BUREAU. should fix rates, the number of cases would naturally in- crease very largely ; for it must be expected that a bureau in Washington, being unfamiliar with local conditions that affect rates, will make many mistakes that would re- sult in numerous appeals to the court of transportation, and that the delays complained of, instead of being di- minished, would largely increase. It should be borne in mind that mistakes made by traffic officers can be promptly corrected by themselves as soon as they are made aware of their injurious effects. This could not be done in cases of mistakes or wrong de- cisions made by the bureau. IV. BATE-MAKING BY THE GOVERNMENT WOULD PRODUCE UNJUST DISCRIMINATION AGAINST LOCALITIES, AND SUBJECT THE INSTRUMENTS OF COMMERCE, AS WELL AS COMMERCE ITSELF, TO THE CONTROL OF AN AUTOCRATIC GOVERNMENT BUREAU. The effects of rate-making by the Government which have thus far been pointed out, mainly concern persons, companies, firms and corporations. We will now con- sider how localities and business communities would be affected by attempts to fix the relations of rates, and what are known as differentials. In considering the question of discrimination against localities, it was pointed out that complaints of discrimi- nation against localities result mainly from commercial rivalry between business communities^ the railroads tak- ing sides with the communities they respectively serve. It was stated that these complaints will continue so long as commercial rivalry exists between such communities. 154 GOVERNMENT RATE-MAKING WOULD PRODUCE DISCRIMINA- TION AGAINST LOCALITIES AND SUBJECT COMMERCE TO THE CONTROL OP A GOVERNMENT BUREAU. It is obviously not desirable that such rivalry should ever cease. We also pointed out that the struggles of the railroads, and their frequent rate- wars for the purpose of gaining some advantage for their patrons, generally ended in com- promises or agreements by arbitration, which in the course of years brought about an adjustment of rates; so that now the rates throughout the country may be re- garded as being in a state of equilibrium. And we referred to the opinion expressed by Inter- state Commerce Commissioner W. G. Veazey, that it is idle to look forward to an equalization of rates that can be applied to all localities, — that such equality is unat- tainable through human endeavor, and that even common control of all railways through consolidated ownership or government purchase, could not accomplish such a task, — that any attempt to effect such equalization would have the opposite effect, and inflict greater discrimina- tions than arise under the existing general practice of fixing charges which attract traffic to the various lines. It is safe to say that these considerations would not deter the Commission from undertaking the task of re- adjustment. In fact, it would be compelled to take action on the numerous applications that would doubt- less be made by the organizations and their members, who have for several years appeared before Congressional com- mittees through their representatives, asking that the powers of the Commission be enlarged.* It is a remarkable feature of the campaign that these organizations should have been led to believe that a rate- making bureau in Washington can do what the railroads, * It appears from the testimony before the House Committee on Interstate Com- merce that the associations which were formed for the purpose of securing additional legislation had by January, 1905, grown to embrace a membership of 480 commercial, manufacturing and agricultural organizations, represented by their energetic President, E. P. Bacon. 155. GOVERNMENT RATE-MAKING WOULD PRODUCE DISCRIMINA- TION AGAINST LOCALITIES AND SUBJECT COMMERCE TO THE CONTROL OP A GOVERNMENT BUREAU. whose interests are identical with their own, have in all these years, and notwithstanding their strenuous efforts, failed to accomplish; that is, to adjust the relative rates throughout the country to the entire satisfaction of all the parties in interest. However, this faith in the Com- mission appears to be justified at least by its good inten- tions; for there can be no doubt that it has been and is ready and anxious to undertake the task. It has called the attention of Congress and of the public to the im- portance of "giving each community the rightful benefits of location, and to keep the different commodities on an equal footing." In its annual report for 1904 it ex- presses the opinion that discrimination between locali- ties or classes of traffic "can be redressed only by the ex- ercise of sufficient authority to readjust rate schedules to be observed in the future on the basis of relative justice."* The question arises : what principles are to be applied by the Commission to the readjustment of existing rates, so that each locality shall enjoy the "rightful benefits of location," and that the requirements of "relative justice" be satisfied? Would it be the equal mileage basis? Over thirty years ago, that basis was found to be false in theory and impracticable of application to tariffs on interstate traffic. Hence this crude method of rate adjustment has generally been confined to some of the tariffs on infra- State traffic established by State railroad commissioners. It is interesting to note, however, that in the early '90's the equal mileage basis seems to have found favor with the Interstate Commerce Commission; for in the Maxi- mum Eate cases it ordered reductions in the rates from Cincinnati to Southern points amounting to from 2 to 48 per cent, of the then existing rates, on about 2,700 articles of freight, upon the ground that on a mileage basis those rates were higher than the rates from Xew York and * Italics are mine. 156 RATE-MAKING BY THE GOVERNMENT WOULD RESULT IN MILEAGE TARIFFS. other Northern cities, — not by the same roads, however, but by different and independent systems of transporta- tion starting from different initial points, and passing through territories widely separated, to common destina- tions. Kate-making by the Government would inevitably re- sult in mileage tariffs; and while the application of the equal mileage basis to interstate tariffs would doubtless greatly simplify rate-making, and if acquiesced in by ship- pers, would stop all complaints of unjust discrimination against localities, it would also put a stop to most of the railroad traffic in this country, other than that between the local stations of railroads. But whatever theory of rate-making the Commission might adopt, it is obvious that, owing to the interdepend- ence of rates, any one adjustment applying to an im- portant business center would necessitate corresponding adjustments of a number of other rates from other locali- ties : and as the Commission cannot act promptly, every adjustment would create unjust discrimination against a number of business communities. This evil would be bound to grow and spread over the whole country, so that a general demoralization and a chaotic state of the busi- ness would become inevitable. This is not overdrawn. It is not even complete ; — for the railroads, as well as the business communities which would be seriously injured by these discriminations, would naturally endeavor to obtain relief in the courts, so that in numerous cases, rates would be finally estab- lished at the end of a lawsuit. And when changes in commercial conditions required a change in the rates established by the Commission, it might again become necessary to resort to a lawsuit in order to effect another adjustment. This method of rate-making has been aptly 157 RATE-MAKING BY THE GOVERNMENT WOULD GIVE THE COM- MISSION CONTROL OP THE COMMERCE OP THE COUNTRY. termed "political rate-fixing and business by lawsuit."* This sentence correctly describes and justly condemns rate-making by the Government. It is a matter of surprise that the organizations above referred to, should ask Congress to confer upon the Com- mission, powers, the exercise of which must be so injuri- ous to their interests. As already pointed out, the explanation is to be found in the fact that general rate-making power has been pre- sented in the innocent guise of rate revision. Any one who is at all familiar with the business of railroad trans- portation can easily see through this thin disguise. As a matter of fact, the powers which it is sought to confer upon the Commission are enormous. They are far greater than any authority ever exercised by any man or set of men in this country, or in the whole world. A rate-making commission would have absolute con- trol over the entire commerce of the country that is de- pendent upon railroad transportation. It could appor- tion the traffic among business communities, determining the quantity and character of business each community should be allowed to transact, and designate the markets to which it should be allowed to send its commodities. Such a commission would also have control over the operation of the railroads, and fix the amount of income each company should be allowed to earn. This may be regarded as an exaggeration ; for it might be said : "Will not the courts of the country afford protection to these properties?" We shall see in the course of this inquiry, that under the proposed legislation, the hope for protec- tion of the owners of railroads is illusive, and that this is also true in respect to business communities. * An address before the Boston Economic Club upon March 10, 1905, by David Willcox. 158 PORT DIFFERENTIALS. POET DIFFEKENTIALS. It is true that the Constitution of the United States provides (Article I, Section IX, Paragraph 6) that "No preference shall be given by any regulation of commerce or revenue to the ports of one State over those of another." But how, for example, would it be possible for a rate- making commission to arrive at a just decision of the question: what shall be the relative rates between com- mon points of shipment in the West to Atlantic Coast ports? — a question involving what are known as port dif- ferentials, which, after repeated rate-wars, agreements, and arbitrations, still remains unsolved, and is probably insolvable, the ingenuity of man having so far failed to discover an equitable basis for the establishment of such differentials? A brief history of the efforts that have been made dur- ing the last thirty-five years to settle this question, affords a good illustration of the great difficulties that are en- countered in the adjustment of relative rates of localities. By an agreement made in 1869, Baltimore was al- lowed a differential on grain of 10c. per 100 pounds as against New York. After a Avar of rates it was reduced to 5 cents in 1870, and this differential remained in effect until 1876 on grain and the lower classes of freight, the difference on the 1st, 2d and 3d classes remaining at 10 cents per 100 pounds. On westbound freight the dif- ference in favor of Baltimore and Philadelphia in 1875 was as follows : — From Baltimore. . . . From Philadelphia. . Classes. 1 2 3 4 Special. 10 7 9 7 8 6 6 4 5 3 159 POET DIFFERENTIALS. In March, 1876, the fixed differential on eastbound freight was abandoned, and the rates were made on a percentage basis from Chicago to Baltimore of 13 per cent., and to Philadelphia 10 per cent., less than to New York. This continued in effect only a few weeks, the New York Central and Erie Roads claiming that it gave too great an advantage to Philadelphia and Baltimore: whereupon a war of rates ensued, which continued until 1877, when the agreement of April 5, 1877, went into effect. It will be seen from the copy of this agreement, already given in this inquiry under the head of "Trunk Line Association," that the percentages based upon relative distances from common shipping points were replaced by fixed differences. On eastbound freight, the rates from all points west to Baltimore were 3 cents, and to Philadelphia 2 cents, lower than to New York. On westbound freight the rates from Baltimore and Philadelphia were less on the different classes, as fol- lows : — • Classes. 1 3 3 4 8 6 8 6 8 2 3 3 The object of this agreement was the equalization of the aggregate cost of rail and ocean transportation be- tween competing points in the West, and all domestic and foreign ports reached through Baltimore, Philadel- phia, and New York. This agreement proved unsatisfactory to the New York railroads, which claimed that since 1877, the ocean rates upon which these differentials were based for the 160 PORT DIFFERENTIALS. purpose of equalizing shipments, had been materially re- duced from Philadelphia and Baltimore, and were nearly the same as those from New York, — giving the southern ports an advantage over New York on export freight. As the agreement provided for its modification on three months' notice of either party, the New York Central, in June, 1880, gave the required notice. Thereupon the rate situation again became demoral- ized, and the question of differentials was referred to Commissioner Albert Fink, who, in December, 1881, made an elaborate report which covers every phase of the sub- ject, showing the elements that enter into the adjustment, and the effect of the methods that had been adopted. In his conclusions he says : — "From this view of the case it would seem that too much stress has been laid upon the necessity of a nice ad- justment of inland rates, from the operation of which it is expected that each of the railroads and each of the cities should get exactly that proportion of the competitive traf- fic to which it may consider itself entitled. This expec- tation is entertained in the face of the fact that differen- tial rates heretofore have never been observed whenever they came in conflict with the more legitimate conditions of competition; and there is not the least prospect that they will ever be maintained, nor ought they to be, if they operate unjustly toward any of the railroads or communi- ties affected by them. "Relying, in a great measure, upon the ocean rates to adapt themselves to the inland rates, and bearing in mind that the distribution of traffic between the trunk lines and cities is controlled by other conditions than mere agree- ments as to rates, a fact that is well established by the constancy with which the traffic divides itself, regardless of transportation rates, the true plan evidently is, to agree upon a proper distribution of that traffic at its source, if possible, and then to allow it to flow to the different cities according to the natural laws of trade. The rates should be sufficiently flexible, and might be changed from time tc» 161 PORT DIFFERENTIALS. time, so as to secure to the competing lines the agreed amount of traffic based upon the distribution of traffic as it took place under free competition. This is a much more direct and practical way of securing justice to each road, than to attempt to predetermine and enforce rates, under the impression that this could bring about a satis- factory division of traffic." The recommendation of Commissioner Fink, however, failed to settle the controversy ; and in the spring of 1882, the whole subject was referred to the arbitration of Sen- ators Thurman and Washburn, and Judge Cooley. This Board, known as the Advisory Commission, reported, July, 1882, stating in substance that Baltimore and Phil- adelphia rates should be lower than NeAv York rates, and that the results of actual competition for several years afforded the best measure of these differentials. They therefore recommended that the then existing differen- tials be continued "for the present." Accordingly, these differentials were used in the pub- lished tariffs of the railroads, but without being generally observed in actual practice; nor was any further attempt made to change them officially. In 1897 the question came before the Interstate Com- merce Commission, the New York Produce Exchange having filed a petition against the Baltimore and Ohio and other lines, charging that the differentials resulted in undue discrimination against New York. The Commission held, April 30, 1898, that the differ- entials are legitimately based upon the competitive rela- tions of the carriers — that it does not appear upon the present record that the carriers have exceeded the limit within which they are free to determine for themselves, and accordingly, that the differentials complained of do not result in unlawful preference or advantage to Phila- delphia or Baltimore over the City of New York. 162 PORT DIFFERENTIALS. The differentials here referred to were the same as those in effect in 1882 ; viz. : on grain, flour and provisions from Chicago and other Western points, 2 cents per 100 pounds to Philadelphia, and 3 cents per 100 pounds to Baltimore, below the rate to New York. Owing to severe competition, particularly with the railroads serving the Gulf ports, the rates on grain were reduced to such low figures in 1899 that the roads of the North Atlantic ports agreed to reduce the differentials on export grain one-half. The rates in effect May 10, 1899, from Chicago and the Mississippi river to Eastern seaboard cities, were, per 100 pounds : — To New York 12 cents. Boston 12 " Philadelphia 11 " Baltimore 10i/o " Norfolk 10 Mj " Newport News IOV2 " Montreal 11 " Portland 12 " And to the Gulf ports : from Kansas City to Galveston, 1.0 cents, and New Orleans, 10 cents. In the early part of 1904, a rate-war broke out between the lines leading from Buffalo to Baltimore, Philadelphia, New York and Boston, which resulted in the reduction of the rate on wheat from Buffalo to these ports, to 2 mills per bushel : and certain commercial organizations of Bos- ton, New York, Philadelphia and Baltimore petitioned the Commission, asking that it examine the whole subject of differential rates, and determine whether the present differentials should be abolished, or if retained, modified. Upon negotiations between these organizations and the representatives of the railroads, it was agreed to sub- mit the question of differentials to the Interstate Com- 103 PORT DIFFERENTIALS. merce Commission, acting as a Board of Arbitrators. Proceedings of inquiry were instituted April 11, 1904, and hearings were held at New York, Philadelphia and Washington. April 27, 1905, the Commission decided (Commissioner Clements dissenting) : "We have not considered westbound differentials ap- plicable to import traffic, since there are no facts in this record upon which to base an opinion. With respect to export differentials, we conclude that the differential on flour, both all-rail and lake-and-rail, should be 2 cents per 100 pounds at Baltimore and 1 cent per 100 pounds at Philadelphia ; that there should be allowed both Balti- timore and Philadelphia a differential of three-tenths of one cent per bushel on ex-lake grain; that otherwise the present differentials should remain in force." The opinion of the Commission and its conclusion leave the question : what is a proper basis for the adjust- ment of port differentials? where the Advisory Board left it in 18S2, and which had said in substance: — "We do not know what the basis should be. Continue the exist- ing differentials, and if they do not result in a division of traffic satisfactory to the business communities and to the railroads, try some other differentials." Of course these differentials involve agreements be- tween the railroads; for differentials have no meaning and no effect unless the rates to which they apply are established and maintained by agreement, — which the antitrust law prohibits. And this leads Commissioner Clements to comment upon the conclusion of the Com- mission as follows : — "While the situation justified the inquiry, the facts disclosed do not, in my judgment, justify the conclusions reached, for the reason that I believe they do violence to the great principle of competition which the Congress and the Supreme Court have so jealously and consistently nourished as one of the fundamental rights of the public. 16i PORT DIFFERENTIALS. In declaring as between competing lines and competing ports what differentials shall govern, assuming that they will govern, we hamper competition, and by this regula- tion of distribution effect in reality a division of territory, a division of traffic, and a division of earnings, which in substance and effect tend to defeat not only the purposes of the Antitrust Act against the restraint of trade, but the pooling provision of the Interstate Commerce Act, with the enforcement of which the Commission is charged." What the Commissioner says about the defeat of the provisions of the Antitrust Act is doubtless true ; but he is mistaken in regard to the defeat of the Act to Regulate Commerce, "with the enforcement of which the Commis- sion is charged." The fifth or antipooling section of that Act does not prohibit a division of traffic brought about by an adjustment of rates. It only prohibits so-called money pools. As a matter of fact it is the Antitrust or Sherman Act that defeats the main purposes of the Act to Regulate Commerce; and the conclusion of the ma- jority as well as the criticism of the dissenting member of the Commission, emphasizes the necessity we have pointed out of amending the law so as to permit railroad men to meet and agree upon reasonable rates of freight. We have seen that excessive competition produces most of the evils which the regulation of railroads is de- signed to cure; and it is difficult to understand why the conclusion of the Commission in this case should "do violence to the great principle of competition which the Congress and the Supreme Court have so jealously and consistently nourished as one of the fundamental rights of the public." Free competition is doubtless the policy of Congress; but has the Supreme Court made it the prin- ciple of the law? Is it true that free competition is in need of the fostering care and nourishment of Congress and the courts? Have we not rather too much of it for the good of the people and of the railroads? 165 GOVERNMENT RATE-MAKING WOULD NECESSITATE MAKING WATER ROUTES SUBJECT TO THE PROVISIONS OP THE ACT TO REGULATE COMMERCE. We have treated this subject somewhat at length, for the purpose of showing that it would be impossible for a Government bureau to fix rates between points in the United States, without giving preference to one or more of the ports of one State over those of another State, and that an attempt to exercise the autocratic rate-making power would result in unjust discrimination against lo- calities, in demoralization of commercial conditions, and injustice to the owners of railroads, as well as to their patrons. It is obvious that while a railroad that serves a single port of a State can give such port preference over ports of other States, a Government commission could not adjust rates to and from all the ports of the different States, without violating Article I, Section IX, Paragraph 6, of the Constitution of the United States. And it should be borne in mind that the number of such ports has largely increased. There are now about 350 ports of entry and delivery established by law in this country. GOVERNMENT RATE-MAKING WOULD NECESSI- TATE MAKING WATER ROUTES SUBJECT TO THE PROVISIONS OF THE ACT TO REGULATE COMMERCE. The Congress has wisely left water routes, the great regulators of railway rates, untrammeled by legislation. They are subject to the Act to Regulate Commerce only when in connection with railroads, they form through transportation lines. When a Government bureau under- takes to make the rates in this country, it will be abso- lutely necessary to give it jurisdiction over freight rates of water routes, whether they form parts of through lines or not. 166 RATE-MAKING BY THE GOVERNMENT WOULD BE UNJUST TO THE RAILROADS AND INJURIOUS TO THE PUBLIC. KATE-MAKING BY THE GOVERNMENT WOULD BE UNJUST TO THE RAILROADS, AND IN- JURIOUS TO THE PUBLIC. It is well known that the sole value of railroads to their owners, consists in their capacity to earn a fair re- turn on the capital invested in them, and that a railroad's earning capacity depends in a measure upon the efficient and judicious management of the properties. It is mani- fest that to take the vital function of making rates and regulations out of the hands of the owners, is equivalent to taking the properties themselves. If the control of railroads by the Government is essential to the public welfare, justice would seem to require that it be obtained through the purchase of these properties. This, however, is not contemplated. It is proposed to acquire substan- tial control under the commerce clause of the Constitu- tion. That this clause is sufficiently broad and elastic for that purpose may no longer be doubted. It is certain that the rate-making bureau might, in the course of time, render most of the properties of little value to their owners; for the amount of their income would be abso- lutely under its control. Legislation so false in prin- ciple would necessarily produce disastrous consequences in practice. The injustice and injury would not be con- fined to the owners of railroads, but would be shared by the general public — the commercial and industrial com- munities. One of the remarkable features of the scheme is that it would be necessary to change existing legal procedure in order to carry the scheme into effect. For example: — the proposed bills for enlarging the powers of the Com- mission afford no redress to the owners of railroads in cases where the Commission orders a reduction of rates which a court on appeal declares to have been wrongfully 167 RATE-MAKING BY THE GOVERNMENT WOULD BE UNJUST TO THE RAILROADS AND INJURIOUS TO THE PUBLIC. made, — because the reduced rates take effect of their own force at once ; so that, pending the decision of the courts, the railroads may have to suffer heavy losses. Under this peculiar procedure, a corporation is presumed to be guilty until it proves itself innocent; and punishment is in- flicted upon it before it has had its day in court. In view of the great additional work that rate-making would impose upon the Commission, it is reasonable to suppose that it would commit numerous errors in decid- ing cases that came before it. We have seen that in the past, out of 47 cases that came to the courts upon appeal since 1887, the Commission was sustained in only 11 cases. Many of the cases that would be the subject of litigation under the exercise of the rate-making power, would doubtless involve large amounts of money. It appeared from the testimony before the House Committee on Interstate Commerce, that the annual losses to the railroads by the order of the Commission in the Maximum Eate cases, would have amounted to about $3,000,000. In the case known as the Danville case, it was shown by proof that obedience to the order of the Commission would have resulted in a loss to the Southern Railway Company of $544,174 per annum. In giving this example of the effect of the novel pro- cedure, it has been assumed, for the sake of illustration, that under the proposed legislation, it would be in the power of the courts to reverse any erroneous decisions of the Commission. But this assumption is erroneous; for it is another remarkable feature of the rate-making scheme that the courts would not review the decisions of the Com- mission, except in cases where its reductions of rates had been so great as to be confiscatory. Eminent lawyers are of the opinion that, the Supreme Court having declared that the power to make future 168 RATE-MAKING BY THE GOVERNMENT WOULD BE UNJUST TO THE RAILROADS AND INJURIOUS TO THE PUBLIC. rates is a legislative power, Congress cannot constitu- tionally confer upon the judicial department, any power to review or reverse the action of the Commission in mak- ing future rates, and that the only power which would be left to the judiciary, or that could be imposed upon it by Congress, would be the power to decide whether the rates are confiscatory in character. If this opinion is correct, it is obvious that any provision for an appeal from the de- cision of the Commission, while ostensibly for the protec- tion of the property rights of the owners of railroads, would be a mockery of justice, and that the proposed scheme of rate-making by the Government would be pure despotism untempered by law. This is not in keeping with the methods practiced in civil as well as in criminal courts. Should not the owners of railroads enjoy the equal protection of the country's laws? Why should an exception be made against them? Why should our system of judicial procedure be subverted, in order to cure an evil which can be eradicated otherwise by process of existing law, and without doing an even greater wrong? An eminent lawyer, commenting upon the proposition that the orders of the Commission take effect at once, uses the following language : — "It seems to me preposterous to claim that the orders of the Commission should have the force and effect of a judgment, or decree. "You may ascribe to the Commission as much ability, and as much integrity, as can be claimed for any one; and yet when we remember that the regulation of interstate railway rates is in its infancy, and that erroneous orders made by the Commission in regard to rates may be ruin- ous in their results, no order of the Commission fixing rates should be enforced, until after a party who is to be injuriously affected has had an opportunity to be heard In court. 3 69 GOVERNMENT KATE-MAKING WOULD DEPRIVE RAILROAD PROPERTIES OF THE EQUAL PROTECTION OF THE LAW. "The ultimate question as to what is an unreasonable, discriminatory, or preferential rate, while largely depend- ent upon probatory facts, is necessarily one of mixed law and fact; and upon the question of law involved in every such inquiry, the parties are entitled to the judgment of tbe court, before they are compelled to obey orders which may result in the loss of hundreds of thousands of dollars per annum in a single case. "In the case of the E. & I. Bridge Co. vs. L. d- N. R. R. Co., 37 Fed. Rep., 567, it was held by Judge Jackson that the Interstate Commerce Commission is to be regarded as the general referee of each and every Circuit Court of the United States, upon which the jurisdiction is con- ferred of enforcing the rights, duties and obligations con- ferred and imposed by the Act to Regulate Commerce. How would the legal profession of the United States re- gard a lair- requiring parties against tohoni a referee in chancery may make a rcyort, to obey the orders of the teferee in advance of any hearing before the Chancellors? And yet that is exactly what the Interstate Commerce Commission desires shall be enacted, in regard to orders which it, as referee, may make in fixing rates. "When we remember that the Act approved Feby. 11, 1903, entitled 'An Act to expedite the bearing and de- termination of suits in equity,' etc., very materially expe- dites litigation instituted by the Commission to enforce its orders, Congress ought not to go further and require that orders of the Commission fixing rates be obeyed, be- fore their legality can be tested in court." The Commission understands clearly that under the bills that were introduced in Congress conferring rate- making powers upon the Commission, appeals from its decisions to the courts would be ineffectual. Chairman Knapp went before the Senate Committee on Interstate Commerce in 1898, and said : — "The determination of what that rate shall be in the future is a legislative administrative question with which the courts can have nothing to do. * * * This Com- mission, for the purposes we are now discussing, repre- 170 GOVERNMENT RATE-MAKING WOULD DEPRIVE RAILROAD PROPERTIES OF THE EQUAL PROTECTION OF THE LAW. sents the Congress of the United States, and when it has made an order, in a certain sense, it is like an act of Con- Mr. Prouty, when before the same Committee on Feb- ruary 20, 1900, said :— "The prescribing of a rate is, under the decisions of the Supreme Court, a legislative, not a judicial, function, and for that reason, the courts could not, even if Congress so elected, be in rested icith that authorit//.'' An eminent lawyer who, for many 3 T ears, has acted as counsel in numerous cases arising under the Act to Regu- late Commerce, in commenting upon the above, says : — "Mr. Knapp and Mr. Prouty both take the same view of the question that I do, and it may be confidently pre- dicted that the Commission will insist upon that con- struction if this bill should be passed by Congress. "If the fixing of a future rate is a legislative act, and is to have the same effect as though Congress itself pre- scribed it in an act of Congress, the power which the printed bill assumes to give to the court to determine whether the order of the Commission fixing such rate is made upon some error of law, or is upon the facts unjust and unreasonable, is a power which Congress could not exercise, because no court can determine whether an act of Congress is upon the facts unjust or unreasonable, or whether an act has been passed under some error of law." "It is true that many of the States have vested State railroad commissions with legislative power to make rates, and so long as those rates are not confiscatory in their character, the Federal courts have held that they can grant no relief; but Congress has Avisely refused to vest any such power in the Interstate Commerce Commission. It is an arbitrary and irresponsible power, whether vested in a State or National Commission. However un- fair or unjust the action of the Interstate Commerce Commission may be, it will, if the Commission be vested with the legislative power to fix rates, be practically irre- 171 GOVERNMENT RATE-MAKING WOULD DEPRIVE RAILROAD PROPERTIES OF THE EQUAL PROTECTION OF THE LAW. sponsible, because in that event it will be claimed that the courts will have no jurisdiction to review the action of the Commission, unless the rates so fixed be absolutely confiscatory, or it can be affirmatively shown that the Commission acted corruptly." This matter was also made clear by Victor Morawetz in his testimony before the Senate Committee on Inter- state Commerce, April, 1905. He says : — ■ "I am trying to make the point, and to impress it upon the Committee, that no statute can be drawn which will require the courts to reconsider the case before the Com- mission in fixing rates, to hear the case de novo, and to substitute the ideas of the court as to what is a wise or de- sirable rate, for the ideas of the Commission." In an article published in the Harvard Law Review for June, 1905, Victor Morawetz says : "If Congress cannot give to the courts original power to prescribe what rates the railway companies shall charge, Congress cannot require the courts to reconsider the whole case as it was considered by the Commission, and to pass upon the wisdom and policy of the action of the Commission in fixing a rate. In other words, Con- gress, cannot constitute the courts, in substance, an Ap- pellate Eailroad Commission, and require them to sub- stitute their own ideas as to the wisdom and policy of a rate, for the ideas of the Commission. Any statute au- thorizing the Commission in the first instance to exercise purely discretionary power in fixing rates and requiring the courts, upon a review of the action of the Commission, to exercise the same discretion as the Commission, would be unconstitutional, because this discretion would be a legislative and not a legal discretion. Such a statute would, in effect, constitute the courts the ultimate rate- makers for the railways in the United States. "The courts undoubtedly can pass upon the question whether a rate is unreasonably high and therefore unlaw- ful, or whether it is in violation of a legal order made 172 GOVERNMENT RATE-MAKING WOULD IMPAIR THE CREDIT OF RAILROADS AND THE EFFICIENCY OF THE SERVICE. by the Commission. The courts also can pass upon the question whether the action of the Commission in fixing a rate is unconstitutional; that is to say, whether it would in effect amount to confiscation of the property of the carrier; but the courts cannot be required to substi- tute their own ideas of wisdom or policy for those of the Commission in fixing a rate which is neither confisca- tory nor unreasonably high. The question in such a case would not be a question of fact nor a question of law. The adjustment of the rates, of a carrier between these ex- tremes presents merely a question of business policy largely dependent upon individual opinion and prefer- ence. The carrier can pass upon this question ; and Con- gress, in the exercise of its legislative functions, can pass upon it. Possibly a commission appointed by Congress can be empowered to pass upon such a question. But the courts of the TTnited States cannot be required to pass upon such questions and in effect take charge of the traffic management of the railways. * * * Under the bills that have been introduced in Congress, the only question that could be considered upon an appeal by a railway company Avould be whether the rate prescribed by the Commission was confiscatory, and the only question that could be considered upon an appeal by a shipper would be whether the rate prescribed by the Commission was extortionate or discriminator!/. If a locality should be aggrieved by the action of the Commission, it would prob- ably not hare any redress whatsoever." 1 ''' RATE-MAKING BY THE GOVERNMENT WOULD INJURIOUSLY AFFECT THE VALUES OF RAILROAD SECURITIES, IMPAIR THE CREDIT OF RAILROAD COMPANIES, AND THE EFFICIENCY OF THEIR SERVICES TO THE PUBLIC. It is obvious that investors would look with suspicion upon securities, the value of which depends upon a rate- making bureau that has the power to say what income * Italics are miDe. 173 RATE-MAKING BY THE GOVERNMENT HAS A TENDENCY TO PRODUCE LABOR STRIKES. these securities shall yield. Some idea of the enormous power such a bureau would exercise over property can be formed by referring to the Eeport of Statistics of Rail- ways in the United States for 1903, which shows that on June 30th of that year, there were outstanding in railroad stocks, |6,155,559,032 ; and that the total funded debt was $6,444,431,226, a total of |12,599,990,258. It appears from the testimony of Daniel Davenport before the Senate Committee on Interstate Commerce, that in the six States of New York, New Jersey, New Hampshire, Massachusetts, Connecticut and Maine, sav- ings banks held railroad stocks and bonds of the value of $442,354,086, or 20.31 per cent, of their entire deposits. There were in those banks, 5,174,718 depositors; and the total deposits amounted to $2,177,859,256. Of course these depositors are all interested in the prosperity of the country's railroads. It is well known that railroad companies always need additional capital to enlarge their facilities. The ques- tion arises : who will buy their securities when their value is made dependent upon the acts of a Government bureau? Being unable to borrow money, the railroads would neces- sarily have to reduce their service to the public. RATE-MAKING BY THE GOVERNMENT HAS A TENDENCY TO PRODUCE LABOR STRIKES. That the power to fix rates would be exercised in re- ducing rates, is obvious; for that is the object its advo- cates wish to attain. Nor can it be doubted that a rate- making bureau would endeavor to meet their wishes. An examination of the Income Account of the rail- roads, published with the Report of the Interstate Com- merce Commission for the year ending June 30, 1903, will «how that a small reduction in the average earnings per 174 POLITICAL EFFECT OF RATE-MAKING BY THE GOVERNMENT. ton, per mile, would deprive the railroads of the ability to pay their stockholders reasonable dividends. They would therefore be forced to cut down their operating ex- penses, and especially the wages of their employees; but labor in this country is too well organized to submit with- out a struggle to such reductions; hence labor strikes, with the attendant demoralization of the railway trans- portation system and the commerce of the country would become inevitable. POLITICAL EFFECTS OF BATE-MAKING BY THE GOVEBNMENT. The political questions involved in rate-making by the Government are of a serious character, but do not come within the scope of this inquiry. THE MAXIMUM BATE CASES. An Object Lesson in Bate-Making by the Government.. The Question : How would a rate-making commission exercise its powers? is one of great interest to the owners of railroads, as well as to the public. If we may judge by some of the decisions of the Interstate Commerce Com- mission, made during the time it supposed the Act to Begulate Commerce conferred the rate-making power upon it, we have no reason to suppose that its action would be conservative. The opinion and decision of the Commission in the- cases of The Freight Bureau of the Cincinnati Chamber of Commerce vs. The Cincinnati, New Orleans and Texas Pacific Railway Company et al., and of The Chicago Freight Bureau vs. Louisville, Neio Albany and Chicago Railroad Company et al., 167 IT. S. Bepts., 479, known as the Maximum Bate cases, afford the best object lesson of the destructive effects of rate-making by the Government. 175 THE MAXIMUM RATE CASES AX OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. The general ground of the complaint in the Cincinnati case was that rates of freight established by the defendant ■carriers from the Eastern seaboard and Central terri- tories respectively, to Southern territory, unjustly dis- •criminated in favor of the merchants and manufacturers whose business is located and transacted in Cincinnati, and other points in Central territory. In the Cincinnati case the reasonableness of the rates in and of themselves was not questioned. The burden of the complaint was against the relation which exists be- tween the current rates of freight on manufactured ar- ticles (the numbered classes) from Eastern seaboard ter- ritory to Southern territory, and the current rates of freight existing on like commodities when shipped from the Central territory to the South ; and also against the unfair basis of general construction of the tariffs whereby the rates charged for the transportation of commodities •classified under the numbered classes, bore a much higher percentage relation to the rates from Xew York, than to the rates on commodities enumerated under the lettered classes (food products, and some heavy articles of traffic ) . In the Chicago case the complaint was the same as in the Cincinnati case; but in addition, the reasonableness in and of themselves, of the through rates from Chicago to Southern territory was questioned, upon the ground that the traffic between Chicago and Southern territory is through traffic, and that it was unjust to Chicago that rates from that point should be exacted by defendants, based upon unreasonably high rates between Cincinnati and other Ohio River crossings, and Southern territory, to which are added substantially local rates in effect from Chicago to Cincinnati, and such other Ohio River cross- 176 THE MAXIMUM KATE CASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. The following is the final Conclusion and Decision of the Commission : "Our conclusion upon the whole is that, as charged in the complaint in the Chicago case, the rates on the numbered classes from Cincinnati and the Ohio river crossings to the South are 'unreasonably high/ and as they enter into the through rates from Chicago, that those through rates, as well as the rates from Cincinnati, are excessive. There is no complaint that the rates from Chicago to Cincinnati and the other crossings are unrea- sonable in themselves, and no evidence authorizing us to so find. They are the regular Trunk Line rates and are not subject to the objection, as in the case of the Associa- tion rates south of the river, that they are made higher than they otherwise would be for the purpose of secur- ing to the Eastern Seaboard lines traffic from territory set apart to them. The cost on freight in general, per ton per mile, on the roads south of the river, appears to have been, for the years named, in the tables heretofore given, about 25 per cent, 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, as shown in the tables. Rates from Cincinnati to Southern territory from 35 to 50 per cent, higher per ton per mile than those from Chicago to Cincinnati, and other Ohio river crossings, will, in our opinion, make full allowance for these differences in cost and tonnage, and be at least not unreasonably low, as maximum rates. The rates in cents per 100 pounds, given below, are approximately upon this basis: From Cincinnati. To 1 2 3 4 5 6 53 60 75 86 114 87 86 108 45 54 64 73 98 74 73 92 37 40 54 60 80 60 60 78 27 30 44 45 62 46 45 60 22 24 34 35 49 36 35 48 20 22 24 27 38 28 27 36 177 THE MAXIMUM RATE OASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. "Kates from Chicago to Knoxville, Chattanooga Rome, Atlanta and Anniston are made via Cincin- nati ; those from Chicago to Birmingham and Selma, via Louisville; and those from Chicago to Meridian, via Cairo, on the Illinois Central. The rates in the follow- ing table accordingly, to the five cities first named, are combinations of the above rates to those cities with the existing rates from Chicago to Cincinnati; to the two cities next named, they are combinations of rates from Louisville, constructed on the same basis as the rates in the above table with the existing rates from Chicago to the river; and to Meridian, they are combinations of rates from Cairo, constructed on the same basis as rates in the above table with the existing rates from Chicago to Cairo. From Chicago To 1 2 3 4 5 6 93 100 114 126 114 111 126 128 79 88 97 107 98 95 107 112 62 65 79 85 82 72 85 89 44 47 61 62 60 52 62 66 37 39 49 50 47 44 50 53 38 34 39 38 Note. — The rates from Chicago and Cincinnati to Meridian are made substantially the same, because the larger portion of the haul from Chicago is in Central Territory, where rates are lower. The conclusions of the Commission in these cases afford a good illustration of tbe far-reaching, bad effects of false theories applied to the adjustment of railway freight rates. The Commission was evidently strongly influenced by the equal mileage theory when it made this decision, — a theory which had been abandoned as unsound and im- practicable about a quarter of a century before that time. But while the theory was old and obsolete, the application of it made by the Commission in this case was novel. ITS THE MAXIMUM RATE OASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. When the reasonableness of the relative rates of dif- ferent localities is questioned under the first paragraph of the third section of the Act to Regulate Commerce, comparisons based on mileage are usually confined to the carrier's own line or system, as in the case of charges of violations of the fourth or long and short haul section of the Act, or in cases where it is alleged that the carrier charges more per ton per mile over one part of its road, than over another part. In the case of Eau Claire Board of Trade vs. Chicago, M. & St. P B. Co., 4 J- C. Rep., page 65, the Commission says: "A railroad cannot be said to 'discriminate' against a town which it does not reach and in whose carrying trade it does not participate. Preference, prejudice, and other like terms imply comparison, and the basis of comparison is wanting unless the rates compared are made by the same carrier." In the Maximum Eate cases, the Commission made its comparison between two distinct, independent carriers, operating their lines through widely separated territory, and under widely divergent circumstances and conditions. It compared the rates per ton, per mile, of the carriers from Central territory to the Southern territory, with the rates per ton, per mile, of the carriers from the Eastern seaboard territory to the Southern territory, and de- clared the former to be relatively unreasonable. The comparison itself was improper ; but what made it unfair and misleading was the fact that it was made with the Eastern all-rail lines, instead of the water and rail lines, by which these rates are established, and which carry most of the traffic from Eastern cities to Southern points. Such a comparison with the water and rail lines, 179 THE MAXIMUM RATE OASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. would not, however, have sustained the theory of the Commission as to the great disparity of rates. It is well known that railroads have to be operated under widely divergent circumstances and conditions, and that therefore comparisons between the rates of dif- ferent roads or groups of roads can serve no useful pur- pose, — that they are unfair and misleading. In the case of Business Men's Association of the State of Minnesota vs. Chicago and Northwestern B. B. Co., 2 I. C. Kep., 48, the Commission holds that: "Comparisons of rates charged by railroad companies under circumstances and conditions substantially dis- similar, really prove nothing, and cannot be adopted as standards in arriving at the reasonableness and justness of rates." The Commission which decided the Maximum Rate cases does not concur in that opinion. It says in its con- clusions in justification of such comparisons : — "Where the reasonableness of rates is in question, comparison may be made not only with rates on another line of the same carrier, but also with those on the lines of other and distinct carriers — the value of the compari- son being dependent in all cases upon the degree of simi- larity of circumstances and conditions attending the transportation for which the rates compared are charged." And accordingly the Commission established an en- tirely novel theory of rate-making. It holds that the rates per ton, per mile, on the different classes of freight of one railroad, can properly be used as a basis for the construction of tariffs for one or more other and inde- pendent carriers — that all that is -necessary to do is to ascertain the degree of dissimilarity of circumstances 180 THE MAXIMUM RATE OASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. and conditions attending the transportation, and to make proper allowances for the same in the rates per 100 pounds on the corresponding classes. It will be seen that it applied this theory to the con- struction of its maximum rate tariffs, which it ordered the defendant carriers to put in effect. It assumed that the rates from Chicago to Cincinnati and other Ohio river crossings, are reasonable in themselves, upon the ground, that there is no complaint — and no evidence authorizing the Commission to find that they are un- reasonable. It then makes these rates per ton, per mile, the basis of rates for the defendant carriers, — making allowances for the degree of dissimilarity due to the greater tonnage of the roads from Chicago to Cincinnati, and the greater cost of transportation per ton, per mile, of the roads south of the Ohio river. This diversity of conditions the Commission fixes at from 35 to 50 per cent. We have seen that the average cost of transportation per ton, per mile, is mere guesswork, and cannot be made a factor in the establishment of rates. As to the diversity of other conditions, the following figures, taken from the Interstate Commerce Commis- sion's Annual Report on the Statistics of Railways in the United States for the year ending June 30, 1893, will show the diversity of circumstances and conditions under which railroads are operated in the Eastern Seaboard territory, Central territory, and the Southern territory: 181 the maximum rate cases an object lesson in rate- making by the government. Summary Showing Public Service op Railways, by Groups — Passenger Service. Territory Covered. Passenger Train Mileage. Number of Passengers Carried. Number of Pas- sengers Car- ried One Mile. Number of Passengers Carried One Mile per Mile of Line. Average Number of Pas- sengers in Train. Average Journey per Pas- senger. 33,429,910 84,641,627 55,608,091 14,330,388 24,505.337 60,852.137 11.226,286 26,356,851 10,166,196 15,501,947 127,973,830 224,434,909 69,386,673 11,573.922 19,594,628 88,371,942 5,090,895 16,520,377 6,759,084 23,854,352 1,981.162,852 3,881,473,564 2,210,614,972 433,739,981 753,944,248 2.499,335,975 391,456.307 899.941,666 341,961,144 835.471,375 267,006 201,416 101,609 41,068 44,336 62,522 37,554 42,422 33,526 69,897 61 46 40 30 31 41 35 34 34 54 Miles. Group in Group IV Group VI. . Group VTI Group IX Group X Total— United States. 335,618,770 593,560,612 14,229,101,084 83,809 42 28.97 Summary Showing Public Service op Railways, by Groups — Freight Service. Territory Covered. Freight Tram Mileage. Number of Tons of Freight Carried. Number of Tons of Freight Car- ried One Mile. Number of Tons of Freight Carried One Mile per Mile of Line. Average Number of Tons in Train. Average Haul per Ton- 27,502,384 120,033.157 38,388,078 21,281,760 37,041,989 110,590,117 . 18,912,421 47,516,489 19,650,495 19,302,616 45.596.109 261.500,296 159,484,489 33,354,743 56,349,897 117,704,151 16.238,160 37,399,510 14,201,052 13,291,075 3,325,369,933 28,605,650.259 19,225,447,802 3.821.116,366 5.910,209,603 17.682,449,928 2,792,170,224 6.809,855,971 2.693,091,317 3,723,750,030 448,168 1,484,392 883,679 361,799 347,550 443,333 267,865 321,006 264,032 227,791 120.91 238.31 221.27 179.55 159.55 159.89 147.64 143.32 137.05 141.06 Group III Group IV Group VI 150 23 Group VDl Group VIII 171.95 182 08 Group T JT 189 64 204 86 Total— United States . 508,719,506 745,119,483 93,588,111,833 551,232 188.97 125.60 It will be seen that the number of passengers carried one mile, per mile of line, by the Roads in Group II (New York, Pennsylvania, New Jersey, Delaware and Mary- land), during the year ending June 30, 1893, was 201,- 416, while the Roads in the Southern territory, Group IV (West Virginia, Virginia, North Carolina and South 182 THE MAXIMUM RATE OASES AN OBJECT LESSON IN KATE- MAKING BY THE GOVERNMENT. Carolina) carried during the same period, 41,068 passen- gers one mile, per mile of line, being 390 per cent, less than the number carried by the Roads in Group II. The number of passengers carried one mile, per mile of line, by the Roads in Group V (Kentucky, Tennessee, Georgia, Florida, Alabama and Mississippi), was 354 per cent, less than the number carried by the Roads in Group II. It will be seen by the table of freight service that the number of tons carried one mile, per mile of line, by the Roads in Group IV, was 361,799 tons, or 310 per cent. less than the number of tons carried by the Roads in Group II, which Roads carried 1,484,392 tons one mile, per mile of line. The number of tons carried one mile, per mile of line, by the Roads in Group V, was 347,550, or 327 per cent, less than the tonnage carried by the Roads in Group II. The following comparisons between the traffic of the Roads in Group III, and the traffic of the Roads in Groups IV and V, will be of special interest in connection with the cases under consideration, because the Interstate Com- merce Commission states that it has made the rates per ton, per mile, on the six classes of certain Roads belong- ing to Group III (Ohio, Indiana and Michigan), and Group VI, the basis of constructing the maximum rates on the six numbered classes which it has prescribed for the defendant Roads: ■Group in. Number of passengers carried one mile, per mile of line 101,609 Group IV " " " " " " 41,068 Excess, Group III over Group IV 60,541 Equal to about 147 per cent. Group III. Number of tons carried one mile, per mile of road 883,679 Group IV. " •' '■ •' w 361,799 Excess. Group lit over Group IV 521,880 Equal to about 144 per cent. Group III. Number passengers carried one mile, per mile of road 101,609 Group V. " " " " " 44,336 Excess, Group III over Group V 57 373 or about 129 per cent. Group in. Number of tons carried one mile, per mile of road 883 679 Group V. " " " " "," 847,'550 Excess Group III over Group V 535 jjg or about 154 per cent. ' 183 THE MAXIMUM KATE CASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. The figures in the following tables, also taken from the Sixth Annual Eeport on the Statistics of Railways in the United States for the year ending June 30, 1893, will "impress in a most vivid manner the diversity of conditions under which the railways of the United States are administered." (The language is that of the Statisti- cian to the Commission, used on page 47 in such Annual Eeport. ) Condensed Income Account, by Groups. Group I. (7,419.92 miles of liae represented.) Group II. (19,270.95 miles of line represented.) Group III. (21,756.15 miles of line represented. ) Groop IV. (10,561.44 miles of ine represented. > ITEM. Amount. © a © eg d <° B % u o © Amount. © © C3 at t. o © Amount. © °s$ O eg Is, u O Amount. * .9 Z^ oS © ce as. p. Gross earnings from 886,895,478 60,801.378 $11,711 8,194 8312,969,720 206,137,395 816,240 10,697 $187,372,469 134,607,313 $8,612 6,187 $43,843,340 30,435,792 $4,151 Less operating ex- 2,881 Income from opera- 26,094,100 8,257,763 3,517 1,113 106,832325 52,599,120 5,543 2,730 52,765,156 18,628,164 2,425 856 13,417,548 3,770,125 1,27& Income from other 357 Total deductions 34,851,863 19,984,465 4,630 2,693 159,431,445 114.355,777 8,273 5,934 71,393,320 54,328,304 3,281 2,497 17,187,673 17,766,691 1,627 1,682 14,367,398 = 13,471,736 1,937 1,816 45,075,668 3 36,643,961 2,339 1,902 17,065,016 ■> 16,433,217 784 755 1 579,018 s 1,870,487 155 Total dividends (in- cluding "other payments from net 177 Surplus from opera- 895,662 121 8,431,707 437 631,799 29 1 2,449,505 '233 184 THE MAXIMUM RATE OASES AN OBJECT LESSON IN KATE- MAKING BY THE GOVERNMENT. Condensed Income Account, by Groups — (Continued). Group V. (17,005.34 miles of line represented.) Group VI. (39,975.40 miles of line represented.) Groop VII. (10,428.80 miles of ine represented. ) Item. Amount. a a . Amount. a S3 ■ e cs %l t- o a> Ph Amount. at o * B p. u o Ph $81,544,648 58,321,252 $4,796 3,430 $245,964,280 159,106,507 $6,153 3,980 $47,397,473 30,609,057 $4,547 2,936 23,223,396 8,606,602 1,366 506 86,857,773 20,698,852 2,173 518 16,788,416 5,407,990 1,611 518 31,829,998 31,178,350 1.872 1,834 107,556,625 74,535,564 2.691 1,865 22,196,406 21,745.358 2,129 2,086 Total dividends (including " other pay- 651,648 4,881,421 38 257 33,021,061 "21,276,287 826 532 451,048 2,918,092 43 280 '3,729,773 *219 11,744,774 294 12,467,044 '237 1 Deficit. 2 Includes $105,426 ' 3 Includes $111,056 ' 1 Includes $693,938 ' 6 lnc'udes $139,459 ' 6 Includes $445,617 other payments from net income. 1 other payments from net income. 1 ' • other payments from net income.' ' other payments from net income. 1 1 other payments from net income. 1 It will be seen by the above table that the gross earn- ings of the Koads in Group III were $8,612 per mile of line operated, as against $4,151 in Group IV, and $4,796 in Group V; that is, about 107 per cent, less for Group IV, and 80 per cent, less for Group V (these two groups embracing the railroads in the Southern Eailway and Steamship Association), than for Group III, embracing Eoads north of the Ohio river, in Central territory. The net income from operation, per mile of road operated, was, for Group III, $2,425, and for Group IV, $1,270, or 90 per cent, less than for Group III. For 185 THE MAXIMUM RATE CASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. Group V, it was f 1,366, or about 77 per cent, less than for Group III. The net income per mile of line operated, after deduct- ing fixed charges, etc., was, for Group III, |784; for Group IV, there was a deficit of |55 per mile of line operated, and for Group Y the net income per mile of line operated was $38, or 1963 per cent, less than for Group III. These comparisons illustrate the unfairness of the comparisons and deductions made by the Interstate Com- merce Commission in its statement of facts, and "con- clusions," and they show the gross injustice of adopting as a basis of constructing rates for the Southern rail- roads, the rates per ton, per mile, of the Roads north of the Ohio river, in the Central territory. The question arises: How is it possible for the Com- mission to fix the arithmetical values of these diversities, and establish percentage allowances for them? This novel theory of rate-making is not only false in theory, but impracticable in practice, as the Commission found when it came to apply it to the construction of its maximum rates. The following table will show that it was unable to adhere to the 35 to 50 per cent, allowance for diversity of conditions, and that, as a matter of fact, it had to guess at the rates themselves, as it had previously guessed at the basis of its rate construction : 186 THE MAXIMUM RATE OASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. TABLE Showing Bates Established by Commission, and Eates Made on Equal Mileage Basis op the Kates per Ton, per Mile, op the Trunk Lines, from Chicago to Cincinnati. To Knoxville.. Miles from Cincinnati, Chattanoga. . Miles from Cincinnati, 335. Rome . Miles from Cincinnati, 413 Atlanta. . Miles from Cincinnati, 475. Meridian . Miles from Cincinnati, Birmingham . Miles from Cincinnati, 478. Miles from Cincinnati, 476. Selma.. Miles from Cincinnati, 598. From Cincinnati. Rates per ton, per mile, from Chi- cago to Cincinnati Rates established by Commission Rates based on rates per ton, per mile, from Chicago to Cincinnati, Excess Commission rates over equal mileage rates Percentage of excess Rates established by Commission. . . Rates based on rates per ten, per mile, Chicago to Cincinnati Excess of Commission rates over equal mileage rates Percentage of excess Rates established by Commission Rates based on rates per ton, per mile, Chicago to Cincinnati Excess of Commission rates over equal mileage rates Percentage of excess Rates established by Commission . . Rates based on rates per ton, per mile, Chicago to Cincinnati Excess of Commission rates over equal mileage rates Percentage of excess Rates established by Commission. . Rates based on rates per ton, per mile, Chicago to Cincinnati Excess of Commission rates over equal mileage rates Percentage of excess . . . ; Rates established by Commission. . Rates based on rates per ton, per mile, Chicago to Cincinnati Excess of Commission rates over equal mileage rates Percentage of excess Rates established by Commission. . Rates based on rates per ton, per mile, Chicago to Cincinnati Excess of Commission rates over equal mileage rates Percentage of excess Rates established by Commission Rates based on rates per ton, per mile, Chicago to Cincinnati Excess of Commission rates over equal mileage rates Percentage of excess Classes. 53 39 14 36 00 45 15 75 55 22' 35 114 84 1 2ft J 87 64 22 34 108 2.28 12 36 54 16 64 47 17 73 54 19 35 74 54S 19'. 35" 73 54 19 35 24 35 1.6S 37 24 13 48 40 28 12 54 341 19.', 56' 60 40 ■in 50 (10 40 20 50 60 40 20 50 78 50 28 56 1.14 27 17 10 59 30 19 11 50 44 87 45 27 18 67 46 27 19 70 45 27 18 67 60 34 26 76 1.00 22 n 47 34 20 \ 181 49 311 24 12 5" 35 21 11 46 187 THE MAXIMUM EATE CASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. The following comments on the Commission's method of rate-making, taken from my monograph of October 23, 1894, on "The Adjustment of Railway Freight Rates," may prove of interest : "In considering the subject of classifications in con- nection with the question of reasonableness, in and of themselves, of rates on the numbered classes, we called attention to the unfairness of the comparison made by the Interstate Commerce Commission between the rates per ton, per mile, on the six classes of the Trunk Lines' Classification from Chicago to New York, and the rates per ton, per mile, on the six numbered classes, of the tariff of the defendants, from Cincinnati, to the points in the Southern Territory, the Trunk Lines' Classification hav- ing six classes, while the tariff of the defendants ( South- ern Railway and Steamship Association Classification) has 13 classes. "The comparison made by the Interstate Commerce Commission is between two dissimilar things. "It is impossible to ascertain what is the 'degree of similarity,' or to make a proper allowance for such degree even if it" could be ascertained. For, as we have seen, the articles embraced in the six classes of the 13-class classi- fication of the defendant carriers, are not the same as those embraced in the six classes of the Trunk Line Clas- sification, and a large number of articles embraced in the seven lettered classes of the defendants are in the 6th Class of the Trunk Line Classification ; so that for this, if for no other reason, the rate per ton, per mile, on the lat- ter must necessarily be much lower than the rate per ton, per mile, on the former. "The Interstate Commerce Commission appears to have lost sight of the fact that classifications form a nec- essary part of railroad tariffs, and that there is a vital connection between the classifications of a road, and its rates of transportation : — that the classifications of arti- cles to be transported over a railroad are made with ref- erence to the rates established on the several classes ; and that one cannot be separated from the other and consid- ered by itself. 188 THE MAXIMUM RATE OASES AN OBJECT LESSON IN KATE- MAKING BY THE GOVERNMENT. "Kates have no meaning without a classification, and the classifications have no meaning when _ dis- connected from rates. We have also seen that neither the rate per ton, per mile, of each class, nor the aver- age rate per ton, per mile, of all the classes of one railroad, can properly be used for the purpose of com- parison with those of another railroad, with the view of ascertaining the reasonableness, in and of themselves, of rates on certain classes of freight. How these same rates per ton, per mile, which cannot legitimately be used for the purpose of comparison, can be made a basis of rate construction, is utterly incomprehensible. "The above tables will throw some light upon the method of rate construction that has been adopted by the Interstate Commerce Commission. It appears by these tables that the rate construction of the Interstate Com- merce Commission is full of incongruities. "One must infer, from the language of the decision, that an allowance of from 35 to 50 per cent, over and above the equal mileage rates of the Trunk Lines per ton, per mile, had been made in the construction of the Com- mission's tariff. But we find that this allowance varies from 33 per cent, on the first class, Cincinnati to Chatta- nooga, to 87 per cent, on the fourth class, Cincinnati to Rome. "If equal mileage is a proper basis of rate construc- tion, then whatever allowance the Interstate Commerce Commission may have made for 'cost and tonnage' in the rates per ton, per mile, on the six classes to one point in the Southern territory, should have been applied to the same classes, respectively, that govern the rates to other points. But we find that, with but few exceptions, this allowance varies within wide limits on the different classes of freight to different points of destination. "For example, the equal mileage basis having been adopted, can any good reason be given why the percent- age allowance on rates from Cincinnati should be : To Chattanooga. And to Selma 1 a 3 4 5 33 35 42 36 43 56 50 76 41 60 50 189 THE MAXIMUM RATE CASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. "In the Commission's rate construction, the allow- ance for 'cost and tonnage' varies from 33 per cent, on first class to Chattanooga, to 87 per cent, on fourth class to Eome, and, with few exceptions, such allowance is not the same on the same classes to the different points. "For example, it is 33 per cent, on first class to Chat- tanooga, 36 per cent, to Knoxville, and 35 per cent, to Selma. On fourth class freight the allowance is 59 per cent, to Knoxville, 50 per cent, to Chattanooga, 87 per cent, to Eome, 67 per cent, to Atlanta, and 76 per cent, to Selma. "Similar inconsistencies will be found in the rates of every class to every point of destination, from Chicago, as well as from Cincinnati. Upon comparing the rates established by the Commission with what these rates would be if established on an 'all-rail' and 'equal mile- age' basis of the rates per ton, per mile, from New York, it will be found that the Commission has not adopted that basis in its rate construction; and in making the comparison with the rates on the basis of the so-called 'rate-making mileage' from New York, it will be seen that that basis has not been adopted, probably for the reason that it would make the rates to many points in the Southern territory, both from Cincinnati and Chicago, in many cases higher than the rates established by the Commission. "In view of these facts and figures it is impossible to escape the conclusion that the rates established by the Commission, and which the defendant carriers have been ordered to put in effect, have not been constructed upon any basis whatsoever, but that they have been guessed at by the Commission." A comparison between the maximum rates prescribed by the Commission, and the then existing rates from Cin- cinnati, shows the following reductions : 190 THE MAXIMUM RATE CASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. From Cincinnati. To Classes. 1 2 3 4 5 6 76 53 23 30 65 45 20 31 57 37 20 35 47 27 20 43 40 22 18 45 30 Rates established by Commission. . 30 10 33 Chattanooga.. 76 60 16 21 65 54 11 17 57 40 17 30 47 30 17 36 40 24 16 40 30 Rates established by Commission. . 22 8 27 107 75 32 30 92 64 28 80 81 54 27 33 68 44 24 35 56 34 22 39 46 Rates established by Commission. . 24 22 48 107 86 21 20 92 73 19 21 81 60 21 26 68 45 23 34 56 35 21 38 40 Rates established by Commission. . 27 19 41- 122 114 8 6 102 98 4 4 89 80 9 10 75 62 13 17 62 49 13 21 54 Rates established by Commission. . 38 16 3d Birmingham. . . 89 87 2 2 79 74 5 6 68 60 8 12 55 46 9 16 47 36 11 23 36 Rates established by Commission. . Reduction 88 8 Percentage of reduction 22 Anniston 107 86 21 20 92 73 19 21 81 60 21 26 68 45 23 34 56 35 21 38 Rates established by Commission. . Reduction 27 19 Percentage of reduction 108 108 102 92 10 10 88 78 10 11 71 60 11 16 49 48 11 19 47 36 Rates established by Commission. . Reduction Percentage of reduction ' In referring to the reduced rates, the Interstate Com- merce Commission says: — "They are, it seems scarcely necessary to add, pre- scribed as maximum rates, and are not intended to be pro- hibitory of such lower rates as the carriers interested may find to be just and reasonable." 191 THE MAXIMUM RATE CASES AN OBJECT LESSON IN RATE- MAKING BY THE GOVERNMENT. This seems a stroke of bitter irony, though probably not so intended. The Commission, in referring to the decision, further says : "We are not unmindful that a compliance with the order in these cases may and probably will necessitate a readjustment of rates from Central territory to other points in Southern territory than those named. But, as we took occasion to say in the case of The Board of Trade of Troy v. Alabama 31. B. Co., It cannot be held to be a valid objection to the correction of unlawful rates to one locality, that it involved a like correction to other locali- ties.' "' The Commission did not seem to understand and appreciate the far-reaching effects of its decision. Not only would a compliance with its order necessitate a "readjustment of rates from Central territory to other points in Southern territory than those named,'' but it would have necessitated a revision of the local and through freight tariffs of the defendant carriers, involv- ing great reductions of rates from Cincinnati and Louis- ville proper, to nearly all points in the Southern territory, including many of the short haul local rates on interstate traffic. The reductions shown in the above table do not fully measure the enormous losses that would have resulted to the defendant carriers from the ruthless slaughter of rates ordered by the Commission ; for the carriers would have been obliged to adjust their rates in conformity with the requirements of the fourth or so-called long and short haul section of the Act to Regulate Commerce; and as we have seen, the Commission had materially modified its earlier opinions as to the circumstances and conditions that justify a greater charge for the shorter than for the longer haul. 192 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. But the general slaughter of rates would not have stopped with the revision of the tariffs from Cincinnati, Chicago, and other points north of the Ohio river, to Southern territory. For a reduction of the rates from that territory would have been immediately followed by reduced rates from Eastern seaboard territory to points in Southern territory, so as to maintain the relative adjustment of rates, and the effect of the decision would have been to foment strife between the Western and East- ern lines, causing enormous losses of revenue to both, and without benefit to any one. For the object of the decision could not be attained by the order of the Commission because the Commission had no power to prescribe mini- mum rates from Eastern seaboard territory to the South- ern territory by the Eastern water and rail lines. As already stated, it was shown before the House Com- mittee on Interstate Commerce, that the defendant carriers would have lost at the rate of $3,000,000 per annum if the decision of the Commission had been sus- tained by the courts. Upon an analysis of the opinion and decision of the Commission in these cases, it was found thai the grounds upon which its conclusions rest are wholly untenable.* SOME LEGAL QUESTIONS INVOLVED IN RATE- MAKING BY THE GOVERNMENT. While it would be presumptuous for a layman to dis- cuss legal questions, he may venture, for the purposes of this inquiry, to refer to and quote the opinions of men learned in the law. * See "The Adjustment of Railway Freight Tariffs," by Henry Fink, October, 1894. 193 some legal questions involved in bate-making by the government. The Commerce Clause in the Constitution. "The congress shall have power * * * to regu- late commerce with foreign nations, among the several States, and with the Indian tribes." Constitution of the United States, Art. I, Sec. 8, Par. 3. "The Congress shall have power to make all laws which shall be necessary and proper for carrying into effect the foregoing powers, and all other powers vested by this constitution in the government of the United States, or in any department or any officer thereof." Art. I, Sec. 8, Par. 18. "No tax or duty shall be laid on articles exported from any state. No preference shall be given by any regu- lation of commerce or revenue to the ports of one state over those of another ; nor shall vessels bound to or from one state be obliged to enter, clear, or pay duties in another. Art, I, Sec. 9, Par. 5. "The powers not delegated to the United States by the constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people." Amendment X (declared ratified January 8, 1798). "All persons born or naturalized in the United States and subject to the jurisdiction thereof are citizens of the United States and of the state wherein they re- side. No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any state deprive any person of life, liberty or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws." Art. XIV, Sec. 1 (declared ratified July 28, 1868). 194 some legal questions involved in rate-making by the government. From "The Law of Interstate Commerce," by Fred- erick N. JUDSON. Gibbons vs. Ogden. "The judicial construction of the commerce clause begins in 1824 with the great opinion of Chief Justice Mar- shall in Gibbons vs. Ogden, wherein a grant of the State of New York for the exclusive right to navigate the waters of New York with boats propelled by fire or steam was held void as repugnant to the commerce clause of the constitution, so far as the act prohibited vessels licensed by the laws of the United States for carrying on the coast trade from navigating the said waters by fire or steam. "The broad and comprehensive construction of the term 'commerce' in this opinion is the basis of all sub- sequent decisions construing the commerce clause, and is the recognized source of authority. Commerce is more than traffic ; it includes intercourse. The power to regu- late is the power to prescribe the rules by which com- merce is to be governed. This power like all others vested in congress is complete in itself, and may be ex- ercised to its utmost extent, and acknowledges no limi- tations other than as prescribed in the Constitution. The power over commerce with foreign nations and the several states, said the court, is vested in congress as ab- solutely as it would be in a single government having in its constitution the same restrictions on the exercise of the power as is found in the constitution of the United States. The power comprehended navigation within the limits of every state, so far as navigation may be in any manner connected with commerce with foreign nations or among the several states, or with the Indian tribes, and therefore it passed beyond the jurisdictional line of New York and included the public waters of the state which were connected with such foreign or interstate commerce." "The most important and far-reaching declaration in the opinion was that of the supremacy of the federal power, so that in any case of conflict the act of congress 195 SOME LEGAL QUESTIONS INVOLVED IN RATE^MAKING BY THE GOVERNMENT. was supreme, and state laws must yield thereto, though enacted in the exercise of powers which are not contro- verted." THE ADOPTION OF THE FOURTEENTH AMENDMENT. "Prior to the adoption of the Fourteenth Amendment, in 1868, there was no appeal to the federal courts against any violation by state power of due process of law or of the equal protection of the laws, which did not involve an interference with national authority or a violation of some provision of the federal constitution. The fed- eral courts administered the state laws and followed, as they still do, the decision given by the state courts as to the construction of the state statutes. "The Fourteenth Amendment provided in its first clause that no state should deprive any person of life, liberty or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws. Corporations are persons under this amend- ment and are therefore entitled to due process of law and to the equal protection of the laws, and a state has no more power to deny the equal protection of the laws to a corporation than it has to individual citi- zens. "This far-reaching change in our judicial system, wherein the fundamental rights of property are protected by the federal power against state invasion, was adopted about the same time that the judicial declaration of the freedom of interstate commerce against state interfer- ence had opened the way for the direct exercise of the federal regulating power." From an article published in the Harvard Law Review, by Victor Morawetz (June, 1905) : "The power of Congress to regulate railway rates is based upon Section 8 of Article I of the Constitution, which confers upon Congress power 'to regulate com- merce with foreign nations, and among the several States, and with the Indian tribes/ "This grant of power to Congress is, however, limited 196 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. by Section 9 of the same Article, which provides that 'No preference shall be given by any regulation of commerce or revenue to the ports of one State over those of an- other.' "The power of Congress is also limited by the Fifth Amendment, which provides that no person shall 'be de- prived of life, liberty, or property without due process of laAv; nor shall private property be taken for public use, without just compensation.' Furthermore, the power of Congress is subject to certain well-settled constitutional limitations underlying our form of government; namely: (1) Congress cannot delegate its legislative powers ; (2) Congress cannot confer judicial powers except upon courts established in the manner provided in the Constitu- tion, and (3) Congress cannot confer non-judicial powers upon a duly established court." It is universally admitted that Congress has the power to regulate the charges of railway companies in respect to interstate transportation. Can Congress Constitutionally Delegate this Power to a Commission Created by Itself? No case involving this question having as yet come before the Supreme Court of the United States, no au- thoritative answer to this question can be given. It is to be noted, however, that in the Maximum Rate cases, the Supreme Court has said that "Congress might itself prescribe the rates; or it might commit to some sub- ordinate tribunal this duty." Opinion of Attorney-General Moody. In response to the request of the Senate Committee on Interstate Commerce, Attorney-General Moody has re- cently given an exhaustive opinion as to the right of the Government to regulate operations of railroads, from which the following is a quotation : 197 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. "It was settled in the group of cases commonly called the Granger cases, that there is a Governmental power to regulate operations of railroads acting as common car- riers, and as a part of such regulation, to prescribe the maximum rates which they may charge in the future for the services Avhich they shall render to those who resort to them, and that the power is vested in, and may be exer- cised by, the legislative branch of the Government." "These cases affirm the right of a State Legislature to confer the power in question upon a State Commission. No reason has been advanced, and none can be perceived, why the same principles would not apply to Congress. The right of Congress to confer upon a commission the rate-making power was distinctly presented to the court in the case of The Interstate Commerce Commission vs. Cincinnati, New Orleans and Texas Pacific Railway Com- pany. "Assuming that the rate-making power is a legislative function and not judicial, it follows that Congress has not the right to vest it in the courts either by conferring original or appellate jurisdiction over the subject." After citing many Supreme Court decisions to sup- port his opinion, the Attorney General submits this summary : "First. "There is a Governmental power to fix the maximum future charges of carriers by railroad vested in the Legis- latures of the States with regard to transportation ex- clusively within the States, and vested in Congress with regard to all other transportation. "Second. "Although legislative power, properly speaking, can- not be delegated, the law-making body having enacted into law the standard of charges which shall control, may intrust to an administrative body not exercising in the true sense judicial power, the duty to fix rates in con- formity with that standard. 198 some legal questions involved in rate-making by the government. "Third. "The rate-making power is not a judicial function, and cannot be conferred constitutionally upon the courts of the United States, either by way of original or appellate jurisdiction. "Fourth. "The courts, however, have the power to investigate any rate or rates fixed by legislative authority, and to de- termine whether they are such as would be confiscatory of the property of the carrier, and if they are judicially found to be confiscatory in their effect, to restrain their enforcement. "Fifth. Any law which attempts to deprive the courts of this power is unconstitutional. "Sixth. "Any regulation of land transportation, however ex- ercised, would seem to be so indirect in its effect upon the ports that it could not constitute a preference between the ports of different States within the meaning of Article I, Section 9, Paragraph 6, of the Constitution. "Seventh. "Seasonable, just, and impartial rates determined by legislative authority are not within the prohibition of Article I, Section 9, Paragraph 6 of the Constitution, even though they result in a varying charge per ton per mile to and from the ports of the different States." The following are extracts from the article by Victor Morawetz, in the -Harvard Law Review: "While the original cost, or the cost of reproduction, of the property of a railway company and the rates re- quired to enable the company to earn a fair return upon this cost, are elements to be considered in determining whether a statute fixing maximum rates is unconstitu- 199 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. tional because confiscatory, these are not the only ele- ments that must be considered. ( Smyth vs. Ames. 169 U. S., 546, 547) ; San Diego Land Co. vs. National City, 174 U. S., 739, 757.) The owner of property devoted to a pub- lic service cannot be deprived by law of the fruits of his skill, industry and thrift in the management of this prop- erty ; nor can he be deprived of an increment in the value of this property due to the development of the country or to good fortune. The power to regulate charges in a busi- ness of a public character is not based on the ground that the legislature can prevent the owner of property used in this business from earning more than a specified profit upon the cost of this property. It is based on the ground that the legislature can prevent any individual or cor- poration engaged in a business of a public character from charging more than reasonable compensation for the ser- vices rendered. Neither a State nor the United States would have constitutional power to seize the net income of a railway company over and above such sum as the legislature or the courts may deem to be a reasonable re- turn upon the cost of its property. The legislature could not require any such excess to be paid into the State treasury, nor could the legislature give this excess to shippers upon the railway. "It is to be observed in this connection that the rail- way companies have not received their franchises from the United States, and that the United States has not con- ferred upon them the power of eminent domain. Al- though a State may base a power to regulate railway com- panies on the ground that they have assumed the perform- ance of a function of the State by accepting the franchises and the power of eminent domain granted by the State, the United States cannot base the power of regulation upon that ground. Accordingly, the rule laid down by Mr. Justice Brewer in Cotting vs. Kansas City Stock Yards Co., 183 U. S., 79, 97, with reference to the power of a State legislature to regulate the charges of a stock yards company should be applied. It should be held that Congress, or a commission created by Congress, can de- clare, subject to review by the courts, what rates in re- spect of interstate transportation will pay a railway rea- 200 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. sonable compensation for its services; but that a railway company cannot, in any case, be deprived of the right to make such charge as is reasonable, having regard to the value of the service rendered, and that it cannot be com- pelled to reduce its charges merely because the volume of its business enables it to earn large profits on its capital." * * * * * * "To fix the rates to be charged by a carrier in the future is a legislative act, and not a judicial act. "This has repeatedly been pointed out by the Su- preme Court of the United States. In the Maximum Kate case, 167 U. S., 479, the Supreme Court used the following language: 'It is one thing to inquire whether the rates which have been charged and collected are reasonable — that is a judicial act ; but an entirely different thing to prescribe rates which shall be charged in the future — that is a legis- lative act (p. 499). 'The power to prescribe a tariff of rates for carriage by a common carrier is a legislative and not an adminis- trative or judicial function, and, having respect to the large amount of property invested in railroads, the vari- ous companies engaged therein, the thousands of miles of road, and the millions of tons of freight carried, the vary- ing and diverse conditions attaching to such carriage, is a power of supreme delicacy and importance.' (p. 505) ." * ***** "Congress can confer upon a commission power to fix prima facie, the maximum rates that would not be unreasonably high and extortionate as against shippers; but it is doubtful whether Con- gress coav vest in a Commission purely discretion- ary power to fix rates as it sees fit. "Section 1 of Article I of the Constitution provides that 'all legislative powers herein granted shall be vested in a Congress of the United States,' and the general rule is well settled that Congress cannot delegate its legislative powers to any other body. 201 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. " 'One of the settled maxims in constitutional law is, that the power conferred upon the legislature to make laws cannot he delegated by that department to any other body or authority. Where the sovereign power of the state has located the authority, there it must remain ; and by the constitutional agency alone the laws must be made until the Constitution itself is changed. The power to whose judgment, wisdom and patriotism this high pre- rogative has been entrusted cannot relieve itself of the re- sponsibility by choosing other agencies upon which the power shall be devolved, nor can it substitute the judg- ment, wisdom and patriotism of any other body for those to which alone the people have seen fit to confide this sov- ereign trust.' " [Cooley's Constitutional Limitations (7th ed.), p. 163.] "It has never been decided that Congress can delegate to a commission the power of prescribing future railway rates, because Congress has never passed any law purport- ing to do this. In a number of the States, however, such laws, delegating to railway commissioners the power of fixing rates, have been passed, and the constitutionality of such laws has been sustained. Georgia K. R. Co. vs. Smith, 70 Georgia, 694. Tillev vs. Railway Co., 4 Woods (C. Ct), 427. McWhirter vs. Pensacola Ry. Co., 24 Fla., 417, 471. Express Co. vs. R. R. Co., Ill No. Car., 463, 472. Chicago, etc., Ry. Co. vs. Dey, 35 Fed. Rep., 866. "These cases are based upon the doctrine that while a legislature may not delegate its strictly legislative pow- ers, yet it may delegate authority to regulate certain mat- ters which in the nature of things require regulation of a quasi-administrative character and which, in the nature of things, could not be satisfactorily regulated by the 202 SOME LEGAL QUESTIONS INVOLVED IN HATE- MAKING BY THE GOVERNMENT. legislature itself. (See Field vs. Clark, 143 U. S., 649, 692; Buttfield vs. Stranahan, 192 U. S., 470.) Accord- ing to these cases, while the power of fixing rates is a function of the legislature, it is a quasi-administrative function which may be delegated by the legislature to a commission. In upholding the Railroad Commission Law of Georgia, Circuit Judge Woods used the following lan- guage: 'The true distinction therefore is between the delegation of power to make the law, which neces- sarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done ; to the latter no objection can be made.' (4 Woods, 427, 446). "No doubt Congress can by law prescribe general rules for the regulation of charges of railway companies — for example, Congress can (as it did in the Interstate Commerce Act) prohibit railway companies from charg- ing unreasonably high or extortionate rates and can pro- hibit them from unduly discriminating in their charges; and Congress can establish a commission or other admin- istrative body with power to carry into effect such gereral rules, including power to make orders fixing prima facie what rates shall be deemed unreasonably high or discrimi- natory and therefore illegal under the statute. Under such a law, the function of the commission would be mere- ly administrative in carrying out the declared legislative will of Congress to prohibit excessive rates or unjustly discriminatory rates, and the Commission itself would not be vested with the legislative power of determining according to its own arbitrary will or ideas of policy what rates shall be charged in the future. Under such a law the action of the Commission, although prima facie valid, could be reviewed and set aside by the courts, and the car- rier could not be deprived by the Commission of the right to charge any rate it saw fit, provided it be not unreason- ably high or unjustly discriminatory. "Assuming the Congress itself would have constitu- tional power to fix the rates of the railway companies ac- 20t SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. cording to its discretion, it Avould be going a step further to hold that Congress can delegate this discretionary power to a commission. As was pointed out by the Su- preme Court, such a power is 'a legislative power * * * of supreme delicacy and importance' (1(17 U. S., 505), and would enable the Commission to make 'laws of wide im- port, destroying some branches of commerce that have long existed, and undertaking to change the laws and cus- toms of transportation in the promotion of what is sup- posed to be public policy' (162 U. S., 234). ''Congress cannot rest in the courts power to fix future rates, or to consider and pass upon the wis- dom or policy of the Commission in prescribing a particular rate which- is neither confiscatory nor unreasonably high. "It is well settled that Congress cannot constitution- ally require the courts of the United States to perform tiny duties that are not of a judicial character. Congress cannot require the courts, directly or indirectly, to per- form duties of an administrative or of a quasi-legislative character. Opinions of the Judges of the Supreme Court in the notes to Havburn's Case, 2 Dall., 409. United States vs. Todd, 13 How., U. S., 52. Gordon vs. United States, 2 Wall, 561. Re Sanborn, 148 V. S., 222. Interstate Commerce Commission vs. Brim- son, 154 U. S., 447, 484. Xorwalk Street Railway Company's Appeal, 69 Conn., 576, 597. "It follows, therefore, that Congress has no constitu- tional power to require the courts to exercise the legisla- tive or quasi-legislative action of a commission in fixing the rates to be charged by a railway company. Congress has never attempted to confer this power upon the courts, and the precise point, therefore, has not been decided; but a similar question has arisen under State legislation pur- 204 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. porting to vest the rate-making power in the courts, and this legislation has been condemned as unconstitutional. "In State r*. Johnson, 61 Kansas, 803, the Supreme Court of Kansas decided that the act of the legislature of that State creating a court called the 'Court of Visita- tion,' was unconstitutional for the reason that it Con- ferred upon this court the power of prescribing the future rates of railway companies — that being a legislative and not a judicial function. The same conclusion was reached when the validity of this Kansas law was con- sidered by the Circuit Court of the United States in West- ern Union Tel. Co. vs. Myatt, 98 Fed. Rep., 335. See, also, Nebraska Telegraph Co. is. State, 55 Neb., 627, 636. "Discrimination among' Localities. "A grant of discretionary power to fix railway rates within the limits of legality, as heretofore defined, would necessarily include power, through an adjustment of rates, to affect the relative rates of different localities and to aid one locality in the country at the expense of other localities by establishing a differential. In some of the bills introduced at the last session of Congress it is pro- vided in express terms that the Commission shall have power to prescribe 'the just relation of rates to or from common points;' but irrespective of such provisions, the power to do this would necessarily result from any grant of a purely discretionary power of fixing rates. "The Constitution of the United States provides that 'no preference shall lie given by any regulation of com- merce or revenue to the ports of one State over those of another.' In construing this constitutional prohibition it is to be observed, first, that it applies only to regulations of commerce by Congress and not to State legislation giv- ing preferences to certain ports (Munn vs. Illinois, 94 U. S.,113, 115) ; secondly, that it does not prohibit individ- uals or railway companies from voluntarily giving differ- entials or preferences to certain ports; and thirdly, that it applies to all regulations of commerce established by Congress, or by a Commission created by Congress, An order of a commission fixing rates can be sustained only 205 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. on the theory that it is a regulation of commerce by the legislature, acting through the Commission, and, as has often been decided, such an order of a commission is sub- ject to the same constitutional limitations as a regula- tion enacted by the legislature in the first instance. "In the case of Pennsylvania vs. Wheeling Bridge Co., 18 How., 421, it was claimed that an act of Congress au- thorizing the construction of a bridge across the Ohio River at Wheeling, Virginia, was in violation of the constitutional provision that no preference should be given by any regulation of Congress to the ports of one State over those of another, because the con- struction of this bridge would cause delay and ex- pense in the operation of steamboats upon the Ohio Eiver bound to or from the port of Pittsburg and would virtually give a preference to the port of Wheeling. A majority of the Supreme Court, however, held that the Act of Congress was a legitimate exercise of the power to regulate commerce, although it might give an advantage to the ports of one State which would inci- dentally operate to the prejudice of the ports of a neigh- boring State, and that the constitutional prohibition only prevented Congress from giving a direct preference to the ports of one State over the ports of another State. Mr. Justice Nelson also expressed the view that what was forbidden was not discrimination between the ports of different States, but discrimination between States, and that in order to bring the case within the prohibition it was necessary to show not merely discrimination between Pittsburg and Wheeling, but discrimination between the ports of Virginia and those of Pennsylvania. This latter view however, is not tenable, as is shown by the discus- sion of the constitutional prohibition in Knowlton vs. Moore, 178 U. S., 41, 104, et seq. "It seems clear that an act of Congress regulating in- terstate commerce is not unconstitutional merely because the regulation would incidentally, and not directly, give some advantage to the ports of one State over the ports of another State. The constitutional prohi- bition would only prohibit a regulation of commerce 206 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. directly and necessarily giving a preference to the ports of one State over those of another. The question, therefore, is: Can a direct preference be given to the ports of one State over those of another through an adjustment of railway rates in the United States? Of course, the fact that railways were not known at the time of the adoption of the Constitution has no bearing upon the question. If a law prescribing the rates of railway companies is a regulation of commerce under Section 8 of Article I, it must also be a regulation of commerce under Section 9 of this Article. It is obvious that an act of Congress, or an or- der of a commission, merely limiting or fixing the maximum rates that may bei charged by railway companies would not give a preference to the ports of one State over those of another, because the rail- way companies leading to each port could compete freely with those leading to other ports by reduc- ing their rates. If, however, Congress or a commission, can fix and prescribe minimum rates that cannot be- reduced by the carrier at will, or absolute rates that can neither be increased nor diminished, it is clear that Con- gress, or the commission, could so adjust rates as to grant a differential or preference in favor of shipments to or through a certain port as against shipments to or through other ports. The rates for the transportation of grain and other articles for shipment from Chicago to European points could be adjusted so that all such shipments would go via New York, Philadelphia or Baltimore rather than via the Southern ports. The result would be the same as if Congress should enact that upon any shipment between Chicago and Europe via New York, Philadelphia or Balti- more, the shipper should receive a bounty not granted to shippers via the Southern ports. "It is no answer to say that a regulation of Congress, or of a commission, merely establishing the 'just relation of rates' upon shipments via different ports would not grant a preference to the ports of any State. Stated baldly, this would mean that Congress, or a commission, can take away from a particular port its natural ad- vantages by granting a law-made advantage to other ports 207 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. by means of a preferential regulation of commerce. The Constitution provides that no preference shall be given by ■anil regulation of commerce to the ports of one State over those of another. To hold that Congress, or a commis- sion, can give to the various ports such preferences as in the judgment of Congress, or of the commission, will equalize their natural advantages would wholly destroy the value of the constitutional prohibition. "The prohibition of the Constitution against regula- tions of commerce giving a preference to the ports of any State was designed to prevent sectional legislation that might array one part of the country against another. The Interstate Commerce Act itself recognizes that the Com- mission is subject to politics, as the Act provides that not more than three of the commissioners shall belong to the same political party. One or the other of the great politi- cal parties will always control in the Commission. If power to fix relative rates of transportation to and from different ports or sections of the country should be given to the Commission, the adjustment of railway rates in the United States would inevitably become a political ques- tion." An eminent lawyer has said on the subject of rate- making by the Government : — "It is true that many of the States have vested State railroad commissions with legislative power to make rates; and so long as these rates are not confiscatory in their character, the Federal courts have held that they can grant no relief. But Congress has wisely refused to vest any such power in the Interstate Commerce Commission. It is an arbitrary and irresponsible power, whether vested in a State or National commission. However unfair or unjust the action of the Interstate Commerce Commis- sion may be, it will, if the Commission be vested with the legislative power to fix rates, be practically irresponsible ; because in that event, it will be claimed that the courts will have no jurisdiction to review the action of the Com- mission unless the rates so fixed be absolutely confisca- tory or 'it can be affirmatively shown that the Commission acted corruptly.'' 208 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. In commenting upon a bill to enlarge the jurisdiction and powers of the Commission, Mr. Walker D. Hines wrote as follows, under date of December 11, 1901 : — "The bill entitled 'A Bill to Enlarge the Jurisdiction and powers of the Commission,' which is herewith printed, is open to practically all the objections which could exist against any bill giving the Commission the power to make rates. "As any number of carriers and any number of rates can be complained of in the same petition, the extent of the Commission's rate-making power is practically un- limited, especially as it may also prescribe any and all regulations and practices affecting any and all of such rates. The Commission will have the undoubted power to fix rates, maximum, minimum, and absolute, prescribe differentials between different classes of traffic or differ- ent localities, compel connecting carriers to establish through routes and prescribe through rates and divisions thereof, and in fact engage in every branch of the work of the traffic manager of each interstate railroad in the country. "The provision that if upon review the court shall be of the opinion that the Commission's order was made un- der some error of law or is upon the facts unjust or un- reasonable, it may modify, suspend or revoke same by ap- propriate decrees, will prove unavailing. If the law au- thorized the Commission to fix rates, there could be no error of law committed by the Commission in fixing the rates, and the courts would not be disposed to turn them- selves into so many railroad commissions for the purpose of investigating anew the facts involved and of deciding what would be just and reasonable rates. They would say that the Commission was made the primary tribunal for passing on these facts, and that it was not incumbent upon them to traverse the same ground again; so that, after all, the matter would be virtually left with the Com- mission. But even if the courts would take hold of the matter for the purpose of investigating all the facts anew and making the rates over again, the poww to do so would 209 SOME LEGAL QUESTIONS INVOLVED IN KATE-MAKING BY THE GOVERNMENT. not be constitutionally conferred upon them. The power to make rates and prescribe regulations and practices pro- posed to be conferred upon the Commission is admittedly a legislative power which cannot be exercised by the courts. The members of the Commission have repeatedly so stated, and the Supreme Court of the United States has so held. Undoubtedlv, therefore, the Commission will contend and the courts will hold that they have no power to afford the sort of review contemplated by this act. The only power of the courts will be to set aside the orders of the Commission if they prescribe rates confisca- tory in character. In other words, practically the whole margin of profit on the railroad business will be left abso- lutely to the discretion of the Interstate Commerce Com- mission.. So long as the Commission leaves any, even the smallest, profit, it can rest secure against any adverse action by the courts if once this legislative power is con- ferred upon it."* Prom Judson's "The Law of Interstate Commerce" : — "Amendments and Proposed Amendments of the Act. "Amendatory acts have been passed by Congress in 1889, 1893 and 1903. The first of these was that of 1889 and gave a shipper an additional summary and effective remedy by writ of mandamus, to compel the carrier to furnish equal facilities. That of 1893 remedied the diffi- culty growing out of the inability to enforce self-incrimi- nating testimony. In 1903 was enacted the so-called Ex- pedition Act, which materially expedited the procedure in suits brought by the United States, or suits prosecuted by direction of the attorney-general in the name of the Interstate Commerce Commission. "The amendatory act of February 19, 1903, known as the Elkins Law, made very important changes and ma- terially enforced the provisions against discriminations, * Mr Walker D. Hines, while in the Law Department of the Louisville and Nash- ville Railroad Co , and Vice-President in charge of its traffic, has made a special study of the Act to Regulate Commerce, and of the bills that have from time to time been introduced into Congress, enlarging the powers of the Commission. His practical experience in traffic matters naturally adds great weight to bis legal opinions. In fact, he is one of the best authorities we have on all questions of law as well as of fact, involved in rate-regulation by the Government. 210 SOME LEGAL QUESTIONS INVOLVED IN BATE-MAKING BY THE GOVERNMENT. in that it made the published rates conclusive against the carrier, every deviation therefrom being punishable. The scope of the act was also materially extended as to the parties subject to its provisions. Fine was substituted for imprisonment in the peual provisions of the act. "None of these amendments have affected the rate- making power of the Commission. A strong agitation has been made for such an amendment to the act as would enable the Commission to determine after hearing, not only what was an unjust and unreasonable rate, regula- tion or practice, but at the same time to determine what was just and reasonable, and that such determination should become operative without an appeal to the Court as under the present law, and subject only to be set aside by a judicial review at the instance of the carrier. A special court of transportation has also been proposed to review the orders of the Commission in case of appeals. "Under the act as it now stands, the commission is an investigating and prosecuting administrative body, whose findings are given a prima facie force in judicial proceed- ings. Under the proposed amendment, its finding would become self -enforcing, in that it would be binding upon the carrier unless the court should, upon hearing, re- strain its operation. As will be hereafter seen, questions of reasonableness in the adjustment of rates are, in the main, questions of fact, and often involve very complicated circumstances, especially in determining the relation or interdependence of rates in our vast territory. The analogies of ordinary litigation are not applicable, in that every question of rates is adjusted to the then existing circumstances, which may be, and ordinarily will be, ma- terially changed before the court of final review can act. The doctrine of judicial precedent, therefore, has a very limited application. It is also true that a bond given by the carrier as a condition of maintaining a rate found un- reasonable by the commission or a court, may be a very inadequate remedy to the parties or industries really injured by such rate, and on the other hand, it is also true that the carrier would be practically without remedy, if compelled to reduce a rate under an order of the Com- mission which was afterwards set aside on the review in court. 211 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. "The fundamental powers of government are neces- sarily involved in the public regulation of railway charges through the orders of railway commissions. The Supreme Court said in the Maximum Rate case, that the power to prescribe a tariff of rates is a legislative, and not an administrative or judicial function. The power to determine whether an existing rate is or is not reasonable is judicial. Under the present law the Commission is charged with the administrative or executive function of enforcing the law, and also with quasi judicial powers in investigating and determining, subject to the approval of the court, the reasonableness of the rates. If to these powers now exercised is added the legislative power of making rates, the reviewing power of the court should ex- tend to the reasonableness of the rates, found unreason- able by the Commission in the exercise of its judicial power, as the necessary basis for the exercise of its legisla- tive power. 'Due process of law' would require this power in the court, whether in interlocutory or on final hearing. As the question in rates is ordinarily one of fact only, the 'prima facie effect of the finding of fact made by the Com- mission extends to the evidentiary facts, and not to the ultimate conclusion of reasonableness. (1) Other ques- tions may be suggested by this blending of the distinct powers of government in one tribunal, which are prema- ture now to discuss."* The question of the right of eminent domain is not involved in rate-making by the Government, as very few of the railroads have received their charters from it. But the impression still prevails to some extent, that the right of rate-regulation is derived from the exercise on behalf of the railroad companies, of the right of eminent domain ; " (M There is a blending of the judicial, legislative and administrative powers in the powers of railroad commissioners m several of the States, The constitutionality of such acts has been sustained both in the State and Federal courts. See Express Co. vs. Railroad Co 111 N. C, 463; Burlington, etc., R. Co. v. Dey, 82 Iowa, 312; Chicago, etc., B Co v Jones 149 111., 361; Georgia, etc., E. Co. v. Smith, 70 Ga., 694. See also the Railroad' Commission cases, 116 U. S., 30T. In these and other cases the prima facie effect given to the findings of the Commission has been sustained. Such a prima facie effect nowever, might be far more serious where the case is heard in court only upon the record made before the Commission, particularly in its possible bearing upon the question of interlocutory relief, if the Court is concluded by the findings of fact made by the Commission." 212 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. that, therefore, they are public corporations, and that the State can do what it pleases with their property. It is interesting to note what William D. Shipman, an ex- Judge and distinguished member of the New York Bar, said on that subject about twenty-six years ago ; viz. : "Whatever right the State may have to intervene in the affairs of a corporation, that right does not rest on the fact that the State has aided the corporation in obtain- ing the right of way. It would have just the same right to intervene in the affairs of a private carrier who had bought his own land and built his own road over it and no more. "Its right to intervene by prescribing regulations for the conduct of its business, rests solely upon the public function the corporation performs, and is confined to that alone. Its right to intervene is neither increased, nor diminished, nor strengthened by the mode in which the corporation has obtained title to its property. "This will be evident when we consider some of the circumstances under which several of the States exercise the right of eminent domain. "Some of them exercise this right on behalf of cor- porations and individuals, in condemning land to per- petual flowage for manufacturing purposes. Water power is thus accumulated under the exercise of this right of eminent domain, for the use of cotton mills, wooien mills, and a variety of manufacturing enterprises; and it is immaterial whether these enterprises are carried on by individuals or corporations. But this exercise of the right of eminent domain by which the State assists the manufacturer in obtaining an easement on another's land does not bring to the State, the right to control, or even to meddle with the manufacturer's business. The State gets no right to prescribe the length or width which he shall make his pieces of cloth, nor the price he should charge per yard. His business is as free from State con- trol as if he had acquired his water power by ordinary purchase. "The State intervenes by regulation in the affairs of banks and insurance companies, but it does not do so on 213 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. the ground that it has exercised the right of eminent domain in behalf of those companies, for it never does exercise that right in their behalf. "This demonstrates that this matter of eminent domain is wholly irrelevant to this entire subject. It should, therefore, be eliminated from the discussion. We must look entirely to another quarter for the source of whatever power the State has in the premises. That source is exclusively in the function of common carriers which railroads exercise, and in the exercise of which they are no more and no less amenable to State supervision, than private persons exercising the same function, are or may be, except when their charters otherwise provide. This doctrine is the foundation of all that part of the opinion of the Supreme Court of the U. S. in Munn vs. Illinois, which is germane to the subject. The same doc- trine is enunciated by the same Court in the case of Railroad Co. vs. Iowa. In the latter case the Chief Jus- tice says: 'Railroad companies are common carriers for hire. They are incorporated as such, and given extraordinary powers, in order that they may better serve the public in that capacity. They are therefore engaged in a public employment affect- ing the public interest, and, under the decision in Munn -vs. Illinois, supra, p. 113, subject to legisla- tive control as to their rates of fare and freight, unless protected by their charters.' "Again he says : — 'This company (the railroad company) in the transaction of its business, has the same rights, and is subject to the same control, as private indi- viduals under the same circumstances.' "Of course this question has no relation to the power of the State to repeal or alter charters, or dissolve cor- porations. It relates exclusively to the source and ex- tent of its power to regulate the transaction of their busi- ness. In this aspect, the talk about 'corporations,' 'pub- 214 80MB LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE GOVERNMENT. lie corporations,' and 'eminent domain' becomes mere vapor, and, like vapor, dissolves and disappears." In answer to an argument advanced by tbe Chairman of the Board of Trade and Transportation of New York; viz. : "When a citizen puts his money or his property in the rendering of a public service, in the exercise of which he makes use of the sovereign arm of eminent domain, he gives to the public a copartnership therein, which renders the use of that property at all times subject to public control." Judge Shipman said: "If we are to understand by the expression which I have cited, taken as a whole, that railway companies are 'public corporations,' or in any legal sense 'public enter- prises,' I beg leave to dissent. That in one single par- ticular they perform a public function is not disputed. They are common carriers of freight and passengers. To that extent they perform a function which may be said to be 'public' inasmuch as its exercise is of public concern. Whatever regulations the Legislature may prescribe to affect their transaction of business, does not arise out of the fact that they are public corporations, or that they are corporations at all. In this regard, railroad com- panies stand in the same relation to the public and the law-making power, as private persons who exercise the business of common carriers. On this point I cite Waite, (J. J., in Munn vs. Illinois, 4 Otto, 125. "To proceed upon the theory that railroad companies are public corporations is to involve the subject in error and confusion. The only public corporations in this country are those created by Government for political purposes, except pecuniary or business corporations in which the Government owns all the stock. 'If the founda- tion be private, the corporation is private, however ex- tensive the uses may be to which it is devoted by the founder, or by the nature of the institution — a bank created by the Government for its own uses and where the stock is exclusively owned by the Government, is a public corporation. * * * But a bank whose stock is 215 SOME LEGAL QUESTIONS INVOLVED IN RATE-MAKING BY THE. GOVERNMENT. owned by private persons is a private corporation, though its objects and operations partake of a public nature, and though the Government may have become a partner in the association by sharing with the corporators in the stock. The same thing may be said of insurance, canal, bridge, turnpike and railroad companies. The uses may, in a certain sense, be called public, but the corporations are private, equally as if the franchises were vested in a single person.' (Kent's Com., vol. 2, p. 275, side paging.) * ***** "But it is said that railroads are common carriers for hire ; and, therefore, in the language of Sir Matthew Hale r are in their business 'affected with a public interest ;' and upon that ground public policy requires, that their busi- ness should be regulated and controlled by a legislative code. This expression, 'affected with a public interest,' originated with Sir Matthew, and was adopted by Chief Justice Waite, in his opinion in Munn vs. Illinois. The opposing counsel, in his opening speech, refers to both the ancient and modern jurist, and he will pardon me for saying, rather mixes their ideas, not only with each other, but with his own pet theory about eminent domain. The latter subject was not at all in the case of Munn vs. Illinois, nor do I remember that it was alluded to in the Granger cases." The untrained mind of the layman becomes sorely perplexed in trying to understand by what process of reasoning the power of Congress to control interstate com- merce and its instruments, is evolved from the delegation by the States to the Federal Government, of the power to retjulate commerce for the avowed purpose of preventing restrictions by any State that might interfere with free- dom of intercourse between the States. It would appear to the layman that the right to regulate commerce to the extent of asxiuitiitg control of the property of railroads, cannot rest upon the exercise 216 SOME LEGAL QUESTIONS INVOLVED IN RATE MAKING BY THE GOVERNMENT. by the Federal Government, of the right of eminent domain, because, with very few exceptions, the railroads of this country hold their charters from the States. Nor can such right be based upon the police power of the Government. The fact that the property of railroads is "subjected to a public use," as is the case with numerous other properties, would seem to be a very slender founda- tion for so vast a superstructure. Moreover, the layman may ask : Does not the same power to control the instrument of commerce also control com- merce itself? The rates of freight constitute but a small, and on many commodities, an insignificant, part of the prices at which they are sold. Why is it not proposed to fix the prices of the commodities and to prohibit unjust discriminations in such prices? Can it be because such attempts would prove futile, those prices being subject to the law of supply and demand? But are not the prices (rates) of transportation subject to the same law? And if Congress undertakes to fix railroad rates, justice would seem to demand that it should at least fix the prices of labor and materials that are indispensable in the opera- tion of the instruments of commerce, if it has the power to do so. However, the only course that appears to the lay- man to be open to owners of railroads in this country, is to recognize the power of Congress to do what it pleases with their properties, and to accept with resignation, such legislation as Congress, in its wisdom, may enact, and the Supreme Court of the United States shall approve. In the matter of rate-making by the Government, the owners of railroads can probably rely for the protection of their property, more upon the fact that this scheme of rate- making is utterly impracticable, than upon any provisions of the Constitution. 217 KATE-MAKING BY THE GOVERNMENT IN ENGLAND. KATE-MAKING BY THE GOVERNMENT IN ENGLAND. Some advocates of additional legislation, when com- pelled to admit that the power to revise rates as proposed is practically rate-making power, refer to the English system, saying: "Why should it work harm here? It is operated successfully in England." It has been pointed out frequently that the conditions under which English and American railways are oper- ated, are not parallel, — that the constitution and functions of the Railway and Canal Commission, and of the Inter- state Commerce Commission, differ very materially; and, moreover, that the English Commission has not general rate-making powers. The members of the American Commission are politi- cal appointees who hold office for six years. Not one of them is required to have any experience in railroad mat- ters. They combine the incompatible functions of detec- tives, prosecuting attorneys and judges. The American Commission may initiate proceedings and cause prosecu- tions to punish violations of the law. The Railway and Canal Commission of England, under the Railway and Canal Traffic Act of 1SSS, and prior Acts, is a court of rec- ord consisting of five members, two of whom are appointed by recommendation of the English Board of Trade. They hold office for life or during good behavior. One of them must have some experience in railroad operation. The other three are judges of the higher courts of the realm, assigned for dutv on the Commission for not less than five years. One is nominated for England by the Lord Chan- cellor; one for Scotland by the President of the Scottish Court of Session; and one for Ireland by the Lord Chan- cellor of Ireland. The Railway and Canal Commission does not instigate any examinations. It does not prose- cute any cause, nor act as inquisitor, as the American 218 RATE-MAKING IX FRANCE. Commission does. It hears and decides cases of alleged violations of any law retaliating railroads. It has certain powers of arbitration, and its approval of certain agree- ments between railroads, and between railroads and canals, is required. It may also direct that certain through rates be established, but in a very limited way. Parliament reserves to itself almost wholly, the rate- making power through the initial action of one of its departments, — the Board of Trade, of which a Cabinet member is usually President. The railways submit to this Board, their classifications and maximum rates. If objec- tions are made, the matter is referred to a select com- mittee of the House of Commons, or to a joint committee of the House of Commons and the House of Lords; and the rates do not become effective until an act is passed. It will be seen that fixing rates is recognized in Eng- land as a legislative function of great importance and delicacy, and that it is exercised by Parliament itself, under proper precautions to secure justice.* BATE-MAKING IN FRANCE. The following statement, made by M. Emile Heurteau, President of the Orleans Railway, and who was one of the delegates to the International Railway Congress in Wash- ington, is very interesting in showing the effects of State- made rates in France: — "The maximum charges which the railways of France may make for carrying merchandise, are fixed by a con- tract made by each company with the Government, this contract being in effect the company's charter. The Gov- ernment designates the exact course along which roads shall be built, in some cases laying it through territory * The reader who desires to familiarize himself with rate regulation in England, is referred to "Elements of Railway Economics, Oxford. By the Clarendon Press, 1905," by William Acworth, the well-known writer and authority on railway economics. The chapter headed: " Classification and Rates: Interference of Parliament," gives a brief history of legislation in England from 1881 to 1891, which is very interesting and instructive. 219 RATE-MAKING IN FRANCE. which would not be profitable for private management to operate in without some sort of subvention. "This subvention the State gives in the form of an advance or loan, on which the company must pay 4 per cent, interest and which must be returned within a speci- fied period. During that period the company may not declare dividends above a fixed figure, the surplus that might otherwise go to dividends being used in reducing the loan. "At the end of the specified term, usually ninety-nine years, the railroad becomes the property of the State out- right, except for its rolling stock, on which the Govern- ment holds a lien, to guarantee the payment of any of the advance remaining unpaid at that time. "This makes possible, you see, the building of rail- roads in places where the Government restrictions would otherwise make it impossible. Naturally, it is the tax- payer — the merchant and shipper who think they are get- ting so much benefit from the State's interference in the railroad business — who pays for all these things. "It is the taxpayer — the merchant and the shipper — • who pays for the construction and maintenance of canals and canalized rivers — the latter natural water courses artificially deepened or straightened — which in some places make the existence of a profitable railroad almost impossible, and in others centralize industry and traffic to the detriment of sections of the country that do not have similar advantages. "There is no provision at all for the State's regulating charges for water transportation. The waterways are, in the eye of the law, public highways. The vessel owner may charge as much as he pleases for the services he gives, and, inasmuch as it costs him much less to render than like service costs the railway, he can depress his rates and raise them with impunity, so as seriously to affect the trend and movement of traffic. "This is not, however, competition in the true sense. It produces such results as these : "In the region north of Paris, which is the great in- dustrial section of France, a very large proportion of the traffic is carried by canals, which you abandoned long ago in this country as out of date, which are slow and 220 RATE-MAKING IN FRANCE. subject to all manner of hindrances, from the necessity of repair, the jam of ice in winter, and what not. In south- ern France a very large share of the freight between Mar- seilles and Paris, for example,, moving in either direction, goes around the coast line instead of directly by rail. "You can easily see the effect of this. Tlie people are practically deprived of the more efficient means of trans- portation in the interests of the less efficient. This would, of course, mean much more in the United States than it does in France, — even for your great Middle West, especially. "What, you ask, is the cause of this? It is that the Government will not allow the making of railroad rates that will take the traffic off the canals, and its refusal to allow this is due to political pressure sometimes, to the jealousy of one community toward another, to the power- ful influence of the vessel owners to whom the present arrangement is of such vast financial benefit, to the diffi- culty of ever getting a governmental machine to reverse its action or to modify its mechanical methods. "The inelasticity that government ownership or close government supervision invariably brings, makes it im- possible that French railroad rates should go below the point at which the boats on the waterways do business. "Not only does the Government never give its consent to the raising of rates, as might be expected, but also, extraordinary as it may seem to Americans who have had no experience with governmental control of such things, it frequently withholds its consent from lowering them. Our only protection is that our contracts with the Gov- ernment have fixed maximum charges so long as the pres- ent agreements are in force. "We would be only too glad to adopt the American system of fixing the lowest rates proper, and making up the loss of profit on each shipment out of the increased volume of business they make the railways available to, which is the only economically and commercially right and sensible way of doing. We would be glad to build up our territory as the American railways do, by encouraging its industries, by opening its markets, by enabling it to compete with other territory contributing to the same markets. 221 RATE-MAKING IX FRANCE. "But we cannot do that,— the State controlled rates prevent it, however strong our desire or the people's may be. "The basis on which freight rates are made in France is generally that of distance. In fact, it is impossible that any Government or Government commission should make rates on any other basis. "This tape-measure basis is the easiest to defend against charges of discrimination, in spite of its real in- justice and its absolutely unsound economy, which a mo- ment's thought will show. It avoids trouble and affords excuses, and your Government official's chief thought is to avoid trouble for himself; for he is first, last and all the time a politician. "Eailroads under Government supervision must set their rates close to the maxima then, and maintain them there, for their own salvation. There are many times when if it were possible we would like to lower freight charges to meet some special emergency, such as the necessities of a district suffering from a crop failure, for example. "That is not philanthropy, but commercial sense, to help the man who creates business for you, when he is hard pressed, and to increase the volume of traffic that is falling because people have not the money to pay the price they have been accustomed to pay easily. But if we should once lower our rates, — possibly to the point of loss, as American railways have done frequently in crises — we would not be allowed to restore them later, when they should fairly be restored. "Occasionally, temporary rates are made for the term of a year, say, but it's quite exceptional. And why, do you suppose? "The process of reducing rates under our system of Government regulation, which is as liberal as any Euro- pean system of the kind, involves so many hearings, dis- cussions and disputes by rival boards of trade and cham- bers of commerce, deputies, politicians, shippers and the rest of them, that it takes many months and sometimes vears to get permission to make a reduction in charges. "By that time the necessity for which the reduction was asked is passed ; it will do neither the railroad nor the 222 RATE-MAKING IN FEANOE. community any good; and so we do not ask for such things. "It may seem curious to Americans, but no reduction of rates has ever been made in France to meet the needs of the railroads, however much they might want it. A striking instance of how Government regulation works in this particular is the experience of my own road in common with others a few years ago, when the phylloxera attacked the vineyards of southern France. "There was no wine-making to speak of in France then, and the country's supply was imported from Spain. Over there wine is a staple, a necessity of the poor man as well as the rich, and we made a low rate for bringing it from Spain into Paris. "The deputies of the vineyard districts protested, how- ever, because they said we were carrying Spanish wine as cheaply as we were carrying French wine. The railroads were obliged to restore the high rate, and immediately the wine went to Paris from Spain by water, through the canals and canalized rivers. "In order to make this water transportation easier, the Government made large extra appropriations for the canalization of the Seine at that time. The citizen whose temporarily non-existent industry was being 'protected,' partly for the benefit of foreign ship owners, it would ap- pear, was a taxpayer, contributing his francs for this canal construction and repair when he could least af- ford it. "As I have told you, our charges for transporting freight are fixed in the railway's original contract with the Government, and set down in the cahier des charges — - what you would call tariff sheet or rate book, I suppose. For obvious reasons, the railways never have consented to give the State the right to> lower these maximum charges, nor can it be expected that they ever will con- sent to such a thing. "Our contract with the Government is like any other contract; it cannot be altered except with the consent of both parties. Any form of government supervision short of absolute government ownership must be based on con- tracts of that kind, otherwise what protection would there be for the vested interests? 223 SUMMARY. "Petitions for lower rates are made to the Director of Railways from time to time, and perhaps he will suggest the desirability of considering some of them, but he has no power to enforce such demands. Of course, sometimes we must yield to such petitions against our better judg- ment, when they are evidently nothing less than sectional selfishness. The pressure which any Government can bring to bear is tremendous, and may not be withstood in certain circumstances, even though it may threaten in- dustrial misfortune. "The wonderful growth and development of the United ■States is the admiration of the whole world. I have no doubt it is to be attributed largely to the freedom you have always enjoyed in your commercial and industrial life. "Opportunity is given here for railways and com- munities to be mutually helpful, and splendid use has been made and is being made of it. The few cases of complaints against your railways, the expansion of trade through the opening of European markets to the pro- ducers of your Central and Western States, who are en- abled to deliver their products abroad, the low cost of transportation that enables them to compete there with the foreign producer near at hand, whose railways are in no position to help him — all these things seem to me suf- ficient evidence of the success and desirability of the American practice in the management and regulation of railway matters. "Any economist, any business man, any transportation manager will tell you that the present American method of fixing freight rates is the only logical and rational one."* SUMMARY. I. Rate regulation is absolutely necessary for the pro- tection of the public, as well as of the owners of rail- roads. The public must be protected against unjust dis- criminations ; and the owners of railroads should be pro- * (From the New York Sun of May 21, 1905.) 224 SUMMARY. tected against rate-wars, which destroy the fruits of their investments and enterprise. Both evils have a common cause: the remedy that effectively cures one must neces- sarily cure the other. II. The cause of the evils is unrestrained competition, which must inevitably produce unjust discrimination. III. While the efforts of the railroads to regulate rates by means of traffic associations have in a great measure miti- gated the evils resulting from unrestrained competition, they have not proved successful. Bate-cutting and re- bating prevailed to a considerable extent, especially in the North and Northwest, during the period from 1875 to 1887, when the division of traffic called pooling was per- mitted. This failure was due to the fact that agreements were not enforceable, and that, up to 1887, the Govern- ment had not enacted any laws prohibiting unjust dis- criminations. IV. The Act to Begulate Commerce, supplemented by the Elkins Act, has proved of value, and, notwithstanding its defects, it has conferred great benefits upon the public and the railroads. The results of the operation of this Act would have been more beneficial if all of its pro- visions had been properly enforced. This was found to be impracticable, because the enormous amount of work, and the varieties of the functions imposed upon the Com- mission by the Act, are not within the scope of the physi- cal and mental powers of the Commissioners, however great may be their ability and industry. 225 SUMMARY. V. The most serious defect of the Act to Regulate Com- merce, and of the Antitrust Act, is the underlying idea that competition must he left unrestrained. This idea is inconsistent with the object of the legislation, and tends to defeat its purpose, because unrestrained competition produces the very evils which the Act to Regulate Com- merce was enacted to cure. VI. Rate regulation by the railroads alone, without the aid of wise legislation, can never be effectual. Efforts at regulation by the Federal Government alone cannot fully attain its object. It is only by co-operation — by the combined efforts of the Government and the railroads, that the evils resulting from unrestrained competition can be permanently corrected. VII. The Sherman Antitrust Act, in destroying efficient traffic associations, has deprived the railroads of the best means of co-operating with the Government in the regu- lation of rates. VIII. The application of the Antitrust Act to the railroads was a retrograde step in the evolution of railroad regula- tion. It tends to defeat the main purpose of the Act to Regulate Commerce; and it also defeats its own object: instead of curbing the bad commercial trusts, it indi- rectly strengthens them, by giving them greater power to exact concessions in rates from railroads, thus assisting the trusts to crush their rivals. 226 SUMMARY. IX. Owing to the regulating influence of competition by water routes, and the operation of economic and com- mercial laws, railroad corporations in this country can never become monopolistic trusts. Bates by water routes should not be subjected to regulation by the Government except when such routes form parts of through lines in connection with railroads. Railroad consolidations have greatly simplified the railroad problem, and have been of assistance in rate regulation to the extent to which they have restrained reckless competition. The division of traffic, miscalled pooling, is no longer essential to the regulation of rates by the railroads them- selves, consolidations having absorbed so many of the weaker roads that were compelled to be disturbers of the peace. XL Congress, in enacting the Act to Regulate Commerce, did not intend to confer the rate-making power upon the Interstate Commerce Commission. Hence, it is not true, as has been claimed, that the U. S. Supreme Court, in de- ciding the Maximum Rate cases, took that power away from the Commission. The impression that the Commis- sion exercised the rate-making power for many years with- out protest or opposition by the railroads is erroneous. XII. The efforts of the Commission to obtain the rate- making power, supported by certain commercial and in- dustrial organizations, resulted in the introduction into 227 SUMMARY. Congress of several bills, notably the Cullom, Nelson- Corliss, and Quarles-Cooper Bills, providing for the en- largement of the powers of the Commission. These bills failed of passage. No great interest was taken in the subject by the general public, until President Roosevelt, in his Message to Congress of December, 1904, called at- tention to the unjust discrimination, and especially to the iniquitous practice of paying rebates, and recommended that the Interstate Commerce Commission be clothed with the power of revision of rates, the revised rates to take effect practically at once; stating, however, that, in his opinion, ''at present it would be undesirable, if it were not impracticable, finally to clothe the Commission with general authority to fix railroad rates." XIII. Owing to the powerful influence of the President, the House of Representatives, on February 9, 1905, passed almost unanimously (by a vote of 326 to 17), the Esch- Townsend Bill. XIV. The passage of this Bill marks a radical departure from the wise and conservative policy inaugurated by Congress in 1887, which policy had been continued up to 1905, in legislating on the regulation of railway rates. The Townsend Bill confers the general rate-making power upon the Commission, under guise of giving it the power of revision. XV. Owing to the interdependence of rates, the power of revision of rates, the revised rates taking effect practically at once, is equivalent to a general rate-making power. 228 SUMMARY. XVI. Rate-making by the Government is wholly impracti- cable. It would be impossible for a bureau in Washing- ton to fix rates for all the railroads in this country, — a work that requires the continuous attention of hundreds of trained traffic officials. Judge Cooley, Chairman of the Interstate Commerce Commission, in its First Annual Report, declared that such a work in a country as large as ours, with so vast a mileage, would be superhuman. XVII. The exercise of the rate-making power by the Govern- ment is not necessary, even if it were practicable, because the Act to Regulate Commerce, supplemented by the Elkins Act, provides for the correction of every evil that can be remedied by legislation, and confers ample powers, upon the Commission and upon the courts to enforce the law. The number of formal complaints against the rail- roads have greatly diminished, and existing laws, if properly enforced, are adequate for the protection of the public. XVIII. Rate-making by the Government, instead of correcting existing evils, would aggravate them, and would create new evils far more serious. The following are some of its injurious effects : — (a) Government rate-making has a tendency to obstruct commerce, because it destroys the present flexibility of railroad tariffs, and makes the shipper dependent upon a Government bureau which would be unable to promptly and intelligently adjust rates to varying commercial con- ditions. 229 SUMMARY. (b) It has a tendency to encourage rebating, because of the inability of the bureau to act promptly. Railroad officials would be importuned by shippers for relief; and it is probable that they would yield to the constant pres- sure, and pay rebates pending the action of the rate-mak- ing bureau. (c) j » It would congest the courts with innumerable inter- state commerce cases, and cause more serious delays than those at present complained of by shippers. The attempt to perform the work of rate-making for the entire country by a bureau that cannot have the requisite knowledge of local conditions, would cause many errors and complica- tions; and applications for relief would be so numerous as to congest the courts with interstate commerce cases. (d) It would produce unjust discrimination against locali- ties, and subject commerce to the control of an autocratic Government bureau. The attempts of a rate-making bureau to readjust the relation of rates between localities, that have been established during many years of com- mercial rivalry, and of competition between railroads,, would necessarily result in confusion which must cause unjust discrimination against localities. The power to readjust these relations would manifestly give such a bureau absolute control over the commerce of the country that is dependent upon railway transportation. By fix- ing the relations of rates, it could apportion the traffic among business communities, determining the character and quantity of business each community should be al- lowed to transact, and designate the markets to which it should send its commodities. 230 SUMMARY. (e) Rate-making by the Government would necessitate making the rates by water routes subject to the jurisdic- tion of the rate-making powers; thus impairing if not de- stroying their usefulness as regulators of railway rates. XIX. As the value of railroads to their owners consists in their earning capacity, it is manifest that to take the vital function of rate-making out of the hands of these owners, would practically place the control of the prop- erties in the hands of the rate-making bureau, which could determine the amount of income these owners should de- rive from their investments. It would be taking their property without any compensation; and, according to the rate-making scheme, this would be done by a peculiar process of law; that is, by a perversion of existing legal procedures that would deprive railroads of the protection of the courts. For the bills for enlarging the powers of the Commission that have been introduced, afford no redress to the railroads in cases of an appeal to the courts from any orders of the Commission, because the reduced rates take effect at once of their own force; — so that, pending the decision of the courts, the railroads have to suffer heavy losses. Under this procedure, a corporation is presumed to be guilty until it proves itself to be inno- cent; and punishment is inflicted upon it before it has had its day in court. This punishment would in most cases be very severe. For example : in the Maximum Rate cases, the twenty-one defendant railroads would have lost at the rate of $3,000,000 per year if they had obeyed the orders of the Commission. But the injustice does not end here. Eminent lawyers are of opinion that the rate-making function having been 231 SUMMARY. declared a legislative power, the courts will decline to re- view the action of the Commission to which the Congress has delegated this function, unless the rates made by it are confiscatory. Counsel have also expressed the opinion that if a locality should be aggrieved by the action of the Commission, it would probably not have any redress what- soever. XX. It appears from the Statistics of Railways in the United States for 1903 (pages 56 and 57), as issued by the Interstate Commerce Commission, that on June 30, 1903, there were outstanding in railroad stocks 16,155,559,032 and that the total funded debt was 6,444,431,226 A total of $12,599,990,258 This enormous amount, representing railroad prop- erty, would be under the control of the rate-making bureau; and the people who have invested their money in railroad securities would have to look to that bureau for their income. XXI. Rate-making by the Government would injuriously affect the value of railroad securities, impair the credit of railroad companies, and the efficiency of their services to the public. XXII. Rate-making by the Government would reduce the earnings of the railroads to an extent that would render it necessary to cut down the wages of their employees. This would produce strikes and a demoralization of the railroad system, and of the commerce of the country. 232 SUGGESTIONS AS TO WHAT LEGISLATION IS NECESSARY AND PRACTICABLE. SUGGESTIONS AS TO WHAT LEGISLATION IS NECESSAEY AND PRACTICABLE. A careful consideration of all the facts and circum- stances developed in the course of this inquiry, will doubt- less enable the thoughtful reader to draw his own con- clusions. The following suggestions, however, may per- haps aid him in solving the question : — What legislation is really necessary and practicable? I. The most important legislation that is needed, is an amendment of the Antitrust Act that will restore to the railroads the right to organize efficient traffic associations for the purpose of establishing and strictly maintaining reasonable rates, and to co-operate with the Interstate Commerce Commission in the enforcement of the laws which prohibit unjust discrimination. An amendment of the fifth, or antipooling section of the Act to Eegulate Commerce, so as to permit so-called pooling, is no longer necessary, if it were practicable. II. If the railroads are unable to deal with the private car lines, Congress should bring these lines under the juris- diction of the Act to Regulate Commerce and the Elkins Act; and it should also strengthen the present laws by amendments specifically covering all devices for paying rebates, including the allowances made to private sidings, switches, etc. III. To bring water routes under the jurisdiction of the Commission, as suggested in the President's message, would be a serious legislative mistake. These routes 233 SUGGESTIONS AS TO WHAT LEGISLATION IS NECESSARY AND PRACTICABLE. should be left untrammeled by any Government regula- tion. IV. Good results would follow a reorganization of the Interstate Commerce Commission. The number of mem- bers should be increased from five to seven, as provided in the Townsend Bill. But the appointments should be made with a view to the qualifications that are essential in the discharge of their duties, rather than from political considerations. For example — three of the members might be railroad men, three lawyers, and one a business man. Four members, say, two lawyers and two railroad men, should be appointed for life, or during good be- havior — the remainder for six years, as under the present law. V. The Commission should be relieved of the duty of acting as detectives and prosecuting attorneys, and also of the work connected with the safety appliances acts: and its work should be confined to the investigation and decision of cases that come before it. VI. As legislation in this country is responsive to public sentiment, the most important element of success in the effort to regulate rates, is a better understanding by the public of the railroad problem. I would suggest, therefore, that Congress order the reprinting and distribution of a new edition of the Report of the Senate Select Committee of January 18, 1886, together with the forth- coming Beport of the Senate Committee on Interstate Commerce, of the Fifty-eighth Congress. 234 CONCLUSION. CONCLUSION. When, in 1851, I entered the railway service, there were about 9,000 miles of railroads in this country; and their earnings from passengers and freight in that year were not quite forty millions of dollars. According to the Report of the Interstate Commerce Commission, the railroad mileage on June 30, 1903, was 207,977 miles ; and the revenues, f 1,900,846,907. The immense improvements that have been made in railway facilities can hardly be appreciated by the younger generation: for there are few travelers who, in these days, ride at the rate of sixty or even seventy miles an hour in splendidly equipped passenger trains, over smooth, well-ballasted, steel-rail tracks, who can recall the time when primitive trains jolted at the rate of fifteen to twenty miles per hour over rough tracks made of iron strap-rails spiked to longitudinal stringers that rested on mudsills, — a rail that was known as the "snakehead," from its tendency to turn up and penetrate the floors of the passenger cars. The rail in the form of an inverted "U," secured at the ends by cast-iron "chairs," was a great improvement on the "snakeheads." The passenger equipment Avas as un- comfortable as it could be made. Sleeping, dining and parlor cars were not even thought of; nor were sleeping cars necessary, because it was generally thought to be un- safe to run passenger trains at night. Imperfect as these facilities were, they were perfectly satisfactory to the people, who were inclined to apply to the builders of railroads, what the enthusiastic Irishman had said about the builders of macadamized turnpikes : "Oh, had you seen these roads before they were made, You would lift up your hands and bless Marshall Wade." 235 CONCLUSION. In the course of years there came a change in public sentiment. The benefits conferred by the railroads were largely forgotten, and the dark side — the evils attending railroad transportation — became prominent. That the railroad managers made numerous mistakes, cannot be denied. It would be marvelous if it had been otherwise, for they were working in a new field, with no precedents to guide thein. Almost every act had to be tentative. But repeated failures showed the way to improvement, and ultimately to success. One of the worst features, however, and which, more than any other, caused hos- tility against the railroads, was that in some parts of the country, the spirit of enterprise which had made railroads possible, degenerated into dishonest speculation. The pub- lic feeling grew from bad to worse ; and the time came in the early '70's, when, under the influences of hard times and popular excitement, railroad builders who in the earlier years had been regarded as public benefactors, were denounced as oppressors, enemies of the people, and grasping monopolists who must be restrained by the most stringent legislation. This feeling found expression in the famous Granger laws, known in Wisconsin as the Potter laws. But with better times, a reaction ensued, and a better feeling prevailed. Some of the objectionable laws were repealed or amended. The railway commissioners of Wisconsin, in their report for 1874, in setting forth the inconsistency of these laws, conclude as follows : — "Surely there is no apology for the exercise, on the part of the State, of any power over corporations which can be safely and as wisely exercised by the corporations themselves. There is no principle of American govern- ment so thoroughly or so properly established as that which limits the province of legislation, at all times and under all circumstances, to enactments for the general good, and which denies to Government the right or the 236 CONCLUSION. duty of unnecessary interference with private or public enterprise." These are wise words. They are as true to-day as they were when written. They apply to legislation by the Federal Government as well as to State legislation. Upon the whole, the relations between the railroads and the people have undergone a great improvement. Railroad managers, recognizing their obligations to the public, have assumed a better attitude toward it ; and the public entertains somewhat sounder views on railroad questions. It is surprising, however, that notwith- standing the frequent discussions in legislatures and in Congress, and the efforts of the public press to enlighten the people, the railroad problem is not as well understood by the public as its importance demands. This is prob- ably due to the fact that the American people are too busy "doing things" to investigate questions other than those which enter into politics. I concur in the opinion expressed by President Spen- cer of the Southern Railway, in concluding his Address before the Traffic Club of Pittsburgh in April, 1905,— that the verdict of "the court of last resort, that great tribunal, public opinion," upon the complex and far-reaching ques- tion now being agitated, will be just and fair when the question shall be thoroughly understood in all its bear- ings. This inquiry was not originally intended for publica- tion. The advice of friends, and my own earnest desire to contribute, be it ever so little, to a better understanding of the important question, have induced me to submit it to the consideration of readers who are interested in the subject of railway regulation. Henry Fink. New York, August 1, 1905. knV*-u^>3 : V,L^3c