RAILROAD POOLINGS AND DISCRIMINATIONS. 
 
 INFORMATION 
 
 ■ SIMON STERNE, ESQ., 
 
 IN ANSWER TO 
 
 QUESTIONS PROPOUNDED BY THE CHIEF OF THE BUREAU OF 
 STATISTICS, TREASURY DEPARTMENT OF THE 
 UNITED STATES, 1870. 
 
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INFORMATION FURNISHED BY SIMON &TERNE, ESQ., OF NEW YORK, IN 
 REGARD TO THE APPLICATION OF THE LAW OF CORPORATIONS TO 
 POOLING ARRANGEMENTS AND TO DISCRIMINATIONS IN RAIL RATES, 
 WITH SPECIAL REFERENCE TO THE POOLING ARRANGEMENTS AND 
 DISCRIMINATIONS WHICH AFFECT THE COMMERCIAL INTERESTS OF 
 NEW YORK CITY, IN REPLY - TO INQUIRIES ADDRESSED TO HIM BY THE 
 CHIEF OF THE BUREAU OF STATISTICS, JUNE 27, 1879. 
 
 Question 1. Please to state generally in what manner the trunk lines connecting New 
 York City with the "West have within the last year unjustly discriminated against that 
 city in the matter of freight rates, and state whether, in your opinion, these discrimina¬ 
 tions have been of such a nature as to render them the subject of legal remedies. 
 
 Answer. I believe that great injustice has been done to the city of New York by 
 the compact known as the pooling arrangement, entered into between the trunk lines, 
 i. e., the New York Central, Baltimore and Ohio, Erie, and the Pennsylvania Railroads, 
 the details of which are doubtless before you, in answer to inquiries addressed to 
 others, and which I, therefore, do not set forth. The practical result of this arrange¬ 
 ment places New York upon a seeming equality with its neighboring cities, Philadel¬ 
 phia and Baltimore, by the handicapping of New York with an arbitrary additional 
 railroad freight charge, claimed to be the exact equivalent of the naturally lower 
 ocean freight charges from Liverpool to New York, as compared with such neighbor¬ 
 ing cities. This additional charge amounts to an average of from 2 to 6 cents 
 a hundred on all classes of freight. The justification put forth by the New 
 York lines for this additional charge is the greater mileage from New York to 
 the western distributing cities as compared with the distance from Philadelphia or 
 Baltimore. This rate leaves out of sight the better gradient, as compared with all 
 its southern rivals, of the New York Central Railway, and the bulk and value 
 of the business which the city of New York gives to its main railway as compared 
 with what its rivals receive from New York’s neighboring cities. The burden imposed 
 upon New York’s citizens by this railway combination quite wipes out New York’s 
 great advantages heretofore derived from its magnificent harbor. The injustice done 
 to a New York merchant by this arbitrary equalization can best be illustrated by 
 an example. Let us suppose that five years ago a young man had placed into his 
 hands $100,000 to invest in business. Knowing the commercial supremacy of New 
 York City he believes it to be of a permanent character for the reasons, 1st. That 
 New York City has a harbor far superior to that of any other city on the Atlantic sea¬ 
 board. 2d. That its main line of railway, the New York Central, has no mountains 
 to cross, and therefore its superior gradient more than makes up in the estimate of 
 competent engineers for its greater distance from Chicago, as compared with the 
 Pennsylvania and Baltimore and Ohio Railroads. Railway experts, from Mr. Fink 
 down, have told him that volume of traffic is the main element upon which the cost 
 of the carriage per hundred per mile depends, and that the cheapness or expensive¬ 
 ness of such carriage to the terminal point is mainly determined by reducing the gen¬ 
 eral proportion that the so-called fixed expenses of a railway bear to the operating 
 expenses of trains. In all these elements of cost of freight he discovers that New 
 York City has enormous advantages over its rivals. Moreover, he finds that New York 
 sends back more full cars to the West than any other city, and has therefore an addi¬ 
 tional reason for reduced charges eastward; also, that it sends forward a larger pro¬ 
 portion of “ first-class,” the most profitable freight. He therefore determined to in¬ 
 vest his hundred thousand dollars in business in New York City. As these, what he be¬ 
 lieves to be permanent advantages for business purposes on the part of the city of 
 New York, have determined the value of its real estate, this would-be merchant is 
 compelled to invest in the purchase of a piece of property for business purposes at a 
 much higher rate than he would pay for a like piece of property in Philadelphia or Balti¬ 
 more. He pays, we will say, $40,000 for a warehouse wherein to do his business, or he 
 takes a lease representing in rental a capital of $40,000. Half that sum invested in xhe 
 purchase, or half the interest of that sum, would lease a like piece of property in Phila¬ 
 delphia or Baltimore. He invests his money, however, in New York, upon the theory 
 that the permanent advantages referred to are not wholly capitalized in the excess of 
 the cost of the property in New York as compared with Philadelphia and Baltimore, 
 
 19 
 
20 
 
 APPENDIX. 
 
 and that for that reason the nominally dearer is still the cheaper property. But he 
 pays in the increased price as compared with lands in Philadelphia and Baltimore to 
 some degree an equivalent for the supposed permanent advantages of New York over 
 neighboring cities. A combination of railway companies is thereafter made, by which 
 the New York railways deliberately overcome, by the imposition of an additional 
 freight charge, by agreement with the railways to other ports, the natural advantages 
 which entered into the payment of the purchase of this property, which freight charge 
 is sufficiently great to level New York down to an equality with her neighboring cities. 
 By this combination New York’s superior advantages are destroyed, and all that part 
 of the value of the investment of our young merchant, as to every single dollar he paid 
 more than he could have obtained a like piece of property for in Philadelphia orBalti- 
 niore, is annihilated, and he is placed at a permanent disadvantage compared with com¬ 
 petitors in those cities, who, with a smaller investment of capital, are enabled to do 
 the same business. |H 
 
 If the New York merchant has borrowed the money with which to purchase the 
 property, this destruction of value may ruin him; hence a pooling which places New 
 York upon an equality with her sister seaboard cities is an unjust discrimination against 
 New York’s natura l advantages, and operates oppressively upon all the merchants who 
 do business in the city of New York, because their investments in real estate or leases 
 are all based upon a valuation arising from such natural advantages. To illustrate still 
 farther the injustice of this, let us suppose a case resulting in a like equalization, made 
 as against a railway company by artificial means to neutralize its natural advantages. 
 The New York Central Bailway has just such great natural advantages of a better gra¬ 
 dient over the Erie Railroad, hence quite independent of its enormous local traffic, it 
 can permanently charge a less sum of money for carriage of freight, and yet get the 
 same interest on cost; this permanent advantage, among a number of others, is repre- 
 sentedin an increased value of the stock of the line of the New York Central Railroad as 
 compared with the Erie’s stock. All of Mr. Vanderbilt’s money investments in New 
 York Central stock were, it is fair to assume, based upon a careful consideration of the 
 increased permanent value of bis line arising from the advantage of the absence of the 
 Alleghany Mountains across bis path. If the legislature of the State of New York were, 
 for the purpose of counteracting this natural advantage and with the view to place the 
 New York Central upon a level with tlie Erie Railway, to enact that the New York 
 Central Railway slui 11 build a series of curves between Albany and Buffalo, which shall 
 in their effect artificially produce an equivalentof a gradient ox 16J feet per mile (that 
 of the Erie), instead of less than fi feet gradient of the Central, it is qnite clear that at 
 one blow the whole of the value of Mr. Vanderbilt’s investment in dollars and cents, in 
 so far as such investment represents the natural advantages of gradient, is completely 
 wiped out. This is precisely what has been done by the New* York Central and Erie 
 Railways as to the real property of New York City by the compact called the pooling 
 arrangement. The commerce of New York is deprived of the natural and permanent 
 advantages to which it is entitled by its harbor, the absence of mountains in Central 
 New York, the Volume of its traffic, and the density of the population of the State. 
 What is a seeming equalization is in point of fact a leveling down of the city having 
 such natural advantages to the condition of its less favored rivals. It is handicapping 
 the best horse, and New York by the pooling arrangement has been thus handicapped, 
 A New Yorker may justly feel aggrieved at such a process, even if there were such % 
 difterence in rates of ocean freights as this pooling freight table presupposes. 
 
 According to a certificate furnished me by Messrs. Galbraith Pembroke, H. Clark¬ 
 son, Angier Bros, and D. M. McHarris, the leading London ship-brokers, in August 
 last, it appears that owners of steamers carrviuv full rsrmpanf ova,in from tlm United 
 
 Aliy stockholder has for ol^ecfiiig^ia^tlie’corp^ratio^ inwM® 
 
REPORTS OF EXPERTS. 
 
 21 
 
 he has invested his money, and over the conduct of which he has some control, subjects 
 him by a copartnership arrangement to the changes of fortune of other corporations in 
 whicli he has no investment and over which he has no control, and the attorney-gen¬ 
 eral has a right, and, when information is lodged, it is his duty, to insist upon a judi¬ 
 cial decree declarative of the principle that all such copartnerships without special 
 legislative sanction are ultra vires; more emphatically is this true and do such arrange¬ 
 ments come under the prohibition of the common law when, in their effect, they amount 
 to conspiracies against the welfare of the community which chartered the corporations. 
 
 There are three branches of the law which are applicable to these cases. The first is 
 the one which relates to conspiracies; the second that which relates to contracts made 
 by corporations beyond their corporate powers; and the third one is that which vitiates 
 contracts which are made against public policy by tending to create monopolies. 
 
 I. The common-law-doctrine in relation to conspiracies found expression in a statute 
 in the State of New York making it a misdemeanor (Sec. 8), If two or more persons 
 shall conspire” * * * 6th. “ To commit any act injurious to the public health, to 
 public morals, or to trade or couimerce, or for the perversion or obstruction of justice or 
 the due administration of the laws.” (Sec. 8, title 6, chapter 1, part 4, Revised Stat¬ 
 utes, vol. 3, page 970.) 
 
 In the case of People against Fisher (14 Wendell, 9), decided by Chief Justice Sav¬ 
 age, it was held that a combination of shoemakers to raise their wages came under 
 the act as being injurious to trade; that competition was the life of trade; and that 
 while each individual shoemaker had the right to refuse to do work at less than a cer¬ 
 tain amount, his combining with other shoemakers that they shall refuse to do so was 
 a combination subjecting them to the pains and penalties of a misdemeanor defined 
 by foregoing statute. 
 
 The authority of this decision on the point at issue therein has practically been done 
 away with by amendment of the Revised Statutes of 1870, which allowed labor unions 
 to he organized notwithstanding the sections already cited; but in all other respects 
 the interpretation of the law given by Chief Justice Savage still stands, and it is 
 scarcely conceivable that our courts would say that what was unlawful for journeymen 
 shoemakers to do by combination to wit, raise the price of the service of making shoes, 
 is lawful for great corporations to do in open defiance of the statute, by combinations 
 to raise the price of the transportation of commodities. 
 
 The ground of the decision in People vs. Fisher was that, although the object of the 
 conspiracy was to benefit the conspirators, if their individual benefit is to work a pub¬ 
 lic injury, a conspiracy for such an object is against the spirit of the common law, 
 and the injury to the trade need not necessarily be an injury to the whole trade of the 
 State; but if it is an injury to any particular part thereof, that is enough. In the 
 case cited the injury was simply to the purchasers of shoes in the town of Geneva, 
 and although, as Chief Justice* Savage says, Auburn still may, notwithstanding the 
 combination, make and sell cheaper shoes* yet, as such combination was injurious to 
 the trade of Geneva, such combination is an offense subjecting the conspirators to 
 indictment there. All the Eastern States, in so far as their agricultural interests are 
 concerned, are subjected to a discrimination of a most destructive character. East- 
 bound fourth-class freight (cereals and flour) is carried at as low a rate from beyond 
 the State as from an interior agricultural point in the State to the seaboard. What 
 chance has a farmer in Oneida County, whose land cost him $120 an acre, against the 
 Kansas farmer, whose land cost him $2!50 an acre, in competing at the mart? How¬ 
 ever much this condition of affairs may be due to causes over which the railroads 
 have no control, the fact that the railroads themselves are powerless to control this 
 effect makes it the more the duty of the States which have given to the trunk lines 
 their charters to prevent the depopulation of the Middle States and the destruction of 
 values therein artificially to stimulate the settlement of our Western prairies. 
 
 II. There is abundant authority that corporations are confined within the four cor¬ 
 ners of their charters, and that they cannot enter into agreements in the way of co¬ 
 partnerships with other corporations at all. This is such well-settled law that it is 
 scarcely necessary to cite authorities, but the language of Brice in his work on Ultra 
 Vires is so to the point that its quotation will set cavil at rest. 
 
 “Agreements for apportioning between different companies the tolls receivable by 
 the whole of them collectively may be valid; whether such agreements would, apart 
 from statutory enactment, be considered good is doubtful. The contracts between 
 companies which create in fact if not in name copartnerships, are void on the double 
 ground of being ultra vires, and also contrary to public policy. And any arrangement 
 for the division of tolls must, it is presumed, be objectionable upon the. same'grounds.” 
 (Green’s Brice’s Ultra Vires, page 326.) 
 
 HI. The spirit of the English law is one continuous protest against monopoly. The 
 granting of exclusive privileges had been carried to an enormous height duriug the 
 reign of Queen Elizabeth and the beginning of the reign of James I, but a remedy was 
 applied by statute 21 of James I, chapter 3, which declared such monopolies, except 
 as to patents, to be contrary to law and void. Since that time the doctrine of the com- 
 
22 
 
 APPENDIX. 
 
 mon law lias been that all businesses affected with a public interest is under judicial 
 control as to tlie reasonableness of the charges therein made, so as to prevent a monopoly 
 price. The businesses which are affected by a public interest seem, after a careful 
 analysis, to be all such wherein the service is rendered at a particular locality, wherein 
 combination is easy, and wherein by one way or another the right to carry on the busi¬ 
 ness has been directly or indirectly conferred by statute. If, in addition to these ear¬ 
 marks of a business affected with a public interest, such business exercises the sover¬ 
 eign right of eminent domain, as railway companies do, there is no question left but 
 that it is a business affected by a public interest, using as it does the most sovereign 
 and absolute right of the public as preliminary to carrying it on. In such a case the 
 doctrine laid down by Lord Ellenborough in Allnut against Inglis, in the Court of 
 King’s Bench, emphatically applies: “The question on this record is whether the Lon¬ 
 don Dock Company have a right to insist upon receiving wines.into their warehouses' 
 for a hire and reward arbitrarily and at their will and pleasure, or whether they were 
 bound to receive them there for a reasonable reward oniy. There is no doubt that the 
 general principle is favored, both in law and justice, that every man may fix what 
 price he pleases upon his own property or the use of it, but if for a particular purpose 
 the public have a right to resort to his premises and make use of them and he have a 
 monopoly in them for that purpose, if he will take the benefit of that monopoly, he 
 must, as an equivalent, perform the duty attached to it on reasonable terms.” 
 
 Question 2. In your opinion, upon what general or special conditions should the 
 question as to whether discriminations in rates are just or unjust be determined? 
 
 Answer. In answer to your second question, I would respectfully" submit that whether 
 or not a specified or particular railway" rate is or is not a just one is determinable pre¬ 
 cisely as any question in relation to the propriety of any charge for the rendering of 
 other services is solved. Railway rates embrace a larger number of factors than prob¬ 
 ably enter into the charge for any other services; all these factors, however, are ascer¬ 
 tainable, and thus just rates can be arrived at by taking them all into account. Rail- , 
 way experts themselves are daily called upon by railway officers to determine these ques¬ 
 tions, and they do determine them with more or less accuracy. Into the question of 
 rates many elements enter, such as mileage, bulk of traffic, gradient, cost of permanent 
 work, proximity or remoteness of fuel, traffic expenses, as compared with value, whether 
 it is necessary to haul many empty cars; in other words, whether the traffic is mainly 
 one way or not, facility of handling commodities, terminal facilities, certainty of 
 traffic, and many other elements, all these enter into the consideration of the justice of 
 a freight or passenger charge. What relative weight in making rates shall be given 
 to each one of them can only be determined in each given case. A line of a thousand 
 miles in length should not give to mileage the same importance that a road must give 
 to it which has a length of but ten miles, and thus the value of each item which 
 enters into the charge must vary according to the actual circumstances of the case; 
 but it is iu each case an ascertainable quantity, and there is no more difficulty on the 
 part of the public or a judicial tribunal to become possessed of the knowledge whether 
 a rate is just or unjust than for the railway companies themselves to arrive at such 
 information. There is neither mystery nor unfathomable abstruseness in these ques- 
 an<1 whatever can come withiu the intellectual horizon of the average railway 
 official is quite certainly ascertainable by any trained expert engineer and accountant 
 representing the public upon railway matters. However, as the elements which enter 
 into a freight charge are so numerous, and as the relative weight which is to be given 
 to each element or to all of them, varies with competition and the general currents of 
 trade, no hard and fast rule can be laid down bv which, in advance, a railway charge 
 can be determined to be just or unjust. Hence, all making of legislative railway tariffs 
 by statute have proved failures and must continue to prove failures. Under the statute 
 , Cardwe11 act ? f 1854 > which requires the English railways to trea t all their 
 tj l le AT e b ? 818uuder like circumstances, the English railway cornmis- 
 lias been determriwf * be l ’ 1 ule where a rate either by special contract or otherwise 
 able and thSZl d U *\° n b Y 6 railw ay, any charge in excess of that rate is unreason- 
 This doei a wav witV >ai ° 0 Y ld \ 6 recovered from the carrier in an ordinary court of law. 
 dm'tion of S dow r uti ; aC h as the fine imposed for making it is a general re- 
 
 are permitted to relmt^ 0 ^ 6 ev<d of tlj e lowest special contract. Railway companies 
 that there are sneeial ^l iresarn P tlou which arises from a special contract and show 
 the mature of things, which entitle 1 he holder 
 must be something else th ^ em Pt ,10n from being treated upon the general rule; but this 
 rale or testTs rorfni.d!! m6r , e favoritism. The difficulty of adopting any fixed 
 as in the case of a rail wav fj 3688 °* !' a tes to a service into which so ninny elements enter, 
 fix^S aTecial^SteV 8 a Ve ? ^rong reason why, if the railway company 
 it bv its own act declares to hp!™” 1 m te ’ sll0u ld be estopped from denying what 
 all legislative for?f?s or “ hauler f S’ ? does uot ^low, 1 'however, that because 
 fail of achieving permanent ^ u l8la4 } 011 l nust from the nature of circumstances 
 sole judges to determine tbat ! ! e rail way companies shall therefore be the 
 
 determine what is reasonable and what is not, as all the tariffs of their 
 
REPORTS OF EXPERTS. 
 
 23 
 
 own making are as unstable as those which are made by government, and they most 
 continually revise them to suit the exigencies of changin g circumstances. Some trib¬ 
 unal, with means and power equally good with those of railway companies, to ascer¬ 
 tain the facts, and not acting under the pressure of personal interest, should, therefore, 
 represent the public and sit with the companies to see to it that'this power of revis¬ 
 ion is not unjustly nor arbitrarily exercised. 
 
 Question 3. What legal remedies should, in your opinion, be provided against such 
 unjust discriminations as you have above mentioned? 
 
 Answer. In answer to your third question, I believe that the power to restrain un¬ 
 just discriminations rests with the legislature of each State. It should see to it 
 that the corporations that it has created shall subserve the interest of the State to 
 which they owe their existence. More especially is this duty imposed in the case of 
 the railway corporations, because the charges they make are in the nature of taxes 
 upon a community. The great trunk-lines, as illustrated in my answer to the first ques¬ 
 tion, have the power to increase, jeopard, or destroy the prosperity of great communi¬ 
 ties. The special remedies that I would suggest would be, first, the institution of a 
 committee of inquiry of first-class men appointed by the general government, to ascer¬ 
 tain what had been done in other countries to solve and deal with the railway problem. 
 The legislatures of our States would then be authoritatively informed that of all the 
 civilized countries on the globe the United States stand alone in neglecting to subject 
 the railways to control; they would ascertain that in England a commission—a court, 
 acting independently of Parliament and its ably-constituted committees—has been ap¬ 
 pointed, exercising very considerable control over railway freights and charges, over 
 terminal charges and facilities, and the consent of which is prerequisite to all agree¬ 
 ments between railway companies, such as working arrangements, compacts for pro-: 
 rating freights, leasing each other’s lines, or amalgamations; that apart from all this 
 machinery, exercising control over powers already granted, our legislatures would be in¬ 
 formed ofthe safeguards which surround all private-bills legislation, and which prevent 
 degeneracy into the abuses which characterize our legislative methods. They would 
 discover how jealously England guards the granting of the right of eminent domain; 
 that each bill involving the exercise of this prerogative power must be deposited a 
 considerable period prior to the meeting of Parliament; that it must be accompanied 
 by plans and a deposit of 5 per cent, of the money estimated to be necessary for the 
 undertaking; that every private bill is sent to the Board of Trade for criticism and 
 intervention ; that it is subjected by the chairman of the House of Lords private-bills 
 committee, Lord Reedsdale, if unopposed, to an examination as to form and propriety 
 of passage ; that it must pass the scrutiny of trained experts of the House of Com¬ 
 mons, called examiners, who determine whether the standing orders as to publication, 
 notice to all interested, and deposit of plans and money, before the parliamentary ses¬ 
 sion begins, have been fully complied with ; and if opposition is made by parties inter 
 ested, there is a trial before committees of both houses, conducted by trained and 
 respected advocates known as members of the Parliamentary bar (instead of by lob¬ 
 byists), who proceed witn the examination of witnesses, and the case is argued and 
 summed up as though before a court. Thus care and judgment is exercised before grants 
 of power are made to private corporations, and after they are made they are subjected 
 to a constant supervision by the Board of Trade as to safety of the person, and by the 
 railway commission as to exercise of powers, so that there is no stepping beyond the 
 province of corporations, so that there is no usurpation of legislative powers by these 
 corporations, without a peremptory “halt” cried by the public. With us, on the other 
 band, under our general railway acts, there is not only no such supervision, but the 
 grant of the power of eminent domain is absolutely without legislative control and sub¬ 
 jected to no private opposition or restraint, as the mere filing of a certificate clothes 
 thirteen persons with all the powers of taking in invitum other people’s property, and 
 clothes them with all the attributes of a public or quasi-public corporation. 
 
 Question 4. In your opinion, can any proper legal or legislative remedy be provided 
 for such discriminations against the commercial interests of New York City as you 
 cousider to be unjust ? 
 
 Answer. In answer to the fourth question, I believe it to be within the province of 
 the legislature of our State to enact, and through a proper tribunal to enforce, a stat¬ 
 ute preventing discriminations against New York City and State if the legislature 
 sees fit to do its duty, and not in the future, as it has too often in the past, play into the 
 hands of every sinister railway interest. If the courts do their duty by applying the 
 common law remedies which now exist against conspiraces in restraint of trade, they 
 would declare contracts void as against public policy, which level down a community 
 to the condition of le-s naturally favorably-placed rivals. It certainly is within the 
 province of the legislature absolutely to regulate railway charges for every pound of 
 railway freight the roads carry. Whether it iswise for it to exercise the latter power 
 is another question. I believe that it is not a body so organized as to perform so 
 delicate a function as to make a freight tariff', but it can organize a tribunal to which 
 railway charges shall be submitted as to fairness when made, or to which proposed 
 changes of schedules of rates shall be first submitted, and which shall have the power to 
 
24 
 
 APPENDIX. 
 
 sanction, and within strict limitations to modify, them, and which shall by a pro- 
 ceeding analogous to a trial have the power to determine the question whether a 
 freight charge is a reasonable one or not. This function our judiciary are called 
 upon constantly to perform in every case brought on a quantum meruit, and the 
 difficulty is one of degree only and not of principle. The commissioners can arrive 
 at just conclusions as to railway charges after the questions are argued by trained 
 minds capable of dealing with them, upon evidence furnished by experts, with no 
 greater difficulty than judges and juries are constantly contending with in determin¬ 
 ing rights as to the other manifold interests of society. • . BH 
 
 Question 5. As the law of the common carrier now stands, can any legal presumption 
 that the rates to and from New York are unreasonable arise from the fact that they 
 are higher than the rates which may from time to time prevail to and from certain 
 other Atlantic seaports, even though the rates to and from such competing cities may 
 be what are termed “war rates,” and entirely unremunerative to the companies en¬ 
 gaged in making them? Would the common law obligation as to equal charges under 
 like circumstances apply here? Let me explain just what I have in mind in propound¬ 
 ing this question. I wish to arrive at a correct statement of the facts in regard to the 
 New York City “railroad problem.” About two years ago Mr. Vanderbilt declared 
 that New York should be placed upon an equalitg ivith other Atlantic seaboard cities. Pre¬ 
 cisely what this meant and in what manner and through what expedients it was to be 
 done is, of course, matter of detail. But as I understand it, the New York merchants 
 were entirely satisfied with what they deemed to be the spirit of the declaration. Mr. 
 Vanderbilt holds at the present time that he has carried out that declaration in its 
 true spirit, but some of the merchants of New York think he has not, and they point 
 to the fact that a few months ago the rates were very much lower from Boston to the 
 West than from New York to the West. They also point to other very marked dis¬ 
 criminations, against the commerce of New York. Mr. Vanderbilt replies, and the 
 New York Railroad Gazette declares that this Boston discrimination was simply a war 
 upon the Grand Trunk and the Vermont Central Railroads for the purpose of forcing 
 them to maintain such rates as would euable the New York Central Railroad to carry 
 out its predetermined policy of placing and keeping New York upon an equality with 
 the other Atlantic seaboard cities. It is evident that so long as railroads can freely 
 exercise the power of making such discriminations as this for the purpose of prevent- 
 . ing other discriminations, the railroads of the country will continue to be absolutely 
 free to make just such discriminations as they may deem necessary and proper, sub¬ 
 ject only to the restraining influences of the competitive forces of transportation and 
 of trade, and of that ever present and potential moral force— public sen timent. Whether 
 the circumstances of the case do or do not present a direct issue as to the predominance 
 of the interests of trade or of transportation is a question which must be left to the 
 deliberate judgment of those most deeply concerned. 
 
 Answer. In answer to the fifth question, I would say that as the common law 
 now stands there is nothing that amounts to a presumption that a rate previously 
 charged is to remain the rate, or that such a rate is a reasonable one. The presump¬ 
 tion as to common carriers in reference to a charge is this: that if under like circum¬ 
 stances a charge is made to another person for a similar service, this fact would be 
 permitted to be shown with a view to prove what amount the company would consider 
 as a reasonable charge; but such a presumption, raised by such evidence is rebuttable. 
 The charge may be shown to be less reasonable and fair than the higher one. The 
 common carrier is bound to carry at a reasonable rate. I know of no principle of law 
 to prevent his carrying at an unreasonably low rate for some special people. The 
 only persons who would have a right to complain, as the law now stands, at this un¬ 
 reasonably low rate would be the stockholders, and as reliance upon them is quite 
 sure to be an illusory one, legislation in addition to the common law is indispensably 
 necessary to prevent unjust discriminations, in the making of very low rates to a 
 favored few to the destruction of the business of others, which rates can, however, be 
 shown to be unremunerative in character, and therefore not reasonable rates, at which 
 the general business is to be done. Lord Cardwell’s act, in England, hereinafter re- 
 terred to, is a specific against this evil. 
 
 Question 6. In your opinion, will it be possible, under the existing law of corpora¬ 
 tions, tor an apportionment scheme, such as that which now exists at New York in regard 
 to west-bound traffic, ever to acquire a legal existence ? In other words, do you consider 
 contracts or this character to be ultra vires of corporate powers ? Iu this connection 
 will you please to state what modification of the law of corporations would be neces¬ 
 sary m order that such contracts may acquire a legal existence, and what existing 
 circumstances prevent the adoption of such a modification of the law? Please also 
 ™?™ te y < ? ur °P m i°u as to the considerations of public policy which should prevail 
 mercffil!ntere 1 st C s 0 ff n New f 0 ^ portloum6ut themes, with special reference to the com- 
 
 mean1mr r i-]^pmf^r 0 tlle 81x1,11 Ration, I believe all the apportionment schemes, 
 g y pooling arrangements and accompanying agreements to maintain 
 
REPORTS OF EXPERTS. 
 
 25 
 
 rates, to be ultra vires of corporate powers. It seems to me scarcely to admit of question 
 that corporations are not permitted witliouts pecial legislative sanction to enter into a 
 partnership with other corporations in their earnings. Such is the case in all pool¬ 
 ing arrangements; what amounts virtually to a co-partnership really takes place, dis¬ 
 guised under another name. The facts are th at the goods to be shipped are all practically 
 placed in the hands of a commissioner to be distributed on a preascertained basis of inter¬ 
 est in their carriage on the part of the respective corporations, the interest of each being 
 affected by the earnings of each other road. This practically makes all the railways 
 entering into an arrangement copartners in a common fund, which is made up of the 
 earnings ot each railway, distributed by the commissioner on certain fixed rates of 
 interest, but which is not the equivalent of the earnings of each railway. What is this 
 but a copartnership, which makes a stockholder of any one of the combining roads, 
 as to dividend, dependent upon the receipts of a rival line in which he holds no stock, 
 in which he has no iuterst, and over which ho cannot exercise any control. Of course 
 it is within the power of the legislature to make that which was yesterday against 
 public policy to-day a matter of public policy by changing the law, but the law should 
 not be changed so as to enable corporations to enter into co-partnerships, because it 
 would seem obvious that all control over corporations by their own stockholders would 
 thereupon cease. Two corporations having quite distinct purposes may reasonably be 
 clothed with very different powers by the acts creating them, one of them being 
 clothed with special powers which is denied to the other, yet by means of a co-partner¬ 
 ship one with the other they can respectively transfer and give an extension to corpo¬ 
 rate powers far beyond anything we have hitherto kuown. It is my belief that no con¬ 
 solidation or amalgamation of railways or leasing, working, or traffic arrangements be¬ 
 tween one railway and another should he permitted, except with the consent of the 
 legislature, upon adequate notice to every one interested, or under the supervision of a 
 tribunal such as the Railway Commission of England or the Massacliuset tsRailway Com¬ 
 mission. It is equally my conviction that the pooling scheme is illegal as the law now 
 stands and against public policy, and virtually amounts to a conspiracy against compe¬ 
 tition and the public good. It is therefore hi restraint of trade. Such combinations, 
 objectionable as they are if entered into by private individuals, are much more offensive 
 to the law in the case of corporations Avith strictly limited poAvers, and which havetoa 
 considerable degree the monopoly of the carri age of commodities. I would recommend 
 no change in the laAv looking toward recognizing pooling schemes, hut, on the contrary, 
 would recommend the passage of a stringent act forbidding them, so as to prevent 
 cavil as to or misinterpretation of the laAv by the courts. 
 
 Question 7. In your opinion, will it be practicable or possible for railroads to enter 
 into compacts in regard to the apportionment of freight traffic under which the roads 
 shall be jointly and severally held to the terms of the contracts with respect to the 
 interests of third parties and to all the incidents legally arising from such contracts, 
 although the contracts may not acquire A r alidity before the law as between the rail¬ 
 road companies, themselves ? In other Avords, do you think that a one-sided compact 
 of this sort, as to its validity, affecting the commercial interests of the whole country, 
 could ever acquire stability and permanently subserve the interests of the railroads 
 and of the pub he? 
 
 [In submitting to you this inquiry, I desire to mention hy way of suggestion the fact 
 that these apportionment schemes have no stable basis. The representatives of the 
 roads meet together to-day and fix up an apportionment scheme which is essentially 
 a compromise. Each one of the companies thinks it gets less than it ought to get, but 
 each one clearly apprehends the fact that even upon a less amount of traffic under an 
 apportionment scheme it would realize better results than upon a larger amount of 
 traffic in a fight. In this fact is found the very life of all apportionment schemes 
 which haA’e come to my notice. Then consider what must be the history of every 
 apportionment scheme. Changes are continually going on in the course of trade. 
 Certain cities are acquiring and others are losing trade. Particular branches of trade 
 are concentrating at certain points and leaving other points. Manufacturing inter¬ 
 ests are developing more rapidly in certain cities and districts than in others. . Besides 
 this, changes are continually going on in transportation interests. Some roads are 
 growing stronger and others are growing weaker. New roads are being constructed 
 and new routes and combinations of routes are being formed, &c. It appears to be 
 evident, therefore, that an apportionment sob ime which would substantially constitute 
 an equitable division of traffic to-day might be very inequitable a year or two hence. 
 Then what must be done ? Why, the representatives of the roads must meet together 
 and change the basis upon which they are working. So you see that like an ordinary 
 partnership it would have to be terminable at the will of any one of the parties to it. ] 
 
 Answer. In answer to your seventh question, I admit that among the difficulties in 
 the way of carrying out the pooling arrangements are those which are suggested by 
 you, but we must assume that, unless the public intervenes to prevent pooling arrange¬ 
 ments in the future, the machinery for such arrangements will be perfected, possibly, 1 
 by the adoption of Mr. Fink’s idea of a corporation of corporations, and thus the gov- 
 
26 
 
 APPENDIX. 
 
 ernmental power of the States and nation will be absolutely under the heel of such a 
 corporation of corporations. The tendency to do this is very strong; the advantages 
 of combination as against the disadvantages of competition is a constant bait to com¬ 
 bine, and this makes it necessary that the community should use its combination ol 
 legislature and courts to prevent the combination of great corporations from captur¬ 
 ing the powers of the State and using them without restraint and to the detriment of 
 the people. 
 
 Questions. Aside from those established principles of the Jaw of corporations which 
 may appear to determine the fact that railroad pooling schemes are against public 
 policy or are ultra vires of their corporate powers, are there not certain characteristics 
 of apportionment schemes which seem to preclude the possibility of any relationship 
 between railroad companies in the nature of a partnership ? 
 
 In this connection your attention is invited to the following considerations: 
 
 1st. Men resort to a partnership as an essential condition of good, whereas rail¬ 
 road companies resort to an apportionment scheme as an expedient for the prevention 
 of losses incident to sustaining a hostile position towards each other. 
 
 2d. Men resort to a partnersliip from selection and voluntary choice, but railroad 
 companies coine together in an apportionment scheme merely from a sense of necessity 
 and not from selection or choice. 
 
 3d. A partnership is a compact between friends, but an apportionment scheme is a 
 truce bet ween enemies; and generally the inducements which lead men to enter into a 
 partnersliip are of a positive and co-operative character, whereas those which lead 
 railroad companies to the formation of an apportionment scheme are of a negative 
 and defensive character. 
 
 Answer. Your eighth question contains a number of valuable suggestions, which 
 show the reasons thlat underlie the general public policy which forbids such combina¬ 
 tions, and I fully agree that the reasons you set forth, in connection with many others 
 which might be given, irresistibly lead to the conclusion that such copartnerships 
 should not be tolerated. 
 
 Quesl ion 9. What special commission or technical court should, in your opinion, be 
 established for the determination of those questions which are continually arising in 
 all parts of the country, and which may be classified under the three heads of due 
 facilities, reasonable rates, and discriminations ? In presenting your answer to this in¬ 
 quiry, please to state tfie existing practical difficulties in the way of securing justice 
 in the determination of questions of this character : 1st, Owing; to the fact that the 
 duty of enforcing wholesome laws touching the prevention of the pa h Is referred to is 
 not properly embraced within the functions of the ordinary courts of justice; and, 2d, 
 That the cases arising under such laws would be of sucli a nature that the lawyers 
 and judges could not be expec ted to have any practical knowledge of them. 
 
 Answer. I believe that it is absolutely essential, both for reasons of State and the 
 security of tbe public, that a commission should be instituted, composed of experts, 
 should determine the questions between the public and the railway—questions 
 which constantly arise as to whether due facilities have been afforded, reasonable 
 rates have been imposed, or improper discriminations have been made by such rail¬ 
 way corporations. The difficulties now in the way of holding railwav corporations in 
 cliecK are partly governmental in character and partly j udicial. Chief Justice Canip- 
 be declared, m 1867, m Parliament, that the English law courts were not competent to 
 deal with these questions. He therefore urged the necessity of organizing a tribunal 
 + U - e 1 ? s ra v v f bscussed by a specially trained bar and acted upon by 
 bencli - Subsequently, in 1872, the joint committee of Parliament 
 iwq +w ^ r u GOmm ® udin S the appointment of such a tribunal, and finally, in 
 
 p, ' ’'„j. ftl • Ya ^. Commission was organized. This commission has now been 
 called nnon tn d*»+ S1X - ^ cars > a ^d the importance and character of the questions it is 
 
 gathered from the five reports already issued by , 
 that anv railwav conm ^ i 854 ’ re< P lire<1 prorating on all the English railways, so 
 through rate uSu real^'l g + °° ds over the line of another railwayed thus make a 
 bv the receivin'<• conmaiw ^ terms, to wit, a rate equivalent to what would be charged 
 that the terms 1inon"whicli°+k ^ *T atdc over its own line. The act further provided 
 previous statute (7 and 8 Vin 6 s ^ ad carr .V shall be the sa ne for all. By a 
 
 le<r a i proceedings to enforce tbc c 1 1 ‘the Board of Trade was authorized to institute 
 to°the rernedies^afforded to the m^- 68 aU labilities of railway companies in addition 
 court of tlie 1854 act couferred tte 
 thereunder The act of 1 87 a + rn ct i on entertain the controversies which would arise 
 and enlarged tMrioweifhyXtX ^ the railway commissioner., 
 
 charges tfitliin tiJZZZ ths «»««<"• of reasonable 
 
 railway corporations; they likewise haje w'vl™* m Jlc Wee’* 1 acts creating the 
 facilities, embracing their ndb a ve lunsdiction over the question of terminal 
 cm enforce the publication ^^ of ternainal charges, also 
 
 act of 1873 allows them to sit as aStt tlie Published rates; and the 
 sit as arbitrators to determine disputes between railway 
 
REPORTS OF EXPERTS.' 
 
 27 
 
 companies as to agreements theretofore made, and transfers to them the powers hereto¬ 
 fore vested in the Board of Trade, to supervise all working agreements or leases be¬ 
 tween railway companies or railway and canal companies, and to withhold their 
 sanction from the same if they see tit; and without such approval they canuot become 
 operative. 
 
 According to the five annual reports of this commission, it appears that under every one 
 of these provisions decisions have been rendered and action taken. The commission 
 have in one particular case gone so far as to determine that a particular railway com¬ 
 pany was to build station facilities. This decision has given some alarm, because it is 
 difficult to draw the line as to what expenses a corporation may not be called upon to 
 incur, if the commissioners, on the plea of affording terminal facilities, can require sta¬ 
 tions to be built; but the character of the members of tlie commission is sufficient 
 guarantee that they will not overstep the bounds of reasonableness. Sir Frederick 
 Peel, a son of the famous prime minister; Mr. Price, formerly chairman of the Midland 
 Railroad, and Alexander Edward Miller, a lawer of eminence, who was appointed in 
 .place of Mr. Macnamara, deceased, are the present commissioners. The railway com¬ 
 panies of England’s objections to the commission, asfar as personal inquiry both among 
 railway presidents, practitioners at the parliamentary, bar, and commissioners have 
 enabled me to ascertain, are— 
 
 1st. That there is no appeal from its decision to the higher courts; and as two of the 
 commission are laymen, the representatives of the companies believe that the right of 
 appeal in cases affecting such large interests as those which come before the commission 
 should be secured to the litigants. In cases of law, an appeal lies if the commissioners 
 certify that it is a serious question of law. I am disposed to agree that this is a well- 
 grounded objection, although one of the objects of creating a special tribunal was to 
 counteract the enormously oppressive character of the exercise by these great corpora¬ 
 tions of the power of appeal, and by means of which they can and do wear out a 
 weaker adversary, however meritorious his case. Railway attorneys and barristers 
 have general retainers, covering their labors for the year, and it was. comparatively 
 a light charge upon the railway company to carry causes through the courts. 
 
 2d. They object to the tribunal that a majority are laymen. If a majority were law¬ 
 yers, they would likewise object for the opposite reason, that lawyers are not the 
 proper persons to deal with railway questions. Whatever force there is in this objec¬ 
 tion arises, however, from the absence of appeal. It is now universally conceded by 
 railway officials themselves—and I have conversed with the leading ones during my 
 recent visit to England—that a special tribunal should exist to exercise the control and 
 the functions of the commission; but they want it to be, as near as I can get at it, a 
 branch of the supreme court of judicature, such as the divorce and bankruptcy courts 
 are, instead of an organization apart from the judicial organization. It will necessa¬ 
 rily be some little time before new machinery gets into proper working order, and par- 
 ticularily is this the case when there is so active an opposition as that of the railway 
 companies to the commission. But I cannot do better than to quote the words of Mr. 
 Howard, a prominent member of the parliamentary bar, representing railway interests, 
 
 . from an article by his pen in the June number, 1878, of Fraser’s Magazine on “The 
 Railway Commission and its work ”: 
 
 “Grievances are so numerous and so various in kind, that it would be impossible to 
 provide in an act of Parliament the necessary details, showing how each case was to be 
 dealt with. A more elastic system is demanded. The commission should be entrusted 
 with the necessary discretionary powers—in fact, be constituted a permanent board 
 of arbitration, iii the railway commission we have a tribunal capable of dealing 
 fairly and impartially with matters in which practical working is involved. The num¬ 
 ber and variety of cases which have been before them and upon which they have 
 given just decisions is proof of the value of the tribunal. Attempts will be made to 
 show that the tribunal, judged by the amount of work it has to do, is costly; that the 
 business of the court is gradually declining in amount, and not, therefore, worth the 
 cost of maintenance; but the value of the tribunal is not to be thus measured. Its 
 importance as the guardian of the public interests in the various branches of railway 
 management can scarcely be overestimated, for its very existence holds in check, to 
 no little extent, the exercise by railway companies of an arbitrary policy; and the vig¬ 
 orous manner in which the commissioners have defended the right of the public has 
 forced the companies to a settlement of disputes. The legal profession, as a body, 
 have never taken kindly to the new foim of jurisdiction, and have viewed with jeal¬ 
 ousy what they regard as an innovation upon the established courts of law. Opposi¬ 
 tion may therefore be expected from this quarter. One object sought in the appoint¬ 
 ment of the commissioners has, to a great extent, been attained, the materials needed 
 for the construction of a new and amended act have been produced, the administration 
 of which, whilst it would confer increased public benefit, would certainly be no source 
 ot prejudice to railway shareholders, if indeed it would not exercise the very opposite 
 ,effect.” It must not be forgotten that England iu addition to the safeguards against 
 the power of these great corporations by means of the Board of Trade which must ap¬ 
 prove every by-law of these corporations, never left railway corporations absolutely 
 2 
 
28 
 
 APPENDIX. 
 
 without control, and all railways must obtain tlieir power from Parliament by specif, 
 act, to take property for purposes of building its road-bed or making its stations. 
 Nothing can be sprung upon the community unawares. All private bills must be tiled 
 a certain period before Parliament convenes. Their purpose must be advertised iin_ 
 the official gazettes, notices must be given to all persons interested so that all objections ' 
 may be filed, which objections partake of the nature of pleadings; and the evidence 
 pro and con on the petition and objections is regularly heard in the same manner as 
 in trials at law. Indeed England’s method of private bill legislation is a very muck 
 better safeguard to the public, than the recent constitutional amendments which have 
 run their course through various States of the Union, forbidding j>rivate and special 
 laws in certain cases, and thus subjecting the general body of the law to be arbitrarily 
 changed under the pressure of special and private interests. 
 
 Question 10. Do not the fact that the Erie Railroad charges the same through rates 
 as the New York Central—one of the largest dividend paying roads—and many instances 
 of a similar character in other parts of the country go to show that competitive 1 
 freight charges must generally be equal, in order that competition may exist at all, " 
 and do not these facts also go to show that In practice rates are determined mainly 
 by competition between transportation lines and between trade forces, and that they 
 are only indirectly affected by the consideration as to the amount of capital of any 
 particular road, the cost of the road, or the actual cost of transporting freight over 
 the road ? 
 
 Answer. In answer to the tenth question, it seems to me that in politics no more 
 than in any other department of knowledge does a single instance prove much. While 
 it is true that competitive rates are at times maintained between railwayshaving the 1 
 same terminal points, which may influence and regulate to a considerable degree their 
 tariff, yet that competition does not prevail to the same degree in railway enterprises 
 as it does in other affairs, and that au exception to the general operation of the law of 
 competition has been demonstrated to exist iu the case of the railway is the opinion 
 of every one who has studied the operation of the law of competition in its application 
 to railways. Combinations in railway action and policy, being more easily possible 
 and offering greater inducements in the way of permanent beneficial results to the 
 combining parties than in any other business, excludes competition as a permanent 
 regulator of the price at which transportation services are to be rendered. 
 
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