CHAPTER XXIX.

NULLIFYING THE PROTECTIVE TARIFF.

The railroads continue to nullify the protective tariff upon imports,

and erect a counter protective tariff of their own in favor of foreign

goods and against domestic manufactures, aiming to supply home markets,

while on the other hand they facilitate the export of our productions by

rates much lower than the charges on the same goods for the same haul

when intended for domestic consumption. The effort seems to enable our

producers to capture foreign markets, and to give our markets,

especially the transcontinental markets, to foreign shippers. Anything

to get business, long hauls, ton-miles.

The Industrial Commission found that merchandise for export went from

Chicago to New York at 80 percent of the ordinary transportation rates,

and grain from Kansas City to Chicago took 3 cents a hundred lower rate

if billed for export than if intended for local consumption.[331] The

export rate on wheat from Chicago to New York is 15 cents, the domestic

rate 20 cents; from Kansas City to Galveston the export rate is 17 cents

against a domestic rate of 33½ cents.[332]

Another recent investigation shows that wheat from Kansas City to

Galveston was paying 27 cents if for domestic use, against 10 cents if

intended for export. The rates fluctuate, but if the domestic rate flies

low the foreign rate flies lower still.

The price of grain in Liverpool is determined by world competition; the

railroads cut rates so that our grain can be sold in Liverpool. They get

a little more than the cost of hauling and are satisfied.

When oil is selling at 9 cents a gallon here it can be bought at 3 cents

for shipment to Europe.

Railroads often give manufacturers a reduction of 33⅓ percent for

export, and manufacturers sell at 30 percent less for export. Mr. Bacon

told the Senate Committee (1905) that the export rates from all inland

points to the seaboard have been for years 25 to 33 percent below the

rates on goods for domestic use.[333]

The rate on rails from Pittsburg to Hongkong via San Francisco is only

60 cents per hundred, or less than the rate between points a few hundred

miles apart in this country.

“For the past two years the trunk lines have given the steel and iron

producers a reduction of 33⅓ percent less than the published tariff on

domestic freights, so that all iron and steel exported is carried at

one-third less than the people of this country are required to pay on

freight of the same character.”[334]

American steel has sold at Belfast for $24 a ton, while purchasers in

this country had to pay $32 a ton at Pittsburg for the same steel.[335]

American rails sell for $28 a ton for home use, but for foreign use they

can be bought in New York for $19 a ton and delivered in Beirut for

$22.88. Last year Mr. Wright, general manager of the Macon and Savannah

Railroad, stated that his road had to pay $29 a ton for 5,618 tons of

steel rails, although the same steel company offered him rails for

Honduras at $20 loaded on vessels chartered to a foreign port.[336]

During the last three or four years, while the home price has been $28,

the price for export has been $5 to $12 below the home price, and during

the period 1902–1904 the difference has been $8 to $12. The Great

Northern and the Northern Pacific pay $28 a ton for rails, while their

competitor, the Canadian Pacific, buys the same rails for $20 a ton and

sometimes for $18 a ton.[337] Even the United States Government could

not get fair prices at home for the materials and supplies needed for

the Panama Canal project, and found it necessary to open the competition

to foreign bids. Even if it were determined to use only American goods

they could be bought more cheaply abroad than at home. Matters are

arranged so that goods are hauled across the ocean to Europe and then

hauled back and sold here at lower prices than they could be bought for

at the factory here for home use. If the railways and the steamboats and

the allied interests make money they do not care how much industrial

power is wasted.

An investigation last year brought out the interesting fact that the

cheapest way sometimes to get goods from Chicago to San Francisco is to

ship from Chicago across the Pacific Ocean and then back to California.

The Interstate Commission says: “The complainant desired to ship the

machinery for a stamp mill from Chicago to China. Being interested in a

line of steamships between San Francisco and the East, his intention was

to make shipment to San Francisco and thus to destination by his own

line. Upon investigation, however, he learned that the rate from Chicago

to San Francisco was $1.25 per hundred lbs., while from Chicago to

Shanghai it was 90 cents per hundred lbs. The rate at that time from

Shanghai to San Francisco was 20 cents per hundred lbs. Had he desired

to lay down his stamp mill at San Francisco, he could have shipped it to

Shanghai, and from Shanghai back for 15 cents per hundred lbs. less than

the direct rate from Chicago to San Francisco.”[338]

President Tuttle of the Boston and Maine tells of a cargo of flour

carried from the Pacific Coast around the Horn to England and then back

to Boston to be delivered to a starch factory at Watertown. “A sailing

vessel had gone to the Pacific coast with goods from Europe. There was

some lack of a cargo for return. They found a lot of soft wheat flour

there with which they loaded that vessel and carried it to Liverpool and

put it in storage. Then the owner of the flour began to hunt around the

world for a market, and found that within ten miles of Boston he could

sell that flour to a starch factory at a profit and pay for the

additional land haul of 10 miles.”

“THE CHAIRMAN. It first went to Liverpool?

“MR. TUTTLE. Went from San Francisco around the Horn to Liverpool and

then across the Atlantic back to Boston. In order to carry that flour to

Watertown, across the continent by rail, the railroads would have had to

make a rate which was practically nothing, because the transportation by

water is so extremely low that you cannot put the railway rate against

it and make a profit. The cost of carriage of a ton of freight by a

large steamer is so low that there is hardly any way to figure it. We

have to meet those conditions. That is what we are doing.”[339]

The low rates on imports enable European manufacturers to ship their

goods to our western States more cheaply than our own eastern

manufacturers can send their goods to the West. Rates on imports are

frequently only a third of rates on domestic goods over the same

lines,[340] and sometimes the difference is greater yet. And it is not

confined to manufacturers. Thousands of acres of Kaolin mines from which

the finest chinaware can be made are idle in the region round Macon,

Ga., because clay can be shipped from England to Ohio factories cheaper

than it can go from Macon to Ohio. Several mining companies have had to

quit business because of foreign competition favored by low import

freight rates.

Both export and import reductions lead to serious discriminations, not

merely as between our people and foreigners, but among our cities and

shippers.

Unscrupulous shippers take advantage of the export rates in the domestic

trade, billing their freight on the export basis. Grain, for example, is

“billed for export” to Chicago or New York or other centre; and then

“the destination is changed in transit,” that is, after the grain or

other shipment gets to Chicago or New York, the shipper stops it there,

or orders it to Albany or Worcester or otherwise changes the

destination.[341] The same thing is done in the packing-house trade to

New York. The Vanderbilt traffic manager says: “Our domestic business

does not amount to anything.” About all the dressed beef that goes east

appears to be for export. When asked how the eastern territory got its

dressed beef, the manager said: “I could not give you any information on

that point.”[342]

Such results are worse even than the difference between the export rate

on wheat and on flour, which tends to discourage the milling of wheat in

this country and throw into the hands of foreign millers business that

belongs to our millers. Worse than this or than the discouragement of

home manufactures by cut rates on imports, is the discrimination in the

export and import rates in respect to different ports.

“One of the most remarkable trade movements of recent times is the

growth of the Gulf ports at the expense of New York and other Atlantic

ports. New Orleans has become the second largest grain-exporting port,

and gives promise of becoming the first. Galveston’s export and import

trade is rapidly increasing. In 1897 New York handled 77.9 percent of

the wheat, corn, and flour exports, and in 1904 her share had dwindled

to 36.9 percent. The Gulf ports have made corresponding or greater

increases. Natural advantages, including proximity to supply centres,

and the extension of port facilities for handling cargoes, have had

something to do with this increase of exports from the Gulf ports, but

the chief factor has been the differentials made by railroads connecting

with those ports. So alarming is the decrease of commerce through the

port of New York that an effort is being made to secure a legislative

investigation of the subject.”[343] The Chairman of the Committee on

Foreign Commerce for the Baltimore Chamber of Commerce says: “We are

gradually shrivelling up because of discrimination in freight rates.

Ever since December last, 1904, when the grain rates were advanced 1 to

1½ cents on export grain and 3 cents for domestic delivery, business in

this city has almost come to a standstill.... The Gulf ports are getting

it all, and while millions of bushels of corn were accustomed to arrive

here, after the December marketing from the Southwest, not one has been

received since the first of the year. Firms formerly engaged in the

exporting business in this city have pulled up stakes and have gone to

New York in search of better railroad opportunities.... The Chamber of

Commerce here is meeting daily to devise a means of surmounting the

danger which now threatens the export business of Baltimore.”

The Government is forbidden to favor one port more than another, but the

railroads are left free with a power of favoritism greater than any the

Government possesses, and they are using the power as we have seen.

Section 9, of Article 1, of the Federal Constitution says: “No

preference shall be given by any regulation of commerce in revenue to

ports of one State over those of another.”

Congress itself cannot establish any differential that would give one

port of the United States an advantage over another port. But what the

Constitution forbids Congress to do the railroads can do and have done,

by manipulating the rates on exports and imports, thereby making

business flow to whatever ports they please.

CHAPTER XXX.

SUMMARY OF METHODS AND RESULTS.

We have dug down through the geologic epochs of discrimination, and have

examined the living varieties. The predominant forms have changed, but

none of the species we find among the fossils of the earlier strata have

become extinct, though some of them, ticket scalping and the direct

rebate for instance, are much less in evidence than formerly.

Passes[344] and other personal discriminations[345] still prevail, and

the assortment of favoritisms in freight traffic is larger than ever.

Here is a list of more than 60 forms of discrimination that are now in

use, many of them constantly and others as occasion may demand:—

Passes.

Ticket brokerage.

Private passenger-coaches.

Gifts of stock.

Tips on the market.

Secret rates.

Rebates.

Elevator and compress fees.

Commissions to favored shippers as though they were agents of the

company, to secure for it their own freight.

Salaries to favored persons as nominal employees, or fees for nominal

services.

High salaries or commissions to real traffic agents who divide with

favored shippers.

Cash contributions to shippers in the guise of payments to “encourage

new industries.”

Paying “transfer allowances” to some shippers for carting their own

goods.

The “strawman” system.

“Expense bill” abuses.

Loans to dealers and shippers or consignees to increase shipments or

divert them from other roads.

Combination rates of which informed shippers may take advantage.

Making the published rate cover the price of the goods as well as the

freight for some shippers.

Flying rates, or “midnight tariffs.”

Terminal or private-railway abuses—unfair division of rates, etc.

Private-car abuses—big mileage rates, excessive icing charges,

exclusive contracts, etc.

Espionage, giving some shippers inside information of the business of

other shippers.

Maintaining or paying for the maintenance of tracks or other property

belonging to the shipper.

The long and short haul abuse.

Unjust differences in the rates accorded different places to favor

certain localities, or individuals who have business interests

located there.

Unduly low rates to “competitive points” in general, as compared with

local rates, building the cities at the expense of the country.

Unfair classification.

Use of different classification for local and for through traffic.

Laxity of inspection in case of special shippers, enabling them to get

low rates on mixed goods in carloads billed at the rate appropriate

to the lowest product in the mass.

Intentional mistakes in printing tariffs, a few copies being run off

for favored shippers, after which the mistakes are discovered and

corrected for the ordinary shipper and the Interstate Commission.

Fictitious entries in the “prepaid” column of the freight bill.

Instructions to agents to deduct a certain percentage from the face of

the bill when collecting for specified shippers.

Payment of fictitious claims for damage, delay, or overcharge.

Making a low joint rate (or single rate either) on a given commodity

when shipped for a purpose confined to a few shippers, while other

shippers using the same commodity for other purposes have to pay

much higher rates.

False billing,—

false weight—underbilling,

false number—billing a larger number of packages than are sent and

claiming pay for the difference,

false description—putting goods in a lower class than the one to

which they belong,

false destination—billing for export and changing destination in

transit.

Not billing at all—carrying goods free.

Excessive difference in the rates for large and small shipments.

Unfair discrimination between shipments in different form—barrels and

tanks for example.

Charging more when the freight is loaded in one than when it is loaded

in another way practically identical so far as the railway is

concerned.

Favoritism in switching charges, demurrage, etc.

Direct overcharges, causing loss through delay and expensive

litigation, or through excessive payments.

Withholding cars.

Delay in carriage and delivery.

Refusal to deliver at a convenient place.

Difference in time allowed for unloading.

Refusing privileges accorded others,—

milling-in-transit,

division of rates,

credit, or payment of freight at destination,

station and track facilities,

special speed.

Selling or leasing terminal or other rights or properties to favored

shippers so as to exclude others absolutely.

Refusing shipments to or from certain persons or certain places.

Failing to run advertised trains or taking other special action in

order to interfere with plans of an opponent, _e. g._, to keep

people from going to mass meeting at which he is to speak.

Unfair difference in the service accorded different places.

Cutting off part or whole of a customary service.

Side-tracking cities and towns, or depriving them entirely of railroad

facilities.

Arranging stop-overs so as to drive business to other cities.

Arbitrary routing of shipments.

Payments for routing.

Guarantee by railroad against loss upon shipments over its line.

Unreasonable differences in the commodity rates on different articles.

Prohibitive rates on special commodities or special shipments.

Unreasonable differences between the rates on the same goods going and

coming between the same places.

Special rates on goods for export.

Special rates on imports.

Even this long list does not cover the whole field. The cases on record

do not exhaust the possibilities of discriminations. The following bit

of testimony shows how easy it is to invent new ways of passing railroad

moneys into the treasuries of favored shippers,—ways that would not be

interfered with by any law short of public control of the purchase and

sale of merchandise. Mr. Gavin, the agent of the Vandalia line, was

being examined by the Interstate Commerce Commission in March, 1901. On

the question as to how business could be got by giving advantages to

shippers without cutting rates Mr. Gavin said: “There is nothing to

prevent my going down to the packing-house and paying $10 apiece for

hams if I wanted to; if I did not want to cut a rate, there is generally

a way out of the hole.”

“COMMISSIONER CLEMENTS. A good many ways; and it is your belief that a

good many of these have been practised, is it not?

“MR. GAVIN. I do not know. I would not like to say.

“COMMISSIONER PROUTY. If you bought hams enough at $10 apiece the

packing-house could give you the traffic at full rates?

“MR. GAVIN. Yes, sir.

“COMMISSIONER PROUTY. Have you ever known that to be done?

“MR. GAVIN. No, sir; but I say there are lots of ways out of the woods.”

Almost everybody agrees, in public, that railway favoritism ought to be

stopped.[346] It disturbs the fair distribution of wealth, undermines

industrial justice, business morals, and political honesty; builds

monopoly; wastes resources, and causes enormous loss to the railroads as

well as to the persons and places that are discriminated against.

Railway discrimination breaks down the equality of opportunity that is

one of the fundamental rights recognized in every country. It tends to

separate success from merit and industry, and make it depend on fraud

and favoritism. Judge Grosscup touched a vital point when he said to the

Boston Economic Club, March 11, 1905: “Any difference in rates permitted

by law, even though based on the bulk of the tonnage handled, is a

direct and effective blow, by the nation itself, at the principle that

every man, whatever his present business size, shall be given equal

conditions and equal opportunity.... In this country there is no such

thing as size to a business man. The man of little size expects to get

big. He has a right to get big. He has a right to have the atmosphere of

equal opportunity and equal conditions in which to grow, and excepting,

of course, some unit, such as a ton or a car, the charge ought to be the

same for the little as for the big shipper.”[347]

The railways are public highways, they exercise governmental powers and

fulfil governmental functions, and it is an atrocious misuse of social

power to employ these so as to give special advantages to a few members

of the community. The Interstate Commission says: “The railroad is

justly regarded as a public facility which every person may enjoy at

pleasure, a common right to which all are admitted and from which none

can be excluded. The essence of this right is equality, and its

enjoyment can be complete only when it is secured on like conditions by

all who desire its benefits. The railroad exists by virtue of authority

proceeding from the State, and thus differs in its essential nature from

every form of private enterprise. The carrier is invested with

extraordinary powers which are delegated by the sovereign, and thereby

performs a governmental function. The favoritism, partiality, and

exactions which the law was designed to prevent resulted in large

measure from a general misapprehension of the nature of transportation,

and its vital relation to commercial and industrial progress. So far

from being a private possession, it differs from every species of

property, and is in no sense a commodity. Its office is peculiar, for it

is essentially public. The railroad, therefore, can rightfully do

nothing which the State itself might not do if it performed this public

service through its own agents, instead of delegating it to corporations

which it has created. The large shipper is entitled to no advantage over

his smaller rival in respect to rates or accommodations, for the

compensation exacted in every case should be measured by the same

standard. To allow any exceptions to this fundamental rule is to subvert

the principle upon which free institutions depend, and substitute

arbitrary caprice for equality of right.”[348]

The losses to the railroads cannot be estimated accurately, but we have

some interesting hints. Franklin B. Gowan said in 1888: “The gross

receipts of the railroads of this country, in round numbers, are eight

hundred millions of dollars per annum, and I verily and honestly believe

that one hundred millions of dollars annually are taken out of the

pockets of the people of this country by unjust railway discrimination,

and turned over to this privileged class—and this is equal to a tax of

two dollars per head paid by the people for the sake of building up the

new aristocracy of wealth that in this free country arrogate to

themselves the position of the nobility of the older countries. It is

utterly impossible that there can be any success attending a monopoly of

natural products without the aid of the unjust discrimination of

railroad companies. And only when such discrimination ceases will all

people be placed on terms of equality.”

If the losses were more than $100,000,000 a year when the total income

of the railroads was $800,000,000 a year, the losses now with an income

of about $2,000,000,000 a year are probably, at least, $200,000,000 a

year, allowing for all the saving that is claimed to have resulted from

the Elkins Act. A railroad officer who says his road has constantly

disregarded the Interstate Commerce Law declares that in more than one

year the net revenues of his company “would have been increased by more

than 15 percent if no rebates had been paid to favored customers.” The

hundreds of millions which the transportation systems of this country

have, during the period from 1887 to 1905, earned and repaid to the men

who controlled the large industrial products of the country—coal, iron,

grain, salt, sugar, oil, provisions, and lumber—belonged equitably to

employees and stockholders (or to the people). “And the history of this

period may be repeated as often as the whim or the interest of a traffic

manager or owning director prompts or requires.”[349]

The losses through the disturbance of business, interference with the

relation between energy and industry on one side and success on the

other, depression of localities, and ruin of individuals, are beyond

computation.

Most shippers would be glad to do away with discrimination if they could

be sure that there would be a square deal all round, fair play, and no

concessions to their rivals. And most railroad men would be glad to be

protected against the discriminations that are forced upon them by the

shippers, and by competition among the roads, if they could be sure that

the published rates would really be adhered to by their competitors.

Law after law has been passed to prevent unjust discriminations, and yet

in spite of the contrary statements of some witnesses,[350] it is

perfectly clear that they have not ceased, and that comparatively little

has been done in that direction.

Railroad men in high position declare that discriminations always will

exist. President Ripley of the Santa Fe says: “The situation is

practically remediless. I think it will always be.”[351] President J. J.

Hill of the Great Northern says: “You may say there shall be no

discrimination. But that condition will never exist. If there were no

discrimination the people would come down here in great throngs and ask

you to authorize discrimination. We have to discriminate.”[352] When I

asked President Fish of the Illinois Central how discriminations could

be stopped he said: “Tell me how to enforce the Ten Commandments and

I’ll tell you how to stop discriminations.” Another railroad president,

whose name I am not at liberty to give, said in reply to the same

question: “Discriminations will never cease so long as there is

competition among the railroads, or political favors and protection can

be secured thereby, or railways and railway men are interested in other

businesses than transportation.” President Hill also recognizes the

factor of special self-interest in addition to the influence of

competition. He says: “I think that every railway officer in this

country should be disqualified from having any interest, directly or

indirectly, in any large producer of traffic, whether it is a coal mine

or a factory or a mill or anything else, on a line of railway where he

is on the pay roll.”

“SENATOR CLAPP. And the reason for that suggestion is what?

“MR. HILL. That he cannot be fair to the other fellow and punish

himself.

“SENATOR CLAPP. And the opportunity is such that it cannot be detected

and prevented?

“MR. HILL. It is so easy, if there is a great demand for coal in one

direction, or for some commodity in one place, for him to help one

fellow and forget the other.”[353]

One of the gravest dangers lies in the fact that men who are largely

interested in the great industrial corporations control certain railway

lines and have large influence with many others. The interlocking of

railroad interests with other industrial interests is a cause of

discrimination second only to the pressure of railroad competition for

traffic that is used by shippers as a means of extorting the favors they

desire.

A railroad executive writing in _The Outlook_ for July 1, 1905 says:

“Notwithstanding the violations of the Interstate Commerce Law have been

open and notorious, and indictments have been numerous and prosecutions

not infrequent, no railroad officer has ever been incarcerated. For my

own part, the penal liability for such disobedience has never in any

wise deterred my purpose to secure my company’s share of tonnage by

whatever means competitors employed. I have the reputation of a

law-abiding citizen in my home city—am well known—of good personal

character. I flatter myself that a jury could not be found which would

commit me as a felon because I directed the payment of a rebate to a

shipper—a transaction which did not inure to my financial advantage.

Could a jury be found that would exact a felon’s punishment for such men

as Mr. Stuyvesant Fish, or Mr. Secretary Paul Morton, or Mr. Marvin

Hughitt for disobeying a statute in order that the revenues of the

company by which he was employed might not be decimated?” He had

previously said that the revenues of the railroads have been decimated

by hundreds of millions through the granting of discriminations, but he

argues that the revenues of any particular railroad that should refuse

concessions would be decimated still more largely. The truth of this

contention is strongly illustrated by the following incident. Some years

ago Judge Taft (now Secretary of War), as receiver for the “Cloverleaf”

Railroad from Toledo to St. Louis, appointed Mr. Samuel Hunt of

Cincinnati, a well-known and successful railroad manager, and required

him to comply strictly with the Interstate Law. In doing this Mr. Hunt

was obliged “to disregard many outstanding rebate obligations of his

predecessor in the receivership, thereby giving offence to many patrons

of the road and their friends, the result of which was a decrease of the

gross earnings of the road within twenty months of more than $340,000.”

The sacrifice of hundreds of thousands of dollars, the loss of the

good-will of shippers, the harsh criticism of competitors, and broken

health were the results of Mr. Hunt’s earnest efforts to obey the law.

M. E. Ingalls, President of the Big Four, said a few years ago to a

convention of State railroad commissioners: “Men managing large

corporations, who would trust their opponent with their pocket-book with

untold thousands in it will hardly trust his agreement for the

maintenance of tariffs while they are in the room together.

“The railway official who desires to be honest sees traffic leave his

line.

“The result is these men in despair are driven to do just what their

opponents are doing. They become lawbreakers themselves.

“No one is going to try and send his competitor to prison. Besides,

there is the fear that he himself may have committed transgressions

which in turn will be discovered and punishment inflicted upon himself.

“Unless some change is made, the small shippers of the country will be

extinguished, and a few men of large capital will control the entire

merchandise business. And railways ... will be seized upon by large

capitalists and combined into one monstrous company.”

CHAPTER XXXI.

DIFFICULTIES OF ABOLISHING DISCRIMINATION.

It is difficult to enforce the law against discrimination, because of

the strong interests that call for it, the secrecy of many of its forms,

the reluctance of shippers to make complaints for fear of persecution,

and the resistance offered by railway officers to efforts to get at the

facts, leaving the country during an investigation, refusing to answer

truthfully on the witness stand, burning books and papers that might

reveal the facts to courts or other investigating bodies or enable the

officers to refresh their memories so as to be able to answer questions.

Often there are no records of the concessions granted favored shippers

except the memoranda in the personal note-books of the traffic managers.

Rebates or commissions are frequently paid by messenger boys sent from

the general freight office, or treasurer’s office, with the currency and

a slip of paper with some pencil marks on it, instead of sending a check

and obtaining a voucher.[354] The officers forget about the transaction

as soon as possible,—sooner than possible it seems sometimes,—or in some

other way try to prevent the Commission from getting the facts with

sufficient detail to bring suits. For example, in the “Dressed-meat”

Hearing at Kansas City, March 21, 1901, fifteen transportation men were

subpœnaed and examined without securing any important facts. The

witnesses, who occupied positions which would naturally lead one to

suppose they would know all about the matters in hand, manifested the

most persistent and remarkable ignorance, and the Commission had to go

to Chicago and try again before it got any light on the packing-house

transportation question.

In March, 1898, the Interstate Commission investigated rebates on flour

from St. Paul, Minneapolis, and Duluth to Atlantic seaports. The

Commission had information of wide departures from the published tariff.

It says: “The inquiry was greatly hampered by the disappearance of

material witnesses before subpœnas for their attendance could be served,

the inability of several who did testify to recall transactions there of

recent date, and the evident reluctance of others to disclose any

information bearing on the subject involved. All of the railway

witnesses denied knowledge of any violation of the statute, and most of

the accounting officers testified to the effect that if rebates had been

paid they would necessarily know about them, and that their accounts did

not show any such payments. It was nevertheless fully established by the

investigation that secret concessions had been generally granted on this

traffic, and that the carriers had allowed larger rebates to some

shippers than to others.”[355]

After the St. Paul investigation in 1898 the Commission entered on an

investigation at Portland, Ore., in respect to rates between the coast

and points on and east of the Missouri River. “It was established by the

proof that secret rates generally prevailed at Portland and common

points, and that transportation was, in effect, sold to the lowest

bidder. The lawful rates were ignored, except as they might serve as a

standard in making agreements for lower charges.... Some of the

merchants conformed to the law, but in so doing they were at a

disadvantage in competing with those who disregarded the statute; and in

many instances this disadvantage represented more than a fair profit

upon the commodities involved. Most of the merchants who admitted that

they had thus violated the law declared themselves unable to remember

who paid them the rebates, or when or upon what shipments any illegal

rate concessions had been made. Some testified that they had kept

account of the unlawful transactions, but that when they heard of this

investigation they destroyed their memoranda in order to defeat

prosecutions on account of their illegal acts. They insisted that

without these data they could give no specific testimony concerning any

of the transactions.”[356]

The Commission found in these and other investigations that “unlawful

rebates have been and are being paid by a great number of carriers,”

but they could not get the specific evidence necessary for

prosecutions.[357]

In its Report for 1904, p. 104, the Commission says: “Railroad officials

often seem to think that it is their duty to withhold facts, on account

of some real or supposed liability to make disclosures that will impair

the railroad’s rights or interests in future judicial proceedings. Some

companies seem to have adopted a settled policy to give the least

possible information, at all times, on any and all subjects.”

Discussing the continuance of the payment of rebates and the reasons the

Interstate Commission has not been able to stop the practice,

Commissioner Prouty says:[358] “When I first came onto the Interstate

Commerce Commission (1897), I used to see continually in the newspapers

statements like these: ‘Rates sadly demoralized,’ ‘agreement between

railroad officers to restore rates,’ and everything of that sort. I said

to my associates, ‘Gentlemen, this thing will not do; we must stop the

payment of rebates.’ They said, ‘How are you going to stop the payment

of the rebates?’ I said, ‘We are going to call these gentlemen before

us; we are going to put them under oath, and we are going to make them

admit they paid these rebates, and we are going to use the evidence

which we obtain to convict them.’ We employed Mr. Day, who is now with

the Department of Justice. The rates which have been almost uniformly

demoralized have been the grain rates from Chicago to the Atlantic

seaboard. We called in the chief traffic officials of all these lines

and we put them under oath. Now, I would ask these gentlemen, ‘Are you

the chief traffic official of this road?’ ‘I am.’ ‘Would you know it if

a rebate was paid?’ ‘I would.’ ‘Are any rebates paid on your road?’

‘There are none.’ ‘The rates are absolutely maintained?’ ‘They are.’

“Well, every traffic official who came before us in that capacity—and we

prosecuted it for three days at Chicago—testified that rates were

absolutely maintained.”

“SENATOR NEWLANDS. How many did you have before you?

“MR. PROUTY. We had the official of every trunk line leading from

Chicago to New York. They all testified the rates were absolutely

maintained from Chicago to New York. Two years after that I examined the

chief traffic officer of the Baltimore and Ohio, and of the New York

Central—do not think it was the same man in either case—and of the other

lines, and they all testified that rates had never been maintained. I

would like to know what I could do as Interstate Commerce Commissioner

to make those gentlemen admit that they paid rebates, and as they would

not tell that they paid rebates, I would be glad to know how I could

obtain evidence that they did.

“Having gotten through, Senator, with the lines between Chicago and New

York, we said perhaps this is not a fair sample. Now, we will go up in

the Northwest, and we will take the lines that carry flour from

Minneapolis east. We instituted another investigation, and we put the

railroad and the traffic men of the millers on the stand, and they all

swore without exception that the rates were absolutely maintained. One

traffic official there, when it got a little bit too hot for him, became

sick enough so that he threw up his dinner, but he did not throw up the

truth. We could not get the admission from any man there that they had

ever paid a rebate. We said, ‘This does for the East; now let us go

West.’ So we went into the Pacific Coast, to Portland, Oregon, and went

over exactly the same performance there. We made one man admit that he

burned up his books rather than present them to the Commission, but we

could obtain no admission of the payment of any rebate there.”

But the St. Louis Southwestern Traffic Committee or Traffic Association

employed a young man by the name of Camden and instructed him to lay

before the Interstate Commission any evidence he got of the payment of

rebates. “He had not been there more than two or three weeks before he

found some evidence to the effect that the Baltimore and Ohio Railroad

had been departing from the published rate, and he came up to Washington

and laid that evidence before the Interstate Commerce Commission, and we

began proceedings against the Baltimore and Ohio Railroad. That was the

first instance from the time I came onto the Commission that we could

obtain any evidence of a departure from the published rate. We directed

the Baltimore and Ohio road to file a statement showing what shipments

they had made during a certain time, and the rate of freight paid them

for the transportation. Thereupon they filed a statement showing a great

many departures from the published rate. At the same time they sent to

the Interstate Commerce Commission a letter. They said in that letter in

substance, that the roads in the territory in which they operated had

habitually departed from the published rate; that was after they had

sworn they maintained the published rate in that territory: ‘Now, for

us, the receivers of the Baltimore and Ohio, we have gotten through, but

we cannot maintain the rate unless our competitors maintain the rate. We

propose from this time on to maintain the rate ourselves, and we propose

to see that they maintain it; but in order that we may do that, we ask

you to call a conference of the railroad presidents in trunk-line

territory.’

“Now the Commission did, acting on that suggestion, invite every

president of the trunk-line railroads to come to Washington. They came,

all of them. Mr. Calloway was there for the New York Central; Mr.

Thompson was there for the Pennsylvania Railroad; Mr. Murray and Mr.

Cowan came there for the Baltimore and Ohio; Mr. Harris came from the

Philadelphia and Reading, and Mr. Walters was there for the Lehigh

Valley. I do not remember them all, but they all came there. Those

gentlemen all said: ‘It is true; we have departed from the published

rate. We did not like to do it, but we did. But we have gotten through.

We shall depart from the published rate no more. If you gentlemen will

only let bygones be bygones, we assure you that in the future there will

be no discrimination under this law.’

“Well, I expect, perhaps, that we ought to have said to them, ‘You are a

pack of consummate liars; we do not believe anything you say, and we

will prosecute you if we can. But we did not think so; we believed

exactly what they said, and we told them we did, and they went home, and

no prosecutions were begun on the facts which we had against the

Baltimore and Ohio. Then we called, at the request of certain persons in

the West, the presidents of all those lines, and they all came. Mr.

Marvin Hughitt came; Mr. Bird, of the Milwaukee line, came; in all, 30

or 40; and we had the same sort of an experience meeting again. They all

said: ‘We have sinned, but we have got through. Now, gentlemen, just

help us to maintain the Act to regulate commerce.’ We said: ‘We will do

it.’ And they went home.

“Now, I do not wish to pass any criticism at all on these gentlemen. I

have not the slightest doubt that they meant precisely what they said. I

think I know something about the difficulties under which they labored;

but they did not maintain those rates for a month, probably.... There

has not been a time since I have been an Interstate Commerce

Commissioner, when, if the traffic officers of the trunk lines between

Chicago and the Atlantic seaboard would have consented to tell the truth

under oath, the Interstate Commerce Commission would not have stopped

the payment of rebates. I have been able to discover no way in which to

make them tell the truth.”

“SENATOR NEWLANDS. In regard to the future, will it not be possible for

them to commence again this system of rebates?

“MR. PROUTY. I think they pay rebates now.

“SENATOR NEWLANDS. You think they do?

“MR. PROUTY. I think they do.”

Victor Morawetz, Chairman of the Executive Committee of the Santa Fe,

was asked if it would not be wise to require the traffic manager of each

railroad, the auditor, and the president, to report every three months

on all existing contracts, and that there had been no violations of law,

no abuses, so far as they knew, and that they had made diligent inquiry

to ascertain if there had been. Morawetz replied that if such a law were

passed some men would perjure themselves every three months, and others

who were thoroughly honest would simply not take office.[359]

Not all the railway officers refuse to tell the truth. There is every

reason to believe that Paul Morton and Mr. Biddle of the Santa Fe, for

example, spoke the truth in their testimony before the Commission. But

the evidence seems to be that the habit of truth telling is not very

prevalent. And when the railroad officers determine to prevent publicity

either by falsehood or by silence they take care to eliminate

documentary evidence that might be used to checkmate them. They destroy

their records so that they will be less liable to know anything about

the rebates they have paid, and to make it as hard as possible for the

Interstate Commerce Commission to get at the facts.

The Commission is examining Mr. McCabe, freight traffic manager of the

Pennsylvania lines west of Pittsburg.

“COMMISSIONER CLEMENTS. Are you in the habit of destroying records not a

year old?

“MR. MCCABE. Sometimes.

“COMMISSIONER CLEMENTS. But generally?

“MR. MCCABE. If they are not essential or it is not important that they

should be kept.

“COMMISSIONER CLEMENTS. What would be the particular reason for

destroying these papers and records?

“MR. MCCABE. Possibly because we thought you might want them laid before

you sometime.

“COMMISSIONER CLEMENTS. You destroyed the evidence of the illegal

transaction?

“MR. MCCABE. Yes, sir, that is right.”[360]

The general traffic manager of the Michigan Central said that papers

relating to refunds, etc., “were destroyed because their usefulness for

our purposes had gone and passed.”

“COMMISSIONER CLEMENTS. Do you destroy your other papers as recent as

these?

“MR. MITCHELL. Not as a rule, sir.

“COMMISSIONER CLEMENTS. Well, I will ask you again if you destroy these

papers in order to destroy the evidence of the transactions to which

they relate?

“MR. MITCHELL. Certainly we should dislike very much to have those

papers exposed to the general public.

“COMMISSIONER CLEMENTS. Why?

“MR. MITCHELL. It would be an unwise thing from a railroad standpoint to

have such matters going about.

“COMMISSIONER CLEMENTS. Why would it be unwise to disclose the method of

procedure?

“MR. MITCHELL. Well, on account of the Interstate Law.

“COMMISSIONER CLEMENTS. Because it violates the law, yes. That is what

you really mean, is it not?

“MR. MITCHELL. I suppose that is it, sir.”[361]

The Rock Island freight traffic manager also testified to the

destruction of papers showing rebates or concessions.

“COMMISSIONER CLEMENTS. Why are they destroyed?

“MR. JOHNSON. Simply for the purpose of destroying any evidence there

may be.

“COMMISSIONER CLEMENTS. All the papers you know about or entries that

you are familiar with are destroyed?

“MR. JOHNSON. I understand they are all destroyed.

“COMMISSIONER CLEMENTS. Have you any recent ones?

“MR. JOHNSON. I do not think they are more than thirty days old.

“COMMISSIONER CLEMENTS. You think that all up to within thirty days are

destroyed?

“MR. JOHNSON. That is the rule or custom.”[362]

The shippers who receive rebates, etc., adopt similar measures to keep

their modest affairs from the public. In April, 1904, the newspapers

reported that the Interstate Commerce Commission was going to Boston to

investigate rebates and private car-line abuses. The office force of the

Armour office at Boston was immediately set to work packing into barrels

all letters and records that might show a combination or understanding

among the houses or with the railroads, or other inconvenient matters,

and all these dangerous documents were incontinently fed to the

furnaces.

On the other hand, shippers who are not of the favored class are afraid

to complain for fear of persecution by delay of freight, overcharges,

prolonged litigation of every difference or dispute, and probable

intensification in some form of the discrimination in favor of their

competitors. The Oregon Commission says: “The shipper preferred to

tamely submit to the injustice put upon him through discriminations

against him or unreasonable and extortionate charges and exactions for

transportation facilities, than to hazard the utter ruin of his business

by provoking the animosities of managers if he carried his grievances

into the courts in order to have his rights determined and enforced....

Besides, if the shipper went to court with his grievances he was

confronted by powerful and wealthy corporations who contested, with the

aid of the ablest counsel money could procure, every inch of the ground

in the controversy, thus making each contest between the individual

shipper and these corporations an unequal one in proportion to the

ability of the shipper personally to press his case as compared with the

financial ability of the corporations.”[363] In a large majority of

cases the loss sustained by the individual through favoritism or

extortion is less than the probable injury resulting from litigation

with powerful corporations employing the ablest counsel, contesting

every inch of ground, defeating or delaying redress by every possible

means, and squeezing the plaintiff meanwhile perhaps with a grip upon

his business that means death to his prosperity, so that the shipper

thinks it better to bear the ills he has than fly to others to which he

has not been introduced.

CHAPTER XXXII.

REMEDIES.

Coming now to consider how railway favoritism may be abolished, we find

a wide divergence among railroad men, law-makers, and other authorities.

Some say that discriminations cannot be stopped,[364] others declare

that they have been stopped,[365] others that present laws are ample and

all that is needed is their enforcement,[366] while others state that

present remedies are insufficient,[367] and suggest further legislation

making the long and short haul clause binding except so far as relief is

granted by order of the Interstate Commission;[368] extending the power

of the Commission to private car-lines, fast freight and express

companies, and water carriers;[369] giving it, or a national court,

authority to fix reasonable rates in place of those which upon complaint

and investigation it finds unreasonable,[370] and to declare that a rate

resulting from any rebate or concession to favored shippers shall be

open to all shippers;[371] specifically enacting that the payments for

private cars and for switching shall not be greater than similar

payments made by the railroads to each other;[372] legalizing

combination and pooling;[373] forbidding railroad men to have any

interest in any large producer of traffic on their lines;[374] requiring

roads to make through routes and through rates with all connecting

lines;[375] protecting our railroads against the competition of Canadian

roads; providing for the public inspection of railroad books and

accounts;[376] requiring that all railroad monies shall be received and

paid out by Government officers;[377] or otherwise securing direct

representation of the public in the management;[378] and establishing a

sliding scale of taxation to apply in inverse ratio to the fairness and

openness of the railway administration, so that a railroad opening its

books freely to inspection and treating all fairly and impartially would

pay low taxes, while a railroad acting on opposite principles would be

taxed at a high rate.[379] The enactment of the Commerce Act by all the

States and territories so that the State and Federal laws may be in

harmony, and State and national commissions can co-operate in shutting

out discrimination from local and through traffic,[380] is also

suggested. Another view is that only public ownership of the railroads

under thorough civil service regulations can eliminate either the

motives or the power to discriminate,—the antagonism of public and

private interests being the tap-root of discrimination, it can be fully

overcome only by pulling up the root and making railroad managers the

agents of the public to run the roads for the public service instead of

being the agents of private interests to operate the roads for private

profit.

In his message of December, 1904, President Roosevelt urged Congress to

give the Interstate Commission power “to revise rates and regulations,

the revised rate to go into effect at once and to stay in effect, unless

and until the court of review reverses it.” He laid especial emphasis

upon the necessity of stopping rebates and unjust discriminations,

saying: “Above all else, we must strive to keep the highways of commerce

open to all on equal terms; and to do this it is necessary to put a

complete stop to all rebates.” In his message of December, 1905, the

President alters his recommendation to the granting of power to fix a

“maximum reasonable rate, the decision to go into effect within a

reasonable time and to obtain from thence onward, subject to review by

the courts.” In case a “favorite shipper is given too low a rate,” the

President says, “the Commission would have the right to fix this already

established minimum rate as the maximum; and it would need only one or

two such decisions by the Commission to cure railroad companies of the

practice of giving improper minimum rates.” (See below, recommendations

of the New York Board of Trade, from which, perhaps, the President took

this suggestion.)

The President says the law should make it clear that unfair commissions

and fictitious damages, free passes, reduced passenger rates and

payments of brokerage, are illegal; and that it might be wise “to confer

on the Government the right of civil action against the beneficiary of a

rebate for at least twice the value of the rebate; this would help stop

what is really blackmail. Elevator allowances should also be stopped.

“All private car-lines, industrial roads, refrigerator charges, and the

like should be expressly put under the supervision of the Interstate

Commission or some similar body.... Neither private cars nor industrial

railroads, nor spur-tracks should be utilized as devices for securing

preferential rates. A rebate in icing charges or in mileage or in a

division of the rate for refrigerating charges is just as pernicious as

a rebate in any other way.... No lower rate should apply on goods

imported than actually obtains on domestic goods from the American

seaboard to destination except in cases where water competition is the

controlling influence.

“There should be publicity of the accounts of common carriers.... Books

or memoranda should be open to the inspection of the Government.

“The best possible regulation of rates would, of course, be that

regulation secured by honest agreement among the railroads themselves to

carry out the law.... The power vested in the Government to put a stop

to agreements to the detriment of the public should, in my judgment, be

accompanied by power to permit, under specified conditions and careful

supervision, agreements clearly in the interest of the public.... But

the vitally important power is the power to fix a given maximum rate,

which, after the lapse of a reasonable time, goes into full effect,

subject to review by the courts.”

The President further says: “I urge upon the Congress the need of

providing for expeditious action.... The history of the cases litigated

under the present commerce act shows that its efficacy has been to a

great degree destroyed by the weapon of delay, almost the most

formidable weapon in the hands of those whose purpose it is to violate

the law.”

A summary of the principal provisions in some of the rate bills that

have been brought before Congress will illustrate the various methods

proposed for the better control of railroads. The Dolliver Bill provides

that, when the Interstate Commerce Commission, after full hearing upon

complaint, is of the opinion that a rate is unjust, unreasonable, or

unduly discriminatory, it shall fix a just and reasonable maximum rate

to go into effect 30 days after notice. The power applies to joint

rates, fares, and charges, as well as to those within a railroad system.

Broad provision is also made to cover the fixing of mileage rates, car

rentals, etc. The Commission may order a carrier to cease and desist

from any regulation and practice found to be unjust, unreasonable, or

unduly discriminatory. All orders are to go into effect 30 days after

notice unless the Commission extends the time to 60 days, or the order

has been suspended or modified either by the Commission or by decree of

a competent court. A penalty of $5,000 for each day an order is

disobeyed, and for each separate offence, is provided for against any

carrier, officer, representative, or agent who knowingly fails or

neglects to obey any order as aforesaid; and the Commission may also

apply to the Circuit Court for injunction, or other proper process, to

compel obedience. Appeal may be taken to the Supreme Court. Railroads

must give 10 days’ public notice of advances in rates, and 3 days’

notice of reductions, but the Commission may in its discretion allow

changes on less notice.

The Foraker Bill, which is understood to be preferred by the railroads,

provides for thorough inspection of books, records, and transactions of

interstate roads by agents of the Commission; and if any rate is found

to be unjust, or unreasonable, or the carrier “is committing any

discriminations forbidden by law, whether as between shippers, places,

commodities, or otherwise, and whether affected by means of rates,

rebates, classifications, differentials, preferentials, private cars,

switching or terminal charges, elevator charges, failure to supply

shippers equally with cars, or in any other manner whatsoever, the

Commission, if the carrier will not desist upon due notice, may state

the case to the Attorney-General, who is to bring suit in the circuit

court in any district in which the act complained of, or part of it, was

committed, and the court shall summarily handle the case and enjoin such

rate or conduct as it finds unlawful or what is in excess of what is

reasonable and just.” Appeal shall lie to the Supreme Court. The Bill

authorizes agreements between railroads in respect to rates or charges

and their maintenance so long as the agreement is not in _unreasonable_

restraint of trade.

The provisions for inspection and combination seem to us eminently just

and useful, although the latter is strenuously opposed by many on the

ground that it authorizes and invites all the railroads of the United

States to form a huge trust and monopoly to fix rates for the whole

country. This, it is claimed by ex-Senator Chandler, “gives away all

that has been gained by the Supreme Court decisions in the cases of the

Trans-Missouri Freight Association, the Joint Traffic Association, and

the Northern Securities Company. In the Joint Traffic Association case

the nine railroad systems between New York and Chicago formed an

organization of three billions of capital, made all the rates, and

prohibited any one of the roads from lowering any rate without the

consent of the nine managers of the trust. The court destroyed this

three-billion monster. The Foraker Bill creates a fourteen-billion

monster, which will prevent any railroad anywhere in the country from

lowering any rates without the consent of the traffic managers of the

combination.”

The plan of making the Interstate Commission a mere investigating body

with no power to fix a rate, but only to state the matter to the

Attorney-General, leaving the case to be tried on his initiative

piecemeal in the circuit courts all over the country, with appeal to the

Supreme Court, seems to us much more objectionable than the permission

to form rate agreements. Under any such form of court procedure it will

be possible for the railroads to delay final decision, fixing of a just

rate, or abolition of an unjust practice for years.

Senator Elkins’ plan is substantially the same, his idea being to give

the Commission no real power over rates, but only the right of petition

for judicial action. And suits may be brought in the Federal courts of

every district through which the lines of the carrier in fault are

operated, with appeal on every suit to the Supreme Court of the United

States.

Mr. Hearst has introduced a hill to bring the pipe lines carrying oil

within the Interstate Act and subject them to the jurisdiction of the

Commission; and another bill enabling the Commission to fix a rate, not

merely a maximum rate, but the actual rate that is to be used in place

of any rate found unreasonable or unjust. The order to take effect after

30 days. A special court of interstate commerce is provided for, which

shall have exclusive jurisdiction to review the orders of the

Commission, and suspend, annul, or enforce such orders, with an appeal

to the Supreme Court only on questions of constitutional law. These are

admirable measures in many ways, but are probably too radical for

passage through the Senate, in which railroad interests have so large a

representation.

Of the other bills the most important are the Esch-Townsend Bill, the

Interstate Commission’s Bill, and the Hepburn Bill. The Esch-Townsend

Bill was intended to give the Interstate Commission full power to fix a

specific rate, either single or joint, in place of a rate found to be

unreasonable or unjust, and to establish a special court of

transportation to have exclusive original jurisdiction of all suits to

enforce or prevent the enforcement of orders issued by the Commission

under the act.[381] Last year this Bill was regarded as the most

important measure before Congress, but this year, 1906, it has been

superseded by the Hepburn Bill.

The main points of the Commission’s Bill are: 1. That power be granted

the Commission, after full hearing, to fix the rate or practice to be

observed in the future in place of the rate or practice found by the

Commission to be unreasonable or unjust.[382] 2. That the Commission

shall have authority to prescribe the form in which railway books shall

be kept, with the right to examine such books at any and all times.[383]

3. That private car-lines, industrial railroads, import and export

rates, etc., shall be brought within the scope of the Commission’s

power. 4. That the time of notice of tariff changes shall be extended to

60 days, subject to modification in the discretion of the Commission,

and the Commission says: “We think that 60 days is not too long in the

great majority of cases, and that such length of notice would add

greatly to the stability of rates.” 5. That the Commission shall have

authority to order railways to continue through routes and joint rates

and to prescribe the divisions which the several carriers shall receive

in the distribution of those rates in case they fail to agree among

themselves. At present “carriers are under no legal obligations to

establish through routes or joint rates, and may at their pleasure

withdraw from such arrangements when they have been actually entered

into,” so that “if the Commission were to pronounce a joint rate

unreasonable and order a reduction of that rate and the carriers parties

to the rate should thereupon either cancel all joint arrangements, or,

as they might, cancel their joint rates upon the commodity in question,

the Commission would be practically powerless to enforce the reduced

rate. When it is considered that a large part of the most important

rates of this country are joint rates, it will be seen that the railways

have it in their discretion by this means to largely defeat the purpose

of the law.”[384]

The Hepburn Bill, which is one of the strongest measures before

Congress, provides that the Interstate Commission, on complaint and

proof that any railway rates or charges, or any regulations or practices

affecting such rates are unjust, or unreasonable, unjustly

discriminatory, or unduly preferential or prejudicial, may determine and

prescribe what will, _in its judgment_,[385] be the just and reasonable

rate or charge, which shall thereafter be observed as the maximum in

such case; and what regulation or practice in respect to such

transportation is just, fair, and reasonable to be thereafter followed.

The order is to go into effect thirty days after notice to the carrier.

And any company, officer, or agent, receiver, trustee, or lessee who

knowingly fails and neglects to obey any such order is liable to a

penalty of $5,000 for each offence; and in case of a continuing

violation each day is to be deemed a separate offence. It is provided

that the Commission may establish maximum joint rates or through rates

as well as rates pertaining to a single company, and may adjust the

division of such joint rates if the companies fail to agree among

themselves. The Commission may also determine what is a reasonable

maximum charge for the use of private cars and other instrumentalities

and services, such as the switching services of terminal railways, etc.

No change is to be made in any rate except after thirty days’ notice to

the Commission, unless the Commission for good cause shown allows

changes upon shorter notice.

The Commission may petition the Circuit Court to enforce any order the

railroads do not obey. And if on hearing “it appears that the _order_

was _regularly made and duly served_, and that the carrier is in

disobedience of the same, the _court shall enforce_ obedience to such

order by a writ of injunction, or other proper process, mandatory or

otherwise, to restrain such carrier, its officers, agents, or

representatives, from further disobedience of such order, or to enjoin

upon it or them obedience to the same.” Appeal may be taken by either

party to the Supreme Court of the United States. The Commission may in

its discretion prescribe the forms of all accounts, records, and

memoranda to be kept by the railways, and provision is made for

inspection as follows:

“The Commission shall at all times have access to all accounts, records,

and memoranda kept by carriers subject to this Act, and it shall be

unlawful for such carriers to keep any other accounts, records, or

memoranda than those prescribed or approved by the Commission, and it

may employ special agents or examiners, who shall have authority under

the order of the Commission to inspect and examine any and all accounts,

records, and memoranda kept by such carriers.”[386]

We are heartily in favor of the Hepburn Bill and would be glad to see

far stronger regulative measures passed, but nothing more than a

moderate palliation of the railway evils under which we suffer must be

expected from such legislation. England with her rigid control has not

been able to stamp out railroad abuses, and the lesson of English

railroad regulation is that the subjecting of private railways to a

public control strong enough to accomplish any substantial elimination

of discrimination and extortion takes the life out of private railway

enterprise along with its evils. Even Germany, with all the power its

great government was compelled to exert, could not eliminate unjust

discrimination until it nationalized the railways, and so destroyed the

root of the evil which lies in the antagonism of interest between the

public, on the one hand, and owners of the railways and associated

industries on the other.

It will be noted that none of the plans suggested proposes to give the

Commission any general power to initiate or originate rates, but only

the power of fixing a rate in place of one found unjust or unreasonable.

So that if the railroads obeyed the law and made no unreasonable rates

or unjust discriminations they would still have the whole rate-making

power in their own hands and the Commission would have nothing whatever

to do with fixing railroad rates.

Let us now examine briefly the merits of the leading remedies proposed.

_Pooling._

Many railroad men have advocated the legalization of pooling and

combination as a remedy for discrimination. A number of railway

presidents and managers have told me they believed this would stop

discrimination, and that nothing else would. Others have assured me that

pooling could not stop discrimination, and even those most emphatic at

the start in the opinion that pooling is the needful remedy have

admitted on further questioning that pooling would only stop one class

of discrimination. Take for example the statement of the president of

one of the greatest railroad systems in the country who is a strong

advocate of the legalization of pooling.

“How do you think unjust discrimination can be stopped?” I asked.

“Give the railroads a right to pool,” he said.

“Will pooling stop discriminations accorded to business concerns in

which the railways or their managers are interested?”

“No.”

“Will it stop any kind of discrimination except those that grow out of

competition among the railroads?”

“No, I guess not.”

To another railroad man of wide experience in inter-railway contracts, I

said: “Can any pool prevent the owners of big concerns in oil, beef,

grain, steel, etc., from getting special advantages, or abolish

discrimination in the supply of cars, quickness of carriage, division of

rates, classification, long and short haul, passes, political favors,

and other forms of favoritism originating in causes independent of

competition among the railroads?”

“No, of course it cannot,” he replied.

Such questions never fail to bring an admission that pooling cannot be

relied on for the whole of the work to be done in this field. In fact

only one of the six motives for discrimination[387] arises from the

competitive conditions that pooling is expected to remove. Combined

roads will make discriminative rates to create new business, to solidify

traffic, to favor places or concerns in which they are interested, to

favor persons of large influence who may aid or injure railroad

interests, or to injure persons or places that have incurred their

displeasure. All but 2 of the 64 methods of discrimination above

enumerated would find a use under a pooling system or even if

combination were complete and competition entirely done away with, as

the reader may see for himself by running over the list on pages

229–232.

Even competitive discrimination is not eliminated by pooling, for the

railroads will not stick to the pool. A railroad president has been

known to go from the room in which he had agreed with other railroad

potentates to pool their business and maintain rates, and hunt up at

once a big shipper, offer him a cut rate, and get a contract taking the

whole of his business away from the other roads.

Albert Fink, the greatest traffic association organizer we have had,

complained bitterly that rates agreed upon in a convention were

frequently cut before the convention had dispersed.[388] President

Tuttle of the Boston and Maine says: “I never knew a pooling arrangement

that prevented competition or was wholly satisfactory. There was never

what was considered an equitable distribution of traffic to anybody,

because the strong lines that could control and handle 50 percent of the

traffic were always struggling against parting with any of that 50

percent, while the weak, 10 percent road was always trying to get 15

percent.”

The man who drew the first pooling contract made in this country and has

drawn many since says that pooling will not stop even competitive

discrimination, because the roads will slash rates on the sly to get

business. In other words pooling does not eliminate the struggle for

traffic. Company A has 25 percent of the pool money between certain

points. It cuts rates on the quiet and gets 30 or 35 percent of the

business, and then says: “Gentlemen, I’m carrying 35 percent of the

traffic and I want more of the pool money.” The gentleman just mentioned

told me that this sort of thing had been done in every case of pooling

with which he was acquainted.

Sometimes the break in the rates is known to the Association but

assented to or tolerated because it is clear that a break is bound to

occur anyway, and may be enlarged rather than diminished by resistance.

Some years ago when Chauncey Depew was president of the New York Central

system, he said: “Large shippers arbitrarily transfer the whole of their

business from one line to another. That leaves a weak line denuded of

its business.

“A weak line is a line which is dependent largely upon through traffic

and which has not much local business. These great shippers who control

anywhere from ten to twenty-five cars a day will take all their business

off this weak line and put it on the strongest line, which already has

all it can do.

“Then the weak line is in trouble, and it comes to these shippers and

says: ‘Well, how can we get you back?’ The shippers say: ‘You can only

get us back by giving us five or ten cents a hundred off from the

tariff.’ The weak line invariably does it.”

Then Mr. Depew gave an instance of “one of the great merchants of the

West” who, on the organization of the Joint Traffic Association, said:

“I never have paid within twenty-five cents a hundred of tariff rates,

and I won’t do it now.” “His business,” continued Mr. Depew, “was on

what we call one of the weak lines. He took it off that line and put it

on one of the strongest lines. That left the weak line without any

westbound business.

“Then the weak line said: ‘We have got to have business.’ So we simply

closed our eyes while the weak line gave a rate twenty-five cents a

hundred less than the rest of us charged, and this firm advanced while

the others were stationary or went out of business. This firm advanced

by leaps and bounds to the front rank and toward the control of the

business.” If all the roads in the field do not come into the pool there

is every temptation for the outsider to cut rates. For example, in 1896

one of the trunk lines outside of the Joint Traffic Association was

carrying grain from Chicago to the seaboard at 13 cents per hundred when

the established tariff, which the Association was supposed to be

maintaining, was 20 cents.[389]

The whole history of the traffic associations shows that discriminations

can be guarded against by pooling only to a very limited extent.[390]

The legalization of pooling would enable railroads that wished to insist

on the maintenance of rates to bring suit against roads disregarding the

agreement. This would make it harder to get all the railroads into a

pool, for part of the inducement is the impunity with which the

agreement may be shuffled off, while on the other hand the degree of

respect manifested by the railroads for the law does not justify much

hope that it would be effective in holding them to any pooling contract

if they thought they could make more by breaking it than by keeping it.

The fact is that the railroads understand each other now about as well

as if pooling were legalized. They constantly make rate agreements and

have no hesitation in securing whatever degree of unity they desire with

or without law. Pools at best do not apply to local traffic, but only to

business between competing points, so that all discriminations in local

traffic are left absolutely untouched. And as to competitive points,

pooling is far less effective than consolidation, and consolidation has

shown no tendency to do away with any more than one of the six classes

of discrimination, while it emphasizes and extends the discriminations

in favor of the great industrial interests whose ownership is

interlocked with that of the big railroad systems, so that the advance

of consolidation means the extension of the influence of the giant

industrials in whose favor the most grievous discriminations are

granted.

Pooling and combination are good in many ways,[391] and ought to be

legalized;[392] but they cannot be relied on to abolish

discrimination,—they leave the worst forms untouched, intensify some of

them, and diminish only one of the six classes of preference. Shippers

have a strong prejudice against pooling, and the railroads do not care

so much about it as they used to, for consolidation and mutual

understanding have enabled them to accomplish in part the purposes they

had in view in the traffic agreements of earlier years.[393]

_Wrestling with the Long-Haul Abuse._

In respect to the long and short haul abuse, Commissioner Fifer, Brooks

Adams, and others argue that the practical remedy is to make the

long-haul clause of the Commerce Act binding except where the railroads

come in and get an order releasing them to a specified extent from the

operation of the clause.[394] The idea is to put the burden of showing

the need of an exception on the railroad. At present the burden really

rests on the complainant. The railroads disregard the law with impunity.

It is easy to show dissimilar circumstances, and then it is necessary

for the plaintiff to show that the circumstances are not so dissimilar

as to warrant the discrimination made. It is very difficult to satisfy a

court on this point, and so the rates stand and the clause is

practically nullified. Forbid departure from the clause absolutely

unless the carrier has obtained an order of release, and you put the

burden of proof where it should lie, namely, on the party that desires

to depart from the rule of equal treatment.

_A Drastic Cure for Rebating._

For the cure of discrimination, the Transportation Committee of the New

York Board of Trade suggests that Congress enact a law authorizing the

Interstate Commission, in case of any rebate or other device for

securing low rates, to declare that the net rate so made by the railway

or car owners shall be the regular tariff rate, published as such, and

open to all shippers; said new rate to take effect immediately, subject

to appeal within 60 days upon questions of law.[395] The Committee says

the proposal is based on the plan suggested by “Albert Fink, the ablest

of all American railroad managers,” and adopted by the joint executive

committee of the associated railroads in 1882.[396] “The giving of

unlawful rebates by traffic agents would be preventable if the agent

felt assured that such acts would be followed by his dismissal, and the

officers of the company would find a way to remove an offending agent or

to bring him under control if a punishment of suitable severity were

certain to be imposed upon the road for the violation of the law against

the giving of rebates.”

This would indeed be a drastic remedy, and very effective for the

prevention of the discovery of discrimination. An association of

railroads might ferret out preferences under such a rule, but it would

be almost impossible for a public board to do it. It has been for the

most part, as we have seen, practically impossible for the Commission to

get evidence of specific facts of discrimination, even under the

comparatively mild laws they have tried to enforce. And under such a law

the difficulty would be increased tenfold. Moreover, if discrimination

were discovered and the rule proposed were put in action,

discriminations would thereby be crystallized and legalized, and great

disturbances produced in the business of railroads and of the community.

Suppose it were discovered that a certain shipper of wheat from Chicago

east had a 10 cent rate over the Erie, while the published rate on all

the lines was 15 cents. Immediately the 10 cent rate would be open to

all shippers over the Erie. The Erie might be stricken with a sudden

dearth of cars, and be unable to handle the traffic at all. It would pay

the other roads to arrange with the Erie to be stricken that way. For if

the Erie handled the traffic, the other roads would have to come down to

10 cents and suffer a severe loss, or lose the business and suffer a

severe loss that way. Moreover, the difference in rates on wheat and

flour and other commodities would constitute serious discrimination,

petrified and perpetuated by law. Again, if many cut rates were

discovered in various lines of business and various degrees of discount,

the whole tariff would be thrown into confusion worse than the normal

chaos. Rates not in the discovered list would have to be raised to save

the revenues of the roads, the long and short haul rule would go to the

winds, and bankruptcy would threaten not only the culprit railroads but

individuals and communities not conditioned so as to be favored by the

cut-rate lists. On the other hand, if the railroads tried to be good,

the pressure of the big shippers for concessions would put many roads to

serious inconvenience and threaten them with dangers and losses almost

as great as those accompanying disobedience, and far more immediate and

certain. Under such circumstances the temptation to secure secrecy at

any cost, and if need be to control the Commission and the courts, would

be irresistible.

Most of those who favor further control of railroads advocate milder

methods. The favorite remedies are public inspection and the fixing of

rates by a commission or court of arbitration or tariff revision. The

facts above stated showing the secrecy of many forms of preference and

the difficulties of enforcing the law because of the impossibility of

getting railroad officers to reveal the facts indicate the necessity of

systematic and thorough public inspection, but also suggest a doubt as

to its effectiveness. If railroad officers destroy their papers and

refuse to state the facts on the witness stand, is it not possible that

they will keep any record of discrimination practices from appearing in

the books and papers they submit to inspection? Inspection and publicity

are excellent aids to reform, but they are insufficient in themselves.

We have had already a small-sized ocean of publicity through the

investigations of the Interstate Commerce Commission, but the results

have been very small.

CHAPTER XXXIII.

FIXING RATES BY PUBLIC AUTHORITY.

For years the Interstate Commerce Commission has been declaring that

when, on complaint and investigation it finds a rate to be unreasonable,

it ought to have power to fix a reasonable rate to take the place of the

unreasonable one, the order to be binding on the railroad for a moderate

period, subject to revision in the courts. For the first ten years after

the Interstate Commerce Act was passed no railroad denied the right of

the Commission to fix rates, and the Commission says it was supposed

that they possess the power. But the Supreme Court finally ejected this

impression in 1896, and again in 1897, and the Commission appealed to

Congress for the restoration of the authority that was swept away by the

interpretation of the majority of the Court. Congress for a long time

paid no attention to the Commission’s request for further powers, but

President Roosevelt took up the matter and pushed it with the splendid

vigor that characterizes all he does. In his message of 1904, already

referred to, he said: “Above all else, we must strive to keep the

highways of commerce open to all on equal terms; and to do this it is

necessary to put a complete stop to all rebates. Whether the shipper or

the railroad is to blame makes no difference; the rebate must be

stopped, the abuses of the private car and private terminal-track and

side-track systems must be stopped, and legislation of the Fifty-eighth

Congress, which declares it to be unlawful for any person or corporation

to offer, grant, give, solicit, accept, or receive any rebate,

concession, or discrimination in respect of the transportation of any

property in interstate or foreign commerce whereby such property shall

by any device whatever be transported at a less rate than that named in

the tariffs published by the carrier, must be enforced.... The

Government must in increasing degree supervise and regulate the workings

of the railways engaged in interstate commerce; and such increased

supervision is the only alternative to an increase of the present evils

on the one hand or a still more radical policy on the other. In my

judgment the most important legislative act now needed as regards the

regulation of corporations is this act to confer on the Interstate

Commerce Commission the power to revise rates and regulations, the

revised rate to at once go into effect, and to stay in effect unless and

until the court of review reverses it.” The President’s message of

December, 1905, has already been quoted at sufficient length in Chapter

XXXII.

In the last two years the legislatures of 18 States have passed joint

resolutions petitioning Congress to enact legislation for the regulation

of railroad rates; 12 States took this action last winter, 1905, and

asked their representatives and senators to secure the enactment of such

a measure. Commercial bodies in various parts of the country have also

petitioned for such legislation, while others have protested against

it.[397]

The Esch-Townsend Bill (1905) giving the Commission power to fix rates

passed the House, but failed to pass the Senate.[398] As stated in the

preceding chapter, the House has passed the Hepburn Bill by a very large

majority and it has gone to the Senate, where a determined effort will

undoubtedly be made to secure at least a provision for judicial review

on their merits of all orders of the Commission.

_Objections of Railroad Men._

Railroad men object to further regulation till the effectiveness of the

present laws has been thoroughly tested. In answer to the question what

he would do to stop discrimination, President Tuttle of the Boston and

Maine Railroad said to me this morning: “Enforce existing laws. The

Interstate Commission can investigate the railroads. It need not wait

for complaints. It can act on its own initiative. It can have experts

examine the railroad books. It can publish the facts, and publicity is a

powerful corrective. It can put the facts it secures in the hands of the

Attorney-General, and if the Department of Justice will prosecute

promptly discrimination can be stopped. There were no prosecutions even

after the Hutchinson salt investigation. The law is ample. The trouble

is that no adequate effort has been made to enforce it.”

The Commission says that as a rule it cannot get the facts. In some

cases it has succeeded, but usually it is thwarted in respect to

personal discriminations (to which President Tuttle’s argument chiefly

applies) because they are secret, and neither railroad men nor the

favored shippers will ordinarily tell the truth about them, and railroad

books do not commonly contain any record of them.[399] Where the

Commission has obtained evidence of unlawful discrimination it has

turned the facts over to the Department of Justice, which has not

prosecuted promptly, in many cases not at all, and has sometimes

prevented prosecutions which United States district attorneys were ready

to begin.

There seems to be good reason to believe it is true that existing laws

have not been fully enforced; that in addition to the difficulty,

perhaps impossibility, of getting at the facts in many cases, wrongdoers

have escaped punishment even where the facts were fully known; and that

a commission to investigate the Department of Justice, and try the

effect of publicity there, may be as essential as a commission to

investigate the railroads. Some criticism seems to attach also to the

Interstate Commission, as it does not appear that they have asked the

Department of Justice to prosecute senators and congressmen,

legislators, judges, etc., well known to be riding on passes, nor to

punish the railroads for giving them.

As long as express companies and water carriers are not within the

Interstate Act, and doubt exists as to private cars and terminal

railroads, there is room for further legislation. And in respect to

excessive rates and tariff discriminations between places and

commodities, though the facts can be easily ascertained, the remedy is

regarded by the Commission as wholly inadequate under existing laws,

because of the emasculation of the long and short haul clause by the

interpretation given it by the Supreme Court, and because the railroads

are able, whenever they choose, to delay the enforcement of an order for

years by litigation, conceding at last perhaps only a small part of what

they should concede and so requiring further years of contest to

approach another step toward justice. So the Commission asks for power

to fix a reasonable rate in place of one found unreasonable, and to put

the new rate into effect at once subject to subsequent revision on

appeal by the carrier.

The railroads seriously object, first, to the fixing of their rates by

anybody but themselves, and second, to the putting of such rates into

effect before they are tested in court. The immediate enforcement of a

rate order is most strenuously opposed, and with much force of reason.

The railroad people say that rate-making is very difficult and many

mistakes are likely to be made. Railroad history certainly affords ample

ground for this conclusion. But they say, or imply, that the Commission

makes more mistakes than they do. They declare that only trained traffic

experts can deal successfully with rate questions; that the Commission

has made so many errors that almost every one of its decisions that has

gone to the courts has been overruled; and that great havoc would have

been wrought if these decisions had been put into effect at once without

judicial review. “Take for example, the Maximum Rate Case where the

Commission ordered the rates from Cincinnati to important Southern

points cut down 15 or 20 percent. This change in rates to the

basing-points would have affected two or three thousand rates. Some of

the railroads didn’t have a margin of more than 15 or 20 percent and

they determined to fight the case. It is true that the Commission

exercised the power to fix rates a number of times in the first ten

years, but the cases were comparatively insignificant and the railroads

said, ‘Oh, well, let it go. We’ll take the rate the Commission wants.’

But when it came to the Cincinnati case the situation was serious and

the railroads said, ‘These fellows haven’t got the power to make rates.

In the debates on the Commerce Bill in Congress it was distinctly

declared that no such power was intended to be given. We’ll take the

question to the courts.’ And the courts sustained the railroads. Now

what would have been the consequence if the Commission could have put

its order into effect at once? The railroads would have been subjected

to serious losses during all the time that might elapse before they

could get a decision reversing the order of the Commission. It often

takes years to get a final judgment and there would be no way for the

railroads to recover for the losses entailed by erroneous orders.” This

is the argument substantially as presented to me by President Tuttle and

there is great weight in it.

_Alleged Errors of the Commission._

Another railroad president turns the lime-light of mathematical analysis

on the errors of the Commission. David Willcox, President of the

Delaware and Hudson, says: “About 93 percent of the decisions of the

Commission which have been passed upon by the courts have been held to

be erroneous. In case, therefore, the Commission had the future

rate-fixing power, so far as its decisions were in force until the

courts passed upon them, injustice would be accomplished in 93 percent

of the cases. For this there would be no remedy, because no recovery

could be had from those whose goods had been carried at unjustly low

rates.”[400]

We shall see that this statement gives too strong an impression of the

capacity of the Commission for mistakes, but there is no doubt that it

has made mistakes, that any person or persons attempting to fix rates,

even the railroad managers themselves, are liable to make mistakes, and

that losses result to the roads from their own mistakes and might

naturally result from the mistakes of a commission or court if its

erroneous orders were enforced upon them.

It may be said that if the orders of the Commission went into force

immediately it would be the interest of the railroads to hasten the

proceedings in court instead of prolonging them indefinitely as they are

too apt to do, and that with reasonable provisions for prompt

adjudication and the stimulus of powerful railroad interests in that

direction, the delay of the law, or this branch of it, at least, would

vanish. It may also be said that the railroads could recoup themselves

for the losses under discussion by curtailing the service they render

for the new rates, or by raising other rates not fixed by the

Commission. But the Commission might veto the raising of other rates,

and the entailment of service would be very undesirable. The question

arises whether it would not be fair for the public to stand any loss

clearly resulting from an improper order of its Commission, or else

require that any order the validity of which is questioned should be

passed upon by the court before it is put into effect? The Commission is

itself perhaps a sufficient court in respect to questions of fact, and

if it were arranged that in case of dispute on a question of law the

Commission might call upon the Supreme Court for an immediate

interpretation of the law, the rulings of the Commission could be

squared with the law at the start, and the danger of loss from an

erroneous order would be reduced to a minimum.

As above remarked, the mistakes of the Commission have not been so vast

as the reader might infer from the percentage of overruled cases stated

by President Willcox.

The work of the Commission may be summarized as follows:

It has received about 3,726 informal complaints relating to overcharges,

classification, rates, etc. Most of these, perhaps 3,200, have been

disposed of by correspondence or some mild form of arbitration, very

many have been settled satisfactorily, some have been abandoned, and

some have crystallized into formal complaints. The total number of

formal complaints has been about 854, including those that were formal

at the start and those that started as informal complaints and grew to

be formal through failure of adjustment by conciliatory methods. “From

1887 to October, 1904, the Commission rendered 297 decisions involving

353 cases, two or more cases being heard and decided together in some

instances. About 55 percent, or 194, of the decisions were in favor of

the complainant and 45 percent in favor of the railroads.[401] Mandatory

orders were issued to the number of 170. Of these 94 were complied with

by the railroads, 55 were disobeyed, and 21 were partly complied with

and partly disregarded. Some 43 suits were instituted to enforce the

orders of the Commission; and 34 of these have been finally

adjudicated.” The Commission claims that 8 cases of excessive rates and

unjust discrimination have been decided in its favor, while President

Willcox says that the courts have sustained the Commission on the merits

in only 3 cases.[402] Mr. H. T. Newcomb, who appeared before the Senate

Committee as the representative of several railroads, gives a table

showing that in the circuit courts the Commission has been sustained 7

times and reversed 24 times, the Circuit Court of Appeals has sustained

the Commission 4½ times and reversed it 11½ times and the United States

Supreme Court has partly sustained the Commission in one case and

reversed it in 15.[403]

Several comments are necessary. First, about ⅘ of the Commission’s

decisions have been right on the railroad’s own showing. They claim only

32 reversals out of 170 orders—nearly all the rest have been accepted by

the railroads or enforced upon them by the courts. Second, the reversals

have been based on questions of law in respect to which the courts

disagreed among themselves. The Commission has not been overruled in

respect to questions of fact, but on the application of what it believed

to be law (and what the framers of the law believed to be law) to the

removal of economic abuses. Third, the points of law in respect to which

it has been overruled are very few. The decisions have gone in bunches.

For instance while the Alabama Midland long and short haul case was

pending in the courts a number of other long-haul cases were decided by

the Commission, and when, after several years, the Supreme Court gave

final judgment, a whole block of the Commission’s rulings on this point

were discredited and subsequent reversals were simply repetitions

involving no new error. So the question of power to fix rates covers a

cluster of cases all thrown down in reality by one ruling.[404] And

these two questions represent nearly the whole difference between the

courts and the Commission. The 15 reversals in the Supreme Court do not

mean 15 errors, even in respect to legal points, but only a very few

errors if any. Fourth, the higher court reversed the lower in 9 out of

the 17 cases that went up from the Circuit Court, and in three of these

cases the Supreme Court reversed both the Circuit Court and the Court of

Appeals. Fifth, it is by no means certain that the Commission was wrong

and the court right. The fact is that the Supreme Court has not

interpreted the law according to its manifest and well-known intent, but

in a narrow, technical way that has defeated in large part the real

purpose of the law. It is an absurdity to rule that the law is valid and

then to decide that the railroads may escape from the long-haul section

by means of dissimilar circumstances created by themselves. And many

believe it to be an equal absurdity to declare that the Commission may

order the discontinuance, of an excessive rate or unjust discrimination,

but cannot fix a reasonable rate.

Take the Kansas oil rate for example. The railroads at the dictation of

the Combine raised the rate, as we have seen, from 10 to 17 cents.

Suppose the Commission had ordered the roads to cease charging 17 cents,

that being found to be unreasonable. The railroads could appeal and

appeal, and if after several years the case went against them they could

make a rate of 16½ cents. Then a new investigation could be begun, the

Commission could make a new order, and after years in the courts the

rate might come down another half cent perhaps. And so on; even if all

the decisions went against the railroads it would take 105 years to

reduce the rate to 10 cents again, calculating on the basis of the

average period of 7½ years required for final litigation. Why not sum up

the process in a single order for the 10 cent rate and if objected to by

the railroads have one judicial contest and finish the business. By the

indirect method of declaring one rate after another to be unreasonable

the Commission has now the power at last to fix the rate. The

proposition to allow it to name a reasonable rate is only putting in

direct, brief, effective form the power it now has in indirect,

diffused, and ineffective form. The railroads might not act in the way

described, but the point is that they could do so; there is no power in

the law as it stands to-day to compel them to adopt a reasonable rate

within a reasonable time.

Again, consider the predicament Commissioner Prouty presents.[405] If

the Commission, considering all the circumstances including railroad

competition, finds that the rates from certain points to W should not be

higher than the rates to O and orders the railroads to discontinue the

discrimination between the two cities, the court will sustain the order

and grant an injunction to enforce it. But if the Commission finds that

there should be some difference between the rates to the two places,

though not so much difference as there is, and it orders the rates to W

down so that they will be fair, the courts will annul the order because

the Commission has no power to fix rates in the opinion of the Supreme

Court.

The railways contend that a relative order would be sufficient. The

Commission could say what percentage of the Omaha rate the advance for

Wichita should be, and in the Kansas case the rate on oil could be

determined in reference to the rates on other commodities. It is true

that a relative order could be made, but it might be more embarrassing

to the railroads to have a group of rates tied up by each decision so

that they could not vary any of them without changing the rest, than it

would be to have one rate definitely fixed; the subtraction from

elasticity might be greater, and the difficulty of determining the true

relations between various rates might be far more serious than the

fixing of a reasonable rate in the particular case. It would be possible

to give the Commission the option to make a relative order or to

definitely fix a reasonable rate providing that it should carefully

consider the preference of the carrier as to the form of order, the

reasons for that preference, and the guarantee the carrier may be

willing to give as to _bona fide_ compliance with the order, and then

make up its judgment in the light of the circumstances in such a way as

to accomplish the purpose in view with the greatest certainty and the

least friction or interference with the freedom of railroad management.

But the railroads object to the fixing of rates in any manner by a

public board,[406] declaring that such a board could not be in

sufficiently close touch with traffic conditions all over the country to

adapt their rulings to the needs of business, that tariffs would lose

the elasticity requisite to keep them in harmony with changing economic

conditions. A rate that is reasonable to-day may be unreasonable

to-morrow. It is said that it keeps several hundred men, 500 to 700

skilled traffic men, working all the time on the adjustment of rates,

and that it is beyond the power of half a dozen men to pass on the rate

question of a country like this; that Congress cannot delegate to a

commission the power to fix rates; that it would destroy the initiative

of railroads and hurt their power of borrowing money for improvements,

injure investors, and throw the whole railroad world out of gear; that

the centralization of power would be dangerous, the disturbance of

business and interference with development disastrous, and the practical

confiscation of railroad properties and values unjust; that a flood of

litigation would follow, and that discrimination would not be removed,

for agents hustling for business would cut under commission-made rates

as quickly as they cut railroad-made rates.

There is much force in some of these points, none at all in others.

There is no reasonable doubt that Congress can authorize a commission to

fix rates. Railway Commissions in 21 States have power to fix rates,

either absolute or maximum, and some of them have exercised the power

vigorously, and a national commission may be given the same power over

interstate commerce that a State commission may have over State

commerce.

There is more force in the objection based on the lack of elasticity in

commission-made rates. Elasticity, however, may easily be overdone and

much of the present elasticity is very undesirable. Many flying tariffs

and unfair discriminations lurk under cover of that reputable word

elasticity. Moreover the Commission would not interfere with any fair

rate-making by the railroads. The bulk of the rates would not be touched

but only those that were unjust. So that it would depend entirely on the

railroads how much of the flexibility they so much admire should be kept

in their own hands. They would keep it all unless they were guilty of

dishonest flexibility, in which case the elasticity, which, according to

impartial judgment, exceeded the bounds of justice, would be checked.

In reference to the alleged necessity of flexibility in tariffs and the

ability of traffic managers to accommodate the rates to fluctuating

commercial conditions, Chairman Knapp of the Interstate Commission says

that there need not be any tendency to iron-clad rules or undue emphasis

of the mileage basis on the part of a Government board, but that the

necessity of frequent changes in tariffs is greatly overdrawn. He states

that the railroads have kept the same basis of rates since 1887

throughout the most important part of the United States, the “official

classification territory” or the section north of the Ohio and Potomac

and east of the Mississippi, and that “the class rates which govern most

merchandise and articles of manufacture and ordinary household

consumption have remained unchanged in all that territory.” The

railroads changed the classification of many articles about 1900, “but

they did not change the rates or the adjustments between localities.”

“I take it there is no agricultural product the price of which has shown

such wide fluctuations in the last few years as cotton. It is one of the

great staple articles of the country; the most valuable per pound of

anything that grows out of the ground in large volume. More than half of

it is exported and you know the price has gone from scarcely above 5

cents to 16 or 17 cents. And if there is any article which would seem to

be susceptible to market fluctuations and the changes in commercial

conditions, it must be cotton. But an inspection of the tariffs will

show you that the rates on cotton have not been changed in ten years.

“There has been no material change, I think, in any cotton rate in more

than ten years, except that certain reductions have been made in the

State of Texas by the commission of that State.

“Now, when I observe instances of that kind, when the ablest and most

experienced traffic officials tell me that there is no sort of reason

for 500 to 1,000 changes in interstate tariffs every twenty-four hours,

as our files show there are, you must not be surprised if I fail to

accept at par value all that is said here about the necessity of

adapting rates to commercial conditions. Undoubtedly, when you take a

considerable period of time, great influences do operate to an extent

which may justly require material modifications in freight charges, but

to my mind it is quite unsuitable that the little surface fluctuations

in trade should find expression in extended changes in the daily

tariffs. I believe that those surface currents should adjust themselves

to the tariffs, and not the tariffs to the currents. And I am saying

this, gentlemen, not as a result so much from my own observation or from

any _à priori_ view of the case as because of the statements made and

arguments submitted to me by practical railroad men of the highest

distinction.”[407]

To lay stress on the number of men required to arrange the details of

tariffs might seem to imply the belief that a very large part of

existing railroad rates will be found unreasonable and need the

attention of the Commission. It may however imply merely that there is

likely to be a very large number of complaints. The fact is that the

fixing of rates is a complex business, with a considerable percentage of

guesswork, experiment, broad judgment, and arbitrary decision. There are

some general principles of cost, distance, what the traffic can pay and

move, what shippers demand, what other carriers are charging, what rates

are necessary to create new business and fill up the cars both ways,

etc., but they are like the principles of law, you can come to any

conclusion you wish and then find a principle that will back up your

decision. Railroad men do not trouble themselves about consistency. They

do not and cannot adjust rates with reference to just relations between

places and commodities. They are looking for dividends and they make the

best rates they can with that object in view. The chief traffic officer

of one of the trunk lines, being pressed by the Commission as to his

method of making rates, said: “We make rates very much as the honey bee

makes its cells, by a sort of instinct.” When we look at his rates we

find that he is not so successful as the honey bee in respect to

symmetry and balance. Another traffic manager whose skill brings him a

salary of $50,000 a year, testifying as to the reasonableness of his

grain rates, was asked question after question as to methods of

determination, till finally he said: “To tell you the truth, gentlemen,

we get all we can.” Now it is because the railroads know that the

Commission would refuse to adopt this time-honored principle and would

aim primarily not at profit to the railroads, but at just and impartial

rates—it is this knowledge which more than anything else impels the

railroads to such strenuous opposition to any proposal for the fixing of

rates by a public board. The matter is of such moment that, when I asked

one of our leading railroad presidents what would happen if the

rate-making power were put in the hands of a commission, he said: “The

stake would be so great that the commission would have to be controlled,

that’s all.”

The railroads have the Senate, and the Senate must confirm all

nominations to the Interstate Commission. Aside from the appointment of

Judge Cooley all nominations to the Commission from 1887 down have been

due, said this railroad president, not to any special fitness for the

work, but to political pull. If a commissioner is appointed from a

certain State, the senators from that State regard the place as a part

of their patronage, and when the term of his appointment expires they

insist on the nomination of another man from their State. They say: “The

place belongs to our State,” and it is always their man, a man they want

on the board, who is presented by them for nomination. Vermont for

example has had three members on the Commission in succession, Walker,

Veazie, and Prouty; each time a vacancy has occurred in the Vermont

representation it has been filled at the dictation of the senators from

that State; “even President Roosevelt did not appoint for fitness. When

a vacancy occurred he did not look for the man best fitted to serve on

such a Commission, but appointed Senator Cockrell of Missouri, a nice

old man of 70 that everybody liked, but without any special

qualification for the work. The election went to the Republicans in

Missouri, so Cockrell couldn’t go back to the Senate. He has many

friends. The senators all like him, Republicans as well as Democrats,

and they said to Roosevelt: ‘You must do something for Cockrell; here’s

a democratic vacancy on the Interstate Commission, put him in there,’

and Roosevelt put him in.”

This railroad president is a man of the highest character and of very

extensive information. Whether or no he is rightly informed in respect

to the appointment of commissioners, it is clear that the railroad

representation in the Senate could bring tremendous pressure to bear to

secure the appointment of men approved by railroad interests, that they

could block the appointment of any other sort of men even if nominated,

and that the temptation to exert this power to secure men who could be

controlled would be practically irresistible if the Commission were

given the rate-making power.

The fear of confiscation does not seem to be well founded on the part of

the railroads; there is more to justify such a fear on the part of

companies and localities unfairly treated by the railroads. The

Commission will have no motive to make confiscatory orders, and the

courts will protect the roads from everything that is doubtful in the

slightest degree as they have done in the past. The real danger of

confiscation of values lies in leaving the railroads free to make such

orders as those in the San Antonio case or the Kansas oil case which

destroyed the business of independent operators. Adding 25 cents a ton

to the coal rates from San Antonio practically confiscated the coal

mines at that point, and raising the oil rates in Kansas from 10 to 17

cents practically confiscated, during the continuation of the order, the

product of the independent oil wells.

That some disturbance of tariffs and business might result from

conferring the rate-fixing power on a public board is quite likely.

There is a good deal of business that ought to be disturbed; that of the

Beef Trust and the Oil Trust for example would be the better for a

thorough house-cleaning. And the tariffs need considerable disturbance

to bring them into close relations with the principles of justice. But

the disturbance _might_ be more than is needful. Our railroads say that

Government boards the world over show a tendency to adopt some sort of a

mileage basis, in the shape of a zone system or some other form of

distance tariff. This would interfere with the equalization of rates,

which is one of the best elements in American railroading. The fruits of

California are carried all over the country at low blanket rates that

enable them to be sold in every hamlet in the country at prices the

common people can afford to pay. New England shoes are carried to St.

Louis at 1½ cents a pair and to San Francisco for 2 cents a pair. Milk

is brought into the cities at the same rate for many miles out. So with

the pulp mills in the forests of New York, Vermont, and Maine. The

railroads give them all equal rates to the great cities. When the big

mill at Millinocket, Me., was being planned the promoters went to the

railroads for rates. To make the product cheap they must build on a

large scale, and to justify this they must be able to reach many

markets; they must be able to supply newspapers in Boston, New York,

Philadelphia, and Chicago. So the railroads gave them rates that enabled

them to send their paper 1,500 miles to Chicago and sell it to

newspapers there at the same price they would have to pay for paper that

came only 500 miles.[408] This destroys nature’s discriminations due to

distance, and places men on an equality in the market to win by their

merits, not by natural advantages or disadvantages of location. This is

in many ways a beneficent process and if the railways did not create new

artificial discriminations of their own they would be entitled to be

placed among the great equalizers of the age.

Years ago there was a vigorous argument about the rates on wire from

Worcester, Mass., to Chicago, and from Pittsburg to Chicago. The wire

mills of Worcester had a good business, employing some 5,000 men, and

marketing mostly in the West. Mills were built in Pittsburg, and being

much nearer Chicago got a lower rate to that city. The New York Central

at once met the rates so that the Worcester Mills could get to market on

a level with the Pittsburg people, who still had the advantage of

nearness to the coal and iron mines. Not satisfied with this, however,

they carried the question to the Traffic Association, claiming that as

they were 500 miles nearer Chicago, they should have a lower freight

rate than the Worcester mills. But they didn’t get it. The New York

Central said: “Here are 5,000 men at work in Worcester. What are they

going to do if we let you crowd them out of Chicago, which is their

principal market? We shall stand by them and meet any rate you make from

Pittsburg.” That was fine, as good as the raising of a rate to kill the

San Antonio mine was bad; the railroads can save industrial life as well

as commit industrial murder.

It is said that government rate-fixing would not meet such cases; that

the principle of equalization is not recognized, and both justice and

business development would suffer thereby.

It is not true that government rate-fixers do not recognize the

equalization principle. The national post-office has carried it to the

limit, and has based its business upon it to such an extent that it is

known as the post-office principle. It is applied in government

telegraph and telephone systems much more fully than in our private

systems. Even the State railways make considerable use of it. Although

the tendency is to adopt some sort of distance system as the main basis

of the tariff, there is constant recognition in Germany, Belgium,

Denmark, Switzerland, and the Australasian States, and it is announced

as a definite policy that so far as reasonably possible rival industries

shall be placed on an equality in the market. “We mean to bring the

manufacturer who is 100 miles away into the market on a level with the

man who is 10 miles away,” said the manager of one of these government

systems to me, and there is more or less of the same spirit and purpose

in all the government systems I am acquainted with. The fact is that a

movement toward the equalization of rates through application of the

principle to one commodity after another, or the gradual extension of

zone distances in a zone tariff, offers the only hope of attaining a

really just and scientific system of rates. Any sudden adoption of such

a system would disturb the values of real estate, etc., beyond all

reason, but it can be gradually approached, and that is what the

railroads in this and other countries are doing.

Our Interstate Commission has, I believe, shown too little appreciation

of this fact, too much tendency to insist that a town or city is

entitled to the benefit of its geographical position. It is entitled to

the benefit of its geographical position to the extent that no place

more distant from its market should have lower rates to and from that

market, but the right to claim that the rates shall not be equal is very

questionable, and frequently it is clear that no such right exists. The

Commission has recognized this point in several cases. For example, in

the Business Men’s Association of St. Louis _v._ the Santa Fe, Northern

Pacific, Union Pacific, and other roads,[409] the Commission sustained a

blanket rate on many commodities from the Pacific Coast to all points

east of the Missouri River. And in the Orange Rate Case[410] decided

last year, a blanket rate of $1 per hundred on lemons from Southern

California to all points east of the Missouri was approved. In the milk

case, however, it held that “A blanket rate on milk on all the Delaware,

Lackawanna’s lines, New Haven road, Reading, Erie, New York Central, and

West Shore and other roads regardless of distance, viz., 32 cents on

milk and 50 cents on cream per can of 40 quarts, is unjust to producers

and shippers of the nearer points. There should be at least four

divisions of stations,—the first extending 40 miles from the terminal in

New Jersey, the second covering a distance of 60 miles and ending about

100 miles from such terminal, and the third covering the next 90 miles,

and the fourth covering stations more than 190 miles from the terminal.

The rates on milk in 40–quart cans should not exceed 23 cents from the

first group of stations, 26 cents from the second group, 29 cents from

the third, and the present rate of 32 cents from the fourth group.”[411]

It is quite possible that the Commission made a mistake in this case,

though it is not easy for any but a railroad man, with a ravenous

appetite for tonnage and reckless of the waste of economic power, to see

any sense in arranging rates so as to take milk to New York from points

near Buffalo while Buffalo gets milk from places east of points shipping

to New York; but if the Commission did fall into error in this case, the

mistake of refusing to allow the distant man to come into the

metropolitan market on equal terms with the nearer man is nothing

compared to the mistake the railroads so frequently commit of allowing

some Chicago or Kansas City man to come into New York at lower rates

than the New York, Ohio, Pennsylvania, and New England producers have to

pay.

In respect to the distance tariff question, Chairman Knapp of the

Commission says: “I am very far from believing that there should be

anything more than the most inconsiderable tendency, if any at all,

toward the adjustment of rates on a mileage basis, and I think the

prosperity of the railroads, the development of the different sections

of the country and their industries, justify the making of rates upon

what might be called a commercial basis rather than any distance basis;

but do you realize what an enormous power that is putting into the hands

of the railroads? That is the power of tearing down and building up.

That is the power which might very largely control the distribution of

industries. And I want to say in that connection that I think on the

whole it is remarkable that that power has been so slightly abused. But

it is there.... It comes back to the question which Senator Dolliver

asked, are the railroads to be left virtually free to make such rates as

they conceive to be in their interests? Undoubtedly their interest in

large measure and for the most part is the interest of the communities

they serve. Undoubtedly in large measure and for the most part they try

as honestly and as conscientiously as men can to make fair adjustments

of their charges. But suppose they do not. Is there not to be any

redress for those who suffer? That is really the question.... Suppose it

were true that a more potent exercise of government authority and the

adjustment of rates tended somewhat to increase the recognition of

distance with the result of producing a greater diffusion of industry

rather than its concentration.... I cannot believe that all those

institutions, laws, administrations which operate to the concentration

of industries and population are altogether to be commended. I doubt if

they result in happier homes, better lives, greater social comfort.”

A public board might not be willing to apply the equalization principle

without limitation under competitive conditions. It might put the sash

and door makers of Michigan and Vermont on an equality in New York City,

and yet not think it best to enable the Vermont manufacturers to send

sash to Michigan and Indiana points at the same rates the Michigan

manufacturers pay, while the Michigan factories get the same rates to

Vermont and Massachusetts points as the Vermont people; nor to arrange

matters so that a train-load of bananas from the port of New York to

Boston would pass a train-load of bananas going from the port of Boston

to New York. It takes a lot of railroads working for profit, regardless

of the waste of industrial force, to see the wisdom of such

cross-hauling. A public board would be likely to recognize not merely

the principles of profit, equalization, and development of traffic, but

also the principles of economy from a national standpoint, the

adaptation of special localities to special work, the value of

diversification of industry, etc., etc.

It is entirely possible to avoid such mistakes as those attributable to

the Commission in its geographical cases, and other mistakes that may

come from lack of thorough acquaintance with practical transportation

problems, by putting on the Commission two or three traffic men of high

character and long experience in the business of making rates.

And as the business of the Commission would not be to make rates in the

first instance, but only to revise them on complaint, much as the chief

officers of railway departments do now, only with a public motive and

point of view instead of a private one, there is every reason to believe

that the work of revision could be intrusted to a well-selected

commission, with great advantage to the public. The very existence of an

effective power of revision ought to go a long way toward making the use

of the power unnecessary. And it is wholly just and practicable that

monopoly charges should be subject to the veto of a public board that is

in a position to take a broad, disinterested view of rates and other

transportation questions.

How superior the Commission’s methods are in many ways to those in use

on our railways can hardly be appreciated by one who is not familiar

with the unscientific, chaotic rate-making practices everywhere in vogue

in this country, and also with the breadth and system that marks the

work of the Commission.

An illustration may help to make the contrast clear. Take the case of

Kindel _v._ Boston & Albany, and other railroads, decided by the

Commission, December 28, 1905. The railroads were charging $2.24 per

hundred on cotton-piece goods from Boston, New York, and other eastern

points to Denver, and $1.50 on the same goods from the East clear

through to San Francisco. The local rate from Omaha or Kansas City to

Denver was $1.25, the same as the rate on first-class goods, and the

rate from the Atlantic to Denver was made by adding the said local rate

to the rate from the East to the Missouri River. Kindel complained that

the rate to Denver was unreasonable and unjust. The Commission carefully

studied the facts, took into consideration the relation between cotton

rates and first-class rates on various routes throughout the country,

put the data on a chart, a facsimile of which accompanies this

description, and came to the conclusion that “the exaction of

first-class rates on cotton-piece goods between Missouri River points

and Denver, in view of the long prevailing differentials in other parts

of the country and other existing conditions, is unjust and

unreasonable; and that the result of the excessive rate on cotton-piece

goods between the Missouri River and Denver and the application of full

locals in making up the through combination rate from New York, Boston

and other eastern points taking the same rates to Denver is to make the

through rate excessive, and that such through rate to Denver to be

reasonable should not exceed $1.50 per hundred pounds.”[412]

[Illustration]

If the reader will examine the chart he will see that the cotton figures

(which are placed below the route-lines) are less than the first-class

rates (which are printed above the route-lines) in every case except

between the Missouri River and Denver, and in some cases the cotton

rates are only half the first-class rates. In view of the practically

universal custom of the railroads in this relation, the deviation in the

case of Denver amounted to a practical discrimination against that city

and any shippers who desired to lay down cotton goods in Colorado. The

railroads carried the goods from Boston to Chicago for 55 cents, while

charging $1.25 from Omaha to Denver, more than double the charge for

half the distance.

Railroad rate-makers do not base their tariffs on broad considerations

of justice, but get what they can out of the traffic for their own

lines, while the Commission asks what rate will yield a fair profit, and

will be just to the public and to the individuals and localities

involved, considering all the circumstances and their relation to

transportation conditions throughout the country.

At best, however, it cannot be denied that great inconvenience and some

injustice might be inflicted upon the railroads by public rate revision.

It seems to come down to the choice of the least of two evils. The

President and the people say that if the railroads are left free to make

the rates they do not deal fairly; experience shows that they

discriminate unjustly between persons and places, and put some rates too

high and others too low. The railroads say that if a public board should

make the rates the companies might not be treated fairly. Both

statements are true. But it is clear that somebody must make the rates.

And it is equally clear that there is no system of rate-making that will

do perfect justice. I know of no railway minister or traffic manager in

Europe or America who even dreams he knows of any method of rate-making

that will do justice all round under present industrial conditions. The

post-office principle may ultimately be applied to diffuse the burden of

distance over the whole community, but it is not practicable at present.

If then a certain amount of injustice is unavoidable, and we must choose

between injustice to a small group of stockholders or to eighty millions

of people, which alternative shall we accept? If there is no way to

solve this problem that will not work injustice somewhere, shall it be

to the little group of profit-makers or to the great public, the people

of the United States?

Besides this quantitative comparison, there is a qualitative comparison

that is still more weighty. Such injustice as may be done to the

railways is merely a matter of diminished dividends on stocks, a very

large part of which is water; while the false rates and unfair

discriminations made by the railway managers not only affect property

interests many times greater than railway stocks, but deny equal

opportunity and undermine morals, manhood, government, civilization, and

progress,—values far higher than any financial items whatever. Moreover,

it is not unlikely that a board constituted somewhat differently from

the present one might eliminate most of the errors of the Interstate

Commission as well as those of the railway. What are the causes at work

in the case? The reason the Commission has made some injurious rulings

is that they lack the thorough acquaintance with traffic conditions that

the railway managers possess. And the reason the railway managers make

rates that are contrary to public policy is that they are more or less

influenced by motives that are antagonistic to the public interest. The

Commission is disinterested; it has no wish or personal interest leading

to unfairness either to the railroads or the public; its motive is

right, but its knowledge is imperfect. The railway traffic managers, on

the other hand, have much more perfect understanding of the

transportation business, but their interest is not altogether in harmony

with justice and the public good. Is it not possible to create a board

that shall have the thorough knowledge of first-class railway experts,

together with the high motives and unmixed interests of an honorable

public commission or court, and so remove the chief causes that have

worked injustice in the past?

It is possible that there may be another fair solution,—that the rates

may be made neither by the railroads themselves nor by a body

representing the public alone. As there are three partners in the

railroad business, as in every great industry,—viz., labor, capital, and

the public,—it may be regarded as a case for arbitration, or for

decision, not by any one partner alone, but by a board representing all

three partners. Should there not be a board on which the railways have a

right to representation, the workers being represented too, and the

public also having fair representation upon the board? Then the decision

would represent the co-ordination of thought and interest of the three

great parties concerned in the railway problem. Perhaps such a solution

would be superior in its justice to decision either by the railways

alone or by a body representing the public only.

But it is clear that the final power to pass on transportation rates

must rest somewhere. That railways are public highways, and

transportation charges in the nature of taxes, are settled principles of

law and economics. That governments have a right to regulate railroad

rates is everywhere recognized. But how is the right to be effectively

exercised? If legislative bodies attempt to exercise it directly, the

lack of detailed information as to specific cases and the failure of

elasticity and adaptation to the needs of business, urged against

Commission work, would be emphasized a hundred fold. There is no way but

to delegate the power to an expert board, not with the expectation of

perfect justice, but of the greatest attainable justice.

The most important question of all in this connection remains to be

considered, viz., would the possession of the rate-fixing power enable a

regulative board to stop discriminations? Practically every rate

question but one involves the question of discrimination. The exception

is the query: “Are the total charges unreasonable?” It is conceivable

that the relations of the various rates might be fair but the whole

tariff might be pitched too high or too low; then the reasonableness of

that tariff would be the only question on which action would be

requisite. But in practice there are always some rates that are low

enough, some too low, and some too high. And there are always two active

questions in reference to any rate: 1. Is it fair in relation to the

rates accorded to other persons, places, or commodities? 2. Is it

reasonable? In other words, is it such that if other rates stood in true

relations with it the total margin of profit would yield a fair return

and no more than a fair return on the investment? Both questions are

very difficult, especially the latter. The reasonableness of each

particular rate depends not only on its own individual circumstances,

but on a comparison with all other rates and a consideration of the

company’s entire business. Difficult as it is, it would seem necessary

to try to answer it in a broad way, at least in respect to the tariff as

a whole, for the failure to answer it may mean unjust taxation of

industry, inflation of capital values, dividends on watered stock, vast

accumulations of wealth in the hands of railway owners, political

corruption, and the whole train of evils that follow in the wake of

industrial aggression. Yet deeply important as it is to secure

reasonable rates, how futile it would appear to attempt to do it by

means of a board making orders as to this, that, and the other rate

complained of, but without power to revise the tariff as a whole, or to

require any particular standard of service in return for the rate

decided upon. For every cent cut off the rate by the Commission, the

railways, if they are agreed to act in harmony, can easily withdraw two

cents’ worth of facilities. Suppose the Commission can fix a reasonable

rate, what is the use of it unless it can schedule to its judgment a

minute specification of the quantity and quality of service to be

rendered in return for that rate? And it would have to schedule also the

price level, the crops, and all the conditions of home and foreign

markets and adjust the rate on a sliding scale, else the rate that is

reasonable now may become very unreasonable in a few weeks or months

from now. And if, instead of this patchwork, the public board attempts

to revise the tariff as a whole and fix the services to be rendered, it

will either get itself captured by the railroads or it will cripple

railroad enterprise. Railroad men are not going to work with much spirit

if you take the control of rates and service out of their hands, and if

you leave them control of either they will have you instead of your

having them. It always means a struggle for mastery where a body that

does not own seeks to control. The body that owns and has possession

will evade, pervert, defy if possible, and if overborne will lose

initiative and energy and take on the air of a conquered province.

The case is no better in respect to discrimination. In the first place

it is clear that, as railroad managers have testified, it would be just

as easy to cut rates made by a commission as to disregard the rates made

by the railways and published by them and thereby made obligatory under

the law. Mr. J. H. Hiland, head of the traffic department of the

Chicago, Milwaukee and St. Paul, says: “I can cut a rate or give a

rebate on a rate fixed by a commission just as easily as though I had

made the rate myself.”[413] Mr. W. D. Hines, till recently

Vice-President of the Louisville and Nashville, says: “The Townsend Bill

made no provision whatever which looked to the prevention of rebates. It

provided that the Commission should fix rates, but there would have been

the same facilities and the same inducements to cut the rates made by

the Commission as to cut the rates established by the railroads.”[414]

President Tuttle of the Boston and Maine puts the case in this way. “A

big shipper says to the managers of the A, B, & C railroads ‘Give me a

cut rate.’ They refuse. Pretty soon all P’s business is going by the X

line. The A, B, & C folks notice that they are losing traffic and they

say ‘Look here, where’s all that business we used to get? The X line is

getting it all. P’s got a concession over there!’ Maybe he has and maybe

he hasn’t, but you can’t make those fellows on A, B, & C believe that he

hasn’t. They go to P and say: ‘What are you giving all your business to

the X line for?’ P says, ‘Well, I asked you to give me a lower rate and

you wouldn’t do it.’ He don’t say he’s got a lower rate on X, and maybe

he hasn’t, but the effect on A, B, & C is the same as if he had. They

say, ‘What do you want?’ P says, ‘Give me 2 cents a hundred off the rate

and I’ll distribute my business as I did before.’ So they give him 2

cents off and they get the tonnage.”

Mr. E. P. Vining, a former railroad manager, says that the reduction of

a rate found unreasonable by the Commission may result in new

discriminations unless other rates are reduced in fair proportion.[415]

It is also clear that in many cases the reduction of other rates by the

railroads may nullify the effect of the Commission’s order in respect to

the rate complained of. Take, for example, the railroads leading from

the wheat belt to Minneapolis and to Milwaukee. Excepting the Chicago,

Milwaukee and St. Paul the roads that lead to Minneapolis are not the

same roads that lead to Milwaukee. The Commission found that the rates

on grain to Milwaukee and Minneapolis subjected the former to undue

prejudice and disadvantage, but if the Milwaukee roads were ordered to

reduce their rates to a given level the Minneapolis roads could

neutralize the order by reducing their rates below the said level.[416]

In other words no mere right to designate a reasonable rate in place of

a rate complained of and found unreasonable can prevent unfair

discrimination between places.

Nothing short of a general rate-making power can do the work properly.

Particular rate-fixing alone means patchwork and inefficiency, easy

evasion and new discriminations in place of the old ones. On the other

hand, to give a public board general power to revise rates would if

effective be tantamount to taking possession of the railroads without

compensation, and if ineffective would amount to little in the way of

stopping discrimination. If the tariffs were made by or subject to the

revision or approval of a public commission and the rates so made were

enforced, the most vital element in the ownership of the roads would be

made public. And if the rates were disregarded or the power not

vigorously and intelligently exercised the evils we are considering

would still continue.

CHAPTER XXXIV.

CAN REGULATION SECURE THE NEEDFUL DOMINANCE OF PUBLIC INTEREST?

It is questioned whether any form of regulation can overcome

discriminations. One of the ablest members of the Interstate Commerce

Commission said to me: “No, regulation can never stop discrimination.”

And the man who is regarded by many as the leading railroad expert in

the country replied to my question in substantially the same way.

“Regulation properly so-called cannot eliminate discrimination, though

it may greatly diminish it.”

What he meant was that a control strong enough to eliminate

discrimination, would not be regulation, but ownership or

quasi-ownership. So long as men representing private interests continue

to possess control over rates and services they will continue to

discriminate, for private interests demand discrimination. And if

control of rates or services or both is placed in a public body, public

ownership or quasi-public ownership is thereby established, for control

is the essence of ownership. It makes little difference who has the

title to a farm if I have the control of it and can determine the way in

which the work shall be done and the price at which the crops shall be

sold. The “owner” in such case is little more than a mortgagee—he has

the interest on his capital, whatever I choose to allow him, and that’s

all. It would seem that if the people wish to control the railroads,

they should buy them at a fair value, and not establish complete or

quasi-ownership without compensation, under the name of regulation and

control.

This is an interesting line of thought, and philosophically has

considerable force in respect to control extending beyond what the

public may have a right to claim as a partner by reason of the bestowal

of franchises and other benefits. It is also important to note that only

substitution of managers owing allegiance to the public interest in

place of managers representing private interests can eliminate the

motives to discrimination, and remove the antagonism of interest between

the owners and the public, which is the root of all railroad evils.

This is a practical world, however, and the practical facts are that the

difficulties in the way of public ownership of railways in this country

at present are very great, and that much good may be accomplished by

judicious regulation. The long and short haul clause may be made

effective; the railroads can be prevented from paying shippers more for

cars or switches than they would pay each other; private car-lines,

express companies, and water carriers can be brought within the Commerce

Act; the Commission can be given power to name a reasonable rate or

practice in place of one found unjust, and either put it in force at

once, subject to revision in a special court devoted to transportation

cases, and acting promptly on all appeals, or themselves take the facts

and their conclusions at once to the court and get a ruling before

putting the order into effect; and railroad managers can be prohibited

from having any interest in any concern that can be aided by

transportation favors over their roads, as is already the case on James

J. Hill’s Great Northern, except with respect to Mr. Hill himself.

Besides all this it may be possible to make the law so clear that the

courts cannot twist it out of shape, and the States might be got to pass

laws in complete harmony with the Federal statutes. Railroads and trusts

can be subjected to public inspection, and to the pressure of damage

suits, injunctions, and progressive taxation. If need be the public

could demand representation on the boards of direction of all the

railroads, or the traffic managers could be made public servants and

required, as receivers are now, to report semi-occasionally to the

Federal courts, and to State courts also, perhaps, with the power of

judicial removal in case of misconduct. There is a practical warrant for

demanding representation in the management of the roads, in the fact

that the franchises bestowed on them by the public represent a large

part, probably half, of their market values. The public is entitled, as

we have said, to be regarded as a partner in the railroads.

If after thorough trial, regulation proves insufficient or

unsatisfactory, public ownership remains.[417] The movement of thought

in that direction in the last few years is very remarkable. In whatever

way relief may come, whether by regulation or public ownership, _the

essential fact is the dominance of public interest over private interest

at the points where private departs from public interest, and the

essential instrumentality for the realization of this fact in a republic

is the actual, complete, and continuous control of the Government by the

people_.

That unjust discrimination in railroad rates and service can be

abolished, we know from the experience of other nations. Studying the

railways of ten countries on the ground, examining the railway

literature and talking with leading authorities of twenty-six countries,

and analyzing the writings of the principal critics of the various

systems, I find that the railroads of the United States are unique in

two respects—the efficiency of the service they render, and the extent

and viciousness of the discriminations they make. If efficiency and

injustice were essentially related, we might look with some degree of

leniency on the evils of railway favoritism, though the wise would

prefer justice even at the sacrifice of some degree of efficiency. But

there is no such relation. Efficiency is due to national characteristics

and economic conditions. In Italy I found the least efficiency

coexisting with the greatest development of railway favoritism that I

discovered anywhere in Europe, while the German roads are highly

efficient and absolutely free from favoritism. All over Europe shippers

and railway men assured me that no concessions could be obtained on the

German railroads, and that they were the best managed roads in Europe.

The railways of France and England are less efficient than those of

Germany, and are tainted with discrimination to a degree that is

insignificant compared with the phenomena in that line over here, but is

very emphatic when compared with the German standards. The press of

Great Britain has for years been holding up the management of the German

roads as a model to be followed in England, and attributing the success

that Germany is having in superseding English goods with her own in many

leading markets to the efficient and far-sighted policy of her railway

management.

There does not seem to be any clear connection between efficiency and

the form of ownership. The private roads of America are the most

efficient and the private roads of Italy[418] the least efficient I have

examined. The public roads of Germany and Belgium, though less efficient

than our private roads, are more efficient than the private roads of

France and England. In the same country, under like economic conditions,

either private ownership or public ownership may secure the best

management and most efficient service according to the stage of

development. In the United States under existing political conditions

the managers of our railways have many facts on which to base an

argument that Government operation of railroads would be less efficient

than private operation; and the fact that our adverse political

conditions are due in large part to the private ownership of public

service monopolies does not destroy the whole force of the argument,

since our rings, bosses, party machines, spoils system, etc., are due in

part to other causes. But where public affairs can be managed with the

purity and business sense that characterize the railway managements of

Germany, Belgium, Denmark, New Zealand, and South Africa, there is

equally little reason to doubt that public operation is the more

economical and efficient.

The low average freight rate in the United States is often adduced as

conclusive proof of the efficiency of private management. But the

average freight rate in England and France is higher than in Germany or

Belgium.

If it is a valid argument to say that the low average freight rate in

the United States under private ownership proves the case as against the

higher average freight rate under the public systems, then why is it not

fair to say that the high rates in Great Britain and France under

private ownership in their turn prove the case for public ownership. The

average passenger rate in the United States and in Great Britain is

twice as high as in some of the public systems of the continent. If the

low freight rate proves the case for private ownership, why doesn’t the

low passenger rate in Germany and Belgium prove the case for public

ownership? The fact is that such comparisons of average rates prove

nothing as to the management. Differences in the density of traffic,

grades, curves, length of haul, wages, capitalization, etc., enter as

plural causes and make it impossible to ascertain the effect of the

element under consideration. Mr. Fink found that the ton-mile cost

varied eightfold on different lines in his own system, all under the

same management—700 percent more in some cases than in others. In view

of that fact, of what use is it to try to draw inferences from the

average rate?