Chapter XI
SPECIAL RATE PROBLEMS: THE SOUTHERN BASING POINT SYSTEM; TRANSCONTINENTAL RATES; PORT DIFFERENTIALS, ETC.
Contrast between the basing point and trunk line systems, 380.--Natural causes in southern territory, 381.--Economic dependence, 381.--Wide-spread water competition, 382.--High level of rates, 382.--The basing point system described, 383.--Its economic defences, 384.--Early trade centres, 384.--Water competition once more, 385.--Three types of basing point, 387.--Purely artificial ones exemplified, 388.--Different practice among railroads, 390.--Attempts at reform, 391.--Western v. eastern cities, 391.--Effect of recent industrial revival, 392.--The Texas group system, 393.--An outcome of commercial rivalry, 394.--Local competition of trade centres, 395.--Possibly artificial and unstable, 395.--The transcontinental rate system, 395.--High level of charges, 396.--Water competition, 396.--Carload ratings and graded charges, 398.--Competition of jobbing centres, 398.--Canadian differentials, 400.--"Milling-in-transit" and similar practices, 401.--"Floating Cotton," 402.--"Substitution of tonnage," 403.--Seaboard differentials, 403.--Historically considered, 403.--The latest decision, 403.--Import and export rates, 404-409.
The rate system in the southern states contrasts sharply with that of trunk line territory.[436] Its most unsatisfactory feature is its complete violation of the distance principle. Public dissatisfaction was long voiced by a large number of complaints before the Interstate Commerce Commission in the early days,--a cessation of these complaints since 1900, however, was the result of the nullification of the law by judicial interpretation, rather than an indication of any acquiescence of the public in the scheme. Next to settlement of the problem of transcontinental rates, a reasonable adjustment of the southern situation is one of the important tasks confronting the Federal authorities.
Certain natural features of southern territory are connected with its peculiar rate system. The first of these is its scattered and relatively thin settlement. Density of population varies between one-third and one-fourth of that in the northern states. This greatly limits the volume of local business. In the second place, the largely agricultural character of the country, yielding a traffic predominantly of low grade, has had a great effect. Much attention being devoted to cotton, there is little local interchange of freight. The business, moreover, is largely seasonal in character. In the early days, at least, practically all of the profits of the carriers had to be made between September and January. This concentration of interest in the movement of the cotton crop is now rapidly being supplanted by a much more general movement of traffic; but the rate system in force is an outgrowth of the conditions prevalent in the early days.
The entire dependence of this territory for manufactured goods upon the northeastern states, and for foodstuffs upon the West, has had a profound effect, we have seen, upon its railway development.[437] The predominant direction of traffic is rendered quite peculiar by contrast with trunk line territory. In the North, the principal railroads lie parallel, east and west; in the South, they are radially distributed outward from Atlanta like the spokes of a wheel. Imagine a triangle with its apex at this city,--the focus of all transportation interests in the South,--and with its other two angles lying at New York and Chicago respectively. The hollow centre of this triangle, as appears by the accompanying map, is occupied by the Allegheny mountain chain. The movement of traffic historically along the western side of this triangle has been overwhelmingly southward; at one time the disproportion southbound from western territory being as thirteen to one.[438] Along the eastern side of this triangle,--that is to say parallel with the Atlantic seaboard,--the preponderance of tonnage, by bulk and probably by value as well, has been toward the north. In this direction cotton in the early days, and latterly lumber, have moved from southern fields and forests to northeastern markets. In Virginia-Carolina territory, today, about three-fifths of the loaded mileage is north bound. The uneven distribution of traffic is still further complicated by the excess of tonnage eastbound in trunk line territory along the northern side of our triangle, above mentioned. This general description explains many of the abnormalities in freight rates throughout this territory. Bulky staples moving one way, while manufactured goods, high in value but more concentrated in weight, go the other, greatly complicate the problem of economical operation.
Another omnipresent complication in the southern states is the widespread existence of water competition. The situation in the South in this regard is not unlike that of England. Its entire territory is threaded with a series of more or less navigable watercourses which penetrate from the seaboard or the Mississippi river, far into the interior. Here again is a physical peculiarity of the southern territory, which historically explains, even if it does not fully justify, as we shall see, certain peculiarities of its freight rate system.
The first general characteristic of the southern system is the relatively high level of freight rates. Bearing in mind that the distance from New York to Chicago is practically the same as from New York to Atlanta, the freight rate, first-class, on the trunk lines was, in 1900, 75 cents per hundredweight as against $1.14 to Atlanta. Sixth-class rates then stood to one another as 25 cents and 45 cents respectively, the relatively high ones being in the South. Reference, for example, to the table on page 349, will bring out this contrast at the present time in another way. According to this the rates in the South are not higher than in the West for the same distance. The disproportionately high charges in the South, however, occur mainly in the field of local rates. And it is the local, rather than the through, charges, which cause the present dissatisfaction. The principal complaint concerning through rates is that they are made up principally as the sum of locals based upon Ohio or Mississippi gateways.[439] Whenever such sums of locals have given place to unbroken through rates, a large measure of satisfaction to shippers has resulted. And then, finally, it should be observed that certain peculiarities of the classification system somewhat increase the relatively high grade of charges throughout this territory,[440] tending to support the allegation that rates are unreasonably high.
The so-called basing point system is the second fundamental peculiarity of southern rate adjustment. It has already been discussed in connection with local discrimination.[441] This basing point system, although not absolutely confined to the South, has been more highly developed here than elsewhere. In principle it is simply this: certain cities are established as basing points,[442] and rates to all other places in that neighborhood are made by adding to the through rate into the basing point, the local from that city to the final destination. Since local rates in the South, based upon slender local traffic, are always exceedingly high, this appears to confer a very great advantage in the matter of charges on the cities thus favored. The way in which this system is opposed to the long and short haul principle in law has also been discussed in another connection.[443] On the face of things it certainly appears unjust that goods should be transported directly through the place to which they are ultimately to go; and after being hauled to the basing point with a heavy charge for that haul, should thereafter be brought back again with the addition of a second high local rate for the service. And yet that very commonly occurs.
A number of economic defences for the basing point system have been urged by the carriers at different times. The most substantial one is that the basing points, historically, were originally important trade centres and are still intimately related to the business customs of the South.[444] These trade centres, it is alleged, were not made by the railroads: they were in existence before the railroads were constructed. They are an outgrowth of the agricultural system of the region. In the West a farmer may take a sample of his grain to the nearest town and sell the whole crop by that sample. No such transaction is possible with cotton and tobacco. Each shipment must be sampled, weighed and classified on its own merits. Such grading cannot take place at local stations. Convenient commercial centres are, therefore, a necessity, serving for the proper concentration of products. These trade centres, moreover, arising in connection with the sale of staple products of the soil, became natural distributing or jobbing points. The planters naturally buy in the places to which they resort to sell their crops, often employing the same merchant.[445] As such natural trading centres, these southern towns are forced to compete with the older established distributing cities up north. At this point a second defence of the basing point system arises.[446] It is urged that a decentralization of jobbing trade in a sparsely settled or newly developed territory can be effected only by means of encouragement through peculiarly favorable rates to offset the strength of the remoter great cities. The plausibility of this defence, however, is considerably weakened by the fact that under the peculiar southern classification system, carload ratings are largely absent.[447] Therefore, as it appears, the local jobber in the South competes under a disability as compared with New York and Cincinnati which is no less at the basing point than in the small town. Still a third, and probably a valid, defense of this violation of the distance principle by the use of basing points, is the paucity of local business. It is alleged that in the North the competitive points are so near together, and the volume of competitive business is so large, that it pays to reduce the charges at immediate points. In the South, on the other hand, competitive points are so far apart and, relatively speaking, the local tonnage is so small, that the adoption of such a policy would be ruinous.[448]
The most prominent defence of the basing point system brought forward at all times, and greatly emphasized in proceedings before the Interstate Commerce Commission, is the widespread existence of water competition. Carriers allege that in order to secure any portion of the traffic at many points, low rates must be offered, quite irrespective of the charges to intermediate inland stations. They affirm that to lower all rates to this "compelled" competitive level, would deplete their revenues and lead to bankruptcy. This has been the main excuse for the persistent violation of the long and short haul clause by carriers in the southern states down to the present time. The evidence goes to show, however, that on the lesser streams, at least, the steamers are so small, their service so irregular, and the incidental risk of damage, cost of insurance and other expenses of transhipment are so great, that the railroads practically control the business.[449] Furthermore, in many places it appears that the water lines were either owned by the railroads or appeared in league with them; or else that a division of the business had been effected by which the little river steamers were accorded a certain proportion of the low grade freight.[450] Such facts have been established before the Interstate Commerce Commission, for example, in the so-called Dawson case concerning the Chattahoochee river; on the Ocmulgee at Macon in the Griffin and Hawkinsville cases; at Montgomery in the Troy case; and on the St. Johns river at Palatka, Florida, in the Hampton case. A competent witness has declared in fact that there is "no more real water competition at many of these places than in the Rocky Mountains."[451] Probably the potentiality of competition is somewhat greater today with improvement of the larger navigable waterways. It seems to be real at Chattanooga since the construction of the Mussel Shoals canal; but that it has in late years been effective at Nashville seems open to question. The practical disappearance of the Mississippi river traffic also points to the decline in importance of the great rivers as rate regulators, except in respect of the carriage of ore, lumber, and coal. Whether the National Waterways movement will ever succeed in its revival is, it seems to me, open to serious question.[452]
Analyzing these several grounds of defence, a distinction should be made at the start between three varieties of basing point. This is not clearly brought out in the numerous decisions upon rates in southern territory. In the first group are the old natural trading centres, usually once blessed with effective competition by water, even if at the present this is of limited character. Savannah and Montgomery, Alabama, are of this type. Then, secondly, there are the great railroad centres like Atlanta and Birmingham. These are modern creations without water competition of any sort, although the rivalry of railroads with one another is exceedingly keen. Until recently, moreover, this competition has been over such widely divergent routes that agreement has been difficult and consolidation impossible.[453] And, then, in the third place, there are the basing points which seem to be absolutely artificial. A number of these are to be found in the southeastern part of Georgia, such as Cordele, Americus, Albany, etc. In these cases the only criterion which seems to have been adopted is that the place shall have attained sufficient importance to enable it to compel some carrier to give it special privileges in the matter of rates. As was tersely stated in a leading case--Cordele at that time not having been made a basing point:[454]
"Cordele is not treated by defendant roads as a competitive point, because it is not a sufficiently large distributing point, and it is not such a distributing point because it is not treated as a competitive point. Hence it appears that the roads seek to excuse their wrong-doing by offering the results of the wrong in justification. Judged by its results, this system of rate making is at variance with all the equality provisions of the act to regulate commerce."
The subsequent experience in this last case is significant. One of the carriers at Cordele having afterwards discovered the advantage to itself in making this town a basing point, all the other railroads were compelled to acquiesce. Such a thing has happened frequently throughout the South; with the result that many places have been given strongly preferential rates for no other reason than the arbitrary decision of some one of the carriers. Even the railroads themselves recognize this fact. They often deplore the necessity for reducing rates because of action by competitors at some particular point; but no option remains. It is with reference to this third class of purely artificial basing points that the most dissatisfaction among shippers arises.
The awkward and unreasonable situation is well exemplified in a very recent case,--important, also, because it was the first to be decided by the Interstate Commerce Commission under its new and enlarged powers. The location of Ashburn in southeastern Georgia, a county seat with a population of about 2,200, is shown with references to surrounding places by the map on opposite page.[455] It lies in the centre of an irregular quadrilateral, the corners of which are occupied by Cordele, Albany, Tifton and Fitzgerald. It has no commercial standing at present, but, being as large at least as Tifton, aspires to become a distributing centre in its immediate neighborhood. Yet from every direction its rates are made by a combination upon these surrounding towns. The disparity is illustrated by the charges from New York, which are $1.42 per hundredweight, first class, as compared with $1.17 to all the neighboring places. Examination of the history of these favored towns shows, however, that they have acquired their favored status as basing points, neither because they were originally important trading centres, nor because they enjoyed water competition. Two of them, actually, are as remote from streams as is Ashburn. The fact is that the competition of western and eastern dealers with one another, backed in each case by local railroads having routes or affiliations either northeast or northwest, has brought about their establishment as basing points. Neither is Ashburn today more of a local point than either Tifton or Cordele when they were first granted lower rates. As one examines further, it appears that this keenness of trade competition between East and West,--that is to say, from Baltimore and New York as against Cincinnati and Chicago, etc.,--which has brought Atlanta into prominence and made it finally the key to the entire southern rate arch,[456] has in the same manner led to the special favors granted to one town as against another.
In this case the Interstate Commerce Commission ordered an equalization between all five points. It is to be hoped that this special case may be a point of departure for a general reform in the immediate future of the entire iniquitous scheme of local favoritism which has too long been allowed to exist.
The entire artificiality and even at times iniquity of the basing point system is admitted in the following brief for the railways in the Alabama Midland case before the Supreme Court of the United States. "There may be," it is conceded, "a few mere 'railroad junctions' in the South, which, owing to the ignorance or corruption of certain railroad officials, have been arbitrarily 'called' competitive points and which 'receive' certain arbitrary 'concessions' in rates to which they are not justly entitled. There may be also a few strictly local stations in the South, which are not even 'railroad junctions,' where arbitrary and unfair 'concessions' in rates have been made by certain corrupt railroad officials, to enhance the value of property owned at such stations by said officials, or by their relatives or friends ... [but they are] the offspring of ignorance or corruption and should not be recognized by the courts." This artificiality is also proven by the difference of practice which exists on the various southern roads.[457] The worst offender and most defiant opponent of the government from the inception of Federal regulation, has been the Louisville & Nashville Railroad. The Southern Railway introduced the long and short haul principle in the main on its through line to Atlanta long ago. On the Atlantic Coast Line few violations of the distance principle exist, and the condition is improving. No basing points whatever exist in South Carolina; and the state railroad commissions in general are working for betterment. Neither the Chesapeake & Ohio nor the Norfolk & Western, operating alike in sparsely settled regions, find it necessary to violate the distance principle. One of the curses of the scheme, however, is that irregularity of one carrier may compel its neighbors to adopt a policy which they recognize as unjust. Only by compulsion applied to all alike can a just solution be had.
A determined effort was made in 1880 by the carriers themselves to apply the trunk line rate system, based upon the distance principle, to the southern states.[458] A thoroughgoing scientific readjustment was proposed. The situation is significantly described in the following extract from this report:
"Your committee entered upon the performance of their duty entertaining the sentiment that experience and observation have rendered generally potent among those in charge of the revenue interest of transportation lines, namely, the necessity for more intelligent and defensible methods of making competitive freight rates than the following of figures, descending to us from tariffs named on arbitrary bases or conditions now obsolete, or by the assumption of differences between centres of trade now changed or junction points now no longer such, or other methods for which there are no reasons capable of satisfactory explanation."
Representatives of most of the important lines subscribed to this plan; but it fell through at the last because of the opposition of others, selfishly viewing their own particular interests rather than the general welfare of all. It is clear that while minor improvements may be introduced, no widespread reform can be effected without the interposition of Federal authority. It is to be hoped that this exercise of authority under the larger powers now conferred by Congress since 1906 may not long be withheld.
A third and essentially different problem respecting southern rates concerns the discrimination against western cities in favor of those along the Atlantic seaboard. This has been for years before the Interstate Commerce Commission in the Cincinnati and Chicago Freight Bureau cases.[459] The amount of this discrimination appears in the fact that at the time of the original complaint, the rate from Cincinnati to Atlanta was ninety-four per cent. of the rate from New York to the same point; although the distance from Cincinnati was scarcely more than half of that from New York. It appears as if this difference were largely the result of keen water competition by coastwise steamers,--a competition which affects rates for a considerable distance inland all along the coast as far as New Orleans. Where such water competition is absent, there seems to be a general arrangement as between East and West which is standardized by distance. Atlanta gives the keynote; and all rates from outside southern territory change with its fluctuations. The disability against western cities may be expressed, therefore, in another way, by the fact that New York, although so much farther north than Baltimore,--supposed theoretically to be kept on a par with Louisville as to rates,--reaches Atlanta on lower charges than are made to Cincinnati.
Fortunately an attempt at improvement of the southern rate system will be greatly aided by the wonderful industrial revival which has been under way during the last decade. The growth of population, and especially the development of manufactures, may render it possible for the carriers to endure the hardship which any traffic readjustment always entails. The growth of manufactures, measuring in a way the degree to which the South is learning to supply its own needs, appears in the fact that in 1907 it converted one-fifth of its cotton production into cloth, and reduced from its own ores one-half of its consumption of pig iron in its own local factories. Furniture shipments to the South were once large. At the present time High Point, North Carolina, is second only to Grand Rapids in this line of manufacture. Every new mill and mercantile establishment which springs up, is bound to help to a degree in the transition from a mediaeval scheme of rate making to a more defensible system.
The Texas "common point" system affords a valuable illustration of the influence of competitive forces in trade in bringing about an equalization of transportation charges over a wide area.[460] It also shows the danger of localization of interest through the exercise of piecemeal control by state commissions rather than the enforcement of broad-gauge regulation by the Federal government. The settlement of the great area of Texas naturally first took place by extension inland from the Gulf coast. All supplies came by sea from the north. Freight schedules were scaled from the seaboard according to distance, more or less, in competition with stage and wagon. Gradually, however, with the growth of St. Louis as a rival centre of distribution, railroads serving that city penetrated directly from the northeast. The St. Louis jobbers were at once brought into keen rivalry with merchants in North Atlantic states, served by coastwise steamship lines. This competition beginning at the points of contact of the two different sets of railroads, gradually extended all over the state. St. Louis lines, acting for local jobbers whose goods came from New York, might not charge more at any point in the aggregate than the total rate from the same initial city which applied by way of the Gulf steamers. Nor could the railroads in from the Gulf ask more for both steamer and rail carriage than the entire double charge from New York around by way of St. Louis. The natural stronghold of the Gulf lines was in the centre and the south; northern Texas was more naturally tributary to St. Louis; but gradually a compromise was effected whereby equality of rates was accorded either from New York or St. Louis to all stations throughout the state. Thus arose the so-called Texas Common Point Territory, to all parts of which Kansas City, Chicago, and finally all other distant cities were admitted on even terms.
Another feature of the Texas rate adjustment is suggestive.
A vast territory, uniform in products and needs, might either be served by a few great distributing centres or by a larger number of smaller ones, each forming the natural focus of trade within a given district. Believing the latter arrangement to be better suited to local conditions, the Texas Railway Commission has arbitrarily prescribed such intrastate tariffs as to foster the development of a number of such jobbing points or mercantile centres. Local rates, more or less proportioned according to distance, are graded up to a maximum, all based principally upon the needs of the principal city, Houston, as served by its seaport, Galveston. The significant feature of these Texas local rates, however, is the fact that beyond a fixed maximum,--say 245 miles on classified tonnage, or 160 miles on cotton,--no further increase of rate occurs with extension of the haul. That is to say, beyond a certain radius fixed by the maximum rate, distributing centres are placed upon an entire parity with one another. Fort Worth, for example, within a distance of about two hundred miles, naturally has an advantage over all other competing centres, more distantly located; but outside of this zone, naturally tributary to it as a provincial trade centre, all others such as Dallas, Waco, or San Antonio enjoy equal opportunity. In only one respect is the distance principle violated: namely, in the preferential rates from the north to Houston and Galveston as compared with the higher charges to intermediate Texas points. These primary centres are encouraged by standing in a class by themselves.
This theoretically admirable Texas system is, however, unstable in several regards. It is artificial in that it is primarily adjusted to the needs of the state, without reference to the rights of other places lying beyond its borders.[461] The railroads naturally desire to contract the common point territory; the forces of trade rivalry seek to enlarge it. The growth of middle western cities and manufactures, supplying Texas from their own domestic plants rather than merely redistributing goods manufactured in the East, also tends to modify the scheme. Whether the common point system, therefore, can long withstand the force of these disintegrating influences remains to be seen. The conditions are not compact and homogeneous as they are in New England, which enjoys a similar flat rate system. And it may well be that ambitious cities along the northwestern border of the state, like Fort Worth, may finally succeed in forcing concessions in rates from the Middle West on the ground of their relative nearness as compared with competitors further south. On the other hand, distributing centres farthest away from the main sources of supply, like San Antonio, would naturally resist any infraction of the rule of parity. And then, again, it is becoming apparent that the decentralization of distribution through a number of second-rate jobbing towns rather than from one preëminent centre, is hindering the growth of a metropolis, able to compete on even terms in high grade products with the older centres of the East. Few dealers in Texas cities are able to purchase dry goods or boots and shoes in carload lots, that is to say, on the lowest terms as concerns freight rates; and the combination of shipments of different goods to make up a miscellaneous carload rate, thus overcoming this disadvantage, is open to serious objection.[462] All told, therefore, the experience of Texas is well worth attentive consideration, as a study in the intimate relationship between trade and transportation. The sharpness of contrast between such a common point scheme and the basing point system of the other southern states, brings the relative advantages and defects of each into strong relief.
* * * * *
Transcontinental freight rates have been brought into prominence of late in direct connection with the wonderful growth of population and trade on the Pacific slope.[463] Our territorial possessions in the Pacific and the development of Oriental trade, together with the general interest in the Panama Canal since 1900, have all conspired to direct attention to this complicated problem. The first point to notice is the relatively high level of rates, averaging very much more per mile than anywhere else in the United States. The following table of rates in 1905 is significant:
------+---------------------------------------+------------------ Miles | | Class ------+---------------------------------------+---------+-------- | From | 1 | 5 ------+---------------------------------------+---------+-------- 912 | Chicago to New York | $0.75 | $0.30 912 | Chicago to New Orleans | 1.10 | 0.47 2328 | Chicago to San Francisco | 3.00 | 1.65 ------+---------------------------------------+---------+--------
These distance tariffs, however, as already explained in our chapter on Classification, need to be supplemented by additional details in order to bring into relief the relative amount of the charge. So far as these figures go, it will be observed that for a distance about two and one-half times as great as from Chicago to New York or the Gulf of Mexico, the rates to San Francisco are very much higher in proportion.
The unrest among shippers in far western territory is not due to the relatively high tariffs in force. It arises primarily from the nullification of the distance principle in rates. And, in the second place, it hinges upon the relation between carload ratings and the development of local jobbing business. The primary factor in the making of rates to the coast has always been the existence of water competition, either by way of Cape Horn or the Isthmus of Panama.[464] The facilities for cheap transportation over these routes have compelled the all-rail lines to make low through rates which would enable them to secure a portion of the business. Inasmuch, also, as most of the competition of the steamships over these very long routes involves shipments in large quantity, competition with the railroads has mainly been felt in making rates by the carload. The result has been the existence for many years of a special transcontinental tariff, more or less uniformly adopted by all the roads, which consists in the main of commodity rates for carload shipments, the scale of these rates being sufficiently low to meet steamship competition as above described.
This simple situation has been complicated by the fact that all of the transcontinental lines, except the Southern Pacific with its eastern terminus at New Orleans, have had a particular interest in building up both manufacturing and jobbing business at their eastern terminals at Chicago or Missouri river points. For such a policy enabled them to secure the entire charge for the transportation of commodities to the Pacific coast, without the necessity of a pro-rating division, as when goods are hauled from the Atlantic seaboard cities. The situation then resolved itself practically into a competition of markets. Chicago, St. Louis, and St. Paul were pitted against New York, Philadelphia, and other Atlantic ports in rivalry for the trade of the Pacific coast. In order to benefit the cities in which they had a peculiar interest, the all-rail lines, therefore, gradually introduced what is known as the system of "postage-stamp rates."[465] That is to say, they gradually extended to one city after another east of the Mississippi river, the same rates to the Pacific coast as were enjoyed by the seaboard cities. As a consequence, for some years every city east of the Mississippi has been able to ship goods to San Francisco at the same rate which is paid from Boston and New York, which may be more than a thousand miles farther away.
This system is justified in theory, even for rates from Chicago and St. Louis, as due to water competition; and it has been said that commodities are sometimes shipped from as far inland as this to the Atlantic seaboard, and thence to San Francisco by water. The latest phase of the controversy reveals the weakness of this argument. The inland cities, such as Chicago and St. Louis, having been accorded the same rate to San Francisco as New York and Philadelphia, demand lower rates than the Atlantic cities in proportion to their relative nearness to San Francisco. In other words, they demand that the rates, instead of being made upon the "postage-stamp basis"--absolutely the same from all cities, however remote--shall be graded. This would give Chicago, St. Louis, and St. Paul an advantage in laying down manufactures or in distributing products secondarily, in competition with the older centres at the East. To this policy the jobbing interests of the Pacific coast strenuously object. From their point of view, any grading of rates will enable the western cities to compete with them directly in local distributive business. They do not object to the low rates from the eastern seaboard, nor would it avail to do so because the natural conditions of water competition are beyond control. Moreover, the low rates from Atlantic points are all, as above said, on carload lots, and such low carload rates operate distinctly to the advantage of the Pacific coast jobber, enabling him to obtain goods in wholesale lots, and then to break bulk in order to distribute them up and down the coast.
The intimate relationship between the carload question and the grading of rates to interior centres, is plain from the foregoing paragraph. Viewed by itself alone, the carload question is not dissimilar to that presented in the southern states. Rivalry between jobbers in the East and provincial middlemen in a little developed territory is in evidence in either case. The St. Louis Business Men's League case best exemplifies this issue.[466]
Trade interests in this interior city wished to abolish all distinction between carload and less-than-carload lots, for the patent purpose of enabling them to sell direct throughout the Pacific coast territory in competition with San Francisco jobbers. The latter, on the other hand, demanded that all less-than-carload ratings should be abolished on transcontinental shipments; so that they might purchase their goods by the carload and resell them in parcels. The Commission, after fully weighing the evidence, decided that, so far as carload differentials were concerned, the existing scheme in 1902 was not abnormal as compared with other portions of the country. On the other aspects of the matter, such as the relativity of rates to Rocky mountain and Pacific terminal points, no ruling was made. But the dissenting opinion upon this point is significant, as we shall see, in that it put forth the suggestion of a scheme of rates graded according to distance,--a plan ten years later to be enforced by the Commission under its amplified powers at law.
The welfare of the entire Rocky mountain belt of population, and particularly its commercial centres, constitutes a second phase of the problem of transcontinental rates.[467] The whole chain of cities from Spokane on the north to the Mexican border has been long and vitally interested in this matter. Rates to these cities, elsewhere described,[468] as well as from these cities out in either direction, are very much higher than the rates for longer distances through them and beyond. Thus, for instance, in the case of Pueblo, it has been shown that bar iron was hauled 2,400 miles from Chicago to San Francisco, for fifty cents per one hundred pounds, and rails were hauled the same distance for sixty cents; while for the haul from Pueblo, Colorado, to San Francisco, only 1,500 miles, the rate on both commodities was $1.60. Cotton piece goods were shipped from Boston to Omaha for fifty-two cents per one hundred pounds, with the added rate on to Denver of $1.25, giving an aggregate of $1.77. In face of this, the rate through Denver to California is only one dollar. The railways' defence for this situation was that the low through rates were compelled by water competition. But it is certainly difficult on this ground to justify lower rates to Missouri river points than to Denver or Salt Lake City. In other words, as urged in our chapter on local discrimination,[469] having once recognized the principle of blanket rates as far west as Kansas City, there seemed to be no reason why the limit should not be pushed further west. All of these allied cases, however, were left unsettled for years, owing to the lack of power on the part of the Interstate Commerce Commission to enforce its decisions under the law as then interpreted. With the new legislation since 1906, as will be shown,[470] a permanent and just solution of the matter is promised at last.
The relations between the Canadian railways and the transcontinental lines in the United States were for many years unsatisfactory; and were oftentimes a source of serious disturbance in the matter of rates. The Canadian Pacific claimed, and was in fact accorded for some years, a differential or a lower rate, in order to offset its disability in the matter of distance, extra-territoriality, etc. Thus, for instance, in 1888 the Canadian Pacific was allowed to quote rates thirty cents per one hundred pounds below those by the standard lines. The rates were afterwards increased on first-class traffic. The other roads refused, after a time, to continue differentials at this figure, and after a year the differential was reduced to twenty-eight cents from the Atlantic seaboard. The question was bitterly contested after that until 1892, when all agreements were abandoned.
Since that time the Canadian Pacific has acted independently, taking, as a rule, rates about ten per cent. less than its competitors in American territory. The whole question was submitted to arbitration in 1898, and by a divided opinion two out of three of the arbitrators decided that the Canadian Pacific Railway was not, nor should it be, entitled to a differential under the rates made by the United States lines.[471] The intricacy of the question is indicated by the non-concurrence in this conclusion of so well recognized an authority as J. W. Midgley. The railroads concerned having all agreed to acquiesce in this decision, the situation has been far more harmonious in this respect than for many years previous.
* * * * *
A difficulty often arises in connection with the interruption of a shipment of goods in order to subject it to some simple process of manufacture. Shall the entire journey from producer to consumer be considered as a unit in determination of the rate; or shall the two parts, before and after the change of form by manufacture, be considered as separate and distinct in this regard? This problem arises in connection with the so-called "milling-in-transit" system for grain.[472] Logs likewise may be stopped at some convenient point en route for cutting into lumber.[473] Cattle or hogs must sometimes be stopped on the way to market in order to fatten or otherwise prepare them for sale;[474] structural iron may be halted for the purpose of fitting, shearing, or punching;[475] transit privileges on wool or concentration points for other commodities may be involved;[476] or other goods may be substituted at an intermediate point.[477] And then, finally, there are the so-called "floating cotton" cases.[478] The principle at bottom is practically the same in all of these sets of cases. It may be worth while briefly to consider two of them.
The "milling in transit" system is simply that of according to grain which is unloaded and milled at an intermediate point, the low through rate from the point of origin to that of consumption. Thus, for instance, wheat grown in North Dakota may be unloaded and ground into flour at Minneapolis and thence shipped to New York at the through rate from its point of origin to New York. Oftentimes a very small charge, as, for instance, one cent per one hundred pounds, is made for the privilege. This system prevails throughout the southern states also. Grain is brought, for instance, from Kansas City to Nashville or Birmingham, milled there, and shipped farther south for consumption. The rate charged is based upon the entire haul from Kansas City to the local point where the flour is consumed. Obviously this system stimulates very greatly the development of the milling industry at intermediate points. It is opposed correspondingly by the large cities which otherwise enjoy special privileges in the matter of low rates.
Precisely the same principle is involved in what are known as "floating cotton" rates. In this case the system has developed of permitting cotton to be unloaded in transit and compressed at an intermediate point, it being thereafter reshipped to the point of destination at a through rate from its point of origin. Thus, for example, cotton may be hauled twenty to thirty miles to one of the larger towns. There it is unloaded, sorted and compressed, reloaded, and sent on as if it had not been interfered with at all. Obviously one rate for the entire shipment is much less than the local rate into the town--which is always very high--plus a second rate from that town on to destination. The system in respect to cotton has developed even further than that of milling in transit of grain; for in the latter case the grain must be unloaded at some point on the line to destination; whereas in the case of cotton it may, under rulings of the Interstate Commerce Commission, be actually hauled away from its ultimate destination a number of miles and then reshipped back over the same line though at a lower rate than it could otherwise have enjoyed. Thus, in a leading case decided in 1899 it was held by the Interstate Commerce Commission that cotton could be hauled from Gattman, Mississippi, forty-one miles northwest to Tupelo, compressed there, and then hauled back again through Gattman and Birmingham to New Orleans.
Important centres, such as Memphis, which formerly enjoyed almost a monopoly of the compressing business, have strenuously opposed the development of this system. On the other hand, it offers a distinct advantage to the grower, because in place of selling the cotton through cotton factors at Memphis or other centres, it may be sorted and compressed at local stations. By this means much expense in the matter of drayage, handling and commissions is saved. This system is particularly advantageous because it tends to break up the pernicious basing point system, which tends to centralize all business at a few important points in the southern states. Almost a complete revolution in the matter of handling cotton has been effected during the last few years by the growth of this practice. Not only has the floating cotton system developed further than that of milling in transit by according the right of shipping even backward, away from the ultimate destination; it has also permitted of liberality in the handling of the product itself. It has been held that it is not even necessary for the same cotton to be reshipped from the point of compression. A carload started from the initial point for Boston, for example, may never reach there, other cotton being substituted for it. The destination of the car may be, and frequently is, changed. A few dozen grades of cotton being on the market, the original shipment into the point of compression may be entirely resorted and distributed to a dozen different points. Even the ownership of the cotton may change while it is in transit. Nevertheless, the system has been held as valid under the law, and its beneficial effects during the last few years have been observable, especially in the southern states. Of late the danger lurking in these systems of gross personal favoritism, have led to their careful examination in a number of cases. What the final policy regarding them is to be, cannot at this writing be affirmed.[479]
* * * * *
A problem of considerable difficulty, involving the relative shares of the various seaports in American export business, has occupied the attention of experts for more than a generation; and at this present writing, although before the Interstate Commerce Commission for the third time, seems to be almost as far from a satisfactory solution as ever.[480] It originated at the time of the rate wars in 1876. The first agreement between all the trunk lines concerning it was entered into in the following year. By this an attempt was made to equalize the aggregate cost of ocean and rail transportation between competing points in the West and all foreign and domestic points reached through Baltimore, Philadelphia, New York, and Boston. Under this agreement, Baltimore was allowed a rate of three cents below the rate from Chicago to New York; Philadelphia enjoyed a concession of two cents; while Boston had its rate fixed at a certain percentage of the Chicago-New York figure. There was considerable dissatisfaction expressed at various times with these differentials, and the whole matter was submitted to arbitration in 1882. The commercial interests of New York, as well as of the railroads centering in that city, have complained bitterly that these differences, once adjusted upon a very much higher scale of rates than at present, have become increasingly burdensome now that the Chicago-New York rate is perhaps not more than a third or a quarter of what it formerly was, while the differential has remained at a fixed figure. The recent decline of the export commerce of New York is, in fact, ascribed in a large measure to the operation of these differentials; and a leading case before the Interstate Commerce Commission, instituted by the Produce Exchange of New York, endeavored to secure their abolition. The Commission held, however, that the differentials--recognized by the Joint Traffic Association of 1896--were legitimately based upon competitive relations of the carriers; and that consequently no unlawful preference or advantage had been accorded to the cities competing with New York for export business.
The result of pressure for a larger division of export business, particularly from Boston, led, in 1899, to a reduction by one-half of the differentials. The matter was finally submitted for arbitration to the Interstate Commerce Commission, which very fully examined the question and rendered a decision in 1905.[481] By this decision rates via Philadelphia on traffic for export were to be one cent less than by way of New York, while to Baltimore they were to be two cents less. This arrangement still left Boston subject to its former substantial disability. It was contended that the original purpose of the differentials, namely, equilibration of rates from western centres of production through the various ports to Liverpool, had been practically nullified. For a time the phenomenal development of the Gulf exports diverted attention, forcing all the Atlantic seaports to make common cause against their southern rivals.[482] But the passing of this danger once more revived interest in the struggle between the Atlantic cities. Opportunity for the collection of full data under the strengthened Federal law in 1906, made it possible to reopen the case in 1912 before the Interstate Commerce Commission. But, in the meantime, both in 1909 and 1911, after an interval of twenty years, trunk line rate wars threatened to break out for the protection of Boston against its rivals. The latest decision by the Commission, just handed down,[483] still fails to satisfy Boston. No differential rate on export grain on the ground of distance as against New York is conceded; but those already in effect at Philadelphia and Baltimore are sanctioned. What the effect will be, remains for the future to determine.
* * * * *
The principle involved in the so-called import and export cases[484] is that of the reasonableness of charging lower rates on goods originally shipped from or destined to domestic points, than are charged for similar goods, over the same lines and for the same distances, when brought from or destined to foreign countries. Thus, for instance, in the case of cotton cloth shipped by way of Pacific ports to the Orient, the practice is not uncommon of charging a less rate to San Francisco for the transportation of goods ultimately destined for export, than is charged on similar goods which are to be unloaded for consumption at San Francisco or other California points. Or, reversing the case, this question touches the reasonableness of transporting goods from New York to Chicago at a lower rate, if they have been brought in from Europe, than is charged for similar service in the case of goods that have originated at or near New York. Cases of this description have become increasingly frequent during the last twenty years. The first and most important one, upon which both the Interstate Commerce Commission and the United States Supreme Court have passed, originated in proceedings before the Interstate Commerce Commission, brought by the New York Board of Trade of Transportation against the Pennsylvania and other railroad companies. The case practically raised the general question whether, in the carriage of goods from American seaports, carriers subject to the act could lawfully charge less for the transportation of imported than of domestic traffic of like kind to the same destination. The Commission, after careful examination, held that such differences in rates constituted discrimination as against the domestic shipper. According to its view, the circumstances and conditions pertaining to the carriage of freight from a foreign port to the United States could not be considered as creating the dissimilarity of conditions which alone would justify a different rate for like service in the two cases. The Commission held that:
"One paramount purpose of the act to regulate commerce, manifest in all its conditions, is to give to all dealers and shippers the same rates for similar services rendered by the carrier in transporting similar freight over its line. Now, it is apparent from the evidence in this case that many American manufacturers, dealers, and localities, in almost every line of manufacture and business, are the competitors of foreign manufacturers, dealers, and localities for supplying the wants of American consumers at interior places in the United States, and that under domestic bills of lading they seek to require from American carriers like service as their foreign competitors.... The act to regulate commerce secures them this right. To deprive them of it by any course of transportation business or device is to violate the statute."
The Commission thereupon ordered the carriers to cease and desist from making such discrimination. This order, while obeyed by a number of carriers, was disregarded by the Texas and Pacific Railway, which operated an import line from New Orleans to San Francisco. Upon application by the Commission this case was carried to the Supreme Court of the United States for final adjudication. The Supreme Court decided that the interpretation of the law by the Commission was defective, although three members of the court, including the Chief Justice, dissented from this opinion. As an illustration of the discrimination which existed in this case it appeared that the domestic rate on books, buttons, carpets, etc., from New Orleans to San Francisco was $2.88 per one hundred pounds, while the total through charge on the same articles from Liverpool to San Francisco was only $1.07. The Supreme Court distinctly refrained from an opinion as to the reasonableness of these rates, and contented itself with passing upon the propriety of any difference in rates whatever. It held that the contention of the railroads was sound, namely, that all circumstances and conditions, whether within the United States or having regard for ocean rates and foreign competitive conditions, must be considered. In other words, they recognized the validity of the claim of the railroads that this import traffic must be taken at an extremely low rate if at all, since otherwise the goods would go by water around Cape Horn, or by another route. On the basis of such reasoning it would appear that any contribution from low import rates to the fixed charges of the railroad would enable that road to transport its domestic traffic at a lower rate than it otherwise might. What, however, the majority of the court did not add, although it was developed by the dissenting justices, was the fact that these conditions might exclude domestic purchasers entirely from certain markets, giving them over to importers who could control the market by reason of the low rates accorded. Since this decision in 1896 the railroads have still further developed this system of discrimination. The only safeguard for the domestic producer must lie, obviously, in some decision by a competent tribunal as to the amount of such differences which may reasonably exist. The Supreme Court has upheld their validity as a system, but it still remains for the amount of such difference which may be deemed reasonable, to be determined.
Identical in principle with the above described case, although presenting reversed conditions, are the so-called export rate cases. These have to do mainly with the rates charged on products for domestic consumption as against like products for export. As an illustration of the extent of such differences, it was clearly shown before the Industrial Commission that at times the freight rate on wheat from Kansas City to Galveston was twenty-seven cents per one hundred pounds if for domestic consumption, while the proportion of an export rate for a similar service was ten cents.[485] The rate on wheat from the Mississippi river to New York for domestic consumption was at times twenty or twenty-one cents per one hundred pounds, while for the same service when the goods were to be exported, the rate would be thirteen cents per one hundred pounds. This system of stimulating foreign business by discriminatingly low rates seems to have attained large proportions only since 1897. The Interstate Commerce Commission took cognizance of the system in a decision rendered in 1899.[486] It was enabled to do so by virtue of the Import Rate decision above cited, whereby the United States Supreme Court authorized it to consider not only circumstances and conditions within the United States, but also those relating to ocean transport and foreign competition.
The railroads justify their action on the ground that only by making such concessions in export rates could they lay down grain in foreign markets in competition with other parts of the world. On the other hand, it was not made clear why such competition from foreign markets had become any more acute in the last few years than prior to that time. There appears to be much force in the argument of many shippers, and also of some railroad men, that this anomalous condition of rates was due, not so much to the keenness of foreign competition, as to the rivalry among the American carriers themselves. In other words, it was said that the competition between the Gulf ports and the Atlantic ports was responsible for the abnormally low rates on export business. In line with this argument would seem to be the fact that it is the rates upon wheat and not upon flour for export, which have decreased more than in proportion to the decrease upon similar commodities for domestic consumption. The passing of the acutest phase of competition from the Gulf ports since 1906, has rendered these questions of lesser interest of late years. They may at any time be revived, but seem unlikely to regain the importance which they formerly assumed.
FOOTNOTES:
[436] Among the best references on the subject are the following: McPherson, Railway Freight Rates, pp. 85-92, especially on the Virginia-Carolina cities; Rep. U. S. Internal Commerce, 1876, App., pp. 1-20; U. S. Senate (Elkins) Committee Hearings, 1905, Digest, App., III. The principal I.C.C. cases are as follows: 1891. Social Circle; 4 I.C.C. Rep., 744.--1892. Georgia R. R. Com.; 5 Idem, 324.--1893. Troy, Ala.; 4 Int. Com. Rep., 348. In Railway Problems.--1894. Summerville, Ga.; 4 Idem, 521.--1894. Cordele, Ala.; 6 I.C.C. Rep., 343.--1895. Tifton, Ga.; 6 Int. Com. Rep., 343.--1897. Lagrange, La.; 7 Idem, 431.--1897. Griffin, Ga.; 7 Idem, 224.--1899. Dawson, Ga.; 8 Idem, 142. In Railway Problems.--1899. Aberdeen, S. C.; 10 I.C.C. Rep., 289.--1899. Wilmington, S. C.; 9 Idem, 118.--1900. Piedmont; 6 Int. Com. Rep., 588.--1900. Hampton, Fla.; 8 Idem, 503.--1900. Danville, Va.; 8 Idem, 409. In Railway Problems.
[437] Chapter I affords a historical review of railway development in the United States.
[438] Rep. Internal Commerce, 1876, App., p. 28; Senate (Elkins) Committee, 1905, Digest, App. III, p. 71.
[439] Cf. the Commerce Court case; February session, 1912, No. 40. Also cf. p. 251, supra.
[440] Page 311, supra.
[441] Pp. 239-252, supra.
[442] A list of these on the Louisville and Nashville R. R. is given in U. S. Senate (Elkins) Committee, 1905, Digest, App. III, pp. 84-93. There is a distinction between a basing and a common point. The latter is a competitive junction, to which rates are made on combination of locals. The basing point enjoys a still further advantage in that it gets even lower than the combination rates.
[443] Page 474, infra.
[444] Senate (Elkins) Committee Hearings, Digest, App. III, pp. 73 and 78.
[445] Cf. chap. IV, p. 125, supra. Also I.C.C. Opinion, No. 861, 1906.
[446] H. R. Meyer's, Government Regulation of Railroad Rates, pp. 196 and 292-303.
[447] Page 310, chap. IX, supra.
[448] Senate (Elkins) Committee, 1905, p. 65: 80 per cent. of net earnings on the Louisville & Nashville in 1886 were from local business.
[449] Cf. pp. 386, 591, 612 and 642, infra, for example.
[450] 24 I.C.C. Rep., 228, for Bowling Green, Ky., clearly establishes such a community of interest between rail and water lines.
[451] Senate Interstate Commerce Committee, Hearings, 1897. Twelfth Annual Rep. I.C.C., p. 59, well describes the situation.
[452] Compare chap. XX, p. 638, infra. Other references on internal waterways are as follows: 1905. Senate (Elkins) Committee, Digest, App. IV.--1908. Report Inland Waterways Commission, 2 vols.--1910. Reports U. S. National Waterways Commission, especially Document 11. Traffic History of the Mississippi river. Cf. also, Railway Age Gazette, June 2 and 30, 1911 and Jan. 12, 1912: Bulletin 21, Bureau of Railway Economics; and the Bulletins of the U. S. Census.
[453] Compare vol. II, on railroad consolidation in this territory, since 1900.
[454] 6 I.C.C. Rep., 343.
[455] 23 I.C.C. Rep., 140.
[456] Cf. p. 248, supra.
[457] Senate (Elkins) Committee, 1905, Digest, App., III p. 93; gives a list of new basing points created since 1887.
[458] Southern Railway and Steamship Association Proceedings; Meeting of Aug. 12, 1880.
[459] Fully discussed at pp. 248 supra and 588 infra.
[460] McPherson, Railroad Freight Rates, p. 92, is best on this. Cf. pp. 127 and 243, supra.
[461] Cf. chap. XX on the conflict of state and Federal powers.
[462] Cf. chap. IX on carload rates as a problem in classification.
[463] This problem is discussed as a form of local discrimination at p. 245, chap. VII, supra, and as a long and short haul question at p. 610, chap. XIX, infra. The voluminous record in the pending Union Pacific-Southern Pacific Merger case before the U. S. Supreme Court, No. 820, October term, 1911, is a primary source of material. It is outlined and examined in detail in our Railway Problems, rev. ed., chap. XXII.
[464] Best described in 19 I.C.C. Rep., p. 245; and 21 Idem, pp. 345-354, 416-421.
[465] Historically discussed in 9 Int. Com. Rep., p. 318 and 19 I.C.C. Rep., p. 238 with map; both reprinted in our Railway Problems; and 21 Idem, pp. 352 and 418.
[466] 9 Int. Com. Rep., p. 318; reprinted in our Railway Problems, chap. XVII.
[467] 19 I.C.C. Rep., p. 238 with map, reprinted in our Railway Problems, voicing the complaint of the Nevada Railroad Commission, is thoroughly typical. The leading Kindel cases are in 8 I.C.C. Rep., p. 608; 9 Idem, p. 606 and 11 Idem, p. 495 (with a highly suggestive map); the San Bernardino cases are in 4 Idem, p. 104; and 9 Idem, p. 42; and for Salt Lake City, 19 Idem, p. 218. Cf. also University of Colorado, Economic Studies, Dec. 1909.
[468] Page 610 infra.
[469] Page 342, supra.
[470] Chapter XIX, infra.
[471] Board of Arbitration on Question of Canadian Pacific Differentials Proceedings and Decision, Oct. 12, 1898.
[472] Typical cases 8 Int. Com. Rep., p. 47; and 10 I.C.C. Rep., p. 675.
[473] The Central Yellow Pine case, No. 681, 1903; and Op. 705, 1906. Also in 1912, 22 I.C.C. Rep., p. 239.
[474] Best described by Bowes, Senate (Elkins) Committee, 1905, p. 2851.
[475] 14 I.C.C. Rep., 11.
[476] 23 I.C.C. Rep., 169 and 438.
[477] 18 Idem, p. 280; cf. p. 209, supra.
[478] 8 Int. Com. Rep., p. 121, is typical of a large number.
[479] 23 I.C.C. Rep., p. 448: U. S. Commerce Court, April session, 1912, No. 47. Ann. Rep., I.C.C., 1896, p. 78. Extensive investigations concluded July 6, 1912.
[480] The literature upon this subject, aside from the decisions specifically noted below, is voluminous. The Senate (Elkins) Committee, 1905, vol. V, devotes much attention to it as a constitutional difficulty in the way of amendment of the law. The admirable catalogue prepared by the Bureau of Railway Economics, 1912, at p. 126, well covers the field. Cf. chap. X, p. 361, supra.
[481] 11 Int. Com. Rep., 13.
[482] Page 31 with diagram, supra.
[483] 24 I.C.C. Rep., p. 55.
[484] The leading references are as follows: 4 I.C.C. Rep., p. 450; 10 Idem, p. 55; 13 Idem, p. 87; Rep. to the Senate by I.C.C., Feb. 28, 1903; Senate (Elkins) Committee, 1905, Digest, App. V. The leading export rate case, 8 I.C.C. Rep., p. 214, is reprinted in our Railway Problems. Johnson and Huebner, Railroad Traffic and Rates, vol. I, pp. 492-518. In this instance I have reproduced a portion of my report prepared for the U. S. Industrial Commission in 1900.
[485] Cf. Ann. Rep., I.C.C., 1899, p. 22.
[486] 8 Int. Com. Rep., p. 214; reprinted in our Railway Problems, chap. XVIII.
XII. THE MOVEMENT OF RATES SINCE 1870; RATE WARS
Contrast before and after 1900, 411.--Revenue per ton mile data, 412.--Their advantages and defects, 414.--Nature of the traffic, 416.--Low-grade traffic increasing, 416.--Growing diversification of tonnage, 418.--Present conditions illustrated, 419.--- Length of the haul, 421.--The proportion of local and through business, 422.--Effect of volume of traffic, 424.--Proper use of revenue per ton mile, 425.--- Index of actual rates, 426.--Its advantages and defects, 427.--Difficulty of following rate changes since 1900, 427.--Passenger fares, 429.--Freight rates and price movements, 430.
Improvement in observance of tariffs, 431.--Conditions in the eighties, 432.--The depression of 1893-1897, 433.--Resumption of prosperity in 1898, 436.--The rate wars of 1903-1906, 438.--Threatened disturbances in 1909-1911, 439.
The course of freight rates in the United States during the last generation divides naturally into two periods, before and after 1900, respectively.[487] Prior to that date an almost uninterrupted decline took place, which has been followed by a strongly marked upward tendency during the last decade. In respect of freight rates this movement is commonly judged in either of two ways; by comparison of actual rates charged for specified service between given points through a series of years; or, secondly, by means of what is called the revenue per ton mile. Considering first the use of this latter index, the course of events is shown by means of the diagram opposite the next page, covering the period between 1867 and 1910. But before conclusions may safely be drawn from this showing, it is imperative that the true significance of revenue per ton mile statistics should be set forth. For a generation, and particularly in connection with the Roosevelt legislation in 1906, volumes of written and oral evidence upon moot questions were based upon such figures. Specious and misleading reasoning upon a public question was perhaps never more common in the course of our history.[488] It is most important to understand clearly the real significance of this common statistical unit. We shall then, only, be in position to interpret the diagram properly.
The revenue per ton mile for a given road, or for the railway system of the United States, is computed by dividing the total freight revenue for that service, whatever it may be, by the number representing the amount of freight in tons hauled one mile. Thus, for example, if the total freight revenue of a system of roads be $900,000,000, this having been received as compensation for hauling an equivalent of 90,000,000,000 tons of freight one mile, the compensation actually received for each ton hauled one mile is obviously one cent. All that is necessary in order to compute the average revenue per ton mile, then, is to know the total freight revenue and the amount of ton mileage service. Computed in this way the average revenue per ton per mile for the railways of the United States in 1867 was 1.92 cents. From this level a decline took place in 1890 to 0.941 cents--that is to say, the average amount received for each ton of freight hauled one mile had declined about one half. Since about 1897 there has been no considerable change, the corresponding figure for 1911 being 0.757 cents. In other words, at the present time the carriers of the United States receive about three-fourths of a cent for each ton-mile service. From a revenue point of view this unit may seem insignificant in amount; but it should be borne in mind, of course, that it is applied to an immense volume of traffic. Even the slight increase between 1900 and the present time, if applied to the volume of traffic now existing, would make a difference in freight revenue for the entire railway system of the United States of approximately $61,000,000.
Measurement of the course of freight rates by means of revenue per ton mile possesses one great advantage. It measures the actual return received by the railway without regard to the published tariff, showing accurately, therefore, the degree to which any departures from the published rates take place. For this reason the foregoing diagram probably under-indicates the extent, relatively, of the decline before 1900. For it is indubitable that the published rates have been very much more nearly observed with the passage of time during this decade.[489] On the other hand, revenue per ton mile, as thus used for general purposes, is open to a number of very serious objections. Obviously, like any statistical average it fails to represent the actual payment for any given service. But its disadvantages are more deeply seated than this. Entirely irrespective of any change in the level of rates, revenue per ton mile is affected fundamentally by three distinct sets of conditions. It varies according to the nature of the traffic, whether high grade or low; it is affected by the length of the haul and the proportion of local as distinct from through business; and it is modified profoundly according to the volume of traffic handled.
Before proceeding to the consideration of the above mentioned factors, attention may be directed to the following table, which gives the extreme range of ton-mile revenue for a number of different railways arranged in groups according to the nature of their business.
Each group is graded, moreover, within itself according to the revenue per ton mile. From this showing it appears that for 1910 the range above and below the average for the United States is considerable--being upwards of three times as great for the New Haven system as for the Chesapeake & Ohio, which comes at the foot of the list. It will now be in order to explain the reasons for these wide variations, which are by no means, as is customarily assumed in public discussion, conditioned even primarily by the level or reasonableness of the freight rates charged. Until these attendant circumstances are fully understood, any conclusions as to relative freight rates for a given service based upon revenue per ton mile, are entirely misleading.
Revenue per Av. haul ton mile. Freight per ton. 1910 (Cents) density. (Miles)
New England-- New York, New Haven & Hartford 1.417 1,057,000 93.4 Boston & Maine 1.08 1,046,000 102.8
Southern-- Atlantic Coast Line 1.273 365,000 145 Southern R.R. .957 .. .. Louisville & Nashville .751 1,124,000 170 Illinois Central .589 1,445,000 238
Western and Transcontinental-- Denver & Rio Grande 1.279 532,000 104 Southern Pacific 1.232 745,000 256 Union Pacific 1.011 1,091,000 364 Northern Pacific .900 940,000 297 Great Northern .822 814,700 244.1
Granger-- Chicago & North Western .891 729,000 141 Chicago, Milwaukee & St. Paul .843 709,000 173 =United States, all roads= .753 1,071,000 146
Trunk Lines-- Erie .626 2,808,000 146 New York Central & Hudson River .625 2,548,000 195 Pennsylvania Railroad .580 5,139,000 168 Baltimore & Ohio .577 2,711,000 191 Lake Shore & Michigan Southern .515 3,911,000 171
Coal and Ore-- Philadelphia & Reading .765 4,506,000 97 Lehigh Valley .646 3,288,000 174 Hocking Valley .458 4,014,000 125 Bessemer & Lake Erie .453 8,051,000 118 Norfolk & Western .447 3,456,000 264 Chesapeake & Ohio .407 3,161,000 267
The nature of the traffic handled by a carrier is the most important consideration to be kept in mind in interpreting revenue per ton mile data. This is most clearly shown by comparison in the table between the group of coal and ore roads and the New England systems. The revenue per unit of service on a road whose traffic is largely of low grade most necessarily be low. Probably the lowest average ever reported in the United States was for the Chesapeake & Ohio in 1899--the low point in the general movement of freight rates--when its ton-mile revenue touched O.362 cents. Whenever the business of a carrier consists largely of coal, grain, lumber or other low-grade commodities on which the freight charges must necessarily be exceedingly low in order that the freight shall move at all, the revenue per ton mile must consequently stand at a low figure. Bald comparison of any such revenue with a corresponding figure for high-grade roads is obviously misleading and fallacious. It does not mean that the latter necessarily charges more for the same service; but its higher revenue per ton of freight moved one mile may be, and very likely is, merely due to the fact that much of its tonnage is capable of bearing higher charges. From this circumstance it also follows that comparisons from year to year either for single roads or for the entire railway net, must be made in the light of variations in the proportion of high and low grade tonnage. The trend seems to have been steadily downward in this regard year by year. A steady increase, relatively, in the volume of low-grade traffic has long been under way.[490]
The development of the last twenty years in the United States has certainly been in favor of a great increase in low-grade traffic. This is shown by the following table, giving the per cent. of tonnage in various classes upon the trunk lines from New York to and beyond Chicago.
PER CENT. OF TONNAGE IN EACH CLASS OF FREIGHT ON TRUNK LINES, WESTBOUND[491]
Class 1878 1880 1885 1890 1892
1 30.4 26.4 24.8 21.0 19.9 2 6.9 6.7 7.1 6.4 5.4 3 4.8 4.4 4.2 12.3 11.3 4 57.9 50.1 29.3 12.7 10.4 5 0.0 10.6 34.6 10.0 9.6 6 0.0 0.0 0.0 37.6 43.4 Special 0.0 1.8 0.0 .. .. ----- ----- ----- ----- ----- 100.0 100.0 100.0 100.0 100.0
From this it appears that "sixty per cent. of the tonnage is now (1893) carried in fourth, fifth and sixth classes.... Prior to 1886 no considerable number of articles were permanently assigned to the fifth and sixth classes; they embraced usually a few commodities which had been assigned a special rate." Further consideration of this table shows that first-class freight, forming thirty per cent. of the tonnage in 1878, declined to less than twenty per cent. in 1892; while at the same time sixth-class freight ran up from nothing to 43.4 per cent. in 1892. Fourth-class freight declined during the same period from 57.9 to 10.4 per cent. These figures simply mean that a great deal of traffic is now carried upon American railways for long distances which a generation ago it was believed could not be profitably moved at all. The utility of the railway service, once supposedly confined entirely to freight of the higher classes, has been gradually extended until today there is no commodity too cheap to be handled with the improved facilities. This vast increase in the amount of low-grade traffic is undoubtedly responsible to some degree for the apparent decline of freight rates so often instanced. Fortunately upon this point we have the specific testimony of traffic managers of long experience. On the other hand, in justice to the railways it must be admitted that the proportion of local business at high rates, which would tend to increase the average revenue per ton mile, has steadily increased with the growth of the country; and, moreover, as has already been shown, in times of exceptional prosperity the movement of high-grade freight has increased in more than its due proportion.[492] Nor are these facts adduced in criticism of American railway policy. They are simply intended to draw attention to the fact that, while changes of freight rates have undoubtedly been considerable, they have not been as great as is oftentimes plausibly stated. As for comparisons with foreign countries, they are practically invalidated by the difference in local conditions, as, for instance, in England where local delivery is involved. In the United States such service is charged in addition, either as drayage or express.
The increased diversification in the freight tonnage of American railways, always in the direction of a larger proportion of traffic from general business rather than from the movement of staple commodities, is also of great fiscal significance. It means not only more business, but better and more permanent traffic. The difference, moreover, between the charge which high-grade freight, such as merchandise, will bear by comparison with the highest rate upon grain or coal, is much greater than any difference in the cost of service. The profit, therefore, attendant upon the movement of traffic other than low-grade commodities is strikingly great; although, of course, profitableness is a question of relativity between operating cost and revenue. Heavy train loads of coal at 4 mills per ton mile may be better business than merchandise in light carloads at a rate five times as high. At all events the tendency toward higher grade tonnage has been notable, especially since 1900. Many western roads and even the trunk lines, formerly dependent in a great measure upon the movement of crops, are now affected only indirectly in this regard, by reason of their influence upon general business. The growing diversification of traffic because of its financial importance merits more concrete illustration.
The Lake Shore & Michigan Southern, during the calendar year 1900, increased its freight traffic by 1,760,000 tons. Of this only 194,000 tons were specified as products of agriculture and animals, while products of the forests actually declined by 84,000 tons. In other words, nearly all of this phenomenal increase in business in 1900 was due to the movement of manufactures, minerals and merchandise. A comparison made for the last three decades makes this point still more clear. Since 1880 there has been very little increase in agricultural tonnage upon this trunk line, with an actual decrease in the movement of grain. This, perhaps, may be in part explained by the great development of grain traffic upon the lakes, which, of course, absorbs much business formerly carried by this road. In other words, farm products and provisions transported by the Lake Shore rose from 3,465,000 tons in 1880 to only 3,843,000 tons in 1900. The movement of petroleum and lumber actually decreased, owing to the construction of pipe lines and the clearing of the forests. On the other hand, manufactures and merchandise increased threefold in volume, rising from 3,754,000 tons in 1880 to 14,932,000 tons in 1900. Whereas agricultural products in 1880 formed over forty per cent. of the traffic upon the Lake Shore, they constituted in 1900 less than twenty per cent. Much the same tendency is manifested by other routes. Thus for the fiscal year 1901, the Chesapeake & Ohio reported substantial decreases in the actual tonnage of flour, grain, sand, stone, iron, etc.; but a largely augmented movement of general merchandise of the higher classes. Many of the soft-coal roads, such as the Cleveland, Lorain & Wheeling, which used to carry nearly two-thirds of their tonnage in the form of coal, now carry less than forty per cent. A feature of importance in the great prosperity of the anthracite coal roads has been a steady increase in the volume of their general traffic as distinct from coal tonnage. All over the country, in short, the steady growth of population and the decline in the proportion of grain for export is reducing, relatively, the importance of low-grade tonnage, supplanting it by a movement of supplies and merchandise in the contrary direction.
The classification of tonnage for the United States, as a whole and by main divisions, is shown by the following excerpt from Statistics of Railroads for 1909:
Freight Traffic Movement
-------------------+------------------+------------------ | United States | Trunk Line | | Territory Class of +-----------+------+-----------+------ commodity | Tonnage | Per | Tonnage | Per | Tons | Cent | Tons | Cent -------------------+-----------+------+-----------+------ Products of | | | | agriculture | 73,600,000| 8.92| 19,000,000| 4.65 Products of | | | | animals | 20,600,000| 2.49| 7,600,000| 1.86 Products of | | | | mines |459,500,000| 55.60|256,200,000| 62.71 Products of | | | | forests | 97,100,000| 11.75| 21,500,000| 5.28 Manufactures |108,600,000| 13.15| 70,000,000| 17.15 Merchandise | 33,900,000| 4.11| 13,500,000| 3.31 Miscellaneous | 32,800,000| 3.98| 20,500,000| 5.04 -------------------+-----------+------+-----------+------ Grand total |826,400,000|100.00|408,600,000|100.00 -------------------+-----------+------+-----------+------
-------------------+-----------+------+------------------ | Southern | Western | Territory | Territory Class of +-----------+------+-----------+------ commodity | Tonnage | Per | Tonnage | Per | Tons | Cent | Tons | Cent -------------------+-----------+------+-----------+------ Products of | | | | agriculture | 9,500,000| 7.92| 45,100,000| 15.18 Products of | | | | animals | 1,000,000| .83| 11,900,000| 4.03 Products of | | | | mines | 63,000,000| 52.20|140,200,000| 47.22 Products of | | | | forests | 25,300,000| 20.95| 50,200,000| 16.92 Manufactures | 13,300,000| 11.09| 25,100,000| 8.48 Merchandise | 4,800,000| 3.98| 15,600,000| 5.26 Miscellaneous | 3,600,000| 3.03| 8,600,000| 2.19 -------------------+-----------+------+-----------+------ Grand total |120,700,000|100.00|297,000,000|100.00 -------------------+-----------+------+-----------+------
Conclusions from these figures are well worth noting. The importance, measured by traffic rather than revenue, of low-grade freight classed as products of mines, is notable. This forms more than half the aggregate tonnage for the United States, and has appreciably increased within the last ten years. In 1910 it constituted almost two-thirds of the business in trunk line territory and almost one-half in the West. Products of agriculture, on the other hand, even in western territory, amount to less than one-fifth of the total tonnage. These facts indicate clearly the diverse conditions under which railways operate in different parts of the country. The next table,[493] besides incidentally throwing more light upon the relative tonnage of staple commodities, will suffice to establish our main point--namely, that the nature of the traffic vitally affects all ton mile revenue statistics. It entirely, in fact, overshadows mere changes in the general level of freight rates. Any argument concerning the movement of such charges, which fails to correct fully for this factor, may be dismissed at once as valueless.
Summary of Selected Commodities for the Year Ending June 30, 1910[494]
Average receipts per Ton-mileage Revenue ton per mile Freight of freight from freight from freight carried in carried in carried in carried in Commodity carload lots carload lots carload lots carload lots Tons Ton miles Cents
Grain 31,947,009 7,067,690,568 $44,553,330 0.630 Hay 5,856,185 954,623,830 9,731,590 1.019 Cotton 3,400,316 689,594,719 12,573,674 1.823 Live stock 10,754,108 2,449,310,036 29,802,514 1.217 Dressed meats 2,407,454 724,239,606 6,548,955 .904 Anthracite coal 28,202,577 5,104,428,347 30,083,630 .589 Bituminous coal 192,479,389 22,228,778,428 110,139,107 .495 Lumber 68,482,732 11,891,569,514 87,225,470 .734
A second consideration in the interpretation of ton mile data, of equal importance with the nature of the traffic, is the length of the haul and the proportion of local as distinct from through business. This necessarily follows from the nature of a distance tariff. Only on condition that the rate augmented in direct proportion to the increase of distance, would the revenue per ton mile remain constant. The diagram at page 108 is instructive in this connection. The charges--denoted by the height of the curve at any given point--tend to grow much less rapidly than distance. In other words, the rate curve approaches a parabolic form, until after a certain point it becomes practically a flat rate, independent of distance. This fact of necessity causes ton-mile revenue to decrease steadily with the length of the haul. For ton-mile revenue is but the ratio of the abscissa to the ordinate of the curve at any given point; the former being the rate charged, the latter the distance.
In practice, therefore, the longer the haul in general, the lower is the revenue per ton mile.[495] This is clearly shown by comparison of the two items for given roads, otherwise similarly circumstanced, in the table already discussed on page 415.
Closely akin to the length of haul in affecting ton-mile revenue, is the proportion of local traffic. This also is in practice vital. Obviously it costs much more to handle local business, the terminal expenses being far greater in proportion. And at the same time a larger proportion of the freight moves in small lots locally. This difference between revenue per ton mile for local business and through traffic is very great. On the Louisville & Nashville, for example, in 1886, it was 1.48 cents for the former, as against .99 cents for through business.[496] The Illinois Central in 1900 reported an average revenue per ton mile on through freight of 0.48 cents, while for local freight the corresponding figure was 1.17 cents, the average of both being 0.56 cents. It is apparent, therefore, that any accurate determination of the level of charges in general must take account of such facts as these.
Any carrier like the Southern Pacific, the Chesapeake & Ohio or the Erie, with relatively little local traffic and a business dependent largely upon the long haul, will conduct transportation for a materially lower figure than roads in a densely settled territory. This consideration was recently illustrated in Massachusetts experience.[497] The Fitchburg Railroad, devoted to long distance, low-grade business by the Hoosac tunnel route, was consolidated with the Boston & Maine in 1900. Its revenue per ton mile was formerly .818 cents based upon such traffic. When it was merged with the Boston & Maine,--considerably blessed as it is with local traffic,--the latter's ton-mile revenue fell from 1.44 cents in 1900 to 1.158 cents in the following year. There had been no change whatever in freight rates.
A word may be interposed in this connection as to the peculiar movement of local as distinguished from through rates through a series of years. Local charges have decreased relatively little, probably because of the absence of competition in such cases. They have, moreover, decreased very unevenly in different parts of the country. Apparently one of the first and most beneficent results of the enactment of the Act to Regulate Commerce in 1887, was a reduction of local rates in various parts of the country, in order to bring the rate adjustment into conformity with the long and short haul clause. This was peculiarly the case in the northeastern or trunk line territory. It does not seem to have occurred in the southern states, where the long and short haul principle has never been accepted in its entirety. The most comprehensive report upon the subject concludes that local rates have in various parts of the country, during the last quarter century, been reduced from ten to fifty per cent.[498] Returns from various railway commissions interrogated by the Industrial Commission in 1900 upon the subject showed highly variable results. From Mississippi it appeared that "local freight rates in this state have been materially lowered in the last four years, especially in the lettered classes"; while in the adjoining state of Alabama "local rates on freight have decreased very little in the last five or six years, and have not decreased in proportion to the decrease made in interstate rates." In New England, comparison of actual freight rates did not indicate any very considerable reduction, the absence of competition in this section being, perhaps, in part responsible for this result. A comparison of published freight rates in southern territory, without making allowance for departures from such tariffs, apparently showed a very much smaller reduction than in other parts of the country. It is also apparently true that the reduction of cotton rates in this section, while considerable, had been much less rapid than that of the rates upon grain from Chicago to the seaboard in either direction. A few instances of an actual rise of local charges since 1900 may be cited.[499] But the fact that competition has been substantially eliminated in consequence of widespread consolidation since 1900, has rendered the movement of local and through freight rates more nearly alike all over the country than they were prior to that time.
The third consideration which must always be kept in mind in the interpretation of revenue per ton mile is the volume of the traffic handled. Any comparison of freight rates which is not made in the light of increase in the business transacted, is bound to be misleading. A reduction of cost of operation per unit, attending a growth in volume, has already been fully described in connection with the theory of rates. And it is but natural that a reduction in the rate should follow any lessening of cost. Moreover, a large volume of business usually implies a relatively greater amount of low-grade tonnage. In order to bring out this relationship the second column in the table on page 415 has been added. This permits a correlation between freight density--that is to say, ton miles per mile of line and revenue per unit of service. It will be noted that, in general, the revenue unit falls as the volume of traffic, measured by freight density, rises. This is strikingly shown by comparison of the groups of western and transcontinental roads with those concerned mainly with the carriage of coal and ore. The soft coal Hocking Valley road with its enormous density and very low revenue per ton mile, affords an excellent example. It is indubitable that the trunk lines and the coal roads are able to transact business for relatively low rates, not only because their tonnage is of low grade, long haul or both; but also because of its immense concentration per mile of line, permitting all of the economies incident to large-scale operation. In this connection, however, it should be noted as a general principle, that oftentimes it is not the mere increase in the traffic of a particular sort which is significant; but rather the growth in the total volume of business of all kinds.[500]
The foregoing criticism of the use of revenue per ton mile as a means of showing the course of freight rates in general has been mainly destructive. This figure, nevertheless, will in many cases be found highly serviceable in the examination of particular rates. It may properly be used to determine whether a given commodity is contributing its due proportion to the general budget of the carrier. Revenue per ton mile can, of course, be computed for each particular service; inasmuch as both the income and the volume of that service are matters of independent record. The table on page 421 brings out this point. Or take a division of the Illinois Central for 1900. Its revenue per ton mile was 0.136 cents on wheat, 0.79 cents on flour, 4.267 cents on sugar-cane, 0.309 cents on soft coal, 1.148 cents on stone and sand, 2.238 cents on furniture, 3.165 cents on merchandise. On this basis one may properly inquire as to whether under all the circumstances wheat, coal or merchandise are doing their part, in the light of the particular expenses attached to their carriage, in maintaining the general burden of indivisible costs. When copper yields a revenue per ton mile of only 0.285 cents, the rate being only 1.6 per cent. of its market value, while on wheat for the same haul the corresponding unit of return is 0.4 cents per ton mile--equal to one-fifth of its worth--there is evidently a maladjustment favoring one commodity over another.[501] In a number of recent cases questions of this sort have been rather satisfactorily answered by resort to this unit of measurement.[502]
The curve of revenue per ton mile, as shown by diagram at the head of this chapter, certainly gives no indication of the considerable increase of freight rates which has ensued since 1900. This follows from the fact that in at least two of the three respects, above mentioned, the trend of events, independent of any change in the level of freight rates, has operated to greatly dilute the revenue per ton mile. The growth of low-grade traffic and the immense augmentation in tonnage have both conspired to render this unit entirely useless for purposes of comparison year by year. The average length of haul alone seems to have remained much the same during the decade. Although the curve does not show it, there has been a notable upward movement all along the line, responsible, as we shall see, for much of the new Federal legislation. How may we, then, estimate the amount of these increases? Under such circumstances, it is necessary to turn to the movement of actual rates.[503] The course of these down to 1900 is best shown upon the same diagram above mentioned by means of the dotted curve, entitled Actual Rate Index, the scale for which is given at the right. This rate index is simply the average of the actual published rates for a number of specific commodities between certain given points. It differs in principle from the ton mileage revenue curve, in that it concerns merely the published rates, taking no account of rebates or departures from those rates in actual practice. A comparison of its course with that of the ton mileage curve shows a more abrupt decline from about 1878 to 1886, since which year the course of both lines is about parallel. Its irregularity is also significant as illustrating the violent fluctuations to which the published rates were subjected jected prior to 1887. Judged by this curve, the situation has been more settled since the enactment of the Act to Regulate Commerce in 1887.
Were data at hand for a continuation of this line to 1910 it would undoubtedly afford a fairly reliable measure, in general, of the substantial increase of rates which has taken place during the decade. The main objection to it would be that it did not weight the average according to the volume of the business carried for each of the thirty-seven concrete rates chosen.[504]
Tracing the rise of actual rates since 1900 is rendered peculiarly difficult, also, by reason of the fact that few of the changes took the form of an outright advance in charges. The end in view was more often accomplished surreptitiously. The substantial increases in 1900[505] which inaugurated the upward movement were mainly accomplished by changes of classification. Modification of the carload ratings brought about the same result. A notable instance appeared in the complaint of the dairy men in Wisconsin in 1909. An annual shipment of 38,000,000 lbs. of cheese to Chicago before 1899 moved at twenty cents per one hundred pounds, irrespective of the size of the consignment. Ten years later the rate had become twenty-eight cents for less-than-carload lots, and twenty-two and one-half cents for wholesale shipments. The relative disability of the small shipper under the new circumstances is as significant as the rise of rate for all.[506] The increase of charges might be brought about in another way without actually advancing rates by a withdrawal of commodity ratings, thereby subjecting the shipper to the higher scale of classified commodities. And, finally, a practical elimination of the rebate and the cessation of general rate wars has usually resulted in a very substantial increase in the revenue of the carriers as well as in the scale of charges imposed upon most shippers. Evidence upon this point is officially given in connection with the rate increases of 1903.[507] It thus appears that to follow step by step the movement of actual rates is an extremely complicated matter. Every factor entering into the determination of the charge must be considered; the distance tariff, the classification, minimum carload rules and a host of other specifications which enter into the final result. For our purposes it must suffice that the fact of a substantial rise of charges since the turning point in 1900 is beyond question.[508] On the other hand, it is indubitable that such increases as have occurred, arousing vehement protest among shippers, have been more widely advertised than changes in the opposite direction. Substantial reductions, especially on low-grade staples, have sometimes occurred. One is almost at a loss to strike a fair balance between the two, in the absence of dependable data.
The movement of passenger fares has been quite different from that of freight rates.[509] No marked decline during the last quarter of the nineteenth century took place. Growth in the volume of traffic was not accomplished by a reduction of charges. This is in consonance with the experience of foreign countries. Passenger business, while steadily growing, has increased less rapidly than freight tonnage. Generally, in other words, as measured by volume, freight business has become relatively more important with the progress of time. Fiscally the same thing is true. Only in New England does the revenue from this service approximate one-half of the total net earnings. The nature of railway competition explains why passenger fares have not decreased as rapidly as freight rates. Persons must necessarily be more or less directly transported from one point to another; while experience shows that competition in freight traffic may be exceedingly circuitous in route, goods even going hundreds of miles out of the direct line for transportation by water. This narrowing of the sphere of competition in the case of passengers has consequently operated to lessen the rate of decline. Another point to be considered in this connection is that no such increasing economies in the handling of passengers are possible as in the case of freight. Instead of decreasing the proportion of dead weight, which for passengers amounts to upward of ninety per cent., by any of the economies recently applied to freight traffic, it appears rather that the proportion of dead weight of equipment per passenger is increasing, owing to the necessity of providing more sumptuous accommodations. Bearing in mind all these facts, it appears not unreasonable that the progressive decline of passenger fares has continually lagged behind the decrease of freight rates. But the natural lethargy in the movement of passenger fares was rudely interrupted in 1908 in connection with the wave of legislation accompanying the Roosevelt campaign which culminated in the Mann-Elkins law. A widespread demand for lower passenger fares found expression in the passage by twenty-two states within five years of maximum fare laws. Eleven legislatures fixed the charge at two cents per mile, the others establishing it at less than three cents. Many appeals to the courts in connection with these statutes took place on the ground of confiscation, and sharp conflicts of authority between Federal and state governments arose.[510] Whether passenger rates would ever have declined without such exercise of authority is open to question, but the disturbance of established conditions at this time was extreme.
One further question with relation to the movement of rates merits consideration. In how far has the rise since 1900 been commensurate with the general upward movement of prices of other commodities than transportation--the particular commodity produced by railways? The evidence tends to show that prices in general have moved upward during the last ten years by approximately one-fourth, and it may be even one-third.[511] Have railway charges in general surpassed this rate or not?
Some activity of railway experts has been devoted of late to the elucidation of this question.[512] But, after all, is this inquiry of basic importance as bearing upon the general reasonableness of railway rates? Here, as so often elsewhere in the discussion of these questions, the need is for the analysis of such problems with reference to particular services and not in connection with matters in general.[513] It is conceivable that railway rates might and properly ought to increase under certain circumstances much more than in proportion to the general change in freight rates; or that, on the other hand, they might fairly be compelled to lag behind. This introduces the larger question of reasonable rates in general which must remain for discussion in our second volume.
* * * * *
The general level of rates affects the ultimate consumer more than the shipper. Steadiness of rates, on the other hand, is vital to a healthy state of trade. It is important to examine the evidence from this point of view. The history of railroad rates shows a steady improvement in the direction of more general observance of published tariffs. Periods of abject demoralization incidental to the most furious rate wars, have alternated with periods of peace, characterized by more or less faithful observance of agreed rates. Viewed in a large way the intervals of disturbance have become less frequent and less intense with the passage of time. Present conditions are more satisfactory than any which have prevailed since 1850.
Rate wars are almost as old as railroading and are coincident with the appearance of competition. Among the earliest of note were the struggles between the Erie and the New York Central as soon as the former road was constructed to Dunkirk, Ohio, on the Great Lakes. But the most notorious rate wars were those which prevailed between the trunk lines in respect of the carriage of grain to the seaboard. These wars began with the entrance of the trunk lines into Chicago in 1869.[514] The Baltimore and Ohio from the outset was the disturbing factor. Having no entry into New York except over the lines of the Pennsylvania Railroad, the refusal of the latter in 1874 to give proper facilities led to immediate retaliation by rate cutting on the Baltimore and Ohio. The details of these wars and their economic significance have become classics in our American industrial history. Suffice it to say that for intensity and persistence these contests which lasted for ten years after 1884, have been unequalled in our history since that time. A brief period of calm ensued after 1876. But soon the struggle broke out again in 1881, intensified by the construction of new parallel trunk lines like the West Shore and the Nickel Plate. These latter rate disturbances lasted for about three years.
The passage of the Act to Regulate Commerce in 1887 greatly improved the rate situation for a time;[515] but harmonious relations were rudely shaken by a bitter rate war in 1888 between the Grand Trunk Railway and the American Lines with reference to the rates upon dressed beef. Trouble over this traffic had occurred as far back as 1879, when the rate from Chicago to New York had been cut from one dollar to forty-five cents. In 1888, however, the rate on dressed beef for weeks was as low as six cents per hundred pounds. The Grand Trunk which had carried almost half of this business in 1887, had its proportion reduced to twenty-eight per cent. in the following year. At this time also extensive rate wars prevailed in the far western territory. The failure of the Atchison Road brought to light accumulated rebates for the four years prior to 1894 to the amount of $3,700,000. The prosperity of the early nineties led to a considerable improvement in rate observances. The only exception was the persistence of trouble from the Canadian carriers. The Soo line across the Straits of Mackinac, opening a short route from St. Paul and Minneapolis to the seaboard, was acquired by the Canadian Pacific Railroad in 1890. Combined lake-and-rail grain rates were sadly disturbed and the controversy over so-called ex-Lake grain between the lines from Buffalo to New York, which afterward cropped out in 1900, took its beginning. These Canadian Pacific rate wars were severe while they lasted. In 1892, for instance, the rate on boots and shoes from Boston to St. Paul dropped from one dollar and fifteen cents per hundredweight to forty-five cents.
The panic and subsequent depression of 1893 caused serious and widespread rate wars all over the country. Grain rates from Chicago to New York were openly reduced from twenty-five to fifteen cents. Two peculiarities of this rate war deserve mention. In the first place, every concession was publicly made,--that is to say, the cut rates were filed with the Interstate Commerce Commission; and, consequently, owing to the percentage-basis system to intermediate points, the rate war on Chicago-New York business automatically induced a rate war to every intermediate point in Central Traffic Association territory. Transcontinental rates were also badly upset at the same time. This was due not only to the prevalent hard times, but to complications arising from the independence of the Panama Railway. This line had been controlled since 1871 by the Union Pacific Railroad. The arrangement under which the Pacific Mail Steamship Company was also controlled came to an end in 1893, when the field was again opened to competition. The merchants of San Francisco established an independent line of steamships and for two years the most bitter and reckless rate war prevailed. During this conflict freight was carried from New York to San Francisco as low as thirty cents per hundredweight.[516] Matters were finally settled in 1898; but in the meantime the Union Pacific Railroad had gone into bankruptcy.
Entire demoralization in freight rates throughout the southern states occurred in 1894. Every carrier in this section was involved. Rates were cut for two months by as much as two-thirds. The first-class rate from New York to Atlanta dropped from $1.14 to forty cents per hundred pounds. The years 1894-1895 for the country as a whole were exceedingly unfortunate. Better conditions then supervened except for a rate war on grain at Missouri river points, so important that it was made the subject of special investigation.[517] The Chicago Great Western Railroad through the agency of a corporation known as the Iowa Development Company actually purchased on its own account large amounts of grain in order to secure its carriage. Grain was carried from Kansas City to Chicago under the system of rebating known as "protecting the through rate" for as low as two cents, when the open published rate was seventeen cents per hundredweight. Conditions then bettered somewhat largely through the activities of the Joint Traffic and Trans-Missouri Freight Associations. The prospect of legalization of pooling by Congress was bright. Rates seem to have been observed with more than usual faithfulness throughout the country, the only exception being another brief conflict in the southern states. But the Trans-Missouri decision by the United States Supreme Court in 1897, declaring these traffic associations illegal, once more precipitated most unsatisfactory conditions. And these were accentuated by the budding prosperity of the following year.
With the return of activity in business and agriculture in 1898 a frenzy for participation in the rapidly expanding traffic once more brought about extreme disorganization. The Interstate Commerce Commission reported that "a large part of the business at the present time is transacted upon illegal rates ... in certain quarters the observance of the published rate is the exception." The commissioner of the St. Louis Traffic Bureau testified before the United States Industrial Commission that "there were fewer rates maintained in 1898 than at any other time within my knowledge of the railroad business, and I have been in the railroad business for twenty-eight years." At this point the Interstate Commerce Commission intervened by the proffer of its good offices. Conferences with the heads of the principal railroads were held. A decided change in the attitude of the Commission toward the carriers became evident. It wisely sought to arouse the railroads themselves to the enormity of the existing evils, being absolutely unable itself under the law either to prevent or correct the existing abuses. The result fully justified all expectations. The following year witnessed an almost complete restoration of published rates, although business continued to expand in volume. Naturally there was ample for all the railroads to handle. This condition lasted for some time. But during 1900 rate cutting again developed upon a large scale in westbound business. The great increase of eastbound shipments and the demand for return lading at any price was undoubtedly the cause. This condition lasted for some months.
Rate cutting between the trunk lines again broke out in the spring of 1901, grain being hauled as low as eleven cents per hundred pounds from Chicago to New York. Competition between the Lake line railroads seems to have been the cause. The problem of adjusting ex-Lake grain rates dates from this period. The community-of-interest plan of trunk line control was ineffective to prevent disturbance. In the same year a passenger rate war from the Missouri river to California was also threatened. The United States Industrial Commission sent out a number of inquiries concerning conditions in the summer of 1901. This indicated a firm and stable rate condition in the East but some disturbance on lines between Chicago and the Ohio river points. Trouble soon broke out, however. The Atchison road suspecting its competitors of bad faith, cut its rates first-class from Chicago to the Missouri river from eighty cents to fifty cents per hundredweight. Agreements were repeatedly made and almost immediately violated, some of the strongest lines being the worst offenders. During the fall of that year export rates on flour and grain were badly slashed. The traffic manager of the New York Central lines testified that grain rates for export were not maintained for a number of months.
Apparently the general situation in 1900 was more satisfactory than at any previous time in the history of railroading in the United States. With few exceptions the published rates were observed. This commendable situation seems to have been due to several causes. Primarily an adequate appreciation by the railroads themselves of the losses of revenue to which they had voluntarily subjected themselves prevailed. An enormous volume of traffic incident to general prosperity, also, almost overtaxed the facilities of the carriers. And, in the third place, the spread of consolidation and the community-of-interest idea undoubtedly contributed to the same end. The determined attitude taken by important roads, notably the Southern Railway, contributed to the maintenance of rates. Even in the Far West and Northwest, rate conditions seemed to be in better shape than at almost any previous time. But it was too good to last; trouble soon broke out again. Grain rates from Kansas to Chicago during the summer dropped from nineteen cents to seven cents. Rates on packing-house products became utterly demoralized. So bad did conditions become that in March of 1902 the Interstate Commerce Commission intervened, seeking injunctions in the Federal courts against any departure from the published tariffs. This immediately bettered conditions; and in February of 1903 the passage of the Elkins law, as we shall see, contributed still further to this end. The enactment of this statute, passed at the solicitation of the carriers themselves and imposing much severer penalties upon departure from published rates, brought about conditions during the spring of 1903 unsurpassed for stability. The only exception was a minor disturbance concerning the carriage of ex-Lake grain from Buffalo to New York. Tariffs seem to have been faithfully maintained throughout the country with one exception, that is to say, concerning traffic to and from Missouri river points.
Since the passage of the Elkins Amendments in 1903, the phenomenal development of export trade through the Gulf Ports, principally New Orleans and Galveston,[518] has been mainly responsible for recurring and often ferocious rate wars, particularly during the years 1903-1906. These rate wars were usually precipitated in the first instance by struggles between the Gulf railroads and the trunk lines for the carriage of export corn. In 1904, for example, after a long period during which little surplus corn was available for export from Iowa, Kansas and Nebraska, much of it being locally consumed for stock feeding, a large surplus was left over. Rates were promptly cut during 1905 by both sets of lines. Thus the rate on export corn from Omaha to New Orleans was reduced from eighteen to eleven cents per hundred pounds. This cut was promptly met by a reduction of rates from Missouri river points to Chicago from twenty-four to thirteen cents. The rate from Omaha to New York dropped to the extraordinarily low figure of thirteen cents per hundred pounds. The Burlington and Missouri Pacific Railroads were particularly active in this contest; together securing over eighty per cent. of the corn traffic, although five other important roads were operating in this territory. All through the winter and spring of 1905 the struggle went on unabated. The Gulf ports during this period increased their exports of corn two and one-half times over. The struggle was not alone confined to the carriage of grain; although export flour being manufactured so far north, seems to have been immune from disturbance. The trouble extended over into the field of packing-house products for export. It was long thought that this could not be shipped over the roundabout southern route, but its practicability was demonstrated at this time. The demand of the Gulf roads for a ten per cent. differential rate in their favor as an offset for the greater time requisite for transit, not being accorded, rates were again cut by one-third, sometimes being as low as twenty cents per hundred pounds.
The rate wars of 1905 in the carriage of export traffic immediately spread into the field of imports. Competition for transcontinental and far western business has always been keen by the Gulf routes. The notable Import Rate case already discussed, offers a good illustration of this fact. The great volume of tonnage moving outward through Galveston and New Orleans necessitated a correspondingly heavy northern and northwestern movement of empty cars. Hence the railroads leading from the Gulf ports, actively bid both against one another and in connection with the steamship lines against the trunk lines. Competition was particularly keen for the carriage of the large volume of sugar to the Middle West, particularly Missouri river points like St. Louis and Omaha. Carriers from every point of the compass were interested in this traffic. The trunk lines brought refined sugar from the seaboard cities where the West Indian product is concentrated. The Gulf lines brought the Louisiana product, partly as a back-load against exported grain. And the transcontinental lines brought the Hawaiian sugar, also as a back-load against a predominance of westbound tonnage. All hands thus directly took part.[519] For three years this sugar war persisted despite all attempts at harmony. Rates were constantly cut by fifty per cent., always of course to the profit of the large sugar refiners. Coffee, also constituting an important part of our import trade, and of course particularly adapted to entry through the Gulf ports, was carried at ruinous rates. Thus on green coffee during 1905, the rate from New Orleans to St. Paul was cut from forty to fifteen cents per hundred pounds, while coincidently the rate on sugar dropped from thirty-two to ten cents. The struggle for import business extended finally to all imports of merchandise from Europe. The Illinois Central, for example, actively bid for the imported plate glass business about this time. At a meeting of parties concerned in 1905, the fact developed that every one of the important lines had entered into contracts for the carriage of this traffic at rates approximately one-half those normally prevalent. The trunk lines of course had to meet this competition or lose the business. The Pennsylvania Railroad cut the rate on crockery from forty to eighteen cents; on imported seeds the rate dropped from fifty to twenty cents and on toys from seventy-five to twenty-five cents per hundred pounds. These rate wars it will be observed differed neither in extent nor degree from those of a generation earlier. One cannot avoid the conclusion that the utter demoralization of rates was ended only by the intervention of the Federal government; first by the sturdy and determined application of the Elkins Law under President Roosevelt's personal direction, and later by extension of the principle of supervision and regulation by the Hepburn Act of 1906.
The principal breach since the sugar wars was a rather persistent and locally interesting disturbance of westbound import rates, precipitated in the spring of 1909 by the Boston & Maine Railroad. Its object was to overcome the disability against the port of Boston in the matter of imports, due to the differentials allowed at Philadelphia and Baltimore.[520] This led to a general trunk line upset lasting about four months, in the course of which rates from Boston to Chicago were reduced from sixty-nine to fifty-eight cents. This obviously left little profit in the business. Yet it was a mild concession as compared with the struggles of earlier years. Two years later, in June, 1911, trouble threatened to break out again. This time it was the Delaware & Hudson and Erie roads which filed reduced rates to the interior. But the solidarity of feeling between the trunk lines was such that an open breach was prevented at the last moment. The prompt intervention of the Federal authorities was a noticeable feature on this occasion. It may somewhat safely be predicated that further serious disturbance in future is unlikely to occur.
FOOTNOTES:
[487] U. S. Industrial Commission, XIX, 1901, pp. 272-290; Annals of the American Academy of Political Science, 1898, pp. 324-352.
[488] Revenue per ton mile in index to the Senate (Elkins) Committee Hearings, 1905, vol. IV.
[489] Compare conclusions as to rebating in 1900; U. S. Industrial Commission, XIX, p. 285. When, as in 1887, a general departure of 50 per cent. from published rates characterized transcontinental traffic, the difference between the theoretical and actual revenue, as measured by the published rates, is very great. 21 I.C.C. Rep., 349.
[490] The movement of average trainloads in connection with ton-mile revenue bears upon this point. Thus in 1905, the increased trainload, accompanied by a lower ton-mile revenue, points specifically to an increase in low-grade traffic.
[491] Senate Finance Committee Report on Prices, 1893, Part I, p. 437.
[492] The effect of periods of depression, such as 1903 and 1908, upon the proportion of low-grade tonnage is a moot point.
[493] U. S. Statistics of Railways, 1910, p. 64.
[494] Mileage of roads represented on June 30, 1910--130,395.46 miles.
[495] Cf. Ripley Railway Problems, p. 509. Cf. also p. 103, supra.
[496] Senate (Elkins) Committee, Digest, App. III, p. 63, brings out the high proportion of local business in the South. On the L. &. N. 80 per cent. is thus classed.
[497] Mass. Commission on Commerce and Industry, 1908, p. 117.
[498] McCain, in Senate Finance Committee Report on Prices, 1893.
[499] I.C.C., Annual Rep., 1903, p. 150.
[500] Emphasized in the case of wool rates. 23 I.C.C. Rep., 151.
[501] Samuel O. Dunn, The American Transportation Question, p. 65.
[502] 22 I.C.C. Rep., 617; 11 Idem, 296; 13 Idem, 418; 23 Idem, 7; 9 Idem, 382, etc.
[503] J. R. Commons, Bulletin, Bureau of Economic Research, No. 1, July, 1900; unfortunately not continued to date.
The best data giving actual rates and classifications is the Forty Year Review, etc., published by the Interstate Commerce Commission, as "Railways in 1902," part II, 1903; continued in Senate (Elkins) Committee, Digest, App. II, 1905; and 58 Cong., 2nd sess., Senate Doc. No. 257, savagely attacked in Bull. II, Chicago Bureau of Railway News and Statistics, 1904. The largest collection of material is in the Senate (Aldrich) Committee Report on Prices, 1890, I. pp. 397-658, covering the period 1852-1890. Also Bulletin 15, Misc. Series, Div. of Statistics, U. S. Dept. of Agriculture, 1898, pp. 1-80.
[504] The continuation of Commons' index number of freight rates to date, seemed inadvisable on account of the changes in traffic conditions which have taken place. Originally well selected, the thirty-seven rates chosen in 1900 are not now representative. There are, for instance, no transcontinental quotations at all; none from the southern states, such as on raw cotton; none for the great staples elsewhere moving under commodity ratings, such as iron ore, chemical fertilizers, lumber, citrus fruit, etc. Moreover, twelve of the thirty-seven items chosen by Commons were rates on petroleum which now moves in bulk in pipe lines except locally. Several of the quotations for coal, and for all the other carload rates, as a matter of fact, have been so affected by changes in carload minimum rules, that the mere rate by itself has little significance.
Rejecting Commons' particular index number by reason of its inherent defects does not, however, lessen the desirability of choosing some other combination of rates which may be used as a standard for measurement of rate changes year by year. Yet the selection of such an index number is open to all the difficulties attaching to a similar index number of prices. Is the object, for example, an academic determination of rate changes per se; or is it intended to ascertain the financial burden of such charges upon the community? In the former case the volume of traffic affected would not be an important consideration. Local rates on indigo or millinery would be given the same weight as similar changes in the rate on wheat between Chicago and the Atlantic seaboard. The latter mode of approaching the question, on the other hand, would correspond to an index number of prices, weighted according to the volume of consumption. A doubled freight rate on hard coal to Perth Amboy would outweigh an equal change in the charge on castile soap in exact proportion to its commercial importance as measured by the total tonnage transported. Many such details would call for careful consideration before the final adoption of the rate items chosen to constitute the index number; but the Interstate Commerce Commission might well consider the initiation of such a statistical project, endeavoring to do for railroad rates what the Federal Commissioner of Labor performs so satisfactorily in officially recording current changes in the price of commodities. Such a record of railroad rates extending over a series of years, supplemented by data for ton mileage revenue, would be invaluable in the determination of the reasonableness of rate advances in future; even as the rate increases of 1910 clearly pointed to the need of a similar standard for purposes of comparison from year to year in the past.
[505] U.S. Industrial Commission, XIX, pp. 281-291; 58th Cong., 2nd sess., Sen. Doc. 257.
[506] 16 I.C.C. Rep., 85. For other instances compare 12 I.C.C. Rep., 149, and 23 I.C.C. Rep., 158.
[507] 9 I.C.C. Rep., 382.
[508] For further examples supplementing our concrete instances above, the following citations are significant; For cattle, 11 I.C.C. Rep., 238, 296 and 381; 13 I.C.C. Rep., 418; 23 I.C.C. Rep., 7; for soft coal, 22 I.C.C. Rep., 617; for hay, 9 I.C.C. Rep., 246; for transcontinental rates in general, U. S. v. Union Pacific Railroad, etc., Supreme Court, 820. October Term, 1911, p. 558. The record, so far as the general advances of 1910 are concerned, will be considered in connection with the legislation of that date, in chapter XVIII.
[509] Annals of the American Academy of Political Science, 1898, pp. 324-352.
[510] Discussed in chap. XX.
[511] Quarterly Journal of Economics, 1907, p. 618.
[512] Calculations of C. C. McCain on the Diminished Ratio of Railway Rates to Wholesale Commodity Prices, in connection with the increases in 1910.
[513] Well expressed in a recent soft coal case; 22 I.C.C. Rep., 617.
[514] Further details in our historical summary in chap. I.
[515] The main sources of the following chronicle have been the files of Annual Reports of the Interstate Commerce Commission and of the Railway Age and Age-Gazette.
[516] A carload of bamboo steamer chairs across the continent for $9.40 is a cut to the bone indeed. 21 I.C.C. Rep., 349.
[517] 54th Cong., 2nd sess., Sen. Doc. 115, is as fine a picture of utter rate demoralization as can be found.
[518] Shown by diagram at p. 32, supra.
[519] Senate (Elkins) Committee, 1905, pp. 2730 and 2874.
[520] Cf. p. 405, supra.
XIII. THE ACT TO REGULATE COMMERCE OF 1887[521]
Its general significance, 441.--Economic causes, 442.--Growth of interstate traffic, 442.--Earlier Federal laws, 443.--Not lower rates, but end of discriminations sought, 443.--Rebates and favoritism, 445.--Monopoly by means of pooling distrusted, 446.--Speculation and fraud, 447.--Local discrimination, 448.--General unsettlement from rapid growth, 449.--Congressional history of the law, 450.--Its constitutionality, 451.--Summary of its provisions, 452.--Its tentative character, 453.--Radical departure as to rebating, 454.
Due appreciation of the significance of the great body of Federal legislation concerning railroads which has accumulated during the last quarter century in the United States, depends upon a clear understanding of the economic events of the period. Great laws are not the figments of men's minds, conjured up in a day. They are a response to the needs of the time. Their true causes are thus immeasurably complex. Nor does a wholesale public demand for legislation arise overnight. From small beginnings the pressure steadily grows, oftentimes for years; until, perhaps through a conjuncture of particularly aggravating events, matters are at last brought suddenly to a head. Yet while this culmination of industrial or social pressure may finally result in legislation under some particularly strong political leadership, to assign such personal influence as even the remote cause of legislation, is to belie all the facts and experience of history. No clearer illustration of the close relationship between economic causes and statutory results could perhaps be found, than in the field of our Federal legislation concerning common carriers. It forms one of the most important chapters in our industrial history.
Several of the economic causes of the Act to Regulate Commerce of 1887, are deep-rooted in the preceding decade. A few even run back to Civil War times. Foremost among these was the rapid expansion of the railway net; and particularly, as outlined in our introductory historical chapter, its phenomenal growth during the eighties. More new mileage was laid down in the year of the Act itself than at any other time in our entire history within a single twelvemonth. Of equal significance, however, was the far more than commensurate development of long distance, that is to say, interstate business. The through carriage of livestock and grain to the seaboard for export attained immense importance; and the settlement of the Middle West called for a corresponding westward movement of manufactured goods. The Windom Committee of 1874 on "Transportation Routes to the Seaboard"[522] bears eloquent testimony to the growing importance of this through traffic as a factor in legislative activity. According to the Cullom Committee Report twelve years later,[523] approximately three-fourths of the railway traffic of the country was already at that time interstate in character. On the trunk lines, excepting the Pennsylvania Railroad which still relied more largely on Pittsburg-Philadelphia tonnage, more nearly nine-tenths of the traffic consisted of through, as distinct from local, business. Obviously, this pointed to the assumption of authority by the Federal government, if any were to be exercised; inasmuch as the separate states, as will shortly appear, were held by the Supreme Court of the United States in 1886 to be powerless to deal with interstate commerce.
The growing disposition of Congress to assume control over interstate business had already been evinced in the passage of two Federal statutes. One in 1872 had dealt with abuses in the carriage of livestock. And another, even earlier, had sought to remove obstacles set up by local jealousy and monopoly to the through carriage of goods. Some railway charters actually prohibited railroads from making connections with other lines; or from allowing cars to leave their own rails. The Erie, for example, was thus hampered; lest the trade of southern New York be diverted to rival seaports. But the military necessity of through transport of troops, and the impediments to speedy and cheap carriage of mails and goods through delays at junction points, impelled Congress to authorize, though not as yet to compel, the formation of through routes and the issue of through bills of lading by the Act of 1866. The immediate response to this permissive legislation was the rise of the private car lines, elsewhere described, in connection with personal discrimination and also in the general historical review.[524]
No widespread demand for a general reduction of railroad rates seems to have existed in 1887. In this regard the situation is strikingly in contrast with that which prevailed during the protracted hard times succeeding the panic of 1873. Acute industrial depression during that period had aroused deep public feeling against the "extortions of soulless railway corporations." It was but natural that all the farmers in the newly settled states should actively participate in the Granger movement. The popular war cry in this agitation was lower freight rates. This demand is voiced in the President's message of 1872, calling for "more certain and cheaper transportation, of the rapidly increasing western and southern products, to the Atlantic seaboard." The proposals of the Senate to attain these objects are contained in the above-mentioned Windom Committee Report of 1874. Competition is to be stimulated by the development of waterways and new trunk lines. A bureau of commerce is proposed. The long and short haul principle in rate making is to be enforced. Stock-watering is to be prohibited; and publicity of rates to be brought about. On the whole, reduced charges are to be secured rather by means of natural competition among carriers than through legislation. But the keynote of the Windom Report of 1874 is cheaper carriage of goods,--a general reduction of rates all along the line.
Many things happened during the next twelve years to modify this demand. By 1886, according to the Cullom Committee, "the paramount evil chargeable against the operation of the transportation systems of the United States, as now conducted, is unjust discrimination between persons, places, commodities, or particular descriptions of traffic." Purely economic events had brought about this change of opinion. The rate wars of the seventies; a revival of general prosperity in 1879; and great mechanical improvements and economies in operation, had brought about the desired decline of freight rates.[525] For the time the bogey of extortionate charges was laid at rest. The Act of 1887, elaborate as it was in form, seems not to have been intended to deal with rates in any general way. It was in the main aimed at the prevention of specific abuses. "The practice of discrimination in one form or another is the principal cause of complaint." Consequently, the long succession of bills introduced in the House of Representatives year after year for more than a decade by Judge Reagan of Texas and others, made no attempt to provide administrative machinery by which to fix rates in general; but sought merely to prohibit these specific abuses by statute.[526] The proposition for a permanent commission to deal with rates in a more comprehensive way, seems, as we shall see, to have emanated from the Senate at a later time. But this more statesman-like proposition from the upper chamber was essentially different from the response in the House of Representatives to popular feeling against discriminatory practices, which slowly gathered force during more than a decade of agitation and debate.
What now were some of the specific "discriminations" which these various bills in Congress aimed to prevent? And why did the movement come to a head in 1887? The evidence is conclusive that personal favoritism as between rival shippers took first place. The indiscriminate and cut-throat competition of the carriers, particularly in connection with the trunk line rate wars, offered a golden opportunity to those in search of secret and preferential rates.[527] The chief offender, of course, was the Standard Oil Company under the direction of John D. Rockefeller. The Cassatt revelations in 1877 as to exclusive contracts with the great trunk lines for the carriage of oil, greatly stirred public opinion. Congressional attention had been directed to the subject some years before by complaints from the Pennsylvania field. But the abortive results of the investigation of 1875 demonstrated nothing beyond the shameful impudence of the chief offenders. According to the New York (Hepburn) Committee investigation in 1879, few shippers had ever seen printed tariffs. The Assistant General Freight Agent of the New York Central testified that one-half the business out of New York, and nine-tenths out of Syracuse went on special rates. At this time there was also unrest in the anthracite coal trade. Moreover, the activity of the "eveners" in the cattle business in 1875-1879[528] had laid the foundation for still other monopolies built up by means of rebates. But the constant irritant in the public eye was the Standard Oil Company.[529] The Lake Shore case, fought through every Ohio court and then on appeal up to the Supreme Court of the United States in 1886, widely advertised the discriminatory practices of the railroads. But the most spectacular disclosures of all took place in 1885-1888 in the George Rice cases in Ohio. The Cullom Committee in recommending publicity of rates as its primary remedy for the evils of the time, specifically cites "this most impudent and outrageous" proceeding.[530] In the protracted struggle in conference committee upon the provisions of the act, elimination of rebates was the only subject upon which both House and Senate conferees were in thorough accord from the start. Whatever the commercial crimes chargeable to the founder of the Standard Oil Company, he should, at least, be credited with the performance of a great public service in finally crystallising public opinion in 1887 in favor of railroad legislation for the prevention of rebating.
Distrust of monopoly has always loomed up large in the public eye. The dread of it is voiced in every public document of the time. The Windom Committee in 1874, as we have seen, looked to the stimulation of railway competition as its chief remedy against high rates. Five years later, the Hepburn Committee in New York vehemently denounced railroad monopoly as an evil to be sternly repressed. But, in the meantime, the carriers, almost prostrated by the excesses of their rate wars, were slowly learning how to coöperate for the maintenance of more stable charges. Railroad pools and traffic agreements, first essayed about 1875, were gradually elaborated; until by 1886 nearly all parts of the country were covered by them.[531] From small beginnings in 1877, the Trunk Line Association under Albert Fink was in its heyday of activity. The Southern Railway Association was restoring order out of chaos, south of the Ohio river. By 1886 all competitive traffic north and west of Chicago was pooled. This was especially true of the highly competitive business between the Missouri and Mississippi rivers. Even in remoter regions, such agreements threatened to deprive the public of the benefits of rival railroad construction. In Colorado and New Mexico public sentiment was deeply aroused over the tripartite division of territory between the carriers then in the field.[532] The helplessness of independent railroads was made evident in connection with the attempt of the (now) Colorado & Southern road to gain a foothold. Its suits in both state and Federal courts, and the attempted remedial legislation by Colorado in 1885, disclosed the great power of monopoly over the public welfare in that region. In Texas, the Gould-Huntington apportionment of the field between the two systems in 1881,[533] was doubtless perceived as to its results, even if its precise terms were secret. The Texas Traffic Association, also, organized in 1875, embraced all the lines in that vicinity. May it not well be that the final inclusion in the Act of 1887 of the prohibition of pooling, upon direct insistence of the Texas representative in Congress against the protest of the Senate, had some connection with these events? It seems clear that the marked interest of the railways in eliminating competition all over the country at this critical time, carried great weight with Congress in shaping the law.
The years since the Civil War had witnessed an ever increasing volume of speculation and fraud in railway affairs, which reached its climax in the frenzied construction period of the eighties.[534] Jay Gould, "Jim" Fisk and their successors who contributed to the "railway panic" of 1884, had done their work well in arousing public hostility to the railroads. The Hepburn Committee Report in New York is symptomatic of the state of feeling in its vehement denunciation of these practices.[535] The Windom Committee, five years earlier, had officially registered its opinion that of all the abuses of the time, "none have contributed so much to the general discontent and indignation as the increase of railway capital by stock watering and capitalization of surplus earnings. The murmurs of discontent have swollen into a storm of popular indignation. Your committee believe the evil to be of such magnitude as to justify and require for its prevention the coöperation of both Congress and the States."[536] Nor is the Cullom Committee less emphatic in 1886; although its condemnation is shifted from the trunk lines, particularly the New York Central and the Erie, to the newly constructed "unnecessary roads." "This practice (of stock watering) has unquestionably done more to create and keep alive a popular feeling of hostility against the railroads of the United States than any other one cause."[537] All were agreed that the remedy must be applied by the states, from which the companies derived their charters. But a powerful impulse toward publicity of accounts and operating details as well as of rates, to be enforced by the hand of the Federal government, was unquestionably imparted by the financial scandals of the time. It was hoped that fraudulent construction concerns, subsidiary companies for "milking" the main corporation, unnecessary paralleling of existing lines for purposes of blackmail, speculative bankruptcies and all similar practices of the period might be restrained in part by letting in the light of day upon their affairs.
Then again, there were the discriminations in rates, so vehemently denounced, against the small towns and local business, in favor of the large cities mainly interested in long distance traffic. Such jealousies and rivalries of course antedate the railroad. They are almost as old as trade. And yet the course of affairs since the panic of 1873, had lent peculiar force to them by the middle of the eighties. It had been a period of ruinous railroad competition all over the land, but especially in trunk line territory. Through rates had fallen tremendously; without any corresponding change in local charges.[538] The great western cities and the remote farmers were the immediate beneficiaries, of course. But there were the older communities of the East to be reckoned with,[539]--the farmers of New England and Middle New York and the secondary cities which had once been terminal points but were now become way stations. In the South, new towns were springing up, anxious to divide distributive trade with the older cotton concentration points. Nashville, soon to take first place in a celebrated case, was being built up by a favoring railway; and Atlanta, a purely railroad town, was in rapid growth at the expense of older rivals. The separate states had long sought to deal with this ancient evil of local discrimination in rates by means of long and short haul clauses; but to little effect. What wonder that the Cullom Committee in 1886, heads its long list of "complaints against the railroad system of the United States" by two forms of this alleged evil!
In brief, the contemporary evidence all goes to show that,--quite aside from evil intent,--the railroad business of the United States in the middle of the eighties, was in a highly disorganized state. Phenomenal economic development since the resumption of specie payments in 1879, had perhaps outstripped the capacity of managements to scientifically order their affairs. Collateral evidence as to this is the extraordinary wastefulness, of operation which prevailed. Competition had run mad. All of the tricks and vagaries of roundabout routing of freight found place.[540] To keep pace with mere operating demands was a heavy enough task,--to say nothing of constructing well-ordered tariffs, keeping straight accounts, and providing adequate funds for growth. And out of this unsettled condition of affairs there had sprung the usual mushroom crop of speculation, fraud and corruption which is bound to flourish at such times.
And then, finally, in seeking to understand the economic situation in 1887, the intolerable arrogance of great railway managers must be kept in mind. Honorable exceptions there must have been, to be sure. But the "Public be damned" attitude of the old Commodore Vanderbilt was evidently a general, although perhaps a somewhat exaggerated one. It is certain that there was no well-defined sense of responsibility to the public. All attempts at investigation or reform were treated as "interference with private business." The rising tide of popular feeling was increased by evidence of corrupt political practices, as well as of mere crude contempt for the rights of patrons. Read the congressional debates upon the Camden and Amboy monopoly in New Jersey; the special laws "jammed" through the state legislature by the New York Central Railroad;[541] and the revelations as to corruption in the Credit Mobilier and other proceedings in Congress.[542] Such things added fuel to the flames in the East, kindled and kept alive in the West by the Granger movement. The time for an attempt to curb the second great manifestation of corporate power in the United States was indeed at hand. The only question was as to the form which it should assume.
* * * * *
The congressional history of the Act of 1887 extends over a period of nearly fifteen years. The first general bill to pass the House of Representatives in 1874, had for its object a reduction of rates; but the movement for the elimination of discriminatory practices did not begin until two years later. Then in 1877, came the first of the long series of bills which finally led up to the statute in its final form, prepared by Representative Reagan of Texas. But it was not until 1884 that the Senate, ever tardy in its response to public sentiment, began to take the matter seriously. Its earlier interest in reduced rates had dissipated, ten years before, with the Windom Committee Report. Now, however, under the leadership of the Senator from Illinois, the Cullom Committee brought in a bill, the distinctive feature of which was provision for a permanent administrative commission. The various House bills, in their distrust of executive appointments and authority, had favored leaving the elimination of abuses, once clearly defined by law, to the Federal courts. A legislative deadlock between the two chambers resulted upon this point; as well as concerning the status of pooling. For the House sought to prohibit all traffic agreements; while the Senate would permit them under proper administrative supervision.
At this critical juncture the Supreme Court decision in the Wabash, St. Louis, and Pacific Railway case[543] was handed down. It specifically denied to the individual states, power to regulate the ever-increasing volume of interstate traffic. This decision put the match to the long train of influences making for action. The Senate and House bills were therefore taken up in conference committee, with the usual outcome of give and take. The Senate gained its point of administrative, rather than judicial, control. A commission was provided; but the courts were accorded power to entertain appeals. On the other hand, the House conferees insisted upon the prohibition of pooling and a more stringent long and short haul clause. All were agreed in respect to the publicity features. The series of votes at different times with steadily growing majorities, leading up finally to the passage of this compromise statute by both houses, is significant of the progress of public opinion upon the matter.
House of Representatives Senate
1874 Passed 121 to 116 -- 1877 " 139 to 104 -- 1884 " 161 to 75 43 to 12 1886 " 192 to 41 47 to 4 1887 " 219 to 41 37 to 12
The constitutionality of the Act to Regulate Commerce of 1887 need not long concern us.[544] Everything depended upon the interpretation of the clause in the Constitution conferring upon Congress power over commerce with foreign nations and among the states. A generation earlier the regulation of railroads by Federal statute might not have been sanctioned. But Lincoln and Grant had dealt a death blow to the old states' rights idea. And the positive legislation after the Civil War prior to this time, had already denoted a much more progressive and liberal point of view. The far-reaching decisions of the Supreme Court following Munn v. Illinois in 1876 had clearly upheld the power of the several states to regulate commerce. The situation called only for definition of the dividing line between state and Federal authority. This was accorded in the Wabash case, which, as has already been stated, terminated the congressional deadlock, and brought about an agreement upon the terms of the law. Nor is it without significance, in the light of subsequent events, that the Wabash case was an appeal by a common carrier to Federal authority for protection against a state statute.
A brief summary of the main provisions of the Act to Regulate Commerce, at this point, will be convenient for future reference.
Section 1. It applies to freight and passengers by land; or by land and water in cases of continuous or through shipment, even to foreign countries. All charges shall be reasonable and just; and every unjust and unreasonable charge is prohibited.
Section 2. Rebates and personal discrimination of every sort forbidden.
Section 3. Local discrimination forbidden; equal facilities for interchange of traffic with connecting lines prescribed.
Section 4. Long and short haul clause: "That it shall be unlawful for any common carrier subject to the provisions of this act, to charge or receive any greater compensation in the aggregate for the transportation of passengers or of like kind of property, under substantially similar circumstances and conditions, for a shorter than for a longer distance over the same line, in the same direction, the shorter being included within the longer distance; but this shall not be construed as authorizing any common carrier within the terms of this act to charge and receive as great compensation for a shorter as for a longer distance: Provided, however, That upon application to the Commission appointed under the provisions of this act, such common carrier may, in special cases, after investigation by the Commission, be authorized to charge less for longer than for shorter distances for the transportation of passengers or property; and the Commission may from time to time prescribe the extent to which such designated common carrier may be relieved from the operation of this section of this act."
Section 5. All pooling and traffic agreements prohibited.
Section 6. All rates and fares to be printed and posted for public inspection at all stations; and filed with the Commission at Washington. No advance in rates except after ten days notice. All charges, other than as published, forbidden.
Section 9. Procedure by complaint before the Commission or Federal courts. Power to compel testimony and production of papers.
Section 10. Penalty of $5000 for each offence in violation. (Amended in 1889, adding imprisonment.)
Section 11. Interstate Commerce Commission of five members established; by Presidential appointment; term six years.
Section 12. Powers of Commission to inquire, with right to obtain full information necessary to exercise of its authority. Power over witnesses and production of papers, to be sustained by U. S. Circuit Courts.
Sections 13-14. Procedure before Commission by complaint. Parties competent to appear. Decisions to include findings of fact upon which based, for courts on appeal.
Section 15. Duty of Commission to notify carriers to "cease and desist" from violation, or to make reparation for injury done.
Section 16. To enforce obedience, procedure by petition of Commission in Federal courts, which may issue writs.
Section 20. Annual detailed reports from carriers as to finance, operation, rates or regulations in prescribed forms as desired by the Commission.
Such is the substance of the statute which marks the real, beginning of subjection of the railroads to control by the Federal government. It was avowedly tentative in character. It was a compromise, entirely satisfactory to no one. Many of its provisions were not new. Administrative commissions had already been in existence some time in several of the states. Pooling had also commonly been condemned. The long and short haul clause in the statute constitutes no innovation. It was based specifically upon a number of state laws, more or less similar to it in tenor.[545] In Vermont, for example, since 1850; in Virginia, since 1867; and in Massachusetts, since 1874, long and short haul clauses had been in force. Some seventeen states, prior to the enactment of the Interstate Commerce Act in 1887, had conceded the wisdom of such an adjustment between local and long hauls. Nor were such statutes disregarded, as a rule. Thus, in Massachusetts they were enforced to the extreme degree of prohibiting any concession in rates at Provincetown, on the point of Cape Cod, one hundred and twenty miles from Boston by land, while only thirty-six miles in a direct line by water, below the rates at any of the intermediate points on the roundabout rail line along the Cape. The debates in Congress at the time this section of the Act was under discussion show that the bill as finally passed was a compromise between an absolutely inflexible prohibition, in the House, and a more elastic measure, providing for exceptions, in the Senate.
In one respect the law of 1887 marks a profound revolution in both commercial theory and practice. Its provisions concerning equality of rates to all classes of shippers denote a great moral uplift in the business standards of the country. Prior to this time the English common law, while requiring reasonableness of charges by common carriers, by no means insured that such charges should be stable and uniform. This flowed perhaps from the circumstance that rebating was an essentially American abuse. Neither in England, nor on the continent for that matter, had business rivals ever made such use of the services of carriers to suppress fair competition in trade. With us, on the other hand, in the early free-and-easy days, entire freedom of contract between shipper and carrier had been the rule. Published tariffs were only the starting point for "higgle" and "dicker." It was not bad form for a shipper to "go shopping" freely among the freight agents of competing lines. The location of new enterprises, new opportunities for the expansion of old ones, were all more or less conditioned by the special favors which were so readily obtainable on demand. Nor was the accompaniment of secrecy necessarily due to fear of moral condemnation by the community. Secrecy was an economic essential of the device, as has elsewhere been shown.[546] By this new statute all was suddenly changed. Rebating was made a crime, punishable as such. Is it any wonder that, almost from the outset and for nearly fifteen years, this part of the law was the storm centre of litigation; and that in respect of rebating, the need of supplementary legislation should first become apparent?
FOOTNOTES:
[521] The following references are best:--1866. Hudson, J. F. The Railways and the Republic.--1877. Seligman, E. R. A. Political Science Quarterly, II, pp. 223-264 and 369-413.--1887. Nimmo, J. Legislative history in The Railway News, currently reported.--1887. Painter, U. H. Compilation from the Congressional Record. Privately published.--1888-1889. Hadley, A. T. Quarterly Journal of Economics, II, pp. 162-187; III, pp. 170-187. In addition, the general works of Hadley, Charles Francis Adams and Haney; and the extensive list of magazine articles in the Bibliography on Railways of the Library of Congress, 1907.
[522] 43d Congress, 1st session, Senate Report No. 307, 2 pts.
[523] 49th Congress, 1st session, Senate Report No. 46, 2 pts: pt. 1, pp. 16 and 137-166.
[524] Pp. 140 and 192.
[525] In detail at pp. 22 and 411, supra.
[526] Cf. Haney, vol. II, p. 309.
[527] Cf. pp. 22, and 431, supra.
[528] Select Senate Committee on Transportation of Meat Products, 1889, p. 2, etc.
[529] Cf. the chapter from Miss Tarbell's History of the Standard Oil Company, reprinted in our Railway Problems. Hudson, pp. 55-106, well summarizes the Hepburn Committee testimony.
[530] Op. cit.; vol. I, p. 199.
[531] Pooling is discussed in detail in volume II.
[532] University of Colorado Studies, V, 1908, pp. 137-148.
[533] Bulletin, University of Texas, No. 119, 1909, p. 73.
[534] Details in chapter I and in the discussion of speculation in volume II.
[535] Hudson, op. cit., pp. 251-286, uses much of this testimony.
[536] Pp. 72 et seq.
[537] Pp. 51 et seq.
[538] Pages 22, 422, supra, and 456, infra.
[539] Cf. Hudson, op. cit., pp. 41-46.
[540] Cf. chap. VIII.
[541] Chapters of Erie reprinted in part in our Railway Problems.
[542] Cf. Haney, Congressional History of Railways, vol. II, p. 256. The Credit Mobilier is also described by reprint in our Railway Problems.
[543] 118 U. S. 557.
[544] Cf. Cullom Committee, 1, pp. 28-40; and the summary of Congressional debates by Haney, op. cit., vol. II, p. 231 et seq.
[545] 21 I.C.C. Rep., 340.
[546] Chapter XX.
Chapter XIV
1887-1905. EMASCULATION OF THE LAW
Favorable reception, 456.--First resistance from unwilling witnesses concerning rebates, 457.--Counselman and Brown cases, 458.--The Brimson case, 459.--Relation to Federal Courts unsatisfactory, 460.--Interminable delay, 461.--Original evidence rejected, 461.--The Commission's court record examined, 462.--Rate orders at first obeyed, 467.--The Social Circle case, 468.--Final breakdown in Maximum (Cincinnati) Freight Rate case, 469.--Other functions remaining, 472.--The long and short haul clause interpreted, 474.--The Louisville and Nashville case, 474.--The "independent line" decision, 476.--The Social Circle case again, 478.--"Rare and peculiar cases," 479.--The Alabama Midland (Troy) decision, 481.--Attempted rejuvenation of the long and short haul clause, 483.--The Savannah Naval Stores case, 484.--The dwindling record of complaints, 485.
The first response to the new Federal law by the railroads was entirely favorable.[547] They sought to obey its mandates both in letter and spirit. The Commission reports in 1888 that the railroads "conformed promptly" to their orders; although in the South and West they were "moving more slowly." On the other hand, the new Commission under the leadership of Judge Cooley, an able jurist trusted by all parties concerned, was equally conciliatory in spirit. Many desirable changes were brought about in railway practice. Attempts were made to remodel tariffs all over the country, particularly in the East, to conform to the long and short haul clause.[548]
The immediate effect of acquiescence in Section 4 was to compel, in many parts of the country, a reduction of the local rates in order to reduce them below the rates charged to terminal and competitive points. Thus, for example, throughout trunk line territory, they were almost uniformly adjusted to meet this requirement. Even in the southern states, where in some quarters the most persistent opposition to the law has from the first existed, there was a patent disposition shown to recognize the justice of such legislation. The Southern Railroad modified its tariff all along the line as far as Atlanta, although it claimed inability to make changes beyond that point. For nearly three years, in fact, the carriers conformed in an increasing degree to this requirement of the law.[549] A sincere effort toward uniform classification of freight, with substantial results in the direction of simplification of schedules, extended over several years. Many pools were disbanded; all were reorganized in conformity with the statute. And in the matter of uniformity and publicity of statistical returns, friendly coöperation between the railroads and the Commission, brought about great improvements in accounting practice. No considerable popular interest in the new commercial tribunal, to be sure, is indicated by the volume of its business. After five years experience, only thirty-nine formal complaints were filed in 1892. But this may have been due in part to the natural hesitancy of shippers to antagonizing the roads by coming out into the open with their grievances. Or, perhaps, it was merely because the people at large were as yet quite unfamiliar with the law and with the ease of procedure under it.
The earliest intimation of determined resistance by the carriers came in connection with prosecutions for rebating in 1890. This abuse was still widely prevalent. The Commission complained in that year of the "general disregard" of the law against personal discrimination; and set out to prosecute with vigor. But witnesses called upon to testify before grand juries as to such practices, proved recalcitrant.[550] Corporations could be made amenable to the law only through the instrumentality of persons in their employ. And guilt in such matters could be detected only by the testimony of those who had directly witnessed, or participated in, the unlawful acts themselves. As one writer has put it, "Rebate contracts are not usually negotiated before large audiences nor are rebate payments commonly made upon street corners. An essential element in these practices, quite aside from their legality, is the secrecy with which they are conducted." It soon became apparent that unless this mantle of secrecy could be stripped off in preliminary proceedings, not even indictments could be had,--to say nothing of the proof needed for subsequent conviction.
The first ground for contesting the right of the government to extort testimony from unwilling witnesses arose, oddly enough, from an amendment of the law intended to increase its effectiveness. Originally punishable only by heavy fine, on recommendation of the Commission, Congress added in 1889 an amendment whereby departure from the published rate was made punishable also by imprisonment. By this change criminal, as well as civil, procedure was thus brought into play. The amendment, moreover, extended the punishment to shippers; the railroad official who gave rebates having alone been liable hitherto. An unexpected result speedily followed. In 1890 one Counselman, a shipper, questioned concerning his enjoyment of less than the open rate upon grain, declined to answer, taking refuge under the Fifth Amendment to the Constitution of the United States. This declared that "no person ... shall be compelled in any criminal case to be a witness against himself." The witness persisted in his refusal to testify even before a district judge: and the case went on appeal through the Circuit Court which decided in favor of the Commission, up to the Supreme Court of the United States. This tribunal in 1892 held that the Revised Statutes of the United States which for twenty-five years had been held to protect the constitutional rights of witnesses when called upon to give testimony, against criminal proceedings based upon such evidence, did not in fact adequately afford such protection. Counselman was ordered discharged from the custody of the United States Marshal. It was held, furthermore, "that a statutory enactment to be valid, must afford absolute immunity for the offence to which the question relates."[551] Congress promptly passed a law to this effect in the following year. The matter did not, however, rest here. The validity of this later statute had now to be upheld. And, with discouraging defeat in 1894 in an Illinois Circuit Court, the issue had to be raised again a year later elsewhere, to be then carried on appeal a second time to the Supreme Court. This took place in the so-called Brown case.[552] The final outcome in 1896 was a complete denial of the right of witnesses to withhold material testimony. But it required six years of litigation to bring about the desired result.
During the pendency of the proceedings above described, a second line of resistance to the government developed. Not the merely negative personal right of witnesses to withhold testimony, but the positive legal authority of the Commission to exact it, was called in question. This struck at the very roots of all procedure. For it challenged the validity of the Act itself. In how far might an administrative body, independently, have power, hitherto resident alone in the courts and Congress, to compel the attendance and testimony of witnesses as well as the production of papers? Section 12 of the Act was evidently intended to confer such powers as were possessed and might be delegated by the Congress. But then there was the Constitution again to be considered! Certain witnesses declined to produce books and answer questions in 1892. One Brimson was selected for a test case. The first decision by the Circuit Court held these sections of the statute to be unconstitutional on the ground that "Congress cannot make the judicial department the mere adjunct or instrument of the other departments." But the Supreme Court of the United States in 1894 reversed this judgment; and, unreservedly, although by a bare majority opinion, affirmed the constitutionality of the procedure under the Act.[553] This Brimson opinion, together with the Brown decision two years later, were confidently believed to have so strengthened the arm of the government that rebating might at last be eliminated. But, as will shortly appear, an entirely new law was yet needed to eradicate the evil. For the moment, however, the right of Congress to legislate and of the Commission to act, had been upheld.
* * * * *
The relation of the Interstate Commerce Commission as an administrative body to the Federal courts under the provisions of the Act of 1887, proved unsatisfactory from the first. In order to understand the situation, it may be well to review the ordinary procedure. Formal complaint having been filed, the Commission heard the case and promulgated its decision in the form of an order to the carriers. If they chose to comply with it, well and good. Otherwise, the Commission must apply to a Federal court for the issuance of a judicial writ to compel obedience to the order. Thereupon the court proceeded to review the case; and upon the findings to issue an order of its own. From this order, however, appeal might be taken even up to the Supreme Court. Then, and then only, did the original mandate of the Commission have the force of law. Practically, two results followed, as shown by the experience of the succeeding years. There was intolerable delay in the redress of grievances; and, in the second place, all definitive proceedings were postponed until the case had gone on appeal to the courts. In other words the Commission instead of being a coördinate body with the courts, was reduced to an entirely subordinate position. Its function became merely to institute proceedings, and thereafter to appear as a complainant before other tribunals competent alone to decide the case. Intolerable delay in procedure was the constant complaint of shippers. Years elapsed before final judgments were rendered. The average duration of cases appealed was not less than four years. Sometimes they extended over twice that period. Often, as in the Charleston, S. C., case in 1898, several years elapsed before the Commission itself rendered a decision. Knotty cases were sidetracked.
But the main source of delay was in the carriage of cases on appeal up to the Supreme Court of the United States. They had to await their turn in regular order, being given no priority on the crowded dockets. The Social Circle and Import Rate cases, soon to be discussed, consumed five years in litigation, even after the Commission had rendered its opinion. The Florida Fruit Exchange case involving rates on oranges, originally decided by the Commission in 1891, was for six years thereafter before the Federal Courts. The Georgia Railroad Commission cases were not settled for nine years. Nor did the tedious process end here. After the judicial review, which usually covered the law points, the entire question had to be remanded to the Commission for a new order in conformity with the findings of the court. After nine years of litigation in the Chattanooga case, back it went to the Commission to be re-tried after consideration of other commercial factors. First decided in 1892, it was reopened in 1904.[554] Is it any wonder that the number of formal proceedings instituted on complaint of shippers steadily dwindled year by year? In 1901 only nineteen petitions were filed. Business of this sort was almost at a standstill.
A second unsatisfactory feature of the relations of the Commission to the courts, lay in the refusal of the latter to accept the evidence taken before the Commission in the original proceedings as final. Trouble began in 1888 on the first appeal, known as the Kentucky and Indiana Bridge case.[555] The court treated it as an original proceeding, even as to questions of fact; and proceeded to consider it de novo. This of course involved a duplication of all expenses; which, in causes sufficiently important to appeal, were very heavy. Ten volumes of typewritten testimony, each as large as the Congressional Record, were taken, for instance, in the San Bernardino case.[556] Both shipper and railroad, therefore, commonly came to regard the proceedings before the Commission as merely a necessary formality to be observed prior to the conclusive adjudication of the matter by the courts. This placed the Commission in a most awkward predicament. It was compelled by law to render a decision upon an entirely imperfect presentation of facts. And this decision was thereafter liable to be reviewed upon the basis of entirely new testimony. Thus in the leading Alabama Midland case, involving the reasonableness of rates to Troy, Alabama, as compared with adjacent towns, much depended upon the existence of effective competition with the railroads from boat lines on the rivers at other places.[557] Before the Commission the evidence adduced by the carriers dwelt upon the navigability of the Chattahoochee river as compelling lower rates at Columbus and Eufaula than at Troy, an inland town. Yet, when the case was really opened up in appeal proceedings, it appeared that this magnificent waterway was really dry about half the year; that the channel was never deeper than three feet; and that boats were at all times of the year "embarrassed by the overhanging trees." How could the Commission be expected to pass upon vital questions wisely under such circumstances? Whether wilfully done or not,--and evidence is not lacking of a deliberate policy adopted in some cases,--the inevitable effect was to bring the Commission and the law itself into discredit. So accentuated did this evil become, that in the Social Circle case the Supreme Court distinctly discountenanced the practice, declaring it to be the intention of the law that all material facts should be disclosed in the original proceedings.[558] But it was not until 1906 that the mode of procedure on appeal was by statute clearly defined. In the meantime public interest in the work of the Commission was bound to wane.
In this connection it may not be out of place to refer to the persistent use made of the record of the Commission in court proceedings under these adverse circumstances, as a plausible argument by the railroads in later years against any augmentation of its powers. One brief, for example, recites that "since 1887, forty-three suits have been instituted to enforce final orders of the Commission as to rates. The net result of the action of the courts shows two affirmances and thirty reversals." It continues later, "as over ninety per cent. of the Commission's orders as to rates which have gone before the courts have been overruled, it is impossible to foretell what havoc would follow from the exercise of such powers." This statement is entirely true, but it is not the entire truth. We may profitably consider the cases of sufficient importance to have been passed upon by the Supreme Court of the United States. Between 1887 and 1905, sixteen such decisions were rendered on cases appealed for enforcement by the Interstate Commerce Commission. Fifteen of these were decided in favor of the carriers, while only one sustained in part the contention of the Commission. At first sight, this record certainly appears to warrant the condemnation of the Commission. A body so persistently on the wrong side of great questions as this record indicates, would surely invite distrust. There were two answers to this contention, however, which merit consideration before a final judgment can be rendered. One of these was the irregularity of procedure, above described. The other was that these court cases had nearly all involved, not so much the administrative application of the law to economic abuses, as the purely judicial interpretation of the law itself.
Only by means of concrete cases decided by the Commission as an administrative body, could the scope and meaning of the original law be determined. This was a most difficult task hinging upon the utmost legal technicalities and refinements. Even the most learned judges failed to agree among themselves. Thus in eight of the sixteen cases above mentioned, the decisions in the lower Federal courts failed of agreement with the final decree of the Supreme Court. In the Cartage case,--involving the legality of a railway giving one shipper free cartage of goods to a railway station as an inducement to ship over its line, while withholding the privilege from another,--the Commission was sustained in the Circuit Court and reversed in the two higher tribunals. In other instances, like the Social Circle case,--turning upon the discrimination in freight rates against small towns in favor of large competitive centres,--the first court ruled adversely, while the Circuit Court of Appeals and the Supreme Court sustained the Commission in part. Or yet again, as in the Chattanooga case,--wherein this city complained against a higher freight rate from New York than the rival city of Nashville enjoyed, although the goods for Nashville passed through Chattanooga and were hauled one hundred and fifty-one miles further,--both lower tribunals sustained the Commission only to be finally overruled by the Supreme Court. The fact that in only eight of these most important cases the courts could agree among themselves indicates the nicety of the legal issues comprehended. All parties were in fact working much in the dark, both as to the intention of the original law and as to the possible effects of its interpretation. The charge of incompetence, if it held good for the Commission, applied equally well to a large number of the most learned judges in the Federal courts.
Another indication of the extreme delicacy of the legal issues involved, is found in the lack of unanimity even among the justices of the Supreme Court itself. In nine of the sixteen Supreme Court cases the final decision was not rendered without dissent. As the lower courts were divided among themselves, so the justices of the Supreme Court were apparently somewhat at sea. The minority, to be sure, was small, in most cases being due to the failure of Justice Harlan to concur. But in the far-reaching Import Rates case,[559] the court was more evenly divided. The issue raised, concerned the legality of lower through rates on imports from Liverpool to San Francisco via New Orleans, than were granted on domestic shipments from New Orleans to the same destination. Thus the rate on books, buttons, and hosiery, from Liverpool to San Francisco through New Orleans was $1.07 per hundred pounds. At the same time the domestic shipper was compelled to pay $2.88, or two and one-half times as much, for a haul from New Orleans to San Francisco alone. In another important instance, tin plate was carried from Liverpool by steamer and rail through Philadelphia to Chicago for twenty-four cents per hundred pounds. For the American merchant in Philadelphia the rate to the same market was twenty-six cents. For the inland haul alone the Pennsylvania Railroad was receiving sixteen cents on the foreign goods, while coincidently charging American merchants ten cents more for the same service. Discrimination against the American merchant in favor of foreign competition, not infrequently more than sufficient to overbalance any supposed protection afforded by the tariff, has been repeatedly proved in such cases as this. The duty on imported cement was eight cents per hundredweight. In one instance, this duty with the total freight rate added amounted to only eighteen cents, as against a rate of twenty cents for the domestic producer from New York to the same point. There were reasons for this grievous discrimination against the domestic shipper, mainly concerned with the vagaries of ocean freight rates. Steamers must have ballast for the return trip to equalize out-going shipments of grain and other exports, and they will carry heavy commodities, such as salt, cement, crockery, and glass, at extremely low rates. Nevertheless, such imported commodities can be sold to advantage in competition with domestic goods only when the railways will contribute equally low rates to complete the shipment.
The Interstate Commerce Commission in these Import Rate cases originally held that such discriminations were unlawful. Two appellate courts, in turn, sustained this view. Finally, however, the Supreme Court decided, with three members, including the Chief Justice, dissenting, that the Interstate Commerce Law as phrased did not expressly prohibit the practice. Everything turned upon the interpretation of certain clauses in the law. No question was ever raised as to the economic issues involved, nor was it competent to these tribunals to pass upon such issues. The question was simply and solely this: When the Act to Regulate Commerce forbade inequality or discrimination between shippers, did it contemplate competition between shipments originating within the country and others from foreign ports? Was the Interstate Commerce Commission, in other words, empowered, in interpreting this act, to consider circumstances and conditions without as well as within the boundaries of the United States? If it was entitled to consider solely domestic conditions, it was certainly right and economically sound in forbidding such practices; if, on the other hand, it was required to take account of commercial conditions the world over, irrespective of the effect upon the domestic producer and internal trade, its decision should have been favorable to the railroads. To appreciate fully the extreme nicety of the legal points involved and the delicacy of the economic interests at issue, one must needs read the extended opinions both of the majority of the Supreme Court and of the three dissenting justices, including Chief Justice Fuller. But to interpret the reversal of the original decision of the Interstate Commerce Commission by this tribunal as in the slightest degree involving incompetence or judicial unfairness is a misrepresentation of all the facts involved. As in the preceding cases touching the interpretation of the long and short haul clause, it may fairly be said that the consensus of opinion among business men, and certainly among the professional economists of the country, was on the side of the Commission in condemning such practices. As to the law, that was decided otherwise by a narrow majority.
The final breakdown of the law of 1887 came, however, not from mere defects in procedure, but from the adverse construction placed by the Supreme Court of the United States upon its fundamental clauses, viz., those concerning the exercise of rate-making power by the Commission. Whether or not it was the intention of Congress to delegate such power, seems not to have been considered for some years. At all events, within two months after the law was passed the Commission certainly interpreted the law as giving it, not only power to investigate but to prescribe remedies for what it conceived to be unreasonable charges. The right to exercise general rate-making power in first instance was distinctly disclaimed.[560] But the right to prescribe a modification of existing rates on complaint was repeatedly affirmed, without question either by the carriers or the Federal courts.[561] The first order of the commission in Evans vs. The Oregon Navigation Company directed a reduction of the rate on wheat from Walla Walla, Washington, to Portland, Ore., from thirty to twenty-three and one-half cents. It was promptly complied with. Then came the Farmington-Red Wing, Minn., wheat case, touching not absolute but relative rates between two competing places. The order that the charge to one town should not exceed that to the other by more than one-third was likewise obeyed. Even freight classification, not specifically mentioned in the Act, was supposed to be fully subject to the Commission's control.
In the Reynolds case, railroad ties and lumber were ordered to be grouped together, without contest. The activity of the Commission at this time in promoting uniform classification elsewhere discussed,[562] was evidently based upon a similar belief in its legal competency to act. For nearly a decade attention seems to have been so concentrated upon matters of judicial procedure, that this more fundamental proposition was neglected. Moreover, all this time was needed to secure a final pronouncement from the Supreme Court, which was alone competent to settle it as a matter of law.
It was not, then, until almost ten years after the institution of the Commission, in fact, that its rate-making power was denied. The first shadow of doubt seems to have been expressed in the decision of the Supreme Court in the so-called Social Circle case.[563] This involved the reasonableness of rates from Cincinnati to the town of Social Circle, Georgia, as related to the rates to Atlanta and Augusta on either side. Disregarding other phases of the case which concerned the interpretation of the long and short haul clause, the Commission had, when the case was first decided in 1891, ordered a reduction of the rate from Cincinnati to Atlanta from $1.09 to $1 per hundred pounds. This case was carried to the Supreme Court, where decision was finally rendered in 1896. Purely as an obiter dictum the court discussed briefly the interpretation of the original act in respect to rate-making power. It expressed a reasonable doubt in the premises, even going further and confessing inability to find any provision of the act "that expressly or by necessary implication confers such powers." It does not seem clear whether by this statement the court had reference to the arbitrary prescription of rates in first instance to the carriers, or merely to action of the Commission in prescribing rates after complaint, in order to redress grievances.
Several decisions of circuit courts during 1896 reënforced the judicial doubt as to the validity of the rate-making power of the Commission. Thus, for example, in the case of Coxe Brothers,[564] involving rates upon anthracite coal, which, by the way, had been pending since 1891, the Circuit Court of Appeals expressly declined to enforce an order of the Commission, stating that it "is not clothed with the power to fix rates which it undertook to exercise in this case." The court's reasoning in the Social Circle case was followed and expressly cited. During the same year, 1896, other cases, such as that of the Truck Farmers' Association, were decided in the same spirit. The final adjudication of this point, however, was reserved for the decision in the so-called Cincinnati Freight Bureau case. This had its origin in an application from the Commission to enforce an order issued in 1894 against the Cincinnati, New Orleans and Texas Pacific Railroad Company.[565] The case involved the adjustment of rates from eastern and western centres, respectively, into the southern states; and the Commission had decided that a reduction of the rates from the western cities was reasonable and necessary. This leading case, also known as the Maximum Freight Rate decision of 1897, is characterized by the Commission itself as perhaps "the most important since the enactment of the Act to Regulate Commerce." It merits consideration in some detail.
The reasoning in the Maximum Freight Rate case[566] cannot be better put than by the following excerpts from the opinion of the Supreme Court.
"It is one thing to inquire whether the rates which have been charged and collected are reasonable,--that is a judicial act; but an entirely different thing to prescribe rates which shall be charged in the future,--that is a legislative act.
* * * * *
"We have, therefore, these considerations presented: First. The power to prescribe a tariff of rates for carriage by a common carrier is a legislative, and not an administrative or judicial, function, and, having respect to the large amount of property invested in railroads, the various companies engaged therein, the thousands of miles of road, and the millions of tons of freight carried, the varying and diverse conditions attaching to such carriage, is a power of supreme delicacy and importance. Second. That Congress has transferred such a power to any administrative body is not to be presumed or implied from any doubtful and uncertain language. The words and phrases efficacious to make such a delegation of power are well understood, and have been frequently used, and, if Congress has intended to grant such a power to the Interstate Commerce Commission, it cannot be doubted that it would have used language open to no misconstruction, but clear and direct. Third. Incorporating into a statute the common-law obligation resting upon the carrier to make all its charges reasonable and just, and directing the commission to execute and enforce the provisions of the act, does not by implication carry to the commission, or invest it with the power to exercise, the legislative function of prescribing rates which shall control in the future. Fourth. Beyond the inference which irresistibly follows from the omission to grant in express terms to the commission this power of fixing rates is the clear language of section 6, recognizing the right of the carrier to establish rates, to increase or reduce them, and prescribing the conditions upon which such increase or reduction may be made, and requiring, as the only conditions of its action--First, publication; and, Second, the filing of the tariff with the commission. The grant to the commission of the power to prescribe the form of the schedules, and to direct the place and manner of publication of joint rates, thus specifying the scope and limit of its functions in this respect, strengthens the conclusion that the power to prescribe rates or fix any tariff for the future is not among the powers granted to the commission.
"These considerations convince us that under the interstate commerce act the commission has no power to prescribe the tariff of rates which shall control in the future, and therefore cannot invoke a judgment in mandamus from the courts to enforce any such tariff by it prescribed."
The immediate effect of this decision was to put an end to any enforcement of decisions relative to rates by the Commission. The carriers immediately refused to obey any orders which the Commission issued for the redress of grievances. This policy was manifested with increasing clearness during the five years subsequent to the decision. It became more and more certain that the denial of the right, not only to pass upon the reasonableness of a particular rate, but to prescribe what rate should supersede it, meant the abolition of all control whatever over the scale of charges. The entire inadequacy of making rate regulation dependent upon the mere determination of rates as applied in the past, without reference to the rates which should prevail in the future, was apparent on all sides. More than this, all remedy for the parties who had borne the burden of an unreasonable rate would seem to have been removed. This was clearly described in the report of the Commission for 1897. It was illustrated by the rates upon oranges. In 1890 there had been a sudden advance on rates from Florida to New York from thirty to forty cents. The Commission after investigation ordered that the rate be reduced to thirty-five cents. As a matter of fact, how could this action redress grievances of those who had already paid forty cents per box? It was difficult in the first place to discover who bore the burden of the unreasonable charge; and in the second place it was certain that some of those who suffered could not legally sue in court. The actual shipper who alone could sue for repayment of unreasonable charges was a middleman who recouped himself in any event, either from the grower, the consumer, or both. He lost nothing by reason of the unreasonable rate. As a matter of fact, not any single individual but the locality, had been mulcted by five cents per hundred pounds, supposing that a rate of forty cents were unreasonable. Experience showed that almost no shippers or other parties injured, actually attempted to secure the restitution of moneys already paid for unreasonable charges. In only five out of 225 cases down to 1897 was a refund actually sought; and in those cases $100 was the maximum sought to be recovered. As a matter of fact the damage inflicted by the existence of such an unreasonable rate could not be measured by hundreds or perhaps by hundreds of thousands of dollars. The bearing of this citation is to show that any effectual protection to the shipper must proceed from adjudication of the reasonableness of rates before, and not after, they have been paid; that is to say, in advance of their exaction by the carrier. Power to pass upon the reasonableness of such rates prior to their enforcement, as a consequence, constitutes practically the only safeguard which the shipping public may enjoy. It will be observed that in this discussion reference is made simply and solely to that class of cases where complaint is made against the unreasonableness of a rate per se as applied to all shippers alike, entirely distinct from the exercise of powers by the Commission in respect of unreasonable discrimination as between two or more persons or places. That other question of relative rates was to come up in another connection.
Despite this denial by the Maximum Freight Rate decision of power to prescribe future rates, in substitution for others held to be unreasonable, there were still certain things which the Commission might do in the matter of rate determination. The only question was as to whether they afforded an adequate remedy for the redress of grievances. Were they really worth while? Complaint as to a rate, once paid, might still be made. The Commission might still hold it unreasonable; and even pass upon the degree of its unreasonableness. And the complainant shipper might then institute proceedings for repayment of the excessive charges under that particular rate. But the difference between this range of powers and those which had been claimed by the Commission for ten years was simply this: That under the original interpretation of the law the Commission had not only decided whether rates were wrong; it had also prescribed a remedy by issuing an order as to what rates were right, believing that these would be enforced by the courts. Not even the power to prescribe maximum rates remained to the Commission after this interpretation. The only action open to it would be to declare one rate after another unreasonable until the carriers had been brought to terms. Its inadequacy as a practical remedy was the main factor in bringing about the passage of the new law of 1906.
It must not be assumed that the Supreme Court in the Maximum Freight Rate decision intended to render the Commission an entirely superfluous body. But its functions, as set forth in the following quotation from the opinion, proclaimed the adoption of an entirely different policy concerning public control of rates from the one hitherto pursued. Whether it was adequate for the purpose in view will appear, as has just been observed, from the subsequent course of events.
"But has the commission no functions to perform in respect to the matter of rates, no power to make any inquiry in respect thereto? Unquestionably it has, and most important duties in respect to this matter. It is charged with the general duty of inquiring as to the management of the business of railroad companies, and to keep itself informed as to the manner in which the same is conducted, and has the right to compel complete and full information as to the manner in which such carriers are transacting their business. And, with this knowledge, it is charged with the duty of seeing that there is no violation of the long and short haul clause; that there is no discrimination between individual shippers, and that nothing is done, by rebate or any other device, to give preference to one as against another; that no undue preferences are given to one place or places or individual or class of individuals, but that in all things that equality of right, which is the great purpose of the interstate commerce act, shall be secured to all shippers. It must also see that that publicity which is required by section 6 is observed by the railroad companies. Holding the railroad companies to strict compliance with all these statutory provisions, and enforcing obedience to all these provisions, tends ... to both reasonableness and equality of rate, as contemplated by the interstate commerce act."
The nadir of government regulation for the time being was reached in November, 1897,--six months after the Maximum Freight Rate decision. A second opinion from the Supreme Court of the United States in the Alabama Midland (Troy) case, with one blow practically nullified the long and short haul clause.[567] The first opinion had put an end to control over the reasonableness of rates in and of themselves. This second one denied the right to establish their reasonableness relatively as between competing places or markets. In order fully to appreciate the significance of this decision it will be necessary to review cursorily the tedious litigation which led up to this result,--the entire emasculation of the Fourth section. The final outcome may be best described by Justice Harlan in his dissenting opinion in this leading case:
"Taken in connection with other decisions defining the powers of the Interstate Commerce Commission, the present decision, it seems to me, goes far to make that commission a useless body for all practical purposes, and to defeat many of the important objects designed to be accomplished by the various enactments of Congress relating to interstate commerce. The Commission was established to protect the public against the improper practices of transportation companies engaged in commerce among the several States. It has been left, it is true, with power to make reports, and to issue protests. But it has been shorn, by judicial interpretation, of authority to do anything of an effective character."
The interpretation of the long and short haul clause[568] as applied to concrete cases by the Interstate Commerce Commission, was first enunciated in the decision known as the Louisville & Nashville case.[569] Immediately after the enactment of the law, a multitude of petitions were received from carriers all over the country praying that they be exempted from the operation of this clause, which prohibited a greater charge for a lesser haul than for one over the same line between points more distant. The policy outlined in the Louisville & Nashville case, delivered by Judge Cooley, has practically remained unchanged to the present time. This railroad company operating a line parallel to the Mississippi, as well as intersected at various points by its tributary rivers, claimed that the existence of water competition compelled a rate to all competitive points, lower than rates which could be made to local and intermediate stations. It alleged that an adjustment of its local rates to the low level necessitated at competitive points, would prove disastrous from the point of view of revenue. The point at issue was as to the interpretation of the phrase "under substantially similar circumstances and conditions"; which, in the words of the Act, was necessary in order that the prohibition of the lesser charge for the longer haul should become operative. Without entering into the details of this decision, in the course of which the nature of railroad competition and of rate making were fully discussed, as well as the legislative history of this clause of the Act, it will suffice to note the conclusions. These were; firstly, that the prohibition against a greater charge for a shorter than for a longer distance over the same line in the same direction, the shorter being included within the longer distance, was limited to cases in which the circumstances and conditions were substantially similar; secondly, that carriers might judge in the first instance as to the similarity or dissimilarity of circumstances; but, thirdly, that this judgment was not final but was subject to review by the Commission and the courts. Perhaps the most important point, however, was the determination of the conditions which constituted such dissimilar circumstances and conditions as entitled the carrier to charge less for the longer than for the shorter haul. These conditions were the existence of water competition; the existence of other railroads not subject to the statute; and "rare and peculiar" cases of competition between railroads which were subject to the law. The Commission also held as a guiding principle in the interpretation of this clause that no distinction would be recognized between local traffic and so-called through business; and also that the expense to the carrier involved would not be recognized as a factor unless it happened to come under the case already cited as "rare and peculiar." Furthermore, the desire to encourage manufactures or to build up business or trade centres, was not recognized as a competent reason for claiming exemption from the prohibition in the Act.
The leading decision of the Interstate Commerce Commission, above mentioned, was rendered in 1887. It was not until October of 1892 that the first serious interference arose through judicial interpretation in the United States Courts. The first was the so-called "separate and independent line" decision.[570] This case arose respecting a suit for the repayment of $225 as overcharges on corn shipped by one Osborne from Scranton, Iowa, to Chicago. It was claimed that the charges were unjust and unreasonable, inasmuch as they were in excess of rates charged from Blair, Nebraska, a point more remote from Chicago. The United States Circuit Court of Appeals at St. Paul reversed the decision of the lower court, holding that the lesser rate from Blair with which the Scranton rate had been compared, was not a rate to Chicago, but part of an agreed through rate to New York and other eastern points. Under this interpretation, the aggregate charge for the longer distance from Blair to New York was not less than the charge for the shorter distance from Scranton to Chicago. To this point the decision was in conformity with the previous interpretation by the courts and the Commission; which had uniformly held that a portion of a joint through rate cannot be compared with local or individual rates in the determination of what constitutes the rate for the shorter or the longer haul. This decision went further, however, and therein profoundly affected the subsequent interpretation of the law. It proceeded to define the word "line" as used in the Act, by holding that the joint line formed by two roads is wholly independent of the two lines represented by the several roads taken separately and apart. Interpreted in this way, the decision held furthermore that the total joint rate over two roads, not being over the "same line," might for anything in the fourth section of the Act, not only be as low but even lower than the local rate of either. The effect of this decision was obviously to permit a railroad to engage in traffic agreements for through carriage of freight; and by so doing, legally to become a line separate and independent from the same physical property when engaged in the transportation of freight over its own line. Moreover, by every contract for through carriage of freight with different carriers, the road became a separate and independent line in the eyes of the law. As many lines could exist over one set of rails as there were traffic agreements for through haulage of freight between its terminal points.[571]
The apprehension of the Interstate Commerce Commission that this interpretation of the word line might render the Fourth section of the Act inoperative, was realized in the following year. Several decisions not only adopted the obiter dictum of the Osborne case, above described, but proceeded to expand upon it. Thus, for example, in the Georgia Federal Court, a case arose involving rates from the North to Atlanta as compared with the higher rates to intermediate points. The court held that traffic from Cincinnati to Augusta or Atlanta was carried over a different line than that which was used for transportation to points intermediate between Atlanta and Augusta; inasmuch as the several carriers agreeing upon the joint rate as far as Atlanta from the North, were different.
Moreover it held that the road from Atlanta to Augusta being wholly within the state of Georgia, might by making a local rate from Atlanta which was added to the through rate into Atlanta, constitute itself merely a state road, and therefore be exempted from the prohibition of the Act. Thus it appeared, to quote from the report of the Commission for 1893, "that in addition to the embarrassments proposed by the original 'line' decision, the very jurisdiction of the law itself is invaded by the extension of the line theory indulged in by the Georgia Federal court."
The interpretation put upon the Fourth section of the Act by the decision above cited, remained in force and largely nullified application of the Act itself until 1896. The next important interpretation came, in the decision by the Supreme Court of the United States in the so-called "Social Circle" case.[572] This decision fully discussed the interpretation placed upon the word "line" in the Act. The rates involved were those on buggies from Cincinnati, Ohio, to Social Circle, a local station between Augusta and Atlanta, Georgia. Following the practice of the carriers for some years, the Georgia Railroad Company, which alone served the town of Social Circle, had requested its connections at Atlanta not to name through rates to that place or any other local station on its road. The Circuit Court following the line of argument already described, had held that under such circumstances the Georgia railroad was only a local carrier and not a party to a joint or common arrangement, which would make it subject to the control of the Federal Commission. The Supreme Court reversed this opinion, however; and held that when goods are shipped on a through bill of lading, they constitute an interstate carriage subject to Federal supervision and control. The court held further that this state road became part of a continuous line, not by consolidation with other companies, but by a traffic arrangement for continuous carriage or shipment. The Supreme Court interpreted the original Osborne decision as merely affirming that a railroad company doing business in one state could not be compelled to enter into any agreement with connecting carriers. For by so doing, it continued, the carrier might be deprived of its rights and powers to make rates on its own road. Viewed in this way a carrier might agree to form a continuous line for carrying foreign freight at a through rate without being prevented from charging ordinary local rates for state traffic. Stripped of legal verbiage, this interpretation by the Supreme Court, virtually overruled the previous decisions by lower courts, and rehabilitated the original interpretation of the word "line" by the Commission; namely, that when a continuous line for through traffic is formed by several railroads, the roads constituting that line and making use of it are merely parts of one through route and are not separate lines. In short, not being able to constitute themselves as separate lines by reason of traffic contracts, they must continue to conform their through charges to the rates which they have made upon local business. So far as the enforcement of the Fourth section was concerned, therefore, developments to this point had upheld the law as originally passed.[573] It remained, however, for a separate and distinct course of judicial interpretation to once more jeopardize both the practical operation of the law and the power of the Commission.
Reverting to the original Louisville & Nashville decision in 1887, it will appear that the Commission held at that time that competition between carriers subject to the Act, did not constitute such dissimilarity of circumstances and conditions as would justify the carriers in making their long distance rates lower than the rates between intermediate points. The only exception recognized at that time was to be found in certain "rare and peculiar" cases.[574] One of these will suffice as an illustration. There are two routes by which traffic from Youngstown, Ohio, may reach the East. One is by way of Pittsburg and the Pennsylvania Railroad; the other by an outlet to the north, at Ashtabula upon the Lake Shore and New York Central trunk lines. Between Youngstown, Ohio, and Pittsburg, two parallel lines exist, each having an interest in forwarding freight to the East by the two routes above mentioned. The peculiarity of the situation is that competitive traffic for the East may leave Pittsburg in either direction. If it goes around by Youngstown, that place becomes an intermediate point between Pittsburg and New York. If, on the other hand, it goes from Pittsburg directly east, Youngstown becomes not an intermediate point, but one more remote than Pittsburg from New York. Inasmuch as the Pennsylvania route from Pittsburg is the shorter, it makes the rate.[575] The other roundabout route is obliged to accede to this compelled rate or lose the business. The result is that the smaller indirect road is obliged to give a lower rate from Pittsburg round by way of Youngstown to New York than it gives to Youngstown itself. Any other course of action would deprive it of any participation in Pittsburg business. Such, then, is one of those "rare and peculiar" cases under which the Commission from the first recognized the necessity of exempting carriers, even where all are subject to the Act, from the prohibition of charging less for a shorter than for a longer haul over the same line.
The carriers from the outset had made a determined effort to show that the competition of carriers among themselves was sufficient to produce that dissimilarity of circumstances and conditions which would justify exemption from the Act. This contention the Commission refused to recognize, and did so particularly in the important decisions of 1892 known as the Georgia Railroad Commission cases.[576] These again, like the Maximum Freight Rate case, involved rates from Cincinnati to various points throughout the South; and had reference particularly to the prevalent practice of granting low rates to certain important centres known as basing points. In this decision the Commission re-affirmed the principles set forth in the Louisville & Nashville case, except in one detail; namely, as to whether the carriers were justified in deciding for themselves in first instance whether a case of railroad competition was of that type already defined as "rare and peculiar" which would permit exemption from the long and short haul prohibition. Experience of five years had shown that the right of decision in this respect had led to manifold abuses; inasmuch as a strong disposition on the part of the carriers all over the country was shown to interpret all cases of railroad competition, however simple, as "rare and peculiar." The Commission, therefore, proceeded to overrule its earlier decision; and denied the right on the part of carriers to determine for themselves as to what constituted dissimilarity of circumstances and conditions, affirming that that right was its own.
All of the foregoing judicial interpretation is secondary in importance to the final decision of the United States Supreme Court in 1897 in what is known as the Alabama Midland case.[577] This once and for all overruled the interpretation placed upon the law by the Commission, that railroad competition did not constitute that dissimilarity of circumstances and conditions which would entitle a carrier to exemption from the prohibitions of the statute. This case, like almost all the others involving the interpretation of the Fourth section, arose upon complaint of a small town in the southern states that more important trade centres were securing advantages in the matter of rates which were denied to it. The Board of Trade of Troy, Alabama, complained that it was compelled to pay $3.22 a ton on phosphate rock from Florida and South Carolina points, whereas the rate to Montgomery, a longer distance, was only $3.00 per ton. The rock was carried through Troy. It was also complained that rates on cotton discriminated against Troy as compared with Montgomery and other points; and that, thirdly, rates from Baltimore and New York were higher to Troy than to Montgomery, which was fifty-two miles further away. The case was carried on appeal to the Supreme Court of the United States, where an opinion was handed down in 1896. The gist of this decision was that competition, whether of trade centres or of railroads, must be recognized as a factor in the determination of the similarity of circumstances and conditions under which the Fourth section of the clause should be applied. In other words, it recited that Montgomery being a larger place than Troy; and having been an important trade centre on a navigable river for many years, it was competent to the railroads centering at Montgomery to determine in part for themselves whether the existence of effective competition would warrant them in granting lower rates to Montgomery than to local stations like Troy. The court held, however, that such competition was only one of the elements which must be considered. It did not define it as the dominating one. The railroads, nevertheless, seized upon this interpretation of the law at once, making use of it to justify whatever departure they pleased to make from the practice originally contemplated in adjusting long and short haul charges.
After the discouraging reverse in the Alabama Midland decision, which the Commission interpreted to mean that if circumstances and conditions were different at the more distant point, that fact, of itself, removed the case from the inhibition of the Fourth section; certain inferior Federal court opinions somewhat modified this view.[578] The question as to whether the discrimination at bar was or was not justifiable, was permitted to be considered; in addition to inquiring merely whether circumstances and conditions were different at the more distant point. The Commission somewhat reanimated by these decisions, sought to apply this judicial modification of the Alabama Midland reasoning to several then pending complaints as to local discrimination. Both in the Danville[579] and Hampton cases[580] the carriers were ordered to desist from discriminating against the nearer point under this interpretation of the law. But the Supreme Court put an end to it all by condemning this line of reasoning in its last leading decision upon the Fourth section rendered in 1901, finally disposing of the so-called Chattanooga case. This dealt the final death blow to the long and short clause.[581] The complaint in this case arose from the fact that freight rates to Chattanooga, Tennessee, from eastern cities were higher than to Nashville, although the latter was the more distant point. The Commission found that there was no water competition at Nashville compelling the lower rate; but that there was competition of railways and of markets. The Supreme Court reversed the Commission in its final attempt thus to revivify the moribund Fourth section, and fully confirmed its original view as to the meaning of the Alabama Midland decision. If such circumstances and conditions as competition of markets or railways at the two points were dissimilar, carriers might without restraint depart from the long and short haul rule. Thus the Fourth section of the law was to all intents and purposes repealed. Complaint after complaint was perforce set aside by the Commission. For practical purposes this part of the law was rendered absolutely nugatory. The chapter was closed. For twenty years, in face of the litigation above outlined, no order of the Commission respecting local discrimination was enforced. Only with its amendment in 1910, as subsequently described,[582] did the long and short haul clause once more resume its due importance upon the statute books.
One special case may be cited in this general connection, as typical of the arbitrary action of carriers particularly in the South. It was this sort of thing which went far to arouse public opinion and focus attention upon the need for real regulation.[583] The situation appears upon the accompanying map. The planters in a certain southern territory served by the Louisville & Nashville railway had been accustomed to ship out their cotton to the North by various routes. It might go by way of New Orleans, via Pensacola, up the main line along the Mississippi valley, or be hauled eastward to Savannah and other Atlantic ports, and thence go by vessel to New England. Inasmuch as the through rate was the same by all routes, no monetary issue to the planter was involved. But not so to the railway. For by the first routes it secured a long haul; while by the last it not only was limited to short carriage of the goods, but was compelled to accept an even smaller fraction of the joint through rate. In this case the Louisville & Nashville railway--which, by the way, more persistently denied the existence of abuses than any other road in the country--advanced the Savannah cotton rate arbitrarily in 1899 from $2.75 to $3.30 a bale. This effectually dammed up the eastern outlet and jeopardized the interests of the port of Savannah to that degree. Doubtless the Louisville & Nashville was not oblivious to the welfare of that great seaport. It could not afford to be, for Savannah's growth must indirectly accrue to its benefit. It did not love Savannah less; but it loved its own particular seaport, Pensacola, or the long haul via Louisville, more. Maybe it was better that traffic should go out this way--who knew best? The real point to be made is that no competent tribunal or process for impartially determining the question was provided by the now emasculated law.
The work of the Commission during these discouraging years was naturally affected most profoundly by these limitations placed upon its activity by the Federal courts. The number of formal complaints, never large, steadily dwindled year by year. Thirty-nine were filed in 1892; but in 1900 and the following year only nineteen were presented annually.[584] The Commission persisted in its statistical work with marked success. Important independent investigations continued to be made, in pursuance of the only policy remaining open to it, that of publicity. But even the informal complaints, representing mainly the grievances of individual shippers rather than of competing cities or commercial bodies, were few in number, as the following official figures show.
===================================================================== | 1898 | 1899 | 1900 | Total ----------------------------------------+------+------+------+------- Informal complaints: | | | | Settled by payment of amount claimed | 18 | 5 | 9 | 32 Settled by change of rates | 10 | 7 | 12 | 29 Settled in other ways | 32 | 30 | 22 | 84 Pending | 16 | 20 | 31 | 67 Suggesting formal complaints | 29 | 14 | 20 | 63 +------+------+------+------- | 105 | 76 | 94 | 275 =====================================================================
But better times were coming. The return of commercial prosperity brought with it new problems. Old abuses, quiescent during the long industrial depression of 1893-1897, once more made their appearance. New constructive legislation followed, based as before upon the economic needs of the time, as they made themselves manifest; but a great campaign of education, led by the vigorous personality of Theodore Roosevelt, was necessary, as we shall see, to compel Congress to act.
FOOTNOTES:
[547] Cf. Simon Sterne, Railways in the United States, 1912.
[548] Cf. Appendix C, Int. Com. Com. Annual Report, 1890.
[549] Cf. Brief of Counsel for Int. Com. Com. in the Danville case, p. 88.
[550] Cf. account in Yale Review, 1907, pp. 119-155.
[551] 142 U. S., 547.
[552] Brown v. Walker, 161 U. S., 591.
[553] 154 U. S., 447.
[554] The history of these cases up to 1900 will be found in 56th Congress, 1st session, Senate Document 319. Five years later they were more fully treated in Hearings before the Senate (Elkins) Committee on Interstate Commerce, 1905, vol. V, Appendix F, part 2, pp. 709-780.
[555] 37 Federal Reporter, 567.
[556] 149 U. S., 264.
[557] Cf. pp. 390, supra, and 481, infra; reprinted in full in our Railway Problems.
[558] 162 U. S., 184.
[559] 162 U. S., 197. Late data as to the extent of the practice are in App. V, Digest, Hearings (Senate) Committee on Interstate Commerce, 1905, pp. 1-29. Cf. also p. 406, supra.
[560] Delaware and Hudson Canal case; 1 I.C.C. Rep., 152.
[561] Hearings before Committee on Interstate Commerce, U. S. Senate, Feb. 15, 1900 and May 18, 1905, vol. IV, pp. 2866 and 2880.
[562] Chapter IX, supra.
[563] 162 U. S., 184: 4 I.C.C. Rep., 744.
[564] 32 Federal Reporter, 1002.
[565] Chapter VII, supra.
[566] 4 Int. Com. Rep., 592: 167 U. S., 479. Both the original opinion and final decision with a map are in our Railway Problems. Cf. also, p. 248, supra. The case revived in 1910 is in 18 I.C.C. Rep., 440. Vide p. 588, infra.
[567] The Congressional history of Section 4, is in Haney, op. cit., p. 304; especially good in Brief for Appellees, by Ed. Baxter in the Alabama Midland Case, U. S. Sup. Court, Oct. term, 1896, No. 563, p. 98. All the leading English cases are reprinted (Gov. Printing Office) in "Extracts from the Parliamentary Papers relating to the Long and Short Haul Clause," 1895, pp. 1-83; with an "Analysis of American Cases" (National Publishing Co., Washington), 1895, pp. 1-39; both issued in connection with the C., N. O. and T. P. case, U. S. Sup. Court, Nos. 729 and 832. The complicated legal history is best detailed step by step in Annual Reports of the Commission; references are in Judson on Interstate Commerce. App. F, part II (Elkins), Senate Committee Hearings, 1905, pp. 65-130, gives a garbled outline, convenient for citations. 21 I. C. C. Rep., p. 405, summarizes well. Several of the leading cases are reprinted in our Railway Problems, as indicated by footnotes hereafter.
[568] For a few pages, I follow closely the line of my report on the subject for the U. S. Industrial Commission in 1900.
[569] 1 I. C. C. Rep. 31; First Annual Report, Int. Com. Com.; also Digest (Elkins) Committee, 1905. To be distinguished from the Supreme Court decision affirming the validity of the Kentucky long and short haul clause, 183 U. S., 503.
[570] 52 Federal Reporter, 912; Ann. Rep., I.C.C., 1892, p. 31.
[571] The significance of this decision is fully discussed in the Sixth and Seventh Reports of the Interstate Commerce Commission, which early in 1887 had already defined the word "line" in the Central Vermont case, as meaning the physical line, and not mere traffic agreements or routing arrangements.
[572] 4 I.C.C. Rep., 744; 162 U. S., 184. Vide, also, p. 468, supra.
[573] Amendment of the law in 1910, precluded any further misunderstanding, also, by adding the word "route." P. 565, infra.
[574] Discussed, as an economic proposition in chap. VII, supra. Baxter's Brief in the Troy case, p. 117, proves it not peculiar.
[575] Which line makes the rate? Cf. p. 255, supra.
[576] 5 I.C.C. Rep., 324. Decided by the Supreme Court in 1901; 181 U. S., 29; after the Alabama Midland decision.
[577] 6 I.C.C. Rep., 3; overruled by the Supreme Court in 168 U. S., 144. Both reprinted in our Railway Problems. Decisions of secondary importance down to 1905 are abbreviated in App. F, Senate Elkins Committee Hearings, 1905.
[578] 21 I.C.C. Rep., 407. Elkins Committee Digest. Judson on Interstate Commerce, etc.
[579] Reprinted in our Railway Problems. Sustained by the lower courts in 1903; 122 Fed. Rep., 800.
[580] 8 I.C.C. Rep., 503; 120 Fed. Rep., 934.
[581] Facts are given in chap. VII, p. 228, supra; and in full in our Railway Problems. The law is in 181 U. S., 1. The only later decisions, not changing the law, are in 190 U. S., 273.
[582] Pp. 564 and 601, infra.
[583] Known as the Savannah Naval Stores case. 8 Int. Com. Rep., 376. It is reprinted in full in our Railway Problems.
[584] Cf. the chart at p. 523, infra.