SHOULD CONGRESS LEGISLATE ON THE SUBJECT OF RAILWAY RATES? tjjfa ALDACE F. WALKER. Avery Architectural and Fine Arts Library Gift of Seymour B. Durst Old York Library Digitized by the Internet Archive in 2013 http://archive.org/details/shouldcongressleOOwalk SHOULD CONGRESS LEGISLATE ON THE SUBJECT OF RAILWAY RATES? The proper attitude to be assumed by the Uuited States towards railroads engaged iu interstate com- merce is one of the most important legislative ques- tions now pending. The transportation of commodities and of persons is the chief industry in the nation, em- ploying the most men, demanding the largest current expenditure, and involving the greatest amount of cap- ital. If there were no railways our present industrial and social conditions would not exist. From the foundation of our republic it has been our national policy to encourage and develop all legitimate business enterprises. The taxing power and the police power of the nation have been steadily employed to this end. The American people are not unjust nor unwise; they know the importance of the services which have been rendered to the country by the American railway system and are proud of it; they would not knowingly permit its usefulness to be impaired or withdraw any right from its owners. But we have now reached a point where those exercising all other legitimate voca- tions are recognized as entitled to proper legislative protection while the catch- word applied to railroads is "regulation;" and when the popular idea of "regula- tion" is analyzed it is usually found to mean a reduc- tion in rates. The legislative attitude towards rail- ways has assumed the direction of repression and re- straint. Suggestions made for the preservation of their constitutional rights are jeered at. Kailway managers have been forced to pursue methods the furthest possi- ble from their desire, both for the purpose of warding off attacks upon the rights of the owners of their prop- erties and of conducting business under laws designed to make their business difficult. The pretense of a desire to be just is always put for- ward, but the fact remains that results have been in one direction only. This tendency even colors the views of those who recognize the fact that existing laws are unfair and unwise, and we are told by them that in or- der to obtain relief from the present impossible legisla- tive conditions still further concessions must be made. It is seriously asserted that railway rates and charges must be subjected to final control; that some outside power must always determine the price at which they shall sell their wares — for, in the final analysis, rail- ways manufacture transportation and sell it to the public. The price to be charged is claimed to be sub- ject to legislative control. The railroad interests of the country have suffered greatly during the last five years. No such wholesale bankruptcies have occurred in any other industry. In 9 ej no other kind of business enterprise has so much capi- tal been swallowed up and disappeared. In no other vocation are the returns so trivial. The time has come for the reconsideration of fundamental principles. There are two phases of this question of the so-called rate-making power, in respect to both of which laws have drifted away from landmarks. First, that of con- stitutional right; second, that of practical common sense. Or, to state the same questions interrogatively : First, Can the United States constitutionally nominate the rates upon interstate commerce? Second, Should the United States do so if the power exists? I. Notwithstanding that this power has long been as- sumed and that many decisions of the Supreme Court have proceeded on that assumption, nevertheless there has never been a square facing of the question by that tribunal. Much can be said in support of the proposi- tion that the power "to regulate commerce among the several States and with foreign nations" does not in- clude a power to fix the rates which shall be charged by common carriers transporting the subjects of such com- merce. The word "regulate" as used in this section, has been the subject of much judicial construction and has been held to embrace many things. It has never yet been deliberately held to confer upon Congress a rate-making power, to be employed either directly or through the agency of a commission. We may concede that Congress has the right to pre- vent unjust discrimination, to put an end to undue pref- erences, even to provide for actions at law to recover unreasonable and exorbitant charges — all of which may be said to be an extension by statute, to the courts 4 of the United States, of the common-law jurisdiction heretofore possessed as to such matters by the courts of England and of the several States. But there is no such common-law jurisdiction of Courts to award the charges tnat may be made for future transportation. If Congress is to exercise administrative authority to that end it must produce a warrant under the Federal constitution. In forensic arguments on this subject the word "reg- ulate" is often spoken of as synonymous with "con- trol," and the two words are often coupled together as though the true sense of the clause was therebv eluci- dated. But the Constitution does not use the word con- trol. It uses only the word "regulate." The question is, does the phrase "regulate com- merce" confer upon Congress the power to fix rates; that is, prices upon future interstate transportation. We all know that commerce embraces many elements besides transportation. It includes the purchase and sale or exchange of commodities which are its subject, as well as their transportation. It comprehends the totality of that intercourse which constitutes trade in any and all its forms. (Welton vs. Mo., 91 U. S., 280.) If a power to fix prices is derivable from the word "reg- ulate" in this section, it must apply as well to the sale and purchase as to the transportation of the subjects of commerce; and it is not perceived how any decision, founded upon such a definition of the verb, can stop short of including the price of cotton in its sale as well as the price of its transportation. The question whether or not the particular industry in question is "affected with a public interest," made prominent in the Granger cases, so called, has nothing to do with the subject now in hand. Those decisions were concerning the powers of State legislatures, 5 which are general legislative powers, except as re- strained by constitutional prohibitions. The powder of Congress must be affirmatively conferred, and if a power to regulate prices has been conferred by the phrase in question, it must apply to private business equally with business of a public nature — to everything that comes within the scope of the word "commerce." If not con- ferred by this phrase the power does not exist, whether the business be of a public or of a private nature. Again, the power over rates and charges for trans- portation, said to rest in State legislatures, is made available (as against the legislative inviolability of con- tracts) through the reserved control found in the char- ters of corporations, which, since the Dartmouth Col- lege case, customarily provide that the legislature may alter, amend or repeal at will. Railroad franchises, with few exceptions, are State grants. The State gives them being. In effect they are the works of the several States, being constructed under their direct authority. (E. E. Co. vs. Maryland, 21 Wallace, 470.) But this rea- soning does not support the power claimed for Con- gress. Its relation to the individual coiporations is coupled with no system of parentage. So far as the Congress or the courts of the United States are con- cerned, each railroad company is a citizen of one or more States, and must be legislated about or impleaded as such a citizen, always under some express grant of a power to be found within the four corners of tliG Fed- eral Constitution. Looking at this clause historically, there is not the slightest question of the fact that no such power was understood to be conferred by the framers of the Con- stitution. This proposition might be supported by a long array of interesting citations, but as it has been repeatedly conceded by the Supreme Court of the 6 United States the details of its proof are unnecessary. One of the frequent illustrations of the difficulty to be corrected was found in the impediments put by the States in the way of commerce between New Jersey and New York City. No one suggested that the section would authorize a subsequent Congress to establish rates for this ferriage service, and the very idea would evidently have been abhorrent. At the first session of Congress the duties on tea were adjusted at from 6 to 20 cents per pound, accord- ing to quality, when imported in American vessels; and from 15 to 45 cents per pound if imported in foreign ves- sels. The reason for this was thus explained in debate: "This tax is meant not only for revenue, but as a reg- ulation of commerce highly advantageous to the United States." The word "regulate" was not used to signify control, restrain, repress. On the contrary, it meant promote, encourage, develop. The regulation of commerce with foreign nations was to be accomplished by the judicious employment of duties and imposts and by a common system of navigation laws. Its reg- ulation among the several States was to be provided for by eradicating everything that might interfere with freedom of intercourse. "A power to prevent embar- rassing restrictions by any State was the thing de- sired." (State Freight Tax, 15 Wallace, 275.) The thing granted was "the right of superintending the commercial regulations of every State, that none shall take place that shall be partial or contrary to the com- mon interest." (Gibbons vs. Ogden, 9 Wheaton, 224.) The Supreme Court has decided that the word "com- merce" broadens with the progress of the times; that intercourse by telegraph for example, unknown in 1787, is within the protection of the commerce clause. In the regulation of commerce by sea Congress has taken 7 full charge of the subject of navigation, defining what shall constitute American vessels, how registered, en- rolled or licensed; has established rules of meeting at sea; also provisions for the health, safety and comfort of crews; inspection of boilers, etc. In these matters, as is said by Justice Field, in Sherlock vs. Allen (93 U. S. 99): "The commercial power conferred by the Constitution is without limitation. It authorizes leg- islation in respect to all the subjects, persons and in- struments." In this, the broadest statement that has ever been made of the power conferred by the com- merce clause, there is no indication of a power to con- trol rates by the imposition of maximum or minimum charges. The existence of a power to prescribe sea- going rates has never been even squinted at by the Su- preme Court, and Justice Field would have been the last member of that court to concede it. Yet, if Con- gress has power to prescribe rates for transportation in commerce between the several States, it has the same power concerning commerce "with foreign na- tions." The first important act of Congress respecting inter- state commerce was passed June 15, 1866. It author- ized railroads, chartered by the several States, to com- bine with roads of other States so as to form continu- ous lines. This act has been called the charter of the American Railway System. Its object was to prevent the States from impeding commerce. "It was not in- tended to invade the domain of private contracts." (E. R. Co. vs. Richmond, 19 Wallace, 599.) This act was unquestionably within the constitutional powers of Congress. For the purpose of the present argument it may be conceded that the Interstate Commerce lawis also with- in these powers. At the common law the relations be- 8 tween carrier and shipper are those of a bailment, gov- erned by the contract of affreightment wnich exists in each case. The common carrier must accept all freight that is tendered, of the kind and in the manner estab- lished by his usage. He is almost an insurer of the goods. He has a lien for his charges or may require payment in advance. He is bound to treat all patrons justly and without undue preference or unjust discrim- ination, and he is subject to an action for damages if he extorts an unreasonable rate. These features of the common law are the leading features of the "Act to regulate commerce/' and jurisdiction for their en- forcement is conferred upon the courts of the United States. The Commission established by the law is clearly an administrative body, rather than judicial, designed to stand as a kind of tribunal of conciliation between shippers and carriers. The method by which its "recommendations" gradually broadened into "no- tices" and "orders" need not be here referred to, for the final decision of each controversy is with the courts. The transportation charge formulated in the rail- way tariffs is not a tax. Ingenious writers have so styled it, but the idea is wholly fanciful. Its origin is traceable to the public highway theory of railway serv- ice, the argument being substantially this : A railroad is a highway of commerce; the establishment of high- ways is a universally recognized duty of the State; hence railroads in their service are performing a gov- ernmental function as agents of the State. The State may impose tolls for the use of its public works; hence, the charges of railroads are assessed under the taxing power. It is true that the railway is an improved highway; but the construction and maintenance of a railway is one thing, while the conducting of the business of 9 transportation upon the railway is another. The old highway was the field upon which the common carrier entered and did his work. The transportation business has never been regarded as a function of government. It has of late years been assumed to some extent in monarchical countries, where capital does not readily combine and where military considerations control. There have been a few cases in countries subject to the common law where a State has both owned and oper- ated a railroad, but never successfully. The duty of transporting goods and persons has never been, as- sumed by the government of England or of the United States. The State provides roads where natural water- ways do not exist, but leaves the carriage thereon to private enterprise and private contract. The transpor- tation charge is remuneration for a service rendered. It involves the use of the highway, just as the carrier by wagon may have had to pay his tolls in order to pass along the turnpike, and in that case added them to his bill for carriage; but the business of furnishing roads is entirely distinct from that of furnishing transporta- tion. The original railway charters contemplated com- mon use by the public which was found practically im- possible; a common carrier by rail is perforce conceded a monopoly over his particular route of travel, whether he owns it or leases it. If carriers by rail are common carriers at all the re- lation between them and their shippers is necessarily a contract relation. The act to regulate commerce treats them as common carriers from the first line to the end. A railway freight bill is not a tax bill, and the price charged is not subject to nomination by the Federal Government upon any such theory as that. Coming back to the Granger cases, which authorized State interference with local railwav rates, we find 10 that the authority there asserted resides in the Legisla- tures of the several States and not in the Federal Con- gress. This distinction is clearly pointed out by Chief Justice Waite. (Munn vs. 111. 94 U. S., 124.) The court there held that the power to establish prices for transportation by common carriers existed in the sev- eral States not as a regulation of commerce, but as a power of government at common law, to fix the charges of bakers, hackmen, millers, innkeepers, ferries, whar- fingers, common carriers, etc., because their business is "affected by a public interest;' 7 a power inherited from the English Parliament by the State Legislatures, but not belonging to Congress unless openly conferred by the Constitution, except possibly as to the District of Columbia and the Territories (58 Fed. Kep. 858). Thus, as we think properly, every consideration is eliminated save the naked definition of the phrase, What is it to regulate commerce? When we once de- part from the idea entertained by the framers of the language the field opened is a broad one, but we think a clear and just limitation can be defined. The clause must be construed so as to harmonize with the fifth amendment, which restricts the powers of Congress, much as the powers of States are restricted by the four- teenth amendment. In regulating the subjects of in- terstate and foreign commerce, we may concede a right to promote the exchange of commodities, when deemed desirable for the common good, and to suppress the exchange of such as are dangerous to life, health or the general prosperity; but not to forbid traffic in legit- imate property, such as the necessaries of life, its com- forts and its luxuries. In regulating the persons en- gaged in commerce, we may admit a right to examine and license shipmasters, engineers, etc., for the safety and protection of all concerned, but not to exclude any 11 1 citizen or designated class of citizens from the pur- chase of a seaworthy ship, or of wagons, or railroads, or their employment in commerce. In regulating the instruments of commerce we may allow the existence of power to supervise the physical operation of vessels, railway trains, etc. ; to see to it that brakes are continu- ous, ship boilers safe and life-boats ample. But when we come to the matter of contracting foi services to be rendered we find that property, by the fifth amend- ment, is as sacred as life and liberty, and that any com- mon carrier tendering his facilities to the public may make his price what he will, subject to his responsibil- ity in the courts for damages if he commits unjust dis- crimination or extortion. There is grave question respecting the constitu- tional power of Congress to prescribe future maximum rates, enforceable by injunction. This because: First. No such power was contemplated by the fram- ers of the Constitution. Second. The Constitution has not yet been so con- strued by the Supreme Court. Third. The words "regulate commerce" do not imply its existence on any fair construction of their meaning. Fourth. Such a construction would interfere with and destroy rights of property, assured by other clauses. Fifth. The clause cannot be so construed without involving the power to regulate the rates to be charged by vessels engaged in commerce with foreign nations, and also prices generally in commercial transactions. II. Supposing, however, that the right to fix future rail- way rates upon interstate traffic has beeen constitu- 12 tionally delegated to Congress m such manner that it may be exercised either directly or through a commis- sion, is the exercise by Congress of such a power desir- able or wise? In the first place, it should be noted that if Con- gress can confer such a power upon a commisssion it can exercise it directly by Act. To see where this would lead us one or two concrete cases out of thou- sands may be suggested. Suppose a member from Georgia should introduce a bill to reduce the rate on marble to 25 cents per hundred pounds from points in Georgia to Chicago, and suppose also that the rate on marble from Vermont to Chicago is 50 cents per hun- dred pounds. The proposed reduction would shut out Vermont marble from a large part of its present ter- ritory. New England would naturally rally to the de- fense of Vermont, and the rate on marble would be- come a political issue, with locality arrayed against lo- cality, with bargains to be made, with personal inter- ests to be promoted. Or suppose again that the rate on lumber from Wisconsin and Michigan points to Kansas and Nebraska should become a matter of Con- gressional legislation as compared with lumber rates from Arkansas, Louisiana, Mississippi and Oregon to the same territory. Or suppose a bill should be in- troduced to prevent railroads from transporting or- anges from California to New York at less than $1.50 per hundred pounds on the ground that such transpor- tation has a tendency to injure the orange growers of Florida; or to reduce rates from both States in order to exclude fruits from other countries. Such examples need not be multiplied. There is no citizen who would not deprecate the introduction of such questions into the halls of Congress. Nevertheless, such legislative 13 experiments are in sight if we once concede the propri- ety of Congressional legislation upon railroad rates. The Interstate Commerce law as passed in 1887 did not confer any rate-making power upon the Interstate Commerce Commission. At the time of its passage no one supposed that it did. The enactment of that law was preceded by long investigations conducted by suc- cessive committees. The report of the last (Cullom) committee undertook to formulate the then existing "causes of complaint against the railway system." Eighteen complaints were scheduled, for the correction of which Congressional action was proposed. They covered the subjects of the relation of local rates to through rates, unjust discriminations, rebates, secret rates, fluctuations in rates, overcharges, misunder- standings through varying classifications and other- wise, passes, wasteful management, etc. No complaint was stated in respect to extortionate rates. No sub- stantial complaint exists on that subject to-day. But we are not left merely to the negative inference thus indicated, in determining what was intended in the passage of that law. The Senate committee, after scheduling complaints, proceeded to state that their essence was unjust discrimination, "This is the prin- cipal cause of complaint against the management and operation of the transportation system of the United States." Then, after a careful discussion of what dis- criminations may be justified and what discriminations must be regarded as unjust, their report contains the following sub-head: "Fixing of rates by legislation impracticable." This proposition is argued at length, and established to the satisfaction of the committee — and, I may add, of evervbodv else. The statement is made that "it would be inexpedient and impracticable to attempt to 14 adjust existing inequalities by any system of rates es- tablished by legislation/' which proposition is devel- oped fully. Finally, after discussing many other matters foreign to the present subject, the committee concluded its able report by an explanation of ".The Committee's Bill," stated as representing its substantially unani- mous judgment. "The provisions of the bill are based upon the theory that the paramount evil chargeable against the operation of the transportation system of the United States as now conducted is unjust discrim- ination between persons, places, commodities, or par- ticular descriptions of traffic. The underlying pur- pose or aim of the measure is the prevention of these discriminations both by declaring them, unlawful and enforcing punishment, and also by requiring the great- est practicable degree of publicity as to the rates, financial operations and methods of management of the carriers." The bill thus described became the Interstate Com- merce law — the short-haul and anti-pooling clauses being afterwards unfortunately added by the House. It was not intended to authorize the Commission to name rates and it scrupulously omitted to confer any such authority. The Commission itself was at first in harmony with this view of the situation. It disclaimed authority to nominate rates; but later on the views of Commission- ers changed. . In the absence of a power to say what should be a reasonable rate they found themselves un- able to accomplish results which they seemed to think desirable, and began to cast about to discover whether after all the desired authority had not been unwittingly conferred. They issued "orders" requiring carriers not to charge in excess of rates named by them as reason- 15 able and also to make reparation for charges paid in excess of such rates. And after several years of labor- ious genesis, the Commission developed in its annual reports a theory under which it attempted to justify it- self in respect to various litigations which it had insti- tuted and was conducting in the courts against certain railroads to compel them to put in effect a series of tariffs which that body had formulated for the trans- portation of different commodities in various parts of the country. Its reasoning was substantially this: The Commission has found that a certain rate discriminates unjustly, or that another rate is excessive. It is neces- sary, in order to make our finding effective, that we go further and say what rate would be non-discrimina- tive or what sum would be reasonable and just. Could anything be clearer? And yet, the roads per- sisted in defending the litigations, and now the Su- preme Court has finally decided that the roads were right and the Commission was wrong, and that no au- thority to nominate rates was conferred on the Com- mission by the Interstate Commerce Law. The law has thus been brought back to its moorings and has been decided to mean precisely what every- body understood it to mean at the beginning. The same history has occurred in respect to the short-haul clause and other provisions of the law. Thereupon the Court is accused of having weakened the law by inter- preting the life out of it, of having riddled it, of hav- ing left but a skeleton, and all that sort of thing. In fact, the Court has simply corrected erroneous inter- pretations of the statute, and has rebuked efforts to read into its language powers that were never intended to be conferred. Aside from the short-haul and anti- pooling provisions, the Interstate Commerce Law was a well-considered and useful statute; but a little au- 16 thority naturally leads to the effort to secure more, and it is not the wise judge alone who seeks to amplify his jurisdiction. It seems that the railroads are now to expect a new attack. Clamor has been raised that the Supreme Court, by construction, has emasculated the statute, and that Congress must forthwith confer all the powers which the Court has said are not at present given. To speak more concretely in relation to the present sub- ject, it is demanded that the power to make rates be now conferred upon the Commission. But why? Let us look at the matter seriously. What has occurred since 1887 to make this proper legislation for Congress to undertake? If it was not then expe- dient or practicable, is it expedient or practicable now? Have railway rates advanced since 1887? Has extortion been committed? Have we not the lowest rates in the world? Have not bankruptcy and reor- ganization been the almost universal experience of rail- road companies? But, some one says, when unjust discrimination is charged the Commission should have power to say what reduction is required to overcome the discrimina- tion, if its existence be established. This power would no doubt gratify the Commission, but is there any other valid reason for granting it? The injured party has a right of action, the same as for any other pecuniary injury; even more, for he may elect between proceeding for damages or for restraint; and the Commission may not be infallible. This question is of infinitely broader scope than is conceived by those who treat it as such a simple mat- ter. There are two ways in which railroads may be managed; one is the bureaucratic method of countries having State railways, in which competition is set 17 aside so far as possible by divisions of territory and of traffic, and rates are named upon somebody's idea of what was thought proper when the roads were opened. The other is the competitive system, under which vary- ing competitive forces determine from time to time the maximum rates that can be charged, and the desire to attract business reduces these maxima freely. The latter system is that of countries subject to the common law. To go over to the bureaucratic system is contrary to the spirit of our institutions; it is worse than that, for it would endanger our national progress. Under rates controlled by competition our country has expanded and developed beyond what any other nation would think credible. Eates have been constantly re- duced, and doubtless the flexibility of rates in their adaptation to business conditions and the continual opening of new enterprises, channels of trade, and mar- kets have been largely due to the fact that no bureau has supervised railway traffic. It is without doubt true that railway rates are now much lower than they would have been had a public rate-making body been established twenty years ago; and in this view it may be said that the creation of a rate bureau would be a protection to the revenues of the roads. This may be so; but railway officials do not desiie a protection which would prevent them from constant efforts to develop the traffic of their respective lines. It would be a sorry day for our country were a rate- making power given to any possible tribunal. Its mere existence would threaten all energy and enterprise. Its exercise would either overturn competitive conditions, which would be ruinous, or it would acknowledge them, which is the present system. 18 In other words, the rate-making authority must either recognize the competitive forces applicable to the situation or must ignore them. In the first case no interference is needed. The second alternative would be contrary to the genius of our institutions, and dis- aster would inevitably ensue. Except in nations where the State manages the rail- roads, transportation charges by land and by sea are regulated by competition. State ownership would mean high tariffs and retarded commercial progress; competition is the safe governing force in respect to all contractual matters. While it is true that excessive competition must be regulated and ameliorated in or- der that each competitive agency may preserve an in- dependent existence, such regulation will come from within unless prevented by unwise laws. On the other hand, competition has ample strength to overthrow combinations designed to unduly restrict its freedom. As a practical proposition, it is undeniably true in this matter as in many others that too much government is attempted. Instead of more laws there should be fewer laws. Competition is a natural force; like other forces of nature, it will do its best work when let alone. To attempt to fix transportation rates upon the inter- state commerce of the United States by any possible vis major that can be devised for that purpose, would be to substitute a narrow, fluctuating, human view of what justice may be thought from time to time to re- quire, for the broad, persistent, dominating conditions which competition will forever create and preserve. It may be said, however, that it is not at this time proposed to discard competition as a regulative force, but to leave it in full play and, in addition, give author- ity to the Commission to make further reductions in cases where the reductions forced by competition do 19 not seem to them sufficient. This proposition is seri- ously made, but nothing could be more unjust to rail- way interests or unwise on the part of the public. Un- just, because the revenues of the carriers are now de- pleted by the action of natural forces so excessive as to require restraint, not reinforcement; unwise, be- cause the public would in the end bear the burden through impaired service, business calamities, reduced wages, and all the reactions that invariably follow the doing of injustice. We may look to the past to learn just what this scheme proposes. Most of the cases in which the Com- mission, in the previous misconception of its powers, has undertaken to name a rate which should not be exceeded have been occasions where the real difficulty was excessive competition. For example, the lumber rates in the Northwest; an order was made that a cer- tain railroad should not charge above a certain rate, amounting to a reduction of two or three cents per hundred weight. The road in question was quite will- ing to make this reduction, hoping thereby to increase its tonnage; but its competitors, who were carrying lumber from other points to the same market, at once reduced their rates by the same amount, so that the shippers by the first line got no relief, while the rail- road was robbed of its revenue without any useful pur- pose being subserved. This was a case where the Com- mission undertook to correct what it considered to be an unjust discrimination. But does not the result prove that in fact there was no unjust discrimination? If a certain condition is forced by competition, even though upon inspection of distance-tables and tariffs it appears to be unnatural and unfair, the State may safely assume that the apparent discrimination is the result of inherent disabilities on the one hand or ad- 20 vantages on the other. Competitive forces are too in- tricate and delicate to be controlled by the insertion of a crowbar here and there. There are many appar- ent evils in the world which benevolence is unable to assuage. We must determine such general lines of policy as are likely to promote the greatest good of the greatest number. In the matter of railway rates there can be no possible question that the true policy con- sists in remitting their control absolutely to natural laws without interference by State or Xation. III. In view of the fact now generally conceded, that the prohibition of pooling was unwise and has prevented the obtaining of many good results hoped for from the passage of the Interstate Commerce Law, it seems probable that Congress will be compelled to authorize pooling agreements as an aid to the regulative statute. The prohibition of pooling made unjust discrimination inevitable on the largest possible scale. But in con- nection with the proposal to correct this admitted mis- take it is said that rates should be subjected to abso- lute and effective control. This proposition is sometimes presented as though the railroads were being granted a favor, in consideration of which a concession should be extorted; whereas the legalizing of pools is for the benefit of shippers as much or more than of the rail- roads. At other times it is said that pools will destroy competition, and unless rates are controlled they will become excessive; to which there are two answers: first, pools will not destroy competition; second, ex- cessive rates cannot be exacted. History and the tes- timony of experts proves that while pools tend to regu- late competitive excesses, they do not and never can efface legitimate competition, or even seriously weaken 21 its vitality. The making of excessive rates is no longer practically possible in the United States. It is an en- tire fallacy to suppose that the rate to be charged on any given traffic is subject to the decree of the rail- way traffic manager or even to the decree of groups of traffic managers. They can reduce rates, but except in rare and peculiar cases they cannot make them higher than the maxima forced by competitive condi- tions, which control railway rates in substantially every corner of the land. And the rare and peculiar cases will either presently correct themselves or can be corrected through existing machinery to that end. The fundamental proposition that the naming of rates for future use upon interstate railway traffic ought not to be made a subject of Congressional legis- lation should be unhesitatingly accepted. A very practical phase of the present situation must, however, be considered. It concerns the form that may most judiciously be given to legislation in the present Congress. The present difficulty arises from two sources: First, the existing indisposition in legislative chambers to concede to the railway system of the country the fos- tering care which is bestowed freely upon all other in- dustries, or to give even slight consideration to the re- quirements of justice in their behalf; second, the appar- ent inability of those who recognize the necessity of action of some kind to understand clearly the condi- tions of the case, and their unwillingness to act, as they would do in other matters, upon the opinions and testi- mony of those familiar with the practical management of railway transportation. I have spoken of present legislative conditions as "impossible." . This word is used in all seriousness. It 22 has been held that the Anti-Trust Law forbids railroads to use the only practical method for doing the things which the Interstate Commerce Law commands. And it is an admitted truth that the Interstate Commerce Law seeks to enforce competition by the mandate of the statute, and at the same time punishes as criminal misdemeanors the acts and methods by which compe- tition is ordinarily effected. The result, as has been tersely stated, is that in many localities and with ref- erence to manv commodities, a man who obevs the stat- ute law can "neither operate a railroad nor ship over a railroad.' 7 This is the pass to which this industry has been brought by inconsiderate legislation. Practical and commercial conditions have been ignored. Contradic- tory laws have been enacted. Prompt Congressional legislation is absolutely required. This action must cover two fundamental points. First, the Anti-Trust Law must be so modified that railroads may act together in performing the require- ments of the Interstate Commerce Law ; second, the In- terstate Commerce Law must be so amended that rail- roads may apportion the earnings of common traffic, and thus make possible the elimination of unjust dis- criminations from the transportation service. Under past arduous conditions the railroads have diligently though often vainly attempted to conform to legal re- quirements through the agency of voluntary associa- tions. Kailway managers sincerely desire to operate their properties in conformity to law. The law re- quires that all rates be fixed and published, and uni- form rates are conceded to be an absolute necessity. This work has been one of the functions of the asso- ciations which the Anti-Trust Law has been held to suppress. Their other function has been the preven- 23 tion of unjust discriminations; or, in other words, the maintenance of rates as published, neither more nor less. This has been accomplished at times for shorter or longer periods; it cannot be successfully and contin- uously accomplished unless supported by the appor- tionment of common traffic or its earnings; hence the necessity for the legalization of contracts for that pur- pose. The necessary legislative requirements cannot be un- derstood without keeping clearly in mind the two points above distinguished. Railways must associate and mutually weigh all competitive conditions in order to fix uniform rates; they must associate and apportion certain sections of their traffic in order to maintain the rates so fixed. While both these functions are usually covered by the same association agreement they are absolutely di- verse, Pooling is not an agency for the fixing of rates, but for maintaining rates; not maintaining the stand- ard of rates, but maintaining the actual rates, which necessarily fluctuate from time to time in accordance with competitive and business conditions. Kates may vary every day and yet be strictly "maintained." In their best estate associations agree upon rates, by mutual consent if possible, but preserving to members the right of independent action. Every change is made in view of competition, and business conditions with- in and without the territory affected — perhaps more frequently without than within; the competition can never cease; and the establishment of rates will inevitably and always be dominated by nat- ural forces, which may be depended upon to keep the rudder true, but which if interfered with will inevitably precipitate distress and disaster. In their other aspect associations, by apportioning the 24 business carried under rates so controlled, enable the rates to be steadily and uniformly applied to all ship- pers alike, whether the figures fixed go up or go down. Rates are "fixed" (or the amount thereof determined) under conditions beyond the control of the carriers. The figures must be fought out and registered in meetings held for that purpose. Arbitrations are often necessary. Without such machinery the only result possible is a series of rate wars ruinous to all inter- ests and the ultimate collapse of the entire railway system. Each traffic manager always secures for his line the lowest rates that can be made without induc- ing reductions of the rates of other lines competing for the same traffic, or competing for like traffic to the same market. Rates are not "fixed" by* pools, and they never were. On the contrary, while pools were formerly in vogue, from 1865 to 1888, the rate per ton per mile on six lead- ing Eastern roads decreased from 2.900 to .609, and on six leading Western roads from 3.642 to .934. The function of pools is simply to assist in assuring the public that each carrier will stand by the "fixed" rate until changes are made through methods which will disturb business the least possible. It is, of course, possible that rates may occasionally be "fixed" on a higher basis than would be adopted if their maintenance was not to be supported by a pool- ing agreement; but this will rarely if ever be done ex- cept in cases where unreasonable reductions have pre- viously occurred and where the results of excessive competition demand correction. Stability in rates is of infinitely more importance to the public than too low rates; and as a practical matter extortionate rate charges cannot be maintained in the face of present corrective influences and agencies. Pooling can never 25 be the panacea for all existing ills of the railway ser- vice which some of its advocates seem to expect, bnt it will undoubtedly ameliorate the vices of excessive competition which its prohibition induces, and almost compels. It has lately been deliberately stated, and very likely it is quite generally believed, that "the purpose of a pooling law is to eliminate entirely from railway opera- tions with respect to the traffic which it affects the fac- tor of railway competition." It is difficult to argue with those who entertain such a belief as that; its mere statement shows how remotely they apprehend the true conditions. It would be easy to refute it by illustra- tion and experience if time and space allowed. As well might a coffer-dam be expected to subdue the waves of the ocean. The fact important for present consideration is this: That a feeling exists and may be regarded as quite generally prevalent that railways desire to pool their traffic earnings in order to secure and perpetuate high- er standards of rates; or, at least, to avoid the further reduction of existing rate standards through the efface- ment of competition. It is useless to explain that the object of pools is to provide a basis by which railroads may overcome the illegitimate competitive methods which the Interstate Commerce Law forbids. It is futile to point to the vast reductions in rates accom- plished while pools were formerly in use. It is idle to show that pools can never reach to the inclusion of every competitive factor, or to point to the fact that the competition of markets cannot be extinguished by any action that may be taken by common carriers; no one seems to remember that pools at best are formed with difficulty and are of brief duration, every member hoping for increased percentages at the next allotment 26 and striving in a thousand legitimate ways to increase the earnings of the various lines. No attention is given to explanations of the difference between legitimate and illegitimate competition; between competition which is useful to the public and that which is disas- trous; between competition which obeys the law and that which ignores and overrides it. It does no good to show that excessive competition is an enemy to human progress which, unless restrained, results in monopoly through the extinguishment of competitive agencies. When the human mind is once set upon the adoration of the fetich of "free and unrestricted com- petition" reasons fail to impress and facts disappear from view. Even the Interstate Commerce Commis- sion in their recent Annual Keport, while expressing a majority opinion that pooling would "occasion some improvement in the rate situation at almost all points and might altogether amend it at many points/' adds the assertion that "If pooling produces any beneficial result it does so at the expense of competition;" with- out noting that it is excessive and illegitimate compe- tition which pooling aims to curb; and then follows this most remarkable assertion: "It is only by destroying competition that the inducement to deviate from the published rate is wholly removed, and it is only to the extent that competition is actually destroyed that bene- ficial results can be expected." Destroying competition, forsooth! As if competi- tion between railroads can ever be destroyed so long as separate ownership and management exist! The keen edge of reckless and illegitimate competition be- tween the railroads of the United States to-day may to some extent be dulled, its excesses may be ameliorated and somewhat held in check, by agreements to partici- pate upon agreed shares in the carriage of common 27 traffic, but talk of the destruction of competition is too absurd to be taken seriously. Competition carried to excess mar destroy itself by bringing on the successiye ruin of the indiyidual competitors, but it will neyer be destroyed by any system of internal regulation provid- ed by the competitors themselves, intended to preserve the indiyidual existence of each competing element. Nevertheless, we have the clamor and the threat, and must face the situation as it is. The spectre of a gigantic railway trust is lifted on high by men who should know better, and the public is duly terrified at the fearful vision. The enactment of a pooling bill, says the Commission, "would be little better than a crime unless this tribunal or some other tribunal is at the same time invested with adequate powers of con- trol." Very good; control need not be feared where no injury to the public is contemplated. By all means let the Commissioners have all the control that can properly be conferred upon them. But when we come to consider the forms of control proposed, much more is asked than can properly be granted. Shall association agreements containing pooling features be filed with the Commission? Yes, certainly. Such agreements are filed with the Com- mission as a matter of course, and thereby become pub- lic records. Shall the Commission have the power to examine them before they become effective and to turn them to the wall if thev so decide? Certainlv, if this is desired. At first the Commission protested that it wanted no such responsibility as that; but times have changed, and. the Foraker bill now pending in Congress authorizes the Commission to disapprove any agree- ment if of opinion that its operation ''would by rea- son of its provisions or for want of necessary restric- tions and limitations result in unreasonable rates, un- 28 just discrimination, insufficient service to the public, or otherwise contravene any of the provisions of this act." This is certainly broad enough as a preliminary to the taking effect of the agreement. Assuming the agreement to have passed this preliminary inspection and become operative, the proposed bill makes it the duty of the Commissioners to observe the working, op- eration and effect of every such contract, to make ex- aminations and investigations as deemed necessary, to investigate all complaints; and confers power upon the Commission to make an order disapproving the con- tract and requiring it to be terminated if it finds cause for so doing. It is the obvdous purpose of these provis- ions to give the Commission complete and final control over pooling contracts; control over their inception with power to prevent them from going into operation, and control over their existence with power to declare them "unlawful" at any time. These provisions cer- tainly appear adequate to protect the public. It is felt by railway managers that such conditions as these may properly be made, in granting the opportunity which they desire to practically demonstrate the truth of their belief that such contracts will be found useful to the public and an aid to the regulative statute. But the Commission desires something far beyond what has been described above. The Commissioners seek to make this honest effort of the railroads to put their business under the control of a workable law an occasion whereby they may grasp and forever hold the power which decisions of the Supreme Court have re- centlv denied them. This is not an overstatement of their position. Their words are as follows, referring to the powers of control, without which they say the granting of a pooling privilege would be little better than a crime: "Nothing less in degree than those out- 29 lined in this report or their equivalent would be ade- quate." The powers outlined in the report and submitted to Congress for adoption and approval cover all that the wildest advocate of a bureaucratic system could de- sire. It is not proposed to recapitulate them. It is suf- ficient to say that they would confer upon the Commis- sion absolute power over all interstate railway rates. Not simply over the rates upon the traffic subject to the proposed pooling agreements, which might be con- ceded as a trade, though of itself would be an unreason- able demand because such a concession would not be cognate to the grant; the contract being the thing granted and over which absolute power is intended to be given. But power over the rates upon all traffic sub- ject to the law. The power desired is the most enor- mous ever conceived by human intellect. It is now ex- ercised through the agency of thousands of experienced men, each representing not only the interests of his line, but of the customers of his line, whose increased business is also his increased business. It is subject to the control of general laws, as above pointed out, and also to the domination of all manner of competitive forces of carriers by land and by water, of manufac- turers and producers from every point of the compass, of markets in this countrv and throughout the world. For this arrangement it is calmly proposed to substi- tute the judgment of five men, of three if the five do not agree, trained as lawyers, representing five locali- ties only, with power to ruin industries, to boom towns, to "determine whether the Kansas farmer shall burn his corn for fuel or send it to the market;" and with power at the same time to make or break every railroad corporation in the land, to send any railroad stocks or bonds up or down in the stock market, to control impor- 30 tations of every kind and to limit all exportation (which, by the way, is involved in rulings already made by the Commission), to exclude Baltimore or Boston or any other city from the transaction of export business by changing existing differentials^ to array North against South and East against West by overturning conditions established by competition and substituting therefor the decree of the rule of thumb; in fact, to ab- solutely dominate this land of ours with the power of pagan consuls. This is no fancy picture. The amendments proposed by the Commission give them power upon complaint filed to make what they would like to call an "admin- istrative order," determining "what are and will be reasonable and otherwise lawful rates, fares, charges, classification, privileges, facilities or regulations." These orders may be enforced in the courts, with resti- tution of all charges made at the old rate after the complaint was filed; and the carriers are to have the right to appeal to the courts upon the Commissioners' record, with no right, however, to recover costs on such appeal. If the order is vacated the Commission may make a new order on the same record. Other provis- ions authorize the Commission to fix maximum and minimum rates, to determine the division of joint rates, to make changes in classifications, and to amend the rules and regulations of the carriers. The authority proposed is adequate to cover every question that may arise in respect to future railway rates. The list given by the Commission of cases now pending and of mat- ters previously heard by them shows the scope of the questions which they ask authority to decide. As an example, may be cited the adjustment of freight rates to the Southern States, from Eastern as against West- ern cities, and many other questions arraying one sec- 31 tion of the country against another. In the face of these proposals the position of the roads becomes ex- ceeding difficult. Of course, the idea of granting them should not be seriously entertained. Yet our thoughts return to the existing laws under which an honest man cannot do business. The true way out of this dilemma is for Congress to pass such amendments to the present statutes as are necessary and wholesome, and to do no more. The amendments above outlined, coupled with such powers of control as may properly be attached thereto, will be found not only beneficial to the car- riers, but also to shippers and receivers of goods and to all interests affected by the proper operation of the American railway system. December 24, 1897. MM I 1 A