amendment of the original law of 1887, but in reality constituting
an entirely new departure,--may now be had. The gains for effective
regulation were considerable. Among them may be noted its enlarged
field, the separation of transportation from other businesses,
elimination of the iniquitous railroad passes, control over joint rates
and pro-rating, the expedition of judicial procedure, full publicity
of accounts, enhancement of the dignity and compensation of the
Commission, and, most important of all, the grant in so many words of
administrative rate-making power. The carriers--and the administration
also--failed to obtain the much-desired repeal of the prohibition of
pooling. On the other hand, as against these gains for reform should
be set the following concessions to the railroads. Rate-making control
was still subject to broad court review. No one as yet knew what this
might bring forth. Maximum rates only might be prescribed. And much
as to the proper relativity of rates, involved both in matters of
freight classification and of enforcement of the long and short haul
clause, was left untouched. Rate advances were still possible without
determination of their reasonableness in advance. Suspension of orders
pending judicial review, still remained. There was as yet no control
over physical operation, such as furnishing cars, although switches
might be ordered. Many of the states had long since undertaken this
work. And the great body of independent carriers on our inland waters
were still left beyond the reach of the Federal law. In the main, the
administration had won a notable victory, although at some considerable
cost. The principle of effective regulation of public-service carriers
had been, indeed, vigorously affirmed in no mistakable terms. But the
task was not yet completed. Many details of law were needed to "Clinch
the Roosevelt policies." Nevertheless, it was probably better that a
brief experience with the new law, both among the people and in the
courts, should precede further legislation. Great reforms should not be
too suddenly effected, else reaction is certain to take place. For the
time being a positive step forward had been taken.
FOOTNOTES:
[585] Exhaustively described in volume II.
[586] Chapter XII, _supra_, and chap. XVIII, _infra_.
[587] _Journal of Political Economy_, VI, 1898, pp. 457-475.
[588] Central Yellow Pine Association, etc., 10 I.C.C. Rep., 505 and
549; 206 U. S., 428. Other cases dating from this time are given in
chap. XVI as they reached the Supreme Court.
[589] _Cf._ data on concentration of railway control in the United
States App. VI, Digest of Hearings before Senate (Elkins) Committee on
Interstate Commerce, 1905, pp. 1-56.
[590] 12 I.C.C. Rep., 1.
[591] Chapter VI gives details as to these events.
[592] The evidence is in vols. IV and IX. Our final report on the
subject is in vol. XIX.
[593] B. H. Meyer, Railway Legislation in the United States, 1903, is
best on this period.
[594] Fully discussed in Haines, Restrictive Railroad Legislation,
1905, p. 265 _et seq._
[595] Hearings before the Committee on Interstate Commerce, Senate of
the United States, Dec. 16, 1904 to May 23, 1905; 5 vols., appendices,
digests, etc.; commonly known as the Elkins Committee.
[596] The _Chicago Tribune_ and the _Record-Herald_ effectively exposed
the affair. _Cf. Colliers Weekly_, May 4, 1907, for a good résumé.
[597] Senator La Follette in his Autobiography, _American Magazine_,
June, 1912, p. 185, avers that the president's main insistence at first
was upon discriminations, not absolutely unreasonable charges; but the
consumer is mainly interested in the latter point. The claim is made
that the suggestion of thorough going control came from this personal
source. La Follette's three-day speech on April 19-21 was certainly the
ablest presentation made of the progressive policy of regulation.
[598] Chapter II, pp. 62 and 80, _supra_.
[599] Chapter VI, p. 199, _supra_.
[600] P. 195, _supra_.
[601] _Munsey's Magazine_ for March, 1912, has a good review of the
Congressional battle; with details of the defeat of the Aldrich-Cannon
contingent.
[602] The best references on the Hepburn Act are as follows: Dixon, F.
H., _Quarterly Journal of Economics_, XXI, 1906, pp. 22-51; Smalley, H.
S., _Annals American Academy of Political Science_, 1907, pp. 292-309.
The course of events is currently well reported in the file of the
_Railway Age Gazette_. _Cf._ also, _Review of Reviews_, May and July,
1906; and the magazine references in the Bibliography on Railroads of
the Library of Congress.
[603] Compare this with the plans proposed by W. C. Noyes, American
Railroad Rates, 1905, p. 255; and A. N. Merritt, Federal Regulation of
Railway Rates, 1907, p. 193.
[604] Chapter XIV, p. 468, _supra_.
[605] Hearings, Senate Committee on Interstate Commerce, 1905, II, pp.
1662-1674. _Cf._ also Digest, pp. 84-87; and _Review of Reviews_, May,
1906.
[606] Amendment of Section 15 of the law of 1887; see p. 453, _supra_.
[607] Professor Dixon in the _Quarterly Journal of Economics_, XXI,
1906, p. 544, has succinctly reviewed this. _Cf. American Political
Science Review_, IV, 1910, p. 547.
[608] By Amendment of Section 16; see p. 453, _supra_. The attempt to
insert the words "fairly remunerative" in place of "reasonable" so as
to invoke new judicial tests is discussed by Smalley, _op. cit._, 1906,
p. 59.
[609] _Annals, American Academy of Political Science_, March, 1907,
p. 302, deals with this point. Also, the able discussion by Professor
Smalley, reprinted in our Railway Problems, chapter XXIV.
[610] This procedure has been actually adopted in several cases, Ann.
Rep., I.C.C., 1908, 61.
[611] 17 I.C.C. Rep., 317, is a case in point where cotton-oil mills
refused to protect an advance in rates.
[612] _Cf._ 13 Int. Com. Com. Rep., 668; 190 Fed. Rep. 659; and U. S.
Commerce Court, 1911, 193 Fed. Rep., 667.
[613] _Cf._ conditions under the old law; p. 461, _supra_.
[614] See pp. 195 and 213, _supra_.
[615] _Cf._ p. 199, _supra_.
[616] 200 U. S., 613: 20th Ann. Rep. I.C.C., p. 42.
[617] _Cf._ 10 I.C.C. Rep., 473 and p. 640; 11 _Idem_ Rep., 538; 13
_Idem_ Rep., p. 70; 19 _Idem_ Rep., 356.
[618] An excellent account of the debates and early litigation is in
the _Journal of Political Economy_, vol. XVII, 1909, pp. 448-460.
[619] Fully described in _Quarterly Journal of Economics_, vol. XXII,
1908, pp. 364-383. For comparison with foreign countries; _ibid._, vol.
XXIV, 1910, pp. 471-500.
[620] 197 U. S., 536.
[621] _Munsey's Magazine_, March, 1912, well outlines it.
[622] _Cf._ Scientific Management in Railroad Operation; _Quarterly
Journal of Economics_, vol. XXV, 1911, pp. 539-562. Our second volume,
it is hoped, will afford some idea of this comparative method.
[623] _Quarterly Journal of Economics_, 1912, p. 536, outlines the new
law.
[624] The Meeker case in 1911, concerning the cost of transporting coal
to tidewater by the Lehigh Valley, is a good illustration. 21 I.C.C.
Rep., 144.
[625] _Cf._ Bulletin U. S. Bureau of Labor, No. 98, 1912.
[626] _Cf._ Standardization of Wages of Railroad Trainmen; _Quarterly
Journal of Economics_, XXV, 1910, pp. 139-160.
[627] _Munsey's Magazine_, March, 1912, p. 7, outlines the attempt in
1908 to defeat this provision by withholding appropriations.
[628] The affirmance of these powers by the Supreme Court in 1912 is
described at p. 586, _infra_.
CHAPTER XVI
EFFECTS OF THE LAW OF 1906; JUDICIAL INTERPRETATION, 1905-'10
Large number of complaints filed, 522.--Settlement of many
claims, 524.--Fewer new tariffs, 525.--Nature of complaints
analyzed, 526.--Misrouting of freight, 527.--Car supply
and classification rules, 527.--Exclusion from through
shipments, 529.--Opening new routes, 530.--Petty grievances
considered, 530.--Decisions evenly balanced, 532.--The
banana and lumber loading cases, 532.--Freight rate
advances, 534.--General investigations, 536.
Supreme Court definition of Commission's authority, 538.--The
Illinois Central car supply case, 538.--Economic
_v._ legal aspects considered, 540.--The Baltimore
and Ohio decision, 541.--The Burnham, Hanna, Munger
case, 542.--The Pacific Coast lumber cases, 543.--Decisions
revealing legislative defects, 546.--The Orange Routing
case, 546.--The Portland Gateway order, 547.--The
Commission's power to require testimony affirmed, 549.--The
Baird case, 549.--The "Immunity Bath" decision and the
Harriman case, 550.--Interpretation of the "commodity
clause," 552.--Means of evasion described, 553.
[Illustration]
The first direct effect of the new law was a great increase in the
volume of business of the Interstate Commerce Commission. Within
two years over nine thousand appeals were made to it in one form or
another for the adjustment of transportation disputes. The overwhelming
majority of these complaints were settled informally out of court; and
in this work of conciliation one of the most conspicuous and beneficial
functions of the new commission appears. But, nevertheless, an
increasing number of grievances seem to have required a formal hearing
and decision of record. Some indication of the public relief sought
is afforded by the fact that within approximately the first two years
and a half,--up to August 28, 1908,--1053 cases on the formal docket
were disposed of, leaving over five hundred issues still undecided.
As compared with this total of over fifteen hundred formal complaints
under the new law, the number filed under the old statute amounted to
only 878 throughout the long period of eighteen years.[629] Moreover,
the number of complaints filed, steadily increased for several years.
The accompanying diagram well illustrates the great revival of interest
which took place. The two curves show respectively the number of formal
complaints by administrative years since 1892, and the total of both
formal and informal ones since 1903. The sudden increase after the new
law went into effect in 1906, is, of course, presaged by some accession
of business during the preceding two years of public discussion. But
the results for the year 1907 first fully reflect the new conditions.
From 65 formal complaints and 568 informal ones filed in 1905,
the numbers in each class rose within two years to 415 and 5,156,
respectively. It appears, however, that the climax was soon attained.
Since 1908, the number of formal complaints considerably declined; and
the informal ones seemed to be about stationary in number. This was of
course to be expected. The accumulated grievances of past years had
been largely cared for. And the improved conditions brought about were
less productive of new sources of trouble.
Delay in settlement of claims for damages by shippers has long been
a great source of discontent. The Commission has grappled with this
problem vigorously. The following table shows what has already been
accomplished. The figures are for administrative years, as covered by
the annual reports to Congress.
======================================================================
| Number of claims filed | Number denied | Reparation awarded
--------+------------------------+---------------+--------------------
1907 | 561 | -- | $104,700
1908 | 3789 | 1486 | 154,703
1909 | 4406 | 1199 | 311,978
1910 | 5103 | 1463 | 404,976
1911 | 5653 | 739 | 329,388
======================================================================
Here, again, it appears as if the maximum load had been reached, so far
as the Commission is concerned. Testimony of shippers is emphatic upon
this point.[630] One railroad traffic manager stated that the number
of overcharge claims against his line,--one of the most important in
the country,--was twenty-five per cent. less in 1909 than two years
earlier; and that loss and damage claims were reduced approximately
one-third. A very large shipper compared his former "claims suspense
account," sometimes amounting to $100,000, with $7,500 for 1909. The
number of such overcharge claims was 1,008 in 1905. For nine months
of 1909 it was 205. And yet these damages paid are but a trifle, as
compared with the aggregate of claim settlements made by the roads
directly. For the fiscal year to June 30, 1910, such settlements made
to shippers directly by steam roads amounted to $21,941,232. How much
of this sum was a legitimate allowance for loss or damage incurred in
transit, one cannot discover. But it appears likely that an appreciable
fraction served as a cover for personal discrimination. Compulsory
reference to the government of all such claims would speedily determine
the true facts. In the meantime it is a satisfaction to know that
a competent tribunal now exists, to which appeal with a minimum of
expense may be made by aggrieved shippers. Furthermore, it should also
be noted in this connection, that the situation as respects claims
has been benefited by a detail of the law of 1906, not heretofore
mentioned. The so-called Carmack amendment provided that carriers must
issue a through receipt or bill of lading, and thereby become liable
for the shipment throughout its entire journey; that is to say, whether
upon the initial road or a later connection. The legal principles
accepted in England since 1841 are thus adopted. There is no doubt that
great improvement in the relation between the roads and the shipping
public may be anticipated as a result.
The great improvement in respect of standardization of rates, evidenced
primarily through reduction in the number of separate tariffs issued
by the railroads, has been elsewhere described[631] in connection with
classification. From 193,900 separate schedules in 1906 to less than
half that number five years later is a notable achievement,--so notable
indeed that it merits repetition in this connection. The course of
complaints, of claims and of new rates filed at Washington, affords
cumulative evidence of the great improvement in conditions which the
new legislation has brought about.
This activity of the Interstate Commerce Commission, it is almost
needless to mention, affords no true measure of the benefits resulting
from the law. Like every other sound piece of legislation, it was
intended to be preventive, not punitive. The number of arrests by
the police affords no indication of the effectiveness of a criminal
statute. Not the violations of law, but the breaches forestalled, are
of real significance. And similarly in this instance, one surely finds
the primary benefit of legislation, not in the complaints preferred,
but in the fact that, under the improved relationship between the
principals concerned, many long-standing causes of irritation and
misunderstanding are being removed. The real gain, not to be measured
by figures, is to be found in the improved spirit of the intercourse
now prevalent between railway officials and their customers. The
shipper--especially if he be a small one--having business to transact,
may now be sure of courteous treatment and a prompt and probably just
outcome. In the old days he was too often made to feel his utter
economic dependence. As a high traffic official recently put it: "One
reason we do not like this law is because we have to stop and think
twice what we are about. We must be ready to explain and show a warrant
for every act. An attack of indigestion cannot any longer serve as an
excuse for an arbitrary, off-hand ruling." This improved spirit has
permeated the whole staff of railway officials who have seen a new
light on the public aspect of their calling.[632]
The nature of the complaints before the Interstate Commerce Commission,
with its amplified powers under the new law, affords the best
indication of the most important feature of its work, namely the
settlement of disputes between the railroads and their clients.[633]
And it will be apparent that a large number of these only indirectly
raise the issue of the actual freight rate. Oftentimes they concern
rather the manner of conducting business. An attentive perusal of
these decisions of the Commission offers interesting evidence of the
range of a carrier's activities. Every little station all over the
country between Aaron and Zuwash, and every conceivable commodity, from
"mole-traps in crates" to "jewelers' sweepings," is comprehended. The
fact that these disputes, often pecuniarily insignificant, could not
be amicably adjusted by the good offices of the Commission informally,
but necessitated formal hearing and decision, is the strongest possible
proof that some competent tribunal of this sort was greatly needed in
the interest of industrial peace.
One of the commonest petty complaints is of misrouting of freight.
Goods are carried by a roundabout way, or by one not enjoying the
lowest through rate. Thus, to be specific, in 1908 six carloads of
print-paper were shipped from Little Falls, Minnesota, to Boise,
Idaho.[634] Three routes were open, the rates being respectively $1.30,
$1.36, and $2.17 per hundred pounds. The Northern Pacific road, in
absence of instructions, sent the goods by the third route,--presumably
the one most profitable to itself,--the result being a freight rate
$1,760.62 greater than it otherwise might have been. Reparation to this
amount was granted within three months by order of the Commission.
Another frequent difficulty concerns the supply of suitable cars for
the needs of the shipper. Carload rates are always proportionately
lower than charges for package shipment.[635] The carriers very
properly prescribe a certain minimum lading as a requisite for the
grant of these proportionately lower wholesale rates. The shipper at
carload rates must, however, pay for the full capacity of the car,
whether his shipment fills it or not. No exception can be taken to
this practice, unless the carrier is unable or unwilling to supply
cars of a suitable size. This sometimes happens. For instance, in 1908
a lumber-man in Oregon, having a shipment of 39,500 pounds to make to
a point in Pennsylvania, requested of the Southern Pacific a car of
40,000 pounds capacity.[636] Not having one at hand, a much larger car
was furnished, having a minimum capacity of 60,000 pounds. Following
the standing rule as to carload rates, the shipper was compelled to
pay sixty-two and one-half cents per hundred pounds on the marked
capacity of the car, that is to say, on 20,000 pounds more freight than
he actually shipped. This made a difference of $128.12 in the freight
bill--nearly fifty per cent. in excess of the charge based upon the
actual shipment. The Commission issued its order for reparation within
five weeks of the filing of the complaint.
A flagrant case of the misapplication of similar rules was recently
decided.[637] A retail druggist at Douglas, North Dakota, bought a
sheet of plate glass eight feet square at St. Paul for forty-six
dollars. Usually such large sheets have to lie flat on the car floor;
and, occupying so much space, are properly assessed at a minimum weight
of five thousand pounds, regardless of the actual lading. But in this
instance the glass was carried upright, screwed to the end of the car,
along with a lot of miscellaneous freight. Applying the standard rule
made the freight bill for a distance of 587 miles, $9.50 more than
the _entire cost_ of the glass at St. Paul. It appears strange that
the carrier should have permitted so clear a case to come to a formal
hearing at all. Presumably it contested it as much for the protection
of its standard rules as for the sake of the actual revenue involved.
No exception can be taken to these shipping rules as a whole; but these
cases make it evident that their application may be at times too
harsh and rigid. The tribunal established by the new law performs a
much-needed service to the community in tempering their application in
exceptional instances.
Attempts at arbitrary exclusion from participation in through
shipments, in order to stifle competition, not infrequently crop out
in these decisions. In 1905 the Enterprise line, capitalized at four
hundred thousand dollars, put three steamers into commission from
Fall River to New York.[638] This independent line was of the utmost
importance to the cotton manufacturers, as it was expected that at
New York connection could be made with competing rail and water lines
to every part of the United States. But all these lines, presumably
at the behest of the New York, New Haven and Hartford Railroad, which
had hitherto enjoyed a monopoly of the business and which, with its
enormous tonnage of high-grade freight to be parcelled out among
connecting lines at New York, was a formidable factor, promptly
declined to join in making any through rates. All their local rates
from New York on, were, of course, prohibitory. In one instance, while
the through rate accorded to the shipper over the New Haven road was
sixteen and five-eighths cents per hundredweight from New York on, the
patron of the Enterprise line was charged twenty-five and one-half
cents for the same service.
This case recalls a similar one in 1897, when the independent Miami
line of steamers from New York tried to break the monopoly held by the
steamship lines owned by the railroads out of Galveston, Texas. The
roads not only refused to pro-rate, but actually demanded prepayment of
freights from Galveston on, as local rates. The Federal courts tinkered
with the subject for a while, until the Circuit Court of Appeals, while
recognizing a probable violation of law, affirmed that suit could
be legally instituted only by the United States.[639] Meantime, of
course, the company was forced out of that business; and rates have
steadily risen ever since. In this later instance of the Enterprise
line, the Commission promptly ordered an extension of the same
privileges to the independent line that were enjoyed by its powerful
rival.[640]
The frequency of complaints as to the supply of equipment needed for
the regular operation of mills or mines, has already been noted. There
may be enough cars; but they may be supplied too irregularly.[641]
And petitions for the issuance of through rates or the opening of new
routes became so common that a substantial amplification of the law
in 1910, as we shall see, was effected in this regard. The carriers,
of course, always prefer in case of a choice of routes, to take the
longest possible haul over their own lines. This operates to close the
more direct way. The northern transcontinental lines got more revenue
from traffic which went east over their lines a thousand miles by way
of Spokane, than when it was turned over to a rival line at Portland,
Oregon, after a haul by them of only one hundred and fifty miles.[642]
Even in 1907, at the time of extreme congestion of the Northern
Pacific main line, when it was literally overwhelmed with business,
the lumbermen complained that they could find no relief by these other
routes.[643] Much the same question was raised in another way in 1909,
by a complaint from growers and shippers of grain against the rate
adjustment which forced or attracted Kansas grain to the Kansas City
market, instead of permitting it to move on lower rates directly from
the point of origin to the Gulf ports for export, and to Texas milling
and consuming points.[644] In this instance, however, the shippers
failed to make out a good case; so that the complaint was dismissed.
No grievance is too petty to receive consideration. A peachcanner in
Martinsdale, Georgia, is awarded reparation of $8.91 on a shipment
of three cars of his wares.[645] The sum of $11.84 is awarded to a
complainant for an overcharge on eleven rolls of old worn-out canvas,
assessed for freight rates as cotton goods instead of junk, which it
properly was.[646] Or in another case, where a small boiler was shipped
from Kalamazoo to Blue Mounds, Michigan, on a combination of local
rates, when it was properly entitled to a joint through rate, an award
of $6.87 to the shipper followed.[647] It makes no difference whether
the welfare of a great territory or the smallest dealer is concerned.
It is all one to the government. The Hope Cotton Seed Oil Company[648]
in the South, shipped seventeen carloads of one season's product in
1907 out over a certain road, on a low through rate. The railroad agent
was then informed that these shipments interfered with the policy of
establishing new industries of this sort on another line; and the
through rate was cancelled. This jumped the charges from seventeen
and one-half cents per hundredweight to sixty-seven cents,--almost
the entire worth of the cotton-seed. Since the new law went into
effect, the Commission has prescribed a new rate of thirty cents; and
industrial peace is the result.
Thus has the work of this tribunal gone on, with its daily grist of
opinions on almost every conceivable phase of the transportation
business. It might be to prescribe that, even though inflammable,
small-lot shipments of petroleum must be accepted by a carrier at
least twice every week, instead of on only one day; that structural
iron might be stopped off _en route_ at Indianapolis,[649] as it is
at Chicago and St. Louis, to be sheared, fitted and punched, without
losing the benefit of a low through rate, just as cotton is halted
at the compressor, or grain is milled in transit; that a definite
rate must be quoted on jewelers' sweepings,[650]--the dirt and waste
laden with particles of gold destined to the smelter,--even though
it expose the carrier to the risk of exorbitant claims for damage in
case of accident; that the railroad was properly entitled to charge
storage after six months on brewer's rice left on a wharf pending
piecemeal shipment to purchasers;[651] or that two different rates were
contemporaneously charged on nitrate of soda, according to whether it
was to be used in the manufacture of fertilizer or gunpowder.[652] But
whatever the issue, one has the satisfying conviction, after reading
the _pros_ and _cons_ in the decisions, not only that the matter
has been settled by a disinterested and supposedly impartial third
party, but that the decision is endowed with the beneficent force of
public authority. As one reads these decisions, there is no evidence
of political log-rolling, or of legal quibbling. They go straight to
the point on the economic and common-sense issues involved. It is
gratifying, moreover, to note occasionally that the dispute has already
been informally settled before the Commission has time to render its
opinion.
By no means are all these decisions in favor of the shipper. In fact,
during the first fourteen months, only forty-six out of one hundred and
seven formal cases were thus settled. The railroads enjoy no monopoly
of unfair practices. Indeed, many of the rules, the exceptional
application of which works hardship, were originally provided to meet
some attempt at fraud by shippers. They might be under-classifying;
seeking free storage on wheels pending sale of their goods; claiming
exorbitant damages; or perpetrating any one of a thousand petty
meannesses to which human nature is liable. One or two instances of
shippers' complaints set aside as unreasonable may not be out of place.
The Topeka banana dealers in 1908 complained that bananas _en route_
from New Orleans were subject to an appreciable shrinkage in weight,
amounting to about six hundred pounds per car.[653] Inasmuch as about
fourteen thousand cars were being moved annually, it is clear that
the aggregate loss of weight was considerable. The practice had been
to weigh the bananas when transferred from the steamers at New Orleans
to the cars, and to levy the freight rate upon this weight. To this
the dealers objected, instancing among other things the practice, long
prevalent in the cattle business where a similar loss of weight in
transit occurs, of charging according to the weight of the shipments,
not at the initial point, but at the point of delivery. At first sight
the complaint appears to be well founded. Surely one should not be
compelled to pay freight on a greater lading than is carried. But the
Commission on examination decided in favor of the roads. It was shown
that the service was most exceptional as to the shipment, handling and
speed; and it was held that the charges were on the whole reasonable
and just.
One of the most important issues in which the railroads have won their
contention concerned the loading of lumber on flat cars.[654] For half
a century the practice has been that the shipper should provide his
own lumber-stakes and pay freight on them as on the lumber itself. In
1905 the National Lumbermen's Association tried to change all this, and
to impose upon the carriers the legal duty of securing the loads in
place as they do with many other commodities. The carriers offered a
compromise, agreeing to allow five hundred pounds per car free for the
weight of the stakes; but refused to accept responsibility for safely
stowing the goods. The Commission, finally, after prolonged inquiry by
experts, relieved the carriers of this care and expense.
It is undeniable also that the carriers have found solace in certain
unforeseen ways under the amended law. The rigid prohibition of all
favors and rebates has substantially raised the general level of
charges, so general was the practice of cutting rates a few years
ago. To be sure, this increase has affected principally the large
shippers, thus tending to equalize opportunity between all grades
of competitors. But over and above this, the prohibition of any act
tainted with favoritism has enabled the carriers successfully to
withstand many leakages of revenue. Claims for damages can be plausibly
denied on the ground that their settlement might arouse suspicion, and
possibly lead to prosecution for the grant of individual favors. Many
roads have also actually augmented their revenues by this same line of
argument. The custom of charging a merely nominal rental of one dollar
for freight-sheds, other buildings or land used for side-tracks or
elevators, was formerly general. It would have been awkward to place
these contracts on a strictly commercial basis, especially where the
tenants were shippers with the option of resorting to a rival line.
But on the plea that a continuance of these nominal rentals might be
considered a criminal act of favoritism, substantial increases of
revenue have been obtained. On one road alone over three thousand of
these nominal rentals have been raised to strictly commercial figures.
The aggregate increase of revenue from this source has been by no means
inconsiderable.
A very important group of cases brought before the Interstate
Commerce Commission under the new law concerned the reasonableness
of the various freight-rate advances which were occurring all along
the line.[655] This raised a question as to the absolute fairness
of the new rates as against the interest of the general public. One
conclusion is certain. The new law did not prevent the carriers from
persisting in a policy, adopted nearly ten years earlier, after a
generation of steadily declining rates, of quite generally putting up
their charges. Unfortunately, the law of 1906 was defective in making
no provision for dealing adequately with such cases. The Interstate
Commerce Commission was limited in its scope to the consideration
only of specific complaints. It could not on its own initiative pass
upon the reasonableness of an entire new schedule of rates in advance
of its taking effect. It must take the matter up, if at all, bit
by bit, as individual shippers chanced to complain, after the rates
have become operative. This abridgment of its power to pass upon the
reasonableness of tariffs as a whole was effected in the Senate. It
was not contemplated either by President Roosevelt or by the House of
Representatives. The result, as predicted, was that little protection
was afforded to the public in any large way. Judging by results, the
railroads were as free as they ever were, to increase their tariffs
whenever they saw fit so to do.
The imperative need of amending the law, and of granting power
to suspend such rate advances, not merely in particular cases on
complaint, but as to entire schedules of rates prior to their taking
effect, was in fact met by the next set of amendments in 1910. The
experience of the intervening years amply proved the need of some such
amendment.
The extent of the changes after the new law went into effect may be
indicated by a few typical instances. Few commodities are of greater
importance to the United States than chemical fertilizers, used in
enormous quantities all over the country. The basis of these is
phosphate rock. The freight rate on this from Tennessee to Chicago in
1907 was $3.40 per ton. It was increased to $3.95, until the Commission
ordered its reduction to the old figure.[656] At the same time the
Oregon lumbermen had their rates to the East increased about one
quarter, after a period of quiescence of six years. From the Willamette
valley to San Francisco--a test case soon to run a long course before
the courts[657]--lumber rates were $3.10. In 1907 they were put up to
five dollars. The Commission held that $3.40 was an adequate rate. The
last general increase had occurred in January, 1909, particularly in
transcontinental rates, where the fruit of the Harriman monopoly made
itself felt. Not unduly great in the East, considering the increased
cost of operation,--twenty-five cents per ton on pig iron and iron
pipe, for instance,--the Pacific Coast rates from New York rose often
as high as fifty per cent. The rate on dry goods went up by one-third.
Therein lay a part of the motive power for Union Pacific speculative
finance.[658] Among the most persistently contested schedules was that
concerning rates from the southwestern cattle ranges to the markets of
the Middle West.[659] In 1897 the rate on steers was twenty-seven cents
per hundredweight. Step by step it went up to the level of thirty-six
and one-half cents in 1903,--a rise of more than one-third within six
years.
Occasionally one strikes an exorbitant rise in the East, however, as in
one instance where on imported iron pyrites used in making sulphuric
acid, the rate, which in 1903 was $1.56, became $2.72 four years
later.[660] And the hardship often lay in the fact that these increases
were most marked in the case of the small shipper,--the very one who,
in these days of large enterprises, we can least afford to spare. The
rate on cotton goods from the South to the Pacific Coast rose only
fifteen per cent, between 1896 and 1907 by the carload; for smaller
lots it rose sixty-five per cent.[661] In 1907, 38,000,000 pounds of
cheese were produced in southwestern Wisconsin. The shipper to Chicago
by carload paid only about ten per cent, more in 1907 than eight years
earlier; but the shipper in smaller lots was compelled to pay forty
per cent. more.[662] As always, the change was along the line of least
resistance. Such a policy made for larger dividends; but did it tend to
the perpetuation of equality of opportunity as between great and small
concerns? That was a social question of the very first importance,
which had much to do with the demand for still further increase of the
regulative power of the Federal government in 1910.
Under the new powers conferred by law, it was now possible to
investigate scientifically many matters which heretofore had been
privately governed by rule of thumb. For instance the reasonableness
of the charges for refrigeration in the movement of citrus fruit is
dependent in practice upon the methods employed in gathering and
packing them for market.[663] Was it better business practice to
ship oranges and lemons in ice-cooled refrigerator cars, or was it
better to adopt the so-called pre-cooling process, combined with
great care in handling? The former was the long-standing practice of
the fruit-growers, while the latter, substantially supported by the
investment of more than a million dollars in plant, was advocated by
the carriers. One had been tested in practice, the other was yet in
the experimental stage. But aside from rivalry of method, were not the
shippers entitled to pre-cool or refrigerate their fruit privately if
they so desired? The determination of this question meant an elaborate
investigation with careful records in detail as to the results obtained
in either case. The decision upheld the carriers in their charges
for the older methods of treatment; but pre-cooling charges had to
be reduced by seventy-five per cent. It appears, therefore, that
authority to deal with one of the most serious grievances voiced before
the Elkins Committee in 1905, may now be fairly and scientifically
exercised for the public benefit.
A similar technical investigation concerned the methods of transporting
the products of "creameries."[664] Shall dairy products be centralized
at favored points, possessed of a sufficient supply from the
surrounding territory to permit of large-scale manufacture; or shall
the older local creamery method prevail, whereby the product is taken
directly from country stations to the great centres of consumption
like Chicago? The particular rate adjustment makes all the difference
between creameries scattered throughout the countryside or, on the
other hand, located in the great cities. One of the prime difficulties
is in the sparsity and uneven distribution of the cow population. Here
was an order requiring a very careful investigation of the entire
business, followed by a nice judgment as to the economic merits of the
case. The history and development of the dairy business in the West
had to be thoroughly looked into. Quite irrespective of the resulting
order, it is apparent that the public is certain to benefit from an
exhaustive inquiry. Yet other general investigations of the same
sort might be cited to the same end. The wool business was examined
thoroughly in 1911.[665] The entire New England rate system as well
as the conditions of operation were overhauled in the following year,
and a general inquiry into the hard coal situation is just now under
way. A general improvement of conditions is bound to flow from the free
exercise of such general powers.
* * * * *
The leading Supreme Court decision construing the Hepburn law,--and,
constitutionally, one of the most important in recent years,--was
rendered in 1910 with reference to the relation between the exercise
of power over transportation by the Interstate Commerce Commission and
the right of review of such action by the courts.[666] The details of
the controversy are indicative of the nicety of economic adjustment
required in such cases. There was a shortage of equipment for the
carriage of soft coal on the lines of the Illinois Central Railroad.
This commodity, practically speaking; cannot be stored. It must be
disposed of at once, so that the available supply of cars determines
the output of each mine. If, in this case, all the cars had belonged
to the Illinois Central Railroad to be used indiscriminately by the
mine owners, it would have been a simple matter to have allotted the
equipment among all the operators along its lines upon the basis of the
established capacity of each. Unfortunately, diversity of ownership of
these cars had brought about, all over the country, special rules for
effecting the allotments. Some cars belonged to the railroad; others
to the mine company, to other private parties, or to foreign railways.
Certain railroads first deducted all fuel carried by other equipment
than their own from the estimated capacity of each mine, and then
divided up their own available cars _pro rata_ among all the mines
according to the net capacity thus fixed. Others allotted their cars
according to the gross mine capacity, taking no account of the private
or outside equipment which any particular coal mine possessed or might
obtain. This second practice evidently favored the larger concerns,
supplied with abundant capital for investment in cars or for renting
equipment. For, in addition to their own cars, they could still demand
as many more from the railroad on daily allotment as if they were
entirely dependent upon it for the movement of all their coal. Which
was the fairer practice? A nice economic question was thus raised. Has
a shipper the right to exclusive use of all his own fuel cars, and,
in addition thereto, a full share of the system cars of the railroad?
Disputes of this sort have been before the Commission and the courts
for years.
In this Illinois Central case, a colliery company complained of even a
more minute detail of the rule employed by the railroad in making its
daily allotment, affirming it to be discriminatory in effect. There was
a shortage of cars and of coal. The railroad was employing many of its
own cars in the special service of carrying fuel for its own use. The
particular grievance was its insistence upon treating these special
Illinois Central cars, for the purposes of allotment, as if they were
merely ordinary private cars; that is to say, by supplying them in
practice regardless of and outside of the daily allotment, otherwise
agreed upon. It thus appears that the economic issue was highly
technical in character. Similar complaints had been already variously
decided by other tribunals. The Commission, moreover, was bound to
consider this complaint with several others of a like sort. Exercising
its best business judgment under all the circumstances, it decided
against the practice, ordering the Illinois Central, under the powers
conferred by the new law of 1906, to include all cars, however owned or
for whatever purpose used, in figuring its daily allotments in time of
shortage of equipment. The case went to the Supreme Court upon petition
of the railroad to set aside the order of the Commission.
By contrast with the economic intricacy of this case, the fundamental
legal question was simple. How broad was the right of review of the
Commission's order, as conferred by the amendments adopted in 1906?
Were the courts to rest content merely to pass upon the regularity
and lawfulness of the forms of procedure adopted by the Commission,
or might they go further, and, hearing all the evidence as to fact,
proceed to settle the economic controversy as well as the law
points, in entire independence of the Commission? In the former case
administrative control would result. In the latter, regulative power
would really reside in the judicial branch of the government. It was
the same old controversy which by adoption of the second alternative
had practically emasculated the law of 1887, and had necessitated
its amplification by amendment in 1906.[667] A momentous issue was
presented. To go forward would make for logical definition and
separation of the powers of the Federal government; to retreat would be
to precipitate anew the inevitable conflict in Congress, from which, it
was hoped, we had emerged for good!
The importance of the Illinois Central decision is such that the
conclusion should be stated by direct quotation, with our italics as to
the main point.
"Beyond controversy, in determining whether an order of the
Commission shall be suspended or set aside, we must consider,
_a_, all relevant questions of constitutional power or right;
_b_, all pertinent questions as to whether the administrative
order is within the scope of the delegated authority under
which it purports to have been made; and, _c_, a proposition
which we state independently, although in its essence it
may be contained in the previous one, viz., whether, even
although the order be in form within the delegated power,
nevertheless it must be treated as not embraced therein,
because the exertion of authority which is questioned has been
manifested in such an unreasonable manner as to cause it, in
truth, to be within the elementary rule that the substance,
and not the shadow, determines the validity of the exercise
of the power. _Postal Telegraph Cable Co. v. Adams_, 155 U.
S., 688, 698. Plain as it is that the powers just stated are
of the essence of judicial authority, and which, therefore,
may not be curtailed, and whose discharge may not be by us in
a proper case avoided,[668] _it is equally plain that such
perennial powers lend no support whatever to the proposition
that we may, under the guise of exerting judicial power, usurp
merely administrative functions by setting aside a lawful
administrative order upon our conception as to whether the
administrative power has been wisely exercised. Power to make
the order and not the mere expediency or wisdom of having made
it, is the question._"
On this cogent reasoning the Supreme Court, therefore, quite
independently of its opinion upon the economic merits, declined to
permit interference with the order of the Commission.
Immediately following the Illinois Central decision another was
rendered concerning somewhat the same economic issue, namely methods
of supplying coal cars on the Baltimore and Ohio.[669] The following
quotation is significant of what promises to be the line of reasoning
in future.
"In ... the ... case just decided, it was pointed out that the
effect of the section was to cause it to come to pass that
courts, in determining whether an order of the Commission
should be suspended or enjoined, were without power to invade
the administrative functions vested in the Commission, and,
therefore, could not set aside an order duly made on a mere
exercise of judgment as to its wisdom or expediency. Under
these circumstances it is apparent, as we have said, that
these amendments of 1906 add to the cogency of the reasoning
which led to the conclusion in the Abilene Case, that the
primary interference of the courts with the administrative
functions of the Commission was wholly incompatible with the
act to regulate commerce. This result is easily illustrated.
A particular regulation of a carrier engaged in interstate
commerce is assailed in the courts as unjustly preferential and
discriminatory. Upon the facts found, the complaint is declared
to be well founded. The administrative powers of the Commission
are invoked concerning a regulation of like character upon
a similar complaint. The Commission finds, from the evidence
before it, that the regulation is not unjustly discriminatory.
Which would prevail? If both, then discrimination and
preference would result from the very prevalence of the two
methods of procedure. If, on the contrary, the Commission
was bound to follow the previous action of the courts, then
it is apparent that its power to perform its administrative
functions would be curtailed, if not destroyed. On the other
hand, if the action of the Commission were to prevail, then the
function exercised by the court would not have been judicial in
character, since its final conclusion would be susceptible of
being set aside by the action of a mere administrative body.
That these illustrations are not imaginary is established not
only by this record, but by the record in the case of the
_Illinois C. R. Co. v. Interstate Commerce Commission_."
These opinions, expressly recognizing the constitutionality of the free
and full exercise of legislative power delegated by Congress beyond
the power of the courts to review, are of fundamental importance. Had
they been rendered a few days earlier, as we shall see, they might have
prevented the supposed necessity of setting up a new commerce court
by law in 1910. They would certainly have abridged the Congressional
debates over points of law. Under these decisions, only authority and
constitutional rights may be reviewed. The same issues were raised in
the Portland Gateway opinion in 1910, soon to engage our attention,
concerning the Commission's right to designate through routes for
passenger travel. Over-ruling the Commission in this instance, however,
the narrow right of review by the courts, as laid down in the Illinois
Central case, is somewhat widened by an apparent refusal to treat the
Commission's findings as to fact as conclusive in determining its
jurisdiction; however conclusive it may regard them in other respects.
A shady byway of judicial encroachment is thus rather surreptitiously
indicated.
A more satisfactory re-affirmation of the disposition of the Supreme
Court to allow a wide field and a free hand to the Commission in
the exercise of its offices, is to be found in a third opinion, the
so-called Burnham, Hanna, Munger case, also rendered in 1910.[670]
Certain Missouri river cities complained that rates from the Atlantic
seaboard were unduly high by comparison with those to cities in
Central Traffic territory, namely between the Mississippi river and
Buffalo. The Commission held the complaint well founded; and ordered
a readjustment, by reduction of that portion of the rate west of
the Mississippi. Thus, by leaving the rates to the Central Traffic
Association cities unchanged, it materially benefited those along
the Missouri river by comparison. Omaha and Kansas City were brought
substantially closer to the seaboard as compared with Chicago and
similar trade centres. The western roads, alone affected by this
order, attacked it in the courts as an assertion by the Commission of
power "artificially to apportion out the country into zones tributary
to given trade centres to be pre-determined by the Commission, and
non-tributary to others." The Supreme Court, in upholding the order,
held that it would indeed be an abuse of power to raise or lower rates
for the sole purpose above-outlined. Nevertheless, if the Commission
were seeking primarily to correct rates inherently unreasonable, such
action would not be invalidated by incidental effects upon trade
conditions. The Supreme Court found, therefore, that the order in
question was within its power, as thus defined, and, governed by the
reasoning in the Illinois Central case, held that the Commission's
decision could not be judicially reviewed upon the merits.
The line of judicial interpretation preceding the Mann-Elkins law of
1910 has been even more rigidly followed by the Supreme Court since
that time. The most important decision, perhaps, was rendered in 1912.
This concerned the absolute reasonableness of rates on fir lumber from
the northern Pacific forests to the Middle West.[671] But it involved
the additional consideration that the transcontinental roads had in a
measure guaranteed an economic status to lumbermen under which they
had made large investments, which, as they claimed, were jeopardized
by an increase of freight rates in 1907. Two points were raised. One
concerned the reasonableness of the new rates _per se_; the other their
reasonableness in the light of their effects upon an established yet
dependent industry. It was the old issue, in brief, between cost of
service and value of service. A decision upon the latter basis alone
might have resulted, as in a similar action, in the Burnham, Hanna,
Munger case, just outlined, in decreeing an extension of authority over
commerce by the Commission. Fortunately the court found otherwise in
these lumber cases. It was able to uphold the order of the Commission,
without deviation from the path of reasoning laid down in the Illinois
Central opinion. The decision concludes as follows:
"Considering the case as a whole, we cannot say that the order
was made because of the effect of the advance on the lumber
industry, nor because of a mistake of law as to presumptions
arising from the long continuance of the low rate when the
carrier was earning dividends, nor that there was no evidence
to support the finding. If so, the Commission acted within its
power, and, in view of the statute, its lawful orders cannot be
enjoined."
The unsatisfactory element in this decision is its implication that
the Commission must be governed by cost of service principles in
fixing reasonable rates. For to admit the plea of the lumbermen, that
their industry could not stand the increase, would obviously lend an
ear to the principle of value of service. May the railroads properly
adopt either of the two principles in fixing their tariffs, while the
Commission is confined to cost of service alone? Any such conclusion
would tend to paralyze regulation. And Congress would certainly in a
moment fly to the rescue with amplification of the statute.
This Pacific coast lumber opinion also contains the following succinct
statement of the grounds upon which alone the Federal courts may review
the orders of the Commission:
"There has been no attempt to make an exhaustive statement
of the principle involved, but in cases thus far decided, it
has been settled that the orders of the Commission are final
unless (1) beyond the power which it could constitutionally
exercise; or (2) beyond its statutory power; or (3) based
upon a mistake of law. But questions of fact may be involved
in the determination of questions of law, so that an order,
regular on its face, may be set aside if it appears that (4)
the rate is so low as to be confiscatory and in violation
of the constitutional prohibition against taking property
without due process of law; or (5) if the Commission acted so
arbitrarily and unjustly as to fix rates contrary to evidence,
or without evidence to support it; or (6) if the authority
therein involved has been exercised in such an unreasonable
manner as to cause it to be within the elementary rule that the
substance, and not the shadow, determines the validity of the
exercise of the power."
Quite like the preceding case was another concerning the reasonableness
of advances of rates upon fir lumber from the Willamette valley to San
Francisco. The Commission had ordered a reduced rate, from which the
Southern Pacific appealed to the Supreme Court.[672] This tribunal
set aside the order on the ground that, while seeking to protect an
investment in lumber mills, it had not been governed by considerations
as to the intrinsic reasonableness of the rates. The lumbermen then
went back to the Commission with a new complaint, in response to
which a slight advance was permitted to the railroad, apparently as
a token of compliance with the opinion of the Supreme Court. But the
Southern Pacific, not yet content, promptly appealed a second time
under the Mann-Elkins law to the new Commerce Court. On June 4, 1912,
this tribunal fully sustained the Commission in a most suggestive
declaration of the obligation of a carrier, having once induced capital
to embark in a new enterprise under promise of low rates, being
subsequently estopped from charging to the full limit of what the
traffic will bear.[673] This is a gratifying evidence of acquiescence
of this new tribunal in the main line of interpretation laid down by
the Supreme Court.
Federal decisions construing the law of 1906 during this period
under review, revealed various shortcomings and defects which could
be repaired only by additional legislation. They are to be considered
among the causes contributing to the passage of the Mann-Elkins Act of
1910, shortly to engage our attention. Two in particular, the Orange
Routing case and the Portland Gateway order, merit discussion. Neither
directly involved monetary considerations, but a conflict between the
rights of shippers and carriers. And both alike went on appeal to the
Supreme Court of the United States.
The Orange Routing case against the Southern Pacific Railroad touched
the right of the shipper to name the particular railways over which
his fruit should reach Eastern markets.[674] Rates were the same by
whatever route; but the railways denied the right of the shipper
not only to name, but even to know, the route taken by his goods in
transit. The same issue came up some years ago, concerning the right
of cotton shippers at Memphis to designate the particular connecting
railroads which should haul their goods. The purpose of the carriers
in seeking to control this matter is obvious, and may be praiseworthy.
Secret rebates cannot often be secured by shippers from the initial
carriers, especially if, as in California, no railway competition
exists. For the Atchison and the Southern Pacific have done away with
that by pooling their fruit business. Secret rebates, if secured by
shippers at all, must be wrung from the connecting lines, which bid
for it at the great junction points, like Kansas City and Chicago.
The initial road, by reserving the right to route the freight, is
able most effectively to nullify all such pernicious contracts. But,
on the other hand, this practice denies to the owner of the goods,
control, or even supervision, over his own. Market conditions may
easily change while the goods are in transit. It may be desirable to
stop them off at Chicago, or divert them to New Orleans. And, moreover,
damages for delay on such perishable goods as fruit are refused by
the terms of the contract. The routing road exercises power without
assuming responsibility. On these grounds, and in consonance with the
long-established principles of common law, the Interstate Commerce
Commission held that the shippers' rights were jeopardized. It was
shown that freight was often diverted from one road to another in
order to secure more valuable percentages of the through rate for the
initial carrier. The Circuit Court in September, 1904, provisionally
sustained the Commission; but its opinion was reversed by the Supreme
Court in 1906. The court of last resort failed to find in the law any
prohibition of such regulations concerning routes by the railroads.
Incidentally it held that the Federal courts might enforce orders of
the Commission, even although for reasons differing from those which
governed the original order.[675]
The Portland Gateway case in 1910, before the Supreme Court,[676] also
disclosed a defect in the law of 1906. It dealt with the right of the
Commission to designate through passenger routes. Seattle, Washington,
may be reached from the Middle West either by various lines to St. Paul
and from thence due west by the "Hill lines," or by various railroads
to Kansas City and thence by the Burlington and the Northern Pacific,
also "Hill lines." There are also many routes first proceeding westward
_via_ the Union Pacific to Portland, Oregon, and from thence up to
Seattle. By these latter routes most of the journey would be over the
"Harriman lines," whereas by the former it would be by way of their
competitors for the control of the northwest. Passengers all the way
over the "Hill lines" were afforded every facility for through travel
in the way of tickets and baggage; but if they chose the Portland
route, great inconvenience followed from the refusal of the Hill lines
to coöperate in facilities at the transfer point. In brief the "Hill
lines" were working for the long haul over their own rails, as against
the merely local haul from Portland to Seattle, which would follow the
choice of the Harriman route.
The Commission upon its own motion investigated this situation, and,
as a result, ordered the Northern Pacific to join with its rivals in
establishing through routes _via_ Portland to Seattle. This was done
under authority in the law of 1906 to establish through routes and
joint rates, provided "no reasonable or satisfactory through route
exists." The Northern Pacific claimed, and was upheld therein by a
dissenting opinion from the Commission, that there was already in
existence such a route. Quick and comfortable travel _via_ St. Paul
already existed. Some eight thousand persons annually for one reason or
another preferred, nevertheless, to go through Portland. The Commission
held that this preference was reasonable, and that accordingly, with
respect to such travellers, there was indeed no reasonable through
route in effect. Passenger traffic, involving the element of personal
choice, in other words, was different in law from freight business. The
Circuit Court set aside this order upon the ground that a satisfactory
alternative route over the Northern Pacific did actually exist. This
decree was affirmed by the Supreme Court of the United States in 1910.
But it was a hard-won victory for the carriers, inasmuch as Congress
within six months specifically authorized the Commission to regulate
such matters in future, without limitation as to the existence of other
satisfactory routes.
The bitter rivalry between the Hill and Harriman systems for the
control of the Northwest, as affecting the routing of freight
traffic as well as of passengers through Portland, resulted in
carrying a second case of the same sort before the Supreme Court.
May temporary delay and congestion of business by way of any given
line afford the Commission authority to designate another through
route! In this instance, the Supreme Court has affirmed the order of
the Commission.[677] It would appear, therefore, that this issue,
for the present at least, is closed. The regulative power of the
Federal government over routes and the division of joint rates is
satisfactorily upheld.
* * * * *
Several Supreme Court decisions defining the power of the Commission
to require testimony, both oral and documentary, in relation to
matters which came before it, were rendered about this time. Its
prestige and authority in this regard,--already affirmed in the late
nineties,[678]--were considerably enhanced by an opinion delivered in
April, 1904.[679] In the course of the proceedings, upon complaint of
William R. Hearst against the Reading and other coal roads, certain
contracts between the Lehigh Valley Coal Company and independent
operators were called for. One Baird and others, including President
Baer of the Reading company, declined to produce these coal purchase
contracts. Others refused to testify concerning methods of fixing the
price for anthracite coal at tidewater. Disregarding certain purely
legal details, these refusals were based upon the contention that
neither the Commission nor Hearst,--a well-known owner of various
newspapers,--had shown any legal interest in the complaint. The court
held, however, that the want of direct damage to the complainant was
not essential to his standing before the Commission. Moreover, in
this case, the Supreme Court overruled the Federal Circuit Court,
which had held that the details of the contracts for purchase of
coal by railroads from independent operators related wholly to
intrastate transactions,--that, in other words, the selling of coal
in Pennsylvania had nothing to do with interstate commerce. The
Supreme Court adjudged that all the details of these transactions had
a bearing upon the general question of the degree of monopoly in the
coal business, and could not properly be withheld from examination
as evidence by the Commission. In conclusion the court said: "To
unreasonably hamper the Commission by narrowing its field of inquiry
beyond the requirements of the due protection of rights of citizens,
will be to seriously impair its usefulness and prevent a realization
of the salutary purposes for which it was established by Congress."
This sweeping decision by the court of last resort well buttressed the
former decisions of that tribunal in the Brimson and Brown cases.
The so-called "Immunity Bath" Federal Court decision in 1906 materially
affected, not so much the scope of authority of the Commission as
its mode of procedure in eliciting testimony in railroad cases.[680]
A resolution of the House of Representatives in 1904 had directed
the Commissioner of Corporations to conduct an investigation into
the affairs of the so-called "Beef Trust." In the course of this
inquiry, Federal officials from the bureau held interviews in Chicago
with prominent members of the beef-packing establishments. Important
evidence was obtained, with the understanding that this was merely
a general investigation having no relation to the Department of
Justice, nor intended to be used in the prosecution of any suits at
law. At the same time, agents examined the books of these companies.
The accountants, however, in all cases refused to certify to their
accuracy under oath. The material thus secured was incorporated in a
report of the bureau in the following year. Not long afterward, when
the prosecution of this combination was undertaken by the Department
of Justice, the attorneys for the government made use of data in
this report of the Bureau of Corporations in presenting their case.
Consequently, on behalf of the packers under indictment under the
provisions of the Sherman Anti-Trust Act, it was urged that the
interdictions of this law were inoperative as to them, inasmuch as they
had virtually been made to testify against themselves. The District
court affirmed this immunity from prosecution under the provision
of the Constitution forbidding any person from being compelled in a
criminal case to be a witness against himself.[681]
The direct bearing of this decision upon subsequent prosecutions for
rebating, as in the notable Chicago and Alton case in the following
year, is apparent. No general investigation of any subject, evidently,
could be undertaken either by Congress or the Interstate Commerce
Commission, in the course of which testimony had been elicited
under pressure, if it was intended that criminal prosecution by the
Department of Justice was subsequently to take place. The eagerness
of witnesses to secure the privileges of the "Immunity Bath" by frank
avowal of material facts might otherwise thwart the government in the
pursuance of its ends.
Another important decision of the Supreme Court touching the right of
the Commission to compel testimony was rendered in 1908 in connection
with the investigation of the Union Pacific system.[682] Mr. Harriman,
the dominant factor in the management of this system, had caused
the Union Pacific to purchase certain stocks of the Atchison and a
number of other railroads in different parts of the country. The
purchase price being known, the witness was asked whether he had a
personal interest in the securities thus acquired by the road under
his control. He declined to answer, on the ground that the power to
require testimony was limited to the only cases where the sacrifice of
privacy was necessary, namely those where the investigation concerned a
specific breach of the law. The court, with three justices dissenting,
sustained Harriman in his refusal, on the ground that this particular
investigation was undertaken, not in pursuance of a complaint of
specific violation of the law, but merely for the sake of general
information as to the manner and method in which the business of common
carriers was being conducted. No question was raised as to the right of
the Commission to undertake general investigations of this sort; it was
merely held that in the course of such investigations there was a limit
to the inquisitorial power of this administrative body.
It may be added in this connection that the amendments added by the
Mann-Elkins Act of 1910 most specifically defined the authority of the
Commission in this regard.
* * * * *
The "commodity clause" of the Hepburn amendments to the Interstate
Commerce Law, because of its unfortunate ambiguity, has already twice
been before the Supreme Court.[683] The first interpretation was given
in a decision concerning the Delaware and Hudson Railroad, handed down
in May, 1909.[684] This affirmed the constitutionality of the statute
at all points; but, at the same time, emasculated it most effectually.
For, in order to harmonize the opinion with prior ones holding that
ownership of stock in a corporation did not constitute legal ownership
of the property of the company, it was necessarily held that a railroad
by owning the share capital of a coal company did not thereby possess
an interest, direct or indirect, in the coal mined. Moreover, a
railroad which was the legal owner of coal at the mine might escape
the interdiction of the law by selling the coal before transportation
began. A handy means of evading the intent of the law could not have
been more plainly indicated.
An attempt specifically to prohibit stock ownership in coal mines by
railroads,--thus meeting in part the situation arising out of the
foregoing decision,--was made in connection with the Mann-Elkins Act
in 1910; but to no avail. The Senate, by a vote of twenty-five to
thirty-one, rejected an amendment proposed by Senator Bailey of Texas,
to prohibit stock ownership so clearly "that not even a judge of the
Supreme Court could fail to understand it." The negative votes were
all cast by the so-called "regular" Republicans. In the meantime, the
clause had been carried to the Supreme Court for further interpretation
in a suit against the Lehigh Valley Railroad.[685] The government
in the lower court had already been defeated in an attempt to raise
questions of fact as to the pecuniary interest of the road in the
coal transported, irrespective of the technicalities as to legal
ownership. The outcome in this case was more satisfactory. The Circuit
Court was held to have erred in ruling out these considerations. It
was unanimously decided by the Supreme Court that it was in violation
of the law to use stock ownership for the purpose of destroying the
entity of a producing corporation, while still so "commingling" its
affairs in administration with the affairs of the railroad as to make
the two corporations virtually one. This was a distinct gain for the
government. It necessitated a compliance with the law in good faith.
Upon the basis of this decision the Department of Justice instituted
a new action against the Lehigh Valley Road, which was promptly met,
however, by a readjustment of its corporate affairs.
The economic results under the "commodity clause" have been quite
different from those doubtless anticipated by Congress. A salutary
separation of coal mining from transportation is being effected; but in
the case of the anthracite properties at least, in such manner as to
hold out small hope of any direct benefit to the general public.
Absolute alienation of their coal properties by the railroads was
subject to two difficulties. Some roads, like the Reading and the
Lehigh Valley, had heavy issues of bonds outstanding, based upon the
security, jointly, of both the railroad and the coal properties.
The two could not readily be separated without retirement of these
general mortgage bonds. In the second place, the operating relations
between the railroads and their subsidiary coal companies, had for
years been fixed upon the general principle of concentrating all
profit from the two conjoined transactions of mining and carriage upon
the transportation service alone. In other words, freight rates were
established at so high a percentage of the selling price of coal that
mining was necessarily conducted at a nominal profit, if any. This
made no difference to the carriers, owning both mines and roads, but
it had the desired effect of making it impossible for coal operators,
independent of the railroads, to engage in the business. Without a
modification of this plan the coal companies, already separately
organized for the business by most of the railroads, could hardly be
disposed of to advantage, either to the general public or even to their
own shareholders. The only coal companies controlled by railroads which
independently showed a considerable book-keeping profit were those
owned by the Jersey Central and the Delaware and Hudson roads. The
Lehigh Valley Coal Company had never paid dividends to its railroad
corporation, but had contented itself with providing a very profitable
tonnage. The Philadelphia and Reading Coal and Iron Company had
likewise never been allowed to show a book-keeping profit sufficient
to meet the interest upon its bonds and to provide for a sinking fund
against exhaustion of its assets under ground.
Despite these practical obstacles, a general legal separation
of hard-coal mining from transportation is in a fair way to be
effected.[686] The Delaware, Lackawanna, and Western in 1909 was the
first to act. With no joint mortgages and a charter right to mine coal
directly, it merely organized a separate corporation, the Delaware,
Lackawanna and Western Coal Company. The capital stock of this concern
was then distributed gratis as a special dividend among its own
shareholders. This coal company at once purchased all of the railroad's
coal in stock, leased its mining appurtenances, and agreed henceforth
to purchase all of its coal at the mine mouth for sixty-five per cent.
of the tidewater price. The railroad continued to mine coal, but thus
disposed of it before accepting it again for carriage. The Delaware and
Hudson likewise entered into a contract with a coal company organized
in 1901, which, after June, 1909, agreed to purchase all of its future
output. The Lehigh Valley Railroad rearrangement was more complicated.
It already had a coal company of the same name, the capital stock
of which was pledged under its general railroad mortgage. Ownership
was thus indissoluble. So the Lehigh Valley _Coal Sales_ Company was
organized in January, 1912. Its capital of $10,000,000 was provided by
the railroad, which declared a stock dividend to its own shareholders,
sufficient in amount to enable them to subscribe to the capital of
the new concern. This company, then, like the others above mentioned,
thereupon agreed to purchase all the coal mined by the railroad's
subsidiary coal corporation.
At this writing great speculative interest attaches to the probable
plan to be adopted by the Reading. Its intricate organization,[687]
whereby both the railroad and the coal companies are owned by a purely
finance or holding company, renders the problem of dissociation unique.
A large volume of joint bonds are outstanding, with complicated
provisions for sinking funds. The railroad actually owns no coal lands.
The coal company, independently, is not profitable under existing
traffic arrangements. Its operating ratio in 1911 was 98.7 per cent.
It is "land poor"; carrying vast reserves of coal purchased by bond
issues. The only asset sufficiently profitable by itself to make it
attractive as a gift to shareholders, is the subsidiary coal company
of the Jersey Central Railroad, which is itself controlled by means of
stock ownership. The formation of a third coal sales company, whose
stock could be distributed to shareholders of the Reading, as was done
by the Lehigh Valley, would seem to be the only feasible plan.
But is there not danger, financially, for these and other railroads,
that they may place this lucrative traffic in jeopardy by thus
distributing their coal properties among shareholders by means of stock
dividends? While, for a time, community of interest between railroad
and coal mine may be assured through lodgment of stock ownership of
both companies in the same persons, is it not likely that the two may
become widely dissociated in the course of time? This contingency
has been guarded against by an ingenious provision. The contracts
providing for purchase and shipment of coal by the coal sales companies
are terminable at the will of the railroad. So that if conflict of
interest should arise in future, through transfers of stock of the coal
sales company to outsiders, the carriers would be free to cancel the
arrangement; create another corporation; distribute its shares among
their stockholders once more; and thereafter go on as before. Manifold
and ingenious, indeed, are the devices of the law for purposes of
circumvention!
Whether the "commodity clause" is to bring about a further separation
of transportation from activities of carriers in other lines of
business remains to be seen. It was doubtless intended to have a
general application. Some roads, other than those in the anthracite
coal fields, have taken steps to set off their subsidiary concerns.
The Louisville & Nashville, for example, has distributed among its
stockholders all the shares of the Louisville Properties Company. This
is a Kentucky corporation to which the railroad had transferred its
holdings of coal and other lands. It was expected at the time that
its capital stock of $600,000 would be worth par. The Union Pacific
has done even better. It voluntarily reconveyed to the United States
considerable tracts of coal lands, where title had been called in
question in the course of investigations as to such railroad ownership.
While there has been no sign of the Pennsylvania Railroad disposing of
its investments in the Cambria and Pennsylvania Steel Companies, made
prior to 1906, it is clear that the interdiction of the law will render
any further outside operations of this sort difficult if not impossible.
FOOTNOTES:
[629] _Cf._ the record for 1898-1900 at p. 486, _supra_.
[630] Annual Report I.C.C., 1909, p. 11.
[631] P. 324, _supra_.
[632] 16 I.C.C. Rep., 276, is a typical instance of voluntary
correction of a maladjustment of rates, as soon as attention was
officially called to it. Also, 21 _Idem_ where several railroads being
unable to agree upon the classification of live and dead locomotives,
appeal to the Commission to decide the matter.
[633] L. G. McPherson, Railroad Freight Rates, 1909, pp. 275-300,
examines these topically, but without individual detail.
[634] 12 I.C.C. Rep., 626.
[635] _Cf._ p. 325, _infra_, on classification.
[636] 14 I.C.C. Rep., 561. Another case of this sort decided for the
railroad is in 15 I.C.C. Rep., 160.
[637] 15 I.C.C. Rep., 301.
[638] 21st Annual Report, I.C.C., p. 71: 12 I.C.C. Rep., 326.
[639] 86 Fed. Rep., 407.
[640] 21 I.C.C. Rep., 651; is an odd instance of a broken deadlock
between carriers as to furnishing equipment for completing a shipment.
[641] 15 I.C.C. Rep., 160. _Cf._ p. 538, _infra_.
[642] 12 I.C.C. Rep., 21, and 23 _Idem_, 263.
[643] 14 I. C. C. Rep., 51.
[644] 15 I. C. C. Rep., 491.
[645] 16 I.C.C. Rep., 523.
[646] 15 I.C.C. Rep., 551.
[647] 16 I.C.C. Rep., 41.
[648] 12 I.C.C. Rep., 307.
[649] 15 I.C.C. Rep., 370.
[650] 15 I.C.C. Rep., 7.
[651] 15 I.C.C. Rep., 280.
[652] 13 I.C.C. Rep., 620.
[653] 13 I.C.C. Rep., 651.
[654] 14 I.C.C. Rep., 154.
[655] Economic Review, 1911, pp. 766-789, reviews this whole movement.
[656] 15 I.C.C. Rep., 79.
[657] 219 U. S., 433: _Cf._ p. 545, _infra_.
[658] Much data is in _U. S. v. Union Pacific_, etc., Supreme Court,
No. 820, Oct. term, 1911, Appellants Brief of Facts, p. 558 _et seq._
[659] All the Cattle Raisers Association of Texas cases, especially 11
I.C.C. Rep., p. 296. _Cf._, also, pp. 70 and 167, _supra_, and 567,
_infra_.
[660] 13 I.C.C. Rep., 357.
[661] 12 I.C.C. Rep., 149.
[662] 16 I.C.C. Rep., 85.
[663] 20 I.C.C. Rep., 106.
[664] 15 I.C.C. Rep., 109.
[665] 23 I.C.C. Rep., 151.
[666] 215 U. S., 452; also _Ibid._, 481. The original order of the
Commission is in 13 I.C.C. Rep., 451.
[667] P. 502, _supra_.
[668] _Italics are ours._
[669] 215 U. S., 481.
[670] 218 U. S., 88; 14 I.C.C. Rep., 299. Also, 16 _Idem_, 56; 21
_Idem_, 546; and 23 _Idem_, 195. Ann. Rep. I.C.C., 1909, p. 33,
discusses it fully.
[671] 32 Supreme Court Rep., 109. Economic details in chap. V, p. 150,
_supra_.
[672] 219 U. S., 433; 14 I.C.C. Rep., 61. Economic details at p. 150,
_supra_.
[673] U. S. Commerce Court, No. 59, April session, 1912.
[674] 200 U. S., 536.
[675] The resulting change in the law at p. 572, _infra_.
[676] 216 U. S., 538.
[677] Rendered January, 1912. The Commission's order is in 14 I.C.C.
Rep., 51.
[678] Pp. 457-460, _supra_.
[679] 194 U. S., 25.
[680] 142 Fed. Rep., 808.
[681] This immunity was expressly limited to natural persons.
Corporations had been made directly liable by the Act of 1903. This
point was brought out in the Henkel and Nelson cases; 201 U. S., 43,
90, 147.
[682] 211 U. S., 407. This decision is critically examined with
reference to the policy of the Commission in its Annual Report, 1908,
p. 17.
[683] Congressional History at p. 513, _supra_. The coal combination
will be fully described in vol. II.
[684] _United States v. Delaware and Hudson Railroad_, etc.; 213 U. S.,
257.
[685] 220 U. S., 257; decided April, 1911.
[686] A monograph by Mr. Eliot Jones of Harvard University on the
anthracite coal business, soon to be published, will afford every
detail of these transactions.
[687] Intercorporate Relations of Railways, Special Report, Int. Com.
Com., 1906, p. 24.
CHAPTER XVII
THE MANN-ELKINS ACT OF 1910
Prompt acquiescence by carriers, 557.--Opposition begins
in 1908, 557.--Political developments, 558.--President
Taft's bill, 559.--Three main features of the new
law, 560.--Suspension of rate changes, 561.--Former
defective injunction procedure remedied, 562.--The
new long and short haul clause, 564.--Provision
for water competition, 566.--The new Commerce
Court, 566.--Congressional debates, 567.--Jurisdiction
of the new Court, 568.--Its defects, 569.--Prosecution
transferred to the Department of Justice, 570.--Liability
for rate quotations, 571.--Wider scope of Federal
authority, 572.--Its report analyzed, 574.--The Railroad
Securities Commission, 573.--The statute summarized, 578.
The course of events after 1906, so far as acquiescence in the law was
concerned, was precisely like that of twenty years earlier. For some
time the railroads seemed submissive,--in almost a chastened mood. The
Commission also exercised its new powers rather timidly. Up to July
1, 1908, only a single appeal to the Federal courts had been taken
by the carriers against orders of the Commission. A sudden change of
front supervened at this time. During the second half of that year,
sixteen suits to set aside orders of the Commission were filed. Nine
more were entered in the following year, and thirteen during 1910; with
the result that the dockets were greatly congested with proceedings of
this sort. No less than thirty-six were before the circuit courts, when
in 1910 they were all transferred to the newly constituted Commerce
Court, soon to be described. This accumulation of unfinished business,
with the consequent delay in settlement of important transportation
disputes, contributed greatly to the movement in Congress in favor of
further amendment of the law.
There were several reasons for this sudden shift of attitude toward
the law in 1908 on the part of the carriers. The political atmosphere
had suddenly cleared so far as popular hostility to railroads was
concerned. A change of administration had ensued, with a marked
preponderance of professional legal talent in the Cabinet. And several
important decisions of the Supreme Court, once threatening, had now
been rendered in favor of the carriers. Among these may be mentioned
the first interpretation of the "commodity clause,"--on the one
hand upholding the constitutionality of the law, and on the other,
pointing the broad and easy way to its evasion; the Harriman decision,
protecting witnesses from disclosure of details as to their personal
participation in the finances of companies under their control; and
the exculpation of the Standard Oil Company by the aid of eminent
counsel and the technicalities of the law, with escape from the extreme
penalties of the statutes for rebating and personal favoritism. Things
seemed indeed to be going at last the railroads' way.
The brightening financial outlook also gave better heart to the
carriers. The panic of 1907, with its forced postponement of
ambitiously constructive plans, seemed to have passed. The revival of
these projects might be hampered by a further extension of government
regulation and publicity. Railroad labor, moreover, was becoming
restive. Demands for increased wages were imminent; and the carriers
evidently proposed to shift the incidence of these wage increases,
if granted, upon the public by means of an advance of rates. Such
increases were bound to be disputed. It was deemed important to
test the law at every point. This need was the more imperative as
the Commission itself was bound to pass upon several questions of
fundamental importance, such as the adjustment of transcontinental
freight schedules and others soon to be described.
A presidential campaign took place in 1908. Both political parties
committed themselves in their platforms to still further amendment of
the Interstate Commerce Law. The Republican party, however, modestly
confined its recommendations to authorization of traffic agreements
and the regulation of stock and bond issues by railroads for the
prevention of over-capitalization. The Democrats offered a much broader
program providing for real amplification of the power of the Commission
over rates. President Taft,--well in advance of his party, controlled
as it was by the so-called "regulars,"--offered soon after election a
more definite policy. Its main feature was the establishment of a Court
of Commerce to which all judicial review of orders of the Commission
should be submitted, in lieu of revision by the regularly constituted
Federal judiciary. He evidently proposed to seriously amend the law;
but, beyond the foregoing proposition, most of the other details of
his plan seemed to be either half-way measures or else ill-designed
to meet the real difficulties of the case. Thus the proposal to give
power over mere rules and regulations in advance of their taking
effect, without at the same time conferring a like power to pass upon
the reasonableness of rates themselves, seemed to miss the main point.
The same criticism was applicable to the plan of conferring authority
to postpone the taking effect of a new classification until it had
been approved by the Commission. Other excellent details were such as
conferred authority to compel through routes and to forbid stockholding
by one road in other competing lines, set forth in speeches in the fall
of 1909.
A special presidential message of January 7, 1910, contained the
specific program recommended for legislation to Congress. It consisted
merely of a tentative bill, which was introduced in both houses and
properly referred.[688] By this time the influence of the Interstate
Commerce Commission in strengthening the proposals was apparent. More
positive provisions were added, such as the right to suspend rate
increases pending determination of their reasonableness. Serious
consideration was given this bill in appropriate committees both
of the House and Senate. It was, in fact, with the consent of the
Attorney-General, amended out of all semblance to its original form.
The most serious changes were made in the Committee on Interstate
Commerce of the House of Representatives. The coalition of Democrats
and "insurgent" or "progressive" Republicans, succeeded in striking
out the authorization of traffic agreements, as well as a proposition
permitting a railroad owning a majority of stock in other non-competing
lines to purchase the balance of their shares. Several radical
amendments of the Commerce Court plan were likewise effected,
especially those giving the power of appointment to the Chief Justice
instead of the President. The hands of the "progressives" in all this
work were considerably strengthened, without doubt, by the course of
events during the spring months of 1910, especially the impending
general increase of freight rates all over the country.
The strength of political sentiment in favor of the measure appears
in the fact that the radical House bill was passed unanimously;
while the Senate bill was adopted by a solid Republican vote with
the aid of six Democrats,--the total vote being fifty to eleven.
Reference to a conference committee, which considered it for ten
days, still further modified the original plan. Pooling was dropped
entirely; stock-watering and details of inter-corporate finance
between non-competing lines were also thrown but as favoring the
carriers unduly. Physical valuation, as provided in the House bill,
was considerably restricted. Prompt approval of the conference bill
followed in both houses. And the signature of the President was added
on June 18. Thus did the Mann-Elkins "Amendments" become law.
* * * * *
The three most important features of the Mann-Elkins Act[689] were:
the grant of power to suspend changes in rates for examination as to
their reasonableness; resuscitation of the long and short haul clause;
and the creation of the Commerce Court for review of the Commission's
orders. Of these, the first two represent substantial extension of the
regulative power of the government; the third being a mere modification
of procedure on appeal.
The proposition to so amend Section 15[690] of the Act of 1887 as
to confer power upon the Commission to suspend proposed changes
in rates, seems to have been a feature added at the behest of the
insurgent-Democratic coalition in Congress. It was neither in the
President's first unofficial program nor in the formal bill drawn
up by the Attorney-General. The intolerable obstructions in the way
of prompt determination of transportation disputes incident to the
practical working of the law, even since 1906, had created a renewed
demand for relief. Great force was added to this demand among shippers
by the rate advances which had been occurring all along the line for
two years; and particularly by the rumors of a general rate advance
by the western and trunk line roads during the progress of the debate
upon the bill. The President, to be sure, blocked this advance by means
of a clever legal and political move. On May 31 an injunction was
issued against twenty-four carriers, temporarily restraining them from
putting into effect higher tariffs, as they had planned on June 1. This
action was taken upon the allegation that the simultaneous action of
all these roads in so doing constituted a violation of the Anti-Trust
Law. The injunction, which as a weapon had been turned mainly by the
carriers against enforcement of the orders of the Commission, was now
invoked against the railroads. Regardless as to whether a _bona fide_
prosecution was contemplated, the effect of these equity proceedings
was to secure postponement of the advance in rates; and, of course,
at the same time forcibly to attract the attention of Congress to the
necessity of control. The carriers withdrew their tariffs in some
discomfiture; the injunctions were dissolved; and all proceedings were
stopped.
It is unnecessary, perhaps, to repeat the demonstration that a loss
by shippers once incurred through payment of an unreasonable rate, is
irretrievable. The manner in which transportation costs enter into the
profitableness of contracts by the shipper for future delivery is well
known.[691] Any change of rates during a period for which shippers
have contracted to deliver at fixed prices, must seriously affect
the chances of profit. It was recognized as essential, therefore,
that adequate protection for the shipper could be given only through
suspension of any change in rates until the reasonableness of that
change had been determined.
The extent to which the aid of the courts had been invoked by the
carriers to set aside orders of the Commission has already been
described. Proceedings on the equity side in the courts had also,
although in a most unsatisfactory manner, been undertaken to restrain
advances in rates. But in all cases the exercise of this power had
been bitterly contested, and proved at best to be so cumbersome as to
be almost futile. The utmost confusion resulted in some cases. For
example, in 1908 the carriers filed notice of an advance in rates
on boots and shoes from New England to the South. An injunction was
obtained prohibiting such advance, on condition that application be
immediately made to the Commission for a ruling upon the reasonableness
of the proposed change. This would have left the carriers without
choice except to collect one rate while continuing to publish another.
They therefore withdrew their schedules, leaving the old rates in
effect. As a result no complaint could be filed with the Commission,
the new rate not having come into operation. To meet this situation,
the court then so modified its injunction that carriers might publish
the advanced schedule, but were restrained from collecting it. This was
manifestly an absurd situation. Moreover, supposing that the Commission
could immediately take up the question, no order could become effective
until after thirty days. In the meantime, the whole matter must remain
in suspense. Considering that 15,000 tariffs advancing rates in trunk
line territory alone, were filed in July, 1910, the necessary delay
incident to such roundabout procedure would render it intolerable.
Other complications might be mentioned, such as the localization of
injunctions within the territorial jurisdiction of the enjoining court;
legal technicalities touching the filing of bonds; and the status of
non-petitioning shippers. Speedy relief must be had: that was clear
beyond question.
Aside from the practical unworkableness of the injunction process as
a protection against unreasonable rate advances, reform might well be
demanded on grounds of fairness. No reduction of rates ought to be
compelled without opportunity for protest by the carrier. Contrariwise,
no new burden should be laid upon the shipper without a hearing. The
burden of proof against disturbance of a long-standing adjustment ought
properly to rest upon the party responsible for the change. Such delay
as was requisite for determination of the reasonableness of the change
could not constitute a serious burden; and even if it did, it was but
just under the attendant circumstances.
The new law yielded to these arguments by a radical extension of the
authority of the Commission. It was authorized to suspend the taking
effect of any new rate or regulation for not more than one hundred
and twenty days, to afford opportunity for hearing and decision as
to its reasonableness. If necessary, a further period of six months'
suspension might be had. Moreover, the burden of proof that the
change was just and reasonable was laid upon the carrier. Beyond
the ten months' period thus allowed, postponement might not extend.
Thereafter the rates became effective automatically. This control
fell short of the demand of the "insurgents" that downright approval
of the Commission for all changes should be required; but it was,
nevertheless, a substantial increase of power. It remains to be seen
what the practical result of this great extension of government control
may be. It was predicted that its greatest benefit would come from
those suspensions of rate advances which ultimately brought about their
withdrawal.[692] This prophecy was fulfilled, as will be seen in the
next chapter, in the first great test to which the law was put, almost
immediately after its passage.
Resuscitation of the long and short haul clause of the Act of 1887
was the second important feature of the new legislation. The long and
tedious process of judicial interpretation, by means of which this
section of the statute was nullified for so many years, has already
been set forth.[693] Dissatisfaction with the local discrimination
prevalent throughout the southern states and in the Rocky mountain
region had been steadily increasing for a long time. Public opinion in
these districts urgently demanded the relief which the original law
sought to afford. Chairman Knapp fairly described the situation in
1905 before the Elkins Committee as follows:[694]--"No one, I think,
can read the Fourth section ... and be in doubt that Congress intended
to provide some actual and potential restraint upon that particular
form of discrimination. And, I may say, it remains today much as it
was then, not the greatest evil, but the most irritating and obnoxious
form of discrimination that has been encountered." No distributing
business could hope to become established in the West or South without
vitalizing this section of the law. The larger cities, and particularly
the manufacturing districts in the East, on the other hand, viewed
with alarm any encroachment upon the far distant markets which they
were able to hold by reason of peculiarly low rates. The railroads'
coöperation with eastern representatives in Congress had successfully
prevented any change in 1906. But four years later it became apparent
early in the debates that something would have to be done for the
relief of the West and South.
The long and short haul clause was amended by the influence of the
Progressive Republicans in the House.[695] Four changes were made. The
first was the total elimination of the clause "under substantially
similar circumstances and conditions," which had been responsible for
almost all of the trouble in the courts. This change made it necessary
in all cases in future for permission to be secured in advance from the
Commission for any lesser charge for a long haul than for a shorter
one, no matter what the local circumstances might be. Secondly,
the prohibition was specifically made to cover "routes" as well as
"lines." Although the Osborne case[696] had already virtually made it
clear that the clause applied to a series of connecting railways as
well as to a single company, this addition placed the matter beyond
dispute. The third change, practically legalizing a standing rule of
the Commission for many years, prohibited a higher through rate than
the sum of the local charges over the same line.[697] An addition
covering an entirely new point constituted the fourth modification of
the section. It is suggestive as an indication of the determined spirit
which animated Congress. This last detail was borrowed from the then
recently submitted report of the National Waterways Commission, which
in turn had borrowed it from the state constitution of California. It
was intended to meet the tactics so often adopted by land carriers
in competition with water lines, of drastically reducing rates until
the competition by water had been killed, after which the losses were
recouped by even higher tariffs than before.[698] Under the new law,
no railroad, having once reduced its rates in competition with a water
route, was permitted to increase those charges until the Interstate
Commerce Commission should have found that such proposed increase
rested upon changed conditions other than the elimination of water
competition.
* * * * *
Improvement of the procedure on appeal, by the establishment of the
Commerce Court, was the third important feature of the new law.
It was not only the delay of which complaint was made, but the
illogical process of review as well. For this permitted the orders
of a technically expert commission of seven men to be set aside by
the order of a single judge who, in fact, relied upon subordinates
for an examination of the evidence as to economic fact. This may be
illustrated by two recent cases. In 1907 the transcontinental railroads
substantially increased their rates on lumber. The Commission held
that this advance was unreasonable; but permitted one half of it to
take place. The carriers appealed to the Federal Circuit Court. All
the evidence, involving great money and commercial considerations,
was taken for the court by a master. Upon the findings of this single
individual, without opportunity for the court to critically examine
the evidence, the deliberate judgment of the Interstate Commerce
Commission was set aside. The same thing happened in the Texas Cattle
Raisers' case in 1910, involving rates on live stock from the southwest
to northern ranges. In this instance, to be sure, the Circuit Court
declined to enjoin the Commission. That did not, however, alter the
fact that the decision was based upon hearings by a master, extending
over sixty-three days and rolling up a voluminous record which the
court did not have time even to peruse cursorily. To standardize
procedure, as well as to eliminate delay, was the purpose of the
President in the plan for the Commerce Court.
Many objections were advanced in the course of debate in Congress
against the creation of a special tribunal. It was urged that such a
court with limited jurisdiction would be open to political influence,
as well as exposed to the danger of narrowness. It was said to be
foreign to our judicial organization, which heretofore had known
only courts of general jurisdiction. It was stated that no necessity
for a commerce court existed, so small would be the number of cases
which might be brought before it. Objection was also raised to it on
the ground of expense. The problem of court review was, of course,
complicated rather than made more simple by the Hepburn Act of 1906.
Prior to that time no administrative orders took effect other than
through enforcement by the courts. But this law provided that rates
and regulations of the Commission should take effect _proprio vigore_
within thirty days. The contest over broad _v._ narrow court review
has already been described, with the outcome at the time regarded
as a victory for broad review. The situation was entirely changed,
however, by the Illinois Central decision in 1910,[699] which appeared
to put a restraint upon judicial review, except when the order of the
Commission was either beyond its legal powers or else unconstitutional.
This decision did not, as might have been expected, put an end to the
plan for a new transportation court; but it did bring about a specific
restriction of the powers of this tribunal to those possessed by the
regular circuit courts.
The Commerce Court, as finally constituted in 1910, was composed of
five judges, each to serve for five years, designated and assigned
thereto by the Chief Justice of the Supreme Court from among the
circuit judges of the United States. No member might serve continuously
for more than one term, but might be reappointed after an interval of
one year. The court was to sit at Washington, and was to be always
open for the transaction of business. From it, direct appeal to the
Supreme Court might be taken, with as simple a mode of procedure as
possible to eliminate delay. The original record, for example, was
to be transmitted; and agents of every carrier must be designated at
Washington upon whom process might at any time be served. Whatever may
be said of other details of this judicial experiment, it certainly
sought in good faith to promote promptness in procedure.
The jurisdiction of this Commerce Court was expressly conferred over
four kinds of cases:[700]
_First_, those for enforcement of any order of the Interstate Commerce
Commission, other than the payment of money.
_Second_, cases brought to enjoin, set aside, annul or suspend, in
whole or in part, any order of the Commission.
_Third_, all proceedings on appeal under the Elkins amendments of 1903
with reference to rebates or departure from the published tariffs.
_Fourth_, all proceedings concerning the enforcement of the law in
respect of publicity of accounts, the furnishing of facilities, or
compulsion in the movement of traffic.
Proceedings in the first class above mentioned, for enforcement of
orders of the Commission, remained practically unchanged in form,
except that they were to be prosecuted in the Commerce Court instead of
in the ordinary circuit courts. Cases of the second sort, wherein the
carrier sought to enjoin or set aside orders of the Commission, were
somewhat modified in procedure. The Administration bill provided that
the Commerce Court should not issue injunctions, except in cases where
irreparable damage would follow. In this regard, the Senate succeeded
in somewhat amplifying judicial control. Five days' preliminary notice
to the Commission, secured in 1906 after a bitter contest, was now
cut down to three days; and the full court might extend the temporary
stay of sixty days granted by a single judge, over the entire period
necessary for final decision by the Supreme Court. With this exception,
the new law held all the ground gained by the Hepburn Act as judicially
interpreted in the Illinois Central case.
The principal criticism which may be directed against the Commerce
Court, as thus organized, is that, instead of being an unchanging body
of judges, becoming expert in the details of transportation by long
experience, its membership must change year by year. Fortunately, at
the outset the court was favored by the appointment, as presiding
justice, of the Chairman of the Interstate Commerce Commission; but it
seems likely that the lack of experience and technical knowledge in
this ever-changing body may render it an obstruction rather than an
assistance in fixing the responsibility for the settlement of these
important cases. Specialization ought to be as beneficial here as in
all other departments of government. It is a pity that the original
plan of a permanent court should finally have been changed, through the
insistence of the carriers' representatives, to a tribunal, each of
whose members no sooner becomes proficient in the details of his work
than he is marked for transfer to other fields of activity.
Next to the creation of the Commerce Court, the most important
change in procedure introduced in 1910 was the transfer of the task
of prosecuting suits on appeal cases from the Interstate Commerce
Commission to the Federal Department of Justice. The confusion of
governmental powers in the past, through permitting the Commission
to prosecute cases in the Federal courts in which it already had an
interest, has already been described. It was obviously illogical that
a body having once rendered an opinion should then appear in court in
defence of its own order. The jealousy of the Department of Justice
in this regard was probably responsible also for the change effected
in the law. The amendment of 1910 provides that hereafter all cases
and proceedings, either in the Commerce Court or the Supreme Court,
shall be brought in the name of the United States under the charge
and control of the Attorney-General. It was provided also that the
Commission or "any party or parties in interest" might appear of their
own motion and as of right, and might be represented by counsel.
Communities, associations, or individuals interested in the controversy
were authorized to intervene, and the Attorney-General was forbidden
to discontinue any proceedings over the objection of such parties in
interest.[701] This apparently reasonable procedure was authorized
after vehement protest of shippers against the original administration
program. The Senate objected to it on the ground that it "would
introduce intolerable confusion in legal proceedings and subordinate
the general interests of all the people to the selfish concerns of one
or more parties." And the Commission insisted throughout that it must
participate in such suits, else no competent parties would be at hand
to guide the prosecution in complicated proceedings.
Several provisions in the law were aimed at specific abuses which
had been revealed in the course of prosecutions under the criminal
provisions of the Act. The original law provided for the posting
of tariffs in public places, in order that shippers might inform
themselves as to the scheduled rates. But the possibilities of
concealment of special favors, as well as the mere mechanical
difficulty of ascertaining the facts in so complicated a maze of
descriptions and rules with all sorts of exceptions, made it necessary
that the shipper should rely upon information obtained from the
agent. Nor could the shipper recover for losses incurred through
misquotation of the rate by this agent inasmuch as the carriers must
collect according to the tariff, under severe penalties for departure
therefrom. Even a mistake by the agent in quoting the wrong rate
did not permit of recovery. The new law met this contingency by the
requirement that the railroad should quote the rate upon written
request; and should be liable to a penalty of $250 for mis-statement
from which loss to the shipper should result. The requirement that both
the request and the reply as to rates should be written, it was hoped,
would facilitate detection of rebating in the future. Another clause
added a penalty of $1000 and made it a misdemeanor for any carrier
or its agent to disclose information concerning either the route or
destination of any shipment, when such information might be used to
the injury of a competing shipper. Solicitation of such information
was also penalized. The abuse against which this provision of law was
directed is well illustrated in the prosecution of the so-called Powder
Trust in 1911. It appeared in one instance that a freight agent had
been paid from $15 to $18 a month for furnishing weekly statements
of the shipments, with addresses of consignees, made by a competing
concern in Chattanooga.[702] Such outrageous espionage, long practised
by the Standard Oil Company, it is to be hoped will be eliminated in
future by this provision of law.
Certain details of the act may be dismissed with mere mention. The
scope of regulation was extended to include telegraph, telephone,
and cable companies. The Commission was specifically authorized to
establish and enforce reasonable classification of freight. Such
authority, to be sure, had been continuously exercised for years;
but this clause put it beyond dispute. A leaf was taken from the
experience before the Supreme Court in interpretation of the authority
over through routes and joint rates in the "Portland Gateway" case,
described in the preceding chapter. Other "reasonable or satisfactory
routes" were more specifically defined; although the complicated
phraseology adopted was of doubtful value. It may well be that the
clause, under judicial interpretation, limited rather than amplified
the Commission's power as compared with the law of 1906. But the added
requirement that every carrier must provide reasonable facilities for
the operation of through routes, proper rules for the interchange of
cars, etc., was bound to promote the efficiency of through business.
The experience in the "Orange Routing" cases, also, brought about a
clear affirmation in the new statute of the right of a shipper to
designate the route which he preferred for shipment over connecting
lines. The shipper might also demand a bill of lading conformable to
his instructions. Whether this freedom of choice to the shipper, with
the incidental assumption of responsibility for all consequences,
regardless of strikes, blockades, or acts of God, will work to his
advantage in the long run remains to be seen. He may probably rely
upon strict enforcement of the so-called Carmack amendment of 1906,
which makes the initial carrier liable for damage, even if it occurs
off its own line. And, finally, among the minor changes in 1910 was
the authorization of the Commission to institute inquiries upon its
own initiative. Such power had frequently been exercised; but in
the enactment of the Hepburn Act four years before, certain verbal
inconsistencies were introduced into Section 15. It was deemed best to
remedy this error by complete authorization to undertake investigations
either with or without complaint.[703]
* * * * *
In place of regulation of the issues of stocks and bonds by Federal
authority, as pledged in the political platforms, the almost unanimous
opposition in the Senate to such a plan, brought about the substitution
of a Railroad Securities Commission to investigate the subject.
This, after all, was probably wise; inasmuch as many details as to
conflicting state and Federal powers in such matters, were yet to be
determined judicially. Moreover, the plans proposed, as it appeared,
were so complicated that their adoption might result in the validation
of all capitalization then outstanding without reference to its real
value. The question certainly merited further investigation at the
hands of experts.
Under the authority above mentioned, the President appointed an able
although distinctly conservative commission, headed by President
Hadley of Yale University. This body rendered its report in November,
1911.[704] The document was concise, cogent in reasoning (with the
exceptions noted below), wise in its general conclusions and eminently
conciliatory in spirit. It was obviously intended to promote good
relations between the government and the carriers. The dominant note
was complete publicity as a corrective for all financial abuses of the
time. The adequacy of this remedy was probably exaggerated. The wise
accounting provisions of the Acts of 1906-1910[705] were certainly
already far-reaching in effect. The Securities Commission proposed,
however, that they be elaborated to cover fully all phases both of
promotion and of subsequent finance.
Not less important and wise than the insistence upon financial
publicity, was the recommendation that, until the Supreme Court had
clearly defined the relations between Federal and state authority, the
Federal government should refrain from attempting to regulate the issue
of securities. Too many difficult legal complications remained to be
cleared up.
There certainly should have been a more enthusiastic commendation of
the efforts of states like Massachusetts, Wisconsin, Texas and New
York to cope with their local problems of financial control.[706] The
apparent absence of a due appreciation of the importance of the work
of the various public service commissions all over the country may
perhaps be accounted for on the ground that it lay outside the scope of
the work of a purely Federal commission. Yet a word of encouragement
to these state administrations would have done something to offset the
rather negative character of its conclusions. Someone must exercise
financial control. If inadvisable for the Federal government to
undertake it at this time, as might well be, then it was important to
emphasize the fact that the states must do it as best they could. On
the other hand, the recommendations concerning physical valuation as
an element in rate regulation were sufficiently progressive to impart
an aspect of judicial balance and general fairness to the report as a
whole.
Two specific conclusions of the securities commission, however, were
surely open to debate. One was the contention that little relation
obtains between capitalization and rates. The statement is, of course,
largely true; but like most generalizations of the sort fails to state
the whole truth. It is probably absolutely true as to _particular_
rates. No one would claim for a moment that the heavily capitalized
Wabash, operating in trunk line territory alongside the Pennsylvania
system, could charge any higher rates because of its financial
disabilities.
Rather the reverse. But while true of particular rates, capitalization
does exert an _indirect_ but nevertheless a very appreciable influence
upon the _general_ level of rates. For this point I have argued
elsewhere at some length.[707] Was it surprising that the pressure for
advanced rates in 1910-1911 in trunk line territory should come from
the heavily capitalized New York Central, with substantial aid and
comfort from the Erie? Was it a mere coincidence that the Lackawanna
road, with its stock quoted above $500, was a less prominent factor
in the agitation than some of its neighbors? True enough, no direct
relation between rates and capitalization exists; but that a positive
incentive to higher charges in general may be found in the need of
supporting a large capitalization seems reasonably clear in the light
of experience. This point was certainly neglected or glossed over in
the report.