body to the Federal courts under the provisions of the Act of 1887,
proved unsatisfactory from the first. In order to understand the
situation, it may be well to review the ordinary procedure. Formal
complaint having been filed, the Commission heard the case and
promulgated its decision in the form of an order to the carriers. If
they chose to comply with it, well and good. Otherwise, the Commission
must apply to a Federal court for the issuance of a judicial writ to
compel obedience to the order. Thereupon the court proceeded to review
the case; and upon the findings to issue an order of its own. From this
order, however, appeal might be taken even up to the Supreme Court.
Then, and then only, did the original mandate of the Commission have
the force of law. Practically, two results followed, as shown by the
experience of the succeeding years. There was intolerable delay in
the redress of grievances; and, in the second place, all definitive
proceedings were postponed until the case had gone on appeal to the
courts. In other words the Commission instead of being a coördinate
body with the courts, was reduced to an entirely subordinate position.
Its function became merely to institute proceedings, and thereafter
to appear as a complainant before other tribunals competent alone
to decide the case. Intolerable delay in procedure was the constant
complaint of shippers. Years elapsed before final judgments were
rendered. The average duration of cases appealed was not less than four
years. Sometimes they extended over twice that period. Often, as in
the Charleston, S. C., case in 1898, several years elapsed before the
Commission itself rendered a decision. Knotty cases were sidetracked.
But the main source of delay was in the carriage of cases on appeal up
to the Supreme Court of the United States. They had to await their turn
in regular order, being given no priority on the crowded dockets. The
Social Circle and Import Rate cases, soon to be discussed, consumed
five years in litigation, even after the Commission had rendered its
opinion. The Florida Fruit Exchange case involving rates on oranges,
originally decided by the Commission in 1891, was for six years
thereafter before the Federal Courts. The Georgia Railroad Commission
cases were not settled for nine years. Nor did the tedious process end
here. After the judicial review, which usually covered the law points,
the entire question had to be remanded to the Commission for a new
order in conformity with the findings of the court. After nine years
of litigation in the Chattanooga case, back it went to the Commission
to be re-tried after consideration of other commercial factors. First
decided in 1892, it was reopened in 1904.[554] Is it any wonder that
the number of formal proceedings instituted on complaint of shippers
steadily dwindled year by year? In 1901 only nineteen petitions were
filed. Business of this sort was almost at a standstill.
A second unsatisfactory feature of the relations of the Commission to
the courts, lay in the refusal of the latter to accept the evidence
taken before the Commission in the original proceedings as final.
Trouble began in 1888 on the first appeal, known as the Kentucky
and Indiana Bridge case.[555] The court treated it as an original
proceeding, even as to questions of fact; and proceeded to consider
it _de novo_. This of course involved a duplication of all expenses;
which, in causes sufficiently important to appeal, were very heavy. Ten
volumes of typewritten testimony, each as large as the Congressional
Record, were taken, for instance, in the San Bernardino case.[556]
Both shipper and railroad, therefore, commonly came to regard the
proceedings before the Commission as merely a necessary formality to
be observed prior to the conclusive adjudication of the matter by the
courts. This placed the Commission in a most awkward predicament. It
was compelled by law to render a decision upon an entirely imperfect
presentation of facts. And this decision was thereafter liable to
be reviewed upon the basis of entirely new testimony. Thus in the
leading Alabama Midland case, involving the reasonableness of rates
to Troy, Alabama, as compared with adjacent towns, much depended upon
the existence of effective competition with the railroads from boat
lines on the rivers at other places.[557] Before the Commission the
evidence adduced by the carriers dwelt upon the navigability of the
Chattahoochee river as compelling lower rates at Columbus and Eufaula
than at Troy, an inland town. Yet, when the case was really opened up
in appeal proceedings, it appeared that this magnificent waterway was
really dry about half the year; that the channel was never deeper than
three feet; and that boats were at all times of the year "embarrassed
by the overhanging trees." How could the Commission be expected to
pass upon vital questions wisely under such circumstances? Whether
wilfully done or not,--and evidence is not lacking of a deliberate
policy adopted in some cases,--the inevitable effect was to bring
the Commission and the law itself into discredit. So accentuated did
this evil become, that in the Social Circle case the Supreme Court
distinctly discountenanced the practice, declaring it to be the
intention of the law that all material facts should be disclosed in
the original proceedings.[558] But it was not until 1906 that the mode
of procedure on appeal was by statute clearly defined. In the meantime
public interest in the work of the Commission was bound to wane.
In this connection it may not be out of place to refer to the
persistent use made of the record of the Commission in court
proceedings under these adverse circumstances, as a plausible argument
by the railroads in later years against any augmentation of its powers.
One brief, for example, recites that "since 1887, forty-three suits
have been instituted to enforce final orders of the Commission as to
rates. The net result of the action of the courts shows two affirmances
and thirty reversals." It continues later, "as over ninety per cent. of
the Commission's orders as to rates which have gone before the courts
have been overruled, it is impossible to foretell what havoc would
follow from the exercise of such powers." This statement is entirely
true, but it is not the entire truth. We may profitably consider
the cases of sufficient importance to have been passed upon by the
Supreme Court of the United States. Between 1887 and 1905, sixteen
such decisions were rendered on cases appealed for enforcement by the
Interstate Commerce Commission. Fifteen of these were decided in favor
of the carriers, while only one sustained in part the contention of the
Commission. At first sight, this record certainly appears to warrant
the condemnation of the Commission. A body so persistently on the wrong
side of great questions as this record indicates, would surely invite
distrust. There were two answers to this contention, however, which
merit consideration before a final judgment can be rendered. One of
these was the irregularity of procedure, above described. The other
was that these court cases had nearly all involved, not so much the
administrative application of the law to economic abuses, as the purely
judicial interpretation of the law itself.
Only by means of concrete cases decided by the Commission as an
administrative body, could the scope and meaning of the original law
be determined. This was a most difficult task hinging upon the utmost
legal technicalities and refinements. Even the most learned judges
failed to agree among themselves. Thus in eight of the sixteen cases
above mentioned, the decisions in the lower Federal courts failed of
agreement with the final decree of the Supreme Court. In the Cartage
case,--involving the legality of a railway giving one shipper free
cartage of goods to a railway station as an inducement to ship over its
line, while withholding the privilege from another,--the Commission
was sustained in the Circuit Court and reversed in the two higher
tribunals. In other instances, like the Social Circle case,--turning
upon the discrimination in freight rates against small towns in favor
of large competitive centres,--the first court ruled adversely, while
the Circuit Court of Appeals and the Supreme Court sustained the
Commission in part. Or yet again, as in the Chattanooga case,--wherein
this city complained against a higher freight rate from New York than
the rival city of Nashville enjoyed, although the goods for Nashville
passed through Chattanooga and were hauled one hundred and fifty-one
miles further,--both lower tribunals sustained the Commission only to
be finally overruled by the Supreme Court. The fact that in only eight
of these most important cases the courts could agree among themselves
indicates the nicety of the legal issues comprehended. All parties
were in fact working much in the dark, both as to the intention of the
original law and as to the possible effects of its interpretation. The
charge of incompetence, if it held good for the Commission, applied
equally well to a large number of the most learned judges in the
Federal courts.
Another indication of the extreme delicacy of the legal issues
involved, is found in the lack of unanimity even among the justices of
the Supreme Court itself. In nine of the sixteen Supreme Court cases
the final decision was not rendered without dissent. As the lower
courts were divided among themselves, so the justices of the Supreme
Court were apparently somewhat at sea. The minority, to be sure, was
small, in most cases being due to the failure of Justice Harlan to
concur. But in the far-reaching Import Rates case,[559] the court was
more evenly divided. The issue raised, concerned the legality of lower
through rates on imports from Liverpool to San Francisco _via_ New
Orleans, than were granted on domestic shipments from New Orleans to
the same destination. Thus the rate on books, buttons, and hosiery,
from Liverpool to San Francisco through New Orleans was $1.07 per
hundred pounds. At the same time the domestic shipper was compelled
to pay $2.88, or two and one-half times as much, for a haul from
New Orleans to San Francisco alone. In another important instance,
tin plate was carried from Liverpool by steamer and rail through
Philadelphia to Chicago for twenty-four cents per hundred pounds. For
the American merchant in Philadelphia the rate to the same market was
twenty-six cents. For the inland haul alone the Pennsylvania Railroad
was receiving sixteen cents on the foreign goods, while coincidently
charging American merchants ten cents more for the same service.
Discrimination against the American merchant in favor of foreign
competition, not infrequently more than sufficient to overbalance any
supposed protection afforded by the tariff, has been repeatedly proved
in such cases as this. The duty on imported cement was eight cents per
hundredweight. In one instance, this duty with the total freight rate
added amounted to only eighteen cents, as against a rate of twenty
cents for the domestic producer from New York to the same point. There
were reasons for this grievous discrimination against the domestic
shipper, mainly concerned with the vagaries of ocean freight rates.
Steamers must have ballast for the return trip to equalize out-going
shipments of grain and other exports, and they will carry heavy
commodities, such as salt, cement, crockery, and glass, at extremely
low rates. Nevertheless, such imported commodities can be sold to
advantage in competition with domestic goods only when the railways
will contribute equally low rates to complete the shipment.
The Interstate Commerce Commission in these Import Rate cases
originally held that such discriminations were unlawful. Two
appellate courts, in turn, sustained this view. Finally, however,
the Supreme Court decided, with three members, including the Chief
Justice, dissenting, that the Interstate Commerce Law as phrased
did not expressly prohibit the practice. Everything turned upon the
interpretation of certain clauses in the law. No question was ever
raised as to the economic issues involved, nor was it competent to
these tribunals to pass upon such issues. The question was simply and
solely this: When the Act to Regulate Commerce forbade inequality or
discrimination between shippers, did it contemplate competition between
shipments originating within the country and others from foreign ports?
Was the Interstate Commerce Commission, in other words, empowered,
in interpreting this act, to consider circumstances and conditions
_without_ as well as _within_ the boundaries of the United States?
If it was entitled to consider solely domestic conditions, it was
certainly right and economically sound in forbidding such practices;
if, on the other hand, it was required to take account of commercial
conditions the world over, irrespective of the effect upon the domestic
producer and internal trade, its decision should have been favorable
to the railroads. To appreciate fully the extreme nicety of the legal
points involved and the delicacy of the economic interests at issue,
one must needs read the extended opinions both of the majority of the
Supreme Court and of the three dissenting justices, including Chief
Justice Fuller. But to interpret the reversal of the original decision
of the Interstate Commerce Commission by this tribunal as in the
slightest degree involving incompetence or judicial unfairness is a
misrepresentation of all the facts involved. As in the preceding cases
touching the interpretation of the long and short haul clause, it may
fairly be said that the consensus of opinion among business men, and
certainly among the professional economists of the country, was on the
side of the Commission in condemning such practices. As to the law,
that was decided otherwise by a narrow majority.
The final breakdown of the law of 1887 came, however, not from mere
defects in procedure, but from the adverse construction placed by the
Supreme Court of the United States upon its fundamental clauses, viz.,
those concerning the exercise of rate-making power by the Commission.
Whether or not it was the intention of Congress to delegate such power,
seems not to have been considered for some years. At all events,
within two months after the law was passed the Commission certainly
interpreted the law as giving it, not only power to investigate but to
prescribe remedies for what it conceived to be unreasonable charges.
The right to exercise general rate-making power in first instance was
distinctly disclaimed.[560] But the right to prescribe a modification
of existing rates on complaint was repeatedly affirmed, without
question either by the carriers or the Federal courts.[561] The first
order of the commission in _Evans vs. The Oregon Navigation Company_
directed a reduction of the rate on wheat from Walla Walla, Washington,
to Portland, Ore., from thirty to twenty-three and one-half cents.
It was promptly complied with. Then came the Farmington-Red Wing,
Minn., wheat case, touching not absolute but relative rates between
two competing places. The order that the charge to one town should not
exceed that to the other by more than one-third was likewise obeyed.
Even freight classification, not specifically mentioned in the Act, was
supposed to be fully subject to the Commission's control.
In the Reynolds case, railroad ties and lumber were ordered to be
grouped together, without contest. The activity of the Commission at
this time in promoting uniform classification elsewhere discussed,[562]
was evidently based upon a similar belief in its legal competency to
act. For nearly a decade attention seems to have been so concentrated
upon matters of judicial procedure, that this more fundamental
proposition was neglected. Moreover, all this time was needed to secure
a final pronouncement from the Supreme Court, which was alone competent
to settle it as a matter of law.
It was not, then, until almost ten years after the institution of the
Commission, in fact, that its rate-making power was denied. The first
shadow of doubt seems to have been expressed in the decision of the
Supreme Court in the so-called Social Circle case.[563] This involved
the reasonableness of rates from Cincinnati to the town of Social
Circle, Georgia, as related to the rates to Atlanta and Augusta on
either side. Disregarding other phases of the case which concerned
the interpretation of the long and short haul clause, the Commission
had, when the case was first decided in 1891, ordered a reduction
of the rate from Cincinnati to Atlanta from $1.09 to $1 per hundred
pounds. This case was carried to the Supreme Court, where decision
was finally rendered in 1896. Purely as an _obiter dictum_ the court
discussed briefly the interpretation of the original act in respect to
rate-making power. It expressed a reasonable doubt in the premises,
even going further and confessing inability to find any provision
of the act "that expressly or by necessary implication confers such
powers." It does not seem clear whether by this statement the court
had reference to the arbitrary prescription of rates in first instance
to the carriers, or merely to action of the Commission in prescribing
rates after complaint, in order to redress grievances.
Several decisions of circuit courts during 1896 reënforced the judicial
doubt as to the validity of the rate-making power of the Commission.
Thus, for example, in the case of Coxe Brothers,[564] involving rates
upon anthracite coal, which, by the way, had been pending since 1891,
the Circuit Court of Appeals expressly declined to enforce an order
of the Commission, stating that it "is not clothed with the power to
fix rates which it undertook to exercise in this case." The court's
reasoning in the Social Circle case was followed and expressly cited.
During the same year, 1896, other cases, such as that of the Truck
Farmers' Association, were decided in the same spirit. The final
adjudication of this point, however, was reserved for the decision
in the so-called Cincinnati Freight Bureau case. This had its origin
in an application from the Commission to enforce an order issued in
1894 against the Cincinnati, New Orleans and Texas Pacific Railroad
Company.[565] The case involved the adjustment of rates from eastern
and western centres, respectively, into the southern states; and the
Commission had decided that a reduction of the rates from the western
cities was reasonable and necessary. This leading case, also known as
the Maximum Freight Rate decision of 1897, is characterized by the
Commission itself as perhaps "the most important since the enactment of
the Act to Regulate Commerce." It merits consideration in some detail.
The reasoning in the Maximum Freight Rate case[566] cannot be better
put than by the following excerpts from the opinion of the Supreme
Court.
"It is one thing to inquire whether the rates which have been
charged and collected are reasonable,--that is a judicial act;
but an entirely different thing to prescribe rates which shall
be charged in the future,--that is a legislative act.
* * * * *
"We have, therefore, these considerations presented: First.
The power to prescribe a tariff of rates for carriage by a
common carrier is a legislative, and not an administrative or
judicial, function, and, having respect to the large amount of
property invested in railroads, the various companies engaged
therein, the thousands of miles of road, and the millions of
tons of freight carried, the varying and diverse conditions
attaching to such carriage, is a power of supreme delicacy
and importance. Second. That Congress has transferred such
a power to any administrative body is not to be presumed or
implied from any doubtful and uncertain language. The words
and phrases efficacious to make such a delegation of power
are well understood, and have been frequently used, and, if
Congress has intended to grant such a power to the Interstate
Commerce Commission, it cannot be doubted that it would have
used language open to no misconstruction, but clear and direct.
Third. Incorporating into a statute the common-law obligation
resting upon the carrier to make all its charges reasonable
and just, and directing the commission to execute and enforce
the provisions of the act, does not by implication carry to
the commission, or invest it with the power to exercise, the
legislative function of prescribing rates which shall control
in the future. Fourth. Beyond the inference which irresistibly
follows from the omission to grant in express terms to the
commission this power of fixing rates is the clear language of
section 6, recognizing the right of the carrier to establish
rates, to increase or reduce them, and prescribing the
conditions upon which such increase or reduction may be made,
and requiring, as the only conditions of its action--First,
publication; and, Second, the filing of the tariff with the
commission. The grant to the commission of the power to
prescribe the form of the schedules, and to direct the place
and manner of publication of joint rates, thus specifying the
scope and limit of its functions in this respect, strengthens
the conclusion that the power to prescribe rates or fix any
tariff for the future is not among the powers granted to the
commission.
"These considerations convince us that under the interstate
commerce act the commission has no power to prescribe the
tariff of rates which shall control in the future, and
therefore cannot invoke a judgment in mandamus from the courts
to enforce any such tariff by it prescribed."
The immediate effect of this decision was to put an end to any
enforcement of decisions relative to rates by the Commission. The
carriers immediately refused to obey any orders which the Commission
issued for the redress of grievances. This policy was manifested with
increasing clearness during the five years subsequent to the decision.
It became more and more certain that the denial of the right, not
only to pass upon the reasonableness of a particular rate, but to
prescribe what rate should supersede it, meant the abolition of all
control whatever over the scale of charges. The entire inadequacy of
making rate regulation dependent upon the mere determination of rates
as applied _in the past_, without reference to the rates which should
prevail _in the future_, was apparent on all sides. More than this,
all remedy for the parties who had borne the burden of an unreasonable
rate would seem to have been removed. This was clearly described in
the report of the Commission for 1897. It was illustrated by the rates
upon oranges. In 1890 there had been a sudden advance on rates from
Florida to New York from thirty to forty cents. The Commission after
investigation ordered that the rate be reduced to thirty-five cents.
As a matter of fact, how could this action redress grievances of those
who had already paid forty cents per box? It was difficult in the first
place to discover who bore the burden of the unreasonable charge; and
in the second place it was certain that some of those who suffered
could not legally sue in court. The actual shipper who alone could sue
for repayment of unreasonable charges was a middleman who recouped
himself in any event, either from the grower, the consumer, or both.
He lost nothing by reason of the unreasonable rate. As a matter of
fact, not any single individual but the locality, had been mulcted by
five cents per hundred pounds, supposing that a rate of forty cents
were unreasonable. Experience showed that almost no shippers or other
parties injured, actually attempted to secure the restitution of moneys
already paid for unreasonable charges. In only five out of 225 cases
down to 1897 was a refund actually sought; and in those cases $100 was
the maximum sought to be recovered. As a matter of fact the damage
inflicted by the existence of such an unreasonable rate could not be
measured by hundreds or perhaps by hundreds of thousands of dollars.
The bearing of this citation is to show that any effectual protection
to the shipper must proceed from adjudication of the reasonableness
of rates _before_, and not _after_, they have been paid; that is
to say, in advance of their exaction by the carrier. Power to pass
upon the reasonableness of such rates prior to their enforcement, as
a consequence, constitutes practically the only safeguard which the
shipping public may enjoy. It will be observed that in this discussion
reference is made simply and solely to that class of cases where
complaint is made against the unreasonableness of a rate _per se_ as
applied to all shippers alike, entirely distinct from the exercise of
powers by the Commission in respect of unreasonable discrimination as
between two or more persons or places. That other question of relative
rates was to come up in another connection.
Despite this denial by the Maximum Freight Rate decision of power
to prescribe future rates, in substitution for others held to be
unreasonable, there were still certain things which the Commission
might do in the matter of rate determination. The only question was
as to whether they afforded an adequate remedy for the redress of
grievances. Were they really worth while? Complaint as to a rate,
once paid, might still be made. The Commission might still hold it
unreasonable; and even pass upon the degree of its unreasonableness.
And the complainant shipper might then institute proceedings for
repayment of the excessive charges under that particular rate. But
the difference between this range of powers and those which had been
claimed by the Commission for ten years was simply this: That under the
original interpretation of the law the Commission had not only decided
whether rates were wrong; it had also prescribed a remedy by issuing
an order as to what rates were right, believing that these would be
enforced by the courts. Not even the power to prescribe maximum rates
remained to the Commission after this interpretation. The only action
open to it would be to declare one rate after another unreasonable
until the carriers had been brought to terms. Its inadequacy as a
practical remedy was the main factor in bringing about the passage of
the new law of 1906.
It must not be assumed that the Supreme Court in the Maximum Freight
Rate decision intended to render the Commission an entirely superfluous
body. But its functions, as set forth in the following quotation from
the opinion, proclaimed the adoption of an entirely different policy
concerning public control of rates from the one hitherto pursued.
Whether it was adequate for the purpose in view will appear, as has
just been observed, from the subsequent course of events.
"But has the commission no functions to perform in respect to
the matter of rates, no power to make any inquiry in respect
thereto? Unquestionably it has, and most important duties
in respect to this matter. It is charged with the general
duty of inquiring as to the management of the business of
railroad companies, and to keep itself informed as to the
manner in which the same is conducted, and has the right to
compel complete and full information as to the manner in which
such carriers are transacting their business. And, with this
knowledge, it is charged with the duty of seeing that there is
no violation of the long and short haul clause; that there is
no discrimination between individual shippers, and that nothing
is done, by rebate or any other device, to give preference to
one as against another; that no undue preferences are given to
one place or places or individual or class of individuals, but
that in all things that equality of right, which is the great
purpose of the interstate commerce act, shall be secured to
all shippers. It must also see that that publicity which is
required by section 6 is observed by the railroad companies.
Holding the railroad companies to strict compliance with all
these statutory provisions, and enforcing obedience to all
these provisions, tends ... to both reasonableness and equality
of rate, as contemplated by the interstate commerce act."
The nadir of government regulation for the time being was reached in
November, 1897,--six months after the Maximum Freight Rate decision.
A second opinion from the Supreme Court of the United States in the
Alabama Midland (Troy) case, with one blow practically nullified the
long and short haul clause.[567] The first opinion had put an end
to control over the reasonableness of rates in and of themselves.
This second one denied the right to establish their reasonableness
_relatively_ as between competing places or markets. In order fully
to appreciate the significance of this decision it will be necessary
to review cursorily the tedious litigation which led up to this
result,--the entire emasculation of the Fourth section. The final
outcome may be best described by Justice Harlan in his dissenting
opinion in this leading case:
"Taken in connection with other decisions defining the powers
of the Interstate Commerce Commission, the present decision, it
seems to me, goes far to make that commission a useless body
for all practical purposes, and to defeat many of the important
objects designed to be accomplished by the various enactments
of Congress relating to interstate commerce. The Commission
was established to protect the public against the improper
practices of transportation companies engaged in commerce among
the several States. It has been left, it is true, with power
to make reports, and to issue protests. But it has been shorn,
by judicial interpretation, of authority to do anything of an
effective character."
The interpretation of the long and short haul clause[568] as applied
to concrete cases by the Interstate Commerce Commission, was first
enunciated in the decision known as the Louisville & Nashville
case.[569] Immediately after the enactment of the law, a multitude
of petitions were received from carriers all over the country
praying that they be exempted from the operation of this clause,
which prohibited a greater charge for a lesser haul than for one
over the same line between points more distant. The policy outlined
in the Louisville & Nashville case, delivered by Judge Cooley, has
practically remained unchanged to the present time. This railroad
company operating a line parallel to the Mississippi, as well as
intersected at various points by its tributary rivers, claimed that
the existence of water competition compelled a rate to all competitive
points, lower than rates which could be made to local and intermediate
stations. It alleged that an adjustment of its local rates to the
low level necessitated at competitive points, would prove disastrous
from the point of view of revenue. The point at issue was as to the
interpretation of the phrase "under substantially similar circumstances
and conditions"; which, in the words of the Act, was necessary in order
that the prohibition of the lesser charge for the longer haul should
become operative. Without entering into the details of this decision,
in the course of which the nature of railroad competition and of rate
making were fully discussed, as well as the legislative history of this
clause of the Act, it will suffice to note the conclusions. These were;
firstly, that the prohibition against a greater charge for a shorter
than for a longer distance over the same line in the same direction,
the shorter being included within the longer distance, was limited to
cases in which the circumstances and conditions were substantially
similar; secondly, that carriers might judge in the first instance as
to the similarity or dissimilarity of circumstances; but, thirdly, that
this judgment was not final but was subject to review by the Commission
and the courts. Perhaps the most important point, however, was the
determination of the conditions which constituted such dissimilar
circumstances and conditions as entitled the carrier to charge less
for the longer than for the shorter haul. These conditions were the
existence of water competition; the existence of other railroads not
subject to the statute; and "rare and peculiar" cases of competition
between railroads which were subject to the law. The Commission also
held as a guiding principle in the interpretation of this clause that
no distinction would be recognized between local traffic and so-called
through business; and also that the expense to the carrier involved
would not be recognized as a factor unless it happened to come under
the case already cited as "rare and peculiar." Furthermore, the desire
to encourage manufactures or to build up business or trade centres, was
not recognized as a competent reason for claiming exemption from the
prohibition in the Act.
The leading decision of the Interstate Commerce Commission, above
mentioned, was rendered in 1887. It was not until October of 1892 that
the first serious interference arose through judicial interpretation
in the United States Courts. The first was the so-called "separate and
independent line" decision.[570] This case arose respecting a suit for
the repayment of $225 as overcharges on corn shipped by one Osborne
from Scranton, Iowa, to Chicago. It was claimed that the charges
were unjust and unreasonable, inasmuch as they were in excess of
rates charged from Blair, Nebraska, a point more remote from Chicago.
The United States Circuit Court of Appeals at St. Paul reversed the
decision of the lower court, holding that the lesser rate from Blair
with which the Scranton rate had been compared, was not a rate to
Chicago, but part of an agreed through rate to New York and other
eastern points. Under this interpretation, the aggregate charge for the
longer distance from Blair to New York was not less than the charge
for the shorter distance from Scranton to Chicago. To this point the
decision was in conformity with the previous interpretation by the
courts and the Commission; which had uniformly held that a portion of
a joint through rate cannot be compared with local or individual rates
in the determination of what constitutes the rate for the shorter or
the longer haul. This decision went further, however, and therein
profoundly affected the subsequent interpretation of the law. It
proceeded to define the word "line" as used in the Act, by holding
that the joint line formed by two roads is wholly independent of the
two lines represented by the several roads taken separately and apart.
Interpreted in this way, the decision held furthermore that the total
joint rate over two roads, not being over the "same line," might for
anything in the fourth section of the Act, not only be as low but even
lower than the local rate of either. The effect of this decision was
obviously to permit a railroad to engage in traffic agreements for
through carriage of freight; and by so doing, legally to become a line
separate and independent from the same physical property when engaged
in the transportation of freight over its own line. Moreover, by every
contract for through carriage of freight with different carriers,
the road became a separate and independent line in the eyes of the
law. As many lines could exist over one set of rails as there were
traffic agreements for through haulage of freight between its terminal
points.[571]
The apprehension of the Interstate Commerce Commission that this
interpretation of the word line might render the Fourth section of
the Act inoperative, was realized in the following year. Several
decisions not only adopted the _obiter dictum_ of the Osborne case,
above described, but proceeded to expand upon it. Thus, for example,
in the Georgia Federal Court, a case arose involving rates from the
North to Atlanta as compared with the higher rates to intermediate
points. The court held that traffic from Cincinnati to Augusta or
Atlanta was carried over a different line than that which was used for
transportation to points intermediate between Atlanta and Augusta;
inasmuch as the several carriers agreeing upon the joint rate as far as
Atlanta from the North, were different.
Moreover it held that the road from Atlanta to Augusta being wholly
within the state of Georgia, might by making a local rate from Atlanta
which was added to the through rate into Atlanta, constitute itself
merely a state road, and therefore be exempted from the prohibition of
the Act. Thus it appeared, to quote from the report of the Commission
for 1893, "that in addition to the embarrassments proposed by the
original 'line' decision, the very jurisdiction of the law itself is
invaded by the extension of the line theory indulged in by the Georgia
Federal court."
The interpretation put upon the Fourth section of the Act by the
decision above cited, remained in force and largely nullified
application of the Act itself until 1896. The next important
interpretation came, in the decision by the Supreme Court of the United
States in the so-called "Social Circle" case.[572] This decision fully
discussed the interpretation placed upon the word "line" in the Act.
The rates involved were those on buggies from Cincinnati, Ohio, to
Social Circle, a local station between Augusta and Atlanta, Georgia.
Following the practice of the carriers for some years, the Georgia
Railroad Company, which alone served the town of Social Circle, had
requested its connections at Atlanta not to name through rates to
that place or any other local station on its road. The Circuit Court
following the line of argument already described, had held that under
such circumstances the Georgia railroad was only a local carrier
and not a party to a joint or common arrangement, which would make
it subject to the control of the Federal Commission. The Supreme
Court reversed this opinion, however; and held that when goods are
shipped on a through bill of lading, they constitute an interstate
carriage subject to Federal supervision and control. The court held
further that this state road became part of a continuous line, not by
consolidation with other companies, but by a traffic arrangement for
continuous carriage or shipment. The Supreme Court interpreted the
original Osborne decision as merely affirming that a railroad company
doing business in one state could not be compelled to enter into any
agreement with connecting carriers. For by so doing, it continued,
the carrier might be deprived of its rights and powers to make rates
on its own road. Viewed in this way a carrier might agree to form a
continuous line for carrying foreign freight at a through rate without
being prevented from charging ordinary local rates for state traffic.
Stripped of legal verbiage, this interpretation by the Supreme Court,
virtually overruled the previous decisions by lower courts, and
rehabilitated the original interpretation of the word "line" by the
Commission; namely, that when a continuous line for through traffic
is formed by several railroads, the roads constituting that line and
making use of it are merely parts of one through route and are not
separate lines. In short, not being able to constitute themselves as
separate lines by reason of traffic contracts, they must continue to
conform their through charges to the rates which they have made upon
local business. So far as the enforcement of the Fourth section was
concerned, therefore, developments to this point had upheld the law
as originally passed.[573] It remained, however, for a separate and
distinct course of judicial interpretation to once more jeopardize both
the practical operation of the law and the power of the Commission.
Reverting to the original Louisville & Nashville decision in 1887, it
will appear that the Commission held at that time that competition
between carriers subject to the Act, did not constitute such
dissimilarity of circumstances and conditions as would justify the
carriers in making their long distance rates lower than the rates
between intermediate points. The only exception recognized at that time
was to be found in certain "rare and peculiar" cases.[574] One of these
will suffice as an illustration. There are two routes by which traffic
from Youngstown, Ohio, may reach the East. One is by way of Pittsburg
and the Pennsylvania Railroad; the other by an outlet to the north, at
Ashtabula upon the Lake Shore and New York Central trunk lines. Between
Youngstown, Ohio, and Pittsburg, two parallel lines exist, each having
an interest in forwarding freight to the East by the two routes above
mentioned. The peculiarity of the situation is that competitive traffic
for the East may leave Pittsburg in either direction. If it goes
around by Youngstown, that place becomes an intermediate point between
Pittsburg and New York. If, on the other hand, it goes from Pittsburg
directly east, Youngstown becomes not an intermediate point, but one
more remote than Pittsburg from New York. Inasmuch as the Pennsylvania
route from Pittsburg is the shorter, it makes the rate.[575] The
other roundabout route is obliged to accede to this compelled rate or
lose the business. The result is that the smaller indirect road is
obliged to give a lower rate from Pittsburg round by way of Youngstown
to New York than it gives to Youngstown itself. Any other course of
action would deprive it of any participation in Pittsburg business.
Such, then, is one of those "rare and peculiar" cases under which
the Commission from the first recognized the necessity of exempting
carriers, even where all are subject to the Act, from the prohibition
of charging less for a shorter than for a longer haul over the same
line.
The carriers from the outset had made a determined effort to show
that the competition of carriers among themselves was sufficient to
produce that dissimilarity of circumstances and conditions which would
justify exemption from the Act. This contention the Commission refused
to recognize, and did so particularly in the important decisions of
1892 known as the Georgia Railroad Commission cases.[576] These again,
like the Maximum Freight Rate case, involved rates from Cincinnati to
various points throughout the South; and had reference particularly
to the prevalent practice of granting low rates to certain important
centres known as basing points. In this decision the Commission
re-affirmed the principles set forth in the Louisville & Nashville
case, except in one detail; namely, as to whether the carriers were
justified in deciding for themselves in first instance whether a case
of railroad competition was of that type already defined as "rare and
peculiar" which would permit exemption from the long and short haul
prohibition. Experience of five years had shown that the right of
decision in this respect had led to manifold abuses; inasmuch as a
strong disposition on the part of the carriers all over the country
was shown to interpret all cases of railroad competition, however
simple, as "rare and peculiar." The Commission, therefore, proceeded
to overrule its earlier decision; and denied the right on the part
of carriers to determine for themselves as to what constituted
dissimilarity of circumstances and conditions, affirming that that
right was its own.
All of the foregoing judicial interpretation is secondary in importance
to the final decision of the United States Supreme Court in 1897 in
what is known as the Alabama Midland case.[577] This once and for all
overruled the interpretation placed upon the law by the Commission,
that railroad competition did not constitute that dissimilarity of
circumstances and conditions which would entitle a carrier to exemption
from the prohibitions of the statute. This case, like almost all the
others involving the interpretation of the Fourth section, arose upon
complaint of a small town in the southern states that more important
trade centres were securing advantages in the matter of rates which
were denied to it. The Board of Trade of Troy, Alabama, complained that
it was compelled to pay $3.22 a ton on phosphate rock from Florida
and South Carolina points, whereas the rate to Montgomery, a longer
distance, was only $3.00 per ton. The rock was carried through Troy.
It was also complained that rates on cotton discriminated against Troy
as compared with Montgomery and other points; and that, thirdly, rates
from Baltimore and New York were higher to Troy than to Montgomery,
which was fifty-two miles further away. The case was carried on appeal
to the Supreme Court of the United States, where an opinion was handed
down in 1896. The gist of this decision was that competition, whether
of trade centres or of railroads, must be recognized as a factor in the
determination of the similarity of circumstances and conditions under
which the Fourth section of the clause should be applied. In other
words, it recited that Montgomery being a larger place than Troy; and
having been an important trade centre on a navigable river for many
years, it was competent to the railroads centering at Montgomery to
determine in part for themselves whether the existence of effective
competition would warrant them in granting lower rates to Montgomery
than to local stations like Troy. The court held, however, that such
competition was only one of the elements which must be considered. It
did not define it as the dominating one. The railroads, nevertheless,
seized upon this interpretation of the law at once, making use of it
to justify whatever departure they pleased to make from the practice
originally contemplated in adjusting long and short haul charges.
[Illustration]
After the discouraging reverse in the Alabama Midland decision, which
the Commission interpreted to mean that if circumstances and conditions
were different at the more distant point, that fact, of itself, removed
the case from the inhibition of the Fourth section; certain inferior
Federal court opinions somewhat modified this view.[578] The question
as to whether the discrimination at bar was or was not justifiable, was
permitted to be considered; in addition to inquiring merely whether
circumstances and conditions were different at the more distant point.
The Commission somewhat reanimated by these decisions, sought to
apply this judicial modification of the Alabama Midland reasoning to
several then pending complaints as to local discrimination. Both in
the Danville[579] and Hampton cases[580] the carriers were ordered
to desist from discriminating against the nearer point under this
interpretation of the law. But the Supreme Court put an end to it all
by condemning this line of reasoning in its last leading decision upon
the Fourth section rendered in 1901, finally disposing of the so-called
Chattanooga case. This dealt the final death blow to the long and
short clause.[581] The complaint in this case arose from the fact
that freight rates to Chattanooga, Tennessee, from eastern cities were
higher than to Nashville, although the latter was the more distant
point. The Commission found that there was no water competition at
Nashville compelling the lower rate; but that there was competition of
railways and of markets. The Supreme Court reversed the Commission in
its final attempt thus to revivify the moribund Fourth section, and
fully confirmed its original view as to the meaning of the Alabama
Midland decision. If such circumstances and conditions as competition
of markets or railways at the two points were dissimilar, carriers
might without restraint depart from the long and short haul rule. Thus
the Fourth section of the law was to all intents and purposes repealed.
Complaint after complaint was perforce set aside by the Commission.
For practical purposes this part of the law was rendered absolutely
nugatory. The chapter was closed. For twenty years, in face of the
litigation above outlined, no order of the Commission respecting local
discrimination was enforced. Only with its amendment in 1910, as
subsequently described,[582] did the long and short haul clause once
more resume its due importance upon the statute books.
One special case may be cited in this general connection, as typical
of the arbitrary action of carriers particularly in the South. It
was this sort of thing which went far to arouse public opinion and
focus attention upon the need for real regulation.[583] The situation
appears upon the accompanying map. The planters in a certain southern
territory served by the Louisville & Nashville railway had been
accustomed to ship out their cotton to the North by various routes.
It might go by way of New Orleans, _via_ Pensacola, up the main line
along the Mississippi valley, or be hauled eastward to Savannah
and other Atlantic ports, and thence go by vessel to New England.
Inasmuch as the through rate was the same by all routes, no monetary
issue to the planter was involved. But not so to the railway. For by
the first routes it secured a long haul; while by the last it not
only was limited to short carriage of the goods, but was compelled to
accept an even smaller fraction of the joint through rate. In this
case the Louisville & Nashville railway--which, by the way, more
persistently denied the existence of abuses than any other road in the
country--advanced the Savannah cotton rate arbitrarily in 1899 from
$2.75 to $3.30 a bale. This effectually dammed up the eastern outlet
and jeopardized the interests of the port of Savannah to that degree.
Doubtless the Louisville & Nashville was not oblivious to the welfare
of that great seaport. It could not afford to be, for Savannah's growth
must indirectly accrue to its benefit. It did not love Savannah less;
but it loved its own particular seaport, Pensacola, or the long haul
_via_ Louisville, more. Maybe it was better that traffic should go out
this way--who knew best? The real point to be made is that no competent
tribunal or process for impartially determining the question was
provided by the now emasculated law.
[Illustration]
The work of the Commission during these discouraging years was
naturally affected most profoundly by these limitations placed upon
its activity by the Federal courts. The number of formal complaints,
never large, steadily dwindled year by year. Thirty-nine were filed in
1892; but in 1900 and the following year only nineteen were presented
annually.[584] The Commission persisted in its statistical work with
marked success. Important independent investigations continued to be
made, in pursuance of the only policy remaining open to it, that of
publicity. But even the informal complaints, representing mainly the
grievances of individual shippers rather than of competing cities
or commercial bodies, were few in number, as the following official
figures show.
=====================================================================
| 1898 | 1899 | 1900 | Total
----------------------------------------+------+------+------+-------
Informal complaints: | | | |
Settled by payment of amount claimed | 18 | 5 | 9 | 32
Settled by change of rates | 10 | 7 | 12 | 29
Settled in other ways | 32 | 30 | 22 | 84
Pending | 16 | 20 | 31 | 67
Suggesting formal complaints | 29 | 14 | 20 | 63
+------+------+------+-------
| 105 | 76 | 94 | 275
=====================================================================
But better times were coming. The return of commercial prosperity
brought with it new problems. Old abuses, quiescent during the long
industrial depression of 1893-1897, once more made their appearance.
New constructive legislation followed, based as before upon the
economic needs of the time, as they made themselves manifest; but
a great campaign of education, led by the vigorous personality of
Theodore Roosevelt, was necessary, as we shall see, to compel Congress
to act.
FOOTNOTES:
[547] _Cf._ Simon Sterne, Railways in the United States, 1912.
[548] _Cf._ Appendix C, Int. Com. Com. Annual Report, 1890.
[549] _Cf._ Brief of Counsel for Int. Com. Com. in the Danville case,
p. 88.
[550] _Cf._ account in _Yale Review_, 1907, pp. 119-155.
[551] 142 U. S., 547.
[552] _Brown v. Walker_, 161 U. S., 591.
[553] 154 U. S., 447.
[554] The history of these cases up to 1900 will be found in 56th
Congress, 1st session, Senate Document 319. Five years later they were
more fully treated in Hearings before the Senate (Elkins) Committee on
Interstate Commerce, 1905, vol. V, Appendix F, part 2, pp. 709-780.
[555] 37 Federal Reporter, 567.
[556] 149 U. S., 264.
[557] _Cf._ pp. 390, _supra_, and 481, _infra_; reprinted in full in
our Railway Problems.
[558] 162 U. S., 184.
[559] 162 U. S., 197. Late data as to the extent of the practice are
in App. V, Digest, Hearings (Senate) Committee on Interstate Commerce,
1905, pp. 1-29. _Cf._ also p. 406, _supra_.
[560] Delaware and Hudson Canal case; 1 I.C.C. Rep., 152.
[561] Hearings before Committee on Interstate Commerce, U. S. Senate,
Feb. 15, 1900 and May 18, 1905, vol. IV, pp. 2866 and 2880.
[562] Chapter IX, _supra_.
[563] 162 U. S., 184: 4 I.C.C. Rep., 744.
[564] 32 Federal Reporter, 1002.
[565] Chapter VII, _supra_.
[566] 4 Int. Com. Rep., 592: 167 U. S., 479. Both the original opinion
and final decision with a map are in our Railway Problems. _Cf._ also,
p. 248, _supra_. The case revived in 1910 is in 18 I.C.C. Rep., 440.
_Vide_ p. 588, _infra_.
[567] The Congressional history of Section 4, is in Haney, _op. cit._,
p. 304; especially good in Brief for Appellees, by Ed. Baxter in the
Alabama Midland Case, U. S. Sup. Court, Oct. term, 1896, No. 563,
p. 98. All the leading English cases are reprinted (Gov. Printing
Office) in "Extracts from the Parliamentary Papers relating to the
Long and Short Haul Clause," 1895, pp. 1-83; with an "Analysis of
American Cases" (National Publishing Co., Washington), 1895, pp. 1-39;
both issued in connection with the C., N. O. and T. P. case, U. S.
Sup. Court, Nos. 729 and 832. The complicated legal history is best
detailed step by step in Annual Reports of the Commission; references
are in Judson on Interstate Commerce. App. F, part II (Elkins),
Senate Committee Hearings, 1905, pp. 65-130, gives a garbled outline,
convenient for citations. 21 I. C. C. Rep., p. 405, summarizes well.
Several of the leading cases are reprinted in our Railway Problems, as
indicated by footnotes hereafter.
[568] For a few pages, I follow closely the line of my report on the
subject for the U. S. Industrial Commission in 1900.
[569] 1 I. C. C. Rep. 31; First Annual Report, Int. Com. Com.; also
Digest (Elkins) Committee, 1905. To be distinguished from the Supreme
Court decision affirming the validity of the Kentucky long and short
haul clause, 183 U. S., 503.
[570] 52 Federal Reporter, 912; Ann. Rep., I.C.C., 1892, p. 31.
[571] The significance of this decision is fully discussed in the Sixth
and Seventh Reports of the Interstate Commerce Commission, which early
in 1887 had already defined the word "line" in the Central Vermont
case, as meaning the physical line, and not mere traffic agreements or
routing arrangements.
[572] 4 I.C.C. Rep., 744; 162 U. S., 184. _Vide_, also, p. 468, _supra_.
[573] Amendment of the law in 1910, precluded any further
misunderstanding, also, by adding the word "route." P. 565, _infra_.
[574] Discussed, as an economic proposition in chap. VII, _supra_.
Baxter's Brief in the Troy case, p. 117, proves it not peculiar.
[575] Which line makes the rate? _Cf._ p. 255, _supra_.
[576] 5 I.C.C. Rep., 324. Decided by the Supreme Court in 1901; 181 U.
S., 29; after the Alabama Midland decision.
[577] 6 I.C.C. Rep., 3; overruled by the Supreme Court in 168 U.
S., 144. Both reprinted in our Railway Problems. Decisions of secondary
importance down to 1905 are abbreviated in App. F, Senate Elkins
Committee Hearings, 1905.
[578] 21 I.C.C. Rep., 407. Elkins Committee Digest. Judson on
Interstate Commerce, etc.
[579] Reprinted in our Railway Problems. Sustained by the lower courts
in 1903; 122 Fed. Rep., 800.
[580] 8 I.C.C. Rep., 503; 120 Fed. Rep., 934.
[581] Facts are given in chap. VII, p. 228, _supra_; and in full in our
Railway Problems. The law is in 181 U. S., 1. The only later decisions,
not changing the law, are in 190 U. S., 273.
[582] Pp. 564 and 601, _infra_.
[583] Known as the Savannah Naval Stores case. 8 Int. Com. Rep., 376.
It is reprinted in full in our Railway Problems.
[584] _Cf._ the chart at p. 523, _infra_.
CHAPTER XV
THE ELKINS AMENDMENTS (1903): THE HEPBURN ACT OF 1906
New causes of unrest in 1899, 487.--The spread
of consolidation, 487.--The rise of freight
rates, 488.--Concentration of financial power, 490.--The
new "trusts," 491.--The Elkins amendments concerning
rebates, 492.--Five provisions enumerated, 493.
More general legislation demanded, 494.--Congressional
history 1903-1905, 495.--Railway publicity
campaign, 496.--President Roosevelt's leadership, 498.--The
Hepburn law, 499.--Widened scope, 499.--Rate-making
power increased, 500.--Administrative _v._
judicial regulation, 501.--Objection to judicial
control, 503.--Final form of the law, 505.--Broad
_v._ narrow court review, 506.--An unfortunate
compromise, 507.--Old rates effective pending
review, 508.--Provisions for expedition, 511.--Details
concerning rebates, 512.--The commodity
clause, 513.--History of its provisions, 514.--Publicity
of accounts, 515.--Extreme importance of accounting
supervision, 516.--The Hepburn law summarized, 520.
The new incentives to rehabilitation of the Interstate Commerce law
by Congress, becoming year by year more insistent after 1899, were
four in number. Most of the old long-standing grievances were still
on the docket. New sources of dissatisfaction and danger were now
added in plenty as a result of important industrial changes. The most
far-reaching of these was the spread of consolidation among railroads.
This, as we shall see,[585] led within a few years to a partition of
the entire railway net of the country into a few large systems, each
controlled financially, although seldom by actual majority investment,
by powerful individuals or banking groups, mainly located in New York.
Many small local roads, long closely identified with the welfare
of particular communities, were now merged in great systems under
entirely different and probably absentee ownership and management.
Boston, Baltimore, New Orleans, St. Paul, Cincinnati, not to mention
a host of other smaller places, seemed commercially cast adrift. The
welfare of railroads and of the particular communities in which they
lay,--long supposed to be indissolubly linked together,--was now seen
by concrete experience to be separable, often into conflicting parts.
The New Haven monopoly in New England might be managed rather in the
interest of New York than of the port of Boston. The Illinois Central,
once devoted whole-heartedly to the upbuilding of New Orleans, must
now, as a part of the Union Pacific system, comprehend San Francisco
and even Savannah within the scope of its plans. New systems implied
new traffic arrangements. Railroad policy must of necessity involve a
choice, not between two evils, perhaps, but between a resultant good
and a necessarily attendant evil. All these corporate changes made
inevitably for much commercial readjustment. And each readjustment left
a trail of real or alleged grievances; for the settlement of which no
competent tribunal existed. There can be no doubt, therefore, that the
significant changes in the railroad map after 1899 had much to do with
the demand for new legislation.
The second new and general cause of dissatisfaction among the public
was the great and almost continuous rise of freight rates which
began about 1900. This was of course a direct outcome of the spread
of railroad consolidation. The movement of freight rates has been
elsewhere described in detail.[586] It has appeared that the steady
decline which ensued for almost a generation after the panic of
1873, was sharply reversed when combination succeeded competition as
a fundamental policy of railroading. This striking reversal of the
course of railway charges was not, of course, an isolated phenomenon.
It took place in a period of marked and general rise of prices, not
unconnected with changes in the value of gold. The upward trend was at
first more striking, and apparently more irresistible, in the charges
for transportation than in the prices of commodities. Prior to 1899,
not even the most astute railroad managers ever anticipated any such
change. The Boston & Maine Railroad even permitted the inclusion of
a prohibition of any higher rates in future than were then in force,
to be incorporated in the acts of the New Hampshire legislature
authorizing its leases of important lines. Attorneys sought to prove
that railroads were not subject to the law of increasing returns,
because it was _inevitable_ as an economic law that with growth in the
volume of business, rates should progressively decline.[587] If there
was often public dissatisfaction at the scale of charges under these
conditions, how irresistible might the unrest among shippers become
when rates actually began to move so strongly upwards!
A single illustration of the class of complaints thus engendered
may not be out of place.[588] It concerned the reasonableness of an
increase of two cents per hundred pounds on lumber from Georgia points
to the Ohio river. From 1894 to 1903 these rates had been already
raised by three or four cents, to a level of thirteen or fourteen
cents; so that prosperity had been already discounted by a rise of
thirty or forty per cent. On top of this, and despite an enormous
increase in the tonnage, came a further raise of two cents per hundred
pounds in April, 1903. This was too much. To this exaction, involving
not less than $132,000 per year additional freight rates, the lumbermen
of Georgia objected. The Interstate Commerce Commission upheld their
contention; and in July, 1905, more than two years afterward, the
Circuit Court sustained the Commission. Appeal was then taken to the
Supreme Court which rendered a decision in 1907, more than four years
after the increase had occurred; and during which time the railroads
had been collecting the added charge. The shippers had naturally at
once shifted the burden upon the public so far as the competition of
other lumber-producing centres, each championed by its own railroad
or set of roads, would permit. No recovery of this tax, now held to
be unjust by the highest court in the land, could possibly be had.
The loss was irreparable. The frequency of complaints of this sort,
involving the absolute reasonableness of rates, proves conclusively
how potent a factor in furthering legislation the rise of the scale of
charges had become.
The demonstration of the menace to public welfare of an inordinate
concentration of financial power in the hands of a few privileged
individuals, served a useful end in bringing about new legislation. The
general rise of rates had been a direct outcome of the substitution of
combination for competition among railroads. The danger of absolute
dominion over all trade, commerce and finance without accountability
to the law, was a concomitant of the growth of great railroad
systems.[589] A special investigation in 1905 showed, for example, that
the majorities of the boards of directors of practically all of the
roads east of the Mississippi river might be selected from a group of
only thirty-nine persons. The spectacular career of Edward H. Harriman
with the Union Pacific and other companies was a convincing argument
in itself. The disclosures in the New York insurance investigation of
1905 as to the intricate ramifications of financial power came, as will
shortly appear, at a most opportune time for promoting congressional
activity. The need of it was, perhaps, never more clearly shown than in
the following frank admission by Mr. Harriman in December, 1906,--only
a few months after the law had been amended,--made in the course of
a general investigation of railroad consolidations by the Interstate
Commerce Commission.[590]
Questioned as to where his policy of acquisition was to end, the
following colloquy ensued:
"A. I would go on with it. If I thought we could realize
something more than we have got from these investments I would
go on and buy some more things.
* * * * *
"Q. Supposing that you got the Santa Fe?
"A. You would not let us get it.
"Q. How could we help it?
"A. How could you help it? I think you would bring out your
power to enforce the conditions of the Sherman anti-trust act
pretty quick. If you will let us, I will go and take the Santa
Fe to-morrow.
"Q. You would take it to-morrow?
"A. Why, certainly I would; I would not have any hesitation; it
is a pretty good property.
"Q. Then it is only the restriction of the law that keeps you
from taking it?
"A. I would go on as long as I live.
"Q. Then after you had gotten through with the Santa Fe and had
taken it, you would also take the Northern Pacific and Great
Northern, if you could get them?
"A. If you would let me.
"Q. And your power, which you have, would gradually increase as
you took one road after another, so that you might spread not
only over the Pacific coast, but spread out over the Atlantic
coast?
"A. Yes."
Was there ever a clearer case of megalomania, menacing the welfare of a
great people?
But it was not alone the dangers incident to monopoly in transportation
which excited popular alarm. There was the ever increasing danger
of abuse of monopolistic power by the newly created industrial
combinations. Most of these had sprung up overnight in the great
promotion movement of 1899-1901. The general public had long been
aware of the gross favoritism in transportation, which had created
the Standard Oil Company. It knew something of the power of the beef
packers' monopoly, built up by the use of private car lines. But with
the publication of Miss Tarbell's History of the Standard Oil Company
in 1903-1904, followed by the reports of the United States Commissioner
of Corporations in 1906, its attention was newly directed to the
evil.[591] Even the carriers themselves were now roused to protest by
the pressure for secret favors by large shippers. The Elkins amendments
to the law in 1903, as we shall see, enabled the government to convict
many offenders. But even this new law was not enough. The rebating
still went on, under new and ingenious forms. If the United States
Steel Corporation, the "Sugar Trust," the International Harvester
Company, the Colorado Fuel and Iron Company and a host of others were
not restrained, monopoly in transportation would soon be followed by
monopoly in manufacture. Each new disclosure verified the suspicions
of the public as to the magnitude of these abuses. The necessity of a
special corrective was first applied to rebating; but this action in
turn only served to reënforce the popular conviction that more general
legislation was necessary. The Elkins amendments of 1903 surely paved
the way for the Hepburn law three years thereafter.
* * * * *
The so-called Elkins amendments to the Act of 1887,--the first changes
of importance in its substantive clauses,--were made in 1903, in
response to a demand of the carriers. Educated to a sense of the grave
losses of revenue incident to rebating and general rate cutting,
prominent railroad men united in urging Congress to act. The ease and
decorum with which this legislation was passed is, in itself, eloquent
testimony to the organized influence of the railroads over Congress,
which made itself felt during the next few years in opposition to
further changes in the law for the benefit of the public. The entire
inadequacy of the original act to prevent rebating had been proven
time and again. The Interstate Commerce Commission had done its best.
The Department of Justice had attempted to apply the equity processes
of injunction without much result. Other Federal laws had been
invoked in vain. When the carriers themselves asked for more stringent
legislation, it was accorded by Congress with commendable despatch. No
opposition whatever appeared. Nor was there much debate. The machinery
of legislation moved expeditiously and almost without noise to the
desired end.
These Elkins amendments dealt solely with the provisions of law
concerning observance of published tariffs. They in no wise affected
the determination of what those tariffs should be. That problem of
reasonableness was the bone of contention in the great struggle in
Congress, hardly as yet under way but soon to follow. The changes
in 1903, therefore, had mainly to do with penalties and legal
procedure. They were, as elsewhere outlined, five in number. The
railroad corporation itself,--and not merely its officers and agents
as heretofore,--was made liable to prosecution and penalty. This put
an end to the anomalous immunity hitherto enjoyed by the principal
and beneficiary of a guilty transaction. Secondly, the penalty of
imprisonment for departure from the published tariff,--added to the law
in 1889 in the hope of rendering it more effective,--was removed. It
had been hoped that the reluctance of witnesses to become parties to
such condign punishment of associates might thus be somewhat overcome;
especially since the liability to fines now ran to the corporation
rather than to the individual. The third change in the law was of
great importance, as it had been construed by the courts. Preferential
treatment of shippers had been made to depend upon proof; first, that
rates lower than as published in the tariff had actually been allowed;
and, in the second place, that these full tariff rates, or, at least,
higher rates, had been paid by others on like shipments at the same
time. Such proof had turned out to be practically impossible in any
general rate war; inasmuch as, at such times, rates were cut more
or less substantially for all shippers alike. In other words, there
might well be departure from the published rates, without preferential
treatment. And it was the object of the law to put a stop to both of
these abuses. The Elkins law, therefore, explicitly made the published
tariff the standard of lawfulness. Any departure from it, proven by
itself alone, was declared a misdemeanor. In the fourth place, the
new law made shippers or any other interested parties defendants;
whereas formerly only the giver of rebates, not the recipient, could
be prosecuted. This change rendering the guilty shipper liable, was
an eminently proper one. And then, finally, the new law provided for
the issuance of injunctions,--viz., peremptory orders punishable by
contempt of court,--by any Federal judge whenever the Interstate
Commerce Commission had reasonable ground for belief that any common
carrier was deviating from the published tariff, "or is committing
any discrimination forbidden by law." A summary prohibition from this
judicial source, it was hoped, would act as a powerful deterrent.
* * * * *
The enactment of more general remedial legislation than the Elkins
amendments was a far more serious matter. That statute has not
inaptly been described as "not even a preliminary skirmish. It was
a truce of the principals to abolish piracy." The original law of
1887 was avowedly experimental and imperfect. With this in view the
statute had specifically directed that there should be transmitted to
Congress in its annual reports "such recommendations as to additional
legislation ... as the Interstate Commerce Commission may deem
necessary." This duty was conscientiously performed year by year. One
may find, therefore, in these documents, especially after 1896, the
most convincing presentation of the need for amendment of the law. Yet
despite its importance, Congress was for some years so intent upon
more pressing public business, that no action was taken in the matter.
Currency legislation, the Spanish War and the Philippines, the Isthmian
Canal, pure food and the trusts quite engrossed public attention. And,
oddly enough, when the campaign opened seriously in 1899, activity was
for a time confined mainly to the Senate. This was in sharp contrast
with the situation both before 1887 and after 1905, when the upper
house was the obstructive member.
As early as 1894 the Senate Committee on Interstate Commerce had
reported favorably a bill; but nothing came of it. Five years later,
both Senators Cullom of Illinois,--sponsor for the original law,--and
Chandler of New Hampshire introduced bills. All these measures aimed to
confer rate-making power upon the commission and to expedite judicial
procedure upon appeal. In the meantime important organizations,
especially in the West, such as the National Board of Trade and the
Conventions of State Railroad Commissioners, had taken the matter up.
Much evidence was heard by the United States Industrial Commission
which dealt with it in an elaborate report in 1901.[592] The chances
seemed favorable for action. The Senate Committee on Interstate
Commerce in that year added several progressively inclined members. The
general freight rate increases of 1900 had greatly stirred the people.
But at this juncture the powerful new financial influences, concerned
with the formation of the great transportation systems, came into play.
Effective regulation might interfere with some of these plans. The
matter was becoming serious. Railroad opposition began to organize.
It became clear that a bitter contest would be needed to secure
legislation.
Renewed pressure from the public came in 1902. Senator Chandler had
been retired by direct railroad influence in New Hampshire. But Senator
Cullom again brought in a bill,[593] which was consolidated with
another by Senator Nelson of Minnesota. Public interest was plainly
rising; yet these measures all died in committee. And the House of
Representatives was too busy with other concerns. But in 1903, for the
first time, the lower house devoted some attention to the so-called
Cooper-Quarles bill;[594] although no vote was taken. It did, however,
with little debate, as we have seen, grant what the railroads asked for
the suppression of rebating in the passage of the Elkins amendments.
The necessity of general legislation on the subject was not yet
strongly felt. The trusts, floundering in the panic of 1903, seemed
more threatening to public order than the railroads. Only in a few
communities like Wisconsin under the able leadership of Governor La
Follette, had public opinion become sufficiently aroused to achieve
definite results.
Matters were finally brought to a head by the determined attitude of
President Roosevelt. In his annual message to Congress in 1904 he made
railroad regulation "a paramount issue." The remedies proposed differed
little from those of the bills above mentioned. The cardinal point
was that the Interstate Commerce Commission was to be given power to
prescribe actual rates, to be effective until reversed by the courts.
Under this spur, the House of Representatives passed the so-called
Esch-Townshend bill--an administration measure--by the impressive
majority of 326 to 17. It was now the Senate's turn to delay. It,
however, authorized its Interstate Commerce Committee to sit during the
spring and summer, and to report in December.[595] A mass of testimony
was taken, which despite the activity of a powerful body of paid
railroad attorneys, proved to be most convincing. But even more cogent
proof of the need of control was the outrageous attempt of the carriers
to influence popular opinion through so-called publicity bureaus.[596]
An extensive service, regardless of cost, was set up with headquarters
at Washington and with branches in all the leading cities, headed
by the President of the Southern Railway. Bogus conventions, packed
for the purpose,--such as the "Alabama Commercial and Industrial
Association,"--passed resolutions unanimously, to be scattered
broadcast by free telegraphic despatches all over the country.
"Associations for the Maintenance of Property" held conventions; the
fact being duly advertised. Palpably garbled news items from Washington
were distributed without cost, especially during the hearings of the
Senate Committee. Even more insidious and misleading methods were
employed. An elaborate card catalogue of small newspapers throughout
the United States was made; in which was noted all of the hobbies,
prejudices, and even the personal weaknesses of the editors. One of the
cards is reproduced on this page. Magazine sections or "ready to print"
insides were also made up, in which appropriate and subtle references
to railroad issues were concealed in a mass of general reading matter.
Two or three weekly letters were sent gratis to minor newspapers
without regular Washington correspondents, containing "good railroad
doctrine," together with spicy local news items. Dakota farmers got
suggestions as to the danger of the proposed legislation affecting
their rates. Kentucky planters were warned of the probable effect
upon tobacco prices. As an indication of the formidable proportions
of this campaign of education, the Chicago office, alone, employed
some forty highly paid experts. Regular reports were rendered by this
news service to the railroads' committee, as to the results achieved;
setting forth the number of columns of news matter distributed and the
changes effected in the proportion of "pro" and "con" items published.
It was indeed a most astounding demonstration of the lengths to which
organized corporate power would go to defeat regulative legislation.
That it proved upon exposure to be a boomerang for the railroad cause,
is to be inferred from the entire absence of all such political methods
from the succeeding campaigns dealing with further amendment of the law.
[Illustration:
TOWN NAME OF PAPER CIRCULATION DATE OF ISSUE POLITICS
........................................................................
: | | 600 | Wkly | Dem :
:---------+------------+-------------+----------------+----------------:
: 1167 | xxxxxxxx | Infl. small | Sat | Anti-beef :
: | | | | Anti-oil :
: xxxxxx | Owner & Nd | 2nd paper | 6- | Anti-harvester :
: | | | | Anti-corp :
:10870 | | Farmers | | Anti-Rep :
: | | | | Machine :
:C M St P | | Weak Eds | | Pro-R R :
: | | | | Pro-Roosevelt :
: | | 1 50 | | :
:---------+------------+-------------+----------------+----------------:
: S. D. xxxx is weak and bibulous man. Tractable to R R suggestions. :
: :
: Many Bohemians in region. Rich county. Junction town. :
:......................................................................:
Duplicate copied from a card in the Chicago Publicity Bureau's index
of newspapers. These cards furnish, in the last column, detailed
information as to the position of the editor on public questions. At
the bottom they indicate by what opening he could be persuaded to
accept railroad "doctrine." The data which would identify the paper and
editor on this card have been erased.]
The President again insisted upon action in the annual message of 1905,
this time recommending control over maximum, not absolute, rates.[597]
Executive pressure was brought to bear heavily upon Congress. The
public was plainly becoming insistent; with the result that the
so-called Hepburn bill was passed by 346 votes to 7. Whether the
Senate, under the influence of one of the most powerful lobbies ever
let loose upon a legislative body, would have yielded even then, had it
not been for an extraordinary conjuncture of economic events, one dare
not surmise. The general causes of dissatisfaction, already described,
such as the spread of combination, the growth of autocratic power, the
steady rise of freight rates and the abuses of personal favoritism
had been long at work. But now at the psychological moment came the
general breakdown and congestion of railroad service all over the
country;[598] the insurance investigation in New York; the Pennsylvania
Railroad coal car scandal;[599] the Atchison rebate disclosures,
with "barefaced disregard of the law," besmirching a member of the
President's cabinet;[600] and the exposure of the outrageous publicity
campaign methods of the carriers. The evidence was cumulative and
overwhelming as to the need of action. The Senate was forced to
acquiesce in a conference committee bill, passing it at the end with
only three dissenting votes.[601] On June 29, 1906, the Hepburn bill
became law. The fundamental principle of governmental control over the
most powerful corporations in the country had been fully affirmed.
It was an historic event,--the most important, perhaps, in Theodore
Roosevelt's public career,--and a not insignificant one in our national
history.
* * * * *
The Hepburn law of 1906, in the first place, greatly broadened the
field of Federal regulation.[602] This was now extended to cover both
express and sleeping-car companies. Pipe lines,--such powerful factors
in the creation of monopoly in the oil business as opportunely showed
by the Report of the Commissioner of Corporations in 1906,--were
expressly included. "Transportation" was now broadly defined as
comprehending among other things, "all services in connection
with the receipt, delivery, elevation, and transfer in transit,
ventilation, refrigeration or icing, storage, and handling of property
transported." Whether certain of these powers, especially over pipe
lines, are practically enforcible as well as legally sound, remains
yet to be seen. The inclusion of all switches, spurs, and terminal
facilities, with appurtenances of all sorts, was an added detail of
importance, in view of the complicated uses made of them in connection
with rebating, as elsewhere described. And the express power to require
facilities for shipment, as well as to regulate joint rates and
services in every detail, was yet another notable extension of Federal
authority. Part-rail and part-water transportation was included; but
coastwise and inland traffic exclusively by water, was left out. In
view of its intimate relation to rates and services by rail, this
omission was unfortunate. The notorious instability of water rates and
the difficulties incident to the enforcement of the long and short haul
clause, render such water-borne traffic of great importance in the
proper regulation of carriers on land.
The significance of the Hepburn law, however, was not primarily in
the wider scope of Federal control. The heart of it consisted of its
more intensive character. The rate-making power of the Commission was
greatly increased. Two other points were contested with equal vigor,
viz., the scope of judicial review of decisions of the Commission,
and the question as to whether its orders in cases appealed should
take effect at once, or only upon final judgment by the Federal court.
Viewed in a large way, however, all three of these propositions
depended upon the determination of a basic issue. A clear separation
of powers between the legislative, executive and judicial branches of
government was a fundamental principle in our Federal Constitution. It
was generally agreed that a considerable confusion of functions, laid
upon the Commission by the original law, must in future be avoided.
Here, it was said, was a body which, if empowered to make rates, would
be exercising a legislative function; if applying and enforcing them,
would be acting administratively; and if hearing complaints, would be
serving as a court. It was generally conceded, nevertheless, except
by a few extremists, that the time had now come when some competent
tribunal must be provided for the effective and prompt settlement of
transportation disputes. To which one of these three branches of the
government should this important duty be assigned? In other words,
disregarding mere matters of detail, should the Interstate Commerce
Commission or the Federal courts be charged with the real control of
the common carriers of the country?
The alignment upon this question was clearly defined. The
administration and the representatives of the shippers and the general
public, were unanimously agreed that control of rates and regulations,
to be effective must be through an administrative agency,--a body,
that is to say, attached to the executive branch of the government.
Their reasons will be set forth in due time. On the other hand every
railroad proposition was based upon the exercise of real control by
the judiciary. The Commission, as an administrative body, was not
to be abolished; but in all matters of rate regulation it was to be
subordinated to the courts. The motives for this policy will also
appear shortly. Senator Foraker of Ohio,--soon retired because of
his uncompromisingly pro-railroad attitude,--proposed to strip the
Commission of all rate-making power whatsoever; and to reduce it to
an initiating body which should merely certify all complaints to the
Federal courts for settlement. Senator Elkins of West Virginia,--an
equally ardent railroad representative,--introduced a bill to create
a special transportation court, subordinate only to the Supreme
Court of the United States on questions of law. Until this tribunal
had heard the cause, and had sanctioned interference on the ground
of unreasonableness, the Interstate Commerce Commission might not
intervene.[603] And in any event its functions were to be mainly
connected with the enforcement, not the promulgation, of orders as to
rates or service. These plans favoring the carriers' interests, as we
shall see, were all based upon the proposition that Congress could
not constitutionally delegate general rate making, that is to say,
legislative power to an administrative body.
The constitutionality of clothing an administrative body with large
regulative power by act of Congress, was, of course, essential to
the administration's plan. It was urged that there was one exception
to the general rule that power delegated to Congress to legislate
under the Constitution could not be further delegated. "There may be
such delegation where the purpose in the original conferring of the
power can be subserved only by its delegation to an agent. Obviously
Congress cannot spend time and labor upon rate making, even were it
economically competent to do so. If the power is to be exercised at
all, practically, it can be done only through an agency like the
Commission." Congress certainly could not delegate such legislative
power, viz., power to make rates, to the courts. That would even
more flagrantly transgress the constitutional rule. In brief, any
plan for judicial control meant the exclusion of rate regulation in
any thoroughgoing way. And that, of course, was the reason why the
"railroad Senators" all insisted upon such a plan. Other support for
the administration plan was found in the _dictum_ of the court in the
Maximum Rate case;[604] and in opinions cited by the Attorney-General
in a special message on the subject to the Senate.[605] These and other
points, such as the bearing of the so-called "preference clause" of
the Federal Constitution requiring equality of treatment in commerce
between all ports of the United States, need not detain us further.
The constitutionality of the amendments have now been duly upheld.
But, inasmuch as the particular form which the law assumed was the
outcome of these debates, it is essential that they be reviewed. Other
questions of interpretation at a later time, also follow the same line
of cleavage in debate.
Judicial regulation of common carriers, as proposed by the railroad
advocates, was open to many objections; so controlling that they
fortunately turned the scales in favor of the administration plan.
The first of these was in itself so fatal that it is almost a work of
supererogation to state the others. Judicial control, as we have seen,
had been the outcome under the old law. It was the desperate plight
from which escape was sought. No decisions could be rendered until the
rate or practice had been put into effect. The denial of power to make
rates for the future had broken down the old law. The stable door might
indeed be closed, but only some years after the horse had been stolen.
Therein lay the primary defect of all judicial processes. When the
bituminous coal-carrying roads and water lines were collecting fifty
cents a ton additional on 10,000,000 tons of coal annually, destined
for New England alone, as a result of the practical elimination of
monopoly since 1904, the only effective way to prevent irreparable loss
to consumers, would be to veto the increase before it went into effect.
For a Federal judge to hold it an unreasonable exaction, four years or
even six months after it had been paid, would be of no benefit to the
coal-consuming public, upon which the incidence of the tax really fell.
The entire futility of judicial control was well exemplified in
the Colorado Fuel and Iron Company case of 1895. This corporation
complained of excessive rates from Pueblo, Colorado, to San Francisco
on iron and steel. The Interstate Commerce Commission ordered the
rates on steel rails not to exceed forty-five cents per one hundred
pounds, or seventy-five per cent. of the Chicago-San Francisco rate
on the same commodity, whatever that might be. The Southern Pacific,
under pressure, complied with this order for about two years; and
then in 1898 advanced the rate one-third, to sixty cents per one
hundred pounds. Thereupon the Iron Company obtained an injunction
from the United States Circuit Court prohibiting the violation of the
Commission's order. The case went to the Circuit Court of Appeals,
which reversed this decree. Meantime, proceedings before a master had
fixed the amount of damages under the rate increase at $35,300. The
court held that these damages, if due, could be recovered before a jury
which should establish the unreasonableness of the rates in force. But
while this was being done, what became of the California business of
the Colorado Fuel and Iron Company? The Pacific coast was one of its
most important markets. The price of steel rails for competitors from
Pittsburg or Europe, who ship by water, would remain quite undisturbed.
It would be difficult to recover trade when once lost. No damages,
based upon mere increased freight rates, actually paid, would begin
to measure the possible loss. And, moreover, even if this sum were
recovered after prolonged litigation, the situation would not be
remedied. Precisely the same rates which gave rise to the damages would
still be in effect. An indefinite series of litigations might result,
which would harass the company and perhaps drive it from the field
altogether. The outcome of this Southern Pacific case sufficiently
proves, even where the shipper is a powerful corporation, the futility
of seeking redress through judicial proceedings. Again and again one is
forced back to the same conclusion: that the only remedy for an unjust
rate is not to continue an unfair one and pay damages, but as speedily
as possible to substitute a reasonable charge. How much greater force
has this conclusion for the small shipper, if the remedy fails even for
an industrial combination, powerful enough to extort secret rebates
of $1,000 a day from the Atchison railroad, as proved in the now
celebrated Morton case of 1906!
Other serious objections to judicial control may be briefly stated.
The functions of a court, acting judicially, permit of reliance as to
reasonableness upon only one standard, viz., that the rate or practice
under consideration will lead to confiscation of property. The courts
can set this maximum limit to charges; but above that point they are
powerless to intervene. Rates for the future must be judged with the
same freedom exercised by the traffic officials who promulgated them in
first instance. Correction can be applied only by an expert tribunal,
possessed of the same sort of knowledge had by those who issued the
tariff or ordered the practice at the outset. Of course, the objection
of lack of technical knowledge on the part of judges, might be readily
enough overcome by means of a specialized professional personnel.
But the objection that judicial control, in contradistinction to
administrative regulation, is necessarily intermittent rather than
steady and constant is one not so easily met. As has been recently well
said of our Federal policy toward the trusts, "Government by a series
of explosions is rarely effective." There are too many and too long
intervals between decisions. And then again, there is the slowness of
formal court proceedings and the necessarily conservative attitude of
judges, in matters concerning vested property rights. These arguments
were all unanswerable in the end. It was inevitable that control
should be exercised by a distinct enlargement of the powers of the
Interstate Commerce Commission, as an adjunct of the executive arm of
the government.
The law of 1906[606] authorized the Commission upon complaint
to "determine and prescribe" just and reasonable maximum rates,
regulations or practices to be thereafter observed; and to order
conformity thereto. Such orders, except for money payments, were to
become effective after thirty days; and were to remain in force for two
years, unless suspended, modified, or set aside by a court of competent
jurisdiction. In addition the Commission might order an apportionment
of joint rates, when the carriers are unable to agree upon a division;
establish through routes; and fix reasonable charges for services or
instrumentalities rendered or provided by shippers. This covers the
case of charges for icing refrigerator cars or for the use of special
equipment.
Fairly general rate-making power was thus conferred upon the
Commission; limited, however, to the adjudication of specific
complaints. But the carriers being routed at this point, promptly fell
back upon a second line of defences. Their representatives took a stand
upon the directly consequent point of broad review by the Federal
courts of the Commission's orders. It was yet possible to practically
nullify administrative control by according indefinite limits to the
appellate jurisdiction of these courts. Might they pass upon law
points alone; or were they to be empowered to review the entire order
of the Commission? A most brilliant constitutional debate again took
place in the Senate.[607] The first detail concerned the power of
Congress to restrict the right of the lower Federal Courts to suspend
the Commission's orders by writ of injunction. Any limitation upon
this power would, of course, lessen interference with the Commission's
mandates, and greatly promote a speedy settlement of transportation
disputes. Were these injunctions to be freely issued, holding up the
Commission's orders and thereby leaving the old rate or practice in
effect pending final adjudication, the carriers would, of course, then
have everything to gain and nothing to lose by their issuance. Every
order might be attacked, not with any serious expectation of final
success, but merely to secure the benefit of the delay. And if, after
this delay, the widest possible scope of review were allowed in the
formal trial of the case, judicial instead of administrative regulation
might still be brought about.
The first essential in the conservative programme, then, was to ensure
the most comprehensive right of review for all cases appealed. But
could Congress by statute limit or define the exercise of this judicial
power on the equity side? There was no doubt as to its right under
the Constitution to create or abolish Federal courts, other than the
Supreme Court. But could it restrict their judicial functions, legal
or equitable, including primarily the power to issue injunctions?
Practically, the alternative lay either in omitting all reference
to the subject in the amended act, leaving the scope of the courts'
powers to be determined by judicial construction of the statute; or
in attempting to define it specifically, item by item. The carriers'
representatives would not agree to the former course, lest silence
upon this matter, as they averred, might imperil the constitutionality
of the law. Nor could the progressive reformers refuse a definition
of the matter, under suspicion of bad faith. For if, as they had so
stoutly maintained, the constitution amply safeguarded the rights of
appellants without further prescription, a mere re-affirmation of these
rights could do no harm. The result was a clause so worded as virtually
to satisfy the conservatives; while ostensibly being a compromise.
Power is expressly conferred upon the Circuit Courts,[608] by suit to
"enjoin, set aside, annul or suspend" orders or requirements of the
Commission. But this power is limited by the condition that five days'
notice must be given to enable the Commission to prepare its case
for protest. And the hearing must be had before three Federal judges
instead of one. These details were intended to prevent the issuance of
restraining orders for frivolous or merely obstructive reasons.
The unfortunate feature of this compromise, arrived at only after
weeks of bitter controversy, was its entire indefiniteness as to
the grounds upon which the courts might base their review of the
Commission's orders. It thus stopped short of conferring more
liberal powers of review for railroads than those enjoyed under the
constitution by all other classes of persons and property.[609] In
so far the railroads lost their case. It is evident that Congress
intended to create a really competent administrative board, with whose
orders the courts might interfere only when those orders were _ultra
vires_, or unconstitutional. The courts under the law must accord
the same consideration to such decisions, "if regularly made and
duly served," as to an act of Congress, with the presumption always
in favor of validity. Judicial interference might be expected only
when the railroads had a good case. This, at least, was a clear gain.
There was yet another even more important one. Under the old law the
burden of initiative or proof on all cases appealed, rested upon the
Commission. This might now be reversed. Penalties formerly did not
begin to run until the final decision of the highest court to which
appeal was taken, had affirmed the validity of the Commission's order.
Carriers might continue to disobey with impunity throughout the period
of protracted litigation. But now a penalty of $5,000 a day for each
day's violation of the order, began at the expiration of thirty days.
The initiative to secure relief from this order must now come from
the carrier. It, and not the Commission, became the petitioner before
the courts. A speedier adjudication of contested cases might far more
confidently be expected under such conditions. But the grounds, legal
or economic, upon which such determination of the reasonableness of the
Commission's orders must rest, were, unfortunately, as we have seen,
left open for judicial interpretation in the course of time.
The railroads won a decided victory in one other bitterly contested
detail of the relation of the Commission to the courts. The new law
still left the old rate or practice of which complaint had been
made, in effect without penalty pending the review of the case. The
administration bill would not have permitted restraining orders to
issue until the Commission's decision had been held unreasonable in
formal review. The point appears to have been decided by Congress upon
economically unjustifiable grounds. The interval of time between the
Commission's decision and the final settlement of the case might be
considerable. Under the old conditions, the carriers had imposed the
burden of disputed rates upon the public. The importance of this point
may be illustrated by the fact that during the protracted litigation
in the Chicago Terminal Charge case, finally settled in 1909, the sum
involved for this period alone amounted to $3,000,000. Was this fair?
The real disputants after all were not the government and the railway
company. The Commission was supposedly acting impartially as an umpire.
Such being the case, unless it were shown that greater injustice would
result from the change, the natural condition would seem to be this;
that in cases of dispute the decision of the umpire, and not of the
bigger contestant, should prevail until final settlement of the cause.
This would seem to be the obvious, the natural and the just conclusion
from the premises.
But, the railroads contended, suppose the Commission should order a
rate reduced, as in the Maximum Freight Rate case; put a lower tariff
into effect; and then the courts should ultimately decide that the
original rate ought not to have been disturbed at all. The railroad
meantime would have suffered a corresponding loss of revenue on all
traffic carried at the low rate. This would certainly be a hardship,
and incontrovertibly unjust. But would it be more so than that the
shipper should unjustly have borne the burden in the contrary case?
As matters then stood, the public was compelled to pay the high rate,
even if the courts afterward decided it to have been unreasonable. The
railway as an interested party enjoyed the benefit of the doubt, and
imposed the burden of proof upon the public at all times. Would it not
have been more in consonance with justice, that the government, an
impartial umpire, should temporarily lay the burden upon that party
against whose contention the greatest reasonable doubt existed?
The only just remedy would seem to be one which would insure final
recovery for unreasonable rates, by whichever party paid, during the
uncertain period of adjudication. One of the principal objections
of the railways to the proposed change arose at this point. Large
corporations are more responsible parties at law than most individual
shippers. Suppose, through an unjustly low rate, a railway had
suffered loss of revenue; could it as readily recoup itself by suits
for damages against scores of shippers, large and small, as could the
latter, in the contrary case, recover back from the railway company?
This cogent argument suggested a compromise measure. Why not permit
the original railroad rate to continue in force, as before, pending
final adjudication; but require the carriers to give bond for prompt
repayment of any surplus charges over those finally sanctioned by
the courts?[610] This would have left the business of rate making in
railway hands; and yet have afforded a substantial remedy for the
disputatious shipper.
The railways would not accede to such a compromise measure, with all
the financial burdens thereby entailed. Unfortunately even this scheme
is woefully short of a just solution. The whole matter looms up larger
at this point. Enter again the interests of the real consumer! In most
cases freight rates to some degree affect the price of commodities. Has
the shipper, having paid a freight bill afterward adjudged unreasonably
high, any right to sue for recovery of the amount? Has he not, with his
fellow merchants, probably shifted the burden upon the public? Evidence
shows that carload rates on cattle from Texas to South Dakota have been
increased within ten years after 1898, from sixty-five dollars to one
hundred dollars. Probably part of this thirty-five dollars increase
has been taken from the profits of the cattlemen; but can there be
doubt that a part of it has been added to the price of beef?[611]
No, tackle it as you will, from whatever point of view, you return
to the same proposition: that the damage of an unreasonable freight
rate, once paid, is irreparable. Particular shippers may recover what
seem to be damages; but which are likely not to have been so to them
individually at all.[612] By standards of abstract justice, the real
solution should distribute the temporary burdens incident to the delays
of legal procedure, as nearly evenly as the laws of chance will permit.
A compilation in 1905 showed that, of 316 freight rate cases decided by
the Interstate Commerce Commission, fifty-four per cent.--practically
one half--turned in favor of the complainant. Inasmuch as these
complaints were practically all brought on behalf of shippers against
the railroads, this shows how evenly balanced the issues have been.
Were the orders of the Commission to become effective at once, the
losses incident to errors afterward corrected by the courts, would be
distributed in about equal proportions. Under the law even as amended
in 1906, all the penalty of a mistake falls upon the shipper and the
public; the railway always goes scot free. An impartial commission
should be clothed with power to distribute these onerous burdens by
prescribing the temporary rate. Quite possibly the limitation of the
equity power of Federal judges to protect the railroads in their
constitutional rights, might have been overthrown by the Supreme Court;
but the advantage in the contrary case would have been well worth the
risk.
The only remedy left for the public under the circumstances of
compromise above outlined, was to forward the course of judicial
procedure in every way. The Expedition Act of 1903 had done much.
The new amendments went still further, by providing for appeal
directly to the Supreme Court with the privilege of precedence upon
its docket. Other details served the same purpose. Formerly it had
taken much time for the Commission to prepare its formal orders and
its _prima facie_ case for the courts. All the evidence had to be duly
set forth.[613] Except for damage suits, all this was now changed.
The Commission in its orders need only state its conclusions in the
premises, without the delays, labor and expense incident to formal
re-examination of witnesses and the preparation of extended records of
evidence. This has materially expedited the settlement of contested
cases. It has yet another advantage. The Commission was stripped of
one of its semi-judicial functions; always an anomaly under our plan
of government. And the assignment of the duty of formal prosecution of
cases on appeal to the Attorney-General of the United States, was yet
another improvement along the same line.
In the matter of personal discrimination, the disheartening persistence
of illegal practices, despite the provisions of the Elkins law of
1903, rendered it necessary to specifically extend jurisdiction
of the Commission over private car lines; and to confer authority
over all incidental services at terminals. Separate publication
of storage, icing and other charges was called for; and railroads
were held responsible for the provision of special equipment when
requested. Industrial railroads, "tap lines," spurs and sidings, so
ingeniously employed in discrimination,[614] were expressly included
under the Commission's authority. Passes for individuals, a fruitful
source of favoritism and political corruption in the past, were even
more particularly prohibited. The only exceptions were for employees
and their families, the poor or unfortunate, and persons engaged
in religious or philanthropic work. In this connection, it may be
added that the law of 1910 somewhat modified this rule by enlarging
the meaning of "employees" to include caretakers of milk and other
commodities. It also dealt with the issuance of franks by express,
telegraph and telephone companies in some detail. Superannuated or
pensioned employees and the bodies of persons killed in service might
also be carried free. Such details are significant as illustrating the
extreme nicety of definition required by the drastic character of the
prohibitions.
An important change was also made by the law of 1906 in re-imposing the
penalty of imprisonment, as well as of fine, for departure from the
published tariff. Its removal from the original law of 1887, in the
interest of effective enforcement, was recognized as a mistake. With
the complete affirmance by the courts of power to compel the production
of evidence, recalcitrant witnesses were now under control. It was
hoped that vigorous prosecution with this criminal punishment added,
might put an end to the abuse.
An entirely new feature was added to the law by the so-called
"Commodity Clause." This sought to divorce transportation entirely
from all other lines of business. The experience of years had shown
that corporations, especially in the coal-fields, by combining both
the service of carrier and shipper, might most effectively stifle
competition of independent producers. Rank discrimination might be
concealed by means of ingeniously framed systems of inter-company
accounts. And denial of equal facilities such as cars or sidings might
operate to drive competitors out of the business. While the Hepburn
law was before Congress, several events drew attention forcibly to
the existence of such abuses. The Interstate Commerce Commission
in April, acting under the Tillman-Gillespie resolution, uncovered
flagrant violations of law on the Pennsylvania system.[615] Equally
important was the decision handed down in February by the Supreme
Court in the Chesapeake and Ohio Railroad case.[616] This dealt with
discriminatory rates on soft coal for the New Haven road, given by
means of manipulation of the pro-rating division between the various
companies interested. The general public was also greatly concerned
over the growth of monopoly in the anthracite fields and the coincident
rise in the price of coal. The independent producers in the soft coal
regions were at the same time roused over the grievous discriminations
practised against them, especially in West Virginia.[617] Senator
Elkins of that state,--usually a strong railroad partisan,--introduced
the amendment under pressure from his constituents. It was warmly
supported by the most radical administration representatives. For it
was apparent at once that a withdrawal of railroads from all such
correlated businesses was not only proper in itself, but would also
greatly promote the enforcement of many other provisions of the law.
Yet the radical character of the proposition was perhaps scarcely
appreciated. Some railroads, like the Lackawanna, were dependent for
nearly three-fourths of their tonnage upon the anthracite coal traffic;
much of it from their own mines. The Chesapeake and Ohio in the eastern
fields and the 'Frisco in the Middle West, relied upon soft coal for
more than half of their tonnage. A great many other carriers were
interested to a lesser degree. To compel them all to give up their coal
properties was indeed a serious matter.
The "commodity clause" provided that "after May 1, 1908, it shall be
unlawful for any railroad company to transport from any state ... to
any other state ... any article or commodity other than timber and the
manufactured products thereof, manufactured, mined, or produced by
it, or under its authority, or which it may own in whole or in part,
or in which it may have any interest, direct or indirect, except such
articles or commodities as may be necessary and intended for its use in
the conduct of its business as a common carrier."
The original proposition was even more drastic. It was to apply to all
common carriers, such as the pipe lines in the oil business. But it
was soon considerably modified in the course of passage.[618] First,
it was limited to railroads. Then the western senators, on behalf of
the lumber industry, secured its special exception. And, finally, an
attempt to prohibit specifically the control of subsidiary industrial
companies through stock ownership was defeated. But, as thus limited,
the clause finally passed the Senate,--the stronghold of the railroad
interests,--by a vote of 67 to 6. This affords a good indication of the
extent of popular feeling on the subject. It was fortunate indeed that
the prohibition was not to take effect for two years, in view of the
litigation necessary for its precise interpretation. For in any event
it was bound to lead to much corporate readjustment. The course of
these proceedings will be considered in the next chapter.
* * * * *
There remains for consideration one of the most important provisions of
the Hepburn law, namely that dealing with publicity of accounts.[619]
Section twenty of the law of 1887 called for the filing by all carriers
of annual reports with the Interstate Commerce Commission. These
reports were to be standardized; and the Commission was empowered, in
addition, to demand specific information whenever it was so desired.
But the absence of express authority to enforce these orders, except by
means of tedious equity proceedings in the courts, made improvements in
accounting almost entirely dependent upon the tact and resourcefulness
of the statistician. The Commission was most fortunate in the services
of Prof. Henry C. Adams, who succeeded in bringing about cordial
coöperation between the accounting officials of the railroads and the
government. Great improvements in the line of uniformity resulted; but
the need of positive control became increasingly apparent.
Many officials were unwilling to certify by oath to the correctness
of their returns. With the increasing size of the roads, it became
more and more difficult to secure promptness. The annual Statistics of
Railways had almost to await the pleasure of the carriers in filing
their statements. And vitally important information was often withheld.
In the case of the Lake Shore road, for example, which for years had
charged all its improvements to operating expenses, it positively
declined to state what portion of those improvements were permanent
additions to the property, properly chargeable to capital account, and
what were in the nature of renewals and repairs. And the Supreme Court
had found no authority in the law to compel the furnishing of this
information.[620] With the growth of extended systems of railroads,
characterized by the most involved methods of inter-corporate
accounting, the need of precise data became ever more imperative.
Something more was evidently necessary than a mere expression by
Congress of an opinion favorable to publicity. The mandatory provisions
added in 1906 to the Twentieth Section are, therefore, vital, not only
in themselves; they are essential to the administrative enforcement
of nearly every other part of the regulative law. A determined effort
was made in 1908 to defeat the purpose of this clause by restricting
appropriations for carrying it into effect.[621] But it emerged
unscathed--thanks to President Roosevelt--and stands today as one of
the best features of the new statute.
One may readily distinguish no less than five distinct and important
special services to be rendered by full publicity of accounts. The
earliest to be fully appreciated was its serviceableness in securing
equality of treatment of all shippers. In the good old freebooters'
days, rebates were probably openly entered as such on the books. But
with the need of concealment, they came to be covered up in all sorts
of ways; oftentimes under such guises, as in the notable Atchison
case, in such manner that not even the directors knew what they meant.
With full standardization of accounts, such abuses may readily be
detected and the offenders traced and punished. In the second place,
open standardization of the books makes strongly for more efficient
and honest operation.[622] The comparative method in statistics may
be readily applied; so that the president of a railroad may have
at command a complete statement of operations in detail, which is
comparable not only with his own results in preceding years but with
other roads similarly circumstanced. The haphazard and unscientific
methods of operation in the British Isles are largely a resultant of
the absence of any logical and uniform system of public accounts.[623]
Detailed cost keeping in the management of great systems of
inter-related railroads, being absolutely essential to efficiency,
makes also for honesty in operation. Such gross frauds as developed
upon the Illinois Central in 1910, variously estimated to have cost the
road from $2,500,000 to $5,000,000 through overcharges for equipment
repairs, might readily enough have been detected under an efficient
and honest management. This instance immediately suggests a third
advantage of full publicity of accounts, namely the protection of
investors. Flagrant manipulation of maintenance accounts, "skinning"
or "fattening" roads in the interest of inside speculators, has
always been dependent upon secrecy. Assurance of a stable market for
railroad securities, based upon entire frankness as to the degree to
which these properties are being kept whole or improved, is one of the
prime advantages which may be expected to flow from such governmental
prescription of accounts. And general public confidence in railway
investments cannot conceivably be better encouraged than by such
publicity. In no other detail than this, does the Act to Regulate
Commerce more directly benefit the general body of stockholders in
railroads, as well as the corporations themselves.
The three foregoing advantages of publicity had been long appreciated.
These recent changes introduced in the Federal law brought two others
into special prominence. One is the newly assumed responsibility by the
government in the matter of rate making. The other is its intervention
in cases of dispute between the carriers and their employees. In both
cases it is imperative that there should be available data for a just
determination of the issues at stake. There must be assurance that
every essential feature of the situation is fully and fairly set forth
upon the books. Otherwise, as in disputed rate cases, every fact as
to cost of service,--a primary basis of measurement,--is vitiated.
Absurd and misleading calculations may be presented in evidence, which
greatly hamper the government in deciding the case.[624] And now with
the projected physical valuation of properties as an element in rate
making, all of the factors of maintenance, betterment and depreciation,
of joint facilities, rentals and sinking funds must be taken into
account. In labor disputes, the same considerations apply.[625] Under
the requirements of the Erdman Act, every mediation,--and the need for
it is more frequent every year,--calls for critical analysis by the
chairman of the Commission and the Federal commissioner of labor of the
statements from both sides as to the reasonableness of the action to be
taken respecting wages or conditions of employment.[626] The notable
arbitration in 1912 is the most important instance as yet. Having
all of these services in mind, it seems likely that the accounting
provisions added to the law in 1906 will be second to none in bringing
about the elimination of existing evils, and in standardizing and
improving operation, finance and traffic practice.
Under the new law monthly and special as well as annual reports,
might be required under oath; with appropriate penalties of fine and
imprisonment for delay or mis-statement. All accounts must be kept
according to forms, general and detailed, prescribed by the Interstate
Commerce Commission. Such rules applied of course to all carriers
subject to the law, such as express and sleeping-car companies, pipe
lines and even water carriers where operated in connection with
railroads. Moreover, the Commission was to have access to the books at
all times. For this purpose, it might employ special examiners.[627]
In other words, the system employed for years in connection with the
regulation of national banks, was now extended to the interstate
carriers. An additional safeguard was provided in the clause which made
it unlawful to keep any other accounts books or memoranda than those
approved; with the same penalties for violation. In brief, the policy
was now perfectly definite. Carriers were rendered public service
companies in every sense of the word. Mere indefinite publicity was
replaced by specific regulation. This policy was not only clearly
written in the law; but the Commission in promulgating its orders
relative to accounting, laid upon every officer concerned, full
personal responsibility for the statements rendered. Minor officials,
made scapegoats for chief offenders, were no longer to be tolerated.
The relation between agent and principal was clearly defined. It was
assumed that so far as accounts were concerned, such officials were
representatives of the Commission in carrying out the law. A new
principle was introduced in the regulation of carriers which could
not fail to be productive of great good. In this respect the Hepburn
amendments granted all that the most ardent advocates of publicity
demanded.[628]
* * * * *