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Author: 
 
 Newcomb, Harry Turner 
 
 Title: 
 
 Rebates 
 
 Place: 
 
 [New Haven?] 
 
 Date: 
 
 [1907] 
 
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 530.7 
 
 N43 
 
 Newcomb, Harry Turner, 1867- 
 
 Rebates, by H. T. Newcomb ... [New Haven? Conn., 
 1907] 
 
 cover-title, [119i-15S p. 23i'". 
 
 "Reprinted from the Yale review of August, 1907." 
 
 1. Railroads— U. S.— Rates. i. Title. 
 
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BIBLIOGRAPHIC IRREGULARITIES 
 
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 Rebates 
 
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 REBATES 
 
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 BY 
 
 H. T. NEWCOMB 
 
 Of the Bar of the District of Columbia 
 
 Author of "Railway Economics," "The Postal Deficit," "Some Consequences 
 of the Trust Movement," "Recent Phases of the Labor Problem," "The 
 Federal Courts and the Orders of the Interstate Commerce Commis- 
 sion," "The Facts About Railroad Rates," "The New Interstate 
 Commerce Law," "A Conser\rative Trust Policy," "Public Own- 
 ership and the Wage-Earner," "Railway Capitalization," 
 
 Etc., Etc. 
 
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 REBATES. 
 
 CONTENTS. 
 
 Nature and method of discrimination, p. 119; rebates, p. 120; early his- 
 tory of rebates, p. 120; elasticity of early system, p. 122; the Interstate 
 Commerce Act, p. 122 ; amendments of 1889 to include shippers and provide 
 prison penalties, p. 124; unexpected effect of including shippers, p. 125; 
 shippers refusing to testify upheld by the courts, p. 126 ; consequent new 
 legislation of 1893, p. 127 ; opinion of Judge Grosscup, p. 128 ; late decision 
 of Supreme Court upholds the new law, p. 130 ; power to demand books 
 finally upheld, p. 130 ; expectation that rebates would cease not fulfilled, p. 
 134 ; Elkins Law, p. 135 ; summary of legislation, p. 137 ; varying opinion 
 of the Commission as to the effectiveness of legislation, p. 138; melancholy 
 history of violations, p. 140; relative success of policy of persuasion, p. 143; 
 working of the Elkins Law, p. 147; report of Secretary Moody reviewing 
 history of prosecutions under the various acts, p. 148; real evil lies in 
 secrecy, p. 151 ; necessity of discrimination according to size of shipment, 
 p. 152. 
 
 TO discriminate is, according to the lexicographers, to recog- 
 nize differences. Apparently, therefore, to discriminate in 
 railway rates is to recognize differences in traffic conditions and 
 to make the charges for railway services conform to such dif- 
 ferences. Such discrir lination is unquestionably beneficial, for, 
 in the language of an eminent jurist quoted by Professor Ely, 
 ''nothing can be more unequal than the equal treatment of 
 unequals." 
 
 Unjustly to discriminate in railway rates is, however, as bane- 
 ful as just discrimination is beneficial. A difference in rates 
 which exaggerates acttal differences in traffic conditions, on the 
 one hand, or one which fails fully to recognize them, on the other 
 hand, amounts to an unjust discrimination. It is equally true 
 that the absence of a dift'erence in rates where a substantial dif- 
 ference in conditions warrants and demands a discrimination in 
 rate-making must amount to real injustice and constitute a real 
 as well as a technical unjust discrimination. 
 
 Unjust discriminations afford undue and unreasonable advan- 
 tages to particular persons, places or kinds of traffic and sub- 
 ject other persons, places and kinds of traffic to undue prejudice 
 and disadvantage. That some should enjoy improper advantages 
 
» 
 
 s^' 
 
 1 
 
 1 20 
 
 Yale Review, 
 
 [Aug. 
 
 and others suffer undue prejudice and loss is an offense against 
 the moral sentiment of mankind, an impediment to industrial 
 progress and a reproach to the nation or community which fails 
 seriously to seek and energetically to apply an effective remedy. 
 
 Any secret device by which a portion of the charge for a 
 particular railway service, or the amount legally required to be 
 paid for such a service, is remitted to the person for whom the 
 service is performed, constitutes a rebate. Such remission may 
 be accomplished by the collection of less than the legal charge, 
 by the repayment of a portion of the amount collected, by the 
 performance of some additional service not properly to be 
 included in the total charge, by underbilling, by excessive mileage 
 payments for cars owned by the shipper, by the allowance of 
 unduly large proportions of the through rate for terminal facili- 
 ties supplied by the shippers and by countless other devices of 
 varying degrees of subtlety. American experience shows that 
 as the law has made the simpler devices difficult and dangerous, 
 the ingenuity of those desiring to receive or willing to pay 
 rebates has caused increasing resort to the more subtle forms. 
 
 There has never been a year, since the American railway sys- 
 tem passed from its earliest and crudest stages, during which 
 rebates in one form or another have not been an important feature 
 of railway practice. During the period just before the enactment 
 of the Interstate Commerce law they were the rule rather than 
 the exception.^ Railways were then under no legal obligation, 
 so far at least as interstate business was concerned, to observe 
 the schedules of rates which they generally found it convenient 
 to publish, and although they were bound by the common law 
 requirement that their charges should be reasonable and just, 
 it was commonly believed that while performing one service for 
 a rate in itself reasonable they might perform another of sub- 
 stantially similar character for a lower rate. Under these cir- 
 cumstances there was freedom of contract between shipper and 
 carrier. The schedules, which were given more or less pub- 
 licly by the soliciting agents and other railway officers, were 
 the basis of negotiations rather than recognized standards of 
 charges. The shipper who desired services which might be per- 
 
 ' First Annual (18S7) Report of the Interstate Commerce Commission, pp. 5-7. 
 
 % 
 
 \ 
 
 \ 
 
 1907] 
 
 Rebates, 
 
 121 
 
 formed by two or more railways "shopped" freely among them, 
 and his offerings of traffic constituted a prize for which the 
 officers of the rival lines competed with a degree of intensity 
 directly proportioned to their volume or value. Competition for 
 the traffic of points located on but one railway may have been 
 less obvious and direct but it was not much less actual nor 
 was it conducted in any very different manner. The individual, 
 firm or corporation, which proposed the erection of a new pro- 
 ductive establishment made its purposes known to the officers 
 of all the railways along which eligible locations were to be 
 found and the final choice of situation was governed very largely 
 by the concessions in freight charges which could be contracted 
 for in advance. Similarly those establishments whose owners 
 desired new outlets for their products, or who desired to sell 
 more goods in markets formerly open to them, found ready 
 assistance from rate-making officers; and this aid frequently 
 took the form, using the word in the broad sense hereinbefore 
 indicated, of a rebate. Even the development of agrarian com- 
 munities was strongly influenced in the same manner. Railways 
 competed, as they still vigorously compete, to induce prospective 
 settlers who proposed to engage in farming to locate along their 
 lines, and the principal terms of the competition, then as now, 
 were the rates on farm products. Then, however, it was easy 
 to carry out the competition by offering rebates to grain buyers, 
 and the device had the advantage that it might for a time con- 
 ceal from actual and potential rivals the degree of rivalry which 
 they would have to meet in order to be successful. 
 
 In short, rebates, prior to 1887, were the handy weapon of 
 interstate railway competition. They were checked only by the 
 consciousness of railway officers that they fostered an unbridled 
 competition that often resulted in doing business at a loss, a 
 consciousness which, when brought sharply home to some officers 
 and owners by seriously depleted revenues and even by bank- 
 ruptcies, resulted in agreements to maintain equal rates via rival 
 routes, and, in some cases, to divide competitive traffic, or all or 
 a part of the earnings therefrom, in fixed proportions. If 
 beyond this consciousness and the arrangements which resulted 
 from it there was any check upon rebating, it resulted from a 
 
 I 
 
mi»s&-mi>- 
 
 I 
 
 I 
 
 122 
 
 Va/e Review, 
 
 [Aug. 
 
 growing public opinion which condemned, as immoral, prac- 
 tices that, without entire accuracy, were commonly assumed 
 always to be means by which unjust discrimination was effected. 
 
 Whatever may be the faults, and it is not suggested that they 
 are not grievous, of such a system of rate-making as that which 
 has been outlined, it possesses the great merit of elasticity. No 
 one will adequately apprehend the conditions which existed prior 
 to the enactment of the Interstate Commerce law if he fails to 
 perceive the readiness with which it permitted the adaptation of 
 the charges for railway services to the successive states of an 
 intensely dynamic and rapidly changing industrial organization. 
 The unjust personal discriminations which were equally possible 
 and perhaps even more probable under unrestricted rebating 
 doubtless produced irreparable injuries to some, but it may still 
 be questioned whether, during the earlier portion of the period 
 characterized by the practice which is now so strongly con- 
 demned, its existence was not, upon the whole, favorable to the 
 industrial upbuilding of the nation. 
 
 Since April 4, 1887, the date on which the Interstate Com- 
 merce law became effective, the publication of rate schedules has 
 been required by law and any deviation from the charges thus 
 indicated has been an offense against the laws of the United 
 States punishable as a misdemeanor. The section in the law, as 
 originally adopted, requiring the publication of the schedules 
 contains the following: 
 
 "And when any such common carrier shall have established 
 and published its rates, fares and charges in compliance with the 
 provisions of this section, it shall be unlawful for such common 
 carrier to charge, demand, collect, or receive from any person or 
 persons a greater or less compensation for the transportation of 
 passengers or property, or for any services in connection there- 
 with, than is specified in such published schedules of rates, fares 
 and charges as may at that time be in force." 
 
 The second section of the original act reads as follows : 
 
 'That if any common carrier subject to the provisions of this 
 act shall, directly or indirectly, by any special rate, rebate, draw- 
 back or other device, charge, demand, collect or receive from 
 any person or persons a greater or less compensation for any 
 
 1907] 
 
 Rebates, 
 
 123 
 
 service rendered, or to be rendered, in the transportation of pas- 
 sengers or property, subject to the provisions of this act, than 
 it charges, demands, collects, or receives from any other person 
 or persons for doing for him or them a like and contemporaneous 
 service in the transportation of a like kind of traffic under sub- 
 stantially similar circumstances and conditions, such common car- 
 riers shall be deemed guilty of unjust discrimination, which is 
 hereby prohibited and declared to be unlawful." 
 
 It may well be doubted whether the section just quoted pro- 
 hibits anything possible to general railway practice which is not 
 forbidden by the broader language quoted from the sixth section, 
 and this doubt is accentuated when the necessity of formu- 
 lating the published rate schedules in accordance with the require- 
 ments of the third section (which prohibits undue preferences) 
 is taken into account. Special rates which would cover the 
 performance of a service for one individual or group of individ- 
 uals for a smaller payment than was exacted from some other 
 person or group "for a like and contemporaneous service in the 
 transportation of a like kind of traffic under substantially similar 
 circumstances and conditions" certainly could not be provided 
 in published rate schedules unless these afforded an obvious 
 "undue or unreasonable preference or advantage"^ to some "per- 
 son, company, firm, corporation or locality,"^ or some "particular 
 description of traffic."^ The only way in which such special 
 rates could be granted, therefore, would be by such departures 
 from the published rates as those broadly prohibited by the sixth 
 section. What is true of any "special rate" is more apparently 
 true of any "rebate, drawback, or other device" intended to 
 operate so as to make the charge to one railway patron lower 
 than that exacted for like and contemporaneous service per- 
 formed for some other patron. The strict observance of legally 
 complete and properly published rate schedules would prevent 
 violation of the law by any of the means enumerated or implied 
 in the second section. 
 
 The first five sections of the Interstate Commerce law and 
 that portion of the sixth section which has been quoted remain 
 to-day in precisely the form of their original enactment. Some 
 
 ^ These terms are used in the third section. 
 
 11 
 
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 i 
 
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 £1 
 
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 124 
 
 y^/(^ Review, 
 
 [Aug. 
 
 additional meaning has, perhaps, been given to the specific pro- 
 hibition of the second section by changes in the penalties pro- 
 vided by the law. Originally the statute provided no penalties 
 except those directed against railway officers, employees or 
 agents and no distinction was made between different forms of 
 violations. Any willful violation was, from April 5, 1887, to 
 March i, 1889, inclusive, a misdemeanor punishable by a fine 
 of not to exceed five thousand dollars. In its second annual 
 report the Interstate Commerce Commission urged upon Con- 
 gress the desirability of making the penalties of the Act applic- 
 able to shippers guilty of participation in its violation, and at 
 the same time suggestions were made, in which the Commission 
 was understood to concur, that imprisonment constitutes the only 
 penalty sufficiently dreaded to check adequately certain classes 
 of offenses against the statute. These views apparently impressed 
 themselves upon Congress, for an amendment to the tenth 
 section of the law, which took effect on March 2, 1889, brought 
 shippers within the scope of its penalties ; and "imprisonment in 
 the penitentiary for a term of not exceeding two years" was, in 
 the case of violations which amount to "an unlawful discrimina- 
 tion in rates, fares or charges," made a punishment available in 
 the discretion of the court as an alternative or supplement to the 
 fine theretofore provided for. The same amendment declared 
 that either or both penalties might be incurred by any one who : — 
 
 " by means of false billing, false classification, 
 
 false weighing, or false report of weight, or by any other device 
 or means, shall knowingly and willfully assist, or shall willingly 
 suft'er or permit, any person or persons to obtain transportation 
 for property at less than the regular rates then established and 
 in force " 
 
 Furthermore, the provisions containing this declaration were 
 made to include shippers and their agents as well as the officers 
 and agents of the carrying company. Singularly enough a most 
 natural consequence of the expansion of the penal provisions of 
 the statute so as to include both parties to rebate payments does 
 not appear to have been at all anticipated. Rebate contracts are 
 not usually negotiated before large audiences nor are rebate 
 payments commonly made upon street corners. An essential 
 
 1907] 
 
 Rebates, 
 
 125 
 
 element in these practices, quite aside from their legality, is the 
 secrecy with which they are conducted. Now it is obvious that, 
 under a law the penalties of which include the recipient of a 
 rebate and his agents as well as the officers and agents of the 
 carrier, knowledge of the acts constituting the misdemeanor may 
 often be confined to those liable to prosecution and punishment 
 therefor. Under such circumstances it might easily happen that 
 in an important case every available witness would be in a posi- 
 tion to plead the protection of Article V of the Amendments to 
 the Constitution of the United States that "no person . . . 
 shall be compelled in any criminal case to be a witness against 
 himself," and to decline to testify. If this possibility was not 
 foreseen its existence was speedily brought to the attention of 
 those charged with the duty of enforcing the statute. 
 
 The amendment extending to shippers the penalties for rebat- 
 ing received Presidential approval on March 2, 1889, and 
 on November 21, 1890, one Charles Counselman, an extensive 
 shipper of grain, being before the Federal grand jury for the 
 Northern District of Illinois, which was then engaged in an 
 inquiry concerning alleged violations of the Interstate Commerce 
 law, the following question and answer, among others, were 
 recorded : — 
 
 "Question. 'Have you during the past year, Mr. Counselman, 
 obtained a rate for the transportation of your grain on any of 
 the railroads coming to Chicago from points outside of this State 
 less than the tariff or open rate?' 
 
 "Answer. That I decline to answer, Mr. Milchrist, on the 
 ground that it might tend to criminate me.' " — 3 I»ter. Com. 
 Rep., 327. 
 
 This refusal to testify being promptly reported to the district 
 judge, an order requiring the witness to answer the question 
 quoted and others of similar import was entered. The witness, 
 however, persisted in his refusal, and in consequence of this 
 refusal was ordered to pay a fine of $500 and to remain in the 
 custody of the United States marshal until he should answer 
 the questions and all questions of similar character. Judge 
 Gresham, then sitting as circuit judge, refused, on this state of 
 
 il 
 
 
m^mmsmmm.- 
 
 126 
 
 Va/e Review, 
 
 [Aug. 
 
 1907] 
 
 Rebates, 
 
 127 
 
 \ 
 
 facts, to grant a writ of habeas corpus,^ holding that Section 860 
 of the Revised Statutes affords immunity equal to that ot the 
 Fifth Amendment. This section of the Revised Statutes is as 
 follows : 
 
 "No pleading of a party, nor any discovery or evidence 
 obtained from a party or witness by means of a judicial pro- 
 ceed ngi" this or any foreign country, shall be g-enm evidence, 
 or in Iny manner used against him or his property or es ate. 
 in anv court of the United States in any criminal proceedings 
 or ?or the enforcement of any penalty or forfeiture : FroW.^ 
 That this section shall not exempt any P^-'ty 0; -f-f Jr°m 
 prosecution and punishment for perjury committed in discover 
 ing or testifying as aforesaid." 
 
 The dismissal of the writ of habeas corpus by Judge Gresham 
 was appealed from and on January n, 1892, the Supreme Court 
 of the United States reversed the decision of the Circuit Court 
 and remanded the case to that court with a direction to dis- 
 charge the appellant from custody. The principle of law applied 
 in the opinion of the Supreme Court is indicated by the following 
 quotations : — 
 
 "It remains to consider whether Section 860 of the Revised. 
 Statutes removes the protection of the Constitutional privilege 
 of Counselman. That section . . . protected him against the 
 use of his testimony against him or his property m any prosecu- 
 don against him or hi! property, in any criminal proceeding, m 
 a court of the United States. But it had only that effect. It 
 cotdd not, and would not, prevent the use of his testimony to 
 sea ch ou other testimony to be used against him or his property, 
 ^a criminal proceeding in such court. It could not prevent th^ 
 obtaining and the use of witnesses and evidence which should 
 r attHbutable directly to the testimony he might give under 
 impulsion, and on which he might be convicted, when other- 
 wTe and i he had refused to answer he could not possibly have 
 been convicted. . . the protection of Section 860 is not coex- 
 tensive with the constitutional provision^ Legislation cannot 
 detract from the privilege afforded by the Constitution. -Coun- 
 selman V. Hitchcock, 142 U. S., 547- 
 
 Following the foregoing, the opinion of the Supreme Court 
 proceeded to discuss at some length the effect of the statutes of 
 
 1 3 Inter. Com. Rep., 327. 44 Fed. Rep., 268. 
 
 certain States, the legislatures of which had attempted to secure 
 testimony from persons who might otherwise plead the protec- 
 tion of constitutional exemptions similar to that of the Fifth 
 Amendment to the Federal constitution, by forbidding future 
 criminal prosecutions against such witnesses. After citing a 
 number of adjudicated cases the court said \— 
 
 "We are clearly of opinion that no statute which leaves the 
 party or witness subject to prosecution after he answers the 
 criminating questions put to him, can have the effect of supple- 
 menting the privilege conferred by the Constitution of the United 
 States. . . In view of the constitutional provision a statu- 
 tory enactment to be valid, must afford absolute immunity for 
 the oft'ense to which the question relates."— Counselman v. 
 Hitchcock, 142 U. S., 547- 
 
 This decision and its consequence were first explained to Con- 
 gress in the Annual Report which the Interstate Commerce Com- 
 mission submitted on December i, 1892, and the prompt action of 
 the national legislature illustrates its customary readiness to 
 adopt the reasonable recommendations of the Commission. The 
 change in the statutory protection afforded this class of wit- 
 nesses, plainly suggested by the Supreme Court and urged by 
 the Commission, was enacted and received Presidential sanction 
 just two months and ten days after the date of the Commission's 
 report. The following provision of law was approved on Feb- 
 ruary II, 1893: — 
 
 "That no person shall be excused from attending and testifying 
 or from producing books, papers, tariffs, contracts, agree- 
 ments and documents before the Interstate Commerce Commis- 
 sion, or in obedience to the subpoena of the Commission, whether 
 such subpoena be signed or issued by one or more Commissioners, 
 or in any cause or proceeding, criminal or otherwise, based upon 
 or growing out of any alleged violation of the Act of Congress, 
 entitled— "An act to regulate commerce," approved February 
 fourth, eighteen hundred and eighty-seven, or of any amend- 
 ment thereof, on the ground or for the reason that the testimony 
 or evidence, documentary or otherwise, required of him, may tend 
 to criminate him or subject him to a penalty or forfeiture. 
 
 But no person shall be prosecuted or subjected to any penalty or 
 forfeiture for or on account of any transaction, matter or thing, 
 concerning which he may testify, or produce evidence docu- 
 
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 Yale Review, 
 
 [Aug. 
 
 \ 
 
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 mentary or otherwise, before said Commission, or in obedience to 
 its subpoena or the subpoena of either of them, or in any such 
 case or proceeding." 
 
 Almost precisely a year after the enactment of the foregoing, 
 on February i6, 1894, to be exact, the Federal grand jurors 
 for the Northern District of Illinois, being engaged in an inquiry 
 concerning alleged violations of the Interstate Commerce law, 
 two witnesses declined to respond to certain inquiries upon the 
 ground that their answers would tend to criminate them. The 
 validity of the law of February 11, 1893, was thus brought before 
 Judge Grosscup, who was then sitting as district judge, and on 
 February 26, 1894, he declined to punish them for their refusals 
 to testify. Although the Supreme Court subsequently took an 
 opposite view of the questions involved, the opinion of this great 
 publicist and justly distinguished jurist merits quotation on 
 account of its characteristic breadth of view : — 
 
 *The case at bar, like those cited, inspires no wish in the court 
 to protect the witnesses. The Interstate Commerce act is a law of 
 the land, and the witnesses ask for the protection of the Amend- 
 ment under circumstances which indicate that, having violated 
 it before, they have no intention to cease violating it now. It is 
 the contest of the people who disbelieve in the expediency of the 
 law against the attempt to enforce it. The protection is asked, not 
 so much to keep inviolate the secrets of the human breast, as to 
 have immunity in further violating a law of the land. Judged 
 by this specific instance, the Fifth Amendment, if construed 
 broadly enough to afford the witnesses immunity against testi- 
 fying, is an obstruction in the path of the administration of 
 law. But the Fifth Amendment must not be judged by a single 
 specific instance. It was placed in the organic law of the land 
 for a purpose and that purpose, when ascertained, must be 
 enforced, howsoever it may effect sporadic cases, or even the 
 
 great body of cases, that may come before the court 
 
 The privilege which the f ramers of the Amendment secured was 
 silence against the accusation of the Federal government, — 
 silence against the right of the Federal government to seek out 
 data for an accusation. This privilege of silence was, as they 
 believe, and as events then looked, in the interest of progress 
 and personal happiness, as against the narrow views of adven- 
 titious power. Did they originate such a privilege simply to 
 safeguard themselves against the law-inflicted penalties and for- 
 
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 1907] 
 
 Rebates, 
 
 129 
 
 I 
 
 feitures? Did they take no thought of the pains of practical 
 outlawry? The stated penalties and forfeitures of the law 
 might be set aside; but was there no pain in disfavor and 
 odium among neighbors, in excommunication from church or 
 societies that might be governed by the prevailing views, in the 
 private liabilities that the law might authorize, or in the unfath- 
 omable disgrace, not susceptible of formulation in language, 
 which a known violation of law brings upon the offender. . . . 
 I cannot think so. 
 
 "Happily, the day when this immunity is needed seems to be 
 over. It is difficult for us, who live in a time when there are 
 few, if any, definitions of crime that do not meet with the 
 approval of universal intelligence and conscience, to appreciate 
 these conceptions of our fathers . . . when we see the shield 
 held before the briber, the liquor seller, the usury taker, the 
 duelist, and the other violators of accepted law, we are moved 
 to break or cast it aside, unmindful of the splendid purpose that 
 first threw it forward. But whatever its disadvantages now, it 
 i.5 a fixed privilege, until taken down by the same power that 
 extended it. It is not certain, either, that it may not yet serve 
 some useful purpose. The oppression of crowns and principali- 
 ties is unquestionably over, but the more frightful oppression 
 of selfish, ruthless and merciless majorities may yet constitute 
 one of the chapters of future history. In my opinion, the privi- 
 lege of silence, against a criminal accusation, guaranteed by the 
 Fifth Amendment, was meant to extend to all the consequences 
 of disclosure."— U. S. v. James, 5 Inter. Com. Rep., 584-588. 
 60 Fed. Rep. 257. 
 
 No appeal could be taken by the government from Judge 
 Grosscup's decision and although the Interstate Commerce Com- 
 mission declared, in reference to the Counselman and James 
 cases, that: — 
 
 "It will thus appear that for more than five years, last past, 
 Jt has been impracticable to obtain testimony on which to enforce 
 the penal provisions of the act, the statute having received a 
 construction which made it impossible to obtain evidence of guilt, 
 though a very few convictions of no great importance have been 
 secured upon testimony casual and accidental." — Ninth Annual 
 Report (1895), P- 9- 
 
 it appears that it was not until May 6, 1895, ^01*^ than a year 
 
 after it was decided, that a case of similar character could be 
 9 
 
 i\ 
 
I30 
 
 Yale Review, 
 
 [Aug. 
 
 1907] 
 
 Rebates, 
 
 13^ 
 
 1 
 
 % 
 
 '% 
 •? 
 
 \ \ 
 
 I Mill 
 
 brought in another jurisdiction. On the date last mentioned, 
 however, Theodore F. Brown, a railway officer, declined, while 
 before the Federal grand jury for the Western District of Penn- 
 sylvania, to give testimony which he declared "would tend to 
 accuse and criminate" himself. This refusal being reported to 
 the District Court, a rule requiring him to answer was issued 
 and as he persisted in his refusal he was adjudged guilty of 
 contempt, sentenced to pay a fine and ordered to remain in the 
 custody of the United States marshal until the fine should be 
 paid. A petition for a writ of habeas corpus was denied by the 
 Circuit Court (5 Inter. Com. Rep., 300) and on appeal to the 
 Supreme Court the judgment of the lower court was affirmed, 
 Justices Field and Shiras dissenting. The opinion of the 
 majority of the Supreme Court was prepared by Mr. Justice 
 Brown and includes the following : 
 
 "The act of Congress in question securing to witnesses 
 immunity from prosecution is virtually an act of general 
 
 amnesty, It is entirely true that the statute 
 
 does not purport, nor is it possible for any statute, to shield the 
 witness from the personal disgrace or opprobrium attaching to 
 the exposure of his crime; but . . . if the proposed testi- 
 mony is material to the issue on trial, the fact that the testimony 
 may tend to degrade the witness in public estimation does not 
 exempt him from the duty of disclosure. A person who com- 
 mits a criminal act is bound to contemplate the consequences of 
 exposure to his good name and reputation, and ought not to call 
 upon the courts to protect that which he has himself esteemed 
 to be of such little value. . . The design of the constitutional 
 privilege is not to aid the witness in vindicating his character, 
 but to protect him against being compelled to furnish evidence 
 to convict him of a criminal charge. If he secure legal immunity 
 from prosecution, the possible impairment of his good name Is 
 a penalty which it is reasonable he should be compelled to pay 
 for the common good. If it be once conceded that the fact that 
 his testimony may tend to bring the witness into disrepute, 
 though not to incriminate him, does not entitle him to the privi- 
 lege of silence, it necessarily follows that if it also tends to 
 incriminate, but at the same time operates as a pardon for the 
 offense, the fact that the disgrace remains no more entitles him 
 to immunity in this case than in the other. . . . While the 
 constitutional provision in question is justly regarded as one 
 
 of the most valuable prerogatives of the citizen, its object is fully 
 accomplished by the statutory immunity, and we are therefore 
 of opinion that the witness was compellable to answer, . . ." 
 — Brown v. Walker, 5 Inter. Com. Rep., 381, 390. 161 U. S., 
 
 591- 
 
 The decision of the Supreme Court in the Brown case was 
 rendered on March 23, 1896, and was at once heralded as clear- 
 ing the way for the complete eradication of rebates. The Inter- 
 state Commerce Commission in its Tenth Annual Report 
 (1895, P- 27) strongly indicated its belief that thereafter there 
 would be little difficulty in detecting and punishing deviations 
 from the published schedules of rates. 
 
 The law of February 11, 1893, which has just been considered, 
 had for its specific object the removal of opportunity to escape 
 giving testimony concerning violations of the Interstate Com- 
 merce law by claiming the Constitutional protection against 
 compulsory self-incrimination. The James and Brown cases 
 relate to the production of testimony before grand juries and so 
 did the Counselman case, based upon the earlier statutory pro- 
 vision, which preceded them. While this litigation was in pro- 
 gress an entirely different question arose through litigation 
 which challenged the validity of the statutory means provided 
 for requiring any testimony whatever in proceedings before the 
 Interstate Commerce Commission. 
 
 The twelfth section of the Interstate Commerce law author- 
 izes the Commission to issue subpoenas and subpoenas duces 
 tecum and proceeds as follows : — 
 
 "And in case of disobedience to a subpoena the Commission, 
 or any party to a proceeding before the Commission, may invoke 
 the aid of any court of the United States in requiring the atten- 
 dance and testimony of witnesses and the production of books, 
 papers, and documents under the provisions of this section. 
 And any of the circuit courts of the United States within the 
 jurisdiction of which such inquiry is carried on may, in case of 
 contumacy or refusal to obey a subpoena issued to any common 
 carrier subject to the provisions of this act, or other person, 
 issue an order requiring such common carrier or other person to 
 appear before said Commission (and produce books and papers 
 if so ordered) and give evidence touching the matter in question; 
 
 'M'^^^**^0^^^:'^^^'mis^mm^m^w^^^^^Kmh' 
 
I* 
 
 i 
 
 1 
 
 I 
 
 1 
 
 
 Hi!'! 
 
 Hiili 
 
 !ll^ 
 
 132 
 
 Vale Review. 
 
 [Aug. 
 
 and any failure to obey such order of the court may be punished 
 by such court as a contempt thereof."^ 
 
 On June 18, 1892, the Commission made an order requirmg 
 certain railway companies to appear before it on July 13, follow- 
 ing, at Chicago, *'to answer an informal complamt, made by 
 unknown persons."^ 
 
 At the hearing which followed, some of the witnesses, acting 
 upon advice of counsel, refused to produce the books of their 
 companies or to answer certain questions. The Commission then 
 applied to the United States Circuit Court for the Northern 
 District of Illinois, in accordance with the twelfth section, for 
 an order compelling the production of the books and requiring 
 answers to the inquiries propounded. The decision dismissing 
 this application was rendered by the late Judge Walter Q. 
 Gresham and is epitomized in the following quotations :— 
 
 "The application of an administrative body (and we are now 
 considering such an application) to a judicial tribunal for the 
 exercise of its functions in aid of the execution of non-judicial 
 duties does not make a 'case' or 'controversy' upon which the 
 judicial power can be brought to bear. . . Congress cannot 
 make the judicial department the mere adjunct or mstrument 
 of either of the other departments of government. . ^ . . . 
 Undoubtedly Congress may confer upon a non-judicial body 
 authority to obtain information necessary for legitimate govern- 
 mental purposes, and make refusal to appear and testify before 
 i^ touching matters pertinent to any authorized inquiry an 
 offense punishable by the courts, . . . A prosecution or an 
 action for violation of such a statute would clearly be an original 
 suit or controversy between parties within the meaning of the 
 Constitution, and not a mere application, like the present one, for 
 the exercise of the judicial power in aid of a non-judicial body. 
 So much of Section Twelve as authorizes or requires the courts 
 to use their process in aid of inquiries before the Interstate Com- 
 merce Commission is unconstitutional and void." Re application 
 of the Interstate Commerce Commission for an order upon W. G. 
 Brimson, et al., 4 Inter. Com. Rep., 317-318- 
 
 'This portion of Section Twelve is quoted as it has stood since March 2, 1889. 
 The first sentence read diflferently in the original enactment, but it is not clear 
 that its meaning was changed by the amendment. 
 
 2 Statement of the case by the late Judge Walter Q. Gresham. 4 Inter. Com. 
 
 Rep., 316. 
 
 1907] 
 
 Rebates, 
 
 133 
 
 The Commission appealed to the Supreme Court of the United 
 States and succeeded in obtaining a reversal of the opinion of 
 Judge Gresham.i This section of the Supreme Court had the 
 assent of but a bare majority, as Justices Brewer and Jackson 
 with Chief Justice Fuller joined in a dissenting opinion and 
 Justice Field did not sit in the case and took no part in its 
 determination. The opinion, by Mr. Justice Harlan, handed 
 down on May 26, 1894, declares that, when the means for com- 
 pelling testimony provided in the twelfth section are invoked, 
 distinct issues, sufficient to make up a "case or controversy" 
 within the meaning of the Constitution, arise between the United 
 States and the recalcitrant witness. Continuing, it is declared : — 
 
 "And those issues made in the form prescribed by the Act of 
 Congress are so presented that the judicial power is capable 
 of acting on them. The question so presented is substantially, 
 if not precisely, that which would arise if the witness was pro- 
 ceeded against by indictment under an Act of Congress declaring 
 it to be an offense against the United States for any one to 
 refuse to testify before the Commission." — Interstate Com- 
 merce Commission vs. Brimson, 4 Inter. Com. Rep., 555. 154 
 U. S., 447. 
 
 The final decisions in the Brown and Brimson cases were 
 unqualifiedly favorable to the Commission and it was commonly 
 believed that they would put an end to rebates in all their forms. 
 Five pages of the Tenth Annual (1896) Report of the Commis- 
 sion are devoted to an explanation of the decision in the Brown 
 case and its hearing upon the problems of railway regulation. 
 The Commission said, in part : — 
 
 "This decision seems to have effectually removed the embar- 
 rassments hitherto encountered in obtaining the testimony of 
 unwilling witnesses in penal cases; while under it and the 
 ruling of the Supreme Court in 1894 in the Brimson case little 
 difficulty is now experienced in securing the attendance and testi- 
 mony of such witnesses in proceedings before the Commission. 
 It is worthy of mention that the power and authority affirmed by 
 these decisions is so fully recognized that in the course of recent 
 investigations by the Commission no attempt has been discovered 
 to conceal the facts pertinent to an inquiry or to prevent the dis- 
 
 154 U. S., 447. For dissenting opinion see 155 U. S., 3. 
 
 { 
 
 •}mmiiim^mf-^>-i^-'-*-v'»-^'^-i^-m- 
 
 i^/t m^mm^i^f^mfs 
 
J 
 
 1 
 
 11 
 
 134 
 
 Yale Review. 
 
 [Aug. 
 
 closure of any desired information."— Tenth Annual Report 
 (1896), p. 27. 
 
 In spite, however, of the confidence expressed by the foregoing 
 the operation of the law which .had been thus adjusted and read- 
 justed to meet the wishes of the Commission did not result to 
 its satisfaction. New recommendations were deemed necessary 
 and, on January 17, 1902, the Commission said:— 
 
 "The criminal provisions of the law should be further and 
 srenerally amended with the view of removing their ambiguities 
 and giving to those provisions the strength and enforceability 
 which come from definiteness of statement."— Fifteenth Annual 
 Report (1901), p. 8. 
 
 The reasons urged in support of this recommendation were sum- 
 marized, in the same report, as follows : — 
 
 "The Act requires carriers to publish interstate rates and 
 adhere to such published tariffs. But the tenth section, as con- 
 strued by the courts, does not punish, otherwise than by a pos- 
 sibly nominal fine,^ a departure from the published tariff, unless 
 there is actual discrimination between shippers. To convict for 
 unjust discrimination it is necessary to show not merely that the 
 railway company paid a rebate to a particular shipper, but it must 
 also be shown that it did not pay the same rebate to some other 
 shipper with respect to the same kind of traffic moving at the 
 same time under similar conditions. As a practical matter this 
 is almost always impossible. For this reason prosecutions other- 
 
 iThe fine fixed by the statute, from the enactment of the law to the date on 
 which the report quoted was published, and thereafter until February 19, 1903, 
 was •' not to exceed $5,000." Only a lack of confidence in the Federal judiciary 
 is expressed by the suggestion that such fines might, improperly, be made 
 -nominal"- only a desire to imprison the defendants could lead to a prefer- 
 ence for proceeding for "unjust discrimination" instead of " departure from the 
 published tariff." Even if imprisonment were the only penalty that could satisfy 
 the Commission, it is difficult to see why it could not have been brought about 
 by charging a conspiracy to violate a law of the United States, under Section 
 5440 of the Revised Statutes, which reads as follows :— 
 
 - If two or more persons conspire either to commit any offense against the 
 United States or to defraud the United States in any manner or for any purpose, 
 and one or more of such parties do any act to effect the object of the conspiracy, 
 an the parties to such conspiracy shall be liable to a penalty of not more than 
 $10,000; or to imprisonment for not more than two years, or to both fine and im- 
 prisonment in the discretion of the court." 
 
 This statute has continuously been in force since long prior to the passage of 
 the Interstate Commerce law. As to its application, see 56 Fed. Rep., 21. 
 
 1907] 
 
 Rebates. 
 
 Tt35 
 
 wise sustainable can rarely be successful ; and this is particularly 
 the case where there is an extensive demoralization of rates, and 
 consequently the greatest need for the application of criminal 
 remedies. Departure from the published rate is the thing which 
 can be shown and the thing which should be visited with fitting 
 punishment."^ 
 
 The Commission had previously declared itself in favor of 
 abolishing the imprisonment penalty, which had been provided 
 on its recommendation in 1889, as it was believed that the exist- 
 ence of this penalty greatly increased the reluctance to make the 
 needed disclosures on the part of those having knowledge either 
 of actual violations of the law or that would be likely to lead to 
 the discovery of evidence of such violations.^ These recom- 
 mendations were, like their predecessors herein discussed, enacted 
 into law by the Congress. On February 19, 1903, the President 
 of the United States gave his approval to the Act, commonly 
 known as the Elkins law, which made the changes thus urged. 
 As originally passed this Act extended the penalties for violation 
 of the Interstate Commerce law to the carrying corporations 
 concerned in them, made them fully applicable to willful failures 
 to file and publish tariffs and to every departure from the rates 
 named in such tariffs and fixed a minimum penalty of $1,000 
 and a maximum penalty of $20,000 for each offense. It also did 
 away with the imprisonment penalty and made tariffs filed with 
 the Commission conclusive evidence of the legal rates. The first 
 section of the Elkins law was reenacted, as a part of the recon- 
 structed Interstate Commerce law that was approved on June 
 29, 1906, but with some minor modifications and two important 
 additions. The first of these additions reestablishes the alterna- 
 tive or supplemental penalty by "imprisonment in the penitentiary 
 
 * See last preceding foot-note. 
 
 '^It has been denied that the Commission ever recommended the abolition of 
 the imprisonment penalty. For such a denial and an effective answer see 
 remarks of Senators LaFollette and Foraker in Congressional Record of May 
 10, 1906. But on December 8, 1899, as shown by the official records, the Com- 
 mission, by unanimous vote, directed its executive officer to "cooperate with 
 certain mercantile organizations to secure the adoption of amendments to the 
 Act to regulate commerce," and among the amendments specifically included in 
 this instruction was one doing away with the imprisonment penalty. The officer 
 in question was ordered to "devote himself assiduously to such duty." 
 
 li 
 
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 136 
 
 Yale Review, 
 
 [Aug. 
 
 for a term of not exceeding two years," and the second provides 
 a civil forfeiture by the recipient of any rebate equal to three 
 times the sum so received. The new law contains further pro- 
 visions intended to prevent rebating in the requirements for uni- 
 form accounts to be prescribed by the Commission and at all 
 times open to its inspection and the prohibition of keeping any 
 other records, accounts or memoranda. 
 
 Such is the legislative history of the attempt to eliminate from 
 American railway practice the evil of secret rates and those 
 unjust discriminations which are accomplished by means of 
 unlawful concessions from the rates regularly scheduled. From 
 this point of view interstate railway transportation is divided into 
 two principal periods, which are : (first) the period prior to April 
 5, 1887,^ when there was no statutory obligation to publish rates 
 or to conform to them when published, and (second) the period 
 since April 5, 1887, during which the publication of rates has been 
 required and only the published rates could lawfully be charged. 
 The second period is also susceptible of division as shown by 
 the table on the next page. 
 
 Bearing in mind these successive states of the law and the 
 dates on which each of them began and ended, it is worth while 
 to trace the degree of success attained in the enforcement of 
 the law, as faithfully recorded in the reports of the Interstate 
 Commerce Commission. It will but slightly anticipate the 
 results of such an effort to observe that the beginning of each 
 of the five periods indicated in the table has generally been 
 characterized by a sudden cessation of complaints of the for-- 
 bidden practices which, after a respite of longer or shorter 
 duration, have never failed to reappear and not always with 
 diminished intensity. Of course this recrudescence has not 
 occurred under the law that became effective in August, 1906, 
 but the period of opportunity is still short and it is, perhaps, 
 too early to declare with confidence that the obnoxious practices, 
 which have survived four previous states of the prohibitive law 
 although each was, in its turn, authoritatively declared to 
 approximate, if not to attain, perfection, have forever disap- 
 peared. 
 
 ^The Interstate Commerce law was approved on February 4, 1887, and took 
 effect sixty days later. 
 
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 The first ten months' experience under the statute of February 
 4, 1887, convinced the Interstate Commerce Commission that 
 rebates were already obsolete. The report said : — 
 
 "There is every reason to believe, however, that some of the 
 most serious evils which were notorious in the railway service 
 before the passage of the act, and were in the legislative mind 
 as reasons for its enactment, have now almost ceased to exist. 
 One of these was the giving of special and secret rebates." — First 
 Annual (1887) Report, p. 25. 
 
 In the same report the Commission expressed the opinion, 
 similar to that frequently heard at the present time, that the 
 railways were receiving increased revenues on account of the 
 new law. 
 
 "It has operated directly to increase railroad earnings, espe- 
 cially in the cutting off of free passes on interstate passenger 
 traffic, and in putting an end to rebates, drawbacks, and special 
 rates upon freight business." — pp. 41-42. 
 
 And again, in the same report: 
 
 "Freight traffic for the year has been exceptionally large in 
 volume, and is believed to have been in no small degree stimu- 
 lated by a growing confidence that the days of rebates and special 
 rates were ended." — p. 42. 
 
 The Commission also reported^ that "among all the com- 
 plaints" it had received not one had alleged "a specific act" in 
 violation of the law against departures from the tariff rates 
 and that in the litigated cases in which it had been required to 
 take testimony concerning railway practices at important traffic 
 centers there had been, in all but "a single exceptional 
 instance," — 
 
 ". . . entire agreement in the proofs that special rates 
 to individuals and secret rebates were no longer made; . . . 
 — P- 25. 
 
 The Second Annual Report of the Commission, issued in 
 December, 1888, devotes much less space to the question of 
 rebates but discloses a somewhat diminished confidence in the 
 
 ^ First Annual (1887) Report, p. 25. 
 
 I!i!|| 
 
 ipiM^iiiiiPi 
 
 IH" 
 
 1907] 
 
 Rebates, 
 
 139 
 
 complete efficacy of the prohibitive portions of the law. It 
 relates^ that early in the year the Commission became convinced 
 that fraudulent underbilling of freight "was being somewhat 
 extensively practiced," and that during the year there had been 
 a succession of rate-wars^ which had been accompanied by "vio- 
 lations of the Act" in the form of "secret rate-cutting." 
 
 Three months after the report containing the foregoing had 
 been published the amendment establishing the imprisonment 
 penalty and extending all penalties to the recipients of rebates 
 became effective. In its next report^ the Commission announced* 
 that the time had arrived for "more aggressive steps" in the 
 enforcement of the law, but suggested that evidence of rebates 
 was, in the nature of things, exceedingly difficult to obtain: — 
 
 "• • • . violations of a more private character, such as 
 rebates or discriminations in rates for freight or passengers, or 
 underbilling or false billing of traffic, cannot exist without com- 
 plicity between the shippers and the carriers. These are never 
 open or public, but secret. The interest of both parties to the 
 transaction requires concealment, as well to escape the penalties 
 of the law as for other reasons. Proof of such cases is obviously 
 difficult to obtain. Instances occur in which the inference is 
 strong that some feature of the law has been violated or evaded, 
 but inferences to warrant convictions must be drawn from facts 
 and circumstances proved, and when both parties to such trans- 
 actions are interested in keeping them secret, or liable to similar 
 punishment,^ the necessary evidence of the facts tending to 
 show culpability of a carrier, or of some officer or agent, is not 
 easily procured." — Third Annual (1889) Report, p. 107. 
 
 ^ Page 10. 2 Pages 18-24. 
 
 ^ Third Annual (1889) Report. *Page 107. 
 
 5 Yet in its previous report the Commission had recommended the change 
 which- made shippers liable and created the difficulty in question, saying, 
 "There are provisions in the Act as it now stands which would render the car- 
 rier, its officers or agents, punishable if by false billing, false classification, false 
 weighing, or false report of weight, or by any other device or means whatsoever, 
 they shall give undue or unreasonable preferences or advantages. The Com- 
 mission believes that the penal provisions against wrongs of this nature should 
 embrace also the owner of the property or any party acting for the owner or con- 
 signor of property who shall be a party to any such unlawful conduct, and it 
 urges the passage of the provisions on the subject contained in the pending 
 bill." Second Annual (1888) Report, p. 69. 
 
 ^^ 
 
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 140 
 
 JKia:/.^ Review, 
 
 [Aug. 
 
 The Fourth Annual Report of the Commission bears date as 
 of November 29, 1890, and indicates a considerable laxity of 
 regard for the provisions against the various forms of rebates. 
 A large portion of this report was devoted to the discussion of 
 illegal concessions from the published tariffs, the Commission 
 saying : — 
 
 "The Act to regulate commerce is perhaps most often dis- 
 regarded in the giving of rebates or the granting of special rates 
 for the transportation of property of large shippers." — p. 7. 
 
 In another place in this report the Commission quoted, appar- 
 ently as expressing what it regarded as an accurate portrayal of 
 events, an alleged interview, which it stated had not been dis- 
 claimed, with an unnamed "railroad manager." The quoted 
 statement follows: — 
 
 "The situation in the West is so bad that it could hardly be 
 worse. Rates are absolutely demoralized, and neither the 
 shippers, the passengers, the railways, or the public in general 
 make anything by this state of affairs. The profit is all secured 
 by the middleman, the go-between. Take passenger rates, for 
 instance. They are very low; but who get the benefit of the 
 reduction? Why, no one but the scalpers, who have nothing at 
 stake, everything to win and nothing to lose. In freight matters 
 the case is just the same. Certain shippers are allowed heavy 
 rebates, while others are made to pay full rates. Some of these 
 shippers are constantly afraid of being hauled up before the 
 Interstate Commerce Commission, but they need have no fear 
 from that direction. The management of rates is dishonest on all 
 sides, and there is not a road in the country that can be accused 
 of living up to the rules of the Interstate Commerce law. Of 
 course when some poor devil comes along and wants a pass to 
 save him from starvation, he has several clauses from the Inter- 
 state act read to him. But when a rich shipper wants a pass, 
 why, he gets it at once." — p. 25. 
 
 Commenting on the foregoing, the Commission said, in 
 part : — • 
 
 "Statements like that of the railroad manager, given above, 
 have found justification in the sudden diversion of business from 
 one road to another, in the frequency with which products are 
 sold in the market for less than cost, including published rates 
 
 1907] 
 
 Rebates. 
 
 141 
 
 of transportation, and in such other circumstances attending the 
 traffic as lead to the conclusion that less than legal rates are col- 
 lected from many favored shippers. Like declarations as to 
 unjust discriminations, giving of rebates and unlawful prefer- 
 ences have been reiterated in the press as well as in published 
 statements of numerous railroad officials. 
 
 "Since the presentation of our last annual report, officers, man- 
 agers, and responsible representatives of the roads, or some of 
 them, have often declared that the established and published 
 rates were not maintained, that some favored shippers paid less 
 while others paid full rates, and that the roads which obeyed the 
 law frequently did so to their serious injury and with the loss 
 of business and earnings." 
 
 The Commission's reports for 1891^ and 18922 discuss 
 rebates quite as though they constituted a well recognized, 
 although reprehensible, incident of the business of interstate rail- 
 way transportation which would remain inevitable at least until 
 the enactment of further legislation. Similarly the report for 
 1893 said: — 
 
 "That the public tariff charges are frequently departed from 
 in particular localities, that rebates are paid, and that other pro- 
 hibitions of the statute are disregarded is believed by many to 
 be true. 
 
 The legal proof of these violations may not be obtainable, 
 yet the fact of their occurrence is a moral certainty." — Seventh 
 Annual Report, p. 8. 
 
 At this time, however, the Commission did not care for 
 further authority to deal with the subject, which it plainly 
 regarded as somewhat incompatible with the more lofty concep- 
 tion of its responsibilities and prerogatives as the beneficent 
 creator of industrial equality, the mighty protector of economic 
 peace and the wise and impartial dispenser of commercial jus- 
 tice.^ It therefore protested against being charged with new 
 
 ' Pages 12-14, 34-41- '^ Pages 28-30, 40. 
 
 ^It was in this report that the Commission expressed its view of the work of 
 regulation in these justly celebrated sentences: "To give each community the 
 rightful benefits of location, to keep different commodities on an equal footing, 
 so that each shall circulate freely and in natural volume, and to prescribe rates 
 which shall be reasonably just to both shipper and carrier, is a task of vast mag- 
 nitude and importance. In the performance of that task lies the great and per- 
 manent work of public regulation." — p. 10. 
 
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 142 
 
 Yale Review. 
 
 [Aug. 
 
 burdens connected with the mere execution of plain provisions 
 of statutory law, the discovery of infractions of such provisions 
 or the punishment of offenders, saying, in part: — 
 
 "The offense is made penal by the terms of the statute; its 
 discovery and punishment belong to the administration of the 
 criminal law. No amendment of this statute, therefore, is neces- 
 sary or suitable with the view of giving greater power to the 
 Commission in enforcing its penal provisions. If immunity is 
 secured from these demoralizing offenses, if the notorious and 
 intolerable practices which the present law condemns are effec- 
 tually dealt with, it will be through greater vigilance and more 
 vigorous effort on the part of those who are charged with the 
 duty of executing the criminal laws, aided, it may be, by enact- 
 m.ents which tend to diminish the inducements to such trans- 
 gressions."^ — p. 8. 
 
 The years 1894 and 1895 seem to have passed without any 
 outbreaks of rate-cutting sufficient to seem to the Commission 
 to demand special attention in its annual reports. During both 
 of them the law of February 11, 1893, was in existence, although 
 its legality was questioned and, as already noted, a witness who 
 declined to accept it was discharged by Judge Grosscup^ on 
 the ground that it was unconstitutional. In 1896^ the Supreme 
 Court sustained this law and its decision was hailed in the Com- 
 mission's report for that year with the anticipations of the com- 
 plete eradication of the pernicious practices which have already 
 been quoted.* Nevertheless the very next report records the 
 almost complete failure of these hopes. The Commission was 
 forced to report that: — 
 
 <<•' 
 
 We are constrained to believe that one of the worst features 
 in the present situation arises from a departure from the pub- 
 lished rate in favor of particular shippers. 
 
 * 
 
 * 
 
 ii^ 
 
 'We have no doubt that at the present time very large quanti- 
 ties of competitive traffic are carried at other than published rates. 
 
 ' For additional evidence that the Commission did not desire to undertake the 
 detection and punishment of rebating see the testimony of Mr. Walker D. Hines 
 before the Committee on Interstate Commerce of the United States Senate. 
 Hearings before the Committee on Interstate Commerce, United States Senate, 
 pursuant to Senate Resolution No. 288, Fifty-eighth Congress, Third Session, 
 Vol. II, p. 1172-1180. 
 
 'Ante, p. 128. ^Ante, p. 130. *Ante, p. 131. 
 
 >*f-^:«S^i5S«?S»!^^i^^?l 
 
 
 1907] 
 
 Rebates, 
 
 143 
 
 "The effect of this rate-cutting is most unfortunate. Inci- 
 dentally it prefers the large to the small shipper. Rebates can 
 not be given to-day as they were before the passage of this act, 
 nor as they were before the Brown decision even. Various 
 devices are resorted to. Only a few can know of the transaction. 
 The whole matter must be covered up and kept secret, with the 
 result that the large shipper, the trust, the monopoly, is able to 
 secure the concession, while the small shipper is obliged to pay 
 the published rates, and this concession, while at the present time 
 small as a rule in individual instances, is often very large in the 
 aggregate."— Eleventh Annual (1897) Report, pp. 46, 47, 48. 
 
 For 1898 the report was more specific, covering a large num- 
 ber of special instances of demoralization including rates on 
 flour, turpentine and coal. The situation in general was strongly 
 summarized as follows: — 
 
 "Meanwhile the situation has become intolerable, both from 
 the standpoint of the public and the carriers. Tariffs are dis- 
 regarded, discriminations constantly occur, the price at which 
 transportation can be obtained is fluctuating and uncertain. Rail- 
 road managers are distrustful of each other and shippers all the 
 while in doubt as to the rates secured by their competitors. The 
 volume of traffic is so unusual as to frequently exceed the capac- 
 ity of equipment, yet the contest for tonnage seems never relaxed. 
 Enormous sums are spent in purchasing business and secret rates 
 accorded far below the standard of published charges. The gen- 
 eral public gets little benefit from these reductions, for conces- 
 sions are mainly confined to the heavier shippers." — Twelfth 
 Annual (1898) Report, pp. 5-6. 
 
 The melancholy chapter of violations of a statute which seems 
 to most citizens to be but the enactment of a rule of elementary 
 justice is here interrupted by what is properly regarded as the 
 brightest incident in the history of the Commission. Under com- 
 pulsion of the conditions recorded in the foregoing extract and 
 the wise leadership of its able and far-seeing chairman, the 
 Commission refused "to accept the situation as unavoidable" 
 and to content itself "with reporting to Congress. . . that 
 the requirements of the Act respecting the observance of pub- 
 lished tariffs were not enforceable," as it acknowledged it had 
 
 
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 144 
 
 Va/e Review. 
 
 [Aug. 
 
 1907] 
 
 Rebates. 
 
 145 
 
 i 
 
 '1 
 
 
 done in the past,^ but, on the contrary, went vigorously to work 
 "to bring about such new conditions as would render these pro- 
 visions operative to the fullest extent practicable."^ The salu- 
 tary and effective means adopted was to hold a series of general 
 conferences with the controlling officers of the carriers located 
 in the sections in which demoralization existed or was threatened 
 and by such conferences and all other proper and available means 
 to exercise mediatory offices for the prevention of infractions of 
 the law. Critics of the Commission, among them those who 
 profited or hoped to profit by secret rate-cutting, did not hesitate 
 to assert, with some superficial show of accuracy, that these 
 conferences, if effective at all, must result in agreements that 
 would be perilously near to those prohibited by the Sherman 
 anti-trust law^ which had been twice declared by the Supreme 
 Court* to forbid every restraint of the interstate commerce con- 
 ducted by railways whether such restraint were reasonable or 
 unreasonable. To this, however, the Commission was able to 
 make the effective reply that it did not seek to obtain agreements 
 not to reduce rates but merely concurrent promises to observe 
 the law which forbids deviations from the formally published 
 rates and prescribes the manner in which they may be legally 
 modified.^ Certainly no statute can be construed to forbid agree- 
 ments to obey some other and unrepealed rule of conduct pre- 
 scribed by the same supreme legislative authority. As the result 
 of these wise steps the Commission was able to say: 
 
 "All reports agree that there has been a marked improvement 
 in the maintenance of published rates, and that unlawful prac- 
 tices by railroad carriers have been less general and conspicu- 
 ous than for some years before. Secret discriminations are 
 believed to be much less frequent than was formerly the case, 
 and the general situation in this regard is undoubtedly much 
 better than it was at the time of our last annual report." — Thir- 
 teenth Annual (1899) Report, p. 11. 
 
 ^ Thirteenth Annual (1899) Report, p. 9. 
 ^ Ibid., p. 9. 
 
 'Approved Jul}^ i, 1890. 26 Statutes at Large, 209. 
 
 ^Trans-Missouri Freight Association v. United States, 166 U. S., 290. Joint 
 Traffic Association V. United States, 171 U. S., 505. 
 * Thirteenth Annual (1S99) Report, pp. 9-10. 
 
 The years immediately subsequent to that covered by the report 
 from which the foregoing was quoted were years of unprece- 
 dented business activity during which the traffic offered for inter- 
 state transportation by rail frequently exceeded the capacity of 
 the carriers and the incentive to rate-cutting was therefore 
 weaker than during a period of less intensity of demand. Never- 
 theless it was not a period of complete exemption from the 
 obnoxious and baneful practice of rebating. The Commission 
 reports as follows: — 
 
 "More instructive than any argument are the results of an 
 investigation just made at Chicago into the movement of pack- 
 ing-house products, a more detailed account of which here- 
 after appears. The facts developed upon that investigation, and 
 upon a previous investigation into the movement of grain and 
 grain products, which is also referred to later, are of such a 
 character that no thoughtful person can contemplate them with 
 indifference. That the leading traffic officials of many of the 
 principal railway lines, men occupying high positions and charged 
 with the most important duties, should deliberately violate the stat- 
 ute law of the land, and in some cases agree with each other to do 
 so ; that it should be thought by them necessary to destroy vouch- 
 ers and to so manipulate bookkeeping as to obliterate evidence 
 of the transactions ; that hundreds of thousands of dollars should 
 be paid in unlawful rebates to a few great packing houses ; that 
 the business of railroad transportation, the most important but 
 one in the country to-day, paying the highest salaries and hold- 
 ing out to young men the greatest inducements, should to such 
 an extent be conducted in open disregard of law, must be sur- 
 prising and offensive to all right-minded persons. Equally 
 startling, at least, is the fact that the owners of these packing 
 houses, men whose names are known throughout the commercial 
 world, should seemingly be eager to augment their gains with 
 the enormous amounts of these rebates which they receive in 
 plain defiance of a Federal statute." — Fifteenth Annual (1901) 
 Report, p. 6. 
 
 In the annual report next following that from which the fore- 
 going was taken the Commission reported a new effort to 
 improve conditions.^ This time it had relied neither upon the 
 criminal processes provided under the law nor upon moral 
 
 ^ Sixteenth Annual (1902) Report, pp. 7-13. 
 10 
 
 
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 146 
 
 Yale Review. 
 
 [Aug. 
 
 suasion in interviews and conferences, but upon the, then, some- 
 what doubtful powers of the Federal courts of equity. Injunc- 
 tions against rate-cutting by many important carriers were sought 
 and obtained, although the power to grant them, prior to the 
 enactment of the Elkins law, was more than questionable, and 
 they probably could not have been secured were it not that, as 
 reported by the Commission,^ "railroad managers, as a rule, 
 . . . welcomed these injunctions as applied to the mainten- 
 ance of rates, . . ." Their effect was such that the Commis- 
 sion was also able to state that : — 
 
 "It is asserted, and the Commission believes, that these rail- 
 ways have obeyed the injunctions, in the main if not altogether; 
 that published rates have been exacted upon their lines, and 
 very generally by other lines in competition with them. It can 
 hardly be doubted that a very much better condition has existed 
 for the last nine months in this respect than for any correspond- 
 ing period in the last twelve years at least." — Sixteenth Annual 
 (1902) Report, p. 9. 
 
 The next report was issued after the Elkins law had been in 
 force for a period of ten months. The injunctions which had 
 been of doubtful legality prior to this change in the law were 
 fully authorized by the new statute and the Commission was 
 empowered to proceed to secure additional injunctions of similar 
 character whenever it had "reasonable ground for belief" that 
 rebates were being allowed. It reported that : — 
 
 "Without further reference to the changes effected by this 
 amendatory legislation the Commission feels warranted in say- 
 ing that its beneficial bearing became evident from the time of 
 its passage. It has proved a wise and salutary enactment. It 
 has corrected serious defects in the original law and greatly aided 
 the attainment of some of the purposes for which that law was 
 enacted. No one familiar with railway conditions can expect 
 that rate-cutting and other secret devices will immediately and 
 wholly disappear, but there is basis for confident belief that such 
 offenses are no longer characteristic of railway operations. That 
 they have greatly diminished is beyond doubt, and their recur- 
 rence to the extent formerly known is altogether unlikely. 
 Indeed, it is believed that never before in the railroad history of 
 
 * Sixteenth Annual (1902) Report, p. 10. 
 
 > 
 
 1907] 
 
 Rebates, 
 
 147 
 
 this country have tariff rates been so well or so generally 
 observed as they are at the present time.^ — Seventeenth Annual 
 (1903) Report, p. 10. 
 
 Confidence that the Elkins law was operating so successfully 
 as to secure "the invariable application of tariff rates''^ was also 
 expressed in the next report of the Commission. Even as late 
 as May, 1905, the Chairman of the Commission, testifying before 
 the Committee on Interstate Commerce of the Senate, said : 
 
 "Now, if I may add one word about the Elkins bill. A more 
 effective and complete measure for its purpose has not come 
 within my observation. It is invaluable."^ 
 
 At the same time Mr. Knapp said, concerning rebating, that 
 when the Elkins bill passed, "the thing stopped over-night." 
 But this condition of complete satisfaction did not long persist. 
 The Nineteenth Annual Report bears date as of December 14, 
 1905, and contains the following: — 
 
 "In our annual report for 1903 we endeavored to explain the 
 changes in the regulating statute effected by the Elkins law, so- 
 called, which was approved in the previous February, and made 
 some favorable comments upon its operation. A similar opinion 
 was expressed in the report made a year ago. Further experi- 
 ence, however, compels us to modify in some degree the hopeful 
 expectations then entertained. Not only have various devices for 
 evading the law been brought into use, but the actual payment of 
 rebates as such has been here and there resumed."* 
 
 The foregoing quotation is from the last report under the law 
 as it stood prior to August 28, 1906. The Twentieth Annual 
 Report was issued on December 19, 1906, and, owing to the radi- 
 cal reorganization of the system of statutory regulation just 
 going into operation, was, very properly, confined almost wholly 
 
 ^ President Roosevelt was so impressed with the efficacy of the Elkins law that 
 in his Annual Message to Congress, transmitted on December 7, 1903, he said: 
 
 "The Congress . . . has secured equal treatment to all producers in the 
 transportation of their goods, . . . ." 
 
 '^ Eighteenth Annual (1904) Report, p. 6. 
 
 3 Hearings before Committee on Interstate Commerce, United States Senate, 
 pursuant to Senate Resolution No. 288, Fifty-eighth Congress, Third Session,' 
 Vol. IV, p. 3306. 
 
 4 Page 13. 
 
 
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 148 
 
 y<2/^ Review, 
 
 [Aug. 
 
 to a statement of the interpretation of and rulings under the 
 new law. It contains no record of the year's experience as to 
 maintenance of tariff rates, but such outside evidence as is avail- 
 able warrants the belief that the tariff rates were observed with 
 comparatively rare exceptions. As has been seen, each statu- 
 tory "new broom" has swept satisfactorily and there is no reason 
 to believe that the present one is an exception in that respect. 
 It is to be hoped that it will prove to have exceptional wearing 
 qualities. 
 
 Reporting to Congress on December i, 1906, Honorable Wil- 
 liam H. Moody, then Attorney-General of the United States, 
 characterized the efforts to enforce the penalties for violations of 
 the Act to regulate commerce of February 4, 1887, and its 
 amendments (not including the Elkins law, which is not in terms 
 an amendatory statute) as "not conspicuously successful." This 
 statement is certainly a moderate one, for during the period of 
 but a few months less than twenty years that it was in force 
 there were, altogether, but seventeen convictions, no sentences 
 of imprisonment were executed^ and the total fines imposed 
 aggregated but $16,376, while the government failed in sixty- 
 two indictments out qf seventy-nine.^ The Elkins law, declares 
 the Attorney-General, — 
 
 (( 
 
 very much strengthened the hands of the government in deal- 
 ing with discriminatory practices of railroads." — Annual Report 
 for 1906, p. II. 
 
 There were, however, no prosecutions for rebating instituted 
 under this law during the first two years after its enactment, the 
 first indictment being secured on July i, 1905. Two more indict- 
 ments were obtained in the following October, one in Novem- 
 ber, a large number in December and many more during the 
 
 ' On July 21, 1892, two persons were convicted of false weighing and sentenced 
 to pay fines of $2,000 each and iS months imprisonment, but both were pardoned 
 before execution of the sentences. See pamphlet issued by Department of 
 justice, under date of March 7, 1907, entitled " Civil and Criminal Cases Insti- 
 tuted by the United States under the Sherman Anti-Trust Law of July 2, 1890, 
 and the Act to Regulate Commerce, approved February 4, 1887, as amended, 
 including the Elkins Act," p. 15. 
 
 2 Annual Report of the Attorney-General for 1906, p. 11. * 
 
 1ft 
 
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 1907] Rebates. I49 
 
 year 1906.^ The Attorney-General states that from October, 
 1905, "when the situation was first fully realized," to the end 
 of November, 1906, there were seventy-seven indictments, of 
 which, at the date of his report, fifty-three were still pending, 
 and twenty-four had been disposed of. The result of the twenty- 
 four completed cases had been eighteen convictions, three discon- 
 tinuances, two verdicts of not guilty and one indictment held bad 
 upon demurrer. Thirteen corporations and seventeen individuals 
 were found guilty and, excluding one case in which sentence had 
 not been passed, the individuals had been fined from $1,000 to 
 $10,000 each and the corporations from $15,000 to $108,000 
 each, the fines aggregating $416,125. The imprisonment pen- 
 alty prescribed under the amended Elkins law had not become 
 practically operative at the date of the report, but on one indict- 
 ment, under Section 5440^ of the Revised Statutes, the anti-con- 
 spiracy law, two defendants were fined and also sentenced to 
 three and six months' imprisonment, respectively.^ After the 
 date of the report and to March 7, 1907, four corporations, 
 among them the American Sugar Refining Company, were fined, 
 in the aggregate, $158,000 and four individuals were fined 
 $12,000.* Thus, fines under the Elkins act now aggregate 
 $586,125. There have been no further sentences of imprison- 
 ment. This record of prosecutions, in connection with the facts 
 as to the prevalence of rebating hereinbefore presented, plainly 
 discloses the fact that for eighteen years there was no vigorous 
 and intelligent effort to detect and punish deviations from the 
 published rate-schedules. For when, more than four years after 
 he became President, the present Chief Executive concluded 
 that : — 
 
 "It seemed, therefore, desirable that an earnest effort should be 
 made to enforce the law rigorously,"— Report of Attorney-Gen- 
 eral for 1906, p. 12. 
 
 it was not under a new law but under the old laws that successful 
 prosecutions were found to be practicable. No law has yet been 
 
 » Pamphlet of Department of Justice previously cited, pp. 21, et seq. 
 
 2 Ante, p. 134, foot-note. 
 
 3 Annual Report of the Attorney-General for 1906, p. 12. 
 
 4 Pamphlet of Department of Justice previously cited, pp. 21, et seq. 
 
 A 
 
 
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 150 
 
 Yale Review. 
 
 [Aug. 
 
 invoked to secure indictments or to obtain evidence or other- 
 wise in aid of detection or prosecution which was not in force 
 as long ago as February 19, 1903, and the only sentences to 
 imprisonment that have ever been executed have been under 
 laws which have been in force since April 5, 1887. The Attor- 
 ney-General naively ascribes this lack of enforcement to "the 
 insufficiency of the law or other reasons."^ The facts completely 
 eliminate the first of these alternatives. 
 
 This rather tedious record clearly discloses, then, two prin- 
 cipal phenomena of great significance. These are (first) the 
 notorious and almost open violation of the law against rebates 
 and (second) the reluctance of the authorities to punish the 
 ofiFenders. The present period of general observance of the 
 schedules and more energetic enforcement has not yet persisted 
 long enough to be pronounced exceptional; it will prove to be 
 such only if it outlasts the next period during which rival rail- 
 ways are forced to struggle over the division of a traffic move- 
 ment too scanty in the aggregate to afford revenues adequate to 
 the needs of all of the competitors. In no way anticipating the 
 results of such a test, it may be observed, that when a period 
 of two successive decades is characterized almost continuously 
 by such incidents as are herein presented, the inquiry whether 
 the law itself is not at fault becomes not only legitimate but 
 necessary. 
 
 A rebate may be the means of affording to a particular shipper, 
 commodity or locality an undue and, therefore, unjust prefer- 
 ence or advantage over other shippers, commodities or locali- 
 ties. But it may, just as easily, be the means by which a 
 particular shipper, commodity or locality is put on an equal foot- 
 ing, as to the rate itself, with every other shipper, commodity and 
 locality. If the published rates are justly related among them- 
 selves every deviation from them is an unjust discrimination, but, 
 on the other hand, if the published rates are unjustly related 
 to each other, a not inconceivable condition, justice as to the 
 rates may be restored by rebating to those unjustly prejudiced 
 the amount of the improper advantage that would accrue to their 
 
 * Annual Report for 1906, p. 11. 
 
 V 
 
 
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 V 
 
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 1 
 
 f 
 
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 1907] 
 
 Rebates, 
 
 151 
 
 competitors if the schedules were observed. Thus if, as has 
 frequently been contended, the rates, per 100 pounds, on wheat 
 and flour from Minneapolis to the Atlantic seaboard ought in 
 justice to be equal, but the published tariffs show a discrimina- 
 tion of 2j^ cents per 100 pounds in favor of wheat, a rebate of 
 2>^ cents per 100 pounds to the shippers of flour could not be 
 said to produce an unjust discrimination in rates. There might 
 be a serious element of injustice in the secrecy attending such 
 a transaction and the mere fact that it results in the actual pay- 
 ment by all concerned of precisely the rates that, as has been 
 assumed, a just and reasonable tariff would proclaim, need not 
 weaken confidence in the utility of a law that seems to attach 
 a conclusive presumption of injustice to every deviation from 
 the schedules. For the same law that forbids rebates provides 
 a means for correcting unjust discriminations in the published 
 rates when they are not eliminated in the ordinary course of 
 negotiations between shippers and carriers and there is no ques- 
 tion that these orderly and lawful methods ought to be followed. 
 Nevertheless it is primarily important to grasp the elementary 
 truth that the wrong of rebates does not always, or from the 
 nature of the case, lie in the relation of the rates ultimately paid 
 but may repose exclusively in the fact of secrecy. When this 
 is recognized the inquiry may pass to the question whether when 
 rebates have been paid, the wrong of secrecy has commonly been 
 accompanied by injustice in the actual payments or, on the other 
 hand, has merely resulted in the payment of rates that, if they 
 had been announced in the tariffs, would have been wholly 
 reasonable and just. In its Fifteenth Annual (1901) Report, 
 after stating that rebates amounting to "many hundreds of 
 thousands of dollars annually," were being paid to the meat- 
 packers, the Commission continued as follows : — 
 
 "Who has the benefit of this reduction in rates? Does it 
 result in advantage to the producer and consumer, or is it 
 absorbed by the packing house itself? Manifestly, no certain 
 answers can be given to these inquiries. It seems probable that 
 in case of a reduction like this, which seems to be tolerably uni- 
 form and long continued, the general public must obtain some 
 advantage, but we think that in the main these sums swell the 
 
 I 
 
152 
 
 Yale Review. 
 
 [Aug. 
 
 > 
 
 1907] 
 
 Rebates. 
 
 153 
 
 m\ 
 
 J 
 
 ■1 
 
 profits of the packers. The number of these great concerns is 
 only some five or six, and there does not appear to be much dis- 
 ci imination between them. Each usually knows about what the 
 lowest rate is, and usually manages to obtain that rate. The 
 effect is, however, to give these large packers an enormous 
 advantage over their smaller competitors who are located at 
 other intermediate points." — p. 11. 
 
 The facts recited in the foregoing excerpt are (first) that 
 the largest concerns in the packing business obtained extensive 
 rebates, (second) that they were treated, as among themselves, 
 with equality and (third) that the smaller concerns, located else- 
 where, did not get any, or at least equivalent, rebates. As the 
 Commission is silent on that point it may be assumed that the 
 small concerns, as among themselves, were also treated with 
 equality. On these facts, the Commission guesses that the general 
 public, i. e. the consumers, gained "some advantage" but that 
 the larger share remained with the great packing concerns and, 
 also, that the consequence of these rebates was "to give" these 
 great concerns an enormous advantage over their smaller rivals. 
 The facts recited by the Commission seem, in this case, much 
 more important and reliable than its opinions. Surely there is 
 no proof that the larger share of the illegitimate reductions from 
 tariff rates did not accrue to the consumers of meats and, per- 
 haps, the difference in rates accurately measured an actual 
 difference in the conditions of the several transportation services. 
 If so, the wrong lay only in the illegitimate secrecy. That is, 
 the rebate payments accomplished no more than to accord to each 
 shipper the rates that ought to have appeared in the tariffs. 
 
 Without pressing the inquiry as to these particular transac- 
 tions the reader is asked to give some attention to the latter 
 suggestion. If it were possible to conclude that the largest 
 shippers are justly entitled to lower rates than smaller shippers, 
 and that this principle justifies other distinctions of quantity 
 based on higher units, perhaps much higher units, than 
 that of car-loads and less than car-loads, the conclusion would 
 go far to explain the history recited in this paper. For if the 
 larger shipper ought to have wholesale rates and if reduced rates 
 
 < 
 
 4 
 
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 per unit of weight may properly be accorded in more or less 
 regular proportion to the multiplication in the number of units 
 shipped, it would follow that rebates paid to large shippers 
 may have merely produced a rough approximation of the rates 
 that ought to have been shown on the tariffs. The record shows 
 that the rebates most commonly went to this class of shippers, 
 that when the dread of punishment was great only the large 
 shippers got these illegal payments. Does such a record tend, 
 then, to establish the theory that wholesale rates, five-car-load 
 rates lower than one-car-load rates, ten-car-loads lower than five, 
 train-loads lower than ten-car-loads, etc., may have a sanction 
 in economic necessity. If it be answered that such rates enable 
 the "trusts"' (whatever they may be) to drive out their smaller 
 rivals, one may at least suggest that there are more consumers 
 of all "trust-made" goods than producers seeking to compete 
 with the "trusts" which make them; and it has never yet been 
 shown that the profits on capital used by any "trust" exceed 
 those of smaller manufacturers when the latter have no larger 
 rivals whose competition they must meet; or that the larger 
 share of the economies, in railway charges and in other items of 
 cost, achieved by the largest concerns do not ultimately go to the 
 consumers of their products. 
 
 The railways of the United States have rarely, if ever, ven- 
 tured to make lower rates on quantities above a car-load than on 
 single car-loads. Their officers do not wish to make such rates. 
 But in Prussia, under state management, and in England, under 
 private management, such concessions are regularly made. If it 
 is true that the practice of secret rate-cutting in the past is attrib- 
 utable to some failure to adjust the published rates to the 
 economic necessity of discriminating recognition of the peculiar 
 conditions of enterprises conducted upon the largest scale, it 
 would appear that making wholesale rates for train-loads, and 
 perhaps other units of quality, would go far to relieve the situa- 
 tion. Authority to make such just discriminations has not been 
 taken from the railways. In Interstate Commerce Commission 
 V. Baltimore and Ohio, Judge Jackson, then of the Federal 
 Circuit Court, afterwards a justice of the United States Supreme 
 Court, said: — 
 
 
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154 
 
 Yale Review. 
 
 [Aug. 
 
 1907] 
 
 Rebates. 
 
 155 
 
 1 
 
 I 
 
 I 
 ■ 
 
 "Subject to the two leading prohibitions that their charges 
 shall not be unjust and unreasonable, and that they shall not 
 unjustly discriminate, so as to give undue preference or advan- 
 tage, or subject to undue preference or disadvantage persons or 
 traffic similarly circumstanced, the Act to regulate commerce 
 leaves common carriers as they v^ere at common law, free to 
 make special contracts looking to the increase of their business, 
 to classify their traffic, to adjust and apportion their rates so 
 as to meet the necessities of commerce, and generally to manage 
 their important interests upon the same principles which are 
 recognized as sound, and adopted in other trades and pursuits."^ 
 
 The foregoing was affirmed by the Supreme Court in deciding 
 the appeal in the same case,^ and was quoted, with approval, by 
 Mr. Justice Brewer, speaking for the Supreme Court, in deliver- 
 ing the opinion in a later case.^ Precisely what Judge Jackson 
 meant in referring to "principles recognized as sound" which the 
 carriers are left free to follow was explained, in the same opinion, 
 as follows: — 
 
 "Subject to these conditions and limitations, the Act does not, 
 and was not intended to, restrict the common-law right and 
 power of common carriers to make special contracts, or adjust 
 their rates with reference to existing wants and circumstances, 
 so as to promote their own interests, while affording all proper 
 and reasonable facilities and conveniences to the public. Sub- 
 ject to the above conditions, the Act intended to leave the adjust- 
 ment of rates as absolutely and completely in the discretion of 
 the carrier as it existed at common law, which never questioned 
 or denied to common carriers the right to give or make lower 
 rates, based on increased quantity or amount of service."^ 
 
 It should be observed that to assign the denial of wholesale 
 rates as the primary cause of secret rate-cutting is not to assume 
 that every rebate, or even most rebates, resulted in actual charges 
 that correctly expressed an economic need. Quite a contrary con- 
 clusion is perfectly reconcilable with the belief that there would 
 have been no rebates, or substantially none, had the published 
 schedules expressed an adequate recognition of the need of 
 wholesale rates. The essential vice of secrecy in such matters 
 lies in the fact that one secret rate made in the face of economic 
 
 H3 Fed. R^., 37, 50-51. '^ I45 U. S., 263. 
 
 ^ Interstate Commerce Commission v. Cincinnati, New Orleans and Texas 
 Pacific, 167 U. S., 479, 493. "43 Fed. Rep., 37, 44. 
 
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 conditions seemingly imperative and certainly sufficient to justify 
 the same rate if openly given, may lead to a dozen secret unjust 
 discriminations which no rate-making officer would ever put in 
 the published tariff. If just rates must be made by methods that 
 violate the law, because the public refuses to sanction their 
 appearance in the tariffs, although they might lawfully be pub- 
 lished, and the officers of the carriers either fail to recognize the 
 economic justification for such rates or for other reasons are 
 unwilling to publish them, those whose violations of the law 
 against secret rates are condoned when the charges are, in 
 themselves, just will always find ways to grant still more illegiti- 
 mate favors in charges to themselves, their relatives or their 
 friends. 
 
 There is no doubt that adequate laws against rebates can be 
 made and generally enforced. There has been no time since 
 1887 that, given a general recognition of the correctness of the 
 principle expressed in the law and an intelligent and energetic 
 desire to prevent and punish its violation, the practice of rebating 
 would not have substantially disappeared. The law against 
 rebates does not run counter to an economic law but, if the his- 
 tory here recited proves the need of wholesale rates based on 
 larger quantities, the law and the practice of rate-making which 
 does not admit of published discriminations in favor of quan- 
 tities from (say) five car-loads up with progressive decreases 
 as shipments increase, do, together, run counter to economic law. 
 Certainly there can be no rebates under the present law if it is 
 enforced with intelligence and persistent vigor. But, if the 
 economic necessity that has been suggested is a real one, the rail- 
 ways must resort to the practice of publishing train-load and 
 other wholesale rates, or if they decline to do so or public senti- 
 ment compels them to refrain or abandon the practice after 
 experimenting with it, the enforcement of the law will cripple 
 American industry and put an added burden upon American con- 
 sumers. In the latter case the more probable result would be 
 the cessation of any consistent effort to enforce the law, as such 
 efforts have heretofore ceased, and the resumption of secret 
 rate-cutting with all its baneful and unjustly discriminatory 
 
 accompaniments. 
 
 H. T. Newcomb. 
 
 Washington. 
 
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