-u-l-
the raieroad prohle]?j|[.:
COST OF TRANSPORTATION,
RAILROAD CONFEDERATIONS
POOLING ARRANGEMENTS,
GOVERNMENTAL REGULATION OF RAILROADS;
being a part of the annual report on the internal
commerce of the united states.
joseph nimmo, jr,
cheep of the bureau op statistics.
OCTOBER, 1881.
(?//■;.
washingtoît:
èoternmient printing oppioe.
1881,
• 1. •
TUE RAILROAD PROBLEU.
COST OF TRANSPORTATIOÎi,
RAILROAD CONFEDERATIONS
OR
POOLING ARRANGEMENTS,
and the
GOVERNMENTAL REGULATION OF RAILROADS;
V
BEING A PART OP THE ANNUAL REPORT ON THE INTERNAL
COMMERCE OP THE UNITED STATES.
by
JOSEPH NIMMO, JR.,
CHIEP op THE BUKEAXr op STATISTICS.
OCTOBER, 1881.
WASHINGTON:
goyernment printing oppioe.
1881.
TREA6UEY DBPAETMKNT,
■ Docmuent No. 190,
Bureau of Statistics.
• Teeasitey Depaetment,
Bueeau op Statistics,
October 28, 1881.
The articles embraced in this pamphlet relative to the cost of trans¬
portation, railroad confederations or pooling arrangements, and the gov¬
ernmental regulation of railroads, constitute a part of the report of the
Chief of the Bureau of Statistics, just published, in regard to the inter¬
nal commerce of the United States. That report was completed on the
1st of May, 1881, but an unavoidable delay having occurred in printing
it, advantage has been taken of the time which has since elapsed to pre¬
pare the article relative to railroad confederations or pooling aiTange-
ments. The writing of this article was suggested by the war of rates
which has prevailed since the 1st of July among the railroads engaged in
the transportation of freight and passengers between the "Western and
the Northwestern States and the Atlantic seaboard. This contest has
exerted and continues to exert an exceedingly important influence upon
the commercial, industrial, and flnancial interests of the people, and it
has, consequently, engaged the close attention and excited the earnest
solicitude of all who are interested in the material welfare of the country.
JOSEPH NIMMO, Je.,
Chief of Bureau.
3
CONTENTS.
Page.
Reduction in the cost of transportation on railroads 5
The practical determination of freight charges ... "
Railroad confederations or pooling organizations 10
Causes of the failure of the laws of supply and demand and of competition to
regulate fi-eight charges on railroads as on free highways of commerce 15
The practical workings of railroad confederations 18
The practicability of governmental recognition of railroad confederations for
the pooling of traffic 26
Governmental regulation of railroads 32
5
THE RAILROAD PROBLEM.
REDUCTIONS IN THE COST OF TRANSPORTATION ON
RAILROADS.
Since railroads have become the principal avenues of the internal
commerce of the country, it is a matter of much interest to observe the
reductions which have been made in the actual cost of transportation
and in the charges imposed for that service.
It is impossible to state the reduction in the cost of transportation on
all the railroads of the United States, from the fact that the necessary
data with respect to many of them cannot be procured. The reduction
in the cost of transportation on the railroads of the country generally,
is, however, very clearly indicated by a table on page 229 of the appen¬
dix, embracing data with respect to thirteen leading railroads, aíz, the
Boston and Albany Railroad, the New Tork Central and Hudson River
Railroad, the New York, Lake Erie and Western Railroad, the Pennsyl¬
vania Railroad, the Pittsburgh, Fort Wayne and Chicago Railway, the
Lake Shore and Michigan Southern Railway, the Michigan Central Rail¬
road, the Chicago and Alton Railroad, the Chicago, Burlington and
Quincy Railroad, the Chicago, Milwaukee and Saint Paul Railway, the
Chicago, Rock Island and Pacific Railway, and the Illinois Central
Railroad.
It appears that the number of tons of freight carried on the railroads
mentioned in the table referred to increased from 45,557,002 tons during
the year 1873 to 78,150,913 tons duringthe year 1880, an increase of about
71.5 per cent. The receipts from freight, however, increased from
8112,004,648 in 1873 to $143,388,178 in 1880, an increase of $31,383,530,
or only about 28 per cent. This small rate of increase of receipts in pro¬
portion to the increase of traffic was due to the fact that the average rate
per fon charged On these thirteen railroads fell from 1.77 cents per ton
per mile in 1873 to 1.07 cents per ton per mile in 1880, a decrease of 39.5
per cent.
The following table indicates the increase of traffic and the decrease
of freight charges on the New York Central and Hudson River Railroad,
7
8
INTERNAL COMMERCE OF THE UNITED STATES.
the Kew York, Lake Erie and Western Eailroad, and the Pennsylva¬
nia Eallroad, from 1868 to 1880 :
Nuniber of tons transported annually on the New York Central and Hudson River Railroad,
the New York, Lake Erie and Western Railroad, and the Pennsylvania Railroad, and the
average annual freight charges per ton per mile on the same roads from 1868 to 1880, in¬
clusive.
Tear.
Tons trans¬
ported.
Average freight
charge per ton
per mile.
1868
11,193,120
12,906,010
14,778, 556
16,406,558
18,417, 774
22, 299,170
21,868, 341
22 231,172
23, 599. 239
23, 269, 506
26,238,341
32, 369,637
36, 363,714
Cents.
2.153
1.881|
1.5881
1.490|
1.51l|
1.480§
1.343
1.1803
1.014
.983
.935
.792
.866§
1869
1870
1871
1872
1873
1874 :
1875
1876
1877
1878
1879
1880
It thus appears that the aggregate trafiSc on the three railroads men¬
tioned was more than three times as great in 1880 as in 1868, and that,
after making the proper allowance for currency values in 1868, the
average freight charges imposed during the year 1880, were 60 per cent,
less than during the year 1868.
In this connection it is a matter of interest to compare the reductions
in freight charges on railroads with the reductions which have been made
in freight charges on the íTew York State canals, and with the changes
which have taken place in the market prices of certain commodities
commonly regarded as necessaries of life. For the purpose of exhibiting
exact data upon these points three tables have been prepared. See
Appendices Nos. 37 to 39, inclusive.
The latter table, Appendix ÎTo. 39, shows, first, the average rates of
transportation on the fifteen railroads referred to, and on the Hew York
State canals, and the average prices of twenty-two articles of merchan¬
dise, reduced to gold values for the years 1870,1875, and 1880. Hext
there is given an expression as to the relative magnitude of these vari¬
ous rates and prices, equated upon the assumption that all the rates
and piices during the year 1870 were 100. From this, the percentage
of increase or of decrease from 1870 to 1880 is shown in each case.
It appears that from 1870 to 1880 there was a decrease of 39.45 per cent,
in the freight charges on the fifteen railroads referred to, a decrease of
32.51 per cent, in the charges on the Hew York State canals, and a de¬
crease of 12.32 per cent, in the average of the prices of all the articles of
merchandise mentioned ;* in other words, the ratio of decrease in freight
charges on railroads was somewhat greater than was the ratio of de-
* It is apparent that the above mode of stating averages is somewhat crude, no
regard being had to the quantities of the several commodities. Yet for the mere pnr-
l)ose of a general statement, such as the above, it is regarded as a proper method of
illustration.
INTEENAL COMMERCE OF THE UNITED STATES.
9
crease in the freight charges on the New York State canals, and more
than three times as great as the average decrease in the prices of the
twenty-two commodities referred to, which commodities, as before stated,
are embraced in the class commonly known as necessaries of life.
It is impossible to estimate the magnitude of the benefits which the
reductions made in the charges for transportation on railroads have con¬
ferred upon the interests of agriculture, of mining, and of commerce.
That the increase in the value of the domestic exports of the United
States to foreign countries—from $442,820,178 during the year ended
June 30,1871, to $902,319,473 during the yçar ended June 30,1881—has
been largely due to such reductions is evident from the fact that such
exports are chiefly the products of the Western and Northwestern
States, a large proportion of which is transported to the seaboard on
railroads.
Another and a very interesting illustration of the public benefits
which have been realized from the widely-extended advantages of cheap
transportation afforded by railroads has been furnished in the fact,
stated by a careful collator of statistics,* that the freight charges for
the movement from Chicago to Boston, a distance of one thousand miles,
of one year's subsistence of grain and meat for an adult working man
amounts to but $1.25, which sum is only one day's wages of a common
laborer, or half the daily wages of a good carpenter or mason. A strik¬
ing corollary from this fact is, that the importance of distance and, there¬
fore, of geographical position as a condition affecting thematerial interests
of sections, of States, and of commercial and industrial towns and cities,
has been greatly reduced by the facilities for transportation afforded on
railroads.
The reductions which have been made in the average freight charges
on railroads in the United States are largely the result of improvements
which have been made in roadway and equipment, in the management
of traffic, and in ah. the economies of transportation. But such reduc¬
tions have not been made by the railroad companies voluntarily, or as a
concession to the public interests. On the other hand, the railroad com¬
panies have been able only in a comparatively small degree to increase
their profits by the improvements which they have introduced for the
purpose of cheapening and facilitating transportation. This is due to
the fact that the rates charged have been constantly reduced by compe¬
tition between railroads, by competition between water lines and rail¬
roads, and, in a much greater degree, by the competition between rival
commercial and industrial forces. This subject is hereinafter discussed
somewhat at length.
THE PRACTICAL DETERMINATION OF RAILROAD FREIGHT CHARGES.
Notwithstanding the fact just mentioned, that certain regulating in¬
fluences beyond the control of railroad managers have forced rates down
• Mr. Edward Atkinson, of Boston, Mass.
10
INTERNAL COMMERCE OF THE UNITED STATES.
to a comparatively low point, yet the operation of the forces referred to
does not, in practice, point out any rule by which either the classifica¬
tion of freights, or the rates which shall be charged on goods embraced
in the different classes can be determined. In the determination both
of the classification of freights, and of the rates charged for the carriage
of an almost infinite variety of commodities, under an almost infinite
variety of conditions, the railroad trafSc manager is thrown entirely upon
his discretion, in the light of all the information which he may have been
able to draw from experience and observation, as to the weight which
he shall attach to the economies of transportation, and to the compe¬
tition of rival railroads and of rival water lines.
But besides these, there are, with respect to a considerable propor¬
tion of the freight traffic of railroads, certain exceedingly important con¬
siderations, of variable value, which more than all others tend to deter¬
mine freight charges, viz, the values of the commodities transported,
but more particularly, the relative values of commodities at different
centres of trade. The latter consideration is in many cases the govern¬
ing condition in the practical determination of freight charges. But to
these conditions is added that of the relative rates of transportation
which may from time to time prevail between the different trade centres
and the points to which commodities are shipped. In practice, the in-
fiuence these conditions is exerted about as follows : In case a general
freight agent desires to transport a certain commodity to a point one
thousand miles distant, he must make a rate with reference both to the
price of that commodity at the point of shipment, and to the price of
similar commodities at all other trade centres from which such commod¬
ities may be shipped to the same point of destination, and also with
reference to the prevailing rates of transportation from such other trad¬
ing centres to the point of destination referred to. To this complexity of
conditions is also added the element of risk, Eailroad managers have
formulated the combined influence of all these conditions in the general
but somewhat vague expression, " what the commodity will bear."
The large and exceedingly complex discretionary power confided to
railroad managers, with respect to the determination of freight charges
is, of course, as a mattter of official duty, as well as from the force of
personal predilection, exercised by them immediately and primarily in
the interests of their employers, the railroad companies. On the other
hand those who represent, or who are especially interested in, or ac¬
countable to the agricultural, the manufacturing, the mining, and the
commercial interests of the country, and those also who view the sub¬
ject in its politico-economic aspects, difier widely from the railroad man¬
ager as to the weight which shall be given both to the economies of
transportation and to those competing forces which indirectly tend to
regulate or influence the charges imposed for transportation services.
In attempting to give practical effect to all those influences which tend
to determine the value of transportation services, the railroad manager
»
INTERNAL COMMERCE OF THE UNITED STATES.
11
is, of course, guided by the teachings of experience, and the natural bias
of his calling. The advocates of the commercial and industrial interests
of the country and those who espouse the interests of the public gen¬
erally are, on the other hand, guided towards the conclusions which they
may reach upon the same subject by such information as they may have
been able to gain; and their opinions are also necessarily more or less
influenced by that bias which invariably attaches to personal interest,
and by those differences of mental and moral characteristics which cause
men honestly to differ upon controverted questions.
This subject in its various economic, commercial, and political aspects
is, from the nature of things, an exceedingly complex one. Every aspect
of it has given rise to the expression of a great variety of views. The
discussions growing out of this contrariety of opinion run into almost
endless detail with respect to the rates which should be charged for the
transportation of different commodities, under an almost inflnite variety
of circumstances, and to the considerations which should be given to
distance, to the quantity of particular commodities transported, and to
the conflicting claims of sections and States, and of commercial and
manufacturing towns and cities. This wide diversity of opinion and of
interest embodies, and is at the same time an expression of, the so-called
" railroad problem."
Few and for the most part ineffectual governmental restraints of a
positive nature, have been interposed in this country to the exclusive
determination of freight charges by railroad officials. Aside from the
regulating influences above alluded to, freight charges are, however,
largely influenced by public sentiment, and by that comity which always
prevails to a greater or less extent between the merchant and the trans¬
porter. But in the matter of railroad transportation, as in all other
affairs affecting human interests, cupidity is sometimes stronger than
that sense of right and justice which inclines men to the observance of
reciprocal rights.
The current history of railroad transportation in this country clearly
indicates that there are evils connected with it which call for a public
remedy ; evils which affect not only the commercial and industrial inter¬
ests of the country, but which also affect the railroads. Hence arises
the demand for some sort of governmental intervention, either through
the enforcement of specific provisions of law, or through the moral influ¬
ence exerted by a well-grounded apprehension of such intervention, as
a result of the scrutiny exercised by intelligent and faithful boards of
railroad commissioners.
As the authority of the State governments is circumscribed by State
lines, State jurisdiction seems to be inadequate to dealing with the sub¬
ject in its application to the great commercial movements of the country
across State lines. The first practical step toward the settlement of
this important question appears to be an intelligent investigation of it
in all its bearings. The attention of this office is mainly directed toward
12
INTERNAL COMMERCE OF THE UNITED STATES.
tlie commercial and industrial aspects of the subject. The political or
constitutional questions involved are especially subjects for the consid¬
eration of the îlational Congress. A better understanding of the rela¬
tion of transportation to the public interests will undoubtedly tend to
lead railroad managers to avoid just causes of complaint, and besides
lead the people generally to more correct views as to the relations of
the railroads to the commercial and industrial interests of the country.
It is a source of encouragement that at the present time, intelligent
and fair-minded men who differ widely as to the nature and extent of
the controlling and restraining influence which should be exercised by
State and national governments, agree that there should be no unfair
discriminations in rates, either with respect to persons, or to localities,
that rates should be open and equal to all under like conditions ; and
also that any governmental regulations which may be established, shall
be, both protective of the public interests, and jnst to the proprietors
of railroads.
Under the present system of corporate ownership the railroads sustain
peculiar relations to each other and to the public. The laws of compe¬
tition and of supply and demand, in their unrestrained action, so operate
as to regulate rates on free highways, but they fail to regulate the
freight charges imposed on railroads. It is reasonable to assume that
beneficial legislation upon this subject may possibly be had, if based upon
a clear understanding of the subject in all its economic, commercial, and
political bearings. The intelligence and temper of the people of this
country will require, however, that any exercise of governmental au¬
thority which may be authorized shall at all times be directly account¬
able to the people, and that it shall be surrounded by such restraints
as will prevent the intemperate exercise of such power.
A clear understanding of the whole subject of the relations of the
railroads to the public interests will undoubtedly have the effect of re¬
ducing to the minimum the necessity for remedial legislation, and this
will be in accordance with that frugality in the exercise of governmental
power which is of the very essence of our political institutions.
EAILEOAD COXFEDEEATIONS OE POOLIEG OEGANIZA-
TIOES.*
Eailroad confederations or pooling organizations now constitute one
of the most important agencies in the conduct of the internal commerce
of the United States. During the last four years they have commanded
a large share of public attention. It appears to be proper, therefore, to
give to them a somewhat careful consideration in this report.
Notwithstanding the fact that the establishment and management of
these organizations have been marked by frequent and sharp revolts
*The printing of this reiiort having been rlolayed seVeral months after it was first
sent to the printer, the opportunity thus aftbrdefi has been taken in preparing this
article in regard to railroad confederations or pooling organizations.
INTERNAL COMMERCE OF THE UNITED STATES.
13
and by much frictional resistance, and that public sentiment is far from
according to them a full approval, yet the progress which they have
made, and the degree of favor with which they are now generally
regarded among railroad managers, seem to render it proper to regard
them as a phase—^perhaps the most important one—in the evolution of
the railroad system of the United States. In the report of this office on
internal commerce for the year 1879 the several railroad confederations
or pooling organizations of the country were described somewhat at
length.
The following notice of their operations is intended to be merely de¬
scriptive.
The fundamental object of such confederations is to establish over
their constituent members a sort of government, having general juris¬
diction with respect, first, to the pooling or apportionment of traffic;
second, to the establishment of the rates which shall be charged for the
carriage of goods of the various classes and the maintenance of such
rates ; third, to the rendering of such returns, either to each other or to
a joint agent, as may be necessary, in order that the managers of each
railroad may know what amount of traffic competing railroads are car¬
rying; fourth, to the determination of the route which traffic shall take
from the point of shipment to the point of destination; fifth, to the
division or pro-rating of rates over the several roads on which freight is
carried, in each case of joint service; and, sixth, to the estabhshment
and maintenance of a uniform classification of rates. The conduct of
railroad confederations also embraces many other matters arising in the
detail of railroad management.
In the absence of united action on the part of railroads with respect
to the classification of freights, the maintenance of rates, and many
other matters of mutual interest, each road is a law unto itself. This
gives rise to many misunderstandings and to much confusion, affecting
adversely the interests both of the railroads and of shippers. The
actual pooling or division of traffic, or of receipts from traffic, although
frequently resorted to at important centers of trade, is found at many
competing points to be unnecessary, the rival railroads being willing to
accept results as to the receipts from traffic at such points, under agreed
rates. Notwithstanding this fact, and although railroad confederations
subserve important purposes other than the pooling of traffic, yet, in all
cases, either a formal or an informal understanding as to thé share of
the competitive traffic which each road shall carry, is the most important
feature of these organizations, and their real bond of union.
Under certain of these confederations the apportionment is effected
by a division of the tonnage transported, and under others by a division
of the receipts from traffic.
The public interest in these organizations has recently been revived
by the "war of rates" which began about July 1, and is now (October
25, 1881) being waged among the railroads connecting the Western
14
INTERNAL COMMERCE OP THE UNITED STATES.
and Northwestern States with the Atlantic seaboard States north of the
State of Virginia. The fact that this conflict has disturbed the com¬
mercial, industrial, and financial interests of the country furnishes an
additional reason for the presentation in this report of a somewhat elab¬
orate statement in regard to the compact of pooling, the circumstances
which gave rise to it as an expedient for settling diiferences between
railroads, and the purposes which thus far it has subserved.
A railroad freight pool is simply an agreement that, at competing
points, the several contestants for traffic shall be allowed a certain per¬
centage of it, or of the receipts therefrom, to be determined either by
arbitration or by a convention of the representatives of all the compet¬
ing roads." When such an agreement is faithfully observed, it is found
to be comparatively an easy matter to decide as to the rates which
shall be charged and to maintain them.
Many of the railroad companies have entered into pooling agreements
reluctantly. The consideration which has led them to the sacrifice
of their independence with respect to competitive traffic has been a
knowledge of the losses sustained during competitive warfare, and the
fact demonstrated by experience that the net receipts from traffic, at
rates maintained under a pooling agreement, are invariably larger than
can possibly be secured, even on a much larger traffic, at the lower
rates which usually prevail in the absence of such united action, and
especially during wars of rates. It is found also, that when acting con¬
jointly, the railroad companies are able to effect large savings of ex¬
pense through economies practiced in the handling of freight, and in the
employment of cars, locomotives, and train hands.
There is another consideration which has in many cases tended to
lead railroad managers to recognize the expediency of pooling arrange¬
ments, namely, the fact developed by experience that whether at peace
or at war the proportion of the competitive traffic actually secured by
each road'has for years remained about the same. In other words, each
road secures, in any event, about that proportion of the competitive
traffic to which its facilities entitle it. One of the principal causes of
this is that in most cases commercial conditions exert a stronger influ¬
ence toward determining the amount of traffic which can be secured by
each line than do even considerable differences in freight charges.
Early in the history of railroad transportation it was,supposed that
freight charges would in all cases be determined by the natural work¬
ings of the law of supply and demand. But the fallacy of that idea has
been demonstrated time and again both in this country and in Europe.
The practical workings of corporate ownership, the physical character¬
istics of railroads as highways of commerce, their relations to each
other in the conduct of competitive traffic, and certain external circum¬
stances forbid that railroad freight charges should be determined in that
way. As the railroad system of the country became extended, as roads
which had been operated separately were consolidated into great systems '
INTERNAL COMMERCE OF THE UNITED STATES.
15
under one general management, and as improvements, obviating trans¬
fers, delays, &c., were made, whereby the possibilities of the railroad as a
highway of commerce were greatly enlarged, the difficulties of determin¬
ing the value of transportation services, or in other words, of establishing
and maintaining rates, rapidly increased. W ars of ra tes prevailed exten¬
sively, and during these contests receipts from traffic were greatly re¬
duced. Many railroads were seriously embarrassed, and many others
were driven into bankruptcy. The whole difficulty arose from the fact
that none of the competitors was satisfied with the share of the competi¬
tive traffic which it secured. At last it became apparent to the rival com¬
panies that they must have recourse to some expedient in order to pro¬
tect themselves against themselves.
But the evils resulting from wars of rates were not confined to the
railroad companies. The public interests also thereby greatly suffered.
Loud and bitter complaints arose on account of the unjust discrimin¬
ations made by the relative differences between the low "through" or
competitive rates and the comparatively high "local" or non-competi¬
tive rates. Besides no shipper knew on one day what rates would pre¬
vail on the next, nor did he know what his competitor in trade was pay¬
ing for transportation services.
A more serious result, however, of the wildly fluctuating freight
charges which prevailed during wars of rates, arose from the fact that
glaring discriminations were made as between different localities and
trade centres. Thus, trade and industry became demoralized as the
result of uncertainties which neither the merchant nor the manufacturer
could foresee, and against which they could not provide.
The practical working of unrestricted competition as between the rail¬
roads connecting the western and northwestern States with the Atlan¬
tic seaboard was about as follows : on each main route of transportation
co-operative freight lines were organized for the conduct of competitive
traffic, each one of these lines employing soliciting agents at many points.
The several roads also employed, at all important points, local soliciting
agents, other than those connected with the co-operative lines. Occa¬
sionally the general freight agents, or other officers having the manage¬
ment of the freight traffic of the rival roads would meet together and
agree as to the rates which should prevail ; but the difficulties inherent
in the system of railroad transportation, sooner or later, rendered null
and void all such arrangements. Whenever an agreement as to the
maintenance of rates was entered into, there seemed always to be a men¬
tal reservation on the part of the representative of each road, that his
observance of the agreed rate, was conditioned upon the fact, that his
road was to secure the share of trafiic to which he believed it to be en¬
titled, at each competing point. It turned out, therefore, almost invari¬
ably, that soon after such agreements were made, the soliciting agents
of one or more of the competing lines would resort to the cutting of
rates, in order to make up the deficiency in his share of the traiflc, in
16
lííTEENAL COMMERCE OF THE UNITED STATES.
consequence of representations, either true or false, made by shippers
to the effect that offers of cut rates had been made to them by the
agents of competing lines. This was a constant source of demoraliza¬
tion. It, however, constituted a phase of the practical workings of cor¬
porate ownership and management of railroads. Mr. Albert Fink, com¬
missioner of the great east-and-west railroad confederation, describes
the manner in which, by the practical abrogation of their authority, the
proprietors of railroads lost the power of determining what they should
receive for the services rendered by them to the pnblic:
The stockholders iu the first place surrender their control to a hoard of directors ;
the hoard of directors surrender it to the president ; the president surrenders it to a
general manager, who in turn surrenders it to the general freight agents of his own
and a great number of other roads, who again surrender it to a large number of solicit¬
ing agents, and finally these soliciting agents surrender it to the shippers. The ship¬
pers practically make their own rates. The result is confusion and demoralization of
traffic, and no end to unjust discriminations between shippers and localities.
The foregoing constitutes a striking commentary upon the practical
workings of railroad management in the United States, as well as upon
the peculiarities of the railroad as a highway of commerce. At the
same time it points to the reason why the laws of competition and of
supxtly and demand do not generally so operate as to determine the
value of transportation services performed by railroad companies.
The situation of the railroads with respect to so-called competitive
traffic was described in the following language, in the last report of this
office on internal commerce :
During railroad wars the general freight agents, or other executive officers, upon
whom x>roperly devolves the matter of determining rates, invariably remit their au¬
thority to a great number of soliciting agents and local freight agents widely scattered
in all parts of the country ; the only order promulgated for their guidance at such
times being to make any rate which may be found necessary in order to secure traffic.
Although this method of procedure is obviously in the face of good administration, of
order and of economy, it is found to be an unavoidable feature of a war of rates. Dur¬
ing these struggles success waits upon intrigue and false representations. The freight
agents deceive the merchants, and the merchants deceive the freight agents.
For several years prior to the inauguration of pooling arrangements the railroad
transportation interests of the country ran at loose ends. The contest, being carried
on independently of leadership and without method, lost the name of competition and
ended in demoralization. It appears hardly necessary to observe that such a contest,
involving results in the highest degree detrimental to the interests of productive
iudustry, of commerce, and of transportation, had in it none of those conservative
elements of legitimate competition which attach to ownership and to personal responsi¬
bility for results.
Exx)erience, both iu this country and in several of the countries of Europe, seems to
have clearly proved that the great beneficent law of competition fails to secure a proper
adjustment of rates between rival railroads or combinations of railroads, struggling
for a share of the traffic between common points. This appears to be a direct result
of tho.se x)eculiaritics of the railroad as a highway of commerce which forbid that it
should become, in the ordinary sense, a free highway. The necessity for some sort of
restraint upon a competition which uniformly degenerates into demoralization, has
therefore foixcd itself upon the attention both of railroad managers and of those who
view the matter iu the light of the public interests.
INTEENAL COMMEECE OF THE UNITED STATES.
17
The evils which produced a general feeling of discontent and of animosity against
the railroads were not accidental or abnormal, but inherent in the existing system of
railroad management. A radical remedy was therefore needed.
An analogy to unrestricted competition between railroads would be
presented if all the dealers in a particular line of goods were simultane¬
ously to take tbeir departure to a foreign land, each one of them upon
the eve of departure charging his general manager, clerks, and soliciting
agents, in all parts of the country, to hold their share of the trade at
all points, and at any sacrifice which might be necessary in order to
secure that result, and besides, to divert as much as possible from com¬
peting traders. The subordinates of the several establishments, being
thus relieved from all responsibility for results, it is easy to apprehend
that not long after the departure of the principals a war of prices would
ensue, and that bankruptcy would probably follow in some cases. The
general managers of the various establishments.might have recourse to
an agreement as to the proportion of business which each establishment
should hold throughout the entire domain of their contested trade, or,
in other words, agree to pool their business. In this way there might
be a strict compliance with the orders of the principals as to the share
of the business secured and at the same time remunerative prices be
maintained. All the difficulties in the supposed case, as in that of
railroad competition, would be directly traceable to the fact that the
conduct of a competitive business had ceased to be directly amenable
to that tact and caution which attach to ownership and to personal
responsibility for results.
But the proprietors of railroads are always abroad.^ and in an intensi¬
fied degree are they abroad when the rate-making power slips from the
hands of general managers, and is remitted to the discretion, or the
caprice, of a large number of irresponsible soliciting freight agents,
widely scattered in various parts of the country, all of them being to¬
tally irresponsible for results, and liable at all times to be influenced by
the representations of shippers as to offers made them by rival roads,
and by every floating rumor as to the " cutting" of rates.
Such is a railroad war of rates, iu all of its absurdities and vicious
tendencies. The records of current history seem, however, to prove
that it is an unavoidable incident of unrestricted railroad competition
in the United States.
Causes of the failure of the laws of supply and demand, and of competition, to
regulate freight charges on railroads, as on free highways of commerce.
The differences which arise in the conduct of trade, and in trausporta-
tion on free highways of commerce where competition exerts a regulative
influence, may be regarded as being in the nature of frictional resist¬
ances, resulting from the interaction of rival interests; but the strug¬
gles between competing railroads seem to be conflicts of opposing forces.
On free highways where competition operates as a regulative principle,
2 ST
18
INTERNAL COMMERCE OF THE UNITED STATES.
the public interests are by this means conserved, but in the case of such
îompetition as exists between railroads at the present day, the struggles
which ensue appear to be destructive merely, and to work injury alone.
That the laws of supply and demand and of free competition do not
so operate as to regulate rates on railroads, appears to be attributable
to the practical workings of corporate ownership, to the fact that the
railroads of the United States constitute a highly organized and exceed¬
ingly complex system of transportation, to the fact that the relations of
the various companies toward one another as transporters differ, widely
from the relations which are sustained toward one another by the com¬
peting carriers on natural navigable waters, and on other/ree highways
of commerce, and to the peculiarities of the railroad as a public high¬
way, reference being had especially to the fact that the railroad is an
avenue of commerce, the pathway of which is no wider than the wheel
of the vehicle which moves upon it. This mechanical characteristic of
railroads has rendered it necessary that the roadway itself, and all the
vehicles upon it, shall be placed under the control of one central au¬
thority. In consequence of this characteristic it has been found entirely
impracticable that a railroad should become in the ordinary sense a
"free" highway of commerce.
But the apparent failure of competition, and of the law of supply and
demand, as regulative principles in the matter of freight charges on
railroads, is, perhaps, more than to any other cause, traceable to the
fact that where two railroads compete for traffic between common points,
they almost invariably come to some sort of agreement as to the rates
which shall prevail between such points. This is found to be necessary for
self-protection. Agreements of the sort just mentioned have character¬
ized railroad management from the earliest history of railroad construc¬
tion, both in this country and in Europe; and the policy has been pur¬
sued,, not only where railroads act independently, but also where their
operations are subject to governmental restraint. In fact, such agree¬
ments have been enforced in this country under the provisions of law.
The legitimacy of such agreements appears, therefore, to be excluded
from the field of discussion, since custom has established the fact that
they constitute a natural and necessary attitude of the railroads towards
one another. The pooling of traffic is a logical sequence of this fact.
Whenever one of two competing roads between common points per¬
sistently refuses to enter into any sort of agreement as to rates, its
action is generally found to be based upon a determination either to
gras¡) all of the competitive traffic, or else, to grasp the competing road.
In either case, competition is not promoted, but eliminated.
The facts just stated touching agreements between competing rail¬
roads as to rates constitute a radical difference in the relations to the
public interests sustained by railroads and by free highways. Competi¬
tion between common carriers on free highways and the law of supply
and demand have, from time immemorial, been regarded as the natural
INTERNAL COMMERCE OF THE UNITED STATES. 19
and adequate regulative priuciples with respect to freight charges. An
agreement as to the establishment and maintenance of rates among any
number of carriers on a free highway of commerce does not, of course,
preclude the possibility of competition upon such highway ; but the case
is different with respect to the establishment and maintenance of rates
on competing railroads. In the latter case the agreements are not made
by individual carriers, but by the owners of the highways of commerce
themselves, together with all their organized agencies for transportation
Thus the introduction of the railroad with its vast possibilities for
the advancement of commerce, and of all the industrial and social in¬
terests of the world ran counter to the pre-existing order of things. It
would be a departure from the object of this report to pursue the con¬
sideration of this point further in the present connection.
If agreements as to the maintenance of rates had from the beginning
been faithfully observed, the management of competitive traffic would
have been a very simple matter. But such has not been the case.
Instances of bad faith, and bitter contests have at all times marked
the history of such agreements. Such breaches of faith have been due
to the infirmities of human nature, to the constant changes sustained
by railroads towards each other as the result of the consolidation of
lines, to the extension of the railroad system of the country, to the
development of the country itself, and also greatly to difficulties which
have arisen in the practical administration of those ageneies which have
been established by (he railroad companies for the conduct of competi¬
tive traffic, reference being had especially to the so called "fastfreight
lines," or co-operative freight lines with their vast corps of soliciting
agents. The pooling of traffic was simply an expedient resorted to for
the prevention of these violations of agreements as to the maintenance
of rates.
The failure of the laws of competition and of supply and demand as
regulative principles in the matter of freight charges on railroads, is
also attributable to the fact, that it is found to be necessary to the or¬
derly and proper conduct of such traffic to frame freight tariffs, and to
publicly advertise them. No such rule applies on free highways. In
fact the lack of such publicity is an essential element of the self-regula¬
tive infiuence of competition with respect to freight charges on free
highways.
The foregoing facts in regard to the wide differences which exist be¬
tween the eonditions governing competition on railroads and on free high¬
ways serve clearly to indicate that such rules as may be prescribed, either
by officers of railroads or by the Government, for the purpose of regu¬
lating freight charges on railroads, should be formulated with special
reference to the conditions governing traffic on railroads, and not to the
conditions governing traffic on free highways.
A great deal of inconsequential, and therefore unprofitable discus¬
sion, has arisen from the fact that in debating the issues involved in
20 INTERNAL COMMERCE OF THE UNITED STATES.
tlie railroad problem, the advocates of the railroad interests have gen-
erallj' had distinctly in mind only such competition as exists among
railroads, under the conditions hei'einbefore described, whereas the oppo¬
nents of the policies adopted, and of the practices pursued by the rail¬
road companies, have had in mind such competition as exists in trade,
and among individual carriers on free highways.
Notwithstanding the fact, that in the detail of the management of
traffic on railroads, comxietition has apparently been eliminated by
means of agreements as to rates, and by pooling arrangements, yet,
as has already been shown, under these, and all other conditions sur¬
rounding the railroads of the country, rates have steadily fallen, rail¬
roads have been extended, and facilities have been afforded, which
present to the productive, and industrial, and commercial interests of
the country liossibilities never before realized. Such reductions of
freight charges have, however, been mainly the result of the operation
of competitive forces beyond the control of pooling, and to which aU
pooling organizations must defer.
The practical workings of railroad confederations.
lu the course of time it was realized that railroad wars, and the evñs
to which they lead, are but incidents in the natural evolution of the rail¬
road system. From these contests, and their resulting evils, both the
public and the proprietors of railroads demanded relief. But the views of
the various parties in interest differed widely as to what should be done.
No exxiedient for the prevention of wars of rates has been provided by
any legislative body in this country, and it is perhaps safe to say that
no measure having this object distinctly in view, has ever been proposed
by any person who regards the subject of transportation solely in thé
light of the public interests. The only expedient which has been pro¬
posed or adopted for the prevention of these contests, is the pooling or
apportionment of traffic, an expedient resorted to by the managers of
railroads for the protection of the interests over which they preside.
That expedient is, and probably will, for a time at least, continue to be
held ui) to public judgment, for the determination of the question as to
whether its methods and practical workings are, or are not mimical to
the public interests. The pooling of traffic has, as already stated, se¬
cured a certain degree of i)ublic favor from the fact that where honestly
and effectively carried out, it has proved to be instrumental in arresting
the evils of violently fluctuating rates without previous notice to ship¬
pers, in putting a stop to that vicious form of discrimination—special
rates to favored shippers, usually the largest shippers—and in greatly
reducing that most objectionable of all practices, discrimination against
commercial and industrial towns and cities, and against States and
localities. The fact, however, that pooling subserves these very im¬
portant purposes is not, of course, conclusive of the question as to
whether such compacts are, or are not, on the whole, beneficial and pro-
INTERNAL COMMERCE OF THE UNITED STATES. 2L
motive of the public interests, since even policies, which are essentially
vicious, may be incidentally productive of good results.
But recent events have somewhat shaken public faith in the perma¬
nency and reliability of pooling arrangements as a means of settling
disputes between rival railroad companies. After four years of appar¬
ently successful working, the most important, and one of the most ably
administered railroad confederations of the country, has suddenly been
stricken with impotency. Its controlling power has been lost, and the
benefits which it conferred are apparently forgotten. Beference is of
course had to the difficulties into which that duplex organization, known
as the "trunk line committee" and the "joint executive committee" has
recently fallen. The former committee consists of the presidents of the
New York Central and Hudson Eiver Eailroad, the New York, Lake
Erie and Western Eailroad, the Pennsylvania Eailroad, and the Balti¬
more and Ohio Eailroad. The membership of the "joint executive com¬
mittee" consists of representatives of the following railroads, embracing
the four trunk lines above mentioned: Baltimore and Ohio Eailroad ;
Boston and Albany Eailroad, B. H. T. and Western Eailway, Cairo and
Vincennes Eailroad, Canada Southern Eailroad, Central Vermont Eail¬
road, Chicago and Alton Eailroad, Chicago and Grand Trunk Eailroad,
Chicago, Burlington and Quincy Eailroad, Cincinnati, Hamilton and Day-
ton Eailroad, Cincinnati, Indianapolis, Saint Louis and Chicago Eailroad,
Cleveland, Columbus, Cincinnati and Indianapolis Eailro ad, Detroit, Lan¬
sing andNorthern Eailroad, Evansville and Terre Haute Eailroad, Evaus-
ville. Terre Haute and Chicago Eailroad, Eitchburg Eailroad, Grand Trunk
Eailroad, Grand Eapidsand Indianapolis Eailroad, Great Western Eail¬
road Illinois Midland Eailroad, Indianapolis and Saint Louis Eailroad,
Indianapolis, Bloomington and Western Eailroad, Lake Erie and Western
Eailroad, Lake Shore and Michigan Southern Eailroad, Louisville and
Nashville Eailroad, Louisville, Cincinnati and Lexington Eailroad,
Marietta and Cincinnati Eailroad, Michigan Central Eailroad, New York
and New England Eailroad, New York Central and Hudson Eiver Eail¬
road, New York, Lake Erie and Western Eailroad, New York, Penn¬
sylvania and Ohio Eailroad, Ohio and Mississippi Eailroad, Pennsyl¬
vania Company, Pennsylvania Eailroad, Peoria, Decatur and Evansville
Eailroad, Peoria, Pekin and Jacksonville Eailroad, Philadelphia, Wil¬
mington and Baltimore Eailroad, Pittsburgh, Cincinnati and Saint Louis
Eailroad, Toledo, Peoria and Wabash Eailroad, Troy and Boston Eail¬
road, Vandalia Line, Wabash, Saint Louis and Pacific Eailroad.
The joint executive committee has the control of the east-bound traffic,
while the trunk line comm ittee has control of the west bound traffic
Mr. Albert Fink occupies the position of chairman of the former com¬
mittee, and of commissioner for the administration of the affairs of the
latter committee.
As the four eastern trunk lines constitute between 70 and 80 per cent, of
the entire interests represented in the joint executive committee, the
22
INTERNAL COMMERCE OF THE UNITED STATES.
authority of the trunk line committee is of course very great. No agree¬
ment can be carried into eäect without its consent.
During the months of July, August, September, and October, 1881,
a war of rates of almost unparalleled severity, with respect both to
freight and passenger traffic, and embracing alike east-bound and west¬
bound traffic, has been waged between the rival roads composing this
heretofore powerful and far-reaching organization. Through-passenger
fares have been reduced to about one-fourth the usual rate charged, and
through freight rates have been reduced in some instances to about
mills per ton per mile, which is considerably less than the actual aver¬
age cost of transportation. A year ago the current all-rail rate on wheat
from Chicago to New York was 30 cents per ICQ pounds, or 18 cents per
bushel, but under the "war rates" prevailing at the present time, it has
fallen to 15 cents per 100 pounds, or 9 cents per bushel.* This sharp
contest among the railroads has caused a corresponding fall of lake and
canal rates on grain from 10| cents per bushel a year ago to about 7 cents
at the present time.
In the absence of any legal or governmental restraint against the vio¬
lation of the agreements as to rates, faith in the integrity and the practi¬
cal judgment of the commissioner or administrative officer appears to be
the only recourse from the general suspicion and spirit of rivalry which
exist between the difí'erent roads.
The difficulties with respect to the conduct of east-bound traffic ap¬
pear to have been the most serious and longest continued. Prior to the
organization of the joint executive committee several abortive attempts
had been made to control east-bound traffic by pooling. The reason why
it is so much more difficult to control east-bound than west-bound traffic
arises from the fact that there are so many more shipping points of east-
bound than of west-bound traffic, and also from the fact that in the con¬
duct of east-bound traffic there are so many more shipping roads which
exercise the right of directing the route of traffic.
Serious difficulties had also for some time been gathering in regard to
west-bound traffic, which is controlled by the eastern trunk line com¬
mittee. Prior to the present railroad war the prevailing rates from
New York to Chicago were as follows : Pirst class freights, 75 cents per
100 pounds; second class freights, 60 cents per 100 pounds; third class
freights, 50 cents per 100 pounds; fourth class freights, 40 cents per
100 pounds. Disturbances arose in consequence of certain agents, pre¬
sumably soliciting or contracting agents, having undertaken to make
contracts, for specified periods, at rates much below the tariff rates.
Eepeated elibrts were made, by resolutiou of the committee and other¬
wise, to arrest the growing trouble, but all such efforts were unavailing.
Pinally the commissioner announced under date of August 6, 1881, a
general reduction in west-bound rates from New York to Chicago, the
"Even lowci-rates than these have heen quoted. It is impossible to procure data
as to special rates to la vored shippers at such times.
INTERNAL COMMERCE OF THE UNITED STATES. 23
new rates to be as follows : First class freights, 45 cents iier 100 pounds;
second class freights, 32 cents per 100 pounds; third class freights, 20
cents per 100 pounds ; and fourth class freights, 19 cents per 100 pounds.
It was hoped that by thus reducing all rates to as low a point as had
probably been reached under any special rates, that there might be a
general concurrence as to the restoration of rates. As yet, however
(October 15, 1881), this effort has been unsuccessful. It is also stated
that in making this reduction of rates, the commissioner had in mind
the object of preventing discriminations among shippers, through the
granting of special rates.
It is estimated that the reduction in railroad receipts due to the fall
in rates since the present contest began, would, if continued during one
year, amount to $12,549,000.* As this amount represents 6 per cent, in¬
terest on $209,150,000, it is easy to api)reciate the damage which would be
inflicted upon the railroad interests of the country, through the disturb¬
ance which would inevitably follow the destruction or any considerable
depreciation of so large an amount of property.
There are no available means for estimating the diminution of receipts
resulting from the fall of passenger rates to about one-third of the rates
which had prevailed for several years prior to this contest.
This war of rates, like all other contests of the same character, has
already proved to be detrimental to the interests not only of the radroad
companies engaged in it, but also detrimental to the commerce and to
the productive industries of the country, by introducing uncertainty as
to the rates from day to day, reviving the practice of granting special
rates to favored shippers, and of making unjust discriminations as
between localities. At such times the vast interests of trade and in¬
dustry are made the foot-ball of personal rivalries between contending
railroad managers.
A serious evil, resulting from such destruction of values in railroad
property as that just indicated, arises from the fact that thereby many
of the weaker lines are liable to be driven into bankruptcy and finally
absorbed by the stronger lines. Thus competition between railroads
is reduced, and the power of making rates falls into fewer hands. No
argument appears to be necessary in order to prove that any contest
which would lead to the absorption of one of the great trunk lines by a
rival company would be a public calamity, since each one of these lines
is, in its various tralflc interests, identifled with and subserves the inter¬
ests of separate commercial and industrial communities.
Apprehending that difficulties might grow out of the lack of co-oper¬
ation, especially in regard to the imperfectly organized east-bound traffic,
the joint executive committee, on the Ilth of March, 1881, adopted a
series of resolutions, embracing the withdrawal of all power and autbor-
ity from subordinate officers and line agents to vary from established
rates, and conferring upon the commissioner, who is the chief execu-
* Estimate of Mr. Joliu W. Garrett, president of tlie Baltimore and Ohio Railroad.
24
INTEENAL COMMEECE OF THE TESTITED STATES.
tive officer, the extreme power of suspending pro-rating and through-
billing with any road which might prove to have offended. In case
these measures should not be found effective and the cutting of rates
should continue, it was resolved, that after consultation with the trunk
line committee, the commissioner might give notice of such reduction in
the tariff charges throughout the territory controlled by the roads of the
joint executive committee as would meet the lowest cut rates of any one
road. It was hoped, by the adoption of this war measure, to preserve
the organization in its integrity. But even this expedient failed. Dis¬
satisfaction and distrust continued to spread, and at last the cutting of
rates was participated in even by the great trunk lines. Of course co¬
operative action then ceased.
The determination of the question as to who is chiefly to blame for the
present war of rates is, of course, one which deeply concerns the man¬
agers of all the railroads represented in the joint executive committee,
as well as those upon whom devolves the direction of the affairs of the
association.
Viewing pooling arrangements, however, in their organic character¬
istics, and from the standpoint of the public interest, it appears to be
certain that so long as their existence has no legal sanction, and their
edicts no binding authority under the laws of the land, they occupy a
position of unstable equilibrium, since they are at all times liable to dis¬
ruption as the result of changes in the conditions under which they are
organized, and even as the result of changes of opinion on the part of
the chief executive of any one of their constituent members, as to the
advantages which the organization affords to his particular road. Un¬
der the present order of things the disturbances in the commercial, in¬
dustrial, and flnancial interests of the country resulting from railroad
wars do not in anj- great degree influence the conduct of those who pre¬
cipitate them.
It ai)pears evident, therefore, that before railroad confederations ac¬
quire stability, they must have the prop of some external power, since
not even any moral restraint ever tends to lead any member of such an
organization to heed the opinions of any one, or even of all of its com¬
petitors.
The inherent weakness of pooling agreements was set forth, and the
probability of their instability was foreshadowed in the report of this
office on internal commerce for 1879, as follows :
Agreements as to the pooling or apportionment of traiSc are based upon the relative
amount of traffic which each company may have been able to secure during a period
of warfare, and upon a careful estimate of the present ability of the several companies
to secure traffic.
Apporlionmeiit schemes are therefore liable to disruption as the result of changes
materially affecting the relation of the several constituent lines to each other. But
such changes are constantly taking place as the result of the development of local or
through traffic, tlio construction of new roads, the formation of new combinations and
agree.ments, and many other circumstances affecting their internal conditions and
external relations.
INTERNAL COMMERCE GE THE UNITED STATES.
25
Changes such as those referred to have taheu place within the four
years of the existence of the trunk line committee, and even within the
two years of the existence of the joint executive committee. The four
trunk lines have, In different degrees, enlarged their facilities for doing
business. New lines have also been and are being constructed which.
In different degrees, compete with the trunk lines. Among these new
lines may be mentioned the extension of the Delaware, Lackawanna and
Western Eallroad to Buffalo, the extension of the Ontario and Western
Eailroad, and of the Boston, Doosac Tunnel and Western line. The
extension of the New York, Lake Erie and Western Eallroad Into New
England via Flshkill Is expected to be completed In October, 1881, and
the New York, Chicago and Saint Louis Eailway Is In course of con¬
struction from Buffalo to Chicago. The Chesapeake and Ohio Eallroad
will also. In the course of a few months, secure a direct rail connec¬
tion to Cincinnati and Louisville, Its extension to Newport News on
Hampton Eoads, Ya., having already been completed. These and other
railroad connections In course of construction will give rise to new claims
for a share of the great east-and-west traffic and of course tend to
change the basis upon which traffic has heretofore been divided. Thus
new complications will be added to the difficulties already existing.
In anticipation of the disintegrating Inffuences of^ such changes of
conditions with respect to the relative ability of the several competitors
to secure and to transport traffic, the joint executive committee appointed
a board of arbitration composed of three gentlemen, selected with special
reference to their fitness for passing upon such questions, and tlius of
avoiding the necessity of resorting to hostile measures In the readjust¬
ment of the several shares of the traffic. But this expedient, like all
other measures embraced In the organic features of the joint executive
committee, has been blown to the winds. Disregarding peaceful arbitra¬
tion, some of the contestants have decided to submit their claims to the
arbitrament of a war of rates.
In so far as can now be seen, occasional wars of rates appear, under
the;exlstlng order of things, to be an unavoidable Incident to the read¬
justments which become necessary under such changes of conditions as
those just alluded to.
One of the chief obstacles to the permanency of apportionment schemes
has arisen from the fact that In the conduct of through traffic between
the Western and Northwestern States and the Atlantic seaboard, the
road upon which shipments are made, has, from the very beginning,
claimed, and has been accorded, the right to make through rates over
all connecting roads to the destination of freight, the only agreement
existing between the co-operating roads relating to the share of the total
charge for transportation which shall be awarded to each road, what¬
ever that charge may be, and not to the amount of the charge. This
exercise of the right to make through rates Is a direct result of the power
held by each road to determine the course of through shipments made
upon It.
26 INTERNAL COMMERCE OF THE UNITED STATES. ^
As tlie first principle in tlie practical management of tlie freight trafiao
of railroads is to secure traffic, and the second to secure for it the best
possible paying rates, this rate-making power exercised by all the roads
not only over their own lines, but over the lines of connecting roads,
has led to many complications. It is easy to see, therefore, that after
the practice of allowing the shipping road to determine both the course
of traffic and the rates upon it had, by prescription, become a sort of
common law among railroads, it was an exceedingly difficult matter to
substitute for that practice, at once, and over a vast extent of territory,
the edict of a central organization, and thus to merge the individuality
of each road, with all its agencies, instrumentalities, and alliances for
the conduct of competitive warfare, into a sort of copartnership arrange¬
ment, in which the amount of traffic which each road should carry was
to be definitely determined in advance by that organization.
One of the causes of the present war of rates is stated to be that rep¬
resentatives of the trunk lines or agents of the fast freight lines located
in the East, in violation of the time-honored rule of allowing the ship¬
ping road to make the rate, assumed to make contracts for large lots of
freight from the West, without consulting the managers or representa¬
tives of the Western roads. The action referred to appears to have ex¬
cited general discontent among the managers of railroads at the West.
Aside from the inherent difficulties hereinbefore referred to, the fail¬
ure—believed to be but temporary, and a necessary step to reorganiza¬
tion—of the pooling of East and West railroad traffic, is largely attribu¬
table to the fact that the plan of the organization was never fully carried
into effect. The chairman of the joint executive committee has ijublicly
stated that, with respect to the east-bound competitive traffic—which
greatly exceeds the west-bound,—"only one-twentieth has ever been
apportioned." He further states that the abuse of allowing soliciting
agents to make rates in the old demoralizing way, upon the representa¬
tions of shippers, has never been corrected, but has had full play. Hot
only do these soliciting agents "cut" agreed rates, but they also make
special contracts with shippers, for months in advance, as to the rates
for which they shall be allowed to ship goods. The joint executive com¬
mittee has thus far been powerless to control these men. The difficul¬
ties which surround all pooling agreements appear, therefore, in the case
under consideration, to have been aggravated by an attempt to carry on
simultaneously the policy of pooling, and the policy of unrestricted com¬
petitive warfare. It has been aptly observed in a public journal that
the present condition of affairs is not "so much the result of a failure
of the pooling system, as of a failure to adopt that system." Such fail¬
ure vitiated the agreements as to the pooling of west-bound, as well as
of east-bound traffic.
In view of all that had taken place, Mr. Fink, the general commissioner,
declared before the joint executive committee, at a meeting held in Hew
York on the 10th of August, that a radical change must be made in the
INTERNAL .COMMERCE OF THE UNITED STATES.
27
methods of doing business. He recommended the abolition of soliciting
agents, the concentration of the rate making power in the hands of fewer
persons who should be held responsible to the committee for any viola¬
tion of agreement, and a division or pooling of traffic at all competitive
points, and over all the lines upon which the traffic can be passed Irom
the place of shipment to its destination. He also asserted that unless
such measures were adopted it would be useless to make any further
attempt to control competitive traffic.
Besides, the general commissioner asserts his abiding faith in the
efficacy of pooling arrangements, .not only as a means of protecting
railroad interests, but also as an expedient for conserving the public
interest in commerce, in transportation, and in the various industrial
pursuits. Eecently he has said :
WRen tRo people understand tRe suRject Retter, tRey will eitRer Ry tRe force of
puRlic opinion, or tRrougR local enactments, compel railroad managers to work tRe
railroads of tRis country in Rarmony witR eacR otRer and prevent selfisR railroad com¬
panies from endeavoring to gain some advantage over eacR otRer, and from standing
in tRe way of tRe proper management of tRe roads in tRe interest of tRe puRlic.
The opponents of pooling on the other hand, declare that during its
prevalence, rates are, at least in certain cases, unnecessarily high. Be¬
sides they urge that such a tremendous power over the commercial and
industrial interests of the country cannot safely be entrusted to the
railroad companies. These, and other objections to pooling arrange¬
ments present issues which must be met by the advocates of the system.
In so far as relates to the public interests, other than those pertaining
to the railroad companies, it is impossible at present to pass final judg¬
ment upon pooling organizations. As yet they are tentative, and upon
probation. Their beneficent features, or to speak more precisely, the fact
that they tend to avert certain intolerable evils, and that there is no
other known or immediately available instrnmentality for effecting that
object, commend them to toleration, and to a degree of public favor
while the experiment as to their utility is being fairly tried. But too
little is known by the public in regard to their practical workings, and
the methods employed, and the expedients resorted to in carrying them
into effect, to justify State governments, or the National government in
conferring upon them at once and unconditionally, the attributes of
legality.
Besides this a doubt justly exists as to whether, after all, pooling is
finally to become the sovereign and general remedy for all the evils
which now afflict the railroad interests of the country. It has been
aptly observed by a careful student of railroad development that the
evolution of the railroad system of the United States has been a con¬
stant succession of surprises. An expedient which to-day may have
the appearence of being a solution of existing difficulties, may prove to
be entirely inadequate to meet important issues arising a year or two
hence. While it is impossible, therefore, to forecast the future, it seems
proper here to allude to the fact that railroad construction in this conn-
28 INTERNAL COMMERCE OF THE UNITED STATES.
try, at the present time, seems to be mainly for the purpose of subserv¬
ing the interests of particular cities, and the local interests of sections
of the country seeking the facilities of transportation to towns and
cities which constitute their most valuable markets and sources of sup¬
ply. The tendency of this appears to be largely to develop that com¬
petition between rival cities, which is not, and cannot become the sub¬
ject of direct control by the rival through Unes of transportation. In
other words, the tendency of railroad construction, at the present time,
appears to be toward the more rapid development of the local, than of
the through traffic of the country. The inference arises, therefore, that
railroad confederations must hereafter be confined more closely to dis¬
tinctive lines of traffic, having reference both to the kinds of commod¬
ities transported, and to the geographical and trade limits of such traffic.
The practicability of governmental recognition of railroad confederations for
the pooling of trafic.
It is impossible to say just now whether governmental interference
through sanctioning the expedient of pooling as a method of regulation
would or would not render that plan of settling the contests between rail¬
roads more productive of public good, than leaving them in their present
condition of dependency upon the voluntary consent of all the parties con¬
cerned in making them. Even if the correctness of the policy of pooling
traffic should finally be admitted, it will be necessary before giving gov¬
ernmental sanction to poolingorganizations, to determine important ques¬
tions as to the manner in which, and the instrumentalities through which,
pooling shall be rendered operative, and as to the conditions and limita¬
tions under which it can be beneficially and properly adopted.
Certain important questions arise in considering the propriety of en¬
forcing as matters of governmental regulation the following functions
which are now exercised by railroad confederations, and which are inci¬
dental to the adoption of the policy of pooling.
First. The determination both of the absolute and of the relative rates
which shall from time to time prevail with respect to difí'erent localities
is, in so far as relates to the public interests, an exceedingly broad and
complex question, and one the determination of which, if thrown upon
the government, would, in a thousand ways, subject it to responsibility
for the condition of the commercial interests of sections and localities, as
well as of the whole country, and in innumerable ways subject its officers
to adverse criticism, and probably also to bitter hostility.
In making rates between points at the West and the principal Atlantic
seaboard cities, the trunk-lines, wliich are tributary to Philadelphia and
Baltimore, as well as the merchants and citizens of these cities respect¬
ively, demand, on account of shorter distance, an abatement from the
rate which prevails between New York and such points at the West;
whereas the lines which are directly tributary to New York City, and
the merchants and citizens generally of that city, demand that no such
allowance in favor of the other cities shall be made.
I
INTERNAL COMMERCE OF THE UNITED STATES.
29
Evklently it would be an exceedingly delicate and in practice a most
difficult matter for the general government to undertake to determine the
relative advantages which shall be accorded to rival cities, upon the basis
of distance, or upon any other grounds. Besides distance, there are
other circumstances which greatly affect the cost of transportation.
It is reported apparently upon good authority, that the chief executive
and administrative officer of the strongest of the east-and-west trunk lines
has declared his dissatisfaction with the present basis of apportionment
on east and west traffic, and that his re-acceptanceof the edicts of the joint
executive committee must be preceded by a radical change in the propor¬
tion of the total traffic awarded respectively to the several competitors.
A change in the percentage of traffic would, however, affect not only
the interests of the several trunk lines, but it would also affect the com¬
mercial interest of the cities of Boston, Hew York, Philadelphia and
Baltimore. Evidently any decision by, or under the authority of the
national government, upon a subject of this character, would at once be¬
come a sharp political issue— an issue based, not upon any general ques¬
tion of policy in relation to which all men everywhere might differ, but a
question upon which city would be arrayed against city, and State against
State. Besides, into such a contest, various sections of the country would
probably be drawn, not by unbiased convictions of right, but by the
promptings of local and personal interest.
An example of the inconvenience of governmental determination of
rates between interior points and the seaboard may be adduced. When
rail rates are high, a large diversion of the traffic, especially of grain,
usually takes place from the east and west railroads to the lake and
Erie Canal route, and to the Mississippi Eiver, thus increasing the pro¬
portion of grain receipts at Hew York and at Hew Orleans, and tending
to decrease the receipts at Baltimore and Philadelphia, as the grain
markets of the latter cities depend entirely upon receipts by rail. Low
rail rates, on the other hand, tend to decrease the shipments of grain by
lake and canal, and by the Mississippi Eiver, and to increase the receipts
by rail, the effect being to increase the proportion of total grain receipts
at Baltimore and Philadelphia, and correspondingly to decrease the re¬
ceipts at Hew York and Hew Orleans. Any such determination of grain
rates by rail would, therefore, directly, and in an important degree, affect
the commercial interests of rival cities. Such a determination by the
national government would, as before stated, be likely to excite bitter
opposition of a local and sectional nature.
Second. The exercise by the government of the functions now per¬
formed by the railroad confederations would involve the difficulty of
compelling the government to set territorial limits to the traffic operations
of rival roads. But an apparently insuperable difficulty with respect
to the assignment of such territorial limits arises from the fact that the
lines of the various companies interlock and compete with one another
at hundreds of points, and under an almost infinite variety of conditions.
30 INTERNAL COMMERCE OF THE UNITED STATES.
with respect to the railroads and the water lines, and with respect also
to the commercial, agricultural, manufacturing, and mining interests of
the country. Another serious obstacle to the adoption of such an expe¬
dient for regulating the railroads of the United States would arise from
the impossibility of controlling the operations of Canadian railroads en¬
gaged in the transportation of both freight and passengers between
points in the United States.
In France,under governmental supervision, thecountrywasoriginally
districted among a number of railroad eompanies, which were not
allowed to compete with one another within the same territorial limits.
Great Britain has also, through the consolidation of lines, been districted
among a few great railroad companies mainly by agreements among
themselves. This affords important means of defense against the occur¬
rence of wars of rates. Such districting of territory among railroad cor¬
porations has not, however, as already stated, taken place, to any extent,
in the United States.
The nature of the difficulties which present themselves to the estab¬
lishment of territorial limits to the traffic operations of competing lines
are illustrated as follows: The Baltimore and Ohio Eailroad at the
South, and the Grand Trunk Eailroad of Canada at the Uorth, through
their respective connecting lines, compete for traffic between Boston
and Chicago with trunk-lines formed by the Hoosac Tunnel and Boston
and Albany, Uew York, Lake Erie and Western, and the Kew York
Central Eailways and their western connections; and this competition
is, and has for years been, vigorously cai-ried on, notwithstanding the
great disparity in the length of these competing lines. One of the most
vexatious questions which the trunk-line and the joint executive com¬
mittees have had to deal with, has been the setting of territorial limits
to the operations of competing lines.
Another illustration of the difficulty of setting territorial limits to
the traffic operations of rival lines may be presented. The chief execu¬
tive officer of the most powerful of the east and west trunk-railroad
combinations, the traffie interests of which are immediately allied to the
commercial interests of Uew York City, is reported to have asked the
following question during the i)ending war of rates: "What right has
the Baltimore and Ohio Eailroad to any Yew York business? It is not
a Yew York road and is not entitled to any of its business." Yet, in the
apportionment of west-bound traffie which has been in existence for
nearly four years, the Baltimore and Ohio Eailroad has been allowed
eight per cent, of the west-bound traffic of that city, and it appears alto¬
gether probable that the managers of that road will continue to demand,
and to secure a share of the traffic between Yew York and the West by
meaus of rail and water connections between Baltimore and Yew York.
In this matter, the vitally important question of railroad policy at
issue, and which has been hotly contested, is, whether railroad compa¬
nies are, or are not entitled to a share of the traffie of cities which they
INTERNAL COMMERCE OF THE UNITED STATES.
31
do not reach with their own lines. The views held by railroad man¬
agers upon this point, appear to be dictated by the bearing which the
question has upon the interests of the roads which they severally rep¬
resent.
It is unnecessary to add anything further upon this point in order to
show clearly that the assumption by the government of the duty of de¬
termining the territorial limits of the traffic operations of rival lines, or
the proportion of. the trafdc between competing points which shall be as¬
signed to rival railroads, would subject it to very grave responsibilities.
But the fact that difficulties would attend any attempts which might be
made by the government towards determining such practical questions
as those above presented, in regard to the administration of railroad
affairs is, of course, not conclusive of the whole matter as to whether
governmental authority could or could not be beneficially interposed,
since difficulties and inconveniences, perhaps as great as any of those
above alluded to, are in a greater or less degree incidental to all attempts
at governmental interference in the industrial and ordinary business
affairs of the country. The adage which has grown into a political
aphorism in this country, of " the greatest good to the greatest number,"
evidently contemplates the possibility of injury to the few. The practi¬
cal question for consideration in such cases is, therefore, whether the
advantages to be derived from governmental interference would over¬
balance the inconveniences incident to such interposition. The question
also arises, as to whether some better expedient than pooling can, or can
not be devised, in order to meet the new exigencies of commerce.
Within the last fifty years the whole course of the social, industrial,
and commercial life of the country has been changed by the introduc¬
tion of new forces, agencies, and methods. Enterprise now reaches out
toward possibilities which,'fifty years ago, were not conceived of. In
this day of enormous combinations and far-reaching policies, the ten¬
dency to organization appears to be irresistible. The necessity for the
adoption of general rules of action is incidental to this tendency.
Eadical changes have taken place in the whole course of the social,
industrial, and commercial life of the country, and such changes give rise
to the necessity for new governmental provisions and safeguards. It is,
perhaps, in the nature of things unavoidable that the State and îlational
governments should, in their methods and workings, advance to the exi¬
gencies of the new order of things in transportation and in commerce.
But the practical questions as to the nature of remedies to be aiqilied
and as to the manner in which, and the agencies through which, such
remedies shall be applied are matters which must be determined by the
law-making powers of the country.
In view of the instability which has thus far characterized pooling
organizations, and of the liability to disruption to which, as hereinbefore
shown, they are always subject, the mind is almost forced to the con¬
clusion that, when the laws of competition and of supply and demand
32 INTERNAL COMMERCE GE THE UNITED STATES.
as regulative principles in railroad competition faded to determine freight
charges, and the managers of railroads felt themselves forced to the expe¬
dient of confederation through pooling, the railroad system of the United
States entered upon a stage in the course of its development where the
magnitude and complexity of the issues involved presented difficulties
too great to be compassed by instrumentalities at the command of the
railroad companies. To the minds of some of the most thoughtful and
intelligent railroad managers and students of railroad affairs, the prop
of some external restraining influence appears now to be necessary, in
order to insure the maintenance of good faith between the different
companies, and the observance of rules which practice has proven to be
necessary to the orderly management of the railroads of the country,
both in their relations to each other and to the public. Apparently the
only available expedient of that nature is some sort of governmental
regulation or control.
It does not, however, appear to be necessary that all remedial meas¬
ures should await the result of any general determination of the ques¬
tion as to the relations of the railroads to the public interests. In
view of the evils resulting from wars of rates, it appears to be not only
desirable, but feasible, for the government to require that all rates
shall be made public, alike to all, and not changed without due public
notice. It is perhaps also advisable that a law should be passed requir¬
ing that railroad companies shall furnish cars to shippers equitably, in
proportion to orders therefor, and that no preference in facilities shall
be afforded to one shipper as against his competitor in trade. Prefer¬
ences in the matter of supplying cars and furnishing other facilities for
securing prompt and speedy transportation may prove in practice to be
discriminations quite as unjust and injurious, even, as are considerable
differences in freight charges. The enforcement of such rules as those
above indicated would undoubtedly tend to correct very many of the most
serious abuses which now exist in railroad transportation. If this much
in the way of reform could be fully secured, it would probably be a matter
of very much less difficulty to adjust differences as to the territorial limits
of the traffic operations of competing lines, the relative rates which shall
prevail over couqreting rail and water lines, and the relative rates which
shall prevail with respect to the commercial interests of rival cities.
Some of the most intelligent and advanced railroad managers of the
country incline to the opinion, that the mere observance of good faith in
what are proved to be correct practices as between the railroads, would
tend to correct almost all the abuses which exist.
All experience seems to prove that the solution of the transportation
question of the country must be evolved by the specific application of
means to ends. It cannot be spoken into being. If the government is to
lend a helping hand in bringing about an adjustment of the difficulties
which now exist it must probably come about as the result of the formu¬
lation into positive enactments of practices in the dealings of railroads
with i-ach other and with the public, proved by experience to be just,
INTERNAL COMMERCE OF THE TMITED STATES. 33
proper, and necessary for mutual protection and the advancement of
the interests of the country generally. The wisdom of such a course
of procedure appears to be proved by the fact that every method which
has been suggested of dealing with this great question, in its entirety,
appears to lead to practical difficulties as great, or perliaps greater, even,
than those which are now encountered. The law in its application to
questions touching the commercial and industrial interests of society
has been a development, and not a creation, and it is probable, therefore,
if not certain, that the settlement of the railroad question can be reached
only by a similar process.
If the present war of rates between the East and West trunk lines
should long continue, there is reason to apprehend that sectional strife
may be thereby engendered. The contest already touches upon issues
which vitally affect the commercial interests of Boston, Xew York, Phil¬
adelphia, and Baltimore, and consequently of the States of which those
cities are respectively the commercial entrepots. This fact, and many
other practical difficulties connected with the railroad transportation
question at the present time, suggest the importance of a careful inves¬
tigation of the question as to the manner in which, and the means by
which, existing evils in our railroad system may be abated.
Public attention is now confronted by these two vitally important
questions :
First. Are there evils connected with the railroad system of the United
States which injuriously affect the public interests, and are those evils
of such magnitude as to demand governmental interference?
Second. By what means can such interference be exercised without
subjecting the government to a degree of responsibility and to difficul¬
ties of an administrative nature which would more than counterbalance
the possible good results which might be expected to follow govern¬
mental interference for the purpose of correcting the evils referred to ?
The foregoing remarks, in regard to railroad confederations and their
relations to the public interests, have been dictated by a desire to pre¬
sent as fully and as clearly as possible the more important facts in rela¬
tion to the subject, and to invoke an intelligent and unbiased discussion
in regard to the whole question of the relations of the railroads to the
public interests.
Probably at no previous period in the history of the country has the
importance of an intelligent and thorough investigation, of this question
been more urgent than at the present time. In order that such an in¬
vestigation may be properly conducted and lead to practical results, it
should be conducted by a commission of experts fully competent to pass
upon such subjects as the bearing of the transportation question upon the
agricultural, industrial, and commercial interests of the country, the
economic and practical questions connected with the actual conduct of
the traffic interests of railroads, and the legal and constitutional ques¬
tions involved in the solution of this complex and difficult problem.
3 ST
34 INTERNAL COMMERCE OF THE UNITED STATES.
GOYEEXMEXTAL EEGULATI02Í OP EAILEOADS.
The qnestiou as to the manner in which, and the extent to which, the
railroads of the United States should be subjected to governmental
regulation involves not only legal and constitutional questions, but also
many questions touching the economies of trade and of transportation.
The writer of this report does not, however, deem it within his official
province, nor does he consider himself competent, with his present light
upon the subject, to suggest auy plan of legislative action relative thereto.
In compliance, however, with the terms of the law, that the reports of
this office ill regard to internal commerce shall embrace facts relative to
the railroad systems of this and of othej^ountries, it is deemed proper
to advert to the general phases of governmental regulation of railroads
in Great Britain, in connection with the consideration of certain aspects
of the same subject in the United States.
The extension of railroads in Great Britain, as in this country, has
been marked by periods of competitive warfare, the bankruptcy of many
roads, and the consolidation of lines. In that country, co-operation in the
conductof joint traffic has been quite generally practiced. Pooling has
also to a considerable extent been resorted to, for the iirevention of wars
of rates in the conduct of competitive traffic, and has gained judicial
recognition.
The British Government has not, however, like the Government of the
United States, refrained from interfering in the management of railroads
for the correction oí abuses as they have arisen in the course of the de¬
velopment of the railroad system of that country. Several parliamentary
committees have, in a very thorough manner, taken in hand the whole
question as to the relations of the railroads to the public interests. The
first of these committees was appointed in the year 1839, and included
in its membership the renowned Sir Eobert Peel. In pursuance of the
recommendations of this, and of subsequent committees, various expe¬
dients have been proposed for the prevention of exorbitant rates and
unjust discriminations in rates and fares, and for the maintenance of the
conservative elements of competition, as a regulative iirinciple in rail¬
road transportation.
The joint select committee of 1872 discarded, as regulative measures,
both the principles of equal mileage rates, and of establishing standards
for the revision of rates and fares, founded on cost and profit. They also
arrived at the conclusion that competition, as a regulative principle, had
failed to determine the value of transportation services on railroads, and
that the much dreaded amalgamation (consolidation) of railroads had
not produced the evil results expected of it. The language of the com¬
mittee in regard to competition is as follows :
It liiis bcconio more and moro evident that competition must fail to do for railways
what it does for ordinary trade, and no means Rave yet been devised by wbicb com¬
petition can bo permanently maintained.
INTERNAL COMMERCE OF THE UNITED STATES.
35
The language of the committee in regard to the effects of amalgama¬
tions is as follows :
Few cases have been adduced in which amalgamations* already effected have led to
increased fares or reduced facilities, whilst, on the other hand, there is evidence that
the most complete amalgamation which has hitherto taken place, viz, that of the
Northeastern, has been followed by a lowering of fares and rates and increase of
facilities, as well as by increased dividends. Nor can it he doubted that some of the
grievances complained of, especially in ontlying districts, such as the want of system
and power in the Welsh railways and the failure to develop tratfic on some of the Irish
railways, would find their best remedy in amalgamation.
A similar result has followed railroad consolidations in the TJnited
States. It has hereinbefore been shown that the average of all the rates
charged on fifteen leading railroads of the country, including three of
the great east and west trunk-lines and the principal railroads west ot
the Alleghany Mountains engaged in traffic between the Western and
Northwestern States and the Atlantic seaboard, has decreased 39.45 per
cent, since 1870, this reduction in railroad freight charges having been
more than three times as great as the average reduction during the same
period in the prices of twenty-two of the leading articles of commerce.
(See Appendix, page 233.)
Clearly recognizing the fact that competition as between railroad com¬
panies fails to be regulative either with respect to the interests of the
railroads or of the public generally, the British Eailway Commission of
1872 declared that one of the objects of the legislation which they pro¬
posed was "to enforce the harmonious working and development of the
present railroad and canal systems, so as to produce from them, in the
interests of the public, and at the same time of the shareholders, the
greatest amount of profitable work which they are capable of doing."
As the result of an exhaustive investigation of the subject before them,
the committee of 1872, in view of the failure of competition "to do for
railways what it does for ordinary trade," recommended the establish¬
ment of a technical tribunal endowed with powers supxiosed to be ade¬
quate to enable it to supplement the lacking regulative princixile in the
practical workings of the railroad system of Great Britain. Such a
tribunal was created by act 36 and 37, Vict., c. 48. (July 21, 1873.)
The duration of that tribunal was limited to five years. Subsequently,
by act of Parliament, it was continued for one year, and again, by act
42 and 43, Vict., chap. 56, it was continued until December 31,1882.
The three members of the commission appointed under this act are styled
Hailway Commissioners. The commission has both a judicial and an ad¬
ministrative charaeter. The act constituting it provides that it shall con¬
sist of three members, one of whom shall be experienced in the law, and
another of experience in railroad business. It is believed that the third
member has been appointed with special reference to his iiractical knowl-
• In England the word amalgamaiion is used in the same sense as the word consolida¬
tion is employed in the United States, to indicate the merging of railroad interesta, or
any means whereby the proprietors of one road acquire the control of another
OO INTEENAL COMMERCE OF THE UNITED STATES.
edge in regard to questions of public policy, and bis repntation as a
statesman.
This commission has no jurisdiction over questions relative to rem¬
edies for damages sustained, or the non-performance of contracts. It
is, however, charged with the duty of considering questions of admin¬
istrative policy, having regard to the economies of transportation, of
commerce, and of the various industries of the country.
It is also required to consider questions touching competition between
rival railroads in their relations to the roads themselves, and to the com¬
mercial and industrial interests of tbe country, and to determine such gen¬
eral questions as, what is and what is not matter of public interest, what
constitutes a grievance with respect to conveniences and accommoda¬
tions furnished by railroad companies, and what are just and jiroper
rates to be charged by them for the transportation of passengers and
freight.
In practice, the duties of the commission embrace such matters as
compelling companies to provide for continuous transport over connect¬
ing lines, seeing that books of rates and distances are kept open for
inspection at the various railroad stations, fixing the share of the through
rates which, in such cases, each road shall receive, ordering the con¬
struction of suitable station accommodations, adjusting differences
between railway and canal companies, deciding as to the relative rates
which shall prevail with respect to different places on the same line and
on different lines, the amount of terminal charges, the compensation to
be awarded to the various companies for the transportation of the mails,
and also a great variety of questions as to whether preferences in
regard to accommodations, rates, and fares are or are not justifiable.
Some of the more important of these functions of the commission had
previously been exercised by the court of common jileas.
In comparison with the exercise of the ordinary judicial and execu¬
tive functions of government, the powers of the Eailway Commission
appear to be, not only abnormal, but, to a considerable extent, autocratic.
In a coantrj', however, where public sentiment is at all times ojierative
in controlling governmental policy, there appears to be little danger of
the intemperate exercise of such powers as those confided to the British
Eailway Commission, since the continuance of those powers is always
dependent upon public confidence in the ability, uprightness, and pe¬
culiar fitness of the members of the commission for the discharge of
their delicate and important duties. The British Eailway Commission
may, therefore, be regarded as an exceedingly refined method of gov¬
ernmental administration.
In a densely populated country like Great Britaiil, with many rival
railroads, and a vast number of rival commercial and industrial in¬
terests—all of them atfected more or less by even slight diflerences in
accommodations and in the rates for transportation—it seemed reason¬
able to anticipate that the commission would be overwhelmed with the
INTEEjSTAL commerce of the united state«.
37
number and complexity of tbe cases which would come before it for ad¬
judication. But such has not been the case. The number of cases in
which the powers of the commission have been invoked is surprisingly
few, and even of the cases actually coming before the commission a con¬
siderable proportion has merely required its informal mediatorial offices,
in order to lead the parties in dispute to an adjustment of their differ¬
ences. The specific cases passed upon, and the general rules evolved from
the decisions of the commissioners in these cases, appear to have been
regarded by the railroads as typical of the rules of policy which should
govern them in their dealings with the public, and to have met a cheer¬
ful acquiescence.
For their third year in office the commissioners reported twenty-four
judgments delivered and six working agreements between companies
approved ; for their fourth year, nineteen Judgments delivered and five
working agreements between companies approved; for their fifth year,
fourteen judgments delivered and five working agreements between
companies submitted for approval; for their sixth year, six judgments
delivered and seven agreements between companies approved, and for
their seventh year, nine judgments delivered and six working agree¬
ments between companies submitted for approval.
To what extent, in what manner, and subject to what conditions
arising from differences in form of government, extent of territory, and
other circumstances, the principles and rules of the British Eailway
Commission might be applied in this country is a question which in its
legal, commercial, and industrial aspects might properly be considered
by a commission of experts appointed under the authority of Congress.
Some of the general rules of policy and certain of the specific rules of
procedure adopted by the British Eailway Commission, in dealing with
the cases brought before it would not be applicable to the regulation
of railroads in the United States. For example, a rule for differentia¬
ting between just and unjust discriminations may be cited : The British
Commission has adopted as one of its general rules of policy the princi¬
ple previously recognised by the court of common pleas, that in making
preferential rates with the view of developing traffic the companies
shall confine themselves to economic and commercial considerations
based upon the securing of certain and immediate profits, and that they
shall not be guided by the policy of securing remote and hypothetical
gains. Such a rule would be likely to meet popular opposition in the
United States, from the fact that, on many new lings, traffic has been,
and is still being largely built up by means of special rates, granted
for a term of years, with the object of encouraging the establishment of
manufacturing and mining industries along such lines. In this country
of vast undeveloped resources, and of exuberant energies, the sentiment
of progress, at any cost, is stronger than any prudential considerations
as to proceeding with develo])ments at a slower and i)erhaps surer rate.
Unquestionably, systematic attempts to regulate railroads in the
38 INTERNAL COMMERCE OF THE UNITED STATES.
United States, M-hetlier by State or by national legislation, have been
restrained by the popular fear of repressing new railroad undertakings,
expected to be the means of largely developing various parts of the
country. The natural result has been that the railroads have to some
extent, by positive legislation and by the sanction of custom, acquired
powers and privileges incompatible with sound views of public policy
which prevail after the means of railroad transportation have been
amply provided, and the period of rapid and of excited development has
passed.
The positive legislative provisions, which have been enacted in the
^'arictus States of this country, have generally been dictated by popular
indignation at what were regarded as flagrant violations of public rights,
or by a manifestation on the part of railroad managers, either willfully or
through ignorance, to disregard obvious rules of justice and propriety.
Such legislation has, however, in most cases been repealed as soon as
it became evident that the companies had been brought to a sense of
their duty. In its moral influence, however, such legislation, although
it may have been, in certain instances, crude and badly devised, has un¬
doubtedly been in a high degree beneficial.
Legislative action by Congress, with reference to the regulation of
railroads, under the ample powers of the commercial clause of the Con¬
stitution, has thus far been confined to the act of July 15,1806—author¬
izing railroad companies of one State to connect their roads with the
railroads of other States, so as to form continuous lines for transpor¬
tation—an act obviously in the interest of the public, although passed
at the instance of certain railroad managers ; and the act of October 1,
1873, in regard to the proper treatment of cattle, sheep, swine, and other
animals, when being transported from one State into another, together
with that family of statutes relating to the construction of bridges across
navigable rivers.
But not even the preliminary step of an investigation has yet been
taken relative to the two questions of chief importance which have pre¬
sented themselves in regard to regulating the vast internal commerce of
the United States on railroads, viz, first, the matter of ascertaining in the
immediate interest of the public by what means unjust discriminations
and other practices detrimental to the interests of commerce and of
industry may be defined and prevented ; and, secondly, the proi^osition of
certain of the more advanced representatives of the railroad interests,
that inasmuch as the laws of sujijily and demand and of competition do
not so operate as to regulate the value of transportation services on
railroads, some sort of legislation ought to be adopted whereby they
may the better be enabled to protect themselves against themselves,
voluntary railroad confederations or pooling arrangements without any
sanction of law, being a drnittedly inadequate to this end. In urging sirch
governmental action protective of the railroad interests of the country,
the advocates of those interests declare that the government would be
INTERNAL COMMERCE OF THE UNITED STATES.
39
justified in thus interposing its authority, not so much for the protec¬
tion of the interests of railroad companies, as for the protection of the
public interests against the evils of violently fluctuating rates, special
rates to favored shippers, unjust discriminations against towns, cities,
and States, and the evils resulting from the virtual confiscation of large
property interests in railroads, and the consequent reduction of legiti¬
mate competition through the absorption of the weaker by the stronger
lines.
All these questions would properly command the attention of a com¬
mission, such as that hereinbefore suggested.
O