from making such discrimination. This order, while obeyed by a number
of carriers, was disregarded by the Texas and Pacific Railway, which
operated an import line from New Orleans to San Francisco. Upon
application by the Commission this case was carried to the Supreme
Court of the United States for final adjudication. The Supreme
Court decided that the interpretation of the law by the Commission
was defective, although three members of the court, including the
Chief Justice, dissented from this opinion. As an illustration of
the discrimination which existed in this case it appeared that the
domestic rate on books, buttons, carpets, etc., from New Orleans to San
Francisco was $2.88 per one hundred pounds, while the total through
charge on the same articles from Liverpool to San Francisco was only
$1.07. The Supreme Court distinctly refrained from an opinion as to the
reasonableness of these rates, and contented itself with passing upon
the propriety of any difference in rates whatever. It held that the
contention of the railroads was sound, namely, that all circumstances
and conditions, whether within the United States or having regard for
ocean rates and foreign competitive conditions, must be considered. In
other words, they recognized the validity of the claim of the railroads
that this import traffic must be taken at an extremely low rate if at
all, since otherwise the goods would go by water around Cape Horn,
or by another route. On the basis of such reasoning it would appear
that any contribution from low import rates to the fixed charges of
the railroad would enable that road to transport its domestic traffic
at a lower rate than it otherwise might. What, however, the majority
of the court did not add, although it was developed by the dissenting
justices, was the fact that these conditions might exclude domestic
purchasers entirely from certain markets, giving them over to importers
who could control the market by reason of the low rates accorded. Since
this decision in 1896 the railroads have still further developed this
system of discrimination. The only safeguard for the domestic producer
must lie, obviously, in some decision by a competent tribunal as to
the amount of such differences which may reasonably exist. The Supreme
Court has upheld their validity as a system, but it still remains for
the amount of such difference which may be deemed reasonable, to be
determined.
Identical in principle with the above described case, although
presenting reversed conditions, are the so-called export rate cases.
These have to do mainly with the rates charged on products for domestic
consumption as against like products for export. As an illustration
of the extent of such differences, it was clearly shown before the
Industrial Commission that at times the freight rate on wheat from
Kansas City to Galveston was twenty-seven cents per one hundred pounds
if for domestic consumption, while the proportion of an export rate
for a similar service was ten cents.[485] The rate on wheat from the
Mississippi river to New York for domestic consumption was at times
twenty or twenty-one cents per one hundred pounds, while for the same
service when the goods were to be exported, the rate would be thirteen
cents per one hundred pounds. This system of stimulating foreign
business by discriminatingly low rates seems to have attained large
proportions only since 1897. The Interstate Commerce Commission took
cognizance of the system in a decision rendered in 1899.[486] It was
enabled to do so by virtue of the Import Rate decision above cited,
whereby the United States Supreme Court authorized it to consider not
only circumstances and conditions within the United States, but also
those relating to ocean transport and foreign competition.
The railroads justify their action on the ground that only by making
such concessions in export rates could they lay down grain in foreign
markets in competition with other parts of the world. On the other
hand, it was not made clear why such competition from foreign markets
had become any more acute in the last few years than prior to that
time. There appears to be much force in the argument of many shippers,
and also of some railroad men, that this anomalous condition of rates
was due, not so much to the keenness of foreign competition, as to the
rivalry among the American carriers themselves. In other words, it
was said that the competition between the Gulf ports and the Atlantic
ports was responsible for the abnormally low rates on export business.
In line with this argument would seem to be the fact that it is the
rates upon wheat and not upon flour for export, which have decreased
more than in proportion to the decrease upon similar commodities for
domestic consumption. The passing of the acutest phase of competition
from the Gulf ports since 1906, has rendered these questions of lesser
interest of late years. They may at any time be revived, but seem
unlikely to regain the importance which they formerly assumed.
FOOTNOTES:
[436] Among the best references on the subject are the following:
McPherson, Railway Freight Rates, pp. 85-92, especially on the
Virginia-Carolina cities; Rep. U. S. Internal Commerce, 1876, App., pp.
1-20; U. S. Senate (Elkins) Committee Hearings, 1905, Digest, App.,
III. The principal I.C.C. cases are as follows: 1891. Social Circle;
4 I.C.C. Rep., 744.--1892. Georgia R. R. Com.; 5 _Idem_, 324.--1893.
Troy, Ala.; 4 Int. Com. Rep., 348. In Railway Problems.--1894.
Summerville, Ga.; 4 _Idem_, 521.--1894. Cordele, Ala.; 6 I.C.C.
Rep., 343.--1895. Tifton, Ga.; 6 Int. Com. Rep., 343.--1897. Lagrange,
La.; 7 _Idem_, 431.--1897. Griffin, Ga.; 7 _Idem_, 224.--1899. Dawson,
Ga.; 8 _Idem_, 142. In Railway Problems.--1899. Aberdeen, S. C.; 10
I.C.C. Rep., 289.--1899. Wilmington, S. C.; 9 _Idem_, 118.--1900.
Piedmont; 6 Int. Com. Rep., 588.--1900. Hampton, Fla.; 8
_Idem_, 503.--1900. Danville, Va.; 8 _Idem_, 409. In Railway Problems.
[437] Chapter I affords a historical review of railway development in
the United States.
[438] Rep. Internal Commerce, 1876, App., p. 28; Senate (Elkins)
Committee, 1905, Digest, App. III, p. 71.
[439] _Cf._ the Commerce Court case; February session, 1912, No. 40.
Also _cf._ p. 251, _supra_.
[440] Page 311, _supra_.
[441] Pp. 239-252, _supra_.
[442] A list of these on the Louisville and Nashville R. R. is given
in U. S. Senate (Elkins) Committee, 1905, Digest, App. III, pp. 84-93.
There is a distinction between a basing and a common point. The latter
is a competitive junction, to which rates are made on combination of
locals. The basing point enjoys a still further advantage in that it
gets even lower than the combination rates.
[443] Page 474, _infra_.
[444] Senate (Elkins) Committee Hearings, Digest, App. III, pp. 73 and
78.
[445] _Cf._ chap. IV, p. 125, _supra_. Also I.C.C. Opinion, No. 861,
1906.
[446] H. R. Meyer's, Government Regulation of Railroad Rates, pp. 196
and 292-303.
[447] Page 310, chap. IX, _supra_.
[448] Senate (Elkins) Committee, 1905, p. 65: 80 per cent. of net
earnings on the Louisville & Nashville in 1886 were from local business.
[449] _Cf._ pp. 386, 591, 612 and 642, _infra_, for example.
[450] 24 I.C.C. Rep., 228, for Bowling Green, Ky., clearly establishes
such a community of interest between rail and water lines.
[451] Senate Interstate Commerce Committee, Hearings, 1897. Twelfth
Annual Rep. I.C.C., p. 59, well describes the situation.
[452] Compare chap. XX, p. 638, _infra_. Other references on internal
waterways are as follows: 1905. Senate (Elkins) Committee, Digest, App.
IV.--1908. Report Inland Waterways Commission, 2 vols.--1910. Reports
U. S. National Waterways Commission, especially Document 11. Traffic
History of the Mississippi river. _Cf._ also, _Railway Age Gazette_,
June 2 and 30, 1911 and Jan. 12, 1912: Bulletin 21, Bureau of Railway
Economics; and the Bulletins of the U. S. Census.
[453] Compare vol. II, on railroad consolidation in this territory,
since 1900.
[454] 6 I.C.C. Rep., 343.
[455] 23 I.C.C. Rep., 140.
[456] _Cf._ p. 248, _supra_.
[457] Senate (Elkins) Committee, 1905, Digest, App., III p. 93; gives a
list of new basing points created since 1887.
[458] Southern Railway and Steamship Association Proceedings; Meeting
of Aug. 12, 1880.
[459] Fully discussed at pp. 248 _supra_ and 588 _infra_.
[460] McPherson, Railroad Freight Rates, p. 92, is best on this. _Cf._
pp. 127 and 243, _supra_.
[461] _Cf._ chap. XX on the conflict of state and Federal powers.
[462] _Cf._ chap. IX on carload rates as a problem in classification.
[463] This problem is discussed as a form of local discrimination at
p. 245, chap. VII, _supra_, and as a long and short haul question at
p. 610, chap. XIX, _infra_. The voluminous record in the pending Union
Pacific-Southern Pacific Merger case before the U. S. Supreme Court,
No. 820, October term, 1911, is a primary source of material. It is
outlined and examined in detail in our Railway Problems, rev. ed.,
chap. XXII.
[464] Best described in 19 I.C.C. Rep., p. 245; and 21 _Idem_, pp.
345-354, 416-421.
[465] Historically discussed in 9 Int. Com. Rep., p. 318 and 19 I.C.C.
Rep., p. 238 with map; both reprinted in our Railway Problems; and 21
_Idem_, pp. 352 and 418.
[466] 9 Int. Com. Rep., p. 318; reprinted in our Railway Problems,
chap. XVII.
[467] 19 I.C.C. Rep., p. 238 with map, reprinted in our Railway
Problems, voicing the complaint of the Nevada Railroad Commission, is
thoroughly typical. The leading Kindel cases are in 8 I.C.C. Rep., p.
608; 9 _Idem_, p. 606 and 11 _Idem_, p. 495 (with a highly suggestive
map); the San Bernardino cases are in 4 _Idem_, p. 104; and 9 _Idem_,
p. 42; and for Salt Lake City, 19 _Idem_, p. 218. _Cf._ also University
of Colorado, Economic Studies, Dec. 1909.
[468] Page 610 _infra_.
[469] Page 342, _supra_.
[470] Chapter XIX, _infra_.
[471] Board of Arbitration on Question of Canadian Pacific
Differentials Proceedings and Decision, Oct. 12, 1898.
[472] Typical cases 8 Int. Com. Rep., p. 47; and 10 I.C.C. Rep., p. 675.
[473] The Central Yellow Pine case, No. 681, 1903; and Op. 705, 1906.
Also in 1912, 22 I.C.C. Rep., p. 239.
[474] Best described by Bowes, Senate (Elkins) Committee, 1905, p. 2851.
[475] 14 I.C.C. Rep., 11.
[476] 23 I.C.C. Rep., 169 and 438.
[477] 18 _Idem_, p. 280; _cf._ p. 209, _supra_.
[478] 8 Int. Com. Rep., p. 121, is typical of a large number.
[479] 23 I.C.C. Rep., p. 448: U. S. Commerce Court, April session,
1912, No. 47. Ann. Rep., I.C.C., 1896, p. 78. Extensive investigations
concluded July 6, 1912.
[480] The literature upon this subject, aside from the decisions
specifically noted below, is voluminous. The Senate (Elkins) Committee,
1905, vol. V, devotes much attention to it as a constitutional
difficulty in the way of amendment of the law. The admirable catalogue
prepared by the Bureau of Railway Economics, 1912, at p. 126, well
covers the field. _Cf._ chap. X, p. 361, _supra_.
[481] 11 Int. Com. Rep., 13.
[482] Page 31 with diagram, _supra_.
[483] 24 I.C.C. Rep., p. 55.
[484] The leading references are as follows: 4 I.C.C. Rep., p. 450; 10
_Idem_, p. 55; 13 _Idem_, p. 87; Rep. to the Senate by I.C.C., Feb.
28, 1903; Senate (Elkins) Committee, 1905, Digest, App. V. The leading
export rate case, 8 I.C.C. Rep., p. 214, is reprinted in our Railway
Problems. Johnson and Huebner, Railroad Traffic and Rates, vol. I, pp.
492-518. In this instance I have reproduced a portion of my report
prepared for the U. S. Industrial Commission in 1900.
[485] _Cf._ Ann. Rep., I.C.C., 1899, p. 22.
[486] 8 Int. Com. Rep., p. 214; reprinted in our Railway Problems,
chap. XVIII.
CHAPTER XII
THE MOVEMENT OF RATES SINCE 1870; RATE WARS
Contrast before and after 1900, 411.--Revenue per
ton mile data, 412.--Their advantages and
defects, 414.--Nature of the traffic, 416.--Low-grade
traffic increasing, 416.--Growing diversification of
tonnage, 418.--Present conditions illustrated, 419.---
Length of the haul, 421.--The proportion of local
and through business, 422.--Effect of volume of
traffic, 424.--Proper use of revenue per ton mile, 425.---
Index of actual rates, 426.--Its advantages and
defects, 427.--Difficulty of following rate changes since
1900, 427.--Passenger fares, 429.--Freight rates and price
movements, 430.
Improvement in observance of tariffs, 431.--Conditions
in the eighties, 432.--The depression of
1893-1897, 433.--Resumption of prosperity in
1898, 436.--The rate wars of 1903-1906, 438.--Threatened
disturbances in 1909-1911, 439.
The course of freight rates in the United States during the last
generation divides naturally into two periods, before and after 1900,
respectively.[487] Prior to that date an almost uninterrupted decline
took place, which has been followed by a strongly marked upward
tendency during the last decade. In respect of freight rates this
movement is commonly judged in either of two ways; by comparison of
actual rates charged for specified service between given points through
a series of years; or, secondly, by means of what is called the revenue
per ton mile. Considering first the use of this latter index, the
course of events is shown by means of the diagram opposite the next
page, covering the period between 1867 and 1910. But before conclusions
may safely be drawn from this showing, it is imperative that the true
significance of revenue per ton mile statistics should be set forth.
For a generation, and particularly in connection with the Roosevelt
legislation in 1906, volumes of written and oral evidence upon moot
questions were based upon such figures. Specious and misleading
reasoning upon a public question was perhaps never more common in the
course of our history.[488] It is most important to understand clearly
the real significance of this common statistical unit. We shall then,
only, be in position to interpret the diagram properly.
The revenue per ton mile for a given road, or for the railway system of
the United States, is computed by dividing the total freight revenue
for that service, whatever it may be, by the number representing the
amount of freight in tons hauled one mile. Thus, for example, if the
total freight revenue of a system of roads be $900,000,000, this
having been received as compensation for hauling an equivalent of
90,000,000,000 tons of freight one mile, the compensation actually
received for each ton hauled one mile is obviously one cent. All that
is necessary in order to compute the average revenue per ton mile,
then, is to know the total freight revenue and the amount of ton
mileage service. Computed in this way the average revenue per ton per
mile for the railways of the United States in 1867 was 1.92 cents.
From this level a decline took place in 1890 to 0.941 cents--that is
to say, the average amount received for each ton of freight hauled
one mile had declined about one half. Since about 1897 there has been
no considerable change, the corresponding figure for 1911 being 0.757
cents. In other words, at the present time the carriers of the United
States receive about three-fourths of a cent for each ton-mile service.
From a revenue point of view this unit may seem insignificant in
amount; but it should be borne in mind, of course, that it is applied
to an immense volume of traffic. Even the slight increase between 1900
and the present time, if applied to the volume of traffic now existing,
would make a difference in freight revenue for the entire railway
system of the United States of approximately $61,000,000.
[Illustration: MOVEMENT OF FREIGHT RATES 1867-1970]
Measurement of the course of freight rates by means of revenue per
ton mile possesses one great advantage. It measures the _actual_
return received by the railway without regard to the published tariff,
showing accurately, therefore, the degree to which any departures
from the published rates take place. For this reason the foregoing
diagram probably under-indicates the extent, relatively, of the decline
before 1900. For it is indubitable that the published rates have been
very much more nearly observed with the passage of time during this
decade.[489] On the other hand, revenue per ton mile, as thus used
for general purposes, is open to a number of very serious objections.
Obviously, like any statistical average it fails to represent the
actual payment for any given service. But its disadvantages are more
deeply seated than this. Entirely irrespective of any change in the
level of rates, revenue per ton mile is affected fundamentally by three
distinct sets of conditions. It varies according to the nature of the
traffic, whether high grade or low; it is affected by the length of the
haul and the proportion of local as distinct from through business; and
it is modified profoundly according to the volume of traffic handled.
Before proceeding to the consideration of the above mentioned factors,
attention may be directed to the following table, which gives the
extreme range of ton-mile revenue for a number of different railways
arranged in groups according to the nature of their business.
Each group is graded, moreover, within itself according to the
revenue per ton mile. From this showing it appears that for 1910
the range above and below the average for the United States is
considerable--being upwards of three times as great for the New Haven
system as for the Chesapeake & Ohio, which comes at the foot of the
list. It will now be in order to explain the reasons for these wide
variations, which are by no means, as is customarily assumed in public
discussion, conditioned even primarily by the level or reasonableness
of the freight rates charged. Until these attendant circumstances are
fully understood, any conclusions as to relative freight rates for a
given service based upon revenue per ton mile, are entirely misleading.
Revenue per Av. haul
ton mile. Freight per ton.
1910 (_Cents_) density. (_Miles_)
New England--
New York, New Haven & Hartford 1.417 1,057,000 93.4
Boston & Maine 1.08 1,046,000 102.8
Southern--
Atlantic Coast Line 1.273 365,000 145
Southern R.R. .957 .. ..
Louisville & Nashville .751 1,124,000 170
Illinois Central .589 1,445,000 238
Western and Transcontinental--
Denver & Rio Grande 1.279 532,000 104
Southern Pacific 1.232 745,000 256
Union Pacific 1.011 1,091,000 364
Northern Pacific .900 940,000 297
Great Northern .822 814,700 244.1
Granger--
Chicago & North Western .891 729,000 141
Chicago, Milwaukee & St. Paul .843 709,000 173
=United States, all roads= .753 1,071,000 146
Trunk Lines--
Erie .626 2,808,000 146
New York Central & Hudson River .625 2,548,000 195
Pennsylvania Railroad .580 5,139,000 168
Baltimore & Ohio .577 2,711,000 191
Lake Shore & Michigan Southern .515 3,911,000 171
Coal and Ore--
Philadelphia & Reading .765 4,506,000 97
Lehigh Valley .646 3,288,000 174
Hocking Valley .458 4,014,000 125
Bessemer & Lake Erie .453 8,051,000 118
Norfolk & Western .447 3,456,000 264
Chesapeake & Ohio .407 3,161,000 267
The nature of the traffic handled by a carrier is the most important
consideration to be kept in mind in interpreting revenue per ton mile
data. This is most clearly shown by comparison in the table between the
group of coal and ore roads and the New England systems. The revenue
per unit of service on a road whose traffic is largely of low grade
most necessarily be low. Probably the lowest average ever reported
in the United States was for the Chesapeake & Ohio in 1899--the low
point in the general movement of freight rates--when its ton-mile
revenue touched O.362 cents. Whenever the business of a carrier
consists largely of coal, grain, lumber or other low-grade commodities
on which the freight charges must necessarily be exceedingly low in
order that the freight shall move at all, the revenue per ton mile
must consequently stand at a low figure. Bald comparison of any such
revenue with a corresponding figure for high-grade roads is obviously
misleading and fallacious. It does not mean that the latter necessarily
charges more for the same service; but its higher revenue per ton of
freight moved one mile may be, and very likely is, merely due to the
fact that much of its tonnage is capable of bearing higher charges.
From this circumstance it also follows that comparisons from year to
year either for single roads or for the entire railway net, must be
made in the light of variations in the proportion of high and low grade
tonnage. The trend seems to have been steadily downward in this regard
year by year. A steady increase, relatively, in the volume of low-grade
traffic has long been under way.[490]
The development of the last twenty years in the United States has
certainly been in favor of a great increase in low-grade traffic.
This is shown by the following table, giving the per cent. of tonnage
in various classes upon the trunk lines from New York to and beyond
Chicago.
PER CENT. OF TONNAGE IN EACH CLASS OF FREIGHT ON TRUNK
LINES, WESTBOUND[491]
Class 1878 1880 1885 1890 1892
1 30.4 26.4 24.8 21.0 19.9
2 6.9 6.7 7.1 6.4 5.4
3 4.8 4.4 4.2 12.3 11.3
4 57.9 50.1 29.3 12.7 10.4
5 0.0 10.6 34.6 10.0 9.6
6 0.0 0.0 0.0 37.6 43.4
Special 0.0 1.8 0.0 .. ..
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
From this it appears that "sixty per cent. of the tonnage is now
(1893) carried in fourth, fifth and sixth classes.... Prior to 1886
no considerable number of articles were permanently assigned to the
fifth and sixth classes; they embraced usually a few commodities which
had been assigned a special rate." Further consideration of this table
shows that first-class freight, forming thirty per cent. of the tonnage
in 1878, declined to less than twenty per cent. in 1892; while at the
same time sixth-class freight ran up from nothing to 43.4 per cent.
in 1892. Fourth-class freight declined during the same period from
57.9 to 10.4 per cent. These figures simply mean that a great deal of
traffic is now carried upon American railways for long distances which
a generation ago it was believed could not be profitably moved at all.
The utility of the railway service, once supposedly confined entirely
to freight of the higher classes, has been gradually extended until
today there is no commodity too cheap to be handled with the improved
facilities. This vast increase in the amount of low-grade traffic is
undoubtedly responsible to some degree for the apparent decline of
freight rates so often instanced. Fortunately upon this point we have
the specific testimony of traffic managers of long experience. On
the other hand, in justice to the railways it must be admitted that
the proportion of local business at high rates, which would tend to
increase the average revenue per ton mile, has steadily increased
with the growth of the country; and, moreover, as has already been
shown, in times of exceptional prosperity the movement of high-grade
freight has increased in more than its due proportion.[492] Nor are
these facts adduced in criticism of American railway policy. They are
simply intended to draw attention to the fact that, while changes of
freight rates have undoubtedly been considerable, they have not been
as great as is oftentimes plausibly stated. As for comparisons with
foreign countries, they are practically invalidated by the difference
in local conditions, as, for instance, in England where local delivery
is involved. In the United States such service is charged in addition,
either as drayage or express.
The increased diversification in the freight tonnage of American
railways, always in the direction of a larger proportion of traffic
from general business rather than from the movement of staple
commodities, is also of great fiscal significance. It means not only
more business, but better and more permanent traffic. The difference,
moreover, between the charge which high-grade freight, such as
merchandise, will bear by comparison with the highest rate upon grain
or coal, is much greater than any difference in the cost of service.
The profit, therefore, attendant upon the movement of traffic other
than low-grade commodities is strikingly great; although, of course,
profitableness is a question of relativity between operating cost and
revenue. Heavy train loads of coal at 4 mills per ton mile may be
better business than merchandise in light carloads at a rate five times
as high. At all events the tendency toward higher grade tonnage has
been notable, especially since 1900. Many western roads and even the
trunk lines, formerly dependent in a great measure upon the movement
of crops, are now affected only indirectly in this regard, by reason
of their influence upon general business. The growing diversification
of traffic because of its financial importance merits more concrete
illustration.
The Lake Shore & Michigan Southern, during the calendar year 1900,
increased its freight traffic by 1,760,000 tons. Of this only 194,000
tons were specified as products of agriculture and animals, while
products of the forests actually declined by 84,000 tons. In other
words, nearly all of this phenomenal increase in business in 1900
was due to the movement of manufactures, minerals and merchandise.
A comparison made for the last three decades makes this point still
more clear. Since 1880 there has been very little increase in
agricultural tonnage upon this trunk line, with an actual decrease in
the movement of grain. This, perhaps, may be in part explained by the
great development of grain traffic upon the lakes, which, of course,
absorbs much business formerly carried by this road. In other words,
farm products and provisions transported by the Lake Shore rose from
3,465,000 tons in 1880 to only 3,843,000 tons in 1900. The movement
of petroleum and lumber actually decreased, owing to the construction
of pipe lines and the clearing of the forests. On the other hand,
manufactures and merchandise increased threefold in volume, rising from
3,754,000 tons in 1880 to 14,932,000 tons in 1900. Whereas agricultural
products in 1880 formed over forty per cent. of the traffic upon the
Lake Shore, they constituted in 1900 less than twenty per cent. Much
the same tendency is manifested by other routes. Thus for the fiscal
year 1901, the Chesapeake & Ohio reported substantial decreases in the
actual tonnage of flour, grain, sand, stone, iron, etc.; but a largely
augmented movement of general merchandise of the higher classes. Many
of the soft-coal roads, such as the Cleveland, Lorain & Wheeling,
which used to carry nearly two-thirds of their tonnage in the form of
coal, now carry less than forty per cent. A feature of importance in
the great prosperity of the anthracite coal roads has been a steady
increase in the volume of their general traffic as distinct from
coal tonnage. All over the country, in short, the steady growth of
population and the decline in the proportion of grain for export is
reducing, relatively, the importance of low-grade tonnage, supplanting
it by a movement of supplies and merchandise in the contrary direction.
The classification of tonnage for the United States, as a whole and by
main divisions, is shown by the following excerpt from _Statistics of
Railroads for 1909_:
Freight Traffic Movement
-------------------+------------------+------------------
| United States | Trunk Line
| | Territory
Class of +-----------+------+-----------+------
commodity | Tonnage | Per | Tonnage | Per
| _Tons_ | Cent | _Tons_ | Cent
-------------------+-----------+------+-----------+------
Products of | | | |
agriculture | 73,600,000| 8.92| 19,000,000| 4.65
Products of | | | |
animals | 20,600,000| 2.49| 7,600,000| 1.86
Products of | | | |
mines |459,500,000| 55.60|256,200,000| 62.71
Products of | | | |
forests | 97,100,000| 11.75| 21,500,000| 5.28
Manufactures |108,600,000| 13.15| 70,000,000| 17.15
Merchandise | 33,900,000| 4.11| 13,500,000| 3.31
Miscellaneous | 32,800,000| 3.98| 20,500,000| 5.04
-------------------+-----------+------+-----------+------
Grand total |826,400,000|100.00|408,600,000|100.00
-------------------+-----------+------+-----------+------
-------------------+-----------+------+------------------
| Southern | Western
| Territory | Territory
Class of +-----------+------+-----------+------
commodity | Tonnage | Per | Tonnage | Per
| _Tons_ | Cent | _Tons_ | Cent
-------------------+-----------+------+-----------+------
Products of | | | |
agriculture | 9,500,000| 7.92| 45,100,000| 15.18
Products of | | | |
animals | 1,000,000| .83| 11,900,000| 4.03
Products of | | | |
mines | 63,000,000| 52.20|140,200,000| 47.22
Products of | | | |
forests | 25,300,000| 20.95| 50,200,000| 16.92
Manufactures | 13,300,000| 11.09| 25,100,000| 8.48
Merchandise | 4,800,000| 3.98| 15,600,000| 5.26
Miscellaneous | 3,600,000| 3.03| 8,600,000| 2.19
-------------------+-----------+------+-----------+------
Grand total |120,700,000|100.00|297,000,000|100.00
-------------------+-----------+------+-----------+------
Conclusions from these figures are well worth noting. The importance,
measured by traffic rather than revenue, of low-grade freight classed
as products of mines, is notable. This forms more than half the
aggregate tonnage for the United States, and has appreciably increased
within the last ten years. In 1910 it constituted almost two-thirds
of the business in trunk line territory and almost one-half in the
West. Products of agriculture, on the other hand, even in western
territory, amount to less than one-fifth of the total tonnage. These
facts indicate clearly the diverse conditions under which railways
operate in different parts of the country. The next table,[493]
besides incidentally throwing more light upon the relative tonnage of
staple commodities, will suffice to establish our main point--namely,
that the nature of the traffic vitally affects all ton mile revenue
statistics. It entirely, in fact, overshadows mere changes in the
general level of freight rates. Any argument concerning the movement
of such charges, which fails to correct fully for this factor, may be
dismissed at once as valueless.
Summary of Selected Commodities for the Year Ending June 30,
1910[494]
Average
receipts per
Ton-mileage Revenue ton per mile
Freight of freight from freight from freight
carried in carried in carried in carried in
Commodity carload lots carload lots carload lots carload lots
_Tons_ _Ton miles_ _Cents_
Grain 31,947,009 7,067,690,568 $44,553,330 0.630
Hay 5,856,185 954,623,830 9,731,590 1.019
Cotton 3,400,316 689,594,719 12,573,674 1.823
Live stock 10,754,108 2,449,310,036 29,802,514 1.217
Dressed meats 2,407,454 724,239,606 6,548,955 .904
Anthracite coal 28,202,577 5,104,428,347 30,083,630 .589
Bituminous coal 192,479,389 22,228,778,428 110,139,107 .495
Lumber 68,482,732 11,891,569,514 87,225,470 .734
A second consideration in the interpretation of ton mile data, of
equal importance with the nature of the traffic, is the length of the
haul and the proportion of local as distinct from through business.
This necessarily follows from the nature of a distance tariff. Only
on condition that the rate augmented in direct proportion to the
increase of distance, would the revenue per ton mile remain constant.
The diagram at page 108 is instructive in this connection. The
charges--denoted by the height of the curve at any given point--tend
to grow much less rapidly than distance. In other words, the rate
curve approaches a parabolic form, until after a certain point it
becomes practically a flat rate, independent of distance. This fact of
necessity causes ton-mile revenue to decrease steadily with the length
of the haul. For ton-mile revenue is but the ratio of the abscissa to
the ordinate of the curve at any given point; the former being the rate
charged, the latter the distance.
In practice, therefore, the longer the haul in general, the lower is
the revenue per ton mile.[495] This is clearly shown by comparison of
the two items for given roads, otherwise similarly circumstanced, in
the table already discussed on page 415.
Closely akin to the length of haul in affecting ton-mile revenue,
is the proportion of local traffic. This also is in practice vital.
Obviously it costs much more to handle local business, the terminal
expenses being far greater in proportion. And at the same time a larger
proportion of the freight moves in small lots locally. This difference
between revenue per ton mile for local business and through traffic
is very great. On the Louisville & Nashville, for example, in 1886,
it was 1.48 cents for the former, as against .99 cents for through
business.[496] The Illinois Central in 1900 reported an average revenue
per ton mile on through freight of 0.48 cents, while for local freight
the corresponding figure was 1.17 cents, the average of both being
0.56 cents. It is apparent, therefore, that any accurate determination
of the level of charges in general must take account of such facts as
these.
Any carrier like the Southern Pacific, the Chesapeake & Ohio or the
Erie, with relatively little local traffic and a business dependent
largely upon the long haul, will conduct transportation for a
materially lower figure than roads in a densely settled territory.
This consideration was recently illustrated in Massachusetts
experience.[497] The Fitchburg Railroad, devoted to long distance,
low-grade business by the Hoosac tunnel route, was consolidated with
the Boston & Maine in 1900. Its revenue per ton mile was formerly .818
cents based upon such traffic. When it was merged with the Boston &
Maine,--considerably blessed as it is with local traffic,--the latter's
ton-mile revenue fell from 1.44 cents in 1900 to 1.158 cents in the
following year. There had been no change whatever in freight rates.
A word may be interposed in this connection as to the peculiar movement
of local as distinguished from through rates through a series of years.
Local charges have decreased relatively little, probably because of the
absence of competition in such cases. They have, moreover, decreased
very unevenly in different parts of the country. Apparently one of
the first and most beneficent results of the enactment of the Act to
Regulate Commerce in 1887, was a reduction of local rates in various
parts of the country, in order to bring the rate adjustment into
conformity with the long and short haul clause. This was peculiarly
the case in the northeastern or trunk line territory. It does not seem
to have occurred in the southern states, where the long and short
haul principle has never been accepted in its entirety. The most
comprehensive report upon the subject concludes that local rates have
in various parts of the country, during the last quarter century,
been reduced from ten to fifty per cent.[498] Returns from various
railway commissions interrogated by the Industrial Commission in 1900
upon the subject showed highly variable results. From Mississippi it
appeared that "local freight rates in this state have been materially
lowered in the last four years, especially in the lettered classes";
while in the adjoining state of Alabama "local rates on freight have
decreased very little in the last five or six years, and have not
decreased in proportion to the decrease made in interstate rates." In
New England, comparison of actual freight rates did not indicate any
very considerable reduction, the absence of competition in this section
being, perhaps, in part responsible for this result. A comparison of
published freight rates in southern territory, without making allowance
for departures from such tariffs, apparently showed a very much smaller
reduction than in other parts of the country. It is also apparently
true that the reduction of cotton rates in this section, while
considerable, had been much less rapid than that of the rates upon
grain from Chicago to the seaboard in either direction. A few instances
of an actual rise of local charges since 1900 may be cited.[499]
But the fact that competition has been substantially eliminated in
consequence of widespread consolidation since 1900, has rendered the
movement of local and through freight rates more nearly alike all over
the country than they were prior to that time.
The third consideration which must always be kept in mind in the
interpretation of revenue per ton mile is the volume of the traffic
handled. Any comparison of freight rates which is not made in the light
of increase in the business transacted, is bound to be misleading.
A reduction of cost of operation per unit, attending a growth in
volume, has already been fully described in connection with the theory
of rates. And it is but natural that a reduction in the rate should
follow any lessening of cost. Moreover, a large volume of business
usually implies a relatively greater amount of low-grade tonnage. In
order to bring out this relationship the second column in the table on
page 415 has been added. This permits a correlation between freight
density--that is to say, ton miles per mile of line and revenue per
unit of service. It will be noted that, in general, the revenue unit
falls as the volume of traffic, measured by freight density, rises.
This is strikingly shown by comparison of the groups of western and
transcontinental roads with those concerned mainly with the carriage
of coal and ore. The soft coal Hocking Valley road with its enormous
density and very low revenue per ton mile, affords an excellent
example. It is indubitable that the trunk lines and the coal roads are
able to transact business for relatively low rates, not only because
their tonnage is of low grade, long haul or both; but also because
of its immense concentration per mile of line, permitting all of the
economies incident to large-scale operation. In this connection,
however, it should be noted as a general principle, that oftentimes it
is not the mere increase in the traffic of a particular sort which is
significant; but rather the growth in the total volume of business of
all kinds.[500]
The foregoing criticism of the use of revenue per ton mile as a means
of showing the course of freight rates in general has been mainly
destructive. This figure, nevertheless, will in many cases be found
highly serviceable in the examination of particular rates. It may
properly be used to determine whether a given commodity is contributing
its due proportion to the general budget of the carrier. Revenue per
ton mile can, of course, be computed for each particular service;
inasmuch as both the income and the volume of that service are matters
of independent record. The table on page 421 brings out this point.
Or take a division of the Illinois Central for 1900. Its revenue per
ton mile was 0.136 cents on wheat, 0.79 cents on flour, 4.267 cents on
sugar-cane, 0.309 cents on soft coal, 1.148 cents on stone and sand,
2.238 cents on furniture, 3.165 cents on merchandise. On this basis
one may properly inquire as to whether under all the circumstances
wheat, coal or merchandise are doing their part, in the light of the
particular expenses attached to their carriage, in maintaining the
general burden of indivisible costs. When copper yields a revenue per
ton mile of only 0.285 cents, the rate being only 1.6 per cent. of
its market value, while on wheat for the same haul the corresponding
unit of return is 0.4 cents per ton mile--equal to one-fifth of its
worth--there is evidently a maladjustment favoring one commodity over
another.[501] In a number of recent cases questions of this sort
have been rather satisfactorily answered by resort to this unit of
measurement.[502]
The curve of revenue per ton mile, as shown by diagram at the head
of this chapter, certainly gives no indication of the considerable
increase of freight rates which has ensued since 1900. This follows
from the fact that in at least two of the three respects, above
mentioned, the trend of events, independent of any change in the level
of freight rates, has operated to greatly dilute the revenue per ton
mile. The growth of low-grade traffic and the immense augmentation in
tonnage have both conspired to render this unit entirely useless for
purposes of comparison year by year. The average length of haul alone
seems to have remained much the same during the decade. Although the
curve does not show it, there has been a notable upward movement all
along the line, responsible, as we shall see, for much of the new
Federal legislation. How may we, then, estimate the amount of these
increases? Under such circumstances, it is necessary to turn to the
movement of actual rates.[503] The course of these down to 1900 is best
shown upon the same diagram above mentioned by means of the dotted
curve, entitled Actual Rate Index, the scale for which is given at the
right. This rate index is simply the average of the actual published
rates for a number of specific commodities between certain given
points. It differs in principle from the ton mileage revenue curve, in
that it concerns merely the _published_ rates, taking no account of
rebates or departures from those rates in actual practice. A comparison
of its course with that of the ton mileage curve shows a more abrupt
decline from about 1878 to 1886, since which year the course of both
lines is about parallel. Its irregularity is also significant as
illustrating the violent fluctuations to which the published rates were
subjected jected prior to 1887. Judged by this curve, the situation
has been more settled since the enactment of the Act to Regulate
Commerce in 1887.
Were data at hand for a continuation of this line to 1910 it would
undoubtedly afford a fairly reliable measure, in general, of the
substantial increase of rates which has taken place during the decade.
The main objection to it would be that it did not weight the average
according to the volume of the business carried for each of the
thirty-seven concrete rates chosen.[504]
Tracing the rise of actual rates since 1900 is rendered peculiarly
difficult, also, by reason of the fact that few of the changes took
the form of an outright advance in charges. The end in view was
more often accomplished surreptitiously. The substantial increases
in 1900[505] which inaugurated the upward movement were mainly
accomplished by changes of classification. Modification of the carload
ratings brought about the same result. A notable instance appeared
in the complaint of the dairy men in Wisconsin in 1909. An annual
shipment of 38,000,000 lbs. of cheese to Chicago before 1899 moved
at twenty cents per one hundred pounds, irrespective of the size of
the consignment. Ten years later the rate had become twenty-eight
cents for less-than-carload lots, and twenty-two and one-half cents
for wholesale shipments. The relative disability of the small shipper
under the new circumstances is as significant as the rise of rate for
all.[506] The increase of charges might be brought about in another way
without actually advancing rates by a withdrawal of commodity ratings,
thereby subjecting the shipper to the higher scale of classified
commodities. And, finally, a practical elimination of the rebate and
the cessation of general rate wars has usually resulted in a very
substantial increase in the revenue of the carriers as well as in
the scale of charges imposed upon most shippers. Evidence upon this
point is officially given in connection with the rate increases of
1903.[507] It thus appears that to follow step by step the movement of
actual rates is an extremely complicated matter. Every factor entering
into the determination of the charge must be considered; the distance
tariff, the classification, minimum carload rules and a host of other
specifications which enter into the final result. For our purposes it
must suffice that the fact of a substantial rise of charges since the
turning point in 1900 is beyond question.[508] On the other hand, it
is indubitable that such increases as have occurred, arousing vehement
protest among shippers, have been more widely advertised than changes
in the opposite direction. Substantial reductions, especially on
low-grade staples, have sometimes occurred. One is almost at a loss to
strike a fair balance between the two, in the absence of dependable
data.
The movement of passenger fares has been quite different from that
of freight rates.[509] No marked decline during the last quarter of
the nineteenth century took place. Growth in the volume of traffic
was not accomplished by a reduction of charges. This is in consonance
with the experience of foreign countries. Passenger business, while
steadily growing, has increased less rapidly than freight tonnage.
Generally, in other words, as measured by volume, freight business has
become relatively more important with the progress of time. Fiscally
the same thing is true. Only in New England does the revenue from this
service approximate one-half of the total net earnings. The nature of
railway competition explains why passenger fares have not decreased
as rapidly as freight rates. Persons must necessarily be more or less
directly transported from one point to another; while experience shows
that competition in freight traffic may be exceedingly circuitous in
route, goods even going hundreds of miles out of the direct line for
transportation by water. This narrowing of the sphere of competition
in the case of passengers has consequently operated to lessen the
rate of decline. Another point to be considered in this connection
is that no such increasing economies in the handling of passengers
are possible as in the case of freight. Instead of decreasing the
proportion of dead weight, which for passengers amounts to upward
of ninety per cent., by any of the economies recently applied to
freight traffic, it appears rather that the proportion of dead weight
of equipment per passenger is increasing, owing to the necessity of
providing more sumptuous accommodations. Bearing in mind all these
facts, it appears not unreasonable that the progressive decline of
passenger fares has continually lagged behind the decrease of freight
rates. But the natural lethargy in the movement of passenger fares was
rudely interrupted in 1908 in connection with the wave of legislation
accompanying the Roosevelt campaign which culminated in the Mann-Elkins
law. A widespread demand for lower passenger fares found expression
in the passage by twenty-two states within five years of maximum fare
laws. Eleven legislatures fixed the charge at two cents per mile, the
others establishing it at less than three cents. Many appeals to the
courts in connection with these statutes took place on the ground of
confiscation, and sharp conflicts of authority between Federal and
state governments arose.[510] Whether passenger rates would ever have
declined without such exercise of authority is open to question, but
the disturbance of established conditions at this time was extreme.
One further question with relation to the movement of rates merits
consideration. In how far has the rise since 1900 been commensurate
with the general upward movement of prices of other commodities than
transportation--the particular commodity produced by railways? The
evidence tends to show that prices in general have moved upward during
the last ten years by approximately one-fourth, and it may be even
one-third.[511] Have railway charges in general surpassed this rate or
not?
Some activity of railway experts has been devoted of late to the
elucidation of this question.[512] But, after all, is this inquiry
of basic importance as bearing upon the general reasonableness of
railway rates? Here, as so often elsewhere in the discussion of
these questions, the need is for the analysis of such problems with
reference to particular services and not in connection with matters
in general.[513] It is conceivable that railway rates might and
properly ought to increase under certain circumstances much more than
in proportion to the general change in freight rates; or that, on
the other hand, they might fairly be compelled to lag behind. This
introduces the larger question of reasonable rates in general which
must remain for discussion in our second volume.
* * * * *
The general level of rates affects the ultimate consumer more than the
shipper. Steadiness of rates, on the other hand, is vital to a healthy
state of trade. It is important to examine the evidence from this point
of view. The history of railroad rates shows a steady improvement
in the direction of more general observance of published tariffs.
Periods of abject demoralization incidental to the most furious rate
wars, have alternated with periods of peace, characterized by more or
less faithful observance of agreed rates. Viewed in a large way the
intervals of disturbance have become less frequent and less intense
with the passage of time. Present conditions are more satisfactory than
any which have prevailed since 1850.
Rate wars are almost as old as railroading and are coincident with
the appearance of competition. Among the earliest of note were the
struggles between the Erie and the New York Central as soon as the
former road was constructed to Dunkirk, Ohio, on the Great Lakes.
But the most notorious rate wars were those which prevailed between
the trunk lines in respect of the carriage of grain to the seaboard.
These wars began with the entrance of the trunk lines into Chicago in
1869.[514] The Baltimore and Ohio from the outset was the disturbing
factor. Having no entry into New York except over the lines of the
Pennsylvania Railroad, the refusal of the latter in 1874 to give
proper facilities led to immediate retaliation by rate cutting on
the Baltimore and Ohio. The details of these wars and their economic
significance have become classics in our American industrial history.
Suffice it to say that for intensity and persistence these contests
which lasted for ten years after 1884, have been unequalled in our
history since that time. A brief period of calm ensued after 1876.
But soon the struggle broke out again in 1881, intensified by the
construction of new parallel trunk lines like the West Shore and the
Nickel Plate. These latter rate disturbances lasted for about three
years.
The passage of the Act to Regulate Commerce in 1887 greatly improved
the rate situation for a time;[515] but harmonious relations were
rudely shaken by a bitter rate war in 1888 between the Grand Trunk
Railway and the American Lines with reference to the rates upon dressed
beef. Trouble over this traffic had occurred as far back as 1879,
when the rate from Chicago to New York had been cut from one dollar
to forty-five cents. In 1888, however, the rate on dressed beef for
weeks was as low as six cents per hundred pounds. The Grand Trunk which
had carried almost half of this business in 1887, had its proportion
reduced to twenty-eight per cent. in the following year. At this time
also extensive rate wars prevailed in the far western territory. The
failure of the Atchison Road brought to light accumulated rebates
for the four years prior to 1894 to the amount of $3,700,000. The
prosperity of the early nineties led to a considerable improvement
in rate observances. The only exception was the persistence of
trouble from the Canadian carriers. The Soo line across the Straits
of Mackinac, opening a short route from St. Paul and Minneapolis to
the seaboard, was acquired by the Canadian Pacific Railroad in 1890.
Combined lake-and-rail grain rates were sadly disturbed and the
controversy over so-called ex-Lake grain between the lines from Buffalo
to New York, which afterward cropped out in 1900, took its beginning.
These Canadian Pacific rate wars were severe while they lasted. In
1892, for instance, the rate on boots and shoes from Boston to St.
Paul dropped from one dollar and fifteen cents per hundredweight to
forty-five cents.
The panic and subsequent depression of 1893 caused serious and
widespread rate wars all over the country. Grain rates from Chicago to
New York were openly reduced from twenty-five to fifteen cents. Two
peculiarities of this rate war deserve mention. In the first place,
every concession was publicly made,--that is to say, the cut rates
were filed with the Interstate Commerce Commission; and, consequently,
owing to the percentage-basis system to intermediate points, the rate
war on Chicago-New York business automatically induced a rate war to
every intermediate point in Central Traffic Association territory.
Transcontinental rates were also badly upset at the same time. This
was due not only to the prevalent hard times, but to complications
arising from the independence of the Panama Railway. This line had been
controlled since 1871 by the Union Pacific Railroad. The arrangement
under which the Pacific Mail Steamship Company was also controlled came
to an end in 1893, when the field was again opened to competition.
The merchants of San Francisco established an independent line of
steamships and for two years the most bitter and reckless rate war
prevailed. During this conflict freight was carried from New York to
San Francisco as low as thirty cents per hundredweight.[516] Matters
were finally settled in 1898; but in the meantime the Union Pacific
Railroad had gone into bankruptcy.
Entire demoralization in freight rates throughout the southern states
occurred in 1894. Every carrier in this section was involved. Rates
were cut for two months by as much as two-thirds. The first-class
rate from New York to Atlanta dropped from $1.14 to forty cents per
hundred pounds. The years 1894-1895 for the country as a whole were
exceedingly unfortunate. Better conditions then supervened except for
a rate war on grain at Missouri river points, so important that it
was made the subject of special investigation.[517] The Chicago Great
Western Railroad through the agency of a corporation known as the
Iowa Development Company actually purchased on its own account large
amounts of grain in order to secure its carriage. Grain was carried
from Kansas City to Chicago under the system of rebating known as
"protecting the through rate" for as low as two cents, when the open
published rate was seventeen cents per hundredweight. Conditions then
bettered somewhat largely through the activities of the Joint Traffic
and Trans-Missouri Freight Associations. The prospect of legalization
of pooling by Congress was bright. Rates seem to have been observed
with more than usual faithfulness throughout the country, the only
exception being another brief conflict in the southern states. But the
Trans-Missouri decision by the United States Supreme Court in 1897,
declaring these traffic associations illegal, once more precipitated
most unsatisfactory conditions. And these were accentuated by the
budding prosperity of the following year.
With the return of activity in business and agriculture in 1898
a frenzy for participation in the rapidly expanding traffic once
more brought about extreme disorganization. The Interstate Commerce
Commission reported that "a large part of the business at the present
time is transacted upon illegal rates ... in certain quarters the
observance of the published rate is the exception." The commissioner
of the St. Louis Traffic Bureau testified before the United States
Industrial Commission that "there were fewer rates maintained in 1898
than at any other time within my knowledge of the railroad business,
and I have been in the railroad business for twenty-eight years." At
this point the Interstate Commerce Commission intervened by the proffer
of its good offices. Conferences with the heads of the principal
railroads were held. A decided change in the attitude of the Commission
toward the carriers became evident. It wisely sought to arouse the
railroads themselves to the enormity of the existing evils, being
absolutely unable itself under the law either to prevent or correct
the existing abuses. The result fully justified all expectations. The
following year witnessed an almost complete restoration of published
rates, although business continued to expand in volume. Naturally there
was ample for all the railroads to handle. This condition lasted for
some time. But during 1900 rate cutting again developed upon a large
scale in westbound business. The great increase of eastbound shipments
and the demand for return lading at any price was undoubtedly the
cause. This condition lasted for some months.
Rate cutting between the trunk lines again broke out in the spring of
1901, grain being hauled as low as eleven cents per hundred pounds
from Chicago to New York. Competition between the Lake line railroads
seems to have been the cause. The problem of adjusting ex-Lake grain
rates dates from this period. The community-of-interest plan of trunk
line control was ineffective to prevent disturbance. In the same
year a passenger rate war from the Missouri river to California was
also threatened. The United States Industrial Commission sent out
a number of inquiries concerning conditions in the summer of 1901.
This indicated a firm and stable rate condition in the East but some
disturbance on lines between Chicago and the Ohio river points. Trouble
soon broke out, however. The Atchison road suspecting its competitors
of bad faith, cut its rates first-class from Chicago to the Missouri
river from eighty cents to fifty cents per hundredweight. Agreements
were repeatedly made and almost immediately violated, some of the
strongest lines being the worst offenders. During the fall of that year
export rates on flour and grain were badly slashed. The traffic manager
of the New York Central lines testified that grain rates for export
were not maintained for a number of months.
Apparently the general situation in 1900 was more satisfactory than at
any previous time in the history of railroading in the United States.
With few exceptions the published rates were observed. This commendable
situation seems to have been due to several causes. Primarily an
adequate appreciation by the railroads themselves of the losses of
revenue to which they had voluntarily subjected themselves prevailed.
An enormous volume of traffic incident to general prosperity, also,
almost overtaxed the facilities of the carriers. And, in the third
place, the spread of consolidation and the community-of-interest idea
undoubtedly contributed to the same end. The determined attitude
taken by important roads, notably the Southern Railway, contributed
to the maintenance of rates. Even in the Far West and Northwest, rate
conditions seemed to be in better shape than at almost any previous
time. But it was too good to last; trouble soon broke out again. Grain
rates from Kansas to Chicago during the summer dropped from nineteen
cents to seven cents. Rates on packing-house products became utterly
demoralized. So bad did conditions become that in March of 1902 the
Interstate Commerce Commission intervened, seeking injunctions in the
Federal courts against any departure from the published tariffs. This
immediately bettered conditions; and in February of 1903 the passage
of the Elkins law, as we shall see, contributed still further to this
end. The enactment of this statute, passed at the solicitation of the
carriers themselves and imposing much severer penalties upon departure
from published rates, brought about conditions during the spring
of 1903 unsurpassed for stability. The only exception was a minor
disturbance concerning the carriage of ex-Lake grain from Buffalo to
New York. Tariffs seem to have been faithfully maintained throughout
the country with one exception, that is to say, concerning traffic to
and from Missouri river points.
Since the passage of the Elkins Amendments in 1903, the phenomenal
development of export trade through the Gulf Ports, principally New
Orleans and Galveston,[518] has been mainly responsible for recurring
and often ferocious rate wars, particularly during the years 1903-1906.
These rate wars were usually precipitated in the first instance by
struggles between the Gulf railroads and the trunk lines for the
carriage of export corn. In 1904, for example, after a long period
during which little surplus corn was available for export from Iowa,
Kansas and Nebraska, much of it being locally consumed for stock
feeding, a large surplus was left over. Rates were promptly cut during
1905 by both sets of lines. Thus the rate on export corn from Omaha
to New Orleans was reduced from eighteen to eleven cents per hundred
pounds. This cut was promptly met by a reduction of rates from Missouri
river points to Chicago from twenty-four to thirteen cents. The rate
from Omaha to New York dropped to the extraordinarily low figure
of thirteen cents per hundred pounds. The Burlington and Missouri
Pacific Railroads were particularly active in this contest; together
securing over eighty per cent. of the corn traffic, although five other
important roads were operating in this territory. All through the
winter and spring of 1905 the struggle went on unabated. The Gulf ports
during this period increased their exports of corn two and one-half
times over. The struggle was not alone confined to the carriage of
grain; although export flour being manufactured so far north, seems to
have been immune from disturbance. The trouble extended over into the
field of packing-house products for export. It was long thought that
this could not be shipped over the roundabout southern route, but its
practicability was demonstrated at this time. The demand of the Gulf
roads for a ten per cent. differential rate in their favor as an offset
for the greater time requisite for transit, not being accorded, rates
were again cut by one-third, sometimes being as low as twenty cents per
hundred pounds.
The rate wars of 1905 in the carriage of export traffic immediately
spread into the field of imports. Competition for transcontinental
and far western business has always been keen by the Gulf routes. The
notable Import Rate case already discussed, offers a good illustration
of this fact. The great volume of tonnage moving outward through
Galveston and New Orleans necessitated a correspondingly heavy
northern and northwestern movement of empty cars. Hence the railroads
leading from the Gulf ports, actively bid both against one another
and in connection with the steamship lines against the trunk lines.
Competition was particularly keen for the carriage of the large volume
of sugar to the Middle West, particularly Missouri river points like
St. Louis and Omaha. Carriers from every point of the compass were
interested in this traffic. The trunk lines brought refined sugar from
the seaboard cities where the West Indian product is concentrated. The
Gulf lines brought the Louisiana product, partly as a back-load against
exported grain. And the transcontinental lines brought the Hawaiian
sugar, also as a back-load against a predominance of westbound tonnage.
All hands thus directly took part.[519] For three years this sugar war
persisted despite all attempts at harmony. Rates were constantly cut
by fifty per cent., always of course to the profit of the large sugar
refiners. Coffee, also constituting an important part of our import
trade, and of course particularly adapted to entry through the Gulf
ports, was carried at ruinous rates. Thus on green coffee during 1905,
the rate from New Orleans to St. Paul was cut from forty to fifteen
cents per hundred pounds, while coincidently the rate on sugar dropped
from thirty-two to ten cents. The struggle for import business extended
finally to all imports of merchandise from Europe. The Illinois
Central, for example, actively bid for the imported plate glass
business about this time. At a meeting of parties concerned in 1905,
the fact developed that every one of the important lines had entered
into contracts for the carriage of this traffic at rates approximately
one-half those normally prevalent. The trunk lines of course had to
meet this competition or lose the business. The Pennsylvania Railroad
cut the rate on crockery from forty to eighteen cents; on imported
seeds the rate dropped from fifty to twenty cents and on toys from
seventy-five to twenty-five cents per hundred pounds. These rate wars
it will be observed differed neither in extent nor degree from those
of a generation earlier. One cannot avoid the conclusion that the
utter demoralization of rates was ended only by the intervention of
the Federal government; first by the sturdy and determined application
of the Elkins Law under President Roosevelt's personal direction, and
later by extension of the principle of supervision and regulation by
the Hepburn Act of 1906.
The principal breach since the sugar wars was a rather persistent and
locally interesting disturbance of westbound import rates, precipitated
in the spring of 1909 by the Boston & Maine Railroad. Its object was
to overcome the disability against the port of Boston in the matter
of imports, due to the differentials allowed at Philadelphia and
Baltimore.[520] This led to a general trunk line upset lasting about
four months, in the course of which rates from Boston to Chicago were
reduced from sixty-nine to fifty-eight cents. This obviously left
little profit in the business. Yet it was a mild concession as compared
with the struggles of earlier years. Two years later, in June, 1911,
trouble threatened to break out again. This time it was the Delaware
& Hudson and Erie roads which filed reduced rates to the interior. But
the solidarity of feeling between the trunk lines was such that an open
breach was prevented at the last moment. The prompt intervention of
the Federal authorities was a noticeable feature on this occasion. It
may somewhat safely be predicated that further serious disturbance in
future is unlikely to occur.
FOOTNOTES:
[487] U. S. Industrial Commission, XIX, 1901, pp. 272-290; _Annals of
the American Academy of Political Science_, 1898, pp. 324-352.
[488] Revenue per ton mile in index to the Senate (Elkins) Committee
Hearings, 1905, vol. IV.
[489] Compare conclusions as to rebating in 1900; U. S. Industrial
Commission, XIX, p. 285. When, as in 1887, a general departure of 50
per cent. from published rates characterized transcontinental traffic,
the difference between the theoretical and actual revenue, as measured
by the published rates, is very great. 21 I.C.C. Rep., 349.
[490] The movement of average trainloads in connection with ton-mile
revenue bears upon this point. Thus in 1905, the increased trainload,
accompanied by a lower ton-mile revenue, points specifically to an
increase in low-grade traffic.
[491] Senate Finance Committee Report on Prices, 1893, Part I, p. 437.
[492] The effect of periods of depression, such as 1903 and 1908, upon
the proportion of low-grade tonnage is a moot point.
[493] _U. S. Statistics of Railways_, 1910, p. 64.
[494] Mileage of roads represented on June 30, 1910--130,395.46 miles.
[495] _Cf._ Ripley Railway Problems, p. 509. _Cf._ also p. 103, _supra_.
[496] Senate (Elkins) Committee, Digest, App. III, p. 63, brings out
the high proportion of local business in the South. On the L. &. N. 80
per cent. is thus classed.
[497] Mass. Commission on Commerce and Industry, 1908, p. 117.
[498] McCain, in Senate Finance Committee Report on Prices, 1893.
[499] I.C.C., Annual Rep., 1903, p. 150.
[500] Emphasized in the case of wool rates. 23 I.C.C. Rep., 151.
[501] Samuel O. Dunn, _The American Transportation Question_, p. 65.
[502] 22 I.C.C. Rep., 617; 11 _Idem_, 296; 13 _Idem_, 418; 23 _Idem_,
7; 9 _Idem_, 382, etc.
[503] J. R. Commons, _Bulletin, Bureau of Economic Research_, No. 1,
July, 1900; unfortunately not continued to date.
The best data giving actual rates and classifications is the _Forty
Year Review_, etc., published by the Interstate Commerce Commission,
as "Railways in 1902," part II, 1903; continued in Senate (Elkins)
Committee, Digest, App. II, 1905; and 58 Cong., 2nd sess., Senate Doc.
No. 257, savagely attacked in Bull. II, Chicago Bureau of Railway News
and Statistics, 1904. The largest collection of material is in the
Senate (Aldrich) Committee Report on Prices, 1890, I. pp. 397-658,
covering the period 1852-1890. Also Bulletin 15, Misc. Series, Div. of
Statistics, U. S. Dept. of Agriculture, 1898, pp. 1-80.
[504] The continuation of Commons' index number of freight rates
to date, seemed inadvisable on account of the changes in traffic
conditions which have taken place. Originally well selected, the
thirty-seven rates chosen in 1900 are not now representative. There
are, for instance, no transcontinental quotations at all; none from
the southern states, such as on raw cotton; none for the great staples
elsewhere moving under commodity ratings, such as iron ore, chemical
fertilizers, lumber, citrus fruit, etc. Moreover, twelve of the
thirty-seven items chosen by Commons were rates on petroleum which now
moves in bulk in pipe lines except locally. Several of the quotations
for coal, and for all the other carload rates, as a matter of fact,
have been so affected by changes in carload minimum rules, that the
mere rate by itself has little significance.
Rejecting Commons' particular index number by reason of its inherent
defects does not, however, lessen the desirability of choosing some
other combination of rates which may be used as a standard for
measurement of rate changes year by year. Yet the selection of such an
index number is open to all the difficulties attaching to a similar
index number of prices. Is the object, for example, an academic
determination of rate changes _per se_; or is it intended to ascertain
the financial burden of such charges upon the community? In the
former case the volume of traffic affected would not be an important
consideration. Local rates on indigo or millinery would be given the
same weight as similar changes in the rate on wheat between Chicago and
the Atlantic seaboard. The latter mode of approaching the question, on
the other hand, would correspond to an index number of prices, weighted
according to the volume of consumption. A doubled freight rate on
hard coal to Perth Amboy would outweigh an equal change in the charge
on castile soap in exact proportion to its commercial importance as
measured by the total tonnage transported. Many such details would
call for careful consideration before the final adoption of the rate
items chosen to constitute the index number; but the Interstate
Commerce Commission might well consider the initiation of such a
statistical project, endeavoring to do for railroad rates what the
Federal Commissioner of Labor performs so satisfactorily in officially
recording current changes in the price of commodities. Such a record
of railroad rates extending over a series of years, supplemented by
data for ton mileage revenue, would be invaluable in the determination
of the reasonableness of rate advances in future; even as the rate
increases of 1910 clearly pointed to the need of a similar standard for
purposes of comparison from year to year in the past.
[505] U.S. Industrial Commission, XIX, pp. 281-291; 58th Cong., 2nd
sess., Sen. Doc. 257.
[506] 16 I.C.C. Rep., 85. For other instances compare 12 I.C.C. Rep.,
149, and 23 I.C.C. Rep., 158.
[507] 9 I.C.C. Rep., 382.
[508] For further examples supplementing our concrete instances
above, the following citations are significant; For cattle, 11 I.C.C.
Rep., 238, 296 and 381; 13 I.C.C. Rep., 418; 23 I.C.C. Rep., 7; for
soft coal, 22 I.C.C. Rep., 617; for hay, 9 I.C.C. Rep., 246; for
transcontinental rates in general, _U. S. v. Union Pacific Railroad_,
etc., Supreme Court, 820. October Term, 1911, p. 558. The record, so
far as the general advances of 1910 are concerned, will be considered
in connection with the legislation of that date, in chapter XVIII.
[509] _Annals of the American Academy of Political Science_, 1898, pp.
324-352.
[510] Discussed in chap. XX.
[511] _Quarterly Journal of Economics_, 1907, p. 618.
[512] Calculations of C. C. McCain on the Diminished Ratio of Railway
Rates to Wholesale Commodity Prices, in connection with the increases
in 1910.
[513] Well expressed in a recent soft coal case; 22 I.C.C. Rep., 617.
[514] Further details in our historical summary in chap. I.
[515] The main sources of the following chronicle have been the files
of Annual Reports of the Interstate Commerce Commission and of the
_Railway Age_ and _Age-Gazette_.
[516] A carload of bamboo steamer chairs across the continent for $9.40
is a cut to the bone indeed. 21 I.C.C. Rep., 349.
[517] 54th Cong., 2nd sess., Sen. Doc. 115, is as fine a picture of
utter rate demoralization as can be found.
[518] Shown by diagram at p. 32, _supra_.
[519] Senate (Elkins) Committee, 1905, pp. 2730 and 2874.
[520] _Cf._ p. 405, _supra_.
CHAPTER XIII
THE ACT TO REGULATE COMMERCE OF 1887[521]
Its general significance, 441.--Economic causes, 442.--Growth
of interstate traffic, 442.--Earlier Federal
laws, 443.--Not lower rates, but end of discriminations
sought, 443.--Rebates and favoritism, 445.--Monopoly
by means of pooling distrusted, 446.--Speculation
and fraud, 447.--Local discrimination, 448.--General
unsettlement from rapid growth, 449.--Congressional history
of the law, 450.--Its constitutionality, 451.--Summary
of its provisions, 452.--Its tentative
character, 453.--Radical departure as to rebating, 454.
Due appreciation of the significance of the great body of Federal
legislation concerning railroads which has accumulated during the
last quarter century in the United States, depends upon a clear
understanding of the economic events of the period. Great laws are not
the figments of men's minds, conjured up in a day. They are a response
to the needs of the time. Their true causes are thus immeasurably
complex. Nor does a wholesale public demand for legislation arise
overnight. From small beginnings the pressure steadily grows,
oftentimes for years; until, perhaps through a conjuncture of
particularly aggravating events, matters are at last brought suddenly
to a head. Yet while this culmination of industrial or social pressure
may finally result in legislation under some particularly strong
political leadership, to assign such personal influence as even the
remote cause of legislation, is to belie all the facts and experience
of history. No clearer illustration of the close relationship between
economic causes and statutory results could perhaps be found, than in
the field of our Federal legislation concerning common carriers. It
forms one of the most important chapters in our industrial history.
Several of the economic causes of the Act to Regulate Commerce of
1887, are deep-rooted in the preceding decade. A few even run back
to Civil War times. Foremost among these was the rapid expansion of
the railway net; and particularly, as outlined in our introductory
historical chapter, its phenomenal growth during the eighties. More
new mileage was laid down in the year of the Act itself than at any
other time in our entire history within a single twelvemonth. Of equal
significance, however, was the far more than commensurate development
of long distance, that is to say, interstate business. The through
carriage of livestock and grain to the seaboard for export attained
immense importance; and the settlement of the Middle West called for
a corresponding westward movement of manufactured goods. The Windom
Committee of 1874 on "Transportation Routes to the Seaboard"[522] bears
eloquent testimony to the growing importance of this through traffic
as a factor in legislative activity. According to the Cullom Committee
Report twelve years later,[523] approximately three-fourths of the
railway traffic of the country was already at that time interstate in
character. On the trunk lines, excepting the Pennsylvania Railroad
which still relied more largely on Pittsburg-Philadelphia tonnage, more
nearly nine-tenths of the traffic consisted of through, as distinct
from local, business. Obviously, this pointed to the assumption of
authority by the Federal government, if any were to be exercised;
inasmuch as the separate states, as will shortly appear, were held by
the Supreme Court of the United States in 1886 to be powerless to deal
with interstate commerce.
The growing disposition of Congress to assume control over interstate
business had already been evinced in the passage of two Federal
statutes. One in 1872 had dealt with abuses in the carriage of
livestock. And another, even earlier, had sought to remove obstacles
set up by local jealousy and monopoly to the through carriage of
goods. Some railway charters actually prohibited railroads from making
connections with other lines; or from allowing cars to leave their
own rails. The Erie, for example, was thus hampered; lest the trade
of southern New York be diverted to rival seaports. But the military
necessity of through transport of troops, and the impediments to speedy
and cheap carriage of mails and goods through delays at junction
points, impelled Congress to authorize, though not as yet to compel,
the formation of through routes and the issue of through bills of
lading by the Act of 1866. The immediate response to this permissive
legislation was the rise of the private car lines, elsewhere described,
in connection with personal discrimination and also in the general
historical review.[524]
No widespread demand for a general reduction of railroad rates seems
to have existed in 1887. In this regard the situation is strikingly in
contrast with that which prevailed during the protracted hard times
succeeding the panic of 1873. Acute industrial depression during that
period had aroused deep public feeling against the "extortions of
soulless railway corporations." It was but natural that all the farmers
in the newly settled states should actively participate in the Granger
movement. The popular war cry in this agitation was lower freight
rates. This demand is voiced in the President's message of 1872,
calling for "more certain and cheaper transportation, of the rapidly
increasing western and southern products, to the Atlantic seaboard."
The proposals of the Senate to attain these objects are contained in
the above-mentioned Windom Committee Report of 1874. Competition is to
be stimulated by the development of waterways and new trunk lines. A
bureau of commerce is proposed. The long and short haul principle in
rate making is to be enforced. Stock-watering is to be prohibited; and
publicity of rates to be brought about. On the whole, reduced charges
are to be secured rather by means of natural competition among carriers
than through legislation. But the keynote of the Windom Report of 1874
is cheaper carriage of goods,--a general reduction of rates all along
the line.
Many things happened during the next twelve years to modify this
demand. By 1886, according to the Cullom Committee, "the paramount
evil chargeable against the operation of the transportation systems of
the United States, as now conducted, is unjust discrimination between
persons, places, commodities, or particular descriptions of traffic."
Purely economic events had brought about this change of opinion.
The rate wars of the seventies; a revival of general prosperity in
1879; and great mechanical improvements and economies in operation,
had brought about the desired decline of freight rates.[525] For the
time the bogey of extortionate charges was laid at rest. The Act of
1887, elaborate as it was in form, seems not to have been intended to
deal with rates in any general way. It was in the main aimed at the
prevention of specific abuses. "The practice of discrimination in one
form or another is the principal cause of complaint." Consequently, the
long succession of bills introduced in the House of Representatives
year after year for more than a decade by Judge Reagan of Texas and
others, made no attempt to provide administrative machinery by which
to fix rates in general; but sought merely to prohibit these specific
abuses by statute.[526] The proposition for a permanent commission
to deal with rates in a more comprehensive way, seems, as we shall
see, to have emanated from the Senate at a later time. But this more
statesman-like proposition from the upper chamber was essentially
different from the response in the House of Representatives to popular
feeling against discriminatory practices, which slowly gathered force
during more than a decade of agitation and debate.
What now were some of the specific "discriminations" which these
various bills in Congress aimed to prevent? And why did the
movement come to a head in 1887? The evidence is conclusive that
personal favoritism as between rival shippers took first place. The
indiscriminate and cut-throat competition of the carriers, particularly
in connection with the trunk line rate wars, offered a golden
opportunity to those in search of secret and preferential rates.[527]
The chief offender, of course, was the Standard Oil Company under the
direction of John D. Rockefeller. The Cassatt revelations in 1877 as
to exclusive contracts with the great trunk lines for the carriage
of oil, greatly stirred public opinion. Congressional attention had
been directed to the subject some years before by complaints from the
Pennsylvania field. But the abortive results of the investigation of
1875 demonstrated nothing beyond the shameful impudence of the chief
offenders. According to the New York (Hepburn) Committee investigation
in 1879, few shippers had ever seen printed tariffs. The Assistant
General Freight Agent of the New York Central testified that one-half
the business out of New York, and nine-tenths out of Syracuse went on
special rates. At this time there was also unrest in the anthracite
coal trade. Moreover, the activity of the "eveners" in the cattle
business in 1875-1879[528] had laid the foundation for still other
monopolies built up by means of rebates. But the constant irritant
in the public eye was the Standard Oil Company.[529] The Lake Shore
case, fought through every Ohio court and then on appeal up to the
Supreme Court of the United States in 1886, widely advertised the
discriminatory practices of the railroads. But the most spectacular
disclosures of all took place in 1885-1888 in the George Rice cases in
Ohio. The Cullom Committee in recommending publicity of rates as its
primary remedy for the evils of the time, specifically cites "this most
impudent and outrageous" proceeding.[530] In the protracted struggle
in conference committee upon the provisions of the act, elimination of
rebates was the only subject upon which both House and Senate conferees
were in thorough accord from the start. Whatever the commercial crimes
chargeable to the founder of the Standard Oil Company, he should, at
least, be credited with the performance of a great public service in
finally crystallising public opinion in 1887 in favor of railroad
legislation for the prevention of rebating.
Distrust of monopoly has always loomed up large in the public eye.
The dread of it is voiced in every public document of the time. The
Windom Committee in 1874, as we have seen, looked to the stimulation
of railway competition as its chief remedy against high rates. Five
years later, the Hepburn Committee in New York vehemently denounced
railroad monopoly as an evil to be sternly repressed. But, in the
meantime, the carriers, almost prostrated by the excesses of their rate
wars, were slowly learning how to coöperate for the maintenance of more
stable charges. Railroad pools and traffic agreements, first essayed
about 1875, were gradually elaborated; until by 1886 nearly all parts
of the country were covered by them.[531] From small beginnings in
1877, the Trunk Line Association under Albert Fink was in its heyday
of activity. The Southern Railway Association was restoring order out
of chaos, south of the Ohio river. By 1886 all competitive traffic
north and west of Chicago was pooled. This was especially true of
the highly competitive business between the Missouri and Mississippi
rivers. Even in remoter regions, such agreements threatened to
deprive the public of the benefits of rival railroad construction.
In Colorado and New Mexico public sentiment was deeply aroused over
the tripartite division of territory between the carriers then in the
field.[532] The helplessness of independent railroads was made evident
in connection with the attempt of the (now) Colorado & Southern road
to gain a foothold. Its suits in both state and Federal courts, and
the attempted remedial legislation by Colorado in 1885, disclosed the
great power of monopoly over the public welfare in that region. In
Texas, the Gould-Huntington apportionment of the field between the two
systems in 1881,[533] was doubtless perceived as to its results, even
if its precise terms were secret. The Texas Traffic Association, also,
organized in 1875, embraced all the lines in that vicinity. May it not
well be that the final inclusion in the Act of 1887 of the prohibition
of pooling, upon direct insistence of the Texas representative in
Congress against the protest of the Senate, had some connection with
these events? It seems clear that the marked interest of the railways
in eliminating competition all over the country at this critical time,
carried great weight with Congress in shaping the law.
The years since the Civil War had witnessed an ever increasing
volume of speculation and fraud in railway affairs, which reached
its climax in the frenzied construction period of the eighties.[534]
Jay Gould, "Jim" Fisk and their successors who contributed to the
"railway panic" of 1884, had done their work well in arousing public
hostility to the railroads. The Hepburn Committee Report in New York
is symptomatic of the state of feeling in its vehement denunciation
of these practices.[535] The Windom Committee, five years earlier,
had officially registered its opinion that of all the abuses of the
time, "none have contributed so much to the general discontent and
indignation as the increase of railway capital by _stock watering_ and
_capitalization of surplus earnings_. The murmurs of discontent have
swollen into a storm of popular indignation. Your committee believe
the evil to be of such magnitude as to justify and require for its
prevention the coöperation of both Congress and the States."[536]
Nor is the Cullom Committee less emphatic in 1886; although its
condemnation is shifted from the trunk lines, particularly the New
York Central and the Erie, to the newly constructed "unnecessary
roads." "This practice (of stock watering) has unquestionably done
more to create and keep alive a popular feeling of hostility against
the railroads of the United States than any other one cause."[537] All
were agreed that the remedy must be applied by the states, from which
the companies derived their charters. But a powerful impulse toward
publicity of accounts and operating details as well as of rates, to
be enforced by the hand of the Federal government, was unquestionably
imparted by the financial scandals of the time. It was hoped that
fraudulent construction concerns, subsidiary companies for "milking"
the main corporation, unnecessary paralleling of existing lines for
purposes of blackmail, speculative bankruptcies and all similar
practices of the period might be restrained in part by letting in the
light of day upon their affairs.
Then again, there were the discriminations in rates, so vehemently
denounced, against the small towns and local business, in favor of
the large cities mainly interested in long distance traffic. Such
jealousies and rivalries of course antedate the railroad. They are
almost as old as trade. And yet the course of affairs since the panic
of 1873, had lent peculiar force to them by the middle of the eighties.
It had been a period of ruinous railroad competition all over the
land, but especially in trunk line territory. Through rates had fallen
tremendously; without any corresponding change in local charges.[538]
The great western cities and the remote farmers were the immediate
beneficiaries, of course. But there were the older communities of
the East to be reckoned with,[539]--the farmers of New England and
Middle New York and the secondary cities which had once been terminal
points but were now become way stations. In the South, new towns were
springing up, anxious to divide distributive trade with the older
cotton concentration points. Nashville, soon to take first place in a
celebrated case, was being built up by a favoring railway; and Atlanta,
a purely railroad town, was in rapid growth at the expense of older
rivals. The separate states had long sought to deal with this ancient
evil of local discrimination in rates by means of long and short haul
clauses; but to little effect. What wonder that the Cullom Committee in
1886, heads its long list of "complaints against the railroad system of
the United States" by two forms of this alleged evil!
In brief, the contemporary evidence all goes to show that,--quite aside
from evil intent,--the railroad business of the United States in the
middle of the eighties, was in a highly disorganized state. Phenomenal
economic development since the resumption of specie payments in 1879,
had perhaps outstripped the capacity of managements to scientifically
order their affairs. Collateral evidence as to this is the
extraordinary wastefulness, of operation which prevailed. Competition
had run mad. All of the tricks and vagaries of roundabout routing of
freight found place.[540] To keep pace with mere operating demands
was a heavy enough task,--to say nothing of constructing well-ordered
tariffs, keeping straight accounts, and providing adequate funds for
growth. And out of this unsettled condition of affairs there had sprung
the usual mushroom crop of speculation, fraud and corruption which is
bound to flourish at such times.
And then, finally, in seeking to understand the economic situation
in 1887, the intolerable arrogance of great railway managers must be
kept in mind. Honorable exceptions there must have been, to be sure.
But the "Public be damned" attitude of the old Commodore Vanderbilt
was evidently a general, although perhaps a somewhat exaggerated one.
It is certain that there was no well-defined sense of responsibility
to the public. All attempts at investigation or reform were treated
as "interference with private business." The rising tide of popular
feeling was increased by evidence of corrupt political practices,
as well as of mere crude contempt for the rights of patrons. Read
the congressional debates upon the Camden and Amboy monopoly in New
Jersey; the special laws "jammed" through the state legislature by the
New York Central Railroad;[541] and the revelations as to corruption
in the Credit Mobilier and other proceedings in Congress.[542] Such
things added fuel to the flames in the East, kindled and kept alive in
the West by the Granger movement. The time for an attempt to curb the
second great manifestation of corporate power in the United States was
indeed at hand. The only question was as to the form which it should
assume.
* * * * *
The congressional history of the Act of 1887 extends over a period
of nearly fifteen years. The first general bill to pass the House of
Representatives in 1874, had for its object a reduction of rates; but
the movement for the elimination of discriminatory practices did not
begin until two years later. Then in 1877, came the first of the long
series of bills which finally led up to the statute in its final form,
prepared by Representative Reagan of Texas. But it was not until 1884
that the Senate, ever tardy in its response to public sentiment, began
to take the matter seriously. Its earlier interest in reduced rates
had dissipated, ten years before, with the Windom Committee Report.
Now, however, under the leadership of the Senator from Illinois, the
Cullom Committee brought in a bill, the distinctive feature of which
was provision for a permanent administrative commission. The various
House bills, in their distrust of executive appointments and authority,
had favored leaving the elimination of abuses, once clearly defined
by law, to the Federal courts. A legislative deadlock between the two
chambers resulted upon this point; as well as concerning the status of
pooling. For the House sought to prohibit all traffic agreements; while
the Senate would permit them under proper administrative supervision.
At this critical juncture the Supreme Court decision in the Wabash, St.
Louis, and Pacific Railway case[543] was handed down. It specifically
denied to the individual states, power to regulate the ever-increasing
volume of interstate traffic. This decision put the match to the long
train of influences making for action. The Senate and House bills were
therefore taken up in conference committee, with the usual outcome of
give and take. The Senate gained its point of administrative, rather
than judicial, control. A commission was provided; but the courts were
accorded power to entertain appeals. On the other hand, the House
conferees insisted upon the prohibition of pooling and a more stringent
long and short haul clause. All were agreed in respect to the publicity
features. The series of votes at different times with steadily growing
majorities, leading up finally to the passage of this compromise
statute by both houses, is significant of the progress of public
opinion upon the matter.
_House of Representatives_ _Senate_
1874 Passed 121 to 116 --
1877 " 139 to 104 --
1884 " 161 to 75 43 to 12
1886 " 192 to 41 47 to 4
1887 " 219 to 41 37 to 12
The constitutionality of the Act to Regulate Commerce of 1887 need not
long concern us.[544] Everything depended upon the interpretation of
the clause in the Constitution conferring upon Congress power over
commerce with foreign nations and among the states. A generation
earlier the regulation of railroads by Federal statute might not have
been sanctioned. But Lincoln and Grant had dealt a death blow to the
old states' rights idea. And the positive legislation after the Civil
War prior to this time, had already denoted a much more progressive
and liberal point of view. The far-reaching decisions of the Supreme
Court following _Munn v. Illinois_ in 1876 had clearly upheld the
power of the several states to regulate commerce. The situation called
only for definition of the dividing line between state and Federal
authority. This was accorded in the Wabash case, which, as has already
been stated, terminated the congressional deadlock, and brought about
an agreement upon the terms of the law. Nor is it without significance,
in the light of subsequent events, that the Wabash case was an appeal
by a common carrier to Federal authority for protection against a state
statute.
A brief summary of the main provisions of the Act to Regulate Commerce,
at this point, will be convenient for future reference.
Section 1. It applies to freight and passengers by land; or by
land and water in cases of continuous or through shipment, even
to foreign countries. All charges shall be reasonable and just;
and every unjust and unreasonable charge is prohibited.
Section 2. Rebates and personal discrimination of every sort
forbidden.
Section 3. Local discrimination forbidden; equal facilities for
interchange of traffic with connecting lines prescribed.
Section 4. Long and short haul clause: "That it shall be
unlawful for any common carrier subject to the provisions of
this act, to charge or receive any greater compensation in the
aggregate for the transportation of passengers or of like kind
of property, under substantially similar circumstances and
conditions, for a shorter than for a longer distance over the
same line, in the same direction, the shorter being included
within the longer distance; but this shall not be construed as
authorizing any common carrier within the terms of this act to
charge and receive as great compensation for a shorter as for a
longer distance: _Provided_, _however_, That upon application
to the Commission appointed under the provisions of this act,
such common carrier may, in special cases, after investigation
by the Commission, be authorized to charge less for longer than
for shorter distances for the transportation of passengers or
property; and the Commission may from time to time prescribe
the extent to which such designated common carrier may be
relieved from the operation of this section of this act."
Section 5. All pooling and traffic agreements prohibited.
Section 6. All rates and fares to be printed and posted
for public inspection at all stations; and filed with the
Commission at Washington. No advance in rates except after ten
days notice. All charges, other than as published, forbidden.
Section 9. Procedure by complaint before the Commission or
Federal courts. Power to compel testimony and production of
papers.
Section 10. Penalty of $5000 for each offence in violation.
(Amended in 1889, adding imprisonment.)
Section 11. Interstate Commerce Commission of five members
established; by Presidential appointment; term six years.
Section 12. Powers of Commission to inquire, with right to
obtain full information necessary to exercise of its authority.
Power over witnesses and production of papers, to be sustained
by U. S. Circuit Courts.
Sections 13-14. Procedure before Commission by complaint.
Parties competent to appear. Decisions to include findings of
fact upon which based, for courts on appeal.
Section 15. Duty of Commission to notify carriers to "cease and
desist" from violation, or to make reparation for injury done.
Section 16. To enforce obedience, procedure by petition of
Commission in Federal courts, which may issue writs.
Section 20. Annual detailed reports from carriers as to
finance, operation, rates or regulations in prescribed forms as
desired by the Commission.
Such is the substance of the statute which marks the real, beginning
of subjection of the railroads to control by the Federal government.
It was avowedly tentative in character. It was a compromise, entirely
satisfactory to no one. Many of its provisions were not new.
Administrative commissions had already been in existence some time in
several of the states. Pooling had also commonly been condemned. The
long and short haul clause in the statute constitutes no innovation.
It was based specifically upon a number of state laws, more or less
similar to it in tenor.[545] In Vermont, for example, since 1850; in
Virginia, since 1867; and in Massachusetts, since 1874, long and short
haul clauses had been in force. Some seventeen states, prior to the
enactment of the Interstate Commerce Act in 1887, had conceded the
wisdom of such an adjustment between local and long hauls. Nor were
such statutes disregarded, as a rule. Thus, in Massachusetts they were
enforced to the extreme degree of prohibiting any concession in rates
at Provincetown, on the point of Cape Cod, one hundred and twenty miles
from Boston by land, while only thirty-six miles in a direct line
by water, below the rates at any of the intermediate points on the
roundabout rail line along the Cape. The debates in Congress at the
time this section of the Act was under discussion show that the bill
as finally passed was a compromise between an absolutely inflexible
prohibition, in the House, and a more elastic measure, providing for
exceptions, in the Senate.
In one respect the law of 1887 marks a profound revolution in both
commercial theory and practice. Its provisions concerning equality
of rates to all classes of shippers denote a great moral uplift in
the business standards of the country. Prior to this time the English
common law, while requiring reasonableness of charges by common
carriers, by no means insured that such charges should be stable and
uniform. This flowed perhaps from the circumstance that rebating was an
essentially American abuse. Neither in England, nor on the continent
for that matter, had business rivals ever made such use of the services
of carriers to suppress fair competition in trade. With us, on the
other hand, in the early free-and-easy days, entire freedom of contract
between shipper and carrier had been the rule. Published tariffs were
only the starting point for "higgle" and "dicker." It was not bad form
for a shipper to "go shopping" freely among the freight agents of
competing lines. The location of new enterprises, new opportunities for
the expansion of old ones, were all more or less conditioned by the
special favors which were so readily obtainable on demand. Nor was the
accompaniment of secrecy necessarily due to fear of moral condemnation
by the community. Secrecy was an economic essential of the device, as
has elsewhere been shown.[546] By this new statute all was suddenly
changed. Rebating was made a crime, punishable as such. Is it any
wonder that, almost from the outset and for nearly fifteen years, this
part of the law was the storm centre of litigation; and that in respect
of rebating, the need of supplementary legislation should first become
apparent?
FOOTNOTES:
[521] The following references are best:--1866. Hudson, J. F. The
Railways and the Republic.--1877. Seligman, E. R. A. _Political
Science Quarterly_, II, pp. 223-264 and 369-413.--1887. Nimmo, J.
Legislative history in _The Railway News_, currently reported.--1887.
Painter, U. H. Compilation from the Congressional Record. Privately
published.--1888-1889. Hadley, A. T. _Quarterly Journal of Economics_,
II, pp. 162-187; III, pp. 170-187. In addition, the general works of
Hadley, Charles Francis Adams and Haney; and the extensive list of
magazine articles in the Bibliography on Railways of the Library of
Congress, 1907.
[522] 43d Congress, 1st session, Senate Report No. 307, 2 pts.
[523] 49th Congress, 1st session, Senate Report No. 46, 2 pts: pt. 1,
pp. 16 and 137-166.
[524] Pp. 140 and 192.
[525] In detail at pp. 22 and 411, _supra_.
[526] _Cf._ Haney, vol. II, p. 309.
[527] _Cf._ pp. 22, and 431, _supra_.
[528] Select Senate Committee on Transportation of Meat Products, 1889,
p. 2, etc.
[529] _Cf._ the chapter from Miss Tarbell's History of the Standard Oil
Company, reprinted in our Railway Problems. Hudson, pp. 55-106, well
summarizes the Hepburn Committee testimony.
[530] _Op. cit._; vol. I, p. 199.
[531] Pooling is discussed in detail in volume II.
[532] University of Colorado Studies, V, 1908, pp. 137-148.
[533] Bulletin, University of Texas, No. 119, 1909, p. 73.
[534] Details in chapter I and in the discussion of speculation in
volume II.
[535] Hudson, _op. cit._, pp. 251-286, uses much of this testimony.
[536] Pp. 72 _et seq._
[537] Pp. 51 _et seq._
[538] Pages 22, 422, _supra_, and 456, _infra_.
[539] _Cf._ Hudson, _op. cit._, pp. 41-46.
[540] _Cf._ chap. VIII.
[541] Chapters of Erie reprinted in part in our Railway Problems.
[542] _Cf._ Haney, Congressional History of Railways, vol. II, p.
256. The Credit Mobilier is also described by reprint in our Railway
Problems.
[543] 118 U. S. 557.
[544] _Cf._ Cullom Committee, 1, pp. 28-40; and the summary of
Congressional debates by Haney, _op. cit._, vol. II, p. 231 _et seq._
[545] 21 I.C.C. Rep., 340.
[546] Chapter XX.
CHAPTER XIV
1887-1905. EMASCULATION OF THE LAW
Favorable reception, 456.--First resistance from unwilling
witnesses concerning rebates, 457.--Counselman and
Brown cases, 458.--The Brimson case, 459.--Relation
to Federal Courts unsatisfactory, 460.--Interminable
delay, 461.--Original evidence rejected, 461.--The
Commission's court record examined, 462.--Rate orders at
first obeyed, 467.--The Social Circle case, 468.--Final
breakdown in Maximum (Cincinnati) Freight Rate
case, 469.--Other functions remaining, 472.--The long
and short haul clause interpreted, 474.--The Louisville
and Nashville case, 474.--The "independent line"
decision, 476.--The Social Circle case again, 478.--"Rare
and peculiar cases," 479.--The Alabama Midland (Troy)
decision, 481.--Attempted rejuvenation of the long and
short haul clause, 483.--The Savannah Naval Stores
case, 484.--The dwindling record of complaints, 485.
The first response to the new Federal law by the railroads was entirely
favorable.[547] They sought to obey its mandates both in letter and
spirit. The Commission reports in 1888 that the railroads "conformed
promptly" to their orders; although in the South and West they were
"moving more slowly." On the other hand, the new Commission under the
leadership of Judge Cooley, an able jurist trusted by all parties
concerned, was equally conciliatory in spirit. Many desirable changes
were brought about in railway practice. Attempts were made to remodel
tariffs all over the country, particularly in the East, to conform to
the long and short haul clause.[548]
The immediate effect of acquiescence in Section 4 was to compel, in
many parts of the country, a reduction of the local rates in order
to reduce them below the rates charged to terminal and competitive
points. Thus, for example, throughout trunk line territory, they
were almost uniformly adjusted to meet this requirement. Even in the
southern states, where in some quarters the most persistent opposition
to the law has from the first existed, there was a patent disposition
shown to recognize the justice of such legislation. The Southern
Railroad modified its tariff all along the line as far as Atlanta,
although it claimed inability to make changes beyond that point. For
nearly three years, in fact, the carriers conformed in an increasing
degree to this requirement of the law.[549] A sincere effort toward
uniform classification of freight, with substantial results in the
direction of simplification of schedules, extended over several
years. Many pools were disbanded; all were reorganized in conformity
with the statute. And in the matter of uniformity and publicity of
statistical returns, friendly coöperation between the railroads and the
Commission, brought about great improvements in accounting practice.
No considerable popular interest in the new commercial tribunal, to
be sure, is indicated by the volume of its business. After five years
experience, only thirty-nine formal complaints were filed in 1892. But
this may have been due in part to the natural hesitancy of shippers
to antagonizing the roads by coming out into the open with their
grievances. Or, perhaps, it was merely because the people at large were
as yet quite unfamiliar with the law and with the ease of procedure
under it.
The earliest intimation of determined resistance by the carriers came
in connection with prosecutions for rebating in 1890. This abuse was
still widely prevalent. The Commission complained in that year of the
"general disregard" of the law against personal discrimination; and
set out to prosecute with vigor. But witnesses called upon to testify
before grand juries as to such practices, proved recalcitrant.[550]
Corporations could be made amenable to the law only through the
instrumentality of persons in their employ. And guilt in such matters
could be detected only by the testimony of those who had directly
witnessed, or participated in, the unlawful acts themselves. As one
writer has put it, "Rebate contracts are not usually negotiated before
large audiences nor are rebate payments commonly made upon street
corners. An essential element in these practices, quite aside from
their legality, is the secrecy with which they are conducted." It soon
became apparent that unless this mantle of secrecy could be stripped
off in preliminary proceedings, not even indictments could be had,--to
say nothing of the proof needed for subsequent conviction.
The first ground for contesting the right of the government to
extort testimony from unwilling witnesses arose, oddly enough, from
an amendment of the law intended to increase its effectiveness.
Originally punishable only by heavy fine, on recommendation of the
Commission, Congress added in 1889 an amendment whereby departure from
the published rate was made punishable also by imprisonment. By this
change criminal, as well as civil, procedure was thus brought into
play. The amendment, moreover, extended the punishment to shippers; the
railroad official who gave rebates having alone been liable hitherto.
An unexpected result speedily followed. In 1890 one Counselman, a
shipper, questioned concerning his enjoyment of less than the open rate
upon grain, declined to answer, taking refuge under the Fifth Amendment
to the Constitution of the United States. This declared that "no
person ... shall be compelled in any criminal case to be a witness
against himself." The witness persisted in his refusal to testify
even before a district judge: and the case went on appeal through the
Circuit Court which decided in favor of the Commission, up to the
Supreme Court of the United States. This tribunal in 1892 held that
the Revised Statutes of the United States which for twenty-five years
had been held to protect the constitutional rights of witnesses when
called upon to give testimony, against criminal proceedings based upon
such evidence, did not in fact adequately afford such protection.
Counselman was ordered discharged from the custody of the United
States Marshal. It was held, furthermore, "that a statutory enactment
to be valid, must afford absolute immunity for the offence to which
the question relates."[551] Congress promptly passed a law to this
effect in the following year. The matter did not, however, rest here.
The validity of this later statute had now to be upheld. And, with
discouraging defeat in 1894 in an Illinois Circuit Court, the issue had
to be raised again a year later elsewhere, to be then carried on appeal
a second time to the Supreme Court. This took place in the so-called
Brown case.[552] The final outcome in 1896 was a complete denial of the
right of witnesses to withhold material testimony. But it required six
years of litigation to bring about the desired result.
During the pendency of the proceedings above described, a second line
of resistance to the government developed. Not the merely negative
personal right of witnesses to withhold testimony, but the positive
legal authority of the Commission to exact it, was called in question.
This struck at the very roots of all procedure. For it challenged the
validity of the Act itself. In how far might an administrative body,
independently, have power, hitherto resident alone in the courts and
Congress, to compel the attendance and testimony of witnesses as well
as the production of papers? Section 12 of the Act was evidently
intended to confer such powers as were possessed and might be delegated
by the Congress. But then there was the Constitution again to be
considered! Certain witnesses declined to produce books and answer
questions in 1892. One Brimson was selected for a test case. The first
decision by the Circuit Court held these sections of the statute to be
unconstitutional on the ground that "Congress cannot make the judicial
department the mere adjunct or instrument of the other departments."
But the Supreme Court of the United States in 1894 reversed this
judgment; and, unreservedly, although by a bare majority opinion,
affirmed the constitutionality of the procedure under the Act.[553]
This Brimson opinion, together with the Brown decision two years
later, were confidently believed to have so strengthened the arm of
the government that rebating might at last be eliminated. But, as will
shortly appear, an entirely new law was yet needed to eradicate the
evil. For the moment, however, the right of Congress to legislate and
of the Commission to act, had been upheld.
* * * * *