Federal Rate Regulation

SINCE the publication of the President’s message, with the well-known paragraph expressing the belief that an act conferring on the Interstate Commerce Commission the power to revise railroad rates and regulations was the most important legislative act now needed for the regulation of corporations, there has been a lively discussion of the subject, before both houses of Congress and in the public press. This discussion has resulted in the passage, by the House, of the EschTownsend bill, while the Senate has appointed a committee to take further testimony, and investigate the subject during the Congressional recess. So far as the public is concerned, the literature which has been produced has covered fully the points at issue, and the justification for taking the matter up again at this time must lie in the fact that most of the discussion has been frankly and strongly biased, with a view either to show the existing evils, or to point out the generally healthy railroad situation, and to maintain stoutly that the proposed regulative measures were unwise. The present paper aims to review the striking points that have been brought out in the testimony and incidental literature on the subject, and attempts to balance, as far as may be, arguments strongly colored by the partisan view-point on one side or the other, so that it may be ascertained what the actual evils are that remain unadjusted, and how it is proposed to adjust them.

It is in order, first of all, to present the brief of the complainants. Senator Newlands, during one of the hearings before the Senate Committee on Interstate Commerce, said to S. H. Cowan, of the Texas Cattle Raisers’ Committee, “It is claimed that this task is so big that we ought not to entrust it to any commission whatever. What, do you say ?” Mr. Cowan replied: “ Are you going to entrust it to the traffic man ? Every time he wants more money he can reach into the pockets of the shipper and take it. It has got to be entrusted to somebody, — and public opinion will absolutely overwhelm Congress to the end that some relief be given to the people to protect them from the railroads.” Similarly, before the House Committee, George F. Mead, representing the National League of Commission Merchants, and the Boston Fruit and Produce Exchange, said: “The railroads absolutely hold to-day the power to make or break localities or men without any supervision whatever being given over their rates. . . . The ordinary business man today does not propose to spend his time and money in the preparation of a case and take it before the Interstate Commerce Commission, when, after everything has been decided in his favor, he has got to go to the courts to have the order of the Commission enforced, as the average time to put a case through the courts after it has been decided favorably by the Interstate Commerce Commission is four years!” The power of the railroads to affect the fortunes of individual shippers, by increasing the rates to which their business has become adjusted, is the direct evil complained of; the power to discriminate, either in respect of one person against another or of one locality against another, is the concomitant of this and the usual source of trouble, while behind both of these correlated evils is the law’s delay. It is undeniably true that the cost and the delay of a suit under the common law amounts practically to a denial of justice in such cases. The Act to Regulate Commerce, of 1887, better known as the Interstate Commerce Act, provides that a rate must be reasonable, but this throws upon the shipper the sorry task of proving that the rate complained of is not reasonable, — a matter about as difficult as to establish by testimony that a certain hill is or is not high. If, on the other hand, the shipper carries his case to the Interstate Commerce Commission, he may perhaps get a settlement in his favor in from three months to a year, — after much hearing of testimony, — in which case he will lose the difference between the rate he paid and the rate as finally adjudicated, during the period of investigation by the Commission. But this presupposes that the railroads accede to the decision of the Commission, as, indeed, they often do. If they contest the ruling, or ignore it, the power of the Commission ceases, and it can only fall back on the right of the individual to sue at common law, to enforce its decrees. In brief, the remedy for an unjust charge is hedged about with such difficulties, costs, and uncertainties, that it is nearly out of the large shipper’s reach, and is practically non-existent for the small shipper.

This feeling of impotency on the part of the aggrieved shipper, and the conviction that the cumbersome machinery of the law operates always in favor of the railroad, is doubtless the moving cause in the present agitation, far more than the existence of general or specific schedules of rates which are in themselves unjust. The testimony has cited numerous specific instances where rates are complained of, however. As an example of a concrete increase, which threatens the prosperity of a definite interest, the Texas Cattle Raisers’ Association case is characteristic. The representative of this association testified that it was the practice of the Southern and Southwestern cattle-raisers to ship their cattle to Northern states, to be fattened upon the ranges and pastures before being brought to market. The members of the association own approximately four million head of cattle, distributed throughout Texas, New Mexico, Oklahoma, etc.; so that a large interest, both numerically and geographically, is concerned. Schedules were quoted to show that the rates on cattle from Texas points (Amarillo group) to common points in the Bellefourche group, South Dakota, had been increased from sixtyfive dollars per car, between 1890 and 1898, to one hundred dollars per car, with no compensating betterment of service. A voluminous exhibit of tabular matter was presented to controvert the claim that it cost the roads more to do the business to-day than it did ten years ago, and complaint was made that they were not justified in making so considerable an increase in a rate which they had previously maintained through a series of years.

As a case illustrating a more complex aspect of the question, — alleged injustice to the general public, as opposed to any specific interest,—the Hearst testimony is illuminating. Congressman Hearst testified that he instituted suits in the fall of 1902 to show that the high price of coal was due originally to agreements by the railroads resulting in the establishment of a monopoly. He alleged that the rail rates on coal from the mines to New York had been kept so high that competition was excluded. The railroads and the largest anthracite coal interests being practically identical, the rail tariff could be made as high as they pleased, so that it worked like the old Standard Oil system of rebates, except that in the present case no actual rebate was paid.

Now comes the railroad manager into court to reply to the agitation for giving the Commission rate-making powers. His answer assumes manifold forms, but it rests on three main premises. The first of these is that the present situation does not call for so radical a step on the part of the government; that rates, as a whole, have shown a marked and substantially a steady decrease through a long period of years; that occasional friction is inevitable in the working of so complex a machine as a great railroad system, but that irregularities are corrected as fast as they are brought to his attention. In this connection, he alleges further that most of the popular clamor for rate regulation is specially manufactured for the occasion, and that much of it is political. The railroad manager’s second premise is that the practical difficulties attendant upon any equitable system of Federal rate regulation are insuperable; his third premise deals with the patent objections to clothing a single commission with duties corresponding to those of all three branches of the government, — executive, legislative, and judicial, — and he points out that it is manifestly unjust for a body which has acted as prosecuting attorney to sit in judgment upon its own findings.

In support of his first contention, that the present situation occasions no cause for alarm, the railroad manager shows that the average freight earnings per ton per mile were 1.99 cents in 1870, 1.24 cents in 1882, .839 cents in 1895, and .763 cents in 1903. This, moreover, while the purchasing power of the dollar received by the railroad in payment for transportation has been steadily growing less. H. T. Newcomb presented in evidence an ingenious calculation, based on statistics published by the Department of Labor, which shows that if the average freight from the years 1890 to 1899 be represented by the index number 100, the average rate in 1902 was 90.2. But the average cost of fuel and lighting, from the same original number, increased to 134.3 during the same period; cloths and clothing increased to 102, food to 111.3, and the average of 260 commodities increased to 112.9.

These figures are very striking, though they involve a serious fallacy in comparing the trend of railroad rates by means of the general ton-mile average. If a road that handles a large tonnage of high-class manufactured articles builds a branch into coal fields, or makes a traffic agreement that brings it a considerable new movement of grain, it may raise every rate on its schedule and yet show a lower ton-mile average at the end of the year, because a ton of coal, or of wheat, must in any case take a rate far lower than the corresponding weight of clocks or sewing machines, and the average rate reflects the proportion which low-class freight bears to the total, rather than the tariff paid by any one shipper. But the Department of Labor’s commodity-costs, which deal with each article separately, involve no such fallacy, and a study of the railroad schedules, item by item, instead of in the aggregate, shows a general trend which is distinctly downwards, while the commodity - costs have been going up. Mr. Newcomb testified before the House Committee that it took the farm value of one bushel of wheat in every 51/4, in 1899, to pay the freight from Chicago to New York, while at the present time it takes only one bushel in every 7.82.

Concerning the direct, practical difficulties which would beset a government commission that attempted to regulate rates, a vast amount of testimony has been brought out. The prima facie difficulty of determining what is a reasonable rate is well known, and has already been alluded to. One witness before the House Committee called attention to statements by the Supreme Court that any calculation as to reasonableness of rates must be based on the fair value of the property; that a railroad is not entitled to earn merely for the purpose of paying dividends, operating expenses, fixed charges, and taxes, but that the interests of the carrier, of the shipper, and of the public must all be kept in mind, and he added that these questions were as broad as the subject of logic! An effort to determine what it costs a railroad to handle any commodity is a will-o’-the-wisp chase. It is possible to tell accurately how much coal is burned in hauling a load of furniture from Grand Rapids to New York, — provided nothing else is carried in the same train, — and the wages of the train crew can be definitely set down. But how about the back haul ? If it should be necessary to take the cars back light, or with only a partial load, should the east-bound furniture stand the wage and fuel cost for the west-bound train ? And what part of the charge for maintenance of way, signals, and bridge renewal; for taxes, interest on bonds, and the salaries of the general officers,—costs met by the receipts from freight and passenger traffic alike,—should be borne by this trainload of furniture ? It was freely admitted that the reasonableness of a rate would have to be determined by a commission, — as, indeed, it has been by the present Interstate Commerce Commission, — on some other basis than that of a calculation of the cost of moving the commodity.

But the point has been raised that the traffic manager is as much in the dark as is the commissioner, when the question of the reasonableness of a rate arises; that rate-making must, at best, be a matter of judgment, and that the commission’s judgment would have the advantage of impartiality. Setting aside any discussion as to the possibility of putting “reasonableness” on a scientific basis, the difficulties then become resolved into those of execution. Mr. Hines, appearing before the House Committee on behalf of the Atlantic Coast Line and the Louisville and Nashville Railroad, called attention to a prominent aspect of this in the interdependence that rates have upon one another. “For a rate that is fixed for one point,” he said, “you will have perhaps twenty points that will straightway find they have been affected by that reduction. When the Commission fixes a rate, it simply begins its work as to that special rate. When it makes a rate, it does not get a rate off its hands, but it gets one on its hands. This will be particularly true with respect to the adjustment of rates between localities, which, as is apparent from the hearings here, is the principal sort of work that a rate-making tribunal would undertake.”

The grain differentials between the grain-producing country and the different seaports illustrate this point nicely. With the schedule observed for many years, the charge for hauling wheat from interior points to New York was two cents greater per hundred pounds than the charge to Philadelphia, and three cents greater than the charge to Baltimore. The question as to the fairness of these differentials has never been settled to the satisfaction of all the parties concerned. The New York interests claim that the lower rate to the southern ports is seriously affecting their business, while Philadelphia and Baltimore angrily contest any proposition to abolish the differential, and clamor for a larger one. The basis of their argument rests technically on the question of mileage, for Philadelphia is ninety-one miles nearer Chicago than New York is, and Baltimore is a hundred and eighty-seven miles nearer.1 But nobody thinks that the southern ports are actually given a lower rate on account of the shorter haul; the New York Central and the West Shore would be delighted to haul to New York at the lower rate, if doing so would not involve them in a general rate war. The actual reason for the differential is simply that the southern roads must share in the grain business, and the southern ports will not attract the grain when their rates are on a par with New York. Besides the Lake advantage, during the season of open navigation, the largest seaport in the country has, ipso facto, great strategic strength in the grain business, on account of its multitudinous steamer lines to every part of the world. These not only offer excellent facilities, but are in position to keep the ocean freights very low, because grain is extremely desirable as a supplemental cargo for a vessel already partly loaded, and the agents of such a vessel, chartered, perhaps, in other service, may find it to their advantage to offer their remaining space more cheaply than would be feasible if the entire vessel were engaged to carry grain.

Suppose, then, that the Interstate Commerce Commission has the power of rate regulation conferred on it. Philadelphia and Baltimore both have differentials from the rate to New York; the New York interests, dissatisfied with the share of grain they are receiving, — as is usually the case, — protest to the Commission that the respective grain rates are unreasonable. Now what is the Commission to do ? If it attempts to establish rates on a basis of mileage alone, the difficulty at once arises that there are a number of railroads reaching the several ports, some of which have a longer haul than others. Then the road with the shortest route could name, and would be compelled to name, the lowest rate, which would bring it the entire business, and would throw the situation, so far as the other roads were concerned, into an unthinkable state of confusion. Suppose, then, that the Commission abolishes the differential entirely, on the ground that the haul to New York, although longer, is made over easier grades, and that there is no obvious reason why a higher charge should be made for the service performed. Baltimore and Philadelphia will then complain, correctly, that their grain business has been taken away from them, and ask the reason for this discrimination in favor of New York. On the other hand, if the differentials be left unchanged, New York will then be in position to point to the clause in the Constitution of the United States which says that no preference shall be given, by any regulation of commerce or revenue, to the ports of one state over those of another. New York, Philadelphia, and Baltimore being ports in three states, it would seem that the Commission would find itself on thin ice over the deep waters of preference in any attempt to settle the vexed question of the differentials. It has been held by some writers that this clause of the Constitution would not apply to rate quarrels between ports; that it was written before railroads were dreamed of, and that no meaning can be read into it except that originally intended : to wit, that Congress should not have the power to erect any sort of customs barrier to the hurt of the port or ports of any individual state. But until the question may come up before the Supreme Court, it will be hazardous to risk an opinion as to the construction of this highly important clause, except to point out that the whole fabric of Supreme Court decisions on the Act to Regulate Commerce is built upon a foundation of constitutional principle that fits modern conditions only by the moulding and shaping of judicial interpretation.

The Commission, with its present restricted powers, has already viewed the question of the Atlantic port differentials, and has held them reasonable. (Further investigations by the Commission are in progress at the time of writing.) But so long as it lacks rate-making powers, it is not open to the charge of unconstitutionality arising from port preference. It can readily be seen that as soon as it should have the power to say, either that a specific new rate should be established, or that a specific old rate should be maintained, it would have to face claims made under this obstinate constitutional clause from as many quarters as there are dissatisfied ports, and where is there a port that is not dissatisfied ? However arbitrary the traffic manager’s rates may be, they have, in a case like this, the distinct advantage of being the result of a general attempt to compromise and harmonize conflicting claims, and, once made, of being open to no constitutional objection, so long as they are not in themselves unreasonable. The difficulties which would follow the establishment of rates by measure, instead of by compromise, as the result of successive appeals to the courts, are quite apparent.

The situation in which a rate-making commission would find itself when it tried to settle quarrels between ports has been explained fully in this case of the grain differentials. Examples might be multiplied indefinitely of this single phase of the objection to conferring the powers on a Federal Commission. Another side to the same objection, raised by the railroad interests on purely practical grounds, is the matter of rate flexibility. A certain railroad in northern New England has branch lines running through practically undeveloped lumber country. Not long ago a wood pulp manufacturer interviewed the officers of this road, to find out whether it would be to his interest to establish a plant in that territory. In order to do so, he would have to be given a very low special rate, to enable his product to compete in the market with that of other manufacturers located nearer the consuming centre. The traffic manager of the railroad figured that he was likely to make some small profit on the business, and that there would also be a back haul of supplies for the mill and the settlement which would grow up around it. This would be the direct result; an indirect result of building up the territory would be likely to follow. Therefore a remarkably low rate was named, cheerfully and at once, for this special traffic; a rate which the railroad could by no means afford to have quoted as a precedent, but which served its purpose of pioneer work in developing an industry and building up new traffic.

Problems of this kind come up almost daily, requiring special concessions and prompt action. Any additional freight carried at a presumable profit over operating cost enables the railroad to reduce by so much the charge for carrying other freight, but a railroad manager would certainly hesitate to make such a rate if it was likely to be seized upon by a Federal commission as an example of the kind of tariff that should apply generally, and to be used as a club,on suit instituted by dissatisfied communities elsewhere on the line, to force other reductions. As was stated in testimony before the House Committee, the secret of the great development of commercial and industrial enterprise in this country has been the flexibility and facility with which railroad men have met new conditions, and have reached out after new markets. Comment was made that this initiative cannot be exercised by the railroads and by the Interstate Commerce Commission at the same time, and that, if the Commission can say what the rate shall be, the railroads will be deterred from this wholesome striving after new traffic, because they will realize that what they do in a particular instance will be applied as a precedent in some other case. Instead of simply developing traffic, they would be piling up a highly dangerous line of precedents, that would be pretty sure, sooner or later, to disturb some other relation.

A practical illustration of this is found in the operation of the law in a number of states which at the present time empower their commissions to make rates. Complaints have been frequent, notably in Georgia and in Texas, that the very presence of a zealous commission has tended to keep local rates high, because the traffic managers have feared to make any special efforts to get new business on a basis which would be disastrous if applied to the entire schedule. That the welfare of a community and that of its railroads are interdependent is well understood, but the delicate adjustment of the relation and the ease with which it can be disturbed are not always appreciated. Wisconsin carried rate regulation to such extremes in the famous Potter law, of 1874, during the Granger period, that its railroads were unable to perform their functions or to pay interest on their mortgages, and the prosperity of the state was definitely retarded during the two years that the act was in force. The conditions in Texas to-day, where the Commission rejoices exceedingly in its strength, are such that railroad capital is becoming chary about extending the development of the state, and railroad managers are not eager to give concessions to develop new traffic. At the time of writing, Wisconsin is again considering the advisability of entering the rate-making field, yet recent testimony before the legislature of that state showed how much easier it has been to further local development there, with the traffic-manager rates as now made, than across the border, in Iowa, where rates are made by a state commission.

So much for the objection that rates made by a Federal commission would be inflexible. The other chief line of criticism to which the President’s plan has been subjected is directed on constitutional and equitable grounds against the centring of executive, legislative, and judicial functions in the same body. It was argued by Samuel Spencer, President of the Southern Railway, that the Interstate Commerce Commission at present is an investigating and prosecuting — an executive — body. But if it be given power to enforce a decision that a rate is unreasonable per se, it straightway adds the judicial function to the executive. The matter does not stop here, however, for the Esch-Townsend and the other bills under consideration provide that the Commission, after certain specified procedure, shall name a new rate, which shall operate in the future.

Now, the judicial function deals with acts present or past; not with the future. The power to name a rate means the power to name a future rate, and that power, so far as it is vested in government, is purely a legislative function. That is to say, a new rate made by the Commission would be in the nature of a law, rather than a judicial decision, and therefore not subject to review, on any but constitutional grounds, by the Supreme Court. This is, of course, a point of great weight. All of the Federal rate regulation bills seriously considered at the last Congressional session looked to a review of the work of the Commission by the United States courts, but if it is accepted that the making of a future rate is a legislative act, then the Commission becomes a coördinate branch of Congress, and the courts can do no more than determine, on appeal, whether or not a specific ruling is confiscatory, or otherwise at variance with constitutional limitations; they cannot themselves name a rate which can be put into effect, as the President apparently intended, nor can any court be constituted which will be able to exercise such a power. As was said by Congressman Adamson, in examining a witness at one of the hearings, “You propose to constitute a separate body to review the findings of this Commission, to which we have delegated the power to fix rates, and that body may hear the case and decide that everything that has been done is wrong; yet you say that you cannot empower that court to finish the job and declare a final rate that shall prevail.”

The testimony laid much stress on the inherent unfairness arising from the simple vesting of administrative and judicial functions in the same body, without regard to the further complication of the legislative function which arises when the Commission names a rate for the future. As it was concisely expressed, — it is not in accordance with American practice to have the prosecuting attorney act as judge. By the very fact that it has collected testimony, examined witnesses, and promulgated a definite “case” against the railroads, the Commission may fairly be supposed, in each instance, to have disqualified itself from assuming a judicial attitude and from making rulings on its own findings. It is objected that the hearings before the present Commission have not been conducted according to the rules of evidence; that irrelevant matter is freely admitted, tending still further to prejudice the judgment of the commissioners. The peculiar danger of this lies in the evident fact that the rate-making commission is nowhere thought of as a body to be created even partially in the railroad interest, but is frankly considered to be a weapon to enforce the interest of the shipper. It is held preposterous that such a tribunal, designed to be one-sided, should possess the qualifications to render impartial judgments between its avowed clients and the railroads. Moreover, without life tenure, the mere fact that a commissioner is subject to reappointment must of necessity expose him to a tremendous pressure to trim his decisions to the popular side, consciously or unconsciously. It is asking much of any man to require that he be judge while he is attorney, legislator while judge, and political candidate at the same time with all three!

This completes the review, by general topics, of the objections brought out in the Senate and House hearings against Federal rate regulation. Much additional matter was presented which does not require specific discussion, since it falls under the scheme of review and argument already covered. Some of the speakers dwelt on the alleged unfairness of any sort of governmental interference, on purely academic grounds; thus, it was demonstrated that the kind of rate regulation sought is reduction only; that rate reductions tend, in effect, to limit dividends, and that the government has no more right to restrict the profits of a railroad than it has to restrict the profits of a cotton mill. It was pointed out, further, that there was a bi-focal specific reason why railroad dividends should not be interfered with: the growth of the country was in large measure due to the fact that private capital had been tempted into railroad enterprises, and it was important that it should continue to be so tempted, but this could scarcely be the case if the government in effect fixed a maximum return, without guaranteeing a minimum. Railroad investments are hazardous, especially in the localities which need development the most, and the investor must be encouraged to take risks, and, conversely, must be permitted to enjoy the fruits, as he has sustained the losses, of risks already taken.

However convincing this line of argument may be, in the abstract, it may be stricken from consideration at the present time on the ground that it is not relevant to the points at issue, since the Supreme Court has held repeatedly that Congress has an undoubted constitutional right to regulate commerce between the states, and may, as a legislative body, name a rate if it chooses to, provided it does not name one that is confiscatory. (As, for example, in the case of Smythe v. Oliver Ames et al.) The practical and effective arguments against Federal rate regulation have been directed against the practicability, rather than against the constitutional possibility, of the assumption of this task by Congress.

Omitting all the fallacious and doubtful issues on both sides, it will be seen that the advocates of rate regulation have proved the existence of undoubted evils, of which the foremost are the law’s delay and a procedure so cumbersome and expensive that it amounts simply to a denial of justice for the small shipper who has been wronged. On the other hand, the opponents of regulation have demonstrated not only that the proposed legislation is dangerous, but that it is quite impotent to reach the evils aimed at, many of which are frankly acknowledged. The opposition has also shown that the general rate situation is equitable, and that to place rate-making in the hands of the Interstate Commerce Commission, as a weapon directed against the real evils, would be like firing a charge of buckshot after a fleeing thief in a crowded street. If the analysis of the respective bills of complaint has devoted less space to the arguments of the shipper than to the arguments of the railroad, it is because the former stand out more sharply, and require less exposition.

A general survey of the testimony must lead to the certain conclusion that the present agitation is based on several different grounds, which tend readily to confuse themselves, and which are not amenable to the same remedies. A considerable part of the clamor for rate regulation in the public press is based on the showing of wrongs which have arisen, not from the unfairness of any rate in itself, but from the fact that certain favored shippers get their transportation cheaper than others do. Some of this discrimination has been flatly illegal, under the Elkins law; much of it has been practiced under cunning devices which evade the law; none of it seems to be amenable to the kind of legislation represented in the Esch-Townsend bill. The methods by which our commerce laws have been “beaten” are legion, but three particularly conspicuous examples will serve,— the private car line method, the terminal railroad method, and the “midnight tariff.”

Refrigerator cars are expensive; in most services they are used only for a part of the year, so that it is economical for a private car company to own them and shift them around from one part of the country to another, as needed. A simple form of contract in such a case provides that the railroad shall collect from the shipper of fruit or perishable produce by refrigerator car a lump sum, part of which goes to the railroad, for the haulage, and the balance to the private car company, in lieu of rental, the charge for icing the car, etc. In itself, the proposition is a perfectly equitable one, but it is well known that a few great interests have secured a virtual monopoly of the business, maintaining the strength of their position by the fact that they control so great a tonnage of perishable goods that they can require the railroads to make exclusive contracts with them. The result of this has been to place a ruinous rate on the transportation of the products of the weak competitors; a rate charged to all alike, but paid by the private car owners into their own pockets for hauling their own goods. Here is a very tangible wrong in the railroad field, wholly beyond remedy by Federal rate-making; a wrong which the railroads themselves would rejoice to see righted, but which they know cannot be touched by the Esch-Townsend bill.

The “terminal railroad” method is another perfectly legal “hold-up” that does not come within the scope of the proposed law; a species of discrimination for which no effective remedy has yet been suggested. A good example of this was given by H. L. Bond, Jr., in his statement before the House Committee. Suppose there is a road, say forty miles long, and the stock of that railroad is owned by a manufacturing company, engaged in the manufacture of steel. Under the charter of that manufacturing company, it is authorized to hold the stock of the railroad, and the railroad connects with three or four trunk lines. All the supplies of the manufacturing company must go over that road. The railroad company says to the trunk lines, “We must have seventy cents on every ton of coal and coke. If you do not give us the seventy cents, you do not get the freight, because this railroad will not accept any less.” This sum does not exceed the local charge per ton per mile which the terminal company is authorized to make, under the state law, but it may be at least twenty cents a ton higher than would ordinarily be given a terminal railroad as its share of the through rate. So the terminal railroad, owned by the manufacturing company, says, “We have a position of commercial advantage ; we can get our local rate, and we are going to take it;” and it adds, politely, “If you three or four trunk lines get together and say you will not give us that, we will have you indicted under the anti-trust act!” Here is an air-tight discrimination against the outside manufacturer, which hits the railroads as well, but is beyond the scope of any Federal act of rate regulation, because the terminal railroad is wholly contained in a single state, and is quite within its rights in charging the full maximum rate allowed by the local law.

The “midnight tariff,” a device put into execution directly by the trunk line, to get tonnage by a strictly legal method, was much in evidence during the recent grain war between the lines serving the Gulf ports. A certain shipper is prepared to send a large consignment of grain over the line that offers the best inducement. The traffic manager of the A. & B. Railroad agrees to carry this grain for a cent a bushel less than the tariff on which all the competing lines are operating. To make this legal, he publishes a grain tariff in conformity with his agreement, applicable to all comers, but this tariff goes into effect, practically without warning, say at midnight, on a certain date. The A. & B. Railroad hauls the consignment for which it has contracted; then another notice is filed, restoring the tariff to what it was before. The discrimination here lies against the small shipper, who can obtain no such concessions; yet nothing has been done that is illegal, and nothing has been done that a rate regulation bill would remedy.

These three characteristic cases serve as illustrations of the source of much of the prevalent discontent and feeling that the public is not getting a “square deal.” In two of the three, the railroads are seen to be unwilling parties to the discrimination, in which they are joint sufferers, but the many self-appointed champions of the public who have arisen do not differentiate between offenders. Great corporations carry a heritage of unpopularity; the railroad is a conspicuously prominent example of the great corporation. People like giant stories just as well to-day as they ever did, but they have been educated to require a flavoring of truth in the narrative, and there has always been enough of real evil in the railroad situation to weave into a pretty tale of villainy and oppression.

When the House of Representatives passed the Esch-Townsend bill, providing for a rate-making Federal commission and a court of review, and passed it by a majority so large as to be practically unanimous, there is no doubt that it permitted itself to be transformed from a deliberative body into a band of giant-killers. The loud-spoken popular interest demanded relief from an oppression which was tangible enough, but imperfectly understood, and the representative of each local district wished to be on record as having done something, it did not much matter what. With all deference to honest intention, it is permissible to wonder if one in twenty of the representatives who voted for the Esch-Townsend bill had any theory whatever in his own mind as to the manner in which this bill would be likely to bring relief. The Senate, in delaying action pending investigation, refused to be stampeded, but put its reliance in a committee, and in the clarifying effect which lapse of time has on a heated discussion. The record of investigations by previous Senate committees has been excellent. A Select Committee, for example, conducted hearings prior to the passage of the Act to Regulate Commerce, in 1887, and its deliberations resulted in an extremely able report.

It may be conceded at once that the present law and the present procedure for putting the law into effect are inadequate, and that their results fall far short of justice in many cases, particularly where rebates and discriminations of the type referred to are involved; discriminations so cunningly devised that they fear not to walk abroad under the full light of day. But it is equally obvious that there is nothing to be gained by blundering, shortsighted legislation, which strikes in the dark and exhausts its force when once it has missed its aim. Speaking generally, no scheme for Federal rate regulation has yet been proposed which seems likely to work, or to prove as effective a means of keeping railroad rates down as the natural competition, not between carriers, but between localities. Competition between carriers has been growing steadily less, and cannot be legislated into existence. But competition between localities, by which widely separate points supplying the same market require rates that will allow them to sell their goods at a profit, is bound to be encouraged by the railroads as a matter of self-interest, since every new producing point that can be built up brings new tonnage.

On resolution of Senator Kean, March 2, 1905, the Committee on Interstate Commerce, or any subcommittee thereof, was instructed to sit during the recess of the Senate and acquire further information on all of these matters, including violations and evasions of the anti-rebate law, with a view to considering additional legislation. That this work will be performed in a conscientious and thorough manner, there can be no doubt. Whether the results will be proportionate to the labor expended is less certain. There is an inherent conflict of interest between shipper and carrier, just as there is between buyer and seller of any commodity whatsoever, and it is asking too much of Congress to expect it to establish relations of perpetual harmony and equity between two hundred and five thousand miles of railroads and their customers. The suggestion made by Dr. Hadley, that the powers of the Interstate Commerce Commission be not enlarged, but that this body be composed of men thoroughly competent to serve as expert counsel to a new branch of the circuit court, seems thoroughly sound. It is much to be feared, as he himself hinted, that the Senate Committee will not have the courage or the conservatism to recommend legislation so moderate in its character; but even if it should do so, and if its recommendations should be accepted, the great and everpresent evil of the law’s delay would be only partially remedied thereby. The popular clamor is right in demanding that the path to justice must be made straight and plain through all the confusing mazes that have sprung up between the shipper and the carrier; but nothing more than that can be done; any Federal enactment that aims to cure radically and automatically all existing transportation ills is sure to prove a remedy worse than the disease, if it does not fall ridiculously short of accomplishing anything at all.

  1. Distances calculated, for illustration, on the Baltimore and Ohio mileage.